<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 23, 1997
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
CLAIMSNET.COM INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7374 75-2649230
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or Industrial Classification Identification No.)
organization) Code Number)
</TABLE>
------------------------
CLAIMSNET.COM INC.
12801 North Central Expressway
Dallas, Texas 75243
(Address of principal place of business)
BO W. LYCKE
President and Chairman of the Board of Directors
Claimsnet.com inc.
12801 North Central Expressway
Dallas, Texas 75243
(972) 458-1701
(Name, address, and telephone number of principal executive offices and agent
for service)
COPIES TO:
<TABLE>
<S> <C>
ROBERT STEVEN BROWN, ESQ. PAUL JACOBS, ESQ.
STEPHEN H. GRAY, ESQ. LAWRENCE A. SPECTOR, ESQ.
Brock Fensterstock Silverstein Fulbright & Jaworski LLP
McAuliffe & Wade LLC 666 Fifth Avenue
One Citicorp Center New York, New York 10103
153 East 53rd Street (212)318-3000 / (212)752-5958(Telecopy)
New York, New York 10022
(212) 371-2000 / (212) 371-5500 (Telecopy)
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS
PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
IF ANY OF THE SECURITIES BEING REGISTERED ON THIS FORM ARE TO BE OFFERED ON
A DELAYED OR CONTINUOUS BASIS PURSUANT TO RULE 415 UNDER THE SECURITIES ACT OF
1933, CHECK THE FOLLOWING BOX. /X/
IF THIS FORM IS FILED TO REGISTER ADDITIONAL SECURITIES PURSUANT TO RULE
462(B) UNDER THE SECURITIES ACT, PLEASE CHECK THE FOLLOWING BOX AND LIST THE
SECURITIES ACT REGISTRATION STATEMENT NUMBER OF THE EARLIER EFFECTIVE
REGISTRATION STATEMENT FOR THE SAME OFFERING. / /
IF THIS FORM IS A POST-EFFECTIVE AMENDMENT FILED PURSUANT TO RULE 462(C)
UNDER THE SECURITIES ACT, CHECK THE FOLLOWING BOX AND LIST THE SECURITIES ACT
REGISTRATION STATEMENT NUMBER OF THE EARLIER EFFECTIVE REGISTRATION STATEMENT
FOR THE SAME OFFERING. / /
IF DELIVERY OF THE PROSPECTUS IS EXPECTED TO BE MADE PURSUANT TO RULE 434,
PLEASE CHECK THE FOLLOWING BOX. /X/
------------------------
CALCULATION OF REGISTRATION FEE
See attached page.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
TITLE OF EACH CLASS OF PROPOSED MAXIMUM PROPOSED MAXIMUM
SECURITIES TO BE AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
REGISTERED REGISTERED UNIT (1) PRICE (1) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, par value
$.001 per share........ 3,105,000 Shares (2) $11.00 $34,155,000.00 $10,350.00
Representative's
Warrants............... 270,000 Warrants (3) 0.001 270.00 0.82
Common Stock, par value,
$.001 per share,
issuable upon exercise
of the Redeemable
Warrants............... 270,000 Shares (4) 13.20 3,564,000.00 1,080.00
TOTAL................ -- -- $37,719,270.00 $11,430.82
</TABLE>
(1) Estimated solely for purposes of calculation of the registration fee in
accordance with Rule 457 under the Securities Act of 1933, as amended.
(2) Includes 405,000 shares of the Common Stock, par value $.001 per share, of
the Company, which the Underwriters have the option to purchase solely to
cover over-allotments, if any.
(3) To be acquired by the Representative.
(4) Issuable upon exercise of the Representative's Warrants.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED SEPTEMBER 23, 1997
PROSPECTUS
2,700,000 SHARES
[LOGO]
[CLAIMSNET.COM INC.]
COMMON STOCK
------------------
Claimsnet.com inc., a Delaware corporation (the "Company") hereby offers
2,700,000 shares (the "Shares") of Common Stock, par value $.001 per share (the
"Common Stock"). It is currently contemplated that the initial public offering
price of the Common Stock will be $10.00 per Share. See "Underwriting" for the
factors to be considered in the determination of the initial public offering
price of the Shares.
Prior to this offering, there has been no public market for the Shares, and
there can be no assurance that an active market will develop upon completion of
this offering. Application has been made for listing the Shares for quotation on
the Nasdaq National Market under the symbol "CLAI," subject to notice of
issuance.
SEE "RISK FACTORS" LOCATED ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING DISCOUNTS
PRICE TO PUBLIC AND COMMISSIONS(1) PROCEEDS TO COMPANY(2)
<S> <C> <C> <C>
Per Share.............................. $ $ $
Total(3)............................... $ $ $
</TABLE>
(1) Does not include additional consideration to be received by Hampshire
Securities Corporation, the representative (the "Representative") of the
several underwriters (the "Underwriters"), in the form of (a) a 3%
non-accountable expense allowance and (b) warrants to purchase up to an
aggregate of 270,000 shares of Common Stock (the "Representative's
Warrants"). The Company has agreed to indemnify the Underwriters against
certain liabilities, including liabilities under the Securities Act of 1933,
as amended (the "Securities Act"). See "Underwriting."
(2) Before deducting estimated expenses of the offering payable by the Company
of $ , including the Representative's non-accountable expense
allowance, assuming no exercise of the Underwriters' over-allotment option.
(3) The Company has granted the Underwriters a 45-day option to purchase up to
an additional 405,000 shares of Common Stock, on the same conditions as set
forth herein, solely to cover over-allotments, if any. If the Underwriters
exercise such option in full, the total Price to Public, Underwriting
Discounts and Commissions, and Proceeds to Company will be $ ,
$ , and $ , respectively. See "Underwriting."
------------------------------
The Shares are being offered by the several Underwriters, subject to prior
sale, when, as, and if delivered to, and accepted by them, and subject to their
right to reject orders in whole or in part and to certain other conditions. It
is expected that delivery of certificates will be made against payment therefor
at the offices of Hampshire Securities Corporation on or about ,
1997.
------------------------
HAMPSHIRE SECURITIES CORPORATION
----------------
THE DATE OF THIS PROSPECTUS IS , 1997
2
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING PURCHASES OF THE COMMON STOCK TO STABILIZE ITS MARKET PRICE, PURCHASES
OF THE COMMON STOCK TO COVER SOME OR ALL OF A SHORT POSITION THEREIN MAINTAINED
BY THE UNDERWRITERS, AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF
THESE ACTIVITIES, SEE "UNDERWRITING."
The Company intends to furnish to its stockholders annual reports, which
will include financial statements audited by independent accountants, and such
other periodic reports as it may determine to furnish or as may be required by
law, including Sections 13(a) and 15(d) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act").
3
<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 AND NOTES THERETO APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS
OTHERWISE INDICATED HEREIN, THE INFORMATION IN THIS PROSPECTUS DOES NOT GIVE
EFFECT TO (I) THE REPRESENTATIVE'S WARRANTS OR THE EXERCISE THEREOF; (II) THE
UNDERWRITERS' OVER-ALLOTMENT OPTION OR THE EXERCISE THEREOF; AND (III) UP TO
600,000 SHARES OF COMMON STOCK RESERVED FOR ISSUANCE UPON THE EXERCISE OF
OPTIONS WHICH MAY BE GRANTED PURSUANT TO THE COMPANY'S 1997 STOCK OPTION PLAN
(THE "PLAN"), NONE OF WHICH HAVE BEEN GRANTED TO DATE. EXCEPT AS OTHERWISE
INDICATED, THE INFORMATION HEREIN REFLECTS (I) A 2.325578-FOR-ONE STOCK SPLIT OF
THE OUTSTANDING SHARES OF COMMON STOCK EFFECTED ON MAY 15, 1997, AND A
1.95-FOR-ONE REVERSE STOCK SPLIT OF THE OUTSTANDING SHARES OF COMMON STOCK TO BE
EFFECTED PRIOR TO THE DATE OF THIS PROSPECTUS, (II) AN INCREASE OF THE
AUTHORIZED SHARES OF COMMON STOCK TO 40,000,000 SHARES AND THE AUTHORIZED SHARES
OF PREFERRED STOCK TO 4,000,000 SHARES TO BE EFFECTED PRIOR TO THE DATE OF THIS
PROSPECTUS, AND (III) THE REINCORPORATION OF THE COMPANY UNDER THE LAWS OF THE
STATE OF DELAWARE PRIOR TO THE DATE OF THIS PROSPECTUS. AS USED HEREIN, THE TERM
"YEAR" OR "FISCAL YEAR" REFERS TO THE COMPANY'S FISCAL YEAR ENDING DECEMBER 31.
THIS PROSPECTUS CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS THAT INVOLVE CERTAIN
RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY
FROM THOSE ANTICIPATED IN SUCH FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN
FACTORS, INCLUDING THOSE SET FORTH IN "RISK FACTORS."
THE COMPANY
Claimsnet.com inc. (the "Company") is an electronic commerce company engaged
in healthcare transaction processing for the medical and dental industries by
means of the Internet. The Company's proprietary software, which was developed
over the last five years and resides entirely on the Company's servers, allows
healthcare providers to prepare and enter healthcare claims interactively on the
Internet and electronically transmits the claims to the Company for processing.
It also allows the Company to download claims from the healthcare providers'
computers directly to the Company's servers. The software provides real-time
editing of the claims data for compliance with payor format and converts the
claims to satisfy specific payor processing requirements. The Company then
electronically transmits processed claims on behalf of such healthcare
providers, directly or indirectly, to medical and dental payors that accept
claims processing transmissions electronically. In addition, the Company's
software provides for secure encryption of all claims data transmitted. The
payors to which claims processed by the Company have been submitted, primarily
through clearinghouses, include plans and affiliates of Aetna Life & Casualty
Company, Inc., MetLife Healthcare/Metropolitan Healthcare Corporation, Cigna
Healthcare, Inc., The Prudential Insurance Company of America, and United
Healthcare Corporation.
The Company believes that (i) the ability of healthcare providers utilizing
the Company's Web site to interactively prepare claims on the Internet and
receive real time edits prior to claim submission, (ii) the ease and
availability of Company-provided training over the Internet, and (iii) the
minimal software and processing power required for providers to utilize the
Company's proprietary software are significant advantages of the Company's
electronic claims transmission services over other currently available services.
The Company believes that the improved claims processing procedure will result
in a sharply reduced average number of outstanding accounts receivable days,
thereby improving the provider's working capital. The Company believes that the
services offered by its competitors are generally based on legacy mainframe
technology, proprietary networks, and proprietary file formats, which limit the
ability of those competitors to offer interactive Internet-based processing
services on an economical basis. In addition, competitors' services generally
require extensive formal training, the installation of substantial software on
each healthcare provider's computer, and significant processing power.
The healthcare claims processing market, including dental claims, was
estimated by Health Data Management ("HDM"), an industry publication, to be over
3.7 billion healthcare claim and HMO encounter form (the HMO equivalent of a
claim) submissions in 1996. HDM has estimated that electronically submitted
claims volume increased by 12% in 1996 over 1995 levels, that physicians
3
<PAGE>
submitted approximately 35% of their claims electronically in 1996, as compared
to 27% in 1995, and that the rate of growth in dental electronic claim
submissions increased from 8% in 1995 to 10% in 1996.
The Company seeks to generate revenue by charging commercial payors, or
clearinghouses acting for the commercial payors, a transaction fee for claims
submitted electronically and by charging healthcare providers a subscription fee
for the use of the Company's services. The Company has, however, determined to
waive all provider subscription fees through at least June 30, 1998 as part of
its marketing strategy to attract healthcare providers to use its services.
There can be no assurance that the Company will be able to collect subscription
fees from healthcare providers after June 30, 1998 or, if collected, what the
amount of such fees would be.
The Company's business strategy is: (i) to aggressively market electronic
claims processing services to outpatient healthcare providers, including
clinics, hospitals, physicians, dentists, and other outpatient service
providers; (ii) to gain access to healthcare providers and to foster familiarity
and dependence upon the Company's services by waiving its monthly electronic
claims processing services subscription fee through at least June 30, 1998 while
collecting a processing fee from commercial medical and dental payors for
delivering claims electronically; (iii) to expand the services offered by the
Company to include additional transaction processing functions, such as
eligibility, HMO encounter forms, and practice management functions in order to
diversify sources of revenue; (iv) to acquire and integrate electronic claims
processing companies that enable the Company to accelerate its entry into the
inpatient hospital claims market; and (v) to license its claims processing
technology for other applications, including stand-alone purposes, Internet
systems, private label use, and original equipment manufacturers ("OEMs").
The Company was incorporated under the laws of the State of Texas on April
8, 1996 under the name American Net Claims, Inc. The Company was reincorporated
under the laws of the State of Delaware on , 1997 under the name
Claimsnet.com inc. The Company's principal office is located at 12801 North
Central Expressway, Suite 1515, Dallas, Texas 75243, and its telephone number is
(972) 458-1701. On July 31, 1996, the Company acquired all of the Internet
software, licenses, intellectual property rights, and technology developed by an
affiliated company, American Medical Finance, Inc. ("AMF"). See "Use of
Proceeds" and "Certain Transactions." On June 2, 1997, the Company acquired 100%
of the capital stock of (the "Medica Acquisition") Medica Systems, Inc.
("Medica"), a software development firm from which the Company had licensed a
portion of the Company's healthcare transaction processing software. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." The Company operated in the development stage through March 31,
1997 and thereafter commenced processing claims for healthcare providers. The
Company maintains its Web page at http://claimsnet.com and has registered the
Internet domain of Claimsnet.com.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Shares of Common Stock Offered by the
Company.................................... 2,700,000 shares
Shares of Common Stock Outstanding
Immediately Prior to this Offering......... 4,000,000 shares
Shares of Common Stock Outstanding
Immediately Following Offering............. 6,700,000 shares
Use of Proceeds.............................. To repay indebtedness, including indebtedness
to affiliates; to increase marketing and
research and development; to acquire
additional capital equipment; and for general
corporate and working capital purposes. See
"Use of Proceeds."
Risk Factors................................. An investment in the securities offered
hereby involves a high degree of risk and
immediate and substantial dilution and should
not be made by investors who cannot afford
the loss of their entire investment. See
"Risk Factors" and "Dilution."
Proposed Nasdaq National Market Trading
Symbol..................................... "CLAI"
</TABLE>
5
<PAGE>
SUMMARY FINANCIAL INFORMATION
STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
PERIOD FROM
APRIL 8, 1996
(INCEPTION)
THROUGH SIX MONTHS ENDED
DECEMBER 31, 1996 JUNE 30, 1997
----------------- -----------------
<S> <C> <C>
Revenues.................................................................... $ 0 $ 341,530
----------------- -----------------
Total operating expenses.................................................... 147,918 883,950
----------------- -----------------
Interest expense--affiliate................................................. 158,123 215,471
----------------- -----------------
Interest income............................................................. 0 (12,460)
Net loss.................................................................... (306,041) (745,431)
----------------- -----------------
----------------- -----------------
Loss per weighted average common share outstanding.......................... $ (0.10) $ (0.19)
----------------- -----------------
----------------- -----------------
Weighted average common shares outstanding.................................. 3,041,089 3,825,333
----------------- -----------------
----------------- -----------------
</TABLE>
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 JUNE 30, 1997
----------------- ----------------------------
<S> <C> <C> <C>
PRO FORMA
ACTUAL ACTUAL AS ADJUSTED(1)
----------------- ------------ --------------
Current assets................................................... $ 15,659 $ 2,052,369 $ 22,196,851
Total assets..................................................... 978,332 4,567,960 24,712,442
Working capital (deficiency)..................................... (142,464) 1,396,737 21,891,770
Stockholders' equity (deficit)................................... (3,430,041) (962,639) 24,407,361
</TABLE>
- ------------------------
(1) Adjusted to reflect (a) the estimated net proceeds of approximately
$23,630,000 from the sale of the Shares at an assumed initial public
offering price of $10.00 per Share and the initial application of such net
proceeds as described under "Use of Proceeds" and (b) the recapitalization
of the AMF Note in the original principal amount of $3,740,000 to convert
$1,740,000 principal amount thereof into equity. See "Management's
Discussion and Analysis of Financial Condition and Results of Operation."
6
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY IS HIGHLY SPECULATIVE,
INVOLVES A HIGH DEGREE OF RISK, AND SHOULD BE MADE ONLY BY INVESTORS WHO CAN
AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT. PROSPECTIVE INVESTORS, PRIOR TO
MAKING AN INVESTMENT DECISION, SHOULD CAREFULLY CONSIDER, TOGETHER WITH THE
OTHER MATTERS REFERRED TO HEREIN, INCLUDING THE FINANCIAL STATEMENTS AND NOTES
THERETO, THE FOLLOWING RISK FACTORS. PROSPECTIVE INVESTORS SHOULD BE IN A
POSITION TO RISK THE LOSS OF THEIR ENTIRE INVESTMENT. THIS PROSPECTUS CONTAINS
FORWARD-LOOKING INFORMATION WHICH INVOLVES RISKS AND UNCERTAINTIES. THE
COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED BY SUCH
FORWARD-LOOKING INFORMATION AS A RESULT OF VARIOUS FACTORS, INCLUDING THOSE SET
FORTH IN THE FOLLOWING RISK FACTORS AND ELSEWHERE IN THIS PROSPECTUS.
LIMITED OPERATING HISTORY; ANTICIPATED LOSSES
The Company, organized on April 8, 1996, was a development stage company
through March 31, 1997, and consequently has a very limited operating history
upon which prospective investors may base an evaluation of the Company and
determine its prospects for achieving its intended business objectives. The
Company is subject to all of the risks inherent to the establishment of any new
business venture. The likelihood of the future success of the Company is highly
speculative and must be considered in light of its limited operating history, as
well as the limited resources, problems, expenses, risks, and complications
frequently encountered by similarly situated companies in the early stages of
development, particularly companies in new and rapidly evolving markets, such as
electronic commerce. To address these risks, the Company must, among other
things, maintain and increase its customer base, implement and successfully
execute its business and marketing strategy, continue to develop and upgrade its
technology and transaction-processing systems, continually update and improve
its Web site, provide superior customer service, respond to competitive
developments, and attract, retain, and motivate qualified personnel. There can
be no assurance that the Company will be successful in addressing such risks,
and the failure to do so could have a material adverse effect on the Company's
business, prospects, financial condition, and results of operations.
As of December 31, 1996 and June 30, 1997, the Company had working capital
(deficiency) of approximately $(142,464) and $1,396,737, respectively, and
stockholders' deficit of approximately $(3,430,041) and $(962,639),
respectively. See "Business" and the Financial Statements and the Notes thereto.
The Company generated revenues of $341,530 through June 30, 1997, on a pro forma
basis, giving effect to the Medica Acquisition, and has incurred net losses
since inception and expects to continue to operate at a loss for the foreseeable
future. For the period from April 8, 1996 (inception) through December 31, 1996,
and the six months ended June 30, 1997, the Company incurred net losses of
$(306,041) and $(745,431), respectively. There can be no assurance that the
Company will ever achieve profitability.
POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
The Company expects to experience significant fluctuations in its future
quarterly operating results due to a variety of factors, many of which are
outside the Company's control. Factors that may adversely affect the Company's
quarterly operating results include: (i) the Company's ability to retain
existing customers, attract new customers at a steady rate, and maintain
customer satisfaction; (ii) the announcement or introduction of new sites,
services, and products by the Company and its competitors; (iii) price
competition or higher prices in the industry; (iv) the level of use of the
Internet and online services and the rate of market acceptance of the Internet
and other online services for the purchase of "business to business" services,
such as those offered by the Company; (v) the Company's ability to upgrade and
develop its systems and infrastructure in a timely and effective manner; (vi)
the level of traffic on the Company's Web site; (vii) technical difficulties,
system downtime, or Internet brownouts; (viii) the amount and timing of
operating costs and capital expenditures relating to expansion of the Company's
business, operations, and infrastructure; (ix) government regulation; and (x)
general economic conditions and
7
<PAGE>
economic conditions specific to the Internet, electronic commerce, and the
medical claims processing industry.
Due to the foregoing factors, in one or more future quarters, the Company's
operating results may fall below the expectations of securities analysts and
investors. In such event, the trading price of the Common Stock would likely be
materially adversely affected.
UNTESTED MARKETING STRATEGY; WAIVER OF SUBSCRIPTION FEES
To date, the Company has engaged in limited marketing efforts. Achieving
market penetration will require significant efforts by the Company to create
awareness of, and demand for, the Company's products and services. The Company
intends to upgrade its marketing efforts to include advertising on the Internet
and an expanded sales staff. The Company seeks to generate revenue by charging
commercial payors, or clearinghouses acting on behalf of commercial payors, a
transaction fee for each claim submitted and healthcare providers a monthly
subscription fee for the use of the Company's services. The Company has,
however, determined to waive all provider subscription fees through at least
June 30, 1998. All of these marketing efforts have been largely untested in the
marketplace and there can be no assurance that such efforts will result in sales
of the Company's products and services. Further, there can be no assurance that
the Company will be able to build a provider customer base or be able to collect
subscription fees from healthcare providers after June 30, 1998 or, if
collected, what the amount of such fees would be. The failure of the Company to
develop its marketing capabilities, succesfully market its products or services,
or recover the cost of its services would have a material adverse effect on the
Company's business, prospects, financial condition, and results of operations.
See "Use of Proceeds," "Business--Customers," and "Business--Business Strategy."
ADDITIONAL FINANCING REQUIREMENTS
Based on the Company's operating plan, the Company believes that the net
proceeds of this offering, together with anticipated revenues from operations,
will be sufficient to satisfy its capital requirements for at least the next 18
months. This belief is based on certain assumptions, which may be incorrect.
Accordingly, there can be no assurance that the Company's financial resources
will be sufficient to satisfy the Company's capital requirements for such
period. If the Company's financial resources are insufficient and, in any case,
after such 18-month period, the Company will require additional financing in
order to meet its plans for expansion. Additional financing may take the form of
the issuance of common or preferred equity securities or debt securities, or may
involve bank financings. There can be no assurance that the Company will be able
to obtain the necessary additional capital on a timely basis or on acceptable
terms, if at all. In any of such events, the Company may be unable to implement
its current plans for expansion or to repay its debt obligations as they become
due. In the event that any such financing should take the form of equity
securities, the holders of the Common Stock may experience additional dilution.
See "Use of Proceeds," "Dilution," and "Business--Business Strategy."
RISK ASSOCIATED WITH GROWTH; NEW MANAGEMENT TEAM AND LIMITED SENIOR MANAGEMENT
RESOURCES; DEPENDENCE UPON KEY PERSONNEL
From April 8, 1996 (inception) to December 31, 1996, and from January 1,
1997 to June 30, 1997, the Company expanded from one to 11 employees and from 11
to 16 employees, respectively. The majority of the Company's senior management
joined the Company after January 1, 1997, and some officers have no prior senior
management experience at public companies. The Company's new employees include a
number of key managerial, technical, financial, marketing, and operations
personnel who have not yet been fully integrated into the Company and the
Company expects to add additional key personnel in the near future. Expansion of
the Company's business is expected to place a significant strain on its limited
managerial, operational, and financial resources. The Company will be required
to expand its operational and financial systems significantly and to expand,
train, and manage its work force in order to manage the expansion of its
operations. Failure to fully integrate such new employees into the Company's
operations
8
<PAGE>
could have a material adverse effect on the Company's business, prospects,
financial condition, and results of operations. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business--
Employees."
The Company is currently dependent upon the efforts and abilities of its
senior executives. The loss or unavailability of the services of any such
individuals for any significant period of time could have a material adverse
effect on the Company's business, prospects, financial condition, and results of
operations. The Company has obtained, owns, and is the sole beneficiary of,
key-person life insurance in the amount of $1,000,000 on the life of Bo W.
Lycke, the Chairman of the Board of Directors, President, and Chief Executive
Officer of the Company. There can be no assurance that such insurance, if
needed, will continue to be available on reasonable terms, or at all, to the
Company. Mr. Lycke and Messrs. Ward L. Bensen and Robert H. Brown Jr., Directors
of the Company, serve as the Chairman of the Board of Directors, a Director and
Senior Vice President and a Director, respectively, of AMF. Such individuals
will devote minimal time to winding up the business and affairs of AMF for
approximately three months following this offering. See "Certain Transactions."
In addition, while Mr. Lycke has entered into an employment agreement with the
Company, such agreement is terminable by Mr. Lycke on 30 days notice.
The ability of the Company to attract and retain highly skilled personnel is
critical to the operations and expansion of the Company. The Company faces
competition for such personnel from other technology companies and more
established organizations, many of which have significantly larger operations
and greater financial, marketing, human, and other resources than the Company.
There can be no assurance that the Company will be successful in attracting and
retaining qualified personnel on a timely basis, on competitive terms, or at
all. In the event that the Company is not successful in attracting and retaining
such personnel, the Company's business, prospects, financial condition, and
results of operations will be materially adversely affected. See
"Business--Business Strategy."
INTERNET SECURITY RISKS
A significant barrier to electronic commerce and communications is the
secure transmission of confidential information over public networks. The
Company relies on encryption and authentication technology licensed from third
parties to provide the security and authentication necessary to effect secure
Internet transmission of confidential information, such as medical information.
There can be no assurance that advances in computer capabilities, new
discoveries in the field of cryptography, or other events or developments will
not result in a compromise or breach of the algorithms used by the Company to
protect customer transaction data. A party who is able to circumvent the
Company's security measures could misappropriate proprietary information or
cause interruptions in the Company's operations. If any such compromise of the
Company's security or misappropriation of proprietary information were to occur,
it could have a material adverse effect on the Company's business, prospects,
financial condition, and results of operations. The Company may be required to
expend significant capital and other resources to protect against such security
breaches or to alleviate problems caused by security breaches. Concerns over the
security of the Internet and other online transactions and the privacy of users
may also inhibit the growth of the Internet and other online services generally,
and the Web in particular, especially as a means of conducting commercial
transactions. To the extent that activities of the Company or third-party
contractors involve the storage and transmission of proprietary information,
such as diagnostic and treatment data, security breaches could damage the
Company's reputation and expose the Company to a risk of loss or litigation and
possible liability. There can be no assurance that the Company's security
measures will prevent security breaches or that failure to prevent such security
breaches will not have a material adverse effect on the Company's business,
prospects, financial condition, and results of operations. See
"Business--Healthcare Transaction Processing Software and Security."
RISK OF CAPACITY CONSTRAINTS
A key element of the Company's strategy is to generate a high volume of
traffic on, and use of, its Web site. The Company's revenues depend on the
number of clients who submit claims on its Web site and the
9
<PAGE>
volume of claims they process. Accordingly, the satisfactory performance,
reliability, and availability of the Company's Web site, claims-processing
systems, and network infrastructure are critical to the Company's reputation and
its ability to attract and retain customers and maintain adequate customer
service levels. Any system interruptions that result in the unavailability of
the Company's Web site or reduced claims processing performance would reduce the
volume of claims processed and the attractiveness of the Company's service
offerings. While the Company has not experienced any system interruptions, it
believes that such interruptions may occur from time to time. Any substantial
increase in the volume of traffic on the Company's Web site or the number of
claims submitted by customers will require the Company to expand and upgrade
further its technology, claims-processing systems, and network infrastructure.
There can be no assurance that the Company will be able to accurately project
the rate or timing of increases, if any, in the use of its Web site or timely
expand and upgrade its systems and infrastructure to accommodate such increases.
The Company's inability to add additional software and hardware or to develop
and upgrade its existing technology, claims-processing systems, or network
infrastructure to accommodate increased traffic on its Web site or increased
claims submission volume through its claims-processing systems may cause
unanticipated system disruptions, slower response times, degradation in levels
of customer service, impaired quality, and speed of claims processing, and
delays in reporting accurate financial information. In addition, although the
Company takes safeguards, including data encryption and firewalls, to prevent
unauthorized access to Company data, it is impossible to completely eliminate
this risk. There can be no assurance that the Company will be able in a timely
manner to effectively upgrade and expand its claims-processing system or to
integrate smoothly any newly developed or purchased modules with its existing
systems. Any inability to do so could have a material adverse effect on the
Company's business, prospects, financial condition, and results of operations.
See "Business--Business Strategy."
RELIANCE ON INTERNALLY DEVELOPED SYSTEMS
The Company uses an internally developed system for its Web site and for a
portion of its claims processing software. The Web site was developed using
industry standard tools and stores information in databases that will be
integrated with the remainder of the Company's accounting and financial systems.
To date, development efforts for the Company's claims-processing system have
focused primarily on support for rapid growth of claim submission volume and
customer service, and less on traditional accounting, control, and reporting
aspects of system development. As a result, the Company's current management
information system, which produces frequent operational reports, is inefficient
with respect to traditional accounting-oriented reporting and requires a
significant amount of manual effort to prepare information for financial and
accounting reporting. The Company intends to upgrade and expand its
claims-processing systems and to integrate newly developed and/or purchased
modules with its existing systems in order to improve its accounting, control,
and reporting methods and support increased transaction volume.
RISK OF SYSTEM FAILURE; DEPENDENCE UPON SINGLE SITE
The Company's ability to successfully receive and process claims and provide
high-quality customer service, largely depends on the efficient and
uninterrupted operation of its computer and communications hardware systems. The
Company's proprietary software resides solely on its servers, all of which, as
well as all of its communications hardware, are located on the second floor of a
monitored co-location server facility in Dallas, Texas. The Company's systems
and operations are in a secured facility utilizing hospital-grade electrical
power, redundant telecommunications connections to the Internet backbone,
uninterruptible power supplies, and generator back-up power facilities. Further,
the Company maintains redundant systems at a separate facility for backup and
disaster recovery. Notwithstanding the foregoing, the Company remains vulnerable
to damage or interruption from fire, flood, power loss, telecommunications
failure, break-ins, earthquake, and similar events. In addition, the Company
does not, and may not in the future, carry sufficient business interruption
insurance to compensate it for losses that may occur. Despite the implementation
of network security measures by the Company, its servers are vulnerable to
computer viruses, physical or electronic break-ins, and similar disruptions,
which could lead to interruptions, delays,
10
<PAGE>
loss of data, or the inability to accept and process customer claims. The
occurrence of any of the foregoing risks could have a material adverse effect on
the Company's business, prospects, financial condition, and results of
operations. See "Business--Facilities" and "Business--Healthcare Transaction
Processing Software and Security."
DEPENDENCE ON CONTINUED GROWTH OF ELECTRONIC COMMERCE
The Company's future revenues and any future profits are substantially
dependent upon the widespread acceptance and use of the Internet and other
online services as an effective medium of commerce by submitters of medical
claims. Rapid growth in the use of, and interest in, the Internet, the Web, and
online services is a recent phenomenon, and there can be no assurance that
acceptance will be achieved on a lasting basis and use will continue to develop
or that a sufficiently broad base of customers will adopt, and continue to use,
the Internet and other online services as a medium of commerce. Demand and
market acceptance for recently introduced services and products over the
Internet are subject to a high level of uncertainty, and there exist few
services and products which have generated profits. For the Company to be
successful, the healthcare community must accept and utilize novel and
cost-efficient ways of conducting business and exchanging information.
In addition, the Internet and other online services may not be accepted as a
viable commercial marketplace for a number of reasons, including potentially
inadequate development of the necessary network infrastructure or delayed
development of enabling technologies and performance improvements. To the extent
that the Internet and other online "business to business" services continue to
experience significant growth in the number of users, their frequency of use or
an increase in their bandwidth requirements, there can be no assurance that the
infrastructure for the Internet and online services will be able to support the
demands placed upon them. In addition, the Internet or other online services
could lose their viability due to delays in the development or adoption of new
standards and protocols required to handle increased levels of Internet
activity, or due to increased governmental regulation. Changes in, or
insufficient availability of, telecommunications services to support the
Internet or other online services also could result in slower response times and
adversely affect usage of the Internet and other online services generally and
the Company in particular. If use of the Internet and other online services does
not continue to grow or grows more slowly than expected, if the infrastructure
for the Internet and other online services does not effectively support growth
that may occur, or if the Internet and other online services do not become a
viable commercial marketplace, the Company's business, prospects, financial
condition, and results of operations would be materially adversely affected.
PROPRIETARY RIGHTS; ABSENCE OF PATENT PROTECTION
The Company's ability to compete effectively will depend on its ability to
maintain the proprietary nature of its services and technologies, including its
proprietary software and the proprietary software of third parties with which
the Company has entered into software licensing agreements. The Company holds no
patents and relies on a combination of trade secrets and copyright laws,
nondisclosure, and other contractual agreements and technical measures to
protect its rights in its technological know-how and proprietary services. The
Company depends upon confidentiality agreements executed by officers, directors,
employees, consultants, and subcontractors of the Company to maintain the
proprietary nature of the Company's technology. These measures may not afford
the Company sufficient or complete protection, and there can be no assurance
that others will not independently develop know-how and services similar to
those of the Company, otherwise avoid the confidentiality agreements of the
Company, or produce patents and copyrights that would materially and adversely
affect the Company's business. The Company believes that its services do not
infringe upon the patents or copyrights of any third parties; however, there can
be no assurance that the Company's know-how and technology will not be found to
infringe upon the rights of third parties. Others may assert infringement claims
against the Company, and if the Company should be found to infringe upon the
patents or copyrights, or otherwise impermissibly utilize the intellectual
property, of others, the Company's ability to utilize the technology referred to
herein could be materially
11
<PAGE>
restricted or prohibited. If such an event occurs, the Company may be required
to obtain licenses from such third parties, enter into royalty agreements or
alternatively redesign its products so as not to utilize such intellectual
property, each of which may prove to be uneconomical or otherwise impossible.
There can be no assurance that any licenses or royalty agreements required under
any such proprietary rights could be obtained on terms acceptable to the Company
or the third party, or at all. Such claims could result in litigation, which
could materially adversely affect the Company's business, prospects, financial
condition, and results of operations. See "Business--Intellectual Property."
RAPID TECHNOLOGICAL CHANGE
The Internet and the electronic commerce industry are characterized by rapid
technological change, changes in user and customer requirements and preferences,
frequent new product and service introductions embodying new technologies, and
the emergence of new industry standards and practices that could render the
Company's existing Web site and proprietary technology and systems obsolete. The
Company's success will depend, in part, on its ability to enhance and improve
the responsiveness and functionality of its online claims processing services,
to license leading technologies useful in its business, enhance its existing
services, develop new services and technology that address the increasingly
sophisticated and varied needs of its prospective or current customers, and
respond to technological advances and emerging industry standards and practices
on a cost-effective and timely basis. The development of Web site and other
proprietary technology entails significant technical and business risks. There
can be no assurance that the Company will successfully adapt to such demands.
The failure of the Company to respond in a timely manner in response to changing
market conditions or customer requirements would have a material adverse effect
on the Company's business, prospects, financial condition, and results of
operations. See "Business--Business Strategy."
AFFILIATED TRANSACTIONS; DEPENDENCE ON AMF FOR CERTAIN SERVICES
The Company's core technologies were initially developed by AMF. Since
inception, the Company has engaged in transactions with AMF, an affiliate of the
Company, including the acquisition of all of the Internet software, licenses,
intellectual property rights, and technology developed by AMF and an agreement
(the "Service Agreement") in which AMF provides staff and office support
services to the Company and for which the Company is billed monthly. While the
Company believes that such transactions are on terms no less favorable to the
Company than could be obtained from unaffiliated third parties, there can be no
assurance thereof. For a short period, but no longer than three months,
following the consummation of this offering, the Service Agreement will remain
in effect and the Company will be dependent upon AMF for the provision of the
services pursuant to such agreement. See "Certain Transactions."
COMPETITION
The medical claims processing industry is highly competitive. The Company
competes with, and expects to continue to compete with, numerous national,
regional, and local companies, many of which have significantly larger
operations, greater financial, marketing, human, and other resources than the
Company. Major companies in the healthcare claims processing industry include:
Envoy/NEIC, Inc., HBO & Company; National Data Corporation; and QuadraMed
Corporation. The Company anticipates that competition will arise in the
processing of claims on the Internet. There can be no assurance that the Company
will successfully compete in any market in which it conducts or may conduct
operations. Certain segments of the medical and dental claims processing
industry are not currently suited to the use of inpatient electronic claims
processing. Among such segments are psychiatry and surgery, each of which
requires substantial documentation in addition to the claim to be submitted. In
these market segments, the Company believes that it is not currently able to
compete with existing potential competitors and, accordingly, the Company has
designed its business plan to address other market segments. See
"Business--Electronic Claims Processing Market" and "Business--Competition."
12
<PAGE>
GOVERNMENT REGULATION
The Company is not currently subject to direct regulation by any government
agency other than laws or regulations applicable to electronic commerce, but the
Company processes information which, by law, must remain confidential. Due to
the increasing popularity and use of the Internet and other online services, it
is possible that laws and regulations may be adopted with respect to the
Internet or other online services covering issues such as user privacy, pricing,
content, copyrights, distribution, and characteristics and quality of products
and services. Furthermore, the growth and development of the market for
electronic commerce may prompt calls for more stringent consumer protection laws
that may impose additional burdens on those companies conducting business
online. The adoption of any additional laws or regulations may decrease the
growth of the Internet or other online services, which could, in turn, decrease
the demand for the Company's services and increase the Company's cost of doing
business, or otherwise have an adverse effect on the Company's business,
prospects, financial condition, and results of operations. Moreover, the
applicability to the Internet and other online services of existing laws in
various jurisdictions governing issues such as property ownership and personal
privacy is uncertain and may take time to resolve. Any such new legislation or
regulation, the application of laws and regulations from jurisdictions whose
laws do not currently apply to the Company's business, or the application of
existing laws and regulations to the Internet and other online services could
have a material adverse effect on the Company's business, prospects, financial
condition, and results of operations.
ABSENCE OF PUBLIC MARKET; DETERMINATION OF OFFERING PRICE; VOLATILITY; NASDAQ
MAINTENANCE REQUIREMENTS
Prior to this offering, there has been no public market for the Shares, and
there can be no assurance that any active trading market therefor will develop
or, if any such market develops, that it will be sustained. Accordingly, unless
and until a public market develops, purchasers of the Shares may experience
difficulty selling or otherwise disposing of such securities.
The initial public offering price of the Shares was arbitrarily determined
by negotiations between the Company and the Representative, and do not
necessarily bear any relationship to the Company's assets, book value, results
of operations, or any other generally accepted criteria of value. See
"Underwriting." From time to time after this offering, there may be significant
volatility in the market price of the Common Stock. Quarterly operating results
of the Company or other developments affecting the Company, such as
announcements by the Company or its competitors regarding acquisitions or
dispositions, new procedures or technology, changes in general conditions in the
economy, and general market conditions could cause the market price of the
Common Stock to fluctuate substantially. The equity markets have, on occasion,
experienced significant price and volume fluctuations that have affected the
market prices for many companies' securities and have often been unrelated to
the operating performance of these companies.
Although the Company has applied to include the Shares on the Nasdaq
National Market ("Nasdaq") under the symbol "CLAI," there can be no assurance
that the Shares will be quoted on Nasdaq. Nasdaq has recently adopted new
maintenance criteria which, if implemented, would require, among other things,
the Company either (i) to maintain net tangible assets of at least $4 million or
(ii) to maintain a market capitalization of at least $50 million. The failure to
satisfy these criteria in the future may result in the delisting of the Shares
from Nasdaq.
REPRESENTATIVE'S POTENTIAL INFLUENCE ON THE MARKET
A significant number of the Shares offered hereby may be sold to customers
of the Representative. Such customers may engage in transactions for the sale or
purchase of the Shares through or with the Representative. Although it has no
obligation to do so, the Representative intends to make a market in the Shares
and may otherwise effect transactions therein. If it participates in such
market, the Representative may influence the market, if one develops, for the
Shares. Such market-making activity may be discontinued at any time. Moreover,
if the Representative sells the shares of Common Stock issuable upon exercise of
the Representative's Warrants, it may be required under the Exchange Act to
temporarily suspend its
13
<PAGE>
market-making activities. The price and liquidity of the Shares may be
significantly affected by the degree, if any, of the Representative's
participation in such market. See "Underwriting."
NO DIVIDENDS
The Company has not paid any cash dividends on the Common Stock and does not
intend to do so in the foreseeable future, but rather intends to retain future
earnings, if any, for reinvestment in the development and expansion of its
business. In addition, any credit agreements which the Company may enter into
with institutional lenders may contain restrictions on the payment of dividends
by the Company. Any future determination to pay cash dividends will be at the
discretion of the Board of Directors and will be dependent upon the Company's
financial condition, results of operations, capital requirements, and such other
factors as the Board of Directors deems relevant. See "Dividend Policy" and
"Description of Securities--Common Stock."
IMMEDIATE AND SUBSTANTIAL DILUTION
Purchasers of the Common Stock offered hereby will experience immediate and
substantial dilution of $6.72 per share, assuming an initial public offering
price of $10.00 per Share, or approximately 67.2%, in the net tangible book
value of the shares of Common Stock purchased thereby. Additional dilution to
future net tangible book value per share may occur upon exercise of outstanding
stock options and warrants (including the Representative's Warrants) and may
occur, in addition, if the Company issues additional equity securities in the
future. See "Dilution."
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
The sale, or availability for sale, of a substantial number of shares of
Common Stock in the public market subsequent to this offering, pursuant to Rule
144 under the Securities Act ("Rule 144") or otherwise, could materially
adversely affect the market price of the Common Stock and could impair the
Company's ability to raise additional capital through the sale of its equity
securities or debt financing. The availability of Rule 144 to the holders of
restricted securities of the Company would be conditioned on, among other
factors, the availability of certain public information concerning the Company.
All of the 4,000,000 shares of Common Stock currently outstanding are
"restricted securities" as that term is defined in Rule 144 and may, under
certain circumstances, be sold without registration under the Securities Act. In
addition, any shares issuable upon exercise of options granted under the Plan
could be sold publicly commencing 90 days after the Company becomes a reporting
company under the Exchange Act, pursuant to Rule 701 under the Securities Act.
However, officers, directors, and stockholders of the Company will execute
agreements ("Lock-Up Agreements") pursuant to which they have agreed not to,
directly or indirectly, issue, offer, agree to sell, sell, grant an option for
the purchase or sale of, transfer, pledge, assign, hypothecate, distribute, or
otherwise dispose of, or encumber any shares of Common Stock or options, rights,
warrants, or other securities convertible into, or exercisable or exchangeable
for, or evidencing any right to purchase or subscribe for, shares of Common
Stock, whether or not beneficially owned by such person, or any beneficial
interest therein for a period of 18 months from the date of this Prospectus. See
"Underwriting."
For a period of 18 months from the date of this Prospectus, the Company has
agreed that it will not sell or otherwise dispose of any securities of the
Company without the prior written consent of the Representative, which consent
shall not be unreasonably withheld. Notwithstanding the foregoing, during such
period, the Company shall be entitled to issue (i) shares of Common Stock in
connection with mergers and acquisitions, (ii) up to 600,000 shares of Common
Stock issuable upon exercise of options which may be granted under the Plan,
(iii) shares of Common Stock issuable, directly or indirectly, upon the exercise
of the Representative's Warrants (the "Warrant Shares").
The holders of the Representative's Warrants will have certain demand
registration rights with respect to such Warrants and the Warrant Shares
commencing one year after the date hereof. If the Representative should exercise
its registration rights to effect a distribution of the Representative's
Warrants or the
14
<PAGE>
Warrant Shares, the Representative, prior to and during such distribution, may
be unable to make a market in the Company's securities. If the Representative
ceases making a market in the Common Stock, the market and market prices for the
Common Stock may be materially adversely affected, and holders thereof may be
unable to sell or otherwise dispose thereof. See "Underwriting."
The Company has agreed to register the 745,380 shares of Common Stock issued
in the Bridge Financing for resale commencing 18 months from the date of this
Prospectus. In addition, pursuant to the terms of the Medica Acquisition, the
Company granted "piggy-back" registration rights with respect to the 153,847
shares of Common Stock issued in connection therewith. See "Shares Eligible for
Future Sale."
CONTROL BY EXISTING MANAGEMENT
Upon the completion of this offering, the current directors and executive
officers of the Company will, in the aggregate, beneficially own approximately
2,795,962, or 41.7%, of the outstanding shares of Common Stock, or approximately
39.4% of such outstanding shares of Common Stock if the Underwriters'
over-allotment option is exercised in full. As a result, the current officers
and directors of the Company will have the ability to control the outcome of
substantially all matters on which stockholders are entitled to vote, including
the ability to elect a majority of the Company's directors and approve
significant corporate transactions.
PREFERRED STOCK; POSSIBLE ANTI-TAKEOVER EFFECTS
The Company's Certificate of Incorporation, as amended, authorizes the Board
of Directors to issue up to 4,000,000 shares of preferred stock, which may be
issued in one or more series, the terms of which may be determined at the time
of issuance by the Board of Directors, without further action by stockholders,
and may include voting rights (including the right to vote as a series on
particular matters), preferences as to dividends and liquidation, conversion and
redemption rights, and sinking fund provisions. No shares of preferred stock are
currently outstanding, and the Company has no present plans for the issuance of
any preferred stock. However, the issuance of any such preferred stock could
materially adversely affect the rights of holders of shares of Common Stock and,
therefore, could reduce the value of the Common Stock. In addition, specific
rights granted to future holders of preferred stock could be used to restrict
the Company's ability to merge with, or sell its assets to, a third party. The
ability of the Board of Directorsto issue preferred stock could discourage,
delay, or prevent a takeover of the Company, thereby preserving control of the
Company by the current stockholders. See "Description of Securities--Preferred
Stock."
BROAD DISCRETION IN APPLICATION OF PROCEEDS; BENEFITS TO INSIDERS
Approximately $20,130,000 million, or 85.2%, of the estimated net proceeds
of this offering has been allocated for general corporate and working capital
purposes. Accordingly, the Company's management will have broad discretion as to
the application thereof, and investors will not know in advance how such net
proceeds will be utilized by the Company. See "Use of Proceeds."
Approximately $3,150,000, or 13.1%, of the estimated net proceeds of this
offering has been allocated to the repayment of (i) a promissory note (the "AMF
Note") in the principal amount of $2,000,000 payable to AMF incurred in
connection with the acquisition on July 31, 1996 by the Company of the Internet
software, licenses, intellectual property rights, and technology developed by
AMF, (ii) all amounts outstanding pursuant to a credit line of up to $950,000
granted by AMF to the Company ($909,967 at June 30, 1997), and (iii) all accrued
interest thereon (approximately $225,000 at June 30, 1997). Accordingly, AMF
will directly benefit from the sale of the Shares offered hereby. See "Use of
Proceeds," "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources," "Management--Directors
and Executive Officers," "Principal Stockholders," and "Certain Transactions."
15
<PAGE>
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the Shares
offered hereby are estimated to be approximately $23,630,000, assuming an
initial public offering price of $10.00 per Share.
The principal purposes of this offering are to repay indebtedness, including
indebtedness to affiliates, to obtain additional capital to be utilized by the
Company to increase its level of operations through increased marketing,
research, and development relating to, among other things, the Company's
proprietary claims processing software, and the acquisition of additional
capital equipment, including computers, servers, communication hardware and
software, and networking equipment, to create a public market for the Common
Stock, to facilitate future access by the Company to public equity markets, and
to provide increased visibility and credibility in a marketplace where many of
the Company's current and potential competitors are or will be publicly held
companies.
The indebtedness to affiliates to be repaid in full from the estimated net
proceeds of this offering is anticipated to be in the amount of approximately
$3,150,000, consisting of (i) the repayment of the AMF Note in the principal
amount of $2,000,000 payable to AMF in connection with the acquisition on July
31, 1996 by the Company of the Internet software, licenses, intellectual
property rights, and technology developed by AMF, (ii) the repayment in full of
amounts outstanding pursuant to a credit line of up to $950,000 granted by AMF
to the Company, pursuant to which $909,967 was outstanding at June 30, 1997, and
(iii) the repayment of all the interest accrued thereon, which was approximately
$225,000 at June 30, 1997.
The Company anticipates utilizing approximately $350,000 of the estimated
net proceeds of this offering to satisfy the purchase price related to the
Medica Acquisition. The initial payment, representing $125,000 of principal
amount, matures 60 days following the closing of this offering, and the other of
such payments, representing $225,000 of principal amount, matures on the first
anniversary of the closing of this offering.
Proceeds of this offering may also be used, if the Company so elects, to
acquire companies or products that compliment its business or operations. In the
ordinary course of its business, the Company from time to time evaluates
technologies for acquisition or license that, if acquired, could be used in the
development of product and software candidates. The Company has no agreement or
arrangement with respect to any such acquisition or license.
The net proceeds, if any, from the exercise of the Underwriters'
over-allotment option will be utilized for general corporate and working capital
purposes.
The foregoing represents the Company's best estimate of its allocation of
the net proceeds of the sale of the Shares based upon the Company's contemplated
operations, the Company's business plan, and current economic and industry
conditions and is subject to reapportionment of proceeds among the categories
listed above or to new categories in response to, among other things, changes in
the Company's plans, regulations, industry conditions, and future revenues and
expenditures. The amount and timing of expenditures will vary depending on a
number of factors, including changes in the Company's contemplated operations or
business plan and changes in economic and industry conditions.
Based on its operating plan, the Company believes that the net proceeds of
this offering, together with revenues from continuing operations, will be
sufficient to satisfy its capital requirements and finance its plans for
expansion for at least the next 18 months. Such belief is based upon certain
assumptions, which may be incorrect. Accordingly, there can be no assurance that
such resources will satisfy the Company's capital requirements for said period.
The Company may require additional financing in order to expand its operations.
Such financing may take the form of the issuance of common or preferred stock or
debt securities, and/or may involve bank or other lender financing. There can be
no assurance that the Company will be able to obtain needed additional capital
on a timely basis, on favorable terms, or at all.
Pending their use, the net proceeds of this offering will be invested in
short-term, interest bearing, investment grade securities.
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DILUTION
As of June 30, 1997, the net tangible book value of the Company, as adjusted
to give effect to the recapitalization, on September 19, 1997, of the AMF Note
in the original principal amount of $3,740,000 to convert $1,740,000 thereof
into equity, was $(1,675,658), or approximately $(.42) per share of Common Stock
based on 4,000,000 shares of Common Stock outstanding. The net tangible book
value per share represents the amount of the Company's total assets less the
amount of its intangible assets and its liabilities, divided by the number of
shares of Common Stock outstanding at such date. After giving effect to the
estimated net proceeds from the sale by the Company of 2,700,000 shares of
Common Stock offered hereby at the assumed initial public offering price of
$10.00 and the initial application thereof, the as adjusted net tangible book
value of the Company at June 30, 1997, would have been $21,954,304, or
approximately $3.28 per share of Common Stock. This would result in dilution to
the public investors (i.e., the difference between the assumed public offering
price per share of Common Stock and the as adjusted net tangible book value
thereof after giving effect to this offering) of approximately $6.72 per share.
The following table illustrates the per share dilution:
<TABLE>
<CAPTION>
PER SHARE OF
COMMON
STOCK
-------------
<S> <C> <C>
Assumed public offering price......................................................... $ 10.00
Net tangible book value at June 30, 1997, as adjusted for the contribution to
equity, effective September 19, 1997.............................................. $ (.42)
Increase in net tangible book value................................................. 3.70
------
As adjusted net tangible book value after this offering (1)........................... 3.28
------
Dilution of net tangible book value to new investors (1).............................. $ 6.72
------
------
</TABLE>
- ------------------------
(1) If the Underwriters' over-allotment option is exercised in full, the
adjusted net tangible book value per share after this offering would be
$3.09 and dilution per share to new investors in this offering would be
$6.91.
The following table sets forth, as of the date of this Prospectus, the
number of shares of Common Stock purchased, the percentage of total shares of
Common Stock purchased, the total consideration paid, the percentage of total
consideration paid, and the average price per share of Common Stock paid by the
investors in this offering and the current stockholders of the Company.
<TABLE>
<CAPTION>
SHARES OF COMMON
STOCK PURCHASED TOTAL CONSIDERATION AVERAGE
----------------------- -------------------------- PRICE PER
NUMBER PERCENTAGE AMOUNT PERCENTAGE SHARE
---------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Current Stockholders.............................. 4,000,000 59.7% $ 3,407,000 11.2% $ 0.85
New Investors(1).................................. 2,700,000 40.3% 27,000,000 88.8% 10.00
---------- ----- ------------- -----
Total............................................. 6,700,000 100.0% $ 30,407,000 100.0%
---------- ----- ------------- -----
---------- ----- ------------- -----
</TABLE>
- ------------------------
(1) Assuming an initial public offering price of $10.00 per Share.
17
<PAGE>
CAPITALIZATION
The following table sets forth, as of June 30, 1997, (i) the actual
capitalization of the Company and (ii) the as adjusted capitalization of the
Company adjusted to give effect to the receipt by the Company of estimated net
proceeds of approximately $23,630,000 from the sale of the Shares at the assumed
initial public offering price of $10.00 per Share and the initial application of
the net proceeds therefrom as set forth under the heading "Use of Proceeds" and
(b) the recapitalization, on September 19, 1997, of the AMF Note in the original
principal amount of $3,740,000 to convert $1,740,000 principal amount thereof
into equity. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations." The selected financial data set forth below should
be read in conjunction with the Financial Statements of the Company and Notes
thereto and other financial information included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1997
----------------------------
<S> <C> <C>
ACTUAL AS ADJUSTED
------------- -------------
Short-term debt:............................................... $ 125,000 $ 0
------------- -------------
Long-term debt:................................................ 4,874,967 0
------------- -------------
Stockholders' equity (deficit):
Preferred Stock--$0.001 par value, Authorized-- 4,000,000
shares; issued and outstanding--0 shares................... 0 0
Common Stock--$0.001 par value, Authorized-- 40,000,000
shares; issued and outstanding 4,000,000 shares--actual;
6,700,000 shares, as adjusted.............................. 88,831 25,458,831
Stockholders' deficit.......................................... (1,051,470) (1,051,470)
------------- -------------
Total stockholders' equity (deficit)........................... (962,639) 24,407,361
------------- -------------
Total capitalization........................................... $ 4,037,328 $ 24,407,361
------------- -------------
------------- -------------
</TABLE>
18
<PAGE>
DIVIDEND POLICY
The Company has not paid any cash dividends on the Common Stock and does not
intend to do so in the foreseeable future, but intends to retain future
earnings, if any, for reinvestment in the development and expansion of its
business. The payment of future cash dividends, if any, by the Company will be
at the discretion of the Company's Board of Directors and will depend upon,
among other things, future earnings, operations, capital requirements and
surplus, the general financial condition of the Company, restrictive covenants
in loan or other agreements to which the Company may become subject, and such
other factors as the Board of Directors of the Company may deem relevant. See
"Description of Securities."
19
<PAGE>
SELECTED FINANCIAL DATA
The following selected statement of operations data for the period from
April 8, 1996 (inception) through December 31, 1996 and the selected balance
sheet data as of December 31, 1996 are derived from the Financial Statements of
the Company and Notes thereto included elsewhere herein audited by King Griffin
& Adamson P.C., independent certified public accountants for the Company. The
unaudited selected statement of operations data for the six months ended June
30, 1997 and the unaudited selected balance sheet data as of June 30, 1997, are
derived from the unaudited Financial Statements of the Company, which have been
prepared on a basis consistent with the audited Financial Statements of the
Company and, in the opinion of management, include all adjustments, consisting
of normal recurring adjustments, necessary for a fair presentation of the
Company's financial position and results of operations. The results of
operations for the interim period presented are not necessarily indicative of
results to be expected for the entire year. The following data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Financial Statements of the Company and Notes
thereto included elsewhere in this Prospectus.
STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
PERIOD FROM
APRIL 8, 1996
(INCEPTION)
THROUGH SIX MONTHS ENDED
DECEMBER 31, 1996 JUNE 30, 1997
----------------- -----------------
<S> <C> <C>
Revenues................................................ $ 0 $ 341,530
----------------- -----------------
Total operating expense................................. 147,918 883,950
----------------- -----------------
Interest expense--affiliate............................. 158,123 215,471
----------------- -----------------
Interest income......................................... 0 (12,460)
Net loss................................................ (306,041) (745,431)
----------------- -----------------
----------------- -----------------
Loss per weighted average common share outstanding...... $ (0.10) $ (0.19)
----------------- -----------------
----------------- -----------------
Weighted average common shares outstanding.............. 3,041,089 3,825,333
----------------- -----------------
----------------- -----------------
</TABLE>
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 JUNE 30, 1997
----------------- -----------------
<S> <C> <C>
Current assets.......................................... $ 15,659 $ 2,052,369
Total assets............................................ 978,332 4,567,960
Working capital (deficiency)............................ (142,464) 1,396,737
Stockholders' equity (deficit).......................... (3,430,041) (962,639)
</TABLE>
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS AND OTHER PORTIONS OF THIS PROSPECTUS CONTAIN FORWARD-LOOKING
INFORMATION THAT INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS
COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED BY SUCH FORWARD-LOOKING
INFORMATION. FACTORS THAT MAY CAUSE SUCH DIFFERENCES INCLUDE, BUT ARE NOT
LIMITED TO, THOSE DISCUSSED UNDER THE HEADING "RISK FACTORS" AND ELSEWHERE IN
THIS PROSPECTUS. THIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS SHOULD BE READ IN CONJUNCTION WITH THE
COMPANY'S FINANCIAL STATEMENTS AND RESULTS THERETO INCLUDED ELSEWHERE IN THIS
PROSPECTUS.
GENERAL
The Company is an electronic commerce company engaged in healthcare
transaction processing for the medical and dental industries by means of the
Internet. The Company's proprietary software, which was developed over the last
five years and resides entirely on the Company's servers, allows healthcare
providers to prepare and enter healthcare claims interactively on the Internet
and electronically transmits the claims to the Company for processing. It also
allows the Company to download claims from the healthcare providers' computers
directly to the Company's servers. The software provides real-time editing of
the claims data for compliance with payor format and converts the claims to
satisfy specific payor processing requirements. The Company then electronically
transmits processed claims on behalf of healthcare providers, directly or
indirectly, to medical and dental payors that accept claims processing
transmissions electronically. In addition, the Company's software provides for
secure encryption of all claims data transmitted. The payors to which claims
processed by the Company have been submitted, primarily through clearinghouses,
include plans and affiliates of Aetna Life & Casualty Company, Inc., MetLife
Healthcare/Metropolitan Healthcare Corporation, Cigna Healthcare, Inc., The
Prudential Insurance Company of America, and United Healthcare Corporation.
As of December 31, 1996 and June 30, 1997, the Company had working capital
(deficiency) of approximately $(142,464) and $1,396,737, respectively, and
stockholders' deficit of approximately $(3,430,041) and $(962,639),
respectively. The Company generated revenues of $341,530 through June 30, 1997,
giving effect to the Medica Acquisition, and has incurred net losses since
inception and expects to continue to operate at a loss for the foreseeable
future. For the period from April 8, 1996 (inception) through December 31, 1996,
and the six months ended June 30, 1997, the Company incurred net losses of
$(306,041) and $(745,431), respectively. There can be no assurance that the
Company will ever achieve profitability.
PLAN OF OPERATIONS
The Company's business strategy is: (i) to aggressively market electronic
claims processing services to outpatient healthcare providers, including
clinics, hospitals, physicians, dentists, and other outpatient service
providers; (ii) to gain access to healthcare providers and to foster familiarity
and dependence upon the Company's services by waiving its monthly electronic
claims processing services subscription fee through at least June 30, 1998 while
collecting a processing fee from commercial medical and dental payors, or
clearinghouses acting for the commercial payors, for delivering claims
electronically; (iii) to expand the services offered by the Company to include
additional transaction processing functions, such as eligibility, HMO encounter
forms, and practice management functions in order to diversify sources of
revenue; (iv) to acquire and integrate electronic claims processing companies
that enable the Company to accelerate its entry into the inpatient hospital
claims market; and (v) to license its claims processing technology for
stand-alone purposes, Internet systems, private label use, and OEMs.
During the period when the Company's electronic claims processing services
subscription fees are waived, the Company anticipates that its primary source of
revenues will be fees paid by commercial
21
<PAGE>
medical and dental payors and other payors for delivering claims electronically.
In the future, the Company intends to provide advertising capabilities to its
Web site for third parties, thereby providing a potential additional source of
revenues for the Company. In addition, after an initial free period of unlimited
technical support, the Company intends to charge users a fee for technical
support comparable to those charged by other healthcare software vendors. There
can be no assurance that the Company will charge subscription fees to healthcare
providers after June 30, 1998, or if charged, what the level of fees
(individually or in the aggregate) will be.
The Company's principal operating costs are anticipated to be marketing,
research and development, acquisition of capital equipment, and general and
administrative expenses. The Company intends to continue to develop and upgrade
its technology and transaction-processing systems and continually update and
improve its Web site to incorporate new technologies, protocols, and industry
standards. The Company intends to engage in a dedicated marketing and sales
plan, including advertising at relevant sites on the Internet and in trade
publications, conducting direct mail programs targeting healthcare providers and
payors, including commercial medical and dental payors, hiring additional sales
and marketing personnel, preparing brochures and other promotional materials,
and engaging in a public relations campaign designed to expose the Company and
its services to healthcare providers and payors which otherwise would not be
exposed thereto. In connection with the expansion of the Company's business, the
Company intends to acquire additional computers and networking equipment in
order to permit an increased volume of claims to be processed by the Company.
General and administrative expenses include all corporate and administrative
functions that serve to support the Company's current and future operations and
provide an infrastructure to support future growth; management and staff
salaries and benefits, travel, network administration and data processing,
training, and rent are major items in this category.
POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
The Company expects to experience significant fluctuations in its future
quarterly operating results due to a variety of factors, many of which are
outside the Company's control. Factors that may adversely affect the Company's
quarterly operating results include: (i) the Company's ability to retain
existing customers, attract new customers at a steady rate, and maintain
customer satisfaction; (ii) the announcement or introduction of new sites,
services, and products by the Company and its competitors; (iii) price
competition or higher prices in the industry; (iv) the level of use of the
Internet and online services and the rate of market acceptance of the Internet
and other online services for the purchase of "business to business" services,
such as those offered by the Company; (v) the Company's ability to upgrade and
develop its systems and infrastructure in a timely and effective manner; (vi)
the level of traffic on the Company's Web site; (vii) technical difficulties,
system downtime, or Internet brownouts; (viii) the amount and timing of
operating costs and capital expenditures relating to expansion of the Company's
business, operations, and infrastructure; (ix) government regulation; and (x)
general economic conditions and economic conditions specific to the Internet,
electronic commerce, and the medical claims processing industry.
Due to the foregoing factors, in one or more future quarters, the Company's
operating results may fall below the expectations of securities analysts and
investors. In such event, the trading price of the Common Stock would likely be
materially adversely affected.
LIQUIDITY AND CAPITAL RESOURCES
On July 31, 1996, the Company acquired all of the Internet software,
licenses, intellectual property rights, and technology developed by an
affiliated company, AMF, in exchange for $3,740,000, payable through the
issuance of the AMF Note. On September 19, 1997, AMF reduced the principal
amount of the AMF Note to $2,000,000 and contributed the remaining $1,740,000 in
principal amount of the AMF Note to the capital of the Company. AMF is
affiliated to the Company through common stockholders, including Mr. Lycke, the
Chairman of the Board of Directors, President and Chief Executive Officer of the
22
<PAGE>
Company, and Messrs. Bensen and Brown, Directors of the Company, and as a
stockholder of the Company. The AMF Note bears interest at the rate of 9.50% per
annum and is collateralized by all of the Internet software, intellectual
property rights, internet technology and technology rights of the Company,
including software development costs. Although the AMF Note is due and payable
on May 8, 1998, the Company intends to utilize a portion of the net proceeds of
this offering to repay such obligation in full. The AMF acquisition has been
accounted for as a purchase, however, as the purchase price of such transaction
was equivalent to the book value of the assets purchased, the Company has
recorded no goodwill on its financial statements. See "Use of Proceeds" and the
Financial Statements and Notes thereto.
Upon the consummation of the acquisition of the Internet software, licenses,
intellectual property rights, and technology developed by AMF, AMF agreed to
provide the Company with a credit line of up to $950,000 to facilitate
additional development of the Company's services and technology. At June 30,
1997, advances under such line of credit were $909,967. The line of credit bears
interest at the rate of 9.50% per annum and is secured by all of the assets of
the Company, other than the collateral securing the AMF Note. Although the line
of credit is due and payable on May 8, 1998, the Company intends to utilize a
portion of the net proceeds of this offering to repay such obligation in full.
See "Use of Proceeds." Thereafter, the credit line with AMF will be terminated.
In May 1997, the Company consummated the private offering of 45 units, each
unit consisting of 16,564 shares of Common Stock, for aggregate gross proceeds
of $2,250,000 (the "Bridge Financing"). The Company has used, and intends to
use, the net proceeds of the Bridge Financing for ongoing working capital
requirements.
On June 2, 1997, the Company acquired Medica. In accordance with the terms
of the acquisition agreement, the purchase price for all of the outstanding
capital stock of Medica was (i) 153,847 shares of Common Stock, (ii) $100,000 in
cash, paid upon the consummation of the acquisition, and (iii) $125,000 in cash
payable within 60 days following the date of this offering and $225,000 on the
one-year anniversary of such date. The software technology of Medica is the
primary value of the acquisition. The Company intends to utilize a portion of
the net proceeds of this offering to satisfy the $350,000 obligation.
23
<PAGE>
BUSINESS
GENERAL
The Company is an electronic commerce company engaged in healthcare
transaction processing for the medical and dental industries by means of the
Internet. The Company's proprietary software, which was developed over the last
five years and resides entirely on the Company's servers, allows healthcare
providers to prepare and enter healthcare claims interactively on the Internet
and electronically transmits the claims to the Company for processing. It also
allows the Company to download claims from the healthcare providers' computers
directly to the Company's servers. The software provides real-time editing of
the claims data for compliance with payor format and converts the claims to
satisfy specific payor processing requirements. The Company then electronically
transmits processed claims on behalf of healthcare providers, directly or
indirectly, to medical and dental payors that accept claims processing
transmissions electronically. In addition, the Company's software provides for
secure encryption of all claims data transmitted. The payors to which claims
processed by the Company have been submitted, primarily through clearinghouses,
include plans and affiliates of Aetna Life & Casualty Company, Inc., MetLife
Healthcare/Metropolitan Healthcare Corporation, Cigna Healthcare, Inc., The
Prudential Insurance Company of America, and United Healthcare Corporation.
The Company believes that (i) the ability of healthcare providers utilizing
the Company's Web site to interactively prepare claims on the Internet and
receive real time edits prior to claim submission, (ii) the ease and
availability of Company-provided training over the Internet, and (iii) the
minimal software and processing power required for providers to utilize the
Company's proprietary software are significant advantages of the Company's
electronic claims transmission services over other currently available services.
The Company believes that the improved claims processing procedure will result
in a sharply reduced average number of outstanding accounts receivable days,
thereby improving the provider's working capital. The Company believes that the
services offered by its competitors are generally based on legacy mainframe
technology, proprietary networks, and proprietary file formats, which limit the
ability of those competitors to offer interactive Internet-based processing
services on an economical basis. In addition, competitors' services generally
require extensive formal training, the installation of substantial software on
each healthcare provider's computer, and significant processing power.
On July 31, 1996, the Company acquired all of its core technology and
proprietary software, consisting of the Internet software, licenses,
intellectual property rights, and technology developed by an affiliated company,
AMF, in exchange for $3,740,000, payable through the issuance of the AMF Note.
On September 19, 1997, AMF reduced the principal amount of the AMF Note to
$2,000,000 and contributed the remaining $1,740,000 in principal amount of the
AMF Note to the capital of the Company. The AMF Note bears interest at a rate of
9.50% per annum and is collateralized by all of the Internet software and
technology of the Company, including software development costs. AMF was engaged
in the financing and processing of medical accounts receivable, and had made
preliminary development efforts to expand into the business of the Company,
including the proprietary claims processing software. AMF is currently in the
process of dissolving and liquidating. Mr. Lycke, the Chairman of the Board of
Directors, President and Chief Executive Officer of the Company, and Messrs.
Bensen and Brown, Directors of the Company, serve as the Chairman of the Board
of Directors, a Director and Senior Vice President, and a Director,
respectively, of AMF. Such individuals will devote minimal time to winding up
the business and affairs of AMF for approximately three months following this
offering. See "Certain Transactions."
On June 2, 1997, the Company acquired Medica, a software development firm
which developed a portion of the Company's healthcare transaction processing
software. The purchase price for all of the outstanding capital stock of Medica
was (i) 153,847 shares of Common Stock, (ii) $100,000 in cash upon the
consummation of such acquisition, and (iii) $125,000 in cash payable within 60
days following the date of this Offering and $225,000 on the anniversary of such
date. The software technology of Medica is the primary value of the acquisition.
The Company intends to utilize a portion of the net proceeds of this offering to
satisfy such $350,000 obligation.
24
<PAGE>
ELECTRONIC CLAIMS PROCESSING MARKET
The healthcare electronic claims processing market, including dental claims,
is estimated by HDM, an industry publication, to include over 3.7 billion
healthcare claim and HMO encounter forms (the HMO equivalent of a claim)
submissions in 1996. HDM has forecasted such market to grow at the rate of
approximately 7% per annum through the year 2000 and has determined that, of the
current total claim volume, approximately 1.6 billion claims or more are
submitted on paper forms. Currently, electronic claims processing is used to
process approximately 35% of all medical outpatient claims and 10% of all dental
claims. The Company believes that, as a result of the low penetration of
electronic claims processing among healthcare providers and dentists, such
market presents an attractive opportunity for the Company to offer a low-cost
effective service. The Company intends to focus its marketing efforts on
outpatient claims, including claims of clinics, hospitals, physicians, dentists,
and other outpatient service providers , as the Company believes they are the
underserved segments of the market.
The Company believes that the least developed market segment for electronic
claims processing is the dental community. Due to the lower average number of
claims submitted by dental practitioners compared to medical providers, current
claims processing systems used in the dental market result in a high cost per
claim for dentists. Initially, the Company intends to devote substantial efforts
to enroll dentists and install the Company's healthcare transaction processing
software. An estimated 30,000 dental practices have computer resources for
Internet access.
The number of non-electronic paper claims transactions in the HMO market is
increasing rapidly and the Company believes that another underserved segment of
the outpatient claims processing market is HMO claims. Currently there is no
formal transmission document standard. Therefore, the Company believes that the
opportunity exists for the Company to utilize its claims processing
configuration to make available a document scanning service using hypertext
markup language ("HTML"). This will enable the Company to convert an encounter
form into a document that appears identical to the printed version, yet is
designed to reconfigure the data entered and presents it in a format that
conforms to a payor's specific requirements.
Healthcare claims are generally processed by clearinghouses using a similar
operating structure to that which exists in the credit card industry. A merchant
that accepts a credit card for payment does not send payment requests directly
to the bank that issued the card, but sends the payment request to a
clearinghouse. The payment request is processed and transmitted to the
appropriate bank. Healthcare claim clearinghouses accept, sort, process, edit,
and then forward the claims to the appropriate payors, either electronically or
on paper. The major healthcare clearinghouses operate in a mainframe computer
environment. This operating configuration is both expensive and time consuming
due to the source code changes required to continuously process claims correctly
to meet payor requirements. In contrast, the Company's healthcare transaction
processing software system on the Internet is designed to operate in an open
client-server configuration. This operating alternative can offer the provider a
method of bypassing the clearinghouse and communicating directly with the payor
in a rapid, accurate, and cost-effective manner. The Company believes that if
the industry evolves toward direct payor submission of claims, the Company's
software will be able to offer efficient access to payors to its healthcare
provider customers.
BUSINESS STRATEGY
The Company's business strategy is: (i) to aggressively market electronic
claims processing services to outpatient healthcare providers, including
clinics, hospitals, physicians, dentists, and other outpatient service
providers; (ii) to gain access to healthcare providers and to foster familiarity
and dependence upon the Company's services by waiving its monthly electronic
claims processing services subscription fee through at least June 30, 1998 while
collecting a processing fee from commercial medical and dental payors for
delivering claims electronically; (iii) to expand the services offered by the
Company to include additional transaction processing functions, such as
eligibility, HMO encounter forms, and practice management functions in order to
diversify sources of revenue; (iv) to acquire and integrate electronic
25
<PAGE>
claims processing companies that enable the Company to accelerate its entry into
the inpatient hospital claims market; and (v) to license its claims processing
technology for other applications, including stand-alone purposes, Internet
systems, private label use, and OEMs. There can be no assurance that any of the
Company's business strategies will succeed or that any of its business
objectives will be met with any success. See "Business--Marketing" and
"Business--Healthcare Transaction Processing Software and Security."
EXPANDED MARKETING EFFORTS
To date, the Company has engaged in limited marketing efforts. Achieving
market penetration will require significant efforts by the Company to create
awareness of, and demand for, the Company's products and services. The Company
intends to utilize a portion of the proceeds from this offering to upgrade its
marketing services to include advertising on the Internet and an expanded sales
staff, targeted fax/mail campaigns, and participation in major trade shows.
The Company is also actively seeking partners for alliances and joint
ventures, including managed care companies, Internet service and information
providers, traditional healthcare information systems providers, and major
payors, seeking solutions to the costly handling of paper claims. The Company
has signed a non-binding letter of intent with a national provider of healthcare
information services which desires to add an electronic claims processing
component to its existing online service; there can be no assurance that the
transaction contemplated by such letter of intent will be consummated on the
terms and conditions described therein, or at all. The Company believes that
there are opportunities for joint marketing with banks, insurance companies, and
pharmaceutical companies that desire online interfacing with healthcare
providers. There can be no assurance that the Company will secure any alliances
or joint venture relations, or if it does, that such alliances or joint ventures
relationships will be profitable.
On each of the Company's Internet and Extranet Web pages, there is space
reserved for advertisers. The Company intends to sell the space to quality
advertisers desiring to target healthcare providers.
INITIAL WAIVER OF SUBSCRIPTION FEES
The Company will seek to rapidly increase the number of new customers and
achieve a leadership position in the Internet electronic claims processing
industry, in part by waiving the monthly healthcare claims processing
subscription fees payable by healthcare providers through at least June 30,
1998, while collecting a processing fee from commercial medical and dental
payors for delivering claims electronically. There can be no assurance that the
Company will be able to charge and collect subscription fees from healthcare
providers after June 30, 1998, or if charged, what the level of fees
(individually or in the aggregate) will be.
EXPANSION OF ONLINE SERVICES
Following this offering, the Company intends to develop and offer other
service offerings to increase its revenue per client. The targeted services will
include eligibility, HMO encounter forms, practice management functions, batched
claims delivery and statistical data processing as it relates to claim payments
from insurance companies.
IDENTIFICATION OF POTENTIAL STRATEGIC ACQUISITIONS
The Company is seeking opportunities to capitalize on the fragmented nature
of the healthcare electronic claims processing market through the acquisition of
regional "wholesale" claims processing companies or software companies
complementing the Company's current services. Acquisitions would be targeted
which allow the Company to enter the hospital inpatient healthcare claims
processing marketplace rapidly and would permit the Company to implement its
Internet based healthcare transaction processing software solution in such
marketplace. The Company currently is not in discussions with any person or
entity regarding an acquisition, and there can be no assurance that the
Company's management
26
<PAGE>
will be able identify and affiliate with suitable acquisition candidates, and if
such candidates are located, that the Company will be able to consummate any
such transaction.
Notwithstanding the foregoing, investors should be aware that the Company's
future plans are subject to a number of variables outside its control, such as
the availability of suitable acquisition candidates, the availability of
sufficient management resources, the continued growth of Internet commerce, and
the continued acceptance of the Internet as a suitable medium of transmission
for healthcare claims, and there can be no assurance that the Company will be
able to implement any or all of such plans, or that such plans, when and if
implemented, will be successful.
CONTINUING AND ENTERING LICENSING AGREEMENTS
The Company acquired Medica in June 1997 and expects to continue to realize
licensing revenues from existing license agreements entered into by Medica. The
Company may also seek to offer a complete private label solution on the Internet
to clearinghouses or payors seeking an internet solution to claims processing.
HEALTHCARE TRANSACTION PROCESSING SOFTWARE AND SECURITY
The Company's healthcare transaction processing software is designed for
in-patient, out-patient, and dental claims. The software is modular, providing
valuable flexibility, and generally consists of the following components: (i)
industry standard Web site management software; (ii) state-of-the-art commercial
security and encryption software licensed by the Company from third parties,
including Citrix; and (iii) core processing software developed by Medica which
provides claims review, claims processing, hard-coding of claims, and a
"table-based" software coding of claims variables. The expensive and time-
consuming hard-coding routines required by traditional systems have been
replaced by a user friendly system that is table-based. This permits instant
edit changes to meet the requirements of payors and avoids expensive onsite
software changes. New edits can be input by Company personnel and, in many
cases, by the user. Once healthcare providers connect to the Company's secure
Web site, claims are edited on-line by the customer, using a database containing
more than 22,000 edit variables. The direct provider-payor connections offered
by the Company's system are designed to allow for immediate billing data and
information exchange when it becomes available from the payors. In the event
that a particular payor cannot accept submission of claims electronically, the
Company prints and mails hard copies of such claims to such payors and charges
the provider therefor.
During the initial application process, a new customer interacts with the
Company's proprietary "Print Wizard," that downloads claim files from the
provider's practice management system. When connecting to the Internet, the
provider's browser encryption is automatically enabled at the Client Extranet
site. The user must "log-in" through a secure firewall to reach the Company's
healthcare transaction processing system. At this point an additional level of
encryption is enabled automatically, claims are extracted from the provider's
PC, and editing begins. Only claims containing errors are identified for
editing. Once claims are edited, they are queued with accurate claims for
transmission to payors. Should a claim not be acceptable electronically by a
payor, the claim is automatically printed and mailed by the payor gateways. Such
mailing service is optional to the providers. To assure proper network
operation, and allow other revenue producing services such as custom reports,
eligibility inquiries, and decision support tools, all traffic is monitored
through the Company's private application server and firewall.
The Company's healthcare transaction processing software system is based
upon a client-server computing model and includes a variety of different
software applications. Individual applications work together to provide the
extraction and encryption of claims from a provider's practice management system
to the Company's Internet claims processing server, where editing and formatting
occurs in a secure environment. The claims are then delivered to the payor
gateway. The different software applications have either been purchased,
licensed, or developed by the Company. In June 1997, the Company consummated the
Medica Acquisition; Medica had licensed the core editing software to the
Company.
27
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The Company's web site, claimsnet.com is structured into three sections:
"PUBLIC INTERNET," "CLIENT EXTRANET," and "PRIVATE INTRANET." The PUBLIC
INTERNET site provides company background, product demonstrations, and customer
enrollment forms. The CLIENT EXTRANET provides a secure individual customer area
for private customer communication and encrypted claims transmission.
Traditional claims clearinghouses that use regular phone and private data
networks cannot provide this level of data security. The PRIVATE INTRANET site
is designed for internal communications, web site operating reports, customer
support, and reporting.
With the exception of the commercial software, such as that provided by
Citrix and Microsoft, the Company has either identified back-up sources for all
the software used or, in the event of a business failure by the licensing
vendor, the Company owns the source code.
TRAINING AND HARDWARE REQUIREMENTS
The training for the various products and services offered by the Company is
free and delivered online through the Client Extranet to the provider, seven
days a week, 24 hours a day. The tutorial and other training documents are
always available at the Company's Web home page (http://claimsnet.com). After an
initial free period of unlimited service, the Company will charge users a fee
for technical support comparable to those charged by other healthcare software
vendors.
No significant hardware investment by the customer is required in order to
take advantage of the Company's services. The system requires the provider to
use a 28,800 bps asynchronous modem and a PC with Windows 3.11 or Windows 95
operating system installed. An Internet Service Provider ("ISP"), such as AT&T
Worldnet, MCI and Physicians' Online, offers local telecommunication to the
Internet. The Company's customers are responsible for the ISP connection.
INTERNET/INTRANET
The processing configuration used by the Company requires limited electronic
claims processing software to reside at the level of the healthcare provider.
All editing and formatting takes place at the Company's Internet application
server site. This application was initially developed internally by AMF and
acquired by the Company. From the standpoint of the user, the net effect is to
have "the latest" software version and all format changes available instantly.
The Company's healthcare transaction processing software has the effect of
turning a provider's "old" or "outdated" hardware into a terminal capable of
operating in a 32-bit Windows environment.
The Company's processing does not take place on the Internet, but rather in
an Extranet configuration. The main advantage of this approach is to assure that
the communication between the Company and a provider takes place in a
highly-controlled, secure, and (because of the remote LAN software) encrypted
environment. The dual encryption utilized by the Company occurs at the browser
software and application server level. All processing and data storage occurs
behind a firewall, providing secure and controlled access to all data.
Small volume providers/users are able to input their claims directly on-line
(avoiding the need to have a practice management software system installed), and
thereby interact with the Company's high-capacity servers and their on-line edit
capability.
CUSTOMERS
The Company views its customers as both the healthcare providers submitting
claims and the payors accepting claims.
At the date hereof, the Company is processing claims for more than 90
providers. The providers are geographically dispersed and represent a mix of
physician specialties and dentists. Approximately 30 additional providers are in
a "testing mode." This requires verification of each provider's claims format
with proper payors. There are over 100 providers in various stages of submitting
test claims through the Company's electronic claims processing system.
28
<PAGE>
The Company requires each healthcare provider using the Company's services
to enter into a standard subscription agreement available on the home page of
the Company's web site. This system allows the healthcare provider to access,
complete, and return the subscription agreement on the Internet, thereby
enabling the provider to immediately access the Company's services. Each
subscription agreement provides (i) that the healthcare provider shall pay to
the Company monthly a subscription fee, which fee the Company has determined to
waive through at least June 30, 1998, and (ii) the nature of the services to be
rendered by the Company and the terms and conditions under which the Company
will render such services. Such contracts are terminable by the healthcare
provider upon 30 days prior written notice. There can be no assurance that the
Company will be able to charge and collect subscription fees from healthcare
providers after June 30, 1998, or if charged, what the level of fees
(individually or in the aggregate) will be.
The Company also enters into agreements with the commercial medical and
dental payors or regional clearinghouses to which the Company submits processed
claims. Generally, such agreements provide for the payment of a fee per claim
averaging approximately $.10 to paid to the Company once certain minimum volume
requirements have been met. As a result of the varying submission requirements
of many insurance and other plans within any payor, the Company treats each plan
as a separate payor with its own particular requirements.
INTELLECTUAL PROPERTY
The Company regards its copyrights and similar intellectual property as
critical to its success, and relies on trademark and copyright law, trade secret
protection, and confidentiality and/or license agreements with its employees,
customers, partners and others to protect its proprietary rights. The Company
intends to pursue the registration of its trademarks and service marks in the
U.S. The Company has licensed in the past, and expects that it may license in
the future, certain of its proprietary rights, such as trademarks or copyrighted
material, to third parties. While the Company attempts to ensure that the
quality of its brand name is maintained by such licensees, there can be no
assurance that such licensees will not take actions that might materially
adversely affect the value of the Company's proprietary rights or reputation,
which could have a material adverse effect on the Company's business, prospects,
financial condition, and results of operations. There can be no assurance that
the steps taken by the Company to protect its proprietary rights will be
adequate or that third parties will not infringe or misappropriate the Company's
copyrights, trademarks, trade dress, and similar proprietary rights. In
addition, there can be no assurance that other parties will not assert
infringement claims against the Company. The Company has been subject to claims
and expects to be subject to legal proceedings and claims from time to time in
the ordinary course of its business, including claims of alleged infringement of
the trademarks and other intellectual property rights of third parties by the
Company and its licensees. Such claims, even if not meritorious, could result in
the expenditure of significant financial and managerial resources. The Company
is not currently aware of any legal proceedings pending against it.
COMPETITION
The segment of the industry in which the Company operates is dominated by
several large companies such as Envoy/NEIC, Inc., HBO & Company, National Data
Corporation, and QuadraMed Corporation, each of which operates a regional or
national clearinghouse of medical and dental claims. In most cases, these
companies have large existing capital and software investments and focus on
large healthcare providers, such as hospitals and large clinics, or act as
wholesale clearinghouses for smaller electronic claims processing companies. The
Company estimates, based on information from various trade journals, that there
are approximately 300 or more small independent electronic claims processing
companies and clearing houses in addition to the aforementioned large
competitors, which operate as local sub-clearinghouses for the processing of
medical and dental claims.
While the Company competes with all other providers of electronic claims
processing services, it is not aware of any other companies that provide
healthcare electronic claims processing services in the same manner as those
provided by the Company and thus represent a direct competitor. The Company
believes
29
<PAGE>
that its pricing structure and total cost is very competitive with other
providers of electronic claims processing services. The Company further believes
that existing competitors are constrained not only by capital investments and
existing hardware/software configurations, but by existing customer agreements.
Notwithstanding the foregoing, the Company anticipates that competition will
arise in the processing of claims on the Internet. No assurance can be given
that the Company will successfully compete in any market in which it conducts or
may conduct operations.
Certain segments of the medical and dental claims processing industry are
not currently suited to the use of inpatient electronic claims processing. Among
such segments are psychiatry and surgery, each of which requires substantial
documentation in addition to the claim to be submitted. In these market
segments, the Company believes that it is not currently able to compete with
existing potential competitors and, accordingly, the Company has designed its
business plan to address other market segments.
EMPLOYEES
As of June 30, 1997, the total number of full-time employees of the Company
was 16 persons, four of whom were executive officers, nine of whom were
technical personnel, and three of whom were administrative personnel. Thirteen
of such employees were individuals whose services were theretofore obtained
under the service agreement with AMF. The remaining three employees were
obtained as a result of the Medica acquisition. None of the Company's employees
are represented by a labor organization. The Company believes that its relations
with its employees are satisfactory.
Mr. Lycke, the Chairman of the Board of Directors, President, and Chief
Executive Officer of the Company, and Messrs. Bensen and Brown, Directors of the
Company, also serve as Chairman of the Board of Directors, a Director and Senior
Vice President, and a Director, respectively, of AMF. Such individuals will
devote minimal time to winding up the business and affairs of AMF for
approximately three months following this offering. After such time, Mr. Lycke
will devote his full time and efforts to the Company. See "Certain
Transactions."
The ability of the Company to attract and retain highly skilled personnel is
critical to the operations and expansion of the Company. To date, the Company
has been able to attract and retain the personnel necessary for its limited
operations. However, there can be no assurance that the Company will be able to
do so in the future, particularly in light of the Company's expansion plans. If
the Company is unable to attract and retain personnel with necessary skills when
needed, its business and expansion plans could be materially adversely affected.
FACILITIES
The Company currently leases 6,061 square feet of office space at the rate
of $8,586.42 per month. Such offices are located at Suite 1515, 12801 North
Central Expressway, Dallas, Texas 75243. The lease expires on September 30,
1998. The Company believes that, in the event alternative or larger offices are
required, such space is available at competitive rates. See "Certain
Transactions." For the Company's server, the Company subleases space in a
secure, environmentally controlled co-location facility on a month-to-month
basis at the rate of $2,000 per month.
LEGAL MATTERS
The Company is not currently party to any litigation.
30
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company, their ages, and their
positions held with the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Bo W. Lycke.......................................... 51 Chairman of the Board of Directors, President, Chief
Executive Officer, and Director
Terry A. Lee......................................... 43 Executive Vice President of Marketing and Technology
Mark W. Patterson.................................... 44 Vice President and Chief Financial Officer
Randall S. Lindner................................... 37 Vice President of Technology
James Anderson....................................... 52 Vice President of Marketing
Ward L. Bensen....................................... 55 Director
Robert H. Brown, Jr.................................. 44 Director
Sture Hedlund........................................ 58 Director
John C. Willems, III................................. 42 Director
</TABLE>
Set forth below is certain information with respect to the executive
officers and directors of the Company.
BO W. LYCKE has served as the Chairman of the Board of Directors, President,
and Chief Executive Officer of the Company since its inception. In 1990, Mr.
Lycke founded AMF for the purpose of financing and processing medical accounts
receivable and, since such time, has served as the Chairman of the Board of
Directors thereof. During the period from 1983 to 1990, Mr. Lycke was involved
in a variety of entrepreneurial undertakings in the fields of satellite antenna
manufacturing, precious metal scrap recovery, and independent radio programming
production. He also has extensive experience as a director of several private
companies and is currently on the board of Diagnostic Health Services, Inc., a
public corporation. In 1972, Mr. Lycke founded, and from 1973 to 1983, was
president and director, of Scanoil, Inc., a company engaged in domestic and
international oil futures trading, as well as chartering and operating
ocean-going oil tankers. From 1971 to 1983 Mr. Lycke also served as a President
and director of various domestic operating subsidiaries of the Volvo
Automotive/Beijer Group, the indirect owner of Scanoil, Inc.
TERRY A. LEE has served as Executive Vice President of Marketing and
Technology of the Company since September 1996. From October 1995 until
September 1996, Mr. Lee served as a director of North American Sales and
Marketing, Internetworking Product Group of Compaq Computer Corporation
("Compaq"). From January 1995 through December 1995, Mr. Lee served as Vice
President of Sales of Networth, a network hardware manufacturer acquired by
Compaq. From October 1988 to January 1995, Mr. Lee served as Director of Major
Accounts, with Lotus Development Corporation, a software developer and marketer.
From November 1983 to October 1988, Mr. Lee served as a district manager with
CompuServe, Inc., an online service provider.
MARK W. PATTERSON is a Certified Public Accountant and has been Chief
Financial Officer of the Company since May 1997. From June 1996 to May 1997, Mr.
Patterson served as the Chief Financial Officer of Contract Network, a
manufacturer of furniture, until such company was sold. From May 1994 to May
1996, Mr. Patterson was Chief Financial Officer of All Components, Inc., a
computer memory chip manufacturer and distributor, and from 1991 to 1994, served
as the Chief Financial Officer of First Capital Partners, Inc., an investment
firm. Mr. Patterson has served as an executive officer with several companies
since 1984. From 1979 to 1984 Mr. Paterson worked with Price Waterhouse & Co. Mr
Patterson has authored two books, nationally and internationally, and has had
several articles published in industry
31
<PAGE>
periodicals. Mr. Patterson earned his BA and MBA degrees from Texas Tech
University and his Masters degree in Accounting from the University of North
Texas.
RANDALL S. LINDNER serves as Vice President of Technology of the Company,
coming to the Company as the former President of Medica, in connection with the
Company's acquisition of Medica. Mr. Lindner has over nineteen years of software
development and management experience, eight of which were dedicated to
healthcare and electronic claims processing. Mr. Lindner founded Medica in May
1994, and under Mr. Lindner's presidency, Medica developed a fourth generation
electronic claims processing and editing software, CyberClaim for Windows. From
1990 to April 1994, Mr. Lindner served as Director of Development after
developing a MS-DOS claims processing and tracking system for Vision Software,
Inc. From 1987 to 1990, Mr. Lindner served as Systems Director of Neilson Media
Research, a division of Dunn & Bradstreet, and assumed responsibility for
management and development of products for the over 300 clients using over 35
different operating systems. From 1986 to 1987, Mr. Lindner was a member of CIS,
Inc., a company that developed one of the first electronic claims processing
systems for the hospital market and healthcare industry.
JAMES M. ANDERSON has served as Vice President of Marketing since April
1997, and is responsible for sales and client development for electronic
commerce of claims processing and electronic data interchange products and
services. From January 1996 to April 1997, Mr. Anderson served as Director of
Business Development of Autotester, Inc., a manufacturer of quality assurance
products. From January 1995 to January 1996, Mr. Anderson served as the Director
of Business Development of Excellence, Inc., a software developer for the
pharmaceutical industry. From 1990 to 1995, Mr. Anderson held several director
positions of increasing responsibility with S2 Systems Corporation (formerly
Shared Financial Systems) ("S2") supporting the Healthcare Industry. At S2, Mr.
Anderson was instrumental in developing their healthcare strategy and deployment
of their claims configuration module and gateway architecture for both domestic
and international markets. Additionally, Mr. Anderson has prior experience
working with policy management systems and development of practice management
software. Mr. Anderson has in excess of fifteen years of healthcare experience,
including sales, marketing, and product management.
WARD L. BENSEN has been a director of the Company since April 1993. Since
1990, he has served as a director of AMF. Since June 1994, he served as Senior
Vice President of AMF where he is primarily responsible for its marketing
efforts in the western United States and receivables acquisitions nationwide.
From March 1993 until September 1993, Mr. Bensen was Vice President of
Investment, and marketed investment programs for both Prudential Securities and
Shearson Lehman Brothers, and, from 1991 to 1993, provided specialized
investment banking services as a partner of John Casey and Associates, a
contract wholesale securities marketing firm. From 1984 to 1991, he served as
Division Vice President for Jones International Securities and prior thereto,
held various positions with Shearson American Express, The Safeco Insurance Co.
and Procter and Gamble.
ROBERT H. BROWN, JR. has served as a director of the Company since April
1996 and had been a director of AMF since 1990. Since 1990, Mr. Brown has been
employed by Rauscher, Pierce, Refsnes Inc., a Dallas-based full service regional
investment banking and brokerage firm which is a New York Stock Exchange member,
where he is currently Executive Vice President in charge of capital market
activities and a member of the Executive Committee. Mr. Brown was Senior Vice
President of TM Capital Corporation during 1989. From 1985 to 1989, Mr. Brown
was a Vice President of Thompson McKinnon Securities, where he was responsible
for all corporate finance activities in the southwestern United States.
STURE HEDLUND has served as a director of the company since 1997. Since
January 1987, Mr. Hedlund has also served as Chairman of the Board of Directors
of Scandinavian Merchant Group AB, a Swedish corporation engaged in venture
capital investing. Since 1993, Mr. Hedlund has been a director of Medical Invest
Svenska AB ("Medical Invest"), a public company engaged in the business of
medical technology, and has been a director of Ortivus Medical AB, a company
engaged in the manufacture of heart monitoring devices and a subsidiary of
Medical Invest.
32
<PAGE>
JOHN C. WILLEMS, III has served as a director of the Company since 1997 and
has been legal counsel to the Company since April 1996. Since September 1993,
Mr. Willems has been an attorney with the law firm of McKinley, Ringer & Zeiger,
PC, in Dallas, Texas, practicing in the area of Business law. From January 1992
to August 1993, Mr. Willems was an attorney in the law firm of Settle & Pou, PC,
also located in Dallas, Texas.
Each director holds office until the Company's next annual meeting of
stockholders and until his successor is elected and qualified. Officers are
elected annually by the Board of Directors and hold office at the discretion of
the Board. The Company's directors receive no additional compensation for
serving on the Board of Directors, other than reimbursement of reasonable
expenses incurred in attending meetings. There are no family relationships among
the Company's directors and executive officers.
COMMITTEES OF THE BOARD OF DIRECTORS
On April 5, 1997, the Board of Directors created a Compensation Committee,
which is comprised of Messrs. Lycke, Bensen, and Brown. The Compensation
Committee has (i) full power and authority to interpret the provisions of, and
supervise the administration of, the Plan and (ii) the authority to review all
compensation matters relating to the Company.
On April 5, 1997, the Board also created an Audit Committee, which is
comprised of Messrs. Lycke, Bensen, and Brown. The Audit Committee is
responsible for reviewing the plans and results of the audit engagement with the
independent auditors; reviewing the adequacy, scope, and results of the internal
accounting controls and procedures; reviewing the degree of independence of the
auditors; reviewing the auditors' fees; and recommending the engagement of
auditors to the full Board of Directors.
EXECUTIVE COMPENSATION
The following table sets forth certain information with respect to
compensation paid to, or accrued by the Company for, Bo W. Lycke, the Chairman
of the Board of Directors, President, and Chief Executive Officer of the
Company, for the period from April 8, 1996 (inception) through December 31,
1996.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
NAME AND PRINCIPAL POSITION SALARY BONUS OTHER ANNUAL COMPENSATION
- ----------------------------------------------------- --------- ------------------------- -------------------------------
<S> <C> <C> <C>
Bo W. Lycke.......................................... $ 17,500 -- --
Chairman of the Board of Directors, President, and
Chief Executive Officer
</TABLE>
No options have been granted by the Company since inception.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company did not have a Compensation Committee during the period from
April 8, 1996 (inception) through December 31, 1996. Messrs. Lycke and Bensen,
officers of the Company during such period, participated in deliberations of the
Company's Board of Directors concerning executive officer compensation. There
were no interlocking relationships between the Company and other entities that
might affect the determination of the compensation of the directors and
executive officers of the Company.
EMPLOYMENT AGREEMENTS
In April, 1997, the Company entered into an employment agreement with Mr.
Lycke providing that, commencing on such date and expiring on December 31, 2001,
Mr. Lycke will serve as Chairman of the Board of Directors, President, and Chief
Executive Officer of the Company at a base salary equal to
33
<PAGE>
$250,000, increasing by 5% per annum (subject to increase by the Board of
Directors), and such bonuses as may be determined by the Board of Directors. In
addition, Mr. Lycke will receive use of a company-owned automobile or an
automobile allowance. In the event of a Change in Control of the Company (as
defined in such agreement), all options previously granted to Mr. Lycke which
remain unvested will automatically vest immediately. Upon a termination of Mr.
Lycke's employment following a Change in Control, unless Mr. Lycke voluntarily
terminates his employment for other than certain listed reasons, the Company is
required to pay Mr. Lycke a lump sum severance payment equal to his then current
annual salary. In addition, if Mr. Lycke's employment is terminated (i) upon his
death, (ii) by the Company due to disability, (iii) by the Company without
cause, or (iv) by Mr. Lycke voluntarily upon the Company's default or unremedied
Adverse Change in Duties (as defined in such agreement), then the Company is
required to pay Mr. Lycke a lump sum severance payment equal to his then current
annual salary. Mr. Lycke may terminate his employment at any time upon at least
30 days written notice to the Company. Upon the termination of such agreement,
Mr. Lycke is subject to certain non-compete, non-disturbance, and non-
interference provisions for a period of one year.
In September, 1996, the Company entered into an employment agreement, as
amended as of March 26, 1997, with Mr. Lee, Executive Vice President of
Marketing and Technology of the Company, providing that, commencing on such date
and terminating on the second anniversary thereof, Mr. Lee will devote his full
business time and efforts to the Company for a base salary per annum of $125,000
plus bonus for achieving certain designated milestones. In addition and pursuant
to such agreement, Mr. Lee was issued 59,630 shares of Common Stock on January
2, 1997. Mr. Lee is also entitled to participate in insurance and other benefit
plans established by the Company for the employees thereof. Generally, upon the
termination of Mr. Lee's employment for cause, Mr. Lee shall be restricted from
competing with the Company for a period of six months thereafter. In the event
Mr. Lee is terminated without cause or for certain other reasons at the
discretion of the Company, Mr. Lee shall be entitled to receive $40,000 in
consideration of the termination of his employment and shall be restricted from
competing with the Company for a period of six months thereafter.
In connection with the Medica acquisition, the Company entered into an
employment agreement with Mr. Randall S. Lindner, the Vice President of
Technology of the Company, providing that, commencing on June 2, 1997 and
terminating on the third anniversary thereof, Mr. Lindner will devote his full
business time and efforts to the Company for a base salary per annum of $100,000
plus bonus for achieving certain designated milestones. In addition, pursuant to
the Medica acquisition, Mr. Lindner was issued 107,477 shares of Common Stock on
June 2, 1997. Mr. Lindner is also entitled to participate in insurance and other
benefit plans established by the Company for the employees thereof. Generally,
upon the termination of Mr. Lindner's employment for cause, he shall be
restricted from competing with the Company for a period of one year thereafter.
In the event Mr. Lindner is terminated without cause or for certain other
reasons at the discretion of the Company, Mr. Lindner shall be entitled to
receive between $20,000 and $30,000 in consideration of the termination of his
employment.
1997 STOCK OPTION PLAN
On April 5, 1997, the Board of Directors of the Company and stockholders of
the Company authorized adoption of the Plan. The Plan provides for the grant of
options to purchase up to 600,000 shares of Common Stock to employees, officers,
directors, and consultants of the Company. Options may be either "incentive
stock options" within the meaning of Section 422 of the United States Internal
Revenue Code of 1986, as amended (the "Code"), or non-qualified options.
Incentive stock options may be granted only to employees of the Company, while
non-qualified options may be issued to non-employee directors, consultants, and
others, as well as to employees of the Company.
The Plan will be administered by "disinterested members" of the Board of
Directors or the Compensation Committee, who determine, among other things, the
individuals who shall receive options, the time period during which the options
may be partially or fully exercised, the number of shares of Common Stock
issuable upon the exercise of each option, and the option exercise price.
34
<PAGE>
The exercise price per share of Common Stock subject to an incentive option
may not be less than the fair market value per share of Common Stock on the date
the option is granted. The per share exercise price of the Common Stock subject
to a non-qualified option may be established by the Board of Directors. The
aggregate fair market value (determined as of the date the option is granted) of
Common Stock for which any person may be granted incentive stock options which
first become exercisable in any calendar year may not exceed $100,000. No person
who owns, directly or indirectly, at the time of the granting of an incentive
stock option to such person, 10% or more of the total combined voting power of
all classes of stock of the Company (a "10% Stockholder") shall be eligible to
receive any incentive stock options under the Plan unless the exercise price is
at least 110% of the fair market value of the shares of Common Stock subject to
the option, determined on the date of grant. Non-qualified options are not
subject to such limitation.
No stock option may be transferred by an optionee other than by will or the
laws of descent and distribution, and, during the lifetime of an optionee, the
option will be exercisable only by the optionee. In the event of termination of
employment or engagement other than by death or disability, the optionee will
have no more than three months after such termination during which the optionee
shall be entitled to exercise the option, unless otherwise determined by the
Board of Directors. Upon termination of employment or engagement of an optionee
by reason of death or permanent and total disability, such optionee's options
remain exercisable for one year thereafter to the extent such options were
exercisable on the date of such termination. No similar limitation applies to
non-qualified options.
Options under the Plan must be issued within ten years from the effective
date of the Plan. The effective date of the Plan is April 5, 1997. Incentive
stock options granted under the Plan cannot be exercised more than ten years
from the date of grant. Incentive stock options issued to a 10% Stockholder are
limited to five year terms. Options granted under the Plan generally provide for
the payment of the exercise price in cash and may provide for the payment of the
exercise price by delivery to the Company of shares of Common Stock already
owned by the optionee having a fair market value equal to the exercise price of
the options being exercised, or by a combination of such methods. Therefore, if
so provided in an optionee's options, such optionee may be able to tender shares
of Common Stock to purchase additional shares of Common Stock and may
theoretically exercise all of his stock options with no additional investment
other than the purchase of his original shares.
Any unexercised options that expire or that terminate upon an employee's
ceasing to be employed by the Company become available again for issuance under
the Plan.
To date, no options have been granted under the Plan.
DIRECTORS' LIMITATION OF LIABILITY
The Company's Certificate of Incorporation and By-Laws include provisions to
(a) indemnify the directors and officers to the fullest extent permitted by the
Delaware General Corporation Law, including circumstances under which
indemnification is otherwise discretionary and (b) eliminate the personal
liability of directors and officers for monetary damages resulting from breaches
of their fiduciary duty (except for liability for breaches of the duty of
loyalty, acts, or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, violations under Section 174 of the
Delaware General Corporation Law, or for any transaction from which the director
derived an improper personal benefit). The Company believes that these
provisions are necessary to attract and retain qualified persons as directors
and officers.
The Company has applied for directors and officers liability insurance in an
amount of not less than $2 million, provided, however, that, pursuant to the
Underwriting Agreement between the Company and the Underwriters (the
"Underwriting Agreement"), the Company shall not be required to pay more than
$50,000 per year in order to maintain such insurance and if such insurance is
not available at such cost, the Company shall purchase that amount of insurance
which is available at a cost of $50,000 per year.
Insofar as indemnification for liability arising under the Securities Act
may be permitted to directors, officers, and controlling persons of the Company
pursuant to the foregoing provisions or otherwise, the Company has been advised
that, in the opinion of the Commission, such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
35
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of the date hereof, (i) each person who
is known by the Company to be the owner of record or beneficial owner of more
than 5% of the outstanding Common Stock, (ii) each director and each executive
officer of the Company, (iii) all directors and executive officers of the
Company as a group, and (iv) the number of shares of Common Stock beneficially
owned by each such person and such group and the percentage of the outstanding
shares owned by each such person and such group. Except as otherwise indicated,
the stockholders listed in the table have sole voting and investment powers with
respect to the shares indicated.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED(1)
-----------------------------------------------------
<S> <C> <C> <C>
NAME AND ADDRESS PERCENT PRIOR TO PERCENT AFTER
OF BENEFICIAL OWNER NUMBER OF SHARES OFFERING OFFERING
- ---------------------------------------------------------------- ----------------- ----------------- ---------------
Bo W. Lycke (2) (3)............................................. 1,954,438 48.8% 29.2%
Terry A. Lee (2)................................................ 59,630 1.5 0.9
Mark W. Patterson (2)........................................... 0 0 0
Randall S. Lindner (2)(6)....................................... 107,477 2.7 1.6
James Anderson (2).............................................. 0 0 0
Ward L. Bensen (2) (3) (4)...................................... 603,187 15.1 10.4
Robert H. Brown, Jr. (2) (3) (5)................................ 751,607 18.8 11.2
Sture Hedlund (2)............................................... 11,926 * *
John C. Willems, III (2)........................................ 11,926 * *
American Medical Finance, Inc. ................................. 352,115 8.8 5.3
12801 N. Central Expressway
Suite 1515
Dallas, Texas 75243
Healthcare Reform Investment Trust Plc. ........................ 231,897 5.8 3.5
c/o Miss D.A. Kingston
Lloyds Bank Securities Services
51-53 New London Road
Essex CM2 OSY, England
All directors and executive officers of the Company as a group
(9 persons) (2) (3) (4) (5)................................... 2,795,962 69.9% 41.7%
</TABLE>
- ------------------------------
* Less than one percent.
(1) As used herein, the term beneficial ownership with respect to a security is
defined by Rule 13d-3 under the Exchange Act, as consisting of sole or
shared voting power (including the power to vote or direct the vote) and/or
sole or shared investment power (including the power to dispose or direct
the disposition) with respect to the security through any contract,
arrangement, understanding, relationship, or otherwise, including a right to
acquire such power(s) during the next 60 days. Unless otherwise noted,
beneficial ownership consists of sole ownership, voting, and investment
power with respect to all Ordinary Shares shown as beneficially owned by
them.
(2) The address of the referenced individual is c/o Claimsnet.com inc., 12801 N.
Central Expressway, Suite 1515, Dallas, Texas 75243.
(3) Includes 352,115 shares of Common Stock owned of record by AMF. Mr. Lycke
serves as the Chairman of the Board of Directors of AMF. Messrs. Lycke,
Bensen, and Brown are stockholders of AMF owning 70.1%, 11.2%, and 17.7% of
the outstanding capital stock of AMF, respectively. Therefore, Messrs.
Lycke, Bensen, and Brown may be deemed to beneficially own the shares of
Common Stock owned by AMF.
(4) Consists of 251,073 shares of Common Stock owned of record by Mr. Bensen and
352,115 shares of Common Stock owned of record by AMF. See foot note (3),
above.
(5) Consists of 399,492 shares of Common Stock owned of record by Mr. Brown and
352,115 shares of Common Stock owned of record by AMF. See footnote (3),
above.
(6) Does not include 4,215 shares of Common Stock owned of record by Mr.
Lindner's wife, as to which shares Mr. Lindner disclaims beneficial
ownership.
36
<PAGE>
CERTAIN TRANSACTIONS
AMF is the record owner of 352,115 of Common Stock, representing 8.8% of the
outstanding Common Stock prior to this offering and 6.1% of the outstanding
Common Stock following this Offering. Bo W. Lycke, the Chairman of the Board of
Directors, President, and Chief Executive Officer of the Company, is the
Chairman of the Board of Directors of AMF. Mr. Lycke and Ward L. Bensen and
Robert H. Brown, Jr., directors of the Company, are all stockholders of AMF,
owning 70.1%, 11.2%, and 17.7% of the outstanding capital, stock of AMF,
respectively. See "Principal Stockholders." Such individuals will devote minimal
time to winding up the business and affairs of AMF for approximately three
months following this offering.
On July 31, 1996, the Company acquired all of the Internet software,
licenses, intellectual property rights, and technology developed by an
affiliated company, AMF, in exchange for a promissory note in the amount of
$3,740,000. On September 19, 1997, AMF reduced the principal amount of the AMF
Note to $2,000,000 and contributed the remaining $1,740,000 in principal amount
of the AMF Note to the capital of the Company. Such note bears interest at the
rate of 9.50% per annum and is collateralized by all of the Internet software,
intellectual property rights, internet technology and technology rights of the
Company, including software development costs. Although such note is due and
payable on the date one year following the consummation of the Bridge Financing,
the Company intends to utilize a portion of the net proceeds of this Offering to
repay such obligation. See "Use of Proceeds" and "Principal Stockholders."
In connection with such acquisition, AMF and the Company entered into a
Service Agreement (the "Service Agreement"), in which AMF provides staff and
office support services to the Company and for which the Company is billed
monthly. Such agreement can be canceled immediately by the Company upon written
notification to AMF. The Service Agreement will be cancelled upon the winding up
of the business of AMF approximately three months after this offering. AMF will
bill the Company monthly. As needed, the charged amount on the monthly statement
may be added to the line of credit between the Company and AMF, dated July 31,
1996. As required, the amounts incurred pursuant to the Service Agreement may by
charged at the election of the Company to the credit line provided by AMF to the
Company. The Company believes that the cost of the services provided by AMF is
comparable to, or lower than, available alternatives. Commencing April 1, 1997,
the Company established its own payroll and personnel/management structure. No
material effect on the relationship with employees is expected.
From April 1996 until August 1997, the Company subleased 4,000 square feet
of office space from AMF, on a month-to-month basis, at the rate of $4,000 per
month.
Upon the consummation of the acquisition of AMF, AMF agreed to provide the
Company with a credit line of up to $950,000 to facilitate additional
development of the Company's services and technology. At June 30, 1997, advances
under such line of credit were $909,967. Such line of credit bears interest at
the rate of 9.50% per annum and is secured by all of the assets of the Company.
Although such note is due and payable in 1998, the Company intends to utilize a
portion of the net proceeds of this Offering to repay such obligation. See "Use
of Proceeds." Thereafter, the credit line with AMF will be terminated.
All future transactions between the Company and its officers, directors, and
5% stockholders will be on terms no less favorable to the Company than can be
obtained from unaffiliated third parties and will be approved by a majority of
the independent and disinterested directors of the Company.
For a description of employment agreements between the Company and the
executive officers thereof, see "Management--Employment Agreements."
37
<PAGE>
DESCRIPTION OF SECURITIES
GENERAL
The Company is authorized by its Certificate of Incorporation to issue an
aggregate of 40,000,000 shares of Common Stock, par value $.001 per share, and
4,000,000 shares of preferred stock, par value $.001 per share. As of June 30,
1997, 4,000,000 shares of Common Stock were outstanding and held of record by 26
stockholders.
COMMON STOCK
Holders of Common Stock are entitled to one vote for each share held of
record on each matter submitted to a vote of stockholders. There is no
cumulative voting for the election of directors. Subject to the prior rights of
any class or series of preferred stock which may from time to time be
outstanding, if any, holders of Common Stock are entitled to receive ratably,
dividends when, as, and if declared by the Board of Directors out of funds
legally available therefor and, upon the liquidation, dissolution, or winding up
of the Company, are entitled to share ratably in all assets remaining after
payment of liabilities and payment of accrued dividends and liquidation
preferences on the preferred stock, if any. Holders of Common Stock have no
preemptive rights and have no rights to convert their Common Stock into any
other securities. The outstanding Common Stock is validly authorized and issued,
fully-paid, and nonassessable. In the event the Company were to elect to sell
additional shares of Common Stock following this Offering, investors in this
Offering would have no prior right to purchase such additional shares. As a
result, their percentage equity interest in the Company would be diluted. The
shares of Common Stock offered hereby will be, when issued and paid for, fully
paid and not liable for further call or assessment. Holders of the Common Stock
do not have cumulative voting rights, which means that the holders of more than
one half of the outstanding shares of Common Stock (subject to the rights of the
holders of the preferred stock) can elect all of the Company's directors, if
they choose to do so. In such event, the holders of the remaining shares of
Common Stock would not be able to elect any directors. The Board is empowered to
fill any vacancies on the Board, except vacancies caused by an increase in the
number of directors, which are filled by the stockholders. Except as otherwise
required by Delaware law, and subject to the rights of the holders of preferred
stock, all stockholder action is taken by the vote of a majority of the
outstanding shares of Common Stock voting as a single class present at a meeting
of stockholders at which a quorum (consisting of a majority of the outstanding
shares of Common Stock) is present in person or proxy.
PREFERRED STOCK
Preferred stock may be issued in one or more series and having such rights,
privileges, and limitations, including voting rights, conversion privileges,
and/or redemption rights, as may, from time to time, be determined by the Board
of Directors of the Company. Preferred stock may be issued in the future in
connection with acquisitions, financings, or such other matters as the Board of
Directors deems appropriate. In the event that any such shares of preferred
stock are to be issued, a Certificate of Designation, setting forth the series
of such preferred stock and the rights, privileges, and limitations with respect
thereto, shall be filed with the Secretary of State of the State of Delaware.
The effect of such preferred stock is that the Company's Board of Directors
alone, and subject to, federal securities laws and Delaware law, may be able to
authorize the issuance of preferred stock which could have the effect of
delaying, deferring, or preventing a change in control of the Company without
further action by the stockholders, and may adversely affect the voting and
other rights of the holders of the Common Stock. The issuance of preferred stock
with voting and conversion rights may also adversely affect the voting power of
the holders of Common Stock, including the loss of voting control to others.
38
<PAGE>
ANTI-TAKEOVER PROVISIONS
Upon consummation of this Offering, the Company will be subject to the
provisions of Section 203 of the Delaware General Corporation Law ("Section
203"). Section 203 provides, with certain exceptions, that a Delaware
corporation may not engage in any of a broad range of business combinations with
a person or an affiliate, or an associate of such person, who is an "interested
stockholder" for a period of three years from the date that such person became
an interested stockholder unless: (i) the transaction resulting in a person
becoming an interested stockholder, or the business combination, is approved by
the board of directors of the corporation before the person becomes an
interested stockholder; (ii) the interested stockholder acquired 85% or more of
the outstanding voting stock of the corporation in the same transaction that
makes such person an interested stockholder (excluding shares owned by persons
who are both officers and directors of the corporation, and the shares held by
certain employee stock ownership plans); or (iii) on or after the date the
person becomes an interested stockholder, the business combination is approved
by the corporation's board of directors and by the holders of at least 66-2/3%
of the corporations outstanding voting stock at an annual or special meeting,
excluding the shares owned by the interested stockholder. Under Section 203, an
"interested stockholder" is defined as any person who is: (i) the owner of 15%
or more of the outstanding voting stock of the corporation or (ii) an affiliate
or associate of the corporation and who was the owner of 15% or more of the
outstanding voting stock of the corporation at any time within the three-year
period immediately prior to the date on which it is sought to be determined
whether such person is an interested stockholder.
A corporation may, at its option, exclude itself from coverage of Section
203 by amending its certificate of incorporation or bylaws, by action of its
stockholders, to exempt itself from coverage, provided that such certificate of
incorporation amendment or bylaw shall not become effective until 12 months
after the date it is adopted. The Company has not adopted such an amendment to
its certificate of incorporation or bylaws.
QUOTATION ON NASDAQ NATIONAL MARKET
The Company has applied to include the Common Stock on the Nasdaq National
Market under the symbol "CLAI." No assurance can be given that an active trading
market for the Common Stock will develop or be sustained or at what price the
Common Stock will trade.
TRANSFER AGENT; WARRANT AGENT
The Company's Transfer Agent and Registrar for the Common Stock is
Continental Stock Transfer & Trust Company, 2 Broadway, New York, New York
10004.
39
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have 6,700,000 shares of
Common Stock outstanding (7,105,000 shares of Common Stock outstanding if the
Underwriters' over-allotment option is exercised in full). Of these shares, the
2,700,000 Shares offered hereby (3,105,000 shares if the Representative's
over-allotment option is exercised in full) will be freely tradeable without
further registration under the Securities Act. All officers and directors of the
Company, current stockholders, and option holders under the Plan have agreed not
to sell, or otherwise dispose of any securities of the Company for a period of
18 months from the date of this offering without the Representative's prior
written consent.
All of the presently outstanding 4,000,000 shares of Common Stock are
"restricted securities" within the meaning of Rule 144 of the Securities Act
and, if held for at least one year, would be eligible for sale in the public
market in reliance upon, and in accordance with, the provisions of Rule 144
following the expiration of such one-year period. In general, under Rule 144 as
currently in effect, a person or persons whose shares are aggregated, including
a person who may be deemed to be an "affiliate" of the Company as that term is
defined under the Securities Act, would be entitled to sell within any three
month period a number of 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) 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 to have been an affiliate of the Company during the 90 days preceding a
sale by such person and who has beneficially owned such shares of Common Stock
for at least two years may sell such shares without regard to the volume, manner
of sale, or notice requirements of Rule 144.
Prior to this offering, there has been no public market for the Company's
securities. Following this offering, the Company cannot predict the effect, if
any, that sales of shares of Common Stock pursuant to Rule 144 or otherwise, or
the availability of such shares for sale, will have on the market price
prevailing from time to time. Nevertheless, sales by the current stockholders of
a substantial number of shares of Common Stock in the public market could
materially adversely affect prevailing market prices for the Common Stock. In
addition, the availability for sale of a substantial number of shares of Common
Stock acquired through the exercise of the Representative's Warrants or the
outstanding options under the Plan could materially adversely affect prevailing
market prices for the Common Stock. See "Risk Factors-- Shares Eligible for
Future Sale."
The Company has agreed to register the 745,380 shares of Common Stock issued
in the Bridge Financing for resale commencing 18 months from the date of this
Prospectus.
In addition, pursuant to the terms of the Medica Acquisition, the Company
granted "piggy-back" registration rights with respect to the 153,847 shares of
Common Stock issued in connection therewith. Such shares of Common Stock shall
be included in any registration of Common Stock which occurs after this
offering, subject to certain restrictions.
Up to 270,000 additional shares of Common Stock may be purchased by the
Representative during the period commencing on the first anniversary of the date
of this Prospectus and terminating on the fifth anniversary of the date of this
Prospectus through the exercise of the Representative's Warrants. Any and all
securities purchased upon the exercise of the Representative's Warrants may be
freely tradeable, provided that the Company satisfies certain securities
registration and qualification requirements in accordance with the terms of the
Representative's Warrants. See "Underwriting."
40
<PAGE>
UNDERWRITING
Subject to the terms and conditions contained in the underwriting agreement
(the "Underwriting Agreement"), the Company has agreed to sell to each of the
Underwriters named below, and each of the Underwriters, for which Hampshire
Securities Corporation is acting as Representative, has severally, and not
jointly, agreed, to purchase the number of Shares offered hereby set forth
opposite their respective names below.
<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
- ----------------------------------------------------------------------------------------------------- ----------
<S> <C>
Hampshire Securities Corporation.....................................................................
Total............................................................................................ 2,700,000
</TABLE>
A copy of the Underwriting Agreement has been filed as an exhibit to the
Registration Statement, to which reference is hereby made. The Underwriting
Agreement provides that the obligations of the Underwriters to purchase the
Shares is subject to certain conditions. The Underwriters shall be obligated to
purchase all of the Shares (other than those covered by the Underwriters'
over-allotment option described below), if any are purchased.
The Representative has advised the Company that the Underwriters propose to
offer the Shares to the public at the initial public offering price set forth on
the cover page of this Prospectus and that they may allow to certain dealers who
are members of the National Association of Securities Dealers, Inc. (the
"NASD"), and to certain foreign dealers, concessions not in excess of $
per Share, of which amount a sum not in excess of $ per Share may in
turn be reallowed by such dealers to other dealers who are members of the NASD
and to certain foreign dealers. After the commencement of this offering, the
offering price, the concession to selected dealers, and the reallowance to other
dealers may be changed by the Representative.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including civil liabilities under the Securities Act, or will
contribute to payments the Underwriters may be required to make in respect
thereof.
The Company has agreed to pay to the Representative an expense allowance, on
a non-accountable basis, equal to 3% of the gross proceeds derived from the sale
of 2,700,000 Shares offered hereby (or 3,105,000 Shares if the Underwriters'
over-allotment option is exercised in full). The Company paid an advance on such
allowances in the amount of $25,000. The Company has also agreed to pay certain
of the Representative's expenses in connection with this offering, including
expenses in connection with qualifying the Shares offered hereby for sale under
the laws of such states as the Representative may designate and the placement of
tombstone advertisements.
In connection with this offering, the Company has granted the Representative
the right, for the three-year period commencing on the closing date of this
offering, to appoint an observer to attend all meetings of the Company's Board
of Directors. This designee has the right to notice of all meetings of the Board
of Directors and to receive reimbursement for all out-of-pocket expenses
incurred in attending such meetings. In addition, such designee will be entitled
to indemnification to the same extent as the Company's directors.
The Representative has advised the Company that the Underwriters do not
intend to confirm sales of the Shares offered hereby to any account over which
they exercise discretionary authority.
The Company, its officers, directors, and stockholders, as well as the
holders of options under the Plan, have agreed not to offer, assign, issue,
sell, hypothecate, or otherwise dispose of any shares of Common Stock,
securities of the Company convertible into, or exercisable or exchangeable for,
shares of Common Stock, or shares of Common Stock received upon conversion,
exercise, or exchange of such
41
<PAGE>
securities, to the public without the prior written consent of the
Representative for a period of 18 months from the date of this Prospectus.
Prior to this offering, there has been no public trading market for the
Common Stock. The initial public offering price for the Shares will be
determined by arms-length negotiations between the Company and the
Representative and does not necessarily bear any relationship to the Company's
book value, assets, past operating results, financial condition, or other
established criteria of value. Among the factors to be considered in such
negotiations will be prevailing market conditions, the history and prospects for
the Company and the industry in which the Company competes, an assessment of the
Company's management, its capital structure, and such other factors deemed
relevant.
The Company has also granted to the Underwriters an option, exercisable
during the 45-day period commencing on the date of this Prospectus, to purchase
at the public offering price per share, less the underwriting discounts and
commissions, up to an aggregate of 405,000 shares of Common Stock. To the extent
such option is exercised, each Underwriter will become obligated, subject to
certain conditions, to purchase additional shares of Common Stock proportionate
to such Underwriter's initial commitment as indicated in the preceding table.
The Underwriters may exercise such right of purchase only for the purpose of
covering over-allotments, if any, made in connection with the sale of Shares.
Purchases of shares of Common Stock upon exercise of the over-allotment option
will result in the realization of additional compensation by the Underwriters.
In connection with this offering, the Company has agreed to sell to the
Representative, individually and not as Representative of the several
Underwriters, at the price of $.001 per warrant, the Representative's Warrants
to purchase 270,000 shares of Common Stock. The Representative's Warrants are
exercisable for a period of four years commencing one year from the date of this
Prospectus at an exercise price per share (the "Exercise Price") equal to 110%
of the public offering price per share. The Representative's Warrants may not be
sold, transferred, assigned, pledged, or hypothecated for a period of 12 months
from the date of the Prospectus, except to members of the selling group and to
officers and partners of the Representative and members of the selling group.
The Representative's Warrants contain anti-dilution provisions providing for
adjustments of the Exercise Price and number of shares issuable on exercise of
the Representative's Warrants, upon the occurrence of certain events, including
stock dividends, stock splits, and recapitalizations. The holders of the
Representative's Warrants have no voting, dividend, or other rights as
stockholders of the Company with respect to shares of Common Stock underlying
the Representative's Warrants, unless the Representative's Warrants shall have
been exercised.
A new registration statement or post-effective amendment to the Registration
Statement will be required to be filed and declared effective before
distribution to the public of the Representative's Warrants and the Warrant
Shares. The Company has agreed, on one occasion during the period beginning one
year after the date of this Prospectus and ending four years thereafter, if
requested by the holders of a majority of the Representative's Warrants or
Warrant Shares, to make all necessary filings to permit a public offering of the
Representative's Warrants and Warrant Shares and to use its best efforts to
cause such filing to become effective under the Securities Act and to remain
effective for at least 12 months, at the Company's sole expense. Notwithstanding
the foregoing, the Company shall have no obligation to prepare and file such new
registration statement or post-effective amendment to the Registration Statement
if, within 20 days after it receives the request therefor, the Company or
insiders who own individually in excess of 5% of the Common Stock agree to
purchase the Representative's Warrants and/or the underlying securities from
such requesting holders at a price, in the case of the Representative's
Warrants, equal to the difference between the exercise price of the
Representative's Warrants and the current market price (as defined) of the
underlying securities. In addition, the Company has agreed to give advance
notice to holders of the Representative's Warrants and Warrant Shares of its
intention to file a registration statement, and in such case, holders of the
Representative's Warrants and the Warrant Shares shall have the right to require
the Company to include the Warrant Shares in such registration statement at the
Company's expense (subject to certain limitations).
42
<PAGE>
During and after this offering, the Underwriters may purchase and sell
Common Stock in the open market. These transactions may include over-allotment
and stabilizing transactions and purchases to cover syndicate short positions
created in connection with this offering. The Underwriters also may impose a
penalty bid, whereby selling concessions allowed to syndicate members or other
broker-dealers in respect of the Common Stock sold in this offering for their
account may be reclaimed by the syndicate if such shares are repurchased by the
syndicate in stabilizing or covering transactions. These activities may
stabilize, maintain or otherwise affect the market price of the Common Stock
which may be higher than the price that might otherwise affect the market price
of the Common Stock, which may be higher than the price that might otherwise
prevail in the open market. Neither the Company nor any of the Underwriters
makes 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 Common
Stock. In addition, neither the Company nor any of the Underwriters makes any
representation that the Underwriters will engage in such transactions of that
such transactions, once commenced, will not be discontinued at any time.
The Company has granted the Representative, individually and not as the
Representative of the several Underwriters, a right of first refusal to act as
the Company's investment banker with respect to future financings or any merger,
acquisition, or disposition of assets of the Company for a period of two years
from the date of this Prospectus.
The foregoing is a summary of the principal terms of the agreements
described above and does not purport to be complete. Reference is made to a copy
of each such agreement which are filed as exhibits to the Registration
Statement. See "Additional Information."
43
<PAGE>
LEGAL MATTERS
Certain legal matters will be passed upon for the Company by Brock
Fensterstock Silverstein McAuliffe & Wade LLC, New York, New York. Certain legal
matters will be passed upon for the Underwriters by Fulbright & Jaworski LLP,
New York, New York. Brock Fensterstock Silverstein McAuliffe & Wade LLC renders
legal services to the Representative in connection with matters other than this
offering and owns beneficially and of record an aggregate of 29,815 shares of
Common Stock.
EXPERTS
The financial statements of the Company as at December 31, 1996, and for the
period then ended, and the financial statements of Medica Systems, Inc. as at
December 31, 1996 and 1995 and for the years then ended, and the period from May
1, 1994 to December 31, 1994, have been audited by King Griffin & Adamson P.C.,
Dallas, Texas, independent certified public accountants, as indicated in their
reports with respect thereto, and are included herein in reliance upon such
reports given upon the authority of said firm as experts in accounting and
auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission, 450 Fifth Street, N.W.,
Washington D.C. 20549, a registration statement on Form S-1 (the "Registration
Statement"), including amendments thereto, under the Exchange Act with respect
to the securities offered hereby. This Prospectus does not contain all the
information set forth in the Registration Statement and the exhibits and
schedules filed therewith, as permitted by the rules and regulations of the
Commission. For further information with respect to the Company and the
Offering, reference is hereby made to the Registration Statement and to the
exhibits and schedules filed therewith. Statements contained in this Prospectus
as to the contents of any contract or other document which has been filed as an
exhibit to the Registration Statement are qualified in their entirety by
reference to such exhibits for a complete statement of their terms and
conditions. The Registration Statement and the exhibits and schedules thereto
may be inspected without charge at the offices of the Commission and copies of
all or any part thereof may be obtained from the Commission's principal office
at 450 Fifth Street, N.W., Washington D.C. 20549 or at certain of the regional
offices of the Commission located at Seven World Trade Center, 13th Floor, New
York, New York 10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois
60661, upon payment of the fees prescribed by the Commission. Electronic
registration statements filed through the Electronic Data Gathering, Analysis,
and Retrieval system are publicly available through the Commission's Web site
(http://www.sec.gov). Following approval of the Common Stock and the Warrants
for quotation on the Nasdaq National Market, reports and other information
concerning the Company may be inspected at the offices of the National
Association of Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C.
20006.
44
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
CLAIMSNET.COM INC.
Report of Independent Certified Public Accountants.................................................... F-2
Financial Statements
Balance Sheet as of December 31, 1996............................................................. F-3
Statement of Operations for the period from April 8, 1996
(inception) to December 31, 1996.................................................................. F-4
Statement of Changes in Stockholders' Deficit for the period from
April 8, 1996 (inception) to December 31, 1996.................................................... F-5
Statement of Cash Flows for the period from April 8, 1996
(inception) to December 31, 1996.................................................................. F-6
Notes to Financial Statements for the period from April 8, 1996
(inception) to December 31, 1996.................................................................. F-7
Unaudited Consolidated Balance Sheets as of June 30, 1997......................................... F-12
Unaudited Consolidated Statements of Operations for the
Six Months Ended June 30, 1997.................................................................... F-13
Unaudited Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 1997.................................................................... F-14
Notes to Unaudited Consolidated Financial Statements for
the Six Months Ended June 30, 1997................................................................ F-15
MEDICA SYSTEMS, INC.
Report of Independent Certified Public Accountants.................................................... F-16
Financial Statements
Balance Sheets as of December 31, 1996 and 1995................................................... F-17
Statements of Operations for the years ended December 31, 1996 and 1995
and the period from May 1, 1994 (inception) to December 31, 1994.................................. F-18
Statements of Changes in Stockholders' Equity (Deficit) for the years ended December 31, 1996 and
1995 and the period from May 1, 1994 (inception) to December 31, 1994.............................. F-19
Statements of Cash Flows for the years ended December 31, 1996 and 1995
and the period from May 1, 1994 (inception) to December 31, 1994.................................. F-20
Notes to Financial Statements for the years ended December 31, 1996 and 1995
and the period from May 1, 1994 (inception) to December 31, 1994.................................. F-21
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
After the change in common stock from no par value to a par value of $0.001
per share concurrent with the reincorporation of the Company in the State of
Delaware and the 1 for 1.95 reverse stock split of the common stock as discussed
in Note H to the Claimsnet.com inc. financial statements are effected, we expect
to be in a position to render the following audit report.
KING GRIFFIN & ADAMSON P.C.
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
claimsnet.com inc.
(formerly American NET Claims, Inc.)
We have audited the accompanying balance sheet of Claimsnet.com inc.
(formerly American NET Claims, Inc.) (a development stage company) as of
December 31, 1996, and the related statement of operations, stockholders'
deficit, and cash flows for the period from April 8, 1996 (inception) to
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 that balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Claimsnet.com inc. (formerly
American NET Claims, Inc.) as of December 31, 1996, and the results of its
operations and its cash flows for the period from April 8, 1996 (inception) to
December 31, 1996, in conformity with generally accepted accounting principles.
As discussed in Note C to the financial statements, the Company was in the
development stage as of December 31, 1996, and had not generated any revenues.
Effective April 1997, the Company left the development stage. As discussed in
Note K, effective September 19, 1997, the Company converted $1.74 million of
debt to equity and extended the due date of its remaining principal and accrued
interest to October 1, 1999.
KING GRIFFIN & ADAMSON P.C.
Dallas, Texas
April 1, 1997, except for Notes C, H and K for which the date is .
F-2
<PAGE>
CLAIMSNET.COM INC.
(FORMERLY AMERICAN NET CLAIMS, INC.)
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
DECEMBER 31, 1996
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS
Cash.......................................................................... $ 15,659
----------
Total current assets........................................................ 15,659
----------
FIXED ASSETS
Computer equipment............................................................ 29,135
----------
OTHER ASSETS
Software development costs.................................................... 831,869
Deferred offering costs....................................................... 101,669
----------
TOTAL ASSETS.................................................................... $ 978,332
----------
----------
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accrued interest--affiliate................................................... $ 158,123
----------
Total current liabilities................................................... 158,123
----------
LONG-TERM LIABILITIES
Line of credit--affiliate..................................................... 510,250
Note payable--affiliate....................................................... 3,740,000
----------
TOTAL LIABILITIES............................................................... 4,408,373
----------
COMMITMENTS AND CONTINGENCIES (Notes C, D, G, I, J and K)
STOCKHOLDERS' DEFICIT
Preferred stock--$0.001 par value; 1,000,000 shares authorized; no shares
issued or outstanding....................................................... --
Common stock--$0.001 par value; 40,000,000 shares authorized; 3,041,140 shares
issued and outstanding...................................................... 3,041
Additional paid-in capital.................................................... (3,126,041)
Deficit accumulated during the developmental stage............................ (306,041)
----------
(3,429,041)
Less note receivable for shares............................................... (1,000)
----------
TOTAL STOCKHOLDERS' DEFICIT..................................................... (3,430,041)
----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT..................................... $ 978,332
----------
----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
CLAIMSNET.COM INC.
(FORMERLY AMERICAN NET CLAIMS, INC.)
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
PERIOD FROM APRIL 8, 1996 (INCEPTION) TO DECEMBER 31, 1996
<TABLE>
<S> <C>
REVENUES......................................................................... $ --
---------
OPERATING EXPENSES
Equipment rental............................................................... 26,000
Marketing...................................................................... 1,631
Rents.......................................................................... 10,000
Salaries....................................................................... 57,500
Training....................................................................... 3,730
Travel......................................................................... 19,900
Other.......................................................................... 29,157
---------
Total operating expense (including $140,750 to affiliate).................. 147,918
---------
INTEREST EXPENSE--affiliate...................................................... 158,123
---------
NET LOSS......................................................................... (306,041)
---------
---------
LOSS PER WEIGHTED AVERAGE COMMON SHARE OUTSTANDING............................... $ (0.10)
---------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING....................................... 3,041,089
---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
CLAIMSNET.COM INC.
(FORMERLY AMERICAN NET CLAIMS, INC.)
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
PERIOD FROM APRIL 8, 1996 (INCEPTION) TO DECEMBER 31, 1996
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
DURING THE
NUMBER OF COMMON NOTE DEVELOPMENT
SHARES STOCK RECEIVABLE STAGE
---------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
Issuance of common stock at inception (Note H), April 18,
1996...................................................... 3,011,325 $ 1,000 $ -- $ --
Deemed distribution related to purchase of asset from
affiliate (Note G), July 31, 1996......................... -- (3,125,000) -- --
Issuance of common stock for note, September 15, 1996....... 29,815 1,000 (1,000) --
Net loss for period......................................... -- -- -- (306,041)
---------- ------------- ----------- ------------
Balances at December 31, 1996............................... 3,041,140 $ (3,123,000) $ (1,000) $ (306,041)
---------- ------------- ----------- ------------
---------- ------------- ----------- ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
CLAIMSNET.COM INC.
(FORMERLY AMERICAN NET CLAIMS, INC.)
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
PERIOD FROM APRIL 8, 1996 (INCEPTION) TO DECEMBER 31, 1996
<TABLE>
<S> <C>
CASH FLOWS USED IN OPERATING ACTIVITIES
Net loss....................................................................... $(306,041)
Adjustments to reconcile net loss to net cash used by operating activities
Changes in assets and liabilities:
Increase in accrued interest............................................... 158,123
---------
Net cash used by operating activities........................................ (147,918)
---------
CASH FLOWS USED IN INVESTING ACTIVITIES
Purchases of property and equipment............................................ (29,135)
Software development costs..................................................... (216,869)
---------
Net cash used in investing activities........................................ (246,004)
---------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES
Increase in line of credit--affiliate.......................................... 510,250
Payments for deferred offering costs........................................... (101,669)
Proceeds from common stock issuances........................................... 1,000
---------
Net cash provided by financing activities.................................... 409,581
---------
NET INCREASE IN CASH............................................................. 15,659
Cash--beginning balance........................................................ --
---------
Cash--ending balance........................................................... $ 15,659
---------
---------
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Purchase of asset from affiliate--net.......................................... $ 615,000
---------
---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
CLAIMSNET.COM INC.
(FORMERLY AMERICAN NET CLAIMS, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE A--BACKGROUND AND ORGANIZATION
claimsnet.com inc. (formerly American NET Claims, Inc.) ("Claimsnet.com" or
the "Company") (a development stage company) was incorporated in the state of
Texas on April 8, 1996. claimsnet.com was formed for the purpose of completing
the development of software for processing medical insurance claims on the
Internet.
On July 31, 1996, the Company acquired all the Internet software, licenses,
intellectual property rights and technology developed by an affiliated company,
American Medical Finance, Inc. ("AMF") in exchange for a note payable of
$3,740,000. AMF is affiliated through common stockholders, and as a stockholder
of the Company. Upon purchase, the affiliated company agreed to provide the
Company with a credit line of up to $950,000 to facilitate additional
development. To secure long-term financing, the Company intends to complete an
equity Private Placement Memorandum ("PPM") during the second quarter 1997.
During the PPM funding process, the Company entered into a letter of intent with
a NASD firm to complete an initial public offering.
The Company is currently in the development stage and has generated no
revenues. The Company has incurred approximately $306,000 in expenses since its
inception. The continuation of the Company is dependent on its ability to
complete a private placement of equity, as well as its ability to raise the
necessary capital to finance the implementation of its business model.
The relationship with AMF could result in operating results or financial
position significantly different from those that would have been obtained if the
entities were autonomous.
NOTE B--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
STATEMENT OF CASH FLOWS
For purposes of the statement of cash flows, cash equivalents include time
deposits, certificates of deposits, and all highly liquid debt instruments with
original maturities of 3 months or less when purchased.
SOFTWARE
Financial Accounting Standard No. 86, "Accounting for the Costs of Computer
Software to be Sold, Leased, or Otherwise Marketed," provides for the
capitalization of certain costs related to development of computer software
products. Capitalized computer software costs include direct labor,
labor-related overhead costs and interest. The software will be amortized over
its expected useful life of 3 years after it is placed in service.
COMPUTER EQUIPMENT
Computer equipment is stated at cost. Depreciation is provided using the
straight line method over the estimated useful lives of the depreciable assets
of three to seven years. Maintenance and repairs are expensed as incurred.
Replacements and betterments are capitalized.
F-7
<PAGE>
CLAIMSNET.COM INC.
(FORMERLY AMERICAN NET CLAIMS, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
NOTE B--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEFERRED OFFERING COSTS
Deferred offering costs are capitalized and will be recorded as a reduction
to stockholders' equity upon completion of the Company's private equity
placement or expensed if the private equity placement is unsuccessful.
INCOME TAXES
The Company accounts for income taxes in accordance with the asset and
liability approach. Deferred income tax assets and liabilities are computed
annually for differences between the financial statement and tax bases of assets
and liabilities that will result in taxable or deductible amounts in the future
based on enacted tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected
to be realized. Income tax expense is the tax payable or refundable for the
period plus or minus the change during the period in deferred tax assets and
liabilities.
LOSS PER SHARE
Loss per share of common stock is computed based on the weighted average
number of shares of common stock outstanding. As the Company is in the process
of an initial public offering, all stock issuances are deemed outstanding for
all periods presented.
USE OF ESTIMATES AND ASSUMPTIONS
Management uses estimates and assumptions in preparing financial statements
in accordance with generally accepted accounting principles. Those estimates and
assumptions affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities, and the reported amounts of
revenues and expenses. Actual results could vary from the estimates that were
used.
NOTE C--BUSINESS OPERATIONS
At December 31, 1996, the Company was in the development stage and had
generated no revenues. The Company had incurred approximately $306,000 in
expenses since inception and had debt significantly in excess of its assets. In
April 1997, the Company left the development stage and entered into normal
operations. On May 7, 1997, the Company consummated a private placement of
shares of common stock of the Company, the gross proceeds of which were
$2,250,000. On June 2, 1997, the Company successfully completed its acquisition
of Medica Systems, Inc., which had an existing stream of operating revenue.
Management believes that the gross proceeds of such private placement, the
anticipated revenues resulting from the Medica acquisition, and the transactions
discussed in Note K will provide sufficient working capital to permit the
Company to meet its business objectives.
F-8
<PAGE>
CLAIMSNET.COM INC.
(FORMERLY AMERICAN NET CLAIMS, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
NOTE D--LINE OF CREDIT AND NOTE PAYABLE
The Company has a line of credit facility with AMF of up to $950,000. At
December 31, 1996, advances under the line of credit were $510,250. The line of
credit bears interest at 9.50% and is collaterized by all of the assets of the
Company, other than that collateral specified by note payable below.
The Company has a note payable to AMF of $3,740,000 at December 31, 1996
(see Note A). The note bears interest at 9.5% and is collaterized by all
Internet software and technology of the Company including software development
costs.
Both these amounts are due one year after the first closing under the PPM
(see Note J) but in no event later than July 31, 2001.
Interest expense for 1996 and accrued interest at December 31, 1996 under
the note and line of credit totaled $158,123.
NOTE E--FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosure About Fair
Value of Financial Instruments," requires disclosure about the fair value of all
financial assets and liabilities for which it is practicable to estimate.
The note payable and the line of credit (both amounts are fixed rate debt)
have a carrying amount of $4,250,250 and a fair value of approximately the same
amount. The fair value of the Company's fixed rate debt has been estimated based
upon relative changes in the Company's variable borrowing rates since
origination of the fixed rate debt.
NOTE F--INCOME TAXES
Deferred tax assets and liabilities at December 31, 1996 are as follows:
<TABLE>
<S> <C>
Non-current deferred tax asset.................................................... $ 150,730
Non-current deferred tax liability................................................ (37,587)
Valuation allowance............................................................... (113,143)
---------
Net non-current deferred taxes.................................................... $ --
---------
---------
</TABLE>
The non-current deferred tax liability results from deferred offering costs
deducted for income tax purposes and deferred for financial reporting purposes.
The non-current deferred tax asset results from the net operating loss generated
by the Company. The net deferred tax asset has a 100% valuation allowance
recorded against it due to the uncertainty of generating future taxable income.
F-9
<PAGE>
CLAIMSNET.COM INC.
(FORMERLY AMERICAN NET CLAIMS, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
NOTE F--INCOME TAXES (CONTINUED)
The Company's effective income tax rate differed from the Federal statutory
rate of 34% as follows:
<TABLE>
<S> <C>
Statutory rate of 34% applied to net loss......................................... $ 104,054
Valuation allowance............................................................... (113,143)
Other............................................................................. 9,089
---------
$ --
---------
---------
</TABLE>
At December 31, 1996, the Company has a net operating loss carryforward of
approximately $408,000 which expires in 2011.
NOTE G--RELATED PARTY TRANSACTIONS
On July 31, 1996, the Company purchased software, licenses, intellectual
property rights and technology from AMF. As the software was purchased from a
related entity, the asset was recorded by the Company at the basis (in
accordance with Generally Accepted Accounting Principles) of AMF. Accordingly,
the asset was recorded at $615,000 with a corresponding note payable to AMF of
$3,740,000. The difference between the recorded cost of the asset and the note
payable of $3,125,000 is reflected as a contra to additional paid-in capital (a
deemed distribution). The asset was recorded at the net book value per the
affiliates records, while the note payable reflects a portion of the assets
estimated fair value of $8,000,000. This fair value estimate is based upon an
independent third party appraisal.
The Company has a note payable and a line of credit facility with AMF (see
Note D).
Certain of the Company's expenses are paid to AMF and represent costs such
as rent, printing and office supplies. Total such expenses for 1996 amounted to
$140,750.
NOTE H--STOCKHOLDERS' DEFICIT
The financial statements, including all references to the number of shares
of common stock and all per share information have been adjusted on a
retroactive basis to reflect a 250 for 1 split of the common shares which was
authorized by the Board of Directors on October 18, 1996; a 2.325578 for 1 split
of the common shares authorized May 15, 1997; an increase in authorized common
shares to 40,000,000 authorized May 15, 1997; the change in common stock from no
par value to a par value of $0.001 per share concurrent with the reincorporation
of the Company in the State of Delaware, effective , 1997; and a 1 for
1.95 split of the common shares authorized , 1997.
NOTE I--COMMITMENT
Effective September 17, 1996, the Company entered into an employment
agreement with one employee providing for compensation including certain
incentive compensation in the form of common stock bonuses. Effective January 2,
1997, the Company issued the employee 59,630 shares of common stock in full and
final settlement of any amount that might have accrued to the employee under
this agreement.
F-10
<PAGE>
CLAIMSNET.COM INC.
(FORMERLY AMERICAN NET CLAIMS, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
NOTE J--SUBSEQUENT EVENTS
Effective January 30, 1997, the Company issued a PPM to sell 20 to 45 Units,
each Unit consisting of 16,564 shares of common stock at $50,000 per Unit.
Through the date of this report the Company has sold 45 Units, totaling
$2,250,000 in gross proceeds.
On March 20, 1997, the Board of Directors authorized entering into a letter
of intent to acquire all of the stock of Medica Systems, Inc. The purchase price
is 153,846 shares of common stock, $100,000 at closing, a cash payment of
$125,000 within 60 days of closing an initial public offering, $225,000 one year
after the first $125,000 payment and 50% of the amounts, if any, collected
relating to the accounts receivable of Medica existing on the closing date. The
acquisition transaction was closed on June 2, 1997, effectively giving the
Company ownership of the underlying source code of a software program which
processes medical insurance claims on the Internet.
Effective April 1, 1997, the Company entered into a Service Agreement with
its affiliate, AMF, in terms of which AMF provides staff and office support
services to the Company and for which the Company is billed monthly. The terms
also include a sublease of office space from AMF on a month-to month basis at a
rate of $4,000 per month. The Service Agreement may be terminated at anytime.
Effective February 3, 1997, the Company assumed the name Claimsnet.com inc.
in the state of Texas.
NOTE K--ADDITIONAL SUBSEQUENT EVENTS
On May 15, 1997, the Board of Directors authorized a 2.325578 for 1 split in
common shares, and an increase in authorized common shares to 40,000,000.
Effective April 5, 1997, the Board of Directors adopted the 1997 Stock
Option Plan (the "Plan"). The Plan authorizes the grant of options to employees,
officers, directors, and consultants to purchase up to 600,000 shares of common
stock. Through the date of this report, no options have been granted under the
Plan.
In April, 1997, the Company entered into an employment agreement with an
officer providing for compensation with terms through December 31, 2001.
On September , 1997, the Board of Directors approved a 1 for 1.95
split in the common shares. The Company was reincorporated under the laws of the
State of Delaware on , 1997 under the name Claimsnet.com inc.
On Septmber 19, 1997, the Company converted $1.74 million of the note
payable to AMF into equity. In addition, the terms of the remaining note
payable, the line of credit, and all accrued interest were revised as follows:
no payments will be required until October 1, 1999, at which time all principal
and accrued interest will come due. All other terms of the original agreements,
including collateral and interest rates, remained unchanged.
F-11
<PAGE>
CLAIMSNET.COM INC.
(FORMERLY AMERICAN NET CLAIMS, INC.)
CONSOLIDATED BALANCE SHEET
JUNE 30, 1997
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS
Cash.......................................................................... $1,848,928
Accounts receivable, including $69,325 from related parties................... 196,875
Prepaid assets................................................................ 6,566
---------
Total current assets...................................................... 2,052,369
---------
FIXED ASSETS
Computer equipment............................................................ 37,105
Furniture and fixtures........................................................ 24,786
---------
Total fixed assets........................................................ 61,891
---------
OTHER ASSETS
Software development costs.................................................... 2,425,208
Deferred offering costs....................................................... 28,492
---------
Total other assets........................................................ 2,453,700
---------
TOTAL ASSETS.................................................................... $4,567,960
---------
---------
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable.............................................................. $ 82,426
Accrued expenses.............................................................. 74,614
Accrued interest--affiliate................................................... 373,592
Other payable................................................................. 125,000
---------
Total current liabilities................................................. 655,632
---------
LONG-TERM LIABILITIES
Line of credit--affiliate..................................................... 909,967
Note payable--affiliate....................................................... 3,740,000
Other payable................................................................. 225,000
---------
TOTAL LIABILITIES............................................................... 5,530,599
---------
COMMITMENTS AND CONTINGENCIES (Notes B and C)
STOCKHOLDERS' DEFICIT
Preferred stock--$0.001 par value; 1,000,000 shares authorized; no shares
issued or outstanding....................................................... --
Common stock--$0.001 par value; 40,000,000 shares authorized; 4,000,000 shares
issued and outstanding...................................................... 4,000
Additional paid-in capital.................................................... (84,831)
Stockholders' deficit......................................................... (1,051,470)
---------
TOTAL STOCKHOLDERS' DEFICIT..................................................... (962,639)
---------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT..................................... $4,567,960
---------
---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-12
<PAGE>
CLAIMSNET.COM INC.
(FORMERLY AMERICAN NET CLAIMS, INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED)
<TABLE>
<S> <C>
REVENUES......................................................................... $ 341,530
---------
OPERATING EXPENSES
Depreciation and amortization.................................................. 149,528
Legal and professional......................................................... 28,742
Marketing...................................................................... 28,663
Office and administration...................................................... 66,476
Salaries and benefits.......................................................... 288,821
Travel......................................................................... 34,434
Other.......................................................................... 287,286
---------
Total operating expense.................................................... 883,950
---------
INTEREST EXPENSE--affiliate...................................................... (215,471)
INTEREST INCOME.................................................................. 12,460
---------
NET LOSS......................................................................... $(745,431)
---------
---------
LOSS PER WEIGHTED AVERAGE COMMON SHARE OUTSTANDING............................... $ (0.19)
---------
---------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING....................................... 3,825,333
---------
---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-13
<PAGE>
CLAIMSNET.COM INC.
(FORMERLY AMERICAN NET CLAIMS, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED)
<TABLE>
<S> <C>
CASH FLOWS USED IN OPERATING ACTIVITIES
Net loss...................................................................... $(745,431)
Adjustments to reconcile net loss to net cash used by operating activities
Common stock issued for compensation........................................ 75,000
Depreciation and amortization............................................... 197,498
Changes in assets and liabilities:
Increase in accounts receivable........................................... (96,161)
Increase in prepaid expenses.............................................. (6,566)
Increase in accounts payable and other current liabilities................ 58,054
Increase in accrued interest.............................................. 215,471
---------
Net cash used by operating activities..................................... (302,132)
---------
CASH FLOWS USED IN INVESTING ACTIVITIES
Cash in acquired subsidiary................................................... 14,747
Cash paid to acquire subsidiary............................................... (100,000)
Purchases of property and equipment........................................... (11,613)
Software development costs.................................................... (298,927)
---------
Net cash used in investing activities..................................... (395,793)
---------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES
Payments for deferred offering costs.......................................... (28,020)
Proceeds from common stock issuances.......................................... 2,159,500
Increase in line of credit--affiliate......................................... 399,717
---------
Net cash provided by financing activities................................. 2,531,197
---------
NET INCREASE IN CASH............................................................ 1,833,269
Cash--beginning balance....................................................... 15,659
---------
Cash--ending balance.......................................................... $1,848,928
---------
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Common stock issued for compensation.......................................... $ 75,000
---------
---------
Common stock issued for acquisition of subsidiary............................. $1,080,000
---------
---------
Other liabilities incurred for acquisition of subsidiary...................... $ 400,000
---------
---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-14
<PAGE>
CLAIMSNET.COM INC.
(FORMERLY AMERICAN NET CLAIMS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(UNAUDITED)
NOTE A--INTERIM INFORMATION
Interim information is unaudited; however, in the opinion of the Company's
management, all adjustments necessary for a fair statement of interim results
have been included in accordance with Generally Accepted Accounting Principles.
All adjustments are of results to be expected for the entire year. These
financial statements and notes should be read in conjunction with the Company's
annual financial statements and the notes thereto for the fiscal year ended
December 31, 1996.
On June 2, 1997, the Company acquired all of the stock of Medica Systems,
Inc. ("Medica"). The purchase price was 153,846 shares of common stock,
$100,000, a cash payment of $125,000 within 60 days of closing an initial public
offering ("IPO"), $225,000 one year after the closing of the IPO, and 50% of the
amounts, if any, collected relating to the accounts receivable of Medica
existing on the closing date.
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiary. All significant intercompany
transactions and balances have been eliminated in consolidation.
NOTE B--SUBSEQUENT EVENTS
On September , 1997, the Board of Directors authorized a 1 for 1.95 split
in common shares. The financial statements, including all references to the
number of shares of common stock and all per share information have been
adjusted on a retroactive basis to reflect these equity transactions.
The Company was reincorporated under the laws of the State of Delaware on
, 1997 under the name claimsnet.com inc.
F-15
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Medica Systems, Inc.
We have audited the accompanying balance sheets of Medica Systems, Inc. as
of December 31, 1996 and 1995, and the related statements of operations,
stockholders' equity (deficit), and cash flows for the years then ended and the
period from May 1, 1994 (inception) to December 31, 1994. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Medica Systems, Inc. as of
December 31, 1996 and 1995 and the results of its operations and cash flows for
the years then ended and for the period from May 1, 1994 (inception) to December
31, 1994 in conformity with generally accepted accounting principles.
KING GRIFFIN & ADAMSON P.C.
Dallas, Texas
June 2, 1997
F-16
<PAGE>
MEDICA SYSTEMS, INC.
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
ASSETS
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
CURRENT ASSETS
Cash...................................................................................... $ 23,046 $ 21,271
Accounts receivable, net of allowance of $24,000 and $-0-................................. 32,216 6,991
Prepaid expenses.......................................................................... 4,388 --
Deferred income taxes..................................................................... 3,316 10,465
--------- ---------
Total current assets.................................................................... 62,966 38,727
--------- ---------
FIXED ASSETS
Office equipment.......................................................................... 33,217 21,626
Software.................................................................................. 10,329 6,332
Accumulated depreciation and amortization................................................. (12,640) (4,893)
--------- ---------
30,906 23,065
--------- ---------
OTHER ASSETS................................................................................ 560 770
--------- ---------
TOTAL ASSETS................................................................................ $ 94,432 $ 62,562
--------- ---------
--------- ---------
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable........................................................ $ 8,683 $ 3,469
Accrued liabilities, including $1,300 due to stockholder................ 51,978 1,300
Deferred revenue........................................................ -- 75,000
Federal income taxes payable............................................ 1,011 129
--------- ---------
Total current liabilities............................................. 61,672 79,898
--------- ---------
DEFERRED INCOME TAXES, NON-CURRENT........................................ 1,287 1,532
TOTAL LIABILITIES......................................................... 62,959 81,430
--------- ---------
COMMITMENTS AND CONTINGENCIES (Notes E, F and G)
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock--no par value; 1,000 shares
authorized; 730 shares issued and outstanding......................... 33,595 33,595
Accumulated deficit..................................................... (2,122) (52,463)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT)...................................... 31,473 (18,868)
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)...................... $ 94,432 $ 62,562
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-17
<PAGE>
MEDICA SYSTEMS, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996 AND 1995 AND THE PERIOD FROM
MAY 1, 1994 (INCEPTION) TO DECEMBER 31, 1994
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ---------
<S> <C> <C> <C>
CONSULTING INCOME.............................................................. $ 395,396 $ 120,902 $ 79,952
---------- ---------- ---------
OPERATING EXPENSES
Bad debt provision........................................................... 24,000 -- --
Claims processing............................................................ 7,536 -- --
Depreciation and amortization................................................ 7,957 4,103 1,070
Legal settlement............................................................. 50,000 -- --
Professional fees............................................................ 46,788 17,522 1,825
Rents........................................................................ 2,625 -- --
Salaries and payroll taxes................................................... 161,253 150,086 62,767
Telephone.................................................................... 12,977 6,556 2,449
Travel....................................................................... 8,352 8,779 1,000
Other........................................................................ 15,652 7,790 (1,826)
---------- ---------- ---------
Total operating expense.................................................... 337,140 194,836 67,285
---------- ---------- ---------
NET INCOME (LOSS) BEFORE INCOME TAXES.......................................... 58,256 (73,934) 12,667
INCOME TAX BENEFIT (EXPENSE)................................................... (7,915) 10,779 (1,975)
---------- ---------- ---------
NET INCOME (LOSS).............................................................. $ 50,341 $ (63,155) $ 10,692
---------- ---------- ---------
---------- ---------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-18
<PAGE>
MEDICA SYSTEMS, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1996 AND 1995 AND THE PERIOD FROM
MAY 1, 1994 (INCEPTION) TO DECEMBER 31, 1994
<TABLE>
<CAPTION>
RETAINED
EARNINGS
NUMBER OF COMMON (ACCUMULATED
SHARES STOCK DEFICIT)
------------- --------- -------------
<S> <C> <C> <C>
Capital contribution at inception........................................ 730 $ 33,595 $ --
Net income............................................................... -- -- 10,692
--- --------- -------------
Balances at December 31, 1994............................................ 730 33,595 10,692
Net loss................................................................. -- -- (63,155)
--- --------- -------------
Balances at December 31, 1995............................................ 730 33,595 (52,463)
Net income............................................................... -- -- 50,341
--- --------- -------------
Balances at December 31, 1996............................................ 730 $ 33,595 $ (2,122)
--- --------- -------------
--- --------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-19
<PAGE>
MEDICA SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1995 AND THE PERIOD FROM
MAY 1, 1994 (INCEPTION) TO DECEMBER 31, 1994
<TABLE>
<CAPTION>
1996 1995 1994
--------- ---------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)............................................................ $ 50,341 $ (63,155) $ 10,692
Adjustments to reconcile net income (loss) to net
cash provided (used) by operating activities...............................
Depreciation and amortization.............................................. 7,957 4,103 1,070
Provision for bad debts.................................................... 24,000 -- --
Changes in assets and liabilities:
Accounts receivable.................................................... (49,225) 23,460 (30,451)
Prepaid expenses....................................................... (4,388) -- --
Organization costs..................................................... -- -- (1,050)
Accounts payable....................................................... 5,214 2,504 965
Accrued liabilities.................................................... 50,677 (1,850) 3,150
Deferred revenue....................................................... (75,000) 75,000 --
Federal income taxes payable........................................... 882 129 --
Deferred income taxes.................................................. 6,904 (10,908) 1,975
--------- ---------- ---------
Net cash provided (used) by operating activities......................... 17,362 29,283 (13,649)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment.......................................... (15,587) (13,979) (11,164)
--------- ---------- ---------
Net cash used in investing activities.................................... (15,587) (13,979) (11,164)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from common stock................................................... -- -- 30,780
--------- ---------- ---------
Net cash provided by financing activities................................ -- -- 30,780
NET INCREASE IN CASH........................................................... 1,775 15,304 5,967
Cash--beginning balance...................................................... 21,271 5,967 --
--------- ---------- ---------
Cash--ending balance......................................................... $ 23,046 $ 21,271 $ 5,967
--------- ---------- ---------
--------- ---------- ---------
Supplemental disclosure of income taxes paid................................... $ 129 $ -- $ --
--------- ---------- ---------
--------- ---------- ---------
Supplemental schedule of non-cash investing and financing activities
Equipment contributed by shareholder......................................... $ -- $ -- $ 2,815
--------- ---------- ---------
--------- ---------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-20
<PAGE>
MEDICA SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995 AND THE PERIOD FROM
MAY 1, 1994 (INCEPTION) TO DECEMBER 31, 1994
NOTE A--BACKGROUND AND ORGANIZATION
Medica Systems, Inc. ("Medica" or the "Company") was incorporated in the
state of Texas on May 1, 1994. Medica was formed for the purpose of developing
software in the healthcare industry. The Company provides consulting services
for medical billing processing.
NOTE B--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
STATEMENT OF CASH FLOWS
For purposes of the statement of cash flows, cash equivalents include time
deposits, certificates of deposits, and all highly liquid debt instruments with
original maturities of 3 months or less when purchased.
OFFICE EQUIPMENT
Office equipment is stated at cost. Depreciation is provided using the
straight line method over the estimated useful lives of the assets of five to
seven years. Maintenance and repairs are expensed as incurred. Replacements and
betterments are capitalized.
SOFTWARE
Software is stated at cost. Amortization is provided using the straight line
method over the estimated useful lives of the software of five years.
INCOME TAXES
The Company accounts for income taxes in accordance with the asset and
liability approach. Deferred income tax assets and liabilities are computed
annually for differences between the financial statement and tax bases of assets
and liabilities that will result in taxable or deductible amounts in the future
based on enacted tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected
to be realized. Income tax expense is the tax payable or refundable for the
period plus or minus the change during the period in deferred tax assets and
liabilities.
REVENUE RECOGNITION
Revenue relating to services is recognized upon completion of services,
which are usually completed within one fiscal year. Payments for services
received in advance are deferred and recognized when services have been
rendered.
USE OF ESTIMATES AND ASSUMPTIONS
Management uses estimates and assumptions in preparing financial statements
in accordance with generally accepted accounting principles. Those estimates and
assumptions affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities, and the reported amounts of
revenues and expenses. Actual results could vary from the estimates that were
used.
F-21
<PAGE>
MEDICA SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995 AND THE PERIOD FROM
MAY 1, 1994 (INCEPTION) TO DECEMBER 31, 1994
NOTE C--FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosure About Fair
Value of Financial Instruments", requires disclosure about the fair value of all
financial assets and liabilities for which it is practicable to estimate. All
financial assets and liabilities are current and have carrying amounts and fair
values of approximately the same amount.
NOTE D--INCOME TAXES
Deferred tax assets and liabilities at December 31, 1996 and 1995 are as
follows:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Current deferred tax asset............................................... $ 3,316 $ 10,465
Current deferred tax liability........................................... -- --
--------- ---------
Net current deferred income taxes...................................... 3,316 10,465
--------- ---------
--------- ---------
Non-current deferred tax asset........................................... -- --
Non-current deferred tax liability....................................... (1,287) (1,532)
--------- ---------
Net non-current deferred income taxes.................................. $ (1,287) $ (1,532)
--------- ---------
--------- ---------
</TABLE>
The current deferred tax asset results from the differences in timing of
revenue recognition for income tax and financial reporting purposes and use of
cash basis for income tax purposes. The non-current deferred tax liability
results from differences in depreciation for income tax and financial reporting
purposes.
The components of income tax expense (benefit) for the years ended December
31, 1996 and 1995 and the period from May 1, 1994 to December 31, 1994 are as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- ---------- ---------
<S> <C> <C> <C>
Federal:
Current...................................................... $ 1,011 $ 129 $ --
Deferred..................................................... 6,904 (10,908) 1,975
--------- ---------- ---------
$ 7,915 $ (10,779) $ 1,975
--------- ---------- ---------
--------- ---------- ---------
</TABLE>
The Company's effective income tax rate differed from the Federal statutory
rate of 15% as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- ---------- ---------
<S> <C> <C> <C>
Statutory rate of 15% applied to net income (loss)............. $ 8,738 $ (11,090) $ 1,900
Non deductible expenses........................................ (228) (240) 75
Other.......................................................... (595) 551 --
--------- ---------- ---------
$ 7,915 $ (10,779) $ 1,975
--------- ---------- ---------
--------- ---------- ---------
</TABLE>
F-22
<PAGE>
MEDICA SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995 AND THE PERIOD FROM
MAY 1, 1994 (INCEPTION) TO DECEMBER 31, 1994
NOTE E--CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMERS
The Company's business activities are primarily with customers located
within the state of Texas. During 1996, four customers accounted for
approximately 96% of revenues. One of the customers, American Medical Finance,
Inc. ("AMF"), accounted for 22% of the revenues for 1996. AMF is an affiliate of
ANC (See Note G). At December 31, 1996, one customer comprised approximately 43%
of trade accounts receivable. The Company has recorded an allowance of $24,000
related to this receivable. A second customer, AMF, comprised approximately 29%
of trade accounts receivable. Management evaluates accounts receivable balances
on an on-going basis and provides allowances as necessary for amounts estimated
to eventually become uncollectible. In the event of complete non- performance of
accounts receivable, the maximum exposure to the Company is the recorded amount
shown on the balance sheet.
NOTE F--COMMITMENT
The Company entered into a lease for office space in November, 1996 which
expires in April, 1997. Minimum lease payments under this lease for 1997 total
$3,500.
NOTE G--SUBSEQUENT EVENTS
The Company was involved in litigation which was settled subsequent to
December 31, 1996. In terms of the settlement, the Company is obligated to pay
$50,000. This amount was accrued and has been reflected as legal settlement
expense for the year ended December 31, 1996.
On May 30, 1997, the Company was acquired by American Net Claims, Inc.
("ANC") in exchange for cash, notes and common stock of ANC.
F-23
<PAGE>
MEDICA SYSTEMS, INC.
BALANCE SHEET
MARCH 31, 1997
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS
Cash............................................................................ $ 36,113
Accounts receivable, net of allowance of $30,000................................ 37,226
Deferred income taxes........................................................... 4,063
---------
Total current assets.......................................................... 77,402
---------
FIXED ASSETS
Office equipment................................................................ 35,322
Software........................................................................ 10,329
Accumulated depreciation and amortization....................................... (14,715)
---------
30,936
---------
OTHER ASSETS...................................................................... 507
---------
TOTAL ASSETS...................................................................... $ 108,845
---------
---------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable................................................................ $ 12,018
Accrued liabilities, including $1,300 due to stockholder........................ 57,010
Federal income taxes payable.................................................... 1,208
---------
Total current liabilities..................................................... 70,236
---------
DEFERRED INCOME TAXES, NON-CURRENT................................................ 1,487
TOTAL LIABILITIES................................................................. 71,723
---------
STOCKHOLDERS' EQUITY
Common stock--no par value; 1,000 shares authorized; 730 shares issued and
outstanding................................................................... 33,595
Retained earnings............................................................... 3,527
---------
TOTAL STOCKHOLDERS' EQUITY........................................................ 37,122
---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........................................ $ 108,845
---------
---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-24
<PAGE>
MEDICA SYSTEMS, INC.
STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997
(UNAUDITED)
<TABLE>
<S> <C>
CONSULTING INCOME................................................................. $ 106,507
---------
OPERATING EXPENSES
Bad debt provision.............................................................. 6,000
Claims processing............................................................... 5,775
Depreciation and amortization................................................... 2,128
Professional fees............................................................... 11,530
Rents........................................................................... 2,625
Salaries and payroll taxes...................................................... 62,206
Telephone....................................................................... 4,345
Travel.......................................................................... 1,771
Other........................................................................... 3,817
---------
Total operating expense....................................................... 100,197
---------
NET INCOME BEFORE INCOME TAXES.................................................... 6,310
INCOME TAX EXPENSE................................................................ (661)
---------
NET INCOME........................................................................ $ 5,649
---------
---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-25
<PAGE>
MEDICA SYSTEMS, INC.
STATEMENT OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
CASH FLOWS PROVIDED BY IN OPERATING ACTIVITIES
<S> <C>
Net income...................................................................... $ 5,649
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................................................. 2,128
Provision for bad debts....................................................... 6,000
Changes in assets and liabilities:
Accounts receivable....................................................... (11,010)
Prepaid expenses.......................................................... 4,388
Accounts payable.......................................................... 3,335
Accrued liabilities....................................................... 5,032
Federal income taxes payable.............................................. 197
Deferred income taxes..................................................... (547)
---------
Net cash provided by operating activities................................... 15,172
CASH FLOWS USED IN INVESTING ACTIVITIES
Purchases of property and equipment............................................. (2,105)
---------
Net cash used in investing activities......................................... (2,105)
NET INCREASE IN CASH.............................................................. 13,067
Cash--beginning balance......................................................... 23,046
---------
Cash--ending balance............................................................ $ 36,113
---------
---------
Supplemental disclosure of income taxes paid...................................... $ 1,011
---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-26
<PAGE>
MEDICA SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997 (UNAUDITED)
NOTE A--INTERIM INFORMATION
Interim information is unaudited; however, in the opinion of the Company's
management, all adjustments necessary for a fair statement of interim results
have been included in accordance with Generally Accepted Accounting Principles.
All adjustments are of a normal recurring nature. The results for interim
periods are not necessarily indicative of results to be expected for the entire
year. These financial statements and notes should be read in conjunction with
the Company's annual financial statements and the notes thereto for the fiscal
year ended December 31, 1996.
NOTE B--SUBSEQUENT EVENT
On May 30, 1997, the Company was acquired by American Net Claims, Inc.
("ANC") in exchange for cash, notes and common stock of ANC.
F-27
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESMAN, OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING MADE HEREBY, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY OF THE SECURITIES OFFERED
HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN
OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO THE DATES AS OF WHICH SUCH INFORMATION IS FURNISHED.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
PROSPECTUS SUMMARY.............................. 3
RISK FACTORS.................................... 7
USE OF PROCEEDS................................. 16
DILUTION........................................ 17
CAPITALIZATION.................................. 18
DIVIDEND POLICY................................. 19
SELECTED FINANCIAL DATA......................... 20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.................................... 21
BUSINESS........................................ 24
MANAGEMENT...................................... 31
PRINCIPAL STOCKHOLDERS.......................... 36
CERTAIN TRANSACTIONS............................ 37
DESCRIPTION OF SECURITIES....................... 38
SHARES ELIGIBLE FOR FUTURE SALE................. 40
UNDERWRITING.................................... 41
LEGAL MATTERS................................... 44
EXPERTS......................................... 44
ADDITIONAL INFORMATION.......................... 44
FINANCIAL STATEMENTS............................ F-1
</TABLE>
------------------------
UNTIL , 1997 (25 DAYS AFTER THE EFFECTIVE DATE OF THE REGISTRATION
STATEMENT), 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.
2,700,000 SHARES
[LOGO]
[CLAIMSNET.COM INC.]
COMMON STOCK
---------------------
PROSPECTUS
---------------------
HAMPSHIRE SECURITIES
CORPORATION
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is an itemization of all expenses (subject to future
contingencies) incurred or expected to be incurred by the Company in connection
with the issuance and distribution of the securities being offered hereby,
excluding the underwriters' discounts and commissions (items marked with an
asterisk (*) represent estimated expenses):
<TABLE>
<S> <C>
SEC Registration Fee........................................... $11,431.00
Legal Fees and Expenses........................................ 200,000.00*
Blue Sky Fees (including counsel fees)......................... 35,000.00*
NASD Filing Fees............................................... 4272.00
Nasdaq Listing Fees............................................ 20,000*
Accounting Fees and Expenses................................... 35,000.00*
Transfer Agent and Registrar Fees.............................. 5,000.00*
Printing and Engraving Expenses................................ 60,000.00
Miscellaneous.................................................. 34,297*
----------
Total...................................................... $400,000.00*
----------
----------
</TABLE>
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Delaware General Corporation Law, Section 102(b)(7), enables a corporation
in its original certificate of incorporation, or an amendment thereto validly
approved by stockholders, to eliminate or limit personal liability of members of
its Board of Directors for violations of a director's fiduciary duty of care.
However, the elimination or limitation shall not apply where there has been a
breach of the duty of loyalty, failure to act in good faith, intentional
misconduct or a knowing violation of a law, the payment of a dividend or
approval of a stock repurchase which is deemed illegal or an improper personal
benefit is obtained. The Company's Certificate of Incorporation includes the
following language:
"The personal liability of the Directors of the Corporation is hereby
eliminated to the fullest extent permitted by paragraph (7) of Subsection (b) of
Section 102 of the General Corporation Law of the State of Delaware as the same
may be amended and supplemented."
Delaware General Corporation Law, Section 145, permits a corporation
organized under Delaware law to indemnify directors and officers with respect to
any matter in which the director or officer acted in good faith and in a manner
he reasonably believed to be not opposed to the best interests of the Company,
and, with respect to any criminal action, had reasonable cause to believe his
conduct was lawful. Article VII, Section 7 of the By-laws of the Company
provides as follows:
"The corporation shall indemnify its officers, directors, employees, and
agents to the extent permitted by the General Corporation Law of Delaware."
Article 11 of the Certificate of Incorporation of the Company, as amended,
permits indemnification of, and advancement of expenses to, among others,
officers and directors of the Corporation. Such Article provides as follows:
"(a) Each person who was or is made a party or is threatened to be made a
party to or is otherwise involved in any action, suit, or proceeding, whether
civil, criminal, administrative, or investigative (hereinafter a "proceeding"),
by reason of the fact that he or she is or was a director, officer, employee, or
agent of the Corporation or any of its direct or indirect subsidiaries or is or
was serving at the request of the Corporation as a director, officer, employee,
or agent of any other corporation or of a partnership, joint venture, trust, or
other enterprise, including service with respect to an employee benefit plan
(hereinafter
II-1
<PAGE>
an "indemnitee"), whether the basis of such proceeding is alleged action in an
official capacity as a director, officer, employee, or agent or in any other
capacity while serving as a director, officer, employee, or agent, shall be
indemnified and held harmless by the Corporation to the fullest extent
authorized by the Delaware General Corporation Law, as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the extent
that such amendment permits the Corporation to provide broader indemnification
rights than permitted prior thereto), against all expense, liability, and loss
(including attorneys' fees, judgments, fines, ERISA excise taxes or penalties,
and amounts paid in settlement) reasonably incurred or suffered by such
indemnitee in connection therewith, and such indemnification shall continue as
to an indemnitee who has ceased to be a director, officer, employee, or agent
and shall inure to the benefit of the indemnitee's heirs, executors, and
administrators; provided, however, that, except as provided in paragraph (c) of
this Article 11 with respect to proceedings to enforce rights to
indemnification, the Corporation shall indemnify any such indemnitee in
connection with a proceeding (or part thereof) initiated by such indemnitee only
if such proceeding (or part thereof) was authorized by the Board of Directors of
the Corporation.
"(b) The right to indemnification conferred in paragraph (a) of this Article
11 shall include the right to be paid by the Corporation the expenses incurred
in defending any proceeding for which such right to indemnification is
applicable in advance of its final disposition (hereinafter an "advancement of
expenses"); provided, however, that, if the Delaware General Corporation Law
requires, an advancement of expenses incurred by an indemnitee in his or her
capacity as a director or officer (and not in any other capacity in which
service was or is rendered by such indemnitee, including, without limitation,
service to an employee benefit plan) shall be made only upon delivery to the
Corporation of an undertaking (hereinafter an "undertaking"), by or on behalf of
such indemnitee, to repay all amounts so advanced if it shall ultimately be
determined by final judicial decision from which there is no further right to
appeal (hereinafter a "final adjudication") that such indemnitee is not entitled
to be indemnified for such expenses under this Article 11 or otherwise.
"(c) The rights to indemnification and to the advancement of expenses
conferred in paragraphs (a) and (b) of this Article 11 shall be contract rights.
If a claim under paragraph (a) or (b) of this Article 11 is not paid in full by
the Corporation within sixty days after a written claim has been received by the
Corporation, except in the case of a claim for an advancement of expenses, in
which case the applicable period shall be twenty days, the indemnitee may at any
time thereafter bring suit against the Corporation to recover the unpaid amount
of the claim. If successful in whole or in part in any such suit, or in a suit
brought by the Corporation to recover an advancement of expenses pursuant to the
terms of an undertaking, the indemnitee shall be entitled to be paid also the
expense of prosecuting or defending such suit. In (i) any suit brought by the
indemnitee to enforce a right to indemnification hereunder (but not in a suit
brought by an indemnitee to enforce a right to an advancement of expenses) it
shall be a defense that, and (ii) any suit by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking, the Corporation
shall be entitled to recover such expenses upon a final adjudication that, the
indemnitee has not met any applicable standard for indemnification set forth in
the Delaware General Corporation Law. Neither the failure of the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
suit that indemnification of the indemnitee is proper in the circumstances
because the indemnitee has met the applicable standard of conduct set forth in
the Delaware General Corporation Law, nor an actual determination by the
Corporation (including its Board of Directors, independent legal counsel, or its
stockholders) that the indemnitee has not met such applicable standard of
conduct, shall create a presumption that the indemnitee has not met the
applicable standard of conduct or, in the case of such a suit brought by the
indemnitee, be a defense to such suit. In any suit brought by the indemnitee to
enforce a right to indemnification or to an advancement of expenses hereunder,
or by the Corporation to recover an advancement of expenses pursuant to the
terms of an undertaking, the burden of proving that the indemnitee is not
entitled to be indemnified, or to such advancement of expenses, under this
Article 11 or otherwise, shall be on the Corporation.
II-2
<PAGE>
"(d) The rights to indemnification and to the advancement of expenses
conferred in this Article 11 shall not be exclusive of any other right which any
person may have or hereafter acquire under any statute, this certificate of
incorporation, by-law, agreement, vote of stockholders or disinterested
directors, or otherwise.
"(e) The Corporation may maintain insurance, at its expense, to protect
itself and any director, officer, employee, or agent of the Corporation or
another corporation, partnership, joint venture, trust, or other enterprise
against any expense, liability, or loss, whether or not the Corporation would
have the power to indemnify such person against such expense, liability, or loss
under the Delaware General Corporation Law.
"(f) The Corporation's obligation, if any, to indemnify any person who was
or is serving as a director, officer, employee, or agent of any direct or
indirect subsidiary of the Corporation or, at the request of the Corporation, of
any other corporation or of a partnership, joint venture, trust, or other
enterprise shall be reduced by any amount such person may collect as
indemnification from such other corporation, partnership, joint venture, trust,
or other enterprise.
"(g) Any repeal or modification of the foregoing provisions of this Article
11 shall not adversely affect any right or protection hereunder of any person in
respect of any act or omission occurring prior to the time of such repeal or
modification."
Reference is made to the form of Underwriting Agreement filed as Exhibit 1.1
to the Registration Statement for certain provisions regarding indemnification
of the Company, its officers and directors, and any controlling persons by the
Underwriters against certain liabilities for information furnished by the
Underwriters.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions or otherwise, the Company 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.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Set forth below in chronological order is information regarding the numbers
of shares of Common Stock sold by the Company, the number of options issued by
the Company, and the principal amount of debt instruments issued by the Company
since April 8, 1996 (inception), the consideration received by the Company for
such shares, options and debt instruments and information relating to the
section of the Securities Act or rule of the Securities and Exchange Commission
under which exemption from registration was claimed. None of these securities
was registered under the Securities Act. Except as otherwise indicated, no sales
of securities involved the use of an underwriter and no commissions were paid in
connection with the sale of any securities.
Each of such transactions was exempt from registration under the Securities
Act by virtue of the provisions of Section 4(2) and/or Section 3(b) of the
Securities Act. Each purchaser of the securities described below has represented
that he/she/it understands that the securities acquired may not be sold or
otherwise transferred absent registration under the Securities Act or the
availability of an exemption from the registration requirements of the
Securities Act, and each certificate evidencing the securities owned by each
purchaser bears or will bear upon issuance a legend to that effect.
All share numbers set forth below give effect to a 2.325578-for-one stock
split effected on May 15, 1997 and a 1.95-for-one-reverse stock split effected
on , 1997.
From the Company's inception through December 31, 1996, the Company issued
to certain stockholders, including the founders of the Company, certain other
directors and officers of the Company, a total of shares of Common Stock
at a price of $.01 per share.
II-3
<PAGE>
On January 3, 1997, the Company issued to Terry A. Lee 59,630 shares of
Common Stock at a price of approximately $.01 per share.
On May 21, 1997, the Company completed a private placement, for $2,250,000,
of 45 Units, each Unit consisting of 16,564 shares of Common Stock, at a price
of $50,000 per Unit. Each of the investors agreed to acquire the Units for
investment purposes only and not with a view to distribution. The certificates
evidencing the Common Stock underlying the Units were appropriately legended. In
the opinion of the Registrant, the offer and the sale of the Units was exempt by
virtue of Section 4(2) of the Securities Act and the rules promulgated
thereunder.
ITEM 16. EXHIBITS
(a) The following exhibits are filed herewith:
<TABLE>
<CAPTION>
EXHIBIT NO.
- -------------
<C> <S>
1.1 Form of Underwriting Agreement
3.1 Articles of Incorporation
3.2* Bylaws
4.1 Form of Representative's Warrant
4.2* Form of Common Stock Certificate
5.1* Opinion of Brock Fensterstock Silverstein McAuliffe & Wade LLC
10.1* Employment Agreement, dated as of April 1, 1996 between Claimsnet.com inc. and Bo W. Lycke
10.2 1997 Stock Option Plan
10.3* Form of Indemnification Agreement
10.4 Agreement and Plan of Merger, dated June 2, 1997, among Claimsnet.com inc. (formerly, American NET
Claims Inc.), ANC Holdings, Inc., Medica Systems, Inc., and the stockholders of Medica Systems Inc.
10.5 Promissory Note, dated July 31, 1996, from American NET Claims Inc. to American Medical Finance,
Inc., in the principal amount of $3,740,000
10.6 Security Agreement, dated July 31, 1996, between Claimsnet.com inc. and American Medical Finance,
Inc.
10.7 Employment Agreement, dated as of September 17, 1996, between Claimsnet.com inc. and Terry A. Lee, as
amended as of March 26, 1997.
10.8 Service Agreement, dated August 5, 1997, between American Medical Finance, Inc. and Claimsnet.com
inc.
10.9 Employment Agreement, dated June 2, 1997, between Claimsnet.com inc. and Randall S. Lindner
23.1 Consent of King Griffin & Adamson P.C.
23.2* Consent of Brock Fensterstock Silverstein McAuliffe & Wade LLC (contained in the Opinion filed as
Exhibit 5.1).
24.1 Power of Attorney (set forth on the signature page hereof)
</TABLE>
- ------------------------
* To be filed by amendment.
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) to file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act;
II-4
<PAGE>
(ii) To reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the information
in the registration statement;
(iii) To include any additional or changed material information on the
plan of distribution;
(2) that, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be treated as a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) to remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
Offering.
(b) 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.
(c) The Registrant hereby undertakes that it will:
(1) 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
the Commission declared it effective.
(2) For the purpose of determining any liability under the Securities Act,
treat each post-effective amendment that contains a form of prospectus as a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time as the initial bona fide offering
thereof.
(d) The Registrant hereby undertakes that it will 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.
II-5
<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 S-1 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the city of Dallas, Texas on September 23, 1997.
Claimsnet.com inc.
By: /s/ BO W. LYCKE
------------------------------------------
Bo W. Lycke
Chairman of the Board of Directors,
President, and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Bo W. Lycke and Ward L. Benson, and each of them,
his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and his name, place and stead, and in
any and all capacities, to sign any and all amendments to this Registration
Statement (including post-effective amendments and registration statements filed
pursuant to Rule 462(b) under the Securities Act of 1933, as amended and
otherwise), and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
to said attorneys-in-fact and agents, and each of them, full power and authority
to do and perform such and every act and thing requisite and necessary to be
done, as fully to all intents and purposes as he might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents, or
any of them, or his substitute or substitutes, may lawfully do or cause to be
done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
Chairman of the Board of
/s/ BO W. LYCKE Directors, President, and
- ------------------------------ Chief Executive Officer September 23, 1997
Bo W. Lycke (Principal Executive
Officer)
Vice President and Chief
/s/ MARK W. PATTERSON Financial Officer
- ------------------------------ (Principal Financial and September 23, 1997
Mark W. Patterson Accounting Officer)
/s/ TERRY A. LEE
- ------------------------------ Executive Vice President of September 23, 1997
Terry A. Lee Marketing and Technology
/s/ WARD L. BENSEN
- ------------------------------ Director September 23, 1997
Ward L. Bensen
/s/ ROBERT H. BROWN, JR.
- ------------------------------ Director September 23, 1997
Robert H. Brown, Jr.
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<PAGE>
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
/s/ STURE HEDLUND
- ------------------------------ Director September 23, 1997
Sture Hedlund
/s/ JOHN C. WILLEMS, III
- ------------------------------ Director September 23, 1997
John C. Willems, III
II-7
<PAGE>
EXHIBIT 1.1
2,700,000 SHARES OF COMMON STOCK
CLAIMSNET.COM INC.
UNDERWRITING AGREEMENT
, 1997
Hampshire Securities Corporation
640 Fifth Avenue, 4th Floor
New York, New York 10019
On behalf of itself and the other
several Underwriters named in
Schedule I attached hereto
Gentlemen:
The undersigned, Claimsnet.com Inc., a corporation organized and
existing under the laws of the State of Delaware (the "Company"), hereby
confirms its agreement with Hampshire Securities Corporation (individually,
"Hampshire," and, as representative (the "Representative") of the several
underwriters named in Schedule I hereto (the "Underwriters")), and the
Underwriters as follows:
1. INTRODUCTION.
(a) The Company proposes to issue and sell to the Underwriters an
aggregate of 2,700,000 shares of common stock, par value $0.001 per share, of
the Company (the "Common Stock"). Such 2,700,000 shares of Common Stock are
hereinafter referred to as the "Firm Stock."
(b) Solely for the purpose of covering over-allotments, if any, the
Company proposes to grant to the Underwriters an option (the "Over-allotment
Option") to purchase 405,000 shares of Common Stock. Such shares of Common
Stock are hereinafter referred to as the "Additional Stock." The Firm Stock and
the Additional Stock are hereinafter referred to collectively as the "Stock."
<PAGE>
(c) The Company proposes to sell to Hampshire, individually and not
as Representative, 270,000 warrants (the "Representative's Warrants") to
purchase up to an aggregate of 270,000 shares of Common Stock (the "Warrant
Shares") for a purchase price of $0.001 per warrant, or an aggregate purchase
price of $270.00. The Representative's Warrants will have an exercise price per
share equal to 110% of the public offering price per share. The
Representative's Warrants shall be substantially in the form filed with the
National Association of Securities Dealers, Inc. ("NASD"). The
Representative's Warrants and the Warrant Shares are hereinafter referred to
collectively as the "Representative's Securities." The Stock and the
Representative's Securities are hereinafter referred to collectively as the
"Securities."
2. REPRESENTATIONS AND WARRANTIES.
The Company, represents and warrants to, and agrees with, the
Underwriters that:
(a) The Company has filed with the Securities and Exchange Commission
(the "Commission") a registration statement, and may have filed one or more
amendments thereto, on Form S-1 (Registration No. 333- ), including in such
registration statement and each such amendment a related preliminary prospectus,
for the registration of the Stock under the Securities Act of 1933, as amended
(the "Securities Act"). As used in this Agreement, the term "Registration
Statement" shall refer to such registration statement referred to in the first
sentence of this Section 2(a), as amended, on file with the Commission at the
time such registration statement is declared by the Commission to be effective
under the Securities Act (including the prospectus, financial statements, and
exhibits filed as a part thereof, provided, however, that such registration
statement, at the time it is declared by the Commission to be effective under
the Securities Act, may omit such information as is permitted to be omitted from
such registration statement when it becomes effective under the Securities Act
pursuant to Rule 430A of the General Rules and Regulations of the Commission
under the Securities Act (the "Regulations"), which information (the "Rule 430A
Information") shall be deemed to be included in such registration statement when
a final prospectus is filed with the Commission in accordance with Rules 430A
and 424(b)(1) or (4) of the Regulations); the term "Preliminary Prospectus"
shall refer to each prospectus included in the Registration Statement, or any
amendments thereto, before the Registration Statement is declared by the
Commission to be effective under the Securities Act, the form of prospectus
omitting Rule 430A Information included in the Registration Statement when the
Registration Statement becomes effective under the Securities Act, if applicable
(the "Rule 430A Prospectus"), and any prospectus filed by the Company with the
consent of the Underwriters pursuant to Rule 424(a) of the Regulations, and the
term "Prospectus" shall refer to (x) if the Company relies on Rule 434 of the
Regulations, the Term Sheet (as defined below) relating to the Stock that is
first filed pursuant to Rule 424(b)(7) of the Regulations, together with the
Preliminary Prospectus identified therein that the Term Sheet supplements, or
(y) if the Company does not rely on Rule 434 of the Regulations, the final
prospectus forming a part of the Registration Statement in the form first filed
with the Commission pursuant to Rule
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<PAGE>
424(b)(1) or (4) of the Regulations or, if no such filing is required, the form
of final prospectus forming a part of the Registration Statement. "Term Sheet"
shall mean any term sheet thereof satisfies the requirements of Rule 434 of the
Regulations. The date on which the Registration Statement is declared effective
by the Commission is referred to as the "Effective Date." For purposes of this
Agreement, all references to the Registration Statement, Prospectus, Preliminary
Prospectus or Term Sheet or to any amendment or supplement to any of the
foregoing shall be deemed to include the copy filed with the Commission pursuant
to its Electronic Data Gathering Analysis and Retrieval system ("EDGAR").
(b) When the Registration Statement becomes effective under the
Securities Act, and at all times subsequent thereto up to and including the
Closing Date (as defined in Section 3(a)) and each Additional Closing Date (as
defined in Section 3(b)), and during such longer period as the Prospectus may be
required to be delivered in connection with sales by the Underwriters or a
dealer, and during such longer period until any post-effective amendment thereto
shall become effective under the Securities Act, the Registration Statement (and
any post-effective amendment thereto) and the Prospectus (as amended or as
supplemented if the Company shall have filed with the Commission any amendment
or supplement to the Registration Statement or the Prospectus) will contain all
statements which are required to be stated therein in accordance with the
Securities Act and the Regulations, will comply with the Securities Act and the
Regulations in all material respects, and will not contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which such statements were made, not misleading, and no
event will have occurred which should have been set forth in an amendment or
supplement to the Registration Statement or the Prospectus which has not then
been set forth in such an amendment or supplement; if a Rule 430A Prospectus is
included in the Registration Statement at the time it is declared by the
Commission to be effective under the Securities Act, the Prospectus filed
pursuant to Rules 430A and 424(b)(1) or (4) of the Regulations will contain all
Rule 430A Information and all statements which are required to be stated therein
in accordance with the Securities Act or the Regulations, will comply with the
Securities Act and the Regulations in all material respects, and will not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading;
and each Preliminary Prospectus, as of the date filed with the Commission,
contained all statements required to be stated therein, in the light of the
circumstances under which such statements were made, in accordance with the
Securities Act and the Regulations, complied with the Securities Act and the
Regulations in all material respects, and did not contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which such statements were made, not misleading, except that
no representation or warranty is made in this Section 2(b) with respect to
statements or omissions made in reliance upon, and in conformity with, written
information furnished to the Company as stated in Section 8(b) with respect to
any
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<PAGE>
Underwriter by, or on behalf of, such Underwriter expressly for inclusion in the
Registration Statement, any Preliminary Prospectus, or the Prospectus, or any
amendment or supplement thereto. Each Preliminary Prospectus and the Prospectus
delivered to the Underwriters for use in connection with the offering of the
Stock will, at the time of delivery, be identical to the electronically
transmitted copies thereof filed with the Commission pursuant to EDGAR, except
to the extent permitted by Regulation S-T under the Securities Act.
(c) Neither the Commission nor the "blue sky" or securities authority
of any jurisdiction has issued an order (a "Stop Order") suspending the
effectiveness of or preventing or suspending the use of, the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, refusing to permit the effectiveness of the Registration
Statement, or suspending the registration, qualification or exemption of the
Securities nor has any of such authorities instituted or to its best knowledge
threatened to institute any proceedings with respect to a Stop Order.
(d) Any contract, agreement, instrument, lease, or license required
to be described in the Registration Statement or the Prospectus has been
described therein. Any contract, agreement, instrument, lease, or license
required to be filed as an exhibit to the Registration Statement has been filed
with the Commission as an exhibit to the Registration Statement.
(e) The Company is a corporation duly organized and validly existing
under the laws of the State of Delaware, with full power and authority, and all
necessary consents, authorizations, approvals, orders, licenses, certificates
and permits of and from, and declarations and filings with, all federal, state,
local and other governmental authorities and all courts and other tribunals, to
own, lease, license, and use its properties and assets and to conduct its
business in the manner described in the Registration Statement and the
Prospectus, except where the failure to obtain such consents, authorizations,
approvals, orders, licenses, certificates and permits would not, individually or
in the aggregate, have a material adverse effect on the business, assets, future
prospects, results of operations or financial condition of the Company (a
"Material Adverse Effect"). The Company is duly qualified to do business as a
foreign corporation and is in good standing as such in every jurisdiction in
which its ownership, leasing, licensing, or use of property and assets or the
conduct of its business makes such qualification necessary, except where the
failure to so qualify will not have a Material Adverse Effect. A complete and
correct copy of the Certificate of Incorporation and By-Laws of the Company, as
currently in effect, have been delivered to you, and no changes therein will be
made subsequent to the date hereof and prior to the Closing Date.
(f) The Company has no subsidiaries (as defined in the Regulations).
(g) The authorized capital stock of the Company consists of
40,000,000 shares of Common Stock, of which 4,000,000 shares of Common Stock are
issued and
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<PAGE>
outstanding, and 4,000,000 shares of Preferred Stock, par value $0.001 per
share, no shares of which are outstanding. Each outstanding share of Common
Stock is validly authorized and issued, fully paid, and nonassessable, without
any personal liability attaching to the ownership thereof, and has not been
issued and is not owned or held in violation of any preemptive or similar rights
of shareholders. There is no commitment, plan, or arrangement to issue, and no
outstanding option, warrant, or other right calling for the issuance of, any
share of capital stock of the Company or any security or other instrument which
by its terms is convertible into, or exercisable or exchangeable for, shares of
capital stock of the Company, except as may be properly described in the
Prospectus. There is outstanding no security or other instrument which by its
terms is convertible into, or exercisable or exchangeable for, capital stock of
the Company, except as may be properly described in the Prospectus. The
certificates evidencing the shares of Common Stock are in due and proper form.
(h) The financial statements of the Company and Medica Systems, Inc.
("Medica") included in the Registration Statement and the Prospectus fairly
present, with respect to the Company, and Medica, as the case may be, the
financial position, the results of operations, the cash flows, and the other
information purported to be shown therein at the respective dates and for the
respective periods to which they apply. Such financial statements have been
prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods involved, and are in accordance with
the books and records of the Company and Medica, as the case may be. King
Griffen & Adamson P.C., the accountants whose report on the audited financial
statements is filed with the Commission as a part of the Registration Statement,
are, and during the periods covered by its report included in the Registration
Statement and the Prospectus were, independent certified public accountants with
respect to the Company and Medica within the meaning of the Securities Act and
the Regulations. The selected and summary financial information included in the
Registration Statement and the Prospectus present fairly the information shown
therein and have been compiled on a basis substantially consistent with the
financial statements presented therein. [The pro forma financial statements and
other pro forma financial information included in the Prospectus have been
prepared in accordance with the Commission's rules and guidelines with respect
to pro forma financial information and have been properly compiled on the basis
described therein, and the assumptions used in the preparation thereof are, in
the Company's opinion, reasonable.] No other financial statements are required
by Form S-1 or otherwise to be included in the Registration Statement or the
Prospectus. There has at no time been a material adverse change in the
financial condition, results of operations, business, properties, assets,
liabilities or future prospects of the Company from the latest information set
forth in the Registration Statement or the Prospectus, except as may be
described in the Prospectus.
(i) The Company has a duly authorized and outstanding capitalization
as disclosed in the Prospectus under "Capitalization" and will have the adjusted
capitalization set forth therein at the Closing Date (based on the assumptions
set forth therein). The financial information and data set forth in the
Prospectus under
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<PAGE>
"Prospectus Summary," "Risk Factors," "Use of Proceeds," "Dilution,"
"Capitalization," "Selected Financial Data," "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Business," and
"Management," are fairly presented and prepared on a basis consistent with the
audited financial statements of the Company.
(j) There is no litigation, arbitration, claim, governmental or other
proceeding (formal or informal), or investigation pending, or, to the best
knowledge of the Company, threatened with respect to the Company or any of its
operations, businesses, properties, or assets, except as may be described in the
Prospectus or such as individually or in the aggregate do not now have, and will
not in the future have, a Material Adverse Effect. The Company is not in
violation of, or in default with respect to, any law, rule, regulation, order,
judgment, or decree, except as may be described in the Prospectus or such as in
the aggregate do not now have, and will not in the future have, a Material
Adverse Effect nor is the Company currently required to take any action in order
to avoid any such violation or default.
(k) The Company has good and marketable title to all properties and
assets which the Prospectus indicates are owned by it, free and clear of all
liens, security interests, pledges, charges, encumbrances, and mortgages, except
as may be described in the Prospectus. No real property owned, leased,
licensed, or used by the Company lies in an area which is, or to the knowledge
of the Company will be, subject to zoning, use, or building code restrictions
which would prohibit the present or contemplated use thereof in a material
respect, and, no state of facts relating to the actions or inaction of another
person or entity or his or its ownership, leasing, licensing, or use of any real
or personal property exists or will exist which would prevent, the continued
effective ownership, leasing, licensing, or use of such real property in the
business of the Company as presently conducted or as the Prospectus indicates it
contemplates conducting, except as may be described in the Prospectus.
(l) Neither the Company, nor to the knowledge of the Company, any
other party is now, or is expected by the Company to be, in violation or breach
of, or in default with respect to, any provision of any contract, agreement,
instrument, lease, license, arrangement, or understanding to which the Company
is a party, and each such contract, agreement, instrument, lease, license,
arrangement, and understanding is in full force and effect and is the legal,
valid, and binding obligation of the parties thereto and is enforceable as to
them in accordance with its respective terms, except in each case, that which
would not have a Material Adverse Effect. The Company enjoys peaceful and
undisturbed possession under all leases and licenses under which it is
operating, except where the failure of such possession would not have a Material
Adverse Effect. Except as described in the Prospectus, the Company is not a
party to, or bound by, any contract, agreement, instrument, lease, license,
arrangement, or understanding, or subject to any charter or other restriction,
which has had, or may in the future have, a Material Adverse Effect. The
Company is not violation or breach of, or in default with respect to, any term
of its Certificate of Incorporation and By-Laws.
-6-
<PAGE>
(m) The Company owns or possesses adequate licenses or other rights
to use, free and clear of all liens, charges, claims, encumbrances and
restrictions of any kind whatsoever, all patents, patent rights, inventions,
trade secrets, technology, licenses, know-how, proprietary techniques, including
processes and substances, trademarks, service marks, trade names, and copyrights
described or referred to in the Prospectus as owned or used by it or which are
necessary for the conduct of its business as currently conducted as described
in the Prospectus and, to the best knowledge of the Company, its business as
contemplated as described in the Prospectus. To the best knowledge of the
Company, all such patents, patent rights, licenses, trademarks, service marks,
and copyrights are valid and enforceable, are not being infringed by any third
parties which infringement could, singly or in the aggregate, have a Material
Adverse Effect, and are uncontested by any third party. Except as disclosed in
the Registration Statement and the Prospectus, the Company is not obligated or
under any liability whatsoever to make any payments by way of royalties, fees or
otherwise to any owner or licensee of, or other claimant to, any patent,
trademark, service mark, tradename, copyright, trade secret, know-how,
technology or other intangible asset, with respect to the use thereof or in
connection with the conduct of its business or otherwise. The Company has no
knowledge of, nor has it received any notice of, infringement of, or conflict
with, asserted rights of others with respect to any patents, patent rights,
inventions, trade secrets, licenses, know-how, proprietary techniques, including
processes and substances, trademarks, service marks, trade names, or copyrights
which, singly or in the aggregate, if the subject of an unfavorable decision,
ruling, or finding could have a Material Adverse Effect.
(n) The Company owns and has the right to use all trade secrets,
know-how (including all other unpatented and/or unpatentable proprietary or
confidential information, systems or procedures), inventions, designs,
processes, works of authorship, computer programs and technical data and
information that are material to its business, properties and operations.
(o) Neither the Company, nor, to the best knowledge of the Company,
any director, officer, agent, employee, or other person associated with, or
acting on behalf of, the Company has, directly or indirectly used any corporate
funds for unlawful contributions, gifts, entertainment, or other unlawful
expenses relating to political activity, made any unlawful payment to foreign or
domestic government officials or employees or to foreign or domestic political
parties or campaigns from corporate funds, violated any provision of the United
States Foreign Corrupt Practices Act of 1977, as amended, or made any bribe,
rebate, payoff, influence payment, kickback, or other unlawful payment. The
Company's internal accounting controls and procedures are sufficient to cause
the Company to comply in all respects with the Foreign Corrupt Practices Act of
1977, as amended.
(p) The Company has all requisite power and authority to execute,
deliver, and perform this Agreement and the Representative's Warrants. All
necessary corporate proceedings of the Company have been duly taken to authorize
the execution, delivery and performance by the Company of this Agreement and the
Representative's
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<PAGE>
Warrants. This Agreement has been duly authorized, executed, and delivered by
the Company and is the legal, valid, and binding obligation of the Company, and
is enforceable as to the Company in accordance with its terms. The
Representative's Warrants have been duly authorized by the Company and, when
executed and delivered by the Company, will be legal, valid, and binding
obligations of the Company, each enforceable as to the Company in accordance
with its terms. No consent, authorization, approval, order, license,
certificate, or permit of or from, or declaration or filing with any federal,
state, local, or other governmental authority or any court or other tribunal is
required by the Company for the execution, delivery, or performance by the
Company of this Agreement or the Representative's Warrants, except filings under
the Securities Act which have been or will be made before the Closing Date, and
consents consisting only of consents under "blue sky" or securities laws, which
have been obtained at or prior to the date of this Agreement. No consent of any
party to any contract, agreement, instrument, lease, license, arrangement, or
understanding to which the Company is a party, or to which any of its properties
or assets are subject, is required for the execution, delivery, or performance
of this Agreement and the Representative's Warrants, and the execution,
delivery, and performance of this Agreement and the Representative's Warrants
will not violate, result in a breach of, conflict with, result in the creation
or imposition of any lien, charge, or encumbrance upon any properties or assets
of the Company pursuant to the terms of, or, with or without the giving of
notice or the passage of time or both, entitle any party to terminate or call a
default under, any such contract, agreement, instrument, lease, license,
arrangement, or understanding, or violate, result in a breach of, or conflict
with any term of the Certificate of Incorporation and By-Laws of the Company or
violate, result in a breach of, or conflict with, any law, rule, regulation,
order, judgment, or decree binding on the Company or to which any of its
operations, businesses, properties, or assets are subject.
(q) The Stock is validly authorized and, when issued and delivered in
accordance with this Agreement, will be validly issued, fully paid, and
nonassessable, without any personal liability attaching to the ownership
thereof, and will not be issued in violation of any preemptive or similar rights
of stockholders, and the Underwriters will receive good title to the Stock
purchased by them, free and clear of all liens, security interests, pledges,
charges, encumbrances, stockholders' agreements, and voting trusts. The Stock
conforms to all statements relating thereto contained in the Registration
Statement and the Prospectus.
(r) The Warrant Shares are validly authorized and have been duly and
validly reserved for issuance and, when issued and delivered upon exercise of
the Representative's Warrants in accordance with the terms thereof, will be
validly issued, fully paid, and nonassessable, without any personal liability
attaching to the ownership thereof, and will not be issued in violation of any
preemptive or similar rights of stockholders, and the holders of the
Representative's Warrants will receive good title to the securities purchased by
them upon the exercise of the Representative's Warrants, free and clear of all
liens, security interests, pledges, charges, encumbrances, stockholders'
agreements and voting trusts. The Representative's Securities conform
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in all material respects to all statements relating thereto contained in the
Registration Statement and the Prospectus.
(s) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, and except as may
otherwise be described in the Registration Statement or Prospectus, the Company
has not (i) issued any securities or incurred any liability or obligation,
primary or contingent, for borrowed money, (ii) entered into any material
transaction not in the ordinary course of business, (iii) declared or paid any
dividend on its shares of Common Stock, or (iv) experienced any changes or any
development which could reasonably be expected to have a Material Adverse
Effect.
(t) Neither the Company, nor any of its officers, directors, or
affiliates (as defined in the Regulations), has taken or will take, directly or
indirectly, prior to the termination of the offering contemplated by this
Agreement, any action designed to stabilize or manipulate the price of any
security of the Company, or which has caused or resulted in, or which might in
the future reasonably be expected to cause or result in, stabilization or
manipulation of the price of any security of the Company, to facilitate the sale
or resale of any of the Stock.
(u) The Company has obtained from each of its directors, officers and
stockholders holding an aggregate of 4,000,000 shares of Common Stock a written
agreement, in form and substance satisfactory to counsel for the Underwriters,
that, for a period of 18 months from the Effective Date he, she, or it will not,
without the prior written consent of the Representative, directly or indirectly,
offer, pledge, sell, contract to sell, grant any option for the sale of, or
otherwise dispose of, directly or indirectly, any shares of Common Stock or any
security or other instrument which by its terms is convertible into, or
exercisable or exchangeable for, shares of Common Stock or other securities of
the Company, including, without limitation, any shares of Common Stock issuable
pursuant to the terms of any employee stock options, provided, however, that
such persons may offer, sell, contract to sell, grant an option for the sale of,
or otherwise dispose of all or any part of his, her, or its shares of Common
Stock or other such security or instrument of the Company during such period if
such transaction is private in nature and the transferee of such shares of
Common Stock or other securities or instruments agrees, prior to such
transaction, to be bound by all of the provisions of such agreement.
(v) During the two-year period commencing on the effective date of
the Registration Statement, the Representative shall have the right of first
refusal (on terms at least as favorable as can be obtained from other sources)
to act as underwriter, placement agent or investment banker, as the case may be,
for any and all public offerings or private placements of the Company's
securities, or any merger, acquisition, or disposition of assets of the Company,
if the Company uses a lead manager, placement agent or investment banker
performing such functions for a fee. The Representative shall advise the
Company no later than seven days following the submission to the Representative
in writing of such proposed transaction(s) of its election to exercise said
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right. If any such proposal is not accepted by the Representative, but later
modified, the Company will resubmit such proposal to the Representative. Should
the Representative elect, at any time, not to exercise said right, the
Representative's right of first refusal regarding future financings shall be
unaffected.
(w) The Company is not, and does not intend to conduct its business
in a manner in which it would be required to register as, an "investment
company" as defined in the Investment Company Act of 1940, as amended (the
"Investment Company Act"), and the rules and regulations promulgated thereunder.
(x) All issuances and sales of securities by the Company prior to the
date hereof were exempt from registration under the Securities Act and complied
in all respects with the provisions of all applicable federal and state
securities laws. No person or entity has the right to require registration of
shares of Common Stock or other securities of the Company because of the filing
or effectiveness of the Registration Statement, which right has not been waived,
except as set forth in the Prospectus, and no holder of any security of the
Company has the right to demand registration of any security owned by such
holder during the period ending 18 months after the date of the Prospectus,
except as set forth in the Prospectus.
(y) Except as may be set forth in the Prospectus, and except for the
payment of an aggregate of $__________ in full satisfaction of all obligations
to National Securities Corp., the Company has not incurred any liability for a
fee, commission, or other compensation on account of the employment of a broker
or finder in connection with the transactions contemplated by this Agreement.
(z) No officer, director, or shareholder of the Company has any
affiliation or association with the NASD or any member thereof, except as
disclosed in writing to the Underwriters.
(aa) The Company has filed all necessary federal, state, local, and
municipal, and all foreign income and franchise tax returns and other reports
required to be filed and has paid all taxes shown as due thereon and all
assessments received by it to the extent that the same have become due. The
provisions for income taxes payable, if any, shown on the financial statements
filed with or as part of the Registration Statement and the Prospectus are
sufficient for all accrued and unpaid foreign and domestic taxes, whether or not
disputed, and for all periods to and including the dates of such financial
statements, and there is no material tax deficiency which has been, or, to the
knowledge of the Company, might be, asserted against the Company. Except as
disclosed in writing to the Underwriters, or set forth in the Registration
Statement and the Prospectus, the Company has not executed or filed with any
taxing authority, foreign or domestic, any agreement extending the period for
assessment or collection of any income taxes and the Company is not a party to
any pending action or proceeding by any foreign or domestic governmental agency
for assessment or collection of taxes, and no claims for assessment or
collection of taxes have been asserted against the Company.
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(ab) To the best knowledge of the Company, none of the activities or
business of the Company is in violation of, or will cause the Company to
violate, any law, rule, regulation, or order of the United States, or any
country, municipality or locality, or of any agency or body of the United States
or of any state, municipality or locality thereof, the violation of which would
have a Material Adverse Effect.
(ac) The Common Stock has been approved for quotation on the Nasdaq
National Market subject to official notice of issuance.
(ad) The Company maintains insurance covering its properties,
operations, personnel and businesses. Such insurance insures against such
losses and risks and in such amounts as are prudent and customary in the
businesses in which it is engaged. The Company has not been refused any
casualty insurance coverage sought or applied for; and the Company has no reason
to believe that it will not be able to renew its existing insurance coverage as
and when such coverage expires or to obtain similar coverage from similar
insurers as may be necessary to continue its business at a cost that would not
have a Material Adverse Effect. All such insurance is outstanding and duly in
force on the date hereof.
(ae) The Company is in compliance with all applicable laws or
regulations relating to pollution or protection of human health or the
environment ("Environmental Laws") in the states and countries in which it has
facilities or operates, except where the failure to be in compliance would not
have a Material Adverse Effect. The Company has not authorized, conducted or
has knowledge of the generation, transportation, storage, use, treatment,
disposal or release of any hazardous substance, hazardous waste, hazardous
material, hazardous constituent, toxic substance, pollutant, contaminant,
petroleum product, natural gas, liquified gas or synthetic gas, defined or
regulated under any Environmental Law on, in or under any property currently
leased or owned or by any means controlled by the Company (the "Real Property")
in violation of any applicable law, except for any violation which would not
have a Material Adverse Effect; there is no pending or, to the Company's
knowledge, threatened claim, action, litigation or any administrative agency
proceeding involving the Company or any of its properties, nor has the Company
received any written notice, or any oral notice to any executive officer of the
Company or any other employee responsible for receipt of any such notice, from
any governmental entity or third party, that (A) alleges a violation of any
Environmental Laws by the Company or any person or entity whose liability for a
violation of an Environmental Law the Company has retained or assumed either
contractually or by operation of law, which liability or violation could be
reasonably expected to have a Material Adverse Effect, (B) alleges the Company
is a liable party under the Comprehensive Environmental Response, Compensation
and Liability Act, 42 U.S.C. Section 9601 ET SEQ., or any state superfund law,
(C) alleges possible contamination of the environment by the Company or (D)
alleges possible contamination of the Real Property.
(af) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurance that (A) transactions are executed in
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accordance with management's general or specific authorizations, (B)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain asset accountability, (C) access to assets is permitted only in
accordance with management's general or specific authorization and (D) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(ag) The Company is not involved in any labor dispute and, to the
knowledge of the Company, no such dispute is threatened.
(ah) The Company is not presently doing business with the government
of Cuba or with any person or affiliate located in Cuba. If, at any time after
the date on which the Registration Statement is declared by the Commission to be
effective under the Securities Act or with the Florida Department of Banking and
Finance (the "Florida Department"), whichever is later, and prior to the end of
the period referred to in the first clause of Section 2(b) hereof, the Company
commences engaging in business with the government of Cuba or with any person or
affiliate located in Cuba, the Company will so inform the Florida Department
within 90 days after such commencement of business in Cuba, and, during the
period referred to in Section 2(b) hereof, will inform the Florida Department
within 90 days after any change occurs with respect to previously reported
information.
3. PURCHASE, SALE, AND DELIVERY OF THE STOCK AND THE
REPRESENTATIVE'S WARRANTS.
(a) On the basis of the representations, warranties, covenants, and
agreements of the Company herein contained, but subject to the terms and
conditions herein set forth, the Company agrees to issue and sell to the
Underwriters, and the Underwriters, severally and not jointly, agree to purchase
from the Company, the number of shares of Firm Stock set forth opposite the
respective names of the Underwriters in Schedule I hereto.
The purchase price per share of the Firm Stock to be paid by the
several Underwriters shall be $______. The initial public offering price per
share of the Firm Stock shall be $______.
Payment for the Firm Stock by the Underwriters shall be made by
certified or official bank check in New York Clearinghouse (next day) funds or
by electronic wire transfer of next day funds, payable to the order of the
Company, at the offices of Hampshire Securities Corporation, 640 Fifth Avenue,
4th Floor, New York, New York 10019, or at such other place in the New York City
metropolitan area as the Representative shall determine and advise the Company
by at least two full days' notice in writing, upon delivery of the Firm Stock to
the Representative for the respective accounts of the Underwriters. Such
delivery and payment shall be made at 10:00 a.m., New York City local time, on
the third or fourth business day (as permitted under
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Rule 15c6-1 under the Securities Exchange Act of 1934, as amended) following the
time of the initial public offering, as defined in Section 11(a) hereof, or at
such other time as shall be agreed upon between the Representative and the
Company. The time and date of such delivery and payment are hereinafter
referred to as the "Closing Date."
Certificates representing the Firm Stock shall be registered in such
name or names and in such authorized denominations as the Representative may
request in writing at least two full business days prior to the Closing Date.
The Company shall permit the Representative to examine and package such
certificates for delivery at least one full business day prior to the Closing
Date.
(b) The Company hereby grants to the Underwriters an Over-allotment
Option to purchase up to 405,000 shares of Common Stock, as may be necessary to
cover over-allotments, at the same purchase price per share to be paid by the
Underwriters to the Company for the Firm Stock as provided for in this
Section 3. The Over-allotment Option may be exercised only to cover
over-allotments in the sale of Stock by the Underwriters. The Over-allotment
Option may be exercised by the Underwriters on the basis of the representations,
warranties, covenants, and agreements of the Company herein contained, but
subject to the terms and conditions herein set forth, at any time and from time
to time on or before the 45th day following the Effective Date by written notice
by the Underwriters to the Company. Such notice shall set forth the aggregate
number of shares of Additional Stock as to which the Over-allotment Option is
being exercised, the name or names in which the certificates representing the
Additional Stock are to be registered, the authorized denominations in which the
Additional Stock are to be registered, and the time and date, as determined by
the Underwriters, when such shares of Additional Stock are to be delivered (each
such time and date are hereinafter referred to as an "Additional Closing Date"),
provided, however, that no Additional Closing Date shall be earlier than the
Closing Date nor earlier than the second business day after the date on which
the notice of the exercise of the Over-allotment Option shall have been given
nor later than the eighth business day after the date on which such notice shall
have been given.
In the event that the Company declares or pays a dividend or a
distribution on the shares of Common Stock, whether in the form of cash, shares
of Common Stock or other consideration, prior to the Additional Closing Date,
such dividend or distribution shall also be paid on the Additional Stock on the
later of the Additional Closing Date and the date on which such dividend or
distribution is payable.
Payment for the Additional Stock by the Underwriters shall be made by
certified or official bank check in New York Clearinghouse (next day) funds or
by electronic wire transfer of next day funds, payable to the order of the
Company at the offices of Hampshire Securities Corporation, 640 Fifth Avenue,
4th Floor, New York, New York 10019, or at such other place in the New York City
metropolitan area as the Representative shall determine and advise the Company
by at least two full days' notice in writing, upon delivery of the Additional
Stock to the Underwriters.
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Certificates for the Additional Stock shall be registered in such name
or names and in such authorized denominations as the Underwriters may request in
writing at least two full business days prior to the Additional Closing Date
with respect thereto. The Company shall permit the Underwriters to examine and
package such certificates for delivery at least one full business day prior to
the Additional Closing Date with respect thereto.
(c) The Company hereby agrees to issue and sell to the Representative
and/or its designees on the Closing Date the Representative's Warrants to
purchase the Warrant Shares for an aggregate purchase price for the
Representative's Warrants of $270.00.
Delivery and payment for the Representative's Warrants shall be made
on the Closing Date. The Company shall deliver to the Representative, upon
payment therefor, certificates representing the Representative's Warrants in the
name or names and in such authorized denominations as the Representative may
request. The Representative's Warrants shall be exercisable for a period of
four years commencing one year from the date on which the Registration Statement
was declared effective under the Securities Act at an initial exercise price per
Warrant Share equal to $____.
(d) It is understood that the Representative may (but shall not be
obligated to) make any and all the payments required pursuant to this Section 3
on behalf of any Underwriters whose check or checks shall not have been received
by the Representative at the time of delivery of the Stock to be purchased by
such Underwriter or Underwriters. Any such payment by the Representative shall
not relieve any such Underwriter or Underwriters of any of its or their
obligations hereunder.
4. OFFERING. The Underwriters are to make a public offering of the
Firm Stock as soon, on or after the date on which the Registration Statement
becomes effective under the Securities Act, as the Underwriters deem it
advisable so to do. The Firm Stock is to be initially offered to the public at
the initial public offering price as provided for in Section 3(a) (such price
being hereinafter referred to as the "public offering price"). After the initial
public offering, the Underwriters may from time to time increase or decrease the
public offering price, in the sole discretion of the Underwriters, by reason of
changes in general market conditions or otherwise.
5. COVENANTS. The Company covenants with the Underwriters that it
will:
(a) Use its best efforts to cause the Registration Statement to
become effective under the Securities Act as promptly as possible, and notify
the Underwriters and counsel to the Underwriters immediately, and confirm such
notice in writing, (i) when the Registration Statement and any post-effective
amendment thereto, (ii) of the receipt of any comments from the Commission or
the "blue sky" or securities authority of any jurisdiction regarding the
Registration Statement, any post-effective amendment thereto, the Prospectus, or
any amendment or supplement thereto, (iii) of the filing
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with the Commission of any supplement to the Prospectus, and (iv) of the receipt
of any notification with respect to a Stop Order by the Commission. The Company
will use its best efforts to prevent the issuance of any Stop Order and, if any
Stop Order is issued, to obtain the lifting thereof as promptly as possible. If
the Registration Statement has become or becomes effective under the Securities
Act with a form of prospectus omitting Rule 430A information, or filing of the
Prospectus with the Commission is otherwise required under Rule 424(b) of the
Regulations, the Company will file with the Commission the Prospectus, properly
completed, pursuant to Rule 424(b) of the Regulations within the time period
prescribed and will provide evidence satisfactory to the Underwriters of such
timely filing.
(b) During the time when a prospectus relating to the Firm Stock or
the Additional Stock is required to be delivered hereunder or under the
Securities Act or the Regulations, comply with all requirements imposed upon it
by the Securities Act, as now existing and as hereafter amended, and by the
Regulations, as from time to time in force, so far as necessary to permit the
continuance of sales of, or dealings in, the Firm Stock and the Additional Stock
in accordance with the provisions hereof and the Prospectus. If, at any time
when a prospectus relating to the Firm Stock or the Additional Stock is required
to be delivered hereunder or under the Securities Act or the Regulations, any
event shall have occurred as a result of which, in the reasonable opinion of
counsel for the Company or of counsel for the Underwriters, the Registration
Statement or the Prospectus as then amended or supplemented contains any untrue
statement of a material fact or omits to state any material fact required to be
stated therein or necessary to make the statements therein not misleading, or
if, in the opinion of either of such counsel, it is necessary at any time to
amend or supplement the Registration Statement or the Prospectus to comply with
the Securities Act or the Regulations, the Company will immediately notify the
Underwriters and promptly prepare and file with the Commission an appropriate
amendment or supplement (in form and substance reasonably satisfactory to the
Underwriters and counsel to the Underwriters) which will correct such statement
or omission or which will effect such compliance and will use its best efforts
to have any such amendment declared effective under the Securities Act as soon
as possible. The Company will not file any amendment of or supplement to the
Registration Statement or Prospectus which is not approved by the Underwriters
after reasonable notice from the Company to the Underwriters, which approval
shall not be unreasonably withheld or delayed.
(c) Deliver without charge to the Underwriters such number of copies
of each Preliminary Prospectus as may reasonably be requested by such
Underwriters and, as soon as the Registration Statement, or any amendment
thereto, becomes effective under the Securities Act or a supplement is filed
with the Commission, deliver without charge to the Underwriters one signed copy
of the Registration Statement, including exhibits, or such amendment thereto, as
the case may be, and two copies of any supplement thereto, and deliver without
charge to the Underwriters such number of copies of the Prospectus, the
Registration Statement, and amendments and supplements thereto, if any, without
exhibits, as the Underwriters may request for the purposes contemplated by the
Securities Act.
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(d) Endeavor in good faith, in cooperation with the Underwriters, at
or prior to the time the Registration Statement becomes effective under the
Securities Act, to qualify the Stock for offering and sale under the "blue sky"
or securities laws of such jurisdictions as may be designated by the
Underwriters, provided, however, that no such qualification shall be required in
any jurisdiction where, as a result thereof, the Company would be subject to
service of general process or to taxation as a foreign corporation doing
business in such jurisdiction to which it is not then subject. In each
jurisdiction where such qualification shall be effected, the Company will,
unless the Underwriters agrees in writing that such action is not at the time
necessary or advisable, file and make such statements or reports at such times
as are or may be required by the laws of such jurisdiction.
(e) Make generally available, within the meaning of Section 11(a) of
the Securities Act and the Regulations, to its security holders as soon as
practicable, but not later than 45 days after the end of the 12-month period
beginning at the end of the fiscal quarter of the Company during which the
Effective Date occurs (or 90 days, if such 12-month period coincides with the
Company's fiscal year), an earnings statement, which need not be certified by
independent certified public accountants unless required by the Securities Act
or the Regulations, but which shall satisfy the provisions of Section 11(a) of
the Securities Act and the Regulations, covering a period of at least 12 months
beginning after the date on which the Registration Statement was declared
effective under the Securities Act. The Company will furnish to its
stockholders a copy of its annual reports containing financial statements
audited by the Company's independent accountants and quarterly reports
containing unaudited financial information for the first three quarters of each
year.
(f) For a period of 18 months after the date of the Prospectus, not,
without the prior written consent of the Representative, offer, issue, sell,
contract to sell, grant any option for the sale of, or otherwise dispose of,
directly or indirectly, any shares of Common Stock or other securities of the
Company, or any security or other instrument which by its terms is convertible
into, or exercisable or exchangeable for, shares of Common Stock, except as
contemplated by Section 3 hereof and except for (i) the issuance of stock
options, or shares of Common Stock issuable upon the exercise thereof, which
have been or may be granted pursuant to the Company's existing stock option
plans, up to an aggregate of [600,000] shares of Common Stock, as described in
the Prospectus and (ii) the issuance of the Warrant Shares upon exercise of the
Representative's Warrants.
(g) For a period of five years after Effective Date furnish the
Representative without charge, the following:
(i) within 90 days after the end of each fiscal year, one
copy of financial statements certified by independent certified public
accountants, including a balance sheet, statement of income, and statement of
changes in cash flows of the Company and its then existing subsidiaries, if any,
with supporting schedules, prepared
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in accordance with generally accepted accounting principles as at the end of
such fiscal year and for the 12 months then ended, which may be on a
consolidated basis;
(ii) as soon as practicable after they have been sent to
stockholders of the Company or filed with, or furnished to, the Commission or
the NASD, one copy of each annual and interim financial and other report or
communication sent by the Company to its stockholders or filed with, or
furnished to, the Commission or the NASD;
(iii) as soon as practicable, one copy of every press release
and every material news item and article in respect of the Company, including
any subsidiary, or its affairs which was released by the Company; and
(iv) such additional documents and information with respect to
the Company, and its affairs, as the Representative may from time to time
reasonably request, provided, however, that such additional documents and
information shall be received by the Representative on a confidential basis,
unless otherwise disclosed to the public, and shall not be used in violation of
the laws of the federal securities laws and the rules and regulations
promulgated thereunder.
(h) Apply the net proceeds received by the Company from the offering
contemplated by this Agreement in the manner set forth under the heading "Use of
Proceeds" in the Prospectus.
(i) Furnish to the Underwriters as early as practicable prior to the
Closing Date and each Additional Closing Date, if any, as the case may be, but
not less than two full business days prior thereto, a copy of the latest
available unaudited interim financial statements of the Company which have been
read by the Company's independent certified public accountants, as stated in
their letters to be furnished pursuant to Section 7(f) hereof.
(j) File no amendment or supplement to the Registration Statement or
Prospectus at any time, whether before or after the date on which the
Registration Statement was declared effective under the Securities Act, unless
such filing shall comply with the Securities Act and the Regulations, and unless
the Representative shall previously have been advised of such filing and
furnished with a copy thereof, and the Representative shall have approved such
filing in writing, such approval not to be unreasonably withheld. Until the
later of (i) the completion by the Underwriters of the distribution of the Stock
(but in no event more than nine months after the date on which the Registration
Statement shall have been declared effective under the Securities Act) and (ii)
25 days after the date on which the Registration Statement shall have been
declared effective under the Securities Act, the Company will prepare and file
with the Commission, promptly upon the Representative's request, any amendments
or supplements to the Registration Statement or the Prospectus which, in the
Representative's reasonable opinion and the reasonable opinion of its counsel,
may be necessary or advisable in connection with the distribution of the Stock.
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(k) File timely with the Commission an appropriate form with respect
to the registration of the shares of Common Stock pursuant to Section 12(g) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act") to become
effective under the Exchange Act concurrently with the effectiveness of the
Registration Statement under the Securities Act and comply with all
registration, filing, and reporting requirements of the Exchange Act, which may
from time to time be applicable to the Company.
(l) Comply with all provisions of all undertakings contained in the
Registration Statement.
(m) Prior to the later of 25 days after the Effective Date or any
Additional Closing Date, as the case may be, issue no press release or other
communication, directly or indirectly, and hold no press conference with respect
to the Company, the financial condition, results of operations, business,
properties, assets, liabilities or future prospects of the Company or this
offering, without the prior written consent of the Representative, which consent
shall not be unreasonably withheld.
(n) Make all filings required to maintain the inclusion of the
Company Stock on the Nasdaq National Market for at least five years from the
date of this Agreement.
(o) On the Closing Date, sell to the Representative, the
Representative's Warrants at an aggregate price equal to $270.00, which
Representative's Warrants shall be substantially in the form filed with the
NASD.
(p) Until expiration of the Representative's Warrants, keep reserved
sufficient shares of Common Stock for issuance upon exercise of the
Representative's Warrants.
(q) Deliver to the Representative, without charge, within a
reasonable period after the last Additional Closing Date or the expiration of
the period during which the Representative may exercise the Over-allotment
Option, five sets of bound volumes of the Registration Statement and all related
materials to the individuals designated by the Representative or counsel to the
Representative.
(r) For a period of three years from the Effective Date, provide, at
its sole expense, to the Representative copies of the Company's daily transfer
sheets, if so requested by the Representative.
(s) For a period of three years from the Effective Date, the Company
shall use its best efforts to cause two persons to be elected to the Company's
Board of Directors who are deemed to be independent of the Company's management
within the meaning of the rules of the Nasdaq National Market.
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(t) For a period of three years from the Effective Date, the
Representative shall have the right to appoint a designee as an observer of the
Company's Board of Directors. Such observer will have the right to attend all
meetings of the Board of Directors (and participate in all telephonic conference
calls of the Board). Such observer shall be entitled to receive reimbursement
for all out-of-pocket expenses incurred in attending such meetings, including,
but not limited to, food, lodging and economy transportation. The
Representative shall be given notice of such meetings at the same time and in
the same manner as directors of the Company are informed. The Representative
and such observer shall be indemnified to the same extent as the other
independent directors. The Company will use its best efforts to purchase
directors and officers insurance in an amount of not less than $2,000,000;
provided, however, that the Company shall not be required to pay more than
$50,000 per year in order to maintain such insurance, and if insurance in such
amount is not available at such cost, the Company shall purchase that amount of
such insurance which is available at a cost of $50,000 per year. The Company
will use its best efforts to extend the coverage of such insurance to the
observer.
(u) Maintain key-person life insurance, written by such insurance
company or agency which is reasonably acceptable to the Representative, payable
to the Company on the life of Bo W. Lycke, President of the Company in the
amount of at least $1,000,000, for the period of time equal to the longer of
three years from the Effective Date and the term of the employment agreement
between the Company and Mr. Lycke.
(v) Cause stockholders owning at least five percent (5%) of the
Company's outstanding shares of Common Stock as of the date hereof, and use its
best efforts to cause stockholders owning at least five percent (5%) of the
Company's outstanding shares of Common Stock immediately following the Closing
Date, to grant to the Representative a preferential right for a period of 18
months following the Effective Date to sell for the account of such holder any
securities sold pursuant to Rule 144 under the Securities Act. Each of such
holders shall agree to consult with the Representative with regard to any such
sale and will offer the Representative the exclusive opportunity to sell such
securities on terms at least as favorable to such holder as such holder can
secure elsewhere. If the Representative fails to accept in writing any such
proposal for sale by such holder within seven (7) business days after receipt of
a notice containing such proposal, then the Representative shall have no claim
or right with respect to any such sales contained in such notice. If,
thereafter, such proposal is modified in any material respect, such holders
shall adopt the same procedure as with respect to the original proposal.
(w) Except as set forth in the second sentence of this Section 5(w),
until the expiration of three years from the Effective Date, the Company will
not effect a change in the independent certified public accountants for the
Company unless either the Company has received the Representative's prior
written consent or such substitute independent certified public accountant is
one of the "big six" firms. For all fiscal periods commencing on or after
January 31, 1998, the Company will retain as its
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independent certified public accountants, the firm of Ernst & Young LLP or
another "big six" firm.
6. PAYMENT OF EXPENSES. The Company hereby agrees to pay all
expenses (other than fees of counsel for the Underwriters, except as provided in
subdivision (c) of this Section 6) in connection with (a) the preparation and
printing of the Registration Statement including all amendments thereto, the
Prospectus, this Agreement and related other underwriting documents, including
the cost of all copies thereof and of the Preliminary Prospectuses and of the
Prospectus and any amendments or supplements thereto supplied to the
Underwriters in quantities as hereinabove stated, (b) the issuance, sale,
transfer, and delivery (as applicable) of the Securities, including any transfer
or other taxes payable thereon, (c) the qualification of the Securities under
state or foreign "blue sky" or securities laws, including the costs of printing
and mailing any preliminary and final "Blue Sky Survey" and the fees and
disbursements of counsel for the Underwriters in connection therewith in the
amount of up to $35,000 ($________ if Nasdaq National Market listing is not
obtained) plus disbursements in connection therewith, (d) the filing fees
payable to the NASD, and the jurisdictions in which such qualification is
sought, (e) any fees relating to the listing of the shares of Common Stock on
the Nasdaq National Market, (f) the cost of printing certificates representing
shares of Common Stock and the Representative's Warrants (g) the fees of the
transfer agent for the shares of Common Stock, (h) the cost of publication of
"tombstone" advertisements with respect to the offering; provided that the cost
thereof to the Company will not exceed $30,000 in the aggregate, (i) all
expenses relating to the "roadshow" except the Underwriters' travel and lodging,
and (j) a non-accountable expense allowance equal to three percent (3%) of the
gross proceeds of the sale of the Firm Stock and any Additional Stock with
respect to which the Over-allotment Option has been exercised to the
Representative on the Closing Date or the Additional Closing Date, as the case
may be (less $25,000 previously paid to the Representative). Notwithstanding
the foregoing, if the offering contemplated hereby should be terminated, the
Company agrees to pay the Underwriters only the out-of-pocket expenses incurred
by the Underwriters in connection with the Agreement and the proposed offer,
sale, and delivery of Securities.
7. CONDITIONS OF UNDERWRITER'S OBLIGATIONS. The obligations of the
Underwriters to purchase and pay for the Firm Stock and the Underwriters to
purchase and pay for the Additional Stock, as provided herein, and the
obligation of the Representative to purchase and pay for the Representative's
Warrants, each as provided herein, shall be subject, in the discretion of the
Representative's, to the continuing accuracy of the representations and
warranties of the Company contained herein and in each certificate and document
contemplated under this Agreement to be delivered to the Underwriters, as of the
date hereof and as of the Closing Date (or any Additional Closing Date, as the
case may be), to the performance by the Company of its obligations hereunder,
and to the following conditions:
(a) The Registration Statement shall have become effective under the
Securities Act not later than 6:00 P.M., New York City local time, on the date
of this
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Agreement or such later date and time as shall be consented to in writing by the
Underwriters, on or prior to the Closing Date, or any Additional Closing Date,
as the case may be, no Stop Order shall have been issued and no proceeding shall
have been initiated or threatened with respect to a Stop Order, and any request
by the Commission for additional information shall have been complied with by
the Company to the reasonable satisfaction of counsel for the Underwriters. If
required, the Prospectus shall have been filed with the Commission in the manner
and within the time period required by Rule 424(b) under the Securities Act.
(b) At the Closing Date and any Additional Closing Date, as the case
may be, the Underwriters shall have received the opinion of Brock, Fensterstock,
Silverstein, McAuliffe & Wade LLC, counsel for the Company, dated the date of
delivery, addressed to the Underwriters, and in the form and scope satisfactory
to counsel for the Underwriters, with reproduced copies or signed counterparts
thereof for the Underwriters, to the effect that:
(i) the Company is a corporation duly organized, validly
existing, and in good standing under the laws of its jurisdiction of
incorporation, with full corporate power and authority, and all necessary
consents, authorizations, approvals, orders, licenses, certificates, and permits
of and from, and declarations and filings with, all federal, state, local, and
other governmental authorities and all courts and other tribunals, to own,
lease, license, and use its properties and assets and to conduct its business in
the manner described in the Prospectus. The Company is duly qualified to do
business as a foreign corporation and is in good standing as such in every
jurisdiction in which its ownership, leasing, licensing, or use of property and
assets or the conduct of its business makes such qualification necessary, except
where the failure to so qualify or be in good standing would not have a material
Adverse Effect;
(ii) the authorized capital stock of the Company consists of
(1) 40,000,000 shares of Common Stock, of which 4,000,000 shares are outstanding
and (ii) 4,000,000 shares of Preferred Stock, par value $.001 per share, none of
which is outstanding. Each outstanding share of capital stock of the Company is
free and clear of all liens, security interests, pledges, charges, encumbrances,
stockholders' agreements, and voting trusts. Each outstanding share of Common
Stock is validly authorized and issued, fully paid, and nonassessable, without
any personal liability attaching to the ownership thereof, has not been issued
and is not owned or held in violation of any preemptive or similar rights of
stockholders. To the knowledge of such counsel, there is no commitment, plan,
or arrangement to issue, and no outstanding option, warrant, or other right
calling for the issuance of, any share of capital stock of the Company or any
security or other instrument which by its terms is convertible into, or
exercisable or exchangeable for, capital stock of the Company except as may be
described in the Prospectus. Except as described in the Prospectus, there is
outstanding no security or other instrument which by its terms is convertible
into, or exercisable or exchangeable for, capital stock of the Company. The
certificates evidencing the Common Stock are in due and proper form;
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(iii) to the knowledge of such counsel, there is no litigation,
arbitration, claim, governmental or other proceeding (formal or informal), or
investigation pending, threatened, or in prospect (or any basis therefor) with
respect to the Company or any of its operations, businesses, properties, or
assets, except as may be described in the Prospectus or such as individually or
in the aggregate do not now have, and will not in the future have, a Material
Adverse Effect. To the knowledge of such counsel, the Company is not in
violation of, or in default with respect to, any law, rule, regulation, order,
judgment, or decree, except as may be described in the Prospectus or such as
individually or in the aggregate do not now have and will not in the future have
a Material Adverse Effect; nor is the Company required to take any action in
order to avoid any such violation or default;
(iv) to the knowledge of such counsel, neither the Company nor
any other party is now, or is expected by the Company to be, in violation or
breach of, or in default with respect to, any provision of any contract,
agreement, instrument, lease, license, arrangement, or understanding which is
material to the Company, and, to the knowledge of such counsel, each such
contract, agreement, instrument, lease, license, arrangement, or understanding
is in full force and effect and is the valid, legal, and binding obligation of
the parties thereto and is enforceable in accordance with its terms;
(v) the Company is not in violation or breach of, or in
default with respect to, any term of its respective Certificate of Incorporation
or By-Laws;
(vi) the Company has all requisite power and authority to
execute, deliver, and perform this Agreement and the Representative's Warrants.
All necessary corporate proceedings of the Company have been taken to authorize
the execution, delivery, and performance by the Company of this Agreement and
the Representative's Warrants. This Agreement has been duly authorized,
executed, and delivered by the Company, is the legal, valid, and binding
obligation of the Company, and, subject to applicable bankruptcy, insolvency,
and other laws affecting the enforceability of creditors' rights generally, is
enforceable as to the Company in accordance with its terms. The
Representative's Warrants have been duly authorized by the Company and, when
executed and delivered by the Company, will be legal, valid, and binding
obligations of the Company, each enforceable as to the Company in accordance
with its terms. No consent, authorization, approval, order, license,
certificate, or permit of or from, or declaration or filing with, any federal,
state, local, or other governmental authority or any court or other tribunal is
required by the Company for the execution, delivery, or performance by the
Company of this Agreement or the Representative's Warrants, except filings under
the Securities Act which have been made prior to the Closing Date or Additional
Closing Date, as the case may be, and consents consisting only of consents under
"blue sky" or securities laws, which have been obtained. No consent of any
party to any contract, agreement, instrument, lease, license, arrangement, or
understanding known to such counsel to which the Company is a party, or to which
any of its properties or assets are subject, is required for the execution,
delivery, or performance of this Agreement and the Representative's
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Warrants; and the execution, delivery, and performance of this Agreement and the
Representative's Warrants will not violate, result in a breach of, conflict
with, result in the creation or imposition of any lien, charge, or encumbrance
upon any properties or assets of the Company pursuant to the terms of, or, with
or result in a breach of, or conflict with any law, rule, regulation, order,
judgment, or decree binding on the Company to which any of its operations,
business, properties, or assets are subject;
(vii) each share of Firm Stock to be delivered on the Closing
Date is validly authorized and, when issued and delivered in accordance with the
terms hereof, will be validly issued, fully paid, and nonassessable, without any
personal liability attaching to the ownership thereof, and will not be issued in
violation of any preemptive or similar rights of stockholders. Each share of
Additional Stock to be delivered on the Closing Date or any Additional Closing
Date, as applicable, is validly authorized and, when issued and delivered in
accordance with the terms hereof, will be validly issued, fully paid, and
nonassessable, without any personal liability attaching to the ownership
thereof, and will not be issued in violation of any preemptive or similar rights
of stockholders. The Underwriters will receive good title to the shares of Firm
Stock and Additional Stock purchased by them, respectively, free and clear of
all liens, security interests, pledges, charges, encumbrances, stockholders'
agreements, and voting trusts. The Additional Stock has been duly ad validly
reserved for issuance. The Stock conforms to all statements relating thereto
contained in the Registration Statement or the Prospectus;
(viii) the Warrant Shares are validly authorized and have been
duly and validly reserved for issuance pursuant to the terms of the
Representative's Warrants. The Representative's Warrants have been duly and
validly issued and delivered. The Warrant Shares, when issued and delivered in
accordance with the Representative's Warrants, will be validly issued, fully
paid, and nonassessable, without any personal liability attaching to the
ownership thereof, and will not have been issued in violation of any preemptive
rights of stockholders. The Representative, and any other holders of the
Representative's Warrants, will receive good title to the securities purchased
by them upon exercise of the Representative's Warrants, free and clear of all
liens, security interests, pledges, charges, encumbrance, stockholders'
agreements, and voting trusts. The Representative's Securities conform to all
statements relating thereto contained in the Registration Statement or the
Prospectus;
(ix) to the knowledge of such counsel, each contract,
agreement, instrument, lease, or license required to be described in the
Registration Statement or the Prospectus has been accurately described therein,
and each contract, agreement, instrument, lease, or license required to be filed
as an exhibit to the Registration Statement has been filed with the Commission
as an exhibit to the Registration Statement;
(x) insofar as statements in the Prospectus purport to
summarize the status of litigation or the provisions of laws, rules,
regulations, orders, judgments, decrees, contracts, agreements, instruments,
leases, or licenses, such statements have
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been prepared or reviewed by such counsel and accurately reflect the status of
such litigation and provisions purported to be summarized and are correct in all
respects;
(xi) the Company is not an "investment company" as defined in
the Investment Company Act and the rules and regulations thereunder and, if the
Company conducts its business as set forth in the Prospectus, will not become an
"investment company", and will not be required to be registered under the
Investment Company Act;
(xii) to the knowledge of such counsel, no person or entity has
the right to require registration of shares of Common Stock or other securities
of the Company because of the filing or effectiveness of the Registration
Statement, except by persons or entities which have waived such rights as
described in the Registration Statement and the Prospectus;
(xiii) there is no stamp duty, value-added tax or any similar
tax or duty, payable by or on behalf of the Underwriters or the Company in Hong
Kong in connection with the authorization, issuance, sale and delivery of the
Securities to the Underwriters in the manner contemplated by this Agreement; and
(xiv) the Registration Statement has become effective under the
Securities Act, the Prospectus has been filed in accordance with Rule 424(b) of
the Regulations, including the applicable time periods set forth therein, or
such filing is not required. To the knowledge of such counsel, no Stop Order
has been issued and no proceeding for that purpose has been instituted or
threatened.
In addition, such counsel shall state that in the course of the
preparation of the Registration Statement and Prospectus, such counsel have
participated in conferences with representatives of the Underwriters, officers
and representatives of the Company and representatives of the independent
certified public accountants of the Company, at which conferences the contents
of the Registration Statement and the Prospectus and related matters were
discussed, and that although such counsel have not verified the accuracy,
completeness or fairness of the statements contained in the Registration
Statement, the Prospectus, or any amendment or supplement thereto, and
accordingly are not passing thereon, such counsel have no reason to believe that
(A) the Registration Statement (except as to financial statements and other
financial data and schedules which are or should be contained therein, as to
which such counsel need express no opinion) on the Effective Date, 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 (B) the Prospectus (except as to the
financial statements and other financial data and schedules which are or should
be contained therein, as to which such counsel need express no opinion), as of
its date or the date hereof, contained or contains any untrue statement of a
material fact or omitted or omits to state any material fact necessary in order
to make the statements therein, in light of the circumstances under which they
were made, not misleading or (C) the Registration
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Statement and the Prospectus do not appear on their face to comply as to form in
all material respects with the requirements of the Securities Act and the
applicable Regulations.
In rendering such opinion, counsel for the Company may rely (A)
as to matters involving the application of laws other than the laws of the
United States and the laws of the State of New York, to the extent counsel for
the Company deems proper and to the extent specified in such opinion, upon an
opinion or opinions (in form and substance satisfactory to counsel for the
Underwriters) of other counsel, acceptable to counsel for the Underwriters,
familiar with the applicable laws, in which case the opinion of counsel for the
Company shall state that the opinion or opinions of such other counsel are
satisfactory in scope, form, and substance to counsel for the Company and that
reliance thereon by counsel for the Company and the Underwriters is reasonable;
(B) as to matters of fact, to the extent they deem proper, on certificates of
responsible officers of the Company; and (C) to the extent they deem proper,
upon written statements of certificates of officers of departments of various
jurisdictions having custody of documents respecting the corporate existence or
good standing of the Company; provided that copies of any such opinions,
certificates, or statements shall be annexed as exhibits to the opinion of
counsel for the Company.
(c) On or prior to the Closing Date and any Additional Closing Date,
as the case may be, the Underwriters shall have been furnished such information,
documents, certificates, and opinions as they may reasonably require for the
purpose of enabling them to review the matters referred to in Section 7(b), and
in order to evidence the accuracy, completeness, or satisfaction of any of the
representations, warranties, covenants, agreements, or conditions herein
contained, or as the Underwriters may reasonably request.
(d) At the Closing Date or any Additional Closing Date, as the case
may be, (i) 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 Securities Act and the Regulations, and 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 or necessary to make the
statements therein not misleading, (ii) there shall have been, since the
respective dates as of which information is given in the Registration Statement
and the Prospectus, no material adverse change, or any development involving a
prospective material adverse change, in the business, properties, or condition
(financial or otherwise), results of operations, future prospects, 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 date on
which the Registration Statement becomes effective under the Securities Act, and
the Company shall not have incurred any material liabilities or entered into any
agreements not in the ordinary course of business other than as referred to in
the Registration Statement
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and Prospectus, (iii) except as set forth in the Prospectus, no litigation,
arbitration, claim, governmental or other proceeding (formal or informal), or
investigation shall be pending, threatened, or in prospect (or any basis
therefor) with respect to the Company, or any of its respective operations,
businesses, properties, or assets which would be required to be set forth in the
Registration Statement, wherein an unfavorable decision, ruling, or finding
would have a Material Adverse Effect, and (iv) the Stock shall be quoted upon
the Nasdaq National Market.
(e) At the Closing Date and any Additional Closing Date, as the case
may be, the Underwriters shall have received a certificate of the President and
the Chief Financial Officer of the Company, dated the Closing Date or such
Additional Closing Date, as the case may be, to the effect, among other things,
that (i) the conditions set forth in Sections 7(a) and 7(d) have been satisfied,
(ii) as of the date of this Agreement and as of the Closing Date or such
Additional Closing Date, as the case may be, the representations and warranties
of the Company contained herein were and are accurate and correct, and (iii) as
of the Closing Date or such Additional Closing Date, as the case may be, the
obligations to be performed by the Company hereunder on or prior to such time
have been fully performed.
(f) At the time this Agreement is executed and at the Closing Date
and any Additional Closing Date, as the case may be, the Representative shall
have received a letter, addressed to the Underwriters, and in form and substance
satisfactory to the Representative, with reproduced copies or signed consents
thereof for each of the Underwriters, from King Griffen & Adamson P.C.,
independent certified public accountants for the Company, dated the date of
delivery:
(i) confirming that they are, and during the period covered
by their report(s) included in the Registration Statement and the Prospectus
were, independent certified public accountants with respect to the Company and
Medica within the meaning of the Securities Act and the published Regulations;
(ii) stating that, in their opinion, the financial statements
and schedules of the Company and Medica included in the Registration Statement
examined by them comply in form in all material respects with the applicable
accounting requirements of the Securities Act and the related published rules
and regulations;
(iii) stating that they have performed, with respect to the
interim financial statements of the Company included in the Registration
Statement, the procedures set out in Statement on Auditing Standards No. 71
("SAS 71") for a review of interim financial information and providing the
report of King Griffen & Adamson P.C. as described in SAS 71 on the interim
financial statements of the Company;
(iv) stating that, on the basis of procedures (but not an
examination made in accordance with the generally accepted auditing standards)
consisting of a reading of the latest available unaudited interim financial
statements of the Company (with an indication of the date of the latest
available unaudited interim
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financial statements), a reading of the latest available minutes of the
stockholders and Boards of Directors of the Company and committees of such Board
of Directors, inquires to certain officers and other employees of the Company
responsible for financial and accounting matters, and other specified procedures
and inquiries, nothing has come to their attention that caused them to believe
that: (A) the unaudited financial statements and schedules of the Company
included in the Registration Statement and Prospectus do not comply in form in
all material respects with the applicable accounting requirements of the
Securities Act and the Exchange Act and related published rules and regulations
under the Securities Act or the Exchange Act or are not fairly presented in
conformity with generally accepted accounting principles (except to the extent
that certain footnote disclosures regarding any stub period may have been
omitted in accordance with the applicable rules of the Commission under the
Exchange Act) applied on a basis consistent with that of the audited financial
statements appearing therein; (B) there was any change in the capital stock or
long-term debt of the Company or any decrease in the total current assets or
stockholders' equity of the Company as of the date of the latest available
monthly financial statements of the Company as of a specified date not more than
five business days prior to the date of such letter, each, as compared with the
amounts shown in the December 31, 1996 balance sheets included in the
Registration Statement and Prospectus, other than as described in the
Registration Statement and Prospectus or any change or decrease (which shall be
set forth therein) which, in the sole discretion of the Representative, the
Underwriters shall accept, or (C) there was any decrease in the revenues, net
income, or net income per share of Common Stock during the period from
December 31, 1996 to the date of the latest available monthly financial
statements of the Company or to a specified date not more than five business
days prior to the date of such letter, each as compared with the corresponding
prior period, other than as described in the Registration Statement and
Prospectus or any decrease (which shall be set forth therein) which, in the sole
discretion of the Representative, the Underwriters shall accept; and
(v) stating that they have compared specific numerical data and
financial information pertaining to the Company set forth in the Registration
Statement, which have been specified by the Representative prior to the date of
this Agreement, to the extent that such data and information may be derived from
the general accounting records of the Company, and excluding any questions
requiring any interpretation by legal counsel, with the results obtained from
the application of specified readings, inquiries, and other appropriate
procedures (which procedures do not constitute an examination in accordance with
the generally accepted auditing standards) set forth in the letter, and found
them to be in agreement.
(g) All proceedings taken in connection with the issuance, sale,
transfer, and delivery of the Securities shall be reasonably satisfactory in
form and substance to the Representative and to counsel for the Underwriters,
and the Underwriters shall have received from such counsel for the Underwriters
opinions, dated as of the Closing Date and the Additional Closing Date, as the
case may be, with respect to such of the
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matters set forth under Section 7(b), and with respect to such other related
matters, as the Representative may reasonably request.
(h) The NASD, upon review of the terms of the public offering of the
Stock, shall not have objected to the Underwriters' participation in such
offering.
(i) On the Closing Date, the Company shall have sold the
Representative's Warrants to the Representative and its designees.
(j) Prior to or on the Closing Date, the Company shall have provided
to the Representative copies of the agreements referred to in Section 2(u) and
5(v). In order to enforce this covenant (with respect to Section 2(u)), the
Company shall impose stop-transfer instructions with respect to the shares of
capital stock owned by the officers, directors and stockholders until the end of
such period.
Any certificate or other document signed by any officer of the Company
and delivered to the Representative or to counsel for the Underwriters pursuant
to the terms of this Agreement shall be deemed a representation and warranty by
the Company, as applicable, hereunder to the Underwriters as to the statements
made therein. If any condition to the Underwriters' obligations hereunder to be
fulfilled prior to or at the Closing Date or any Additional Closing Date, as the
case may be, is not so fulfilled, the Representative may, on behalf of the
several Underwriters, terminate this Agreement or, if the Representative so
elects, in writing waive any such conditions which have not been fulfilled or
extend the time for their fulfillment.
8. INDEMNIFICATION AND CONTRIBUTION.
(a) Subject to the conditions set forth below, the Company agrees, to
indemnify and hold harmless each Underwriter, its officers, directors, partners,
employees, agents, and counsel, and each person, if any, who controls any
Underwriter within the meaning of Section 15 of the Securities Act or
Section 20(a) of the Exchange Act, against any and all loss, liability, claim,
damage, and expense whatsoever (which shall include, for all purposes of this
Section 8, but not be limited to, reasonable attorneys' fees and any and all
expense whatsoever incurred in investigating, preparing, or defending against
any litigation, commenced or threatened, or any claim whatsoever and any and all
amounts paid in settlement of any claim or litigation) as and when incurred
arising out of, based upon, or in connection with, (i) any untrue statement or
alleged untrue statement of a material fact contained in (A) the Registration
Statement, any Preliminary Prospectus, or the Prospectus (as from time to time
amended and supplemented), or any amendment or supplement thereto or (B) any
application or other document or communication (for purposes of this Section 8,
collectively referred to as an "application") executed by, or on behalf of, the
Company or based upon written information furnished by, or on behalf of, the
Company filed in any jurisdiction in order to qualify the Securities under the
"blue sky" or securities laws thereof or filed with the Commission or any
securities exchange; or any omission or alleged omission to state a material
fact required to be stated therein or necessary to make the statements
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therein not misleading, unless such statement or omission was made in reliance
upon, and in conformity with, written information furnished to the Company as
stated in Section 8(b) with respect to any Underwriter by, or on behalf of, such
Underwriter through the Representative expressly for inclusion in the
Registration Statement, any Preliminary Prospectus or the Prospectus, or any
amendment or supplement thereto, or in any application, as the case may be, or
(ii) any breach of any representation, warranty, covenant, or agreement of the
Company contained in this Agreement; PROVIDED, that the Company will not be
liable to any Underwriter or any person controlling such Underwriter with
respect to any such untrue statement or omission made in any Preliminary
Prospectus that is corrected in the Prospectus (or any amendment or supplement
thereto) if the person asserting any such loss, claim, damage or liability
purchased Securities from such Underwriter but was not sent or given a copy of
the Prospectus (as amended or supplemented) at or prior to the written
confirmation of the sale of such Securities to such person in any case where
such delivery of the Prospectus (as amended or supplemented) is required by the
Securities Act, unless such failure to deliver the Prospectus (as amended or
supplemented) was a result of noncompliance by the Company with its obligations
under this Agreement. The foregoing agreement to indemnify shall be in addition
to any liability the Company may otherwise have, including liabilities arising
under this Agreement.
If any action is brought against an Underwriter or any of its
respective officers, directors, partners, employees, agents, or counsel, or any
controlling persons of an Underwriter (an "indemnified party") in respect of
which indemnity may be sought against the Company pursuant to the foregoing
paragraph, such indemnified party or parties shall promptly notify the Company
in writing of the institution of such action (but the failure so to notify shall
not relieve the Company from any liability they may have other than pursuant to
this Section 8(a)), and the Company shall promptly assume the defense of such
action, including, without limitation, the employment of counsel reasonably
satisfactory to such indemnified party or parties and payment of expenses. Such
indemnified party or parties shall have the right to employ its or their own
counsel in any such case, but the fees and expenses of such counsel shall be at
the expense of such indemnified party or parties unless the employment of such
counsel shall have been authorized in writing by the Company in connection with
the defense of such action or the Company shall not have promptly employed
counsel reasonably satisfactory to such indemnified party or parties to have
charge of the defense of such action or such indemnified party or parties shall
have reasonably concluded that there may be one or more legal defenses available
to it or them or to other indemnified parties which are different from, or in
addition to, those available to the Company in any of which events such fees and
expenses shall be borne by the Company and neither the Company shall not have
the right to direct the defense of such action on behalf of the indemnified
party or parties.
Anything in this Section to the contrary notwithstanding, the Company
shall not be liable for any settlement of any such claim or action effected
without its written consent, which consent shall not be unreasonably withheld.
The Company shall not, without the prior written consent of each indemnified
party that is not released
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as described in this sentence, settle or compromise any action, or permit a
default or consent to the entry of judgment or otherwise seek to terminate any
pending or threatened action, in respect of which indemnity may be sought
hereunder (whether or not any indemnified party is a party thereto), unless such
settlement, compromise, consent, or termination includes an unconditional
release of each indemnified party from all liability in respect of such action.
The Company agrees promptly to notify the Underwriters of the commencement of
any litigation or proceedings against the Company or any of its officers or
directors in connection with the sale of the Securities, the Registration
Statement, any Preliminary Prospectus, or the Prospectus, or any amendment or
supplement thereto, or any application.
(b) Each Underwriter severally agrees to indemnify and hold harmless
the Company, each director of the Company, each officer of the Company who shall
have signed the Registration Statement, and each other person, if any, who
controls the Company within the meaning of Section 15 of the Securities Act or
Section 20(a) of the Exchange Act, to the same extent as the foregoing indemnity
from the Company to the Underwriters in Section 8(a), but only with respect to
statements or omissions, if any, made in the Registration Statement, any
Preliminary Prospectus, or the Prospectus (as from time to time amended and
supplemented), or any amendment or supplement thereto, or in any application, in
reliance upon, and in conformity with, written information furnished to the
Company as stated in this Section 8(b) with respect to any Underwriter by, or on
behalf of, such Underwriter through the Representative expressly for inclusion
in the Registration Statement, any Preliminary Prospectus or the Prospectus, or
any amendment or supplement thereto, or on any application, as the case may be
(it being agreed that the only such information is that set forth in the
stabilization legend on the inside front cover page of the Prospectus, the
amounts of the selling concession and reallowance and the name of the
Underwriters, and the number of shares of Firm Stock purchased by the
Underwriters set forth in the Prospectus), provided, however, that the
obligation of any Underwriter to provide indemnity under the provisions of this
Section 8(b) shall be limited to the amount which represents the product of (i)
the number of shares of Stock underwritten by such Underwriter hereunder and the
(ii) the underwriting discount per share of Common Stock set forth on the cover
page of the Prospectus. If any action shall be brought against the Company, or
any other person so indemnified based on the Registration Statement, any
Preliminary Prospectus or the Prospectus, or any amendment or supplement
thereto, or in any application, and in respect of which indemnity may be sought
against the Underwriters pursuant to this Section 8(b), the Underwriters shall
have the rights and duties given to the Company, and the Company, and each other
person so indemnified shall have the rights and duties given to the indemnified
parties, by the provisions of Section 8(a).
(c) To provide for just and equitable contribution, if (i) an
indemnified party makes a claim for indemnification pursuant to Section 8(a) or
8(b) (subject to the limitations thereof) but it is found in a final judicial
determination, not subject to further appeal, that such indemnification may not
be enforced in such case, even though this Agreement expressly provides for
indemnification in such case or (ii) any
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<PAGE>
indemnified or indemnifying party seeks contribution under the Securities Act,
the Exchange Act, or otherwise, then the Company (including for this purpose any
contribution made by, or on behalf of, any director of the Company, any officer
of the Company who signed the Registration Statement, and any controlling person
of the Company), as one entity, and the Underwriters (including for this purpose
any contribution by, or on behalf of, an indemnified party) as a second entity,
shall contribute to the losses, liabilities, claims, damages, and expenses
whatsoever to which any of them may be subject, based on relative benefits so
that the Underwriters are responsible for the proportion thereof equal to the
percentage which the underwriting discount per share of Common Stock set forth
on the cover page of the Prospectus represents of the initial public offering
price per share of Common Stock set forth on the cover page of the Prospectus
and the Company is responsible for the Company's proceeds, provided, however,
that if applicable law does not permit such allocation, then other relevant
equitable considerations such as the relative fault of the Company and the
Underwriters in connection with the facts which resulted in such losses,
liabilities, claims, damages, and expenses shall also be considered. The
relative fault, in the case of an untrue statement, alleged untrue statement,
omission, or alleged omission, shall be determined by, among other things,
whether such statement, alleged statement, omission, or alleged omission relates
to information supplied by the Company or by the Underwriters, and the parties'
relative intent, knowledge, access to information, and opportunity to correct or
prevent such statement, alleged statement, omission, or alleged omission. The
Company and the Underwriters agree that it would be unjust and inequitable if
the respective obligations of the Company and the Underwriters for contribution
were determined by pro rata or per capita allocation of the aggregate losses,
liabilities, claims, damages, and expenses (even if the Underwriters and the
other indemnified parties were treated as one entity for such purpose) or by any
other method of allocation that does not reflect the equitable considerations
referred to in this Section 8(c). No person guilty of a fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who is not guilty of such
fraudulent misrepresentation. For purposes of this Section 8(c), each person,
if any, who controls the Underwriters within the meaning of Section 15 of the
Securities Act or Section 20(a) of the Exchange Act and each officer, director,
partner, employee and agent of the Underwriters shall have the same rights to
contribution as the Underwriters, and each person, if any, who controls the
Company within the meaning of Section 15 of the Securities Act or Section 20(a)
of the Exchange Act, each officer of the Company who shall have signed the
Registration Statement, and each director of the Company shall have the same
rights to contribution as the Company, subject in each case to the provisions of
this Section 8(c). Anything in this Section 8(c) to the contrary
notwithstanding, no party shall be liable for contribution with respect to the
settlement of any claim or action effected without its written consent. This
Section 8(c) is intended to supersede any right to contribution under the
Securities Act, the Exchange Act, or otherwise.
9. REPRESENTATIONS AND AGREEMENTS TO SURVIVE DELIVERY. All
representations, warranties, covenants, and agreements contained in this
Agreement shall be deemed to be representations, warranties, covenants, and
agreements at the
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Closing Date and any Additional Closing Date, and such representations,
warranties, covenants, and agreements of the Underwriters and the Company,
including the indemnity and contribution agreements contained in Section 8,
shall remain operative and in full force and effect regardless of any
investigation made by, or on behalf of, the Underwriters or any indemnified
person, or by, or on behalf of, the Company or any person or entity which is
entitled to be indemnified under Section 8(b), and shall survive termination of
this Agreement or the delivery of the Firm Stock and the Additional Stock, if
any, to the Underwriters. In addition, the provisions of Sections 6, 8, 9, 12,
and 14 shall survive termination of this Agreement, whether such termination
occurs before or after the Closing Date or any Additional Closing Date.
10. DEFAULT BY AN UNDERWRITER. If one or more of the Underwriters
shall fail or refuse at a Closing Date to purchase and pay for any of the Stock
agreed to be purchased by such Underwriter or Underwriters hereunder on such
date and the aggregate number of shares of Firm Stock or Additional Stock, as
the case may be, which such defaulting Underwriter or Underwriters, as the case
may be, agreed but failed or refused to purchase is not more than one-tenth of
the total number of shares of Firm Stock or Additional Stock, as the case may
be, to be purchased on such date by all Underwriters, each non-defaulting
Underwriter shall be obligated severally, in the proportion which the number of
shares of Firm Stock set forth opposite its name in Schedule I bears to the
total number of shares of Firm Stock which all the non-defaulting Underwriters,
as the case may be, have agreed to purchase, or in such other proportion as the
Representative may specify, to purchase the Firm Stock or Additional Stock, as
the case may be, which such defaulting Underwriter or Underwriters, as the case
may be, agreed but failed or refused to purchase on such date; PROVIDED that in
no event shall the number of shares of Firm Stock or Additional Stock, as the
case may be, which any Underwriter has agreed to purchase pursuant to Section 3
hereof be increased pursuant to this Section 10 by an amount in excess of
one-tenth of such number of shares of Firm Stock or Additional Stock, as the
case may be, without the written consent of such Underwriter. If on the Closing
Date or on the Additional Closing Date, as the case may be, any Underwriter or
Underwriters shall fail or refuse to purchase Firm Stock or Additional Stock, as
the case may be, and the aggregate number of shares of Firm Stock or Additional
Stock, as the case may be, with respect to which such default occurs is more
than one-tenth of the aggregate number of shares of Firm Stock or Additional
Stock, as the case may be, to be purchased on such date by all Underwriters in
the event of a default by an Underwriter and arrangements satisfactory to the
Representative and the Company for purchase of such shares of Firm Stock or
Additional Stock, as the case may be, are not made within 48 hours after such
default, this Agreement will terminate (except as provided in Section 9 hereof)
without liability on the part of any non-defaulting Underwriter and the Company,
except as otherwise provided in this Section 10. In any such case which does
not result in termination of this Agreement, either the Representative or the
Company shall have the right to postpone the Closing Date or the Additional
Closing Date, as the case may be, but in no event for longer than seven days, in
order that the required changes, if any, in the Registration Statement and the
Prospectus or any other documents or arrangements may be effected. Any action
taken under this paragraph shall not relieve
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any defaulting Underwriter from liability in respect of any default of any such
Underwriter under this Agreement.
11. EFFECTIVE DATE OF THIS AGREEMENT AND TERMINATION THEREOF.
(a) This Agreement shall become effective at 9:30 A.M., New York City
local time, on the first full business day following the day on which the
Registration Statement becomes effective under the Securities Act or at the time
of the initial public offering by the Underwriters of the Firm Stock, whichever
is earlier. The time of the initial public offering shall mean the time, after
the Registration Statement becomes effective under the Securities Act, of the
release by the Underwriters for publication of the first newspaper advertisement
which is subsequently published relating to the Firm Stock or the time, after
the Registration Statement becomes effective under the Securities Act, when the
shares of Firm Stock are first released by the Underwriters for offering by the
Underwriters or dealers by letter or telegram, whichever shall first occur. The
Underwriters or the Company may prevent this Agreement from becoming effective
without liability of any party to any other party, except as noted below in this
Section 11, by giving the notice indicated in Section 11(d) before the time this
Agreement becomes effective under the Securities Act.
(b) If the purchase price of the Firm Stock has not been determined
as provided for in Section 3 prior to 4:30 p.m., New York City local time, on
the third full business day after the date on which the Registration Statement
was declared effective under the Securities Act, this Agreement may be
terminated at any time thereafter either by the Underwriters or by the Company
by giving notice to the other unless before such termination the purchase price
for the Firm Stock has been so determined. If the purchase price of the Firm
Stock has not been so determined prior to 4:30 p.m., New York City local time,
on the tenth full business day after the date on which the Registration
Statement was declared effective under the Securities Act, this Agreement shall
automatically terminate forthwith.
(c) In addition to the right to terminate this Agreement pursuant to
Sections 7 and 10 hereof, the Underwriters shall have the right to terminate
this Agreement at any time prior to the Closing Date or any Additional Closing
Date, as the case may be, by giving notice to the Company, and, if exercised,
the Over-allotment Option, at any time prior to any Additional Closing Date, by
giving notice to the Company, (i) if any domestic or international event, act,
or occurrence has materially and adversely disrupted, or, in the opinion of the
Representative will in the immediate future materially and adversely disrupt,
the securities markets; or (ii) if there shall have been a general suspension
of, or a general limitation on prices for, trading in securities on the New York
Stock Exchange, the American Stock Exchange or in the over-the-counter market;
or (iii) if there shall have been an outbreak or increase in the level of major
hostilities or other national or international calamity; or (iv) if a banking
moratorium has been declared by a United States; or (v) if there shall have been
a material interruption in the mail service or other means of communication
within the United States if such interruption materially impairs the ability of
the Underwriters
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<PAGE>
to offer the securities for sale or materially impairs the securities markets
generally; or (vi) if the Company shall have sustained a material loss by fire,
flood, accident, hurricane, earthquake, theft, sabotage, or other calamity or
malicious act, whether or not such loss shall have been insured, or from any
labor dispute or court or government action, order, or decree, which, in the
opinion of the Representative, such event materially impairs the ability of the
Underwriters to offer the securities for sale or materially impairs securities
markets generally and will make it inadvisable to proceed with the offering,
sale, or delivery of the Firm Stock or the Additional Stock, as the case may be;
or (vii) if any material governmental restrictions shall have been imposed on
trading in securities in general, which restrictions are not in effect on the
date hereof; or (ix) if there shall be passed by the Congress of the United
States or by any state legislature any act or measure, or adopted by any
governmental body or authoritative accounting institute or board, or any
governmental executive, any orders, rules, or regulations, which the
Representative believes likely to have a material adverse effect on the
business, financial condition, or financial statements of the Company or the
securities market generally; or (x) if there shall have been such material and
adverse change in the market for securities in general or in political,
financial, or economic conditions as in the judgment of the Representative makes
it inadvisable due to the material impact on the securities market generally to
proceed with the offering, sale, and delivery of the Firm Stock or the
Additional Stock, as the case may be, on the terms contemplated by the
Prospectus.
(d) If the Representative elects to prevent this Agreement from
becoming effective, as provided in this Section 11 or to terminate this
Agreement pursuant to Section 7 or Section 10 of this Agreement, the
Representative shall notify the Company promptly by telephone, telex, facsimile
or telegram, confirmed by letter. If, as so provided, the Company elects to
prevent this Agreement from becoming effective or to terminate this Agreement,
the Company shall notify the Representative promptly by telephone, telex,
facsimile or telegram, confirmed by letter.
(e) Notwithstanding any election hereunder or any termination of this
Agreement, and whether or not this Agreement is otherwise carried out, the
provisions of Sections 6, 8, 9, 13 and 14 shall not be in any way affected by
such election or termination or failure to carry out the terms of this Agreement
or any part hereof. Anything in this Agreement to the contrary notwithstanding
if this Agreement shall not become effective by reason of an election pursuant
to this Section 11 or if this Agreement shall terminate or shall otherwise not
be carried out within the time specified herein by reason of any failure on the
part of the Company to perform any covenant or agreement or satisfy any
condition of this Agreement required by it to be performed or satisfied, the
sole liability of the Company to the Underwriters, in addition to the
obligations the Company assumed pursuant to Section 6 hereof, will be to
reimburse the Underwriters for such out-of-pocket expenses (including the
reasonable fees and disbursements of their counsel) as shall have been incurred
by it in connection with this Agreement or the proposed offer, sale, and
delivery of the Securities, and, upon demand, the Company agrees to pay promptly
the full amount thereof to the Underwriters.
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12. NOTICES. All communications hereunder, except as may be
otherwise specifically provided herein, shall be in writing and, if sent to any
Underwriter, shall be mailed, delivered, telexed, sent by facsimile or
telegraphed, confirmed by letter, to Hampshire Securities Corporation, 640 Fifth
Avenue, 4th Floor, New York, New York 10019, Attention: Mr. Jeffrey M. Berman,
Senior Managing Director, with a copy to Fulbright & Jaworski L.L.P., 666 Fifth
Avenue, New York, New York 10103, Attention: Paul Jacobs, Esq.; or if sent to
the Company, shall be mailed, delivered, telexed, sent by facsimile or
telegraphed, confirmed by letter, to the Company, 12801 North Central
Expressway, Dallas, Texas 75243, Attention: Bo W. Lycke, with a copy to Brock,
Fensterstock, Silverstein, McAuliffe & Wade LLC, One Citicorp Center, 56th
Floor, New York, New York 10022, Attention: Robert Steven Brown, Esq. All
notices hereunder shall be effective upon receipt by the party to which it is
addressed.
13. CONSTRUCTION. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of New York, without giving effect to
conflict of laws.
14. CONSENT TO JURISDICTION. The Company irrevocably consent to the
jurisdiction of the courts of the State of New York and of any federal court
located in such State in connection with any action or proceeding arising out
of, or relating to, this Agreement, any document or instrument delivered
pursuant to, in connection with, or simultaneously with this Agreement, or a
breach of this Agreement or any such document or instrument. In any such action
or proceeding, the Company waives personal service of any summons, complaint, or
other process and agrees that service thereof may be made in accordance with
Section 12 and upon itself at the address set forth in the Registration
Statement or such other address as such agent may designate by notice in
accordance with Section 12. Within 30 days after such service, or such other
time as may be mutually agreed upon in writing by the attorneys for the parties
to such action or proceeding, the Company shall appear or answer such summons,
complaint, or other process. Should the Company fail to appear or answer within
such 30-day period or such extended period, as the case may be, the Company
shall be deemed in default and judgment may be entered against the Company for
the amount as demanded in any summons, complaint, or other process so served.
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If the foregoing correctly sets forth the understandings between the
Underwriters and the Company, please so indicate in the space provided below for
that purpose, whereupon this letter shall constitute a binding agreement between
us.
Very truly yours,
CLAIMSNET.COM INC.
By:_______________________________________
Name:
Title:
Accepted as of the date first above
written in New York, New York
HAMPSHIRE SECURITIES CORPORATION
By:________________________________________
Name:
Title:
On behalf of itself and the other several
Underwriters named in Schedule I hereto
<PAGE>
SCHEDULE I
NUMBER OF SHARES OF
NAME FIRM STOCK
TO BE PURCHASED
Hampshire Securities Corporation . . . . . . . . . . .
_________
Total . . . . . . . . . . . . . . . . . . . . 2,700,000
---------
---------
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
CLAIMSNET.COM INC.
FIRST. The name of the corporation is CLAIMSNET.COM INC. (the
"Corporation").
SECOND. The address, including street, number, city, and county of the
Corporation's registered office in the State of Delaware is 15 East North
Street, in the City of Dover, County of Kent. The name of its registered
agent at such address is United Corporate Services, Inc.
THIRD. The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General
Corporation Law of the State of Delaware.
FOURTH. A. The aggregate number of shares which the Corporation
shall have authority to issue is 44,000,000, par value $.001 per share, of
which 40,000,000 shares shall be designated Common Shares and 4,000,000
shares shall be designated Preferred Shares.'
B. Authority is hereby expressly granted to the Board of Directors
of the Corporation (or a Committee thereof designated by the Board of
Directors pursuant to the by-laws of the Corporation, as from time to time
amended (the "By-Laws")) to issue the Preferred Shares from time to time as
Preferred Shares of any series and to declare and pay dividends thereon in
accordance with the terms thereof and, in connection with the creation of
each such series, to fix by the resolution or resolutions providing for the
issue of shares thereof, the number of such shares, the designations, powers,
preferences, and rights (including voting rights), and the qualifications,
limitations, and restrictions, of such series, to the full extent now or
hereafter permitted by the laws of the State of Delaware.
<PAGE>
FIFTH. The name and mailing address of the incorporator is Stephen H.
Gray, c/o Brock Fensterstock Silverstein McAuliffe & Wade LLC, One Citicorp
Center, 153 East 53rd Street, 56th Floor, New York, New York 10022.
SIXTH. Election of directors need not be by written ballot.
SEVENTH. The Board of Directors is authorized to adopt, amend, or
repeal By-Laws of the Corporation.
EIGHTH. A. Each person who was or is made a party or is threatened
to be made a party to or is otherwise involved in any action, suit, or
proceeding, whether civil, criminal, administrative, or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she is or was
a director, officer, employee, or agent of the Corporation or any of its
direct or indirect subsidiaries or is or was serving at the request of the
Corporation as a director, officer, employee, or agent of any other
corporation or of a partnership, joint venture, trust, or other enterprise,
including service with respect to an employee benefit plan (hereinafter an
"indemnitee"), whether the basis of such proceeding is alleged action in an
official capacity as a director, officer, employee, or agent or in any other
capacity while serving as a director, officer, employee, or agent, shall be
indemnified and held harmless by the Corporation to the fullest extent
authorized by the Delaware General Corporation Law, as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the
extent that such amendment permits the Corporation to provide broader
indemnification rights than permitted prior thereto), against all expense,
liability, and loss (including attorneys' fees, judgments, fines, excise
taxes or penalties under the Employee Retirement Income Security Act of 1974,
as amended, and amounts paid in settlement) reasonably
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incurred or suffered by such indemnitee in connection therewith, and such
indemnification shall continue as to an indemnitee who has ceased to be a
director, officer, employee, or agent and shall inure to the benefit of the
indemnitee's heirs, executors, and administrators; provided, however, that,
except as provided in Paragraph C of this Article EIGHTH with respect to
proceedings to enforce rights to indemnification, the Corporation shall
indemnify any such indemnitee in connection with a proceeding (or part
thereof) initiated by such indemnitee only if such proceeding (or part
thereof) was authorized by the Board of Directors of the Corporation.
B. The right to indemnification conferred in Paragraph A of this
Article EIGHTH shall include the right to be paid by the Corporation the
expenses incurred in defending any proceeding for which such right to
indemnification is applicable in advance of its final disposition
(hereinafter an "advancement of expenses"); PROVIDED, HOWEVER, that, if the
Delaware General Corporation Law requires, an advancement of expenses
incurred by an indemnitee in his or her capacity as a director or officer
(and not in any other capacity in which service was or is rendered by such
indemnitee, including, without limitation, service to an employee benefit
plan) shall be made only upon delivery to the Corporation of an undertaking
(hereinafter an "undertaking"), by or on behalf of such indemnitee, to repay
all amounts so advanced if it shall ultimately be determined by final
judicial decision from which there is no further right to appeal (hereinafter
a "final adjudication") that such indemnitee is not entitled to be
indemnified for such expenses under this Article EIGHTH or otherwise.
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<PAGE>
C. The rights to indemnification and to the advancement of expenses
conferred in Paragraphs A and B of this Article EIGHTH shall be contract
rights. If a claim under Paragraph A or B of this Article EIGHTH is not paid
in full by the Corporation within sixty days after a written claim has been
received by the Corporation, except in the case of a claim for an advancement
of expenses, in which case the applicable period shall be twenty days, the
indemnitee may at any time thereafter bring suit against the Corporation to
recover the unpaid amount of the claim. If successful in whole or in part in
any such suit, or in a suit brought by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking, the
indemnitee shall be entitled to be paid also the expense of prosecuting or
defending such suit. In (i) any suit brought by the indemnitee to enforce a
right to indemnification hereunder (but not in a suit brought by an
indemnitee to enforce a right to an advancement of expenses) it shall be a
defense that, and (ii) any suit by the Corporation to recover an advancement
of expenses pursuant to the terms of an undertaking, the Corporation shall be
entitled to recover such expenses upon a final adjudication that, the
indemnitee has not met any applicable standard for indemnification set forth
in the Delaware General Corporation Law. Neither the failure of the
Corporation (including its Board of Directors, independent legal counsel, or
its stockholders) to have made a determination prior to the commencement of
such suit that indemnification of the indemnitee is proper in the
circumstances because the indemnitee has met the applicable standard of
conduct set forth in the Delaware General Corporation Law, nor an actual
determination by the Corporation (including its Board of Directors,
independent legal counsel, or its stockholders) that the indemnitee has not
met such applicable standard of conduct, shall create a presumption that the
indemnitee has not met the
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applicable standard of conduct or, in the case of such a suit brought by the
indemnitee, be a defense to such suit. In any suit brought by the indemnitee
to enforce a right to indemnification or to an advancement of expenses
hereunder, or by the Corporation to recover an advancement of expenses
pursuant to the terms of an undertaking, the burden of proving that the
indemnitee is not entitled to be indemnified, or to such advancement of
expenses, under this Article EIGHTH or otherwise, shall be on the Corporation.
D. The rights to indemnification and to the advancement of expenses
conferred in this Article EIGHTH shall not be exclusive of any other right
which any person may have or hereafter acquire under any statute, this
certificate of incorporation, by-law, agreement, vote of stockholders or
disinterested directors, or otherwise.
E. The Corporation may maintain insurance, at the Corporation's
expense, to protect itself and any director, officer, employee, or agent of
the Corporation or another corporation, partnership, joint venture, trust, or
other enterprise against any expense, liability, or loss, whether or not the
Corporation would have the power to indemnify such person against such
expense, liability, or loss under the Delaware General Corporation Law.
F. The Corporation's obligation, if any, to indemnify any person who
was or is serving as a director, officer, employee, or agent of any direct or
indirect subsidiary of the Corporation or, at the request of the Corporation,
of any other corporation or of a partnership, joint venture, trust, or other
enterprise shall be reduced by any amount such person may collect as
indemnification from such other corporation, partnership, joint venture,
trust, or other enterprise.
G. Any repeal or modification of the foregoing provisions of this
Article EIGHTH shall
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not adversely affect any right or protection hereunder of any person in
respect of any act or omission occurring prior to the time of such repeal or
modification.
NINTH. No director of the Corporation shall be liable to the
Corporation or any of its stockholders for monetary damages for breach of
fiduciary duty as a director, provided that this provision does not eliminate
the liability of the director (i) for any breach of the director's duty of
loyalty to the Corporation or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of Title 8 of the Delaware Code, or
(iv) for any transaction from which the director derived an improper personal
benefit. For purposes of the prior sentence, the term "damages" shall, to
the extent permitted by law, include without limitation, any judgment, fine,
amount paid in settlement, penalty, punitive damages, excise or other tax
assessed with respect to an employee benefit plan, or expense of any nature
(including, without limitation, counsel fees and disbursements). Each person
who serves as a director of the Corporation while this Article NINTH is in
effect shall be deemed to be doing so in reliance on the provisions of this
Article NINTH, and neither the amendment or repeal of this Article NINTH, nor
the adoption of any provision of this Certificate of Incorporation
inconsistent with this Article NINTH, shall apply to or have any effect on
the liability or alleged liability of any director or the Corporation for,
arising out of, based upon, or in connection with any acts or omissions of
such director occurring prior to such amendment, repeal, or adoption of an
inconsistent provision. The provisions of this Article NINTH are cumulative
and shall be in addition to and independent of any and all other limitations
on or eliminations of the liabilities of directors of the Corporation, as
such, whether such limitations or eliminations arise
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<PAGE>
under or are created by any law, rule, regulation, by-law, agreement, vote of
shareholders or disinterested directors, or otherwise.
TENTH. Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a
summary way of this Corporation or of any creditor or stockholder thereof or
on the application of any receiver or receivers appointed for this
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 this 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 class of stockholders of this
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 this Corporation, as the case may be, agree to any
compromise or arrangement and to any reorganization of this Corporation as
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 this Corporation, as the case may be, and also on this Corporation.
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IN WITNESS WHEREOF, I have made, signed, and sealed this Certificate of
Incorporation this 11th day of September, 1997.
/S/ STEPHEN H. GRAY (L.S.)
---------------------------------------
STEPHEN H. GRAY
INCORPORATOR
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EXHIBIT 4.1
DRAFT
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND MAY BE REOFFERED,
SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF ONLY IF REGISTERED PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR SUCH LAWS OR IF AN EXEMPTION
FROM REGISTRATION IS AVAILABLE.
VOID AFTER 5:00 P.M., NEW YORK TIME, ON ______, 2002 [5 YEARS FROM EFFECTIVE
DATE] OR IF NOT A BUSINESS DAY, AS DEFINED HEREIN, AT 5:00 P.M., NEW YORK TIME,
ON THE NEXT FOLLOWING BUSINESS DAY.
WARRANT TO PURCHASE SHARES OF COMMON STOCK
OF
CLAIMSNET.COM INC.
TRANSFER RESTRICTED -- SEE SECTION 6.02
NO. W-1 270,000 Shares
This certifies that, for good and valuable consideration, Hampshire Securities
Corporation, and its registered, permitted assigns (collectively, the
"WARRANTHOLDER"), is entitled to purchase from Claimsnet.com inc., a corporation
incorporated under the laws of the State of Delaware (the "COMPANY"), subject to
the terms and conditions hereof, at any time on or after 9:00 A.M., New York
time, on _____, 1998 [1 year from Effective Date], and before 5:00 P.M., New
York time, on _____, 2002 [5 years from Effective Date] (or, if such day is not
a Business Day, at or before 5:00 P.M., New York time, on the next following
Business Day), the number of fully-paid and non-assessable shares of common
stock (par value $0.001 per share) of the Company stated above at the Exercise
Price (as hereinafter defined). The Exercise Price and the number of shares
purchasable hereunder are subject to adjustment as provided in Article III
hereof.
ARTICLE I
SECTION 1.01: DEFINITION OF TERMS. As used in this Warrant, the following
capitalized terms shall have the following respective meanings:
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(a) BUSINESS DAY: A day other than a Saturday, Sunday or other day
on which banks in the State of New York are authorized by law to remain closed.
(b) COMMON STOCK: common stock, par value $0.001 per share, of the
Company.
(c) DEMAND REGISTRATION: See Section 7.02.
(d) EXCHANGE ACT: The Securities Exchange Act of 1934, as amended.
(e) EXERCISE PRICE: $_____ per Warrant Share, as such price may be
adjusted from time to time pursuant to Article III hereof [110% of public
offering price].
(f) EXPIRATION DATE: 5:00 P.M., New York time, on __________, 2002
or, if such day is not a Business Day, the next succeeding day which is a
Business Day.
(g) HOLDER: A holder of Warrants and/or Registrable Securities.
(h) NASD: National Association of Securities Dealers, Inc.
(i) COMMON STOCK EQUIVALENTS: Securities that are convertible into
or exercisable for Common Stock.
(j) PERSON: An individual, partnership, joint venture, corporation,
trust, unincorporated organization or government or any department or agency
thereof.
(k) PIGGYBACK REGISTRATION: See Section 7.01.
(l) PROSPECTUS: Any prospectus included in any Registration
Statement, as amended or supplemented by any prospectus supplement, with respect
to the terms of the offering of any portion of the Registrable Securities
covered by such Registration Statement and all other amendments and supplements
to the Prospectus, including post-effective amendments and all material
incorporated by reference in such Prospectus.
(m) PUBLIC OFFERING: A public offering of any of the Company's
equity or debt securities pursuant to a registration statement under the
Securities Act.
(n) REGISTRABLE SECURITIES: (i) The Warrants and (ii) any Warrant
Shares issued or issuable to the Warrantholder, and/or its designees or
transferees as permitted under Section 6.02 and/or other securities that may be
or are issued by the Company upon exercise of Warrants, including those which
may thereafter be issued by the Company in respect of any such securities by
means of any stock splits, stock dividends, recapitalizations or the like, and
as adjusted pursuant to Article III hereof; PROVIDED, HOWEVER, that as to any
particular security contained in Registrable Securities, such securities shall
cease to be Registrable Securities (i) for purposes of Section 7.02
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hereof, when a Registration Statement with respect to the sale of such
securities shall have become effective under the Securities Act; or (ii) when
they shall have been sold pursuant to Rule 144 (or any successor provision)
under the Securities Act; or (iii) when they shall have been sold, assigned or
otherwise transferred to any Person other than those Persons specified in
Section 6.02(i) below ("6.02(I) PERSONS") and other than to any spouses, lineal
descendants or adopted children of a 6.02(i) Person to whom such securities are
transferred upon the death of any 6.02(i) Person by operation of law or by
bequest.
(o) REGISTRATION EXPENSES: Any and all expenses incident to
performance of or compliance with Article VII, including, without limitation,
(i) all SEC, stock exchange, NASD registration and filing fees, listing and
transfer agent fees; (ii) all fees and expenses of complying with securities or
blue sky laws (including the fees and disbursements of counsel for the
underwriters in connection with blue sky qualifications of the Registrable
Securities); (iii) all printing, mailing, messenger and delivery expenses and
(iv) all fees and disbursements of counsel for the Company and of its
independent certified public accountants, including the expenses of any special
audits and/or "cold comfort" letters required by or incident to such performance
and compliance, but excluding underwriting fees, discounts and commissions and
transfer taxes, if any.
(p) REGISTRATION STATEMENT: Any registration statement of the
Company filed or to be filed with the SEC which covers any of the Registrable
Securities pursuant to the provisions of this Warrant, including the Prospectus,
amendments and supplements to such Registration Statement, including
post-effective amendments and all exhibits to and material incorporated by
reference by such registration statement.
(q) SEC: The Securities and Exchange Commission or any other federal
agency at the time administering the Securities Act or the Exchange Act.
(r) SECURITIES ACT: The Securities Act of 1933, as amended.
(s) WARRANT SHARES: Common Stock purchasable upon exercise of the
Warrants.
(t) WARRANTHOLDER: The person(s) or entity(ies) to whom this Warrant
is originally issued, or any successor in interest thereto, or any assignee or
transferee thereof, in whose name this Warrant is registered upon the books to
be maintained by the Company for that purpose.
(u) WARRANTS: This Warrant, the warrants issued on the date hereof
and all other warrants that may be issued in its or their place (together
initially evidencing the right to purchase an aggregate of 270,000 shares of
Common Stock).
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ARTICLE II
DURATION AND EXERCISE OF WARRANT
SECTION 2.01: DURATION OF WARRANT. (a) Subject to the terms contained
herein, this Warrant may be exercised at any time after 9:00 A.M., New York
time, on ______, 1998 [1 year from Effective Date], and before 5:00 P.M., New
York time, on the Expiration Date. If this Warrant is not exercised on the
Expiration Date, it shall become void, and all rights hereunder shall thereupon
cease.
SECTION 2.02 : EXERCISE OF WARRANT. (a) The Warrantholder may exercise
this Warrant, in whole or in part, as follows:
i) By presentation and surrender of this Warrant to the Company
at its corporate office at 12801 North Central Expressway, Dallas, Texas
75243 with the Subscription Form annexed hereto duly executed and
accompanied by payment of the Exercise Price for each Warrant Share to be
purchased. Payment for Warrant Shares shall be made in cash or by
certified or official bank check payable to the order of the Company; or
ii) By presentation and surrender of this Warrant to the Company
at its corporate office set forth above, with a Cashless Exercise Form
annexed hereto duly executed (a "CASHLESS EXERCISE"). Such presentation
and surrender shall be deemed a waiver of the Warrantholder's obligation to
pay all or any portion of the aggregate Exercise Price. In the event of a
Cashless Exercise, the Warrantholder shall exchange its Warrant for that
number of Shares of Common Stock determined by multiplying the number of
Warrant Shares for which the Warrantholder desires to exercise this Warrant
by a fraction, the numerator of which shall be the difference between the
then current market price per share of Common Stock and the Exercise Price,
and the denominator of which shall be the then current market price per
share of Common Stock. For purposes of any computation under this Section
2.02(a)(ii), the then current market price per share of Common Stock at any
date shall be deemed to be the average for the twenty (20) consecutive
Business Days immediately prior to the Cashless Exercise of the daily
closing prices of the shares of Common Stock on the principal national
securities exchange on which the shares of Common Stock are admitted to
trading or listed, or if not listed or admitted to trading on any such
exchange, the closing prices as reported by the Nasdaq National Market, or
if not then listed on the Nasdaq National Market, the average of the
highest reported bid and lowest reported asked prices as reported by the
Nasdaq SmallCap Market, or if not then listed on the Nasdaq SmallCap
Market, the average of the highest reported bid and lowest reported asked
prices as reported by the National Association of Securities Dealers, Inc.
Automated Quotations System ("NASDAQ") or if not then publicly traded, the
fair market price of the shares of Common Stock as determined in good faith
by the Board of Directors of the Company.
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(b) Upon receipt of this Warrant with the Subscription Form duly
executed and accompanied by payment of the aggregate Exercise Price or upon
receipt of this Warrant with a Cashless Exercise form duly executed, in each
case as set forth in Section 2.02(a) for the Warrant Shares for which this
Warrant is then being exercised, the Company shall cause to be issued
certificates for the total number of shares of Common Stock for which this
Warrant is being exercised or the net amount of Warrant Shares which the
Warrantholder is entitled to receive upon a Cashless Exercise (adjusted to
reflect the effect of the anti-dilution provisions contained in Article III
hereof, if any, and as provided in Section 4.04 hereof) in such denominations as
are requested for delivery to the Warrantholder, and the Company shall thereupon
deliver such certificates to the Warrantholder. If at the time this Warrant is
exercised a registration statement is not in effect to register under the
Securities Act the Warrant Shares issuable upon exercise of this Warrant, the
Company may require the Warrantholder to make such investment intent
representations, and may place such legends on certificates representing the
Warrant Shares, as may be reasonably required in the opinion of counsel to the
Company to permit the Warrant Shares to be issued without such registration.
(c) In case the Warrantholder shall exercise this Warrant with
respect to less than all of the Warrant Shares that may be purchased under this
Warrant, the Company shall execute a new warrant in the form of this Warrant for
the balance of such Warrant Shares and deliver such new warrant to the
Warrantholder.
(d) The Company shall pay any and all stock transfer and similar
taxes which may be payable in respect of the issue of this Warrant or in respect
of the issue of any Warrant Shares. The Company shall not, however, be required
to pay any tax imposed on income or gross receipts of the Warrantholder or any
tax which may be payable by the Warrantholder in respect of any transfer
involved in the issuance or delivery of this Warrant or of Warrant Shares in a
name other than that of the Warrantholder at the time of surrender and, until
the payment of such tax, shall not be required to issue such Warrant Shares.
(e) The Company shall use its best efforts to cause all Warrant
Shares to be listed on each securities exchange, if any, on which similar
securities issued by the Company are then listed or, if not then listed, cause
such Warrant Shares to be included in a national automated quotation system.
ARTICLE III
Adjustment of Shares of Common Stock
PURCHASABLE AND OF EXERCISE PRICE
The Exercise Price and the number and kind of Warrant Shares shall be
subject to adjustment from time to time upon the happening of certain events as
provided in this Article III.
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SECTION 3.01: MECHANICAL ADJUSTMENTS. (a) If at any time prior to the
exercise of this Warrant in full, the Company shall (i) pay a dividend or make a
distribution on its shares of Common Stock, in either case in shares of Common
Stock; (ii) subdivide, reclassify or recapitalize its outstanding shares of
Common Stock into a greater number of shares; (iii) combine, reclassify or
recapitalize its outstanding shares of Common Stock into a smaller number of
shares; or (iv) issue by reclassification of its shares of Common Stock any
shares of capital stock of the Company, the Exercise Price in effect at the time
of the record date of such dividend, distribution, subdivision, combination,
reclassification or recapitalization shall be adjusted so that the Warrantholder
shall be entitled to receive, upon exercise of this Warrant, the aggregate
number and kind of shares which, if this Warrant had been exercised in full
immediately prior to such time, he would have owned upon such exercise and been
entitled to receive upon such dividend, subdivision combination,
reclassification or recapitalization. Any adjustment required by this paragraph
3.01(a) shall be made whenever any event listed in this paragraph 3.01(a) shall
occur.
(b) If at any time prior to the exercise of this Warrant in full, the
Company shall issue or distribute to the holders of shares of Common Stock
evidences of its indebtedness, any other securities of the Company or any cash,
property or other assets (excluding a dividend, distribution, combination,
reclassification or recapitalization referred to in Section 3.01(a) and cash
dividends or cash distributions paid out of net profits legally available
therefor if the full amount thereof, together with the value of other dividends
and distributions made substantially concurrently therewith or pursuant to a
plan which includes payment thereof, is equivalent to not more than 5% of the
Company's net worth) (any such nonexcluded event being herein called a "SPECIAL
DIVIDEND"), the Exercise Price shall be decreased immediately after the
effective date of such Special Dividend to a price determined by multiplying the
Exercise Price then in effect by a fraction the numerator of which shall be the
then current market price per share of Common Stock (as defined in Section
3.01(e)) on such effective date less the fair market value (as determined in
good faith by the Company's Board of Directors) of the evidences of
indebtedness, securities or property, or other assets issued or distributed in
such Special Dividend applicable to one share of Common Stock and the
denominator of which shall be the then current market price per share of Common
Stock. Any adjustment required by this paragraph 3.01(b) shall be made whenever
the effective date of any such Special Dividend occurs.
(c) If at any time prior to the exercise of this Warrant in full, the
Company shall make a distribution to all the holders of shares of Common Stock
(other than dividends or distributions covered by Section 3.01(a) or (b)) of
subscription rights, options or warrants for shares of Common Stock or Common
Stock Equivalents, then in each such case the Exercise Price in effect after the
effective date of such distribution shall be adjusted to the price determined by
multiplying the Exercise Price in effect immediately prior thereto by a
fraction, the numerator of which shall be the current market price per share of
Common Stock (as defined in Section 3.01(e)), less the fair market value (as
determined in good faith by the Company's Board of Directors) of said
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Common Stock subscription rights, options and warrants or of such Common Stock
Equivalents applicable to one share of Common Stock, and the denominator of
which shall be the current market price per share of Common Stock. Any
adjustment required by this paragraph 3.01(c) shall be made whenever the
effective date of any such distribution occurs. To the extent such shares of
Common Stock (or Common Stock Equivalents) are not delivered after the
expiration of such subscription rights, options or warrants, the Exercise Price
shall be readjusted to the Exercise Price which would then be in effect had the
adjustments made upon the issuance of such rights, options or warrants been made
on the basis of delivery of only the number of shares of Common Stock (or Common
Stock Equivalents) actually delivered, but no such readjustment shall have the
effect of increasing the Exercise Price to an amount which exceeds the lower of
(i) the Exercise Price on the original adjustment date (prior to the original
adjustment) or (ii) the Exercise Price that would have resulted from any other
adjustments pursuant to this Article III (other than adjustments for the
issuance of subscription rights, options or warrants which expire unexercised).
(d) Whenever the Exercise Price payable upon exercise of each Warrant
is adjusted pursuant to one or more of paragraphs (a), (b) and (c) of this
Section 3.01, the Warrant Shares shall simultaneously be adjusted by multiplying
the number of Warrant Shares initially issuable upon exercise of each Warrant by
the Exercise Price in effect immediately prior to the date thereof and dividing
the product so obtained by the Exercise Price, as adjusted.
(e) For the purpose of any computation under this Section 3.01, the
current market price per share of Common Stock at any date shall be deemed to be
the average of the daily closing price for the twenty (20) consecutive Business
Days commencing thirty-five (35) Business Days before such date. The closing
price for each day shall be the closing price of the shares of Common Stock as
reported by the national securities exchange upon which the shares of Common
Stock is then listed or if not listed on any such exchange, the average of the
closing prices as reported by the Nasdaq National Market, or if not then listed
on the Nasdaq National Market, the average of the highest reported bid and
lowest reported asked prices as reported by the Nasdaq SmallCap Market, or if
not then listed on the Nasdaq SmallCap Market, the average of the highest
reported bid and lowest reported asked prices as reported by Nasdaq, or if not
then publicly traded, as the fair market price as determined in good faith by
the Company's Board of Directors.
(f) No adjustment in the Exercise Price shall be required unless such
adjustment would require an increase or decrease of at least five cents ($.05)
in such price; PROVIDED, HOWEVER, that any adjustments which by reason of this
paragraph (f) are not required to be made shall be carried forward and taken
into account in any subsequent adjustment. All calculations under this Section
3.01 shall be made to the nearest cent or to the nearest one-hundredth of a
share, as the case may be.
(g) If at any time, as a result of any adjustment made pursuant to
Section 3.01(a), the Warrantholder thereafter shall become entitled to receive
any
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shares of the Company other than shares of Common Stock, thereafter the number
of such other shares so receivable upon exercise of any Warrant 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 shares of Common Stock
contained in this Section 3.01.
(h) In case any event shall occur as to which the other provisions of
this Article III are not strictly applicable but as to which the failure to make
any adjustment would not fairly protect the purchase rights represented by this
Warrant in accordance with the essential intent and principles hereof then, in
each such case, the Warrantholders representing the right to purchase a majority
of the Warrant Shares subject to all outstanding Warrants may appoint a firm of
independent public accountants of recognized national standing 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
Warrants. Upon receipt of such opinion, the Company will promptly mail a copy
thereof to the Warrantholder and shall make the adjustments described therein.
The fees and expenses of such independent public accountants shall be borne by
the Company.
(i) If, as a result of an adjustment made pursuant to this Article
III, the Warrantholder thereafter surrendered for exercise shall become entitled
to receive shares of two or more classes of capital stock or shares of Common
Stock and other capital stock of the Company, the Board of Directors (whose
determination shall be conclusive and shall be described in a written notice to
the Warrantholder promptly after such adjustment) shall determine the allocation
of the adjusted Exercise Price between or among shares or such classes of
capital stock or shares of Common Stock and other capital stock.
SECTION 3.02: NOTICE OF ADJUSTMENT. Whenever the number of Warrant Shares
or the Exercise Price is adjusted as herein provided, the Company shall prepare
and deliver to the Warrantholder a certificate signed by its President, any Vice
President, Treasurer or Secretary, setting forth the adjusted number of shares
purchasable upon the exercise of this Warrant and the Exercise Price of such
shares after such adjustment, setting forth a brief statement of the facts
requiring such adjustment and setting forth the computation by which such
adjustment was made.
SECTION 3.03: NO ADJUSTMENT FOR DIVIDENDS. Except as provided in Section
3.01(b) of this Agreement, no adjustment in respect of any cash dividends shall
be made during the term of this Warrant or upon the exercise of this Warrant.
SECTION 3.04: PRESERVATION OF PURCHASE RIGHTS IN CERTAIN TRANSACTIONS. In
case of any capital reorganization or reclassification, or any consolidation or
merger to which the Company is a party other than a merger or consolidation in
which the Company is the continuing corporation, or in case of any sale or
conveyance to another entity of the property of the Company as an entirety or
substantially as an entirety, or in the
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case of any statutory exchange of securities with another corporation (including
any exchange effected in connection with a merger of a third corporation into
the Company), this Warrantholder shall have the right thereafter to receive on
the exercise of this Warrant the kind and amount of securities, cash or other
property which the Warrantholder would have owned or have been entitled to
receive immediately after such reorganization, reclassification, consolidation,
merger, statutory exchange, sale or conveyance had this Warrant been exercised
immediately prior to the effective date of such reorganization,
reclassification, consolidation, merger, statutory exchange, sale or conveyance
and in any such case, if necessary, appropriate adjustment shall be made in the
application of the provisions set forth in this Article III with respect to the
rights and interests thereafter of the Warrantholder to the end that the
provisions set forth in this Article III shall thereafter correspondingly be
made applicable, as nearly as may reasonably be, in relation to any shares of
stock or other securities or property thereafter deliverable on the exercise of
this Warrant. The provisions of this Section 3.04 shall similarly apply to
successive reorganizations, reclassifications, consolidations, mergers,
statutory exchanges, sales or conveyances. The issuer of any shares of stock or
other securities or property thereafter deliverable on the exercise of this
Warrant shall be responsible for all of the agreements and obligations of the
Company hereunder. Notice of any such reorganization, reclassification,
consolidation, merger, statutory exchange, sale or conveyance and of said
provisions so proposed to be made, shall be mailed to the Holders of the
Warrants not less than thirty (30) days prior to such event. A sale of all or
substantially all of the assets of the Company for a consideration consisting
primarily of securities shall be deemed a consolidation or merger for the
foregoing purposes.
SECTION 3.05: FORM OF WARRANT AFTER ADJUSTMENTS. The form of this Warrant
need not be changed because of any adjustments in the Exercise Price or the
number or kind of the Warrant Shares, and Warrants theretofore or thereafter
issued may continue to express the same price and number and kind of shares as
are stated in this Warrant, as initially issued.
ARTICLE IV
Other Provisions Relating
TO RIGHTS OF WARRANTHOLDER
SECTION 4.01: NO RIGHTS AS STOCKHOLDERS; NOTICE TO WARRANTHOLDERS.
Nothing contained in this Warrant shall be construed as conferring upon the
Warrantholder or his or its transferees the right to vote or to receive
dividends or to consent or to receive notice as a stockholder in respect of any
meeting of stockholders for the election of directors of the Company or of any
other matter, or any rights whatsoever as stockholders of the Company. The
Company shall give notice to the Warrantholder if at any time prior to the
expiration or exercise in full of the Warrants, any of the following events
shall occur:
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(a) the Company shall declare any dividend payable in any securities
upon shares of Common Stock or make any distribution (other than a cash dividend
subject to the parenthetical set forth in Section 3.01(b)) to the holders of
shares of Common Stock;
(b) the Company shall offer to the holders of shares of Common Stock
any additional shares of Common Stock or Common Stock Equivalents or any right
to subscribe thereto;
(c) a dissolution, liquidation or winding up of the Company (other
than in connection with a consolidation, merger, or sale of all, or
substantially all, of its property, assets, and business as an entirety) shall
be proposed; or
(d) any consolidation of the Company with or merger of the Company
into another corporation, or in the case of any sale or conveyance to another
corporation of the property of the Company, as an entirety or substantially as
an entirety shall be proposed.
Such giving of notice shall be initiated (i) at least ten (10) Business Days
prior to the date fixed as a record date or the date of closing of the Company's
stock transfer books for the determination of the stockholders entitled to such
dividend, distribution, or subscription rights, or for the determination of the
stockholders entitled to vote on such proposed merger, consolidation, sale,
conveyance, dissolution, liquidation or winding up. Such notice shall specify
such record date or the date of closing the stock transfer books, as the case
may be. Failure to provide such notice shall not affect the validity of any
action taken in connection with such dividend, distribution or subscription
rights, or proposed merger, consolidation, sale, conveyance, dissolution,
liquidation or winding up.
SECTION 4.02: LOST, STOLEN, MUTILATED OR DESTROYED WARRANTS. If this
Warrant is lost, stolen, mutilated or destroyed, the Company may, on such terms
as to indemnity or otherwise as it may in its discretion impose (which shall, in
the case of a mutilated Warrant, include the surrender thereof), issue a new
Warrant of like denomination and tenor as, and in substitution for, this
Warrant.
SECTION 4.03: RESERVATION OF COMMON STOCK.
(a) The Company shall at all times reserve and keep available for the
exercise of this Warrant such number of authorized shares of Common Stock as are
sufficient to permit the exercise in full of this Warrant.
(b) Prior to the issuance of any shares of Common Stock upon exercise
of this Warrant, the Company shall use its best efforts to secure the listing of
such shares of Common Stock upon the securities exchange or automated quotation
system, if any, upon which shares of Common Stock are then listed.
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(c) The Company covenants that all shares of Common Stock issued on
exercise of this Warrant will be validly issued, fully paid, nonassessable and
free of preemptive rights.
SECTION 4.04: NO FRACTIONAL SHARES. Anything contained herein to the
contrary notwithstanding, the Company shall not be required to issue any
fraction of a share in connection with the exercise of this Warrant, and in any
case where the Warrantholder would, except for the provisions of this Section
4.04, be entitled under the terms of this Warrant to receive a fraction of a
share upon the exercise of this Warrant, the Company shall, upon the exercise of
this Warrant and receipt of the Exercise Price, issue the smaller number of
whole shares purchasable upon exercise of this Warrant and shall make a cash
adjustment in respect of such fraction of a share to which the Warrantholder
would otherwise be entitled.
ARTICLE V
TREATMENT OF WARRANTHOLDER
Prior to due presentment for registration of transfer of this Warrant, the
Company may deem and treat the Warrantholder as the absolute owner of this
Warrant (notwithstanding any notation of ownership or other writing hereon) for
all purposes and shall not be affected by any notice to the contrary.
ARTICLE VI
Split-Up, Combination.
EXCHANGE AND TRANSFER OF WARRANTS
SECTION 6.01: SPLIT-UP, COMBINATION AND EXCHANGE OF WARRANTS. Subject to
the provisions of Section 6.02 hereof, this Warrant may be split up, combined or
exchanged for another Warrant or Warrants containing the same terms to purchase
a like aggregate number of Warrant Shares. If the Warrantholder desires to
split up, combine or exchange this Warrant, he or it shall make such request in
writing delivered to the Company and shall surrender to the Company this Warrant
and any other Warrants to be so split up, combined or exchanged. Upon any such
surrender for a split up, combination or exchange, the Company shall execute and
deliver to the person entitled thereto a Warrant or Warrants, as the case may
be, as so requested. The Company shall not be required to effect any split up,
combination or exchange which will result in the issuance of a Warrant entitling
the Warrantholder to purchase upon exercise a fraction of a share of Common
Stock or a fractional Warrant. The Company may require such Warrantholder to
pay a sum sufficient to cover any tax or governmental charge that may be imposed
in connection with any transfer, split up, combination or exchange of Warrants.
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SECTION 6.02: RESTRICTIONS ON TRANSFER. This Warrant may not be sold,
hypothecated, pledged, assigned or transferred (any such action, a "TRANSFER")
until _______, 1998 [1 year from Effective Date], except (i) to Hampshire
Securities Corporation, any successor to the business of Hampshire Securities
Corporation or any officer or partner of such company or of any successor firm,
or (ii) to any underwriter or selling group member in connection with a Public
Offering of the Common Stock, provided as to both (i) and (ii), only in
accordance with and subject to the provisions of the Securities Act and the
rules and regulations promulgated thereunder. If at the time of a Transfer, a
Registration Statement is not in effect to register this Warrant, the Company
may require the Warrantholder to make such representations, and may place such
legends on certificates representing this Warrant, as may be reasonably required
in the opinion of counsel to the Company to permit a Transfer without such
registration.
ARTICLE VII
REGISTRATION UNDER THE SECURITIES ACT OF 1933
SECTION 7.01: PIGGYBACK REGISTRATION.
(a) RIGHT TO INCLUDE REGISTRABLE SECURITIES. If at any time after
__________, 1999 [2 years from Effective Date] and prior to ________, 2004 [7
years from Effective Date], the Company proposes to register any Common Stock or
any other class of equity security or any Common Stock Equivalent under the
Securities Act on any form for the registration of securities under such Act,
whether or not for its own account (other than (i) a registration of a stock
option, stock purchase or compensation or incentive plan or of stock issued or
issuable pursuant to any such plan, or a dividend investment plan; (ii) a
registration of securities proposed to be issued in exchange for securities or
assets of, or in connection with a merger or consolidation with, another
corporation; or (iii) a registration of securities proposed to be issued in
exchange for other securities of the Company) in a manner which would permit
registration of Registrable Securities for sale to the public under the
Securities Act (a "PIGGYBACK REGISTRATION"), it shall at such time give written
notice to all Holders of its intention to do so and of such Holders' rights
under this Section 7.01. Such rights are referred to hereinafter as "PIGGYBACK
REGISTRATION RIGHTS". Upon the written request of such Holder made within
twenty (20) days after the giving of any such notice (which request shall
specify the Registrable Securities intended to be disposed of by such Holder and
the intended method of disposition thereof), the Company shall include in the
Registration Statement the Registrable Securities which the Company has been so
requested to register by the Holders thereof.
(b) WITHDRAWAL OF PIGGYBACK REGISTRATION BY COMPANY. If, at any
time after giving written notice of its intention to register any securities in
a Piggyback Registration but prior to the effective date of the related
Registration Statement filed in connection with such Piggyback Registration, the
Company shall determine for any
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reason not to register such securities, the Company shall give written notice of
such determination to each Holder and, thereupon, shall be relieved of its
obligation to register any Registrable Securities in connection with such
Piggyback Registration. All best efforts obligations of the Company pursuant to
Section 7.03 shall cease if the Company determines to terminate any registration
where Registrable Securities are being registered pursuant to this Section 7.01.
(c) PIGGYBACK REGISTRATION OF UNDERWRITTEN PUBLIC OFFERINGS. If a
Piggyback Registration involves an underwritten offering, then all Holders
requesting to have Registrable Securities included in the Company's registration
must sell their Registrable Securities to the underwriters selected by the
Company on the same terms and conditions as apply to other selling stockholders.
(d) PAYMENT OF REGISTRATION EXPENSES FOR PIGGYBACK REGISTRATION. The
Company shall pay all Registration Expenses in connection with each registration
of Registrable Securities requested pursuant to a Piggyback Registration Right
contained in this Section 7.01, except for the fees and disbursements of any
counsel retained by the Holders for whom Registrable Securities are being
registered and any underwriting fees, selling discounts or commissions or
transfer taxes.
(e) PRIORITY IN PIGGYBACK REGISTRATION. If a Piggyback Registration
involves an underwritten offering and the managing underwriter advises the
Company in writing that, in its opinion, marketing factors require a limitation
of the number of shares to be underwritten, then the Registrable Securities to
be offered for the accounts of Holders pursuant to a Piggyback Registration
Right shall be reduced pro rata as to all requesting Holders on the basis of the
relative number of Registrable Securities each such Holder has requested to be
included in such registration, to the extent necessary to reduce the total
amount or kind of Registrable Securities to be included in such offering to the
amount advised by such managing underwriter; PROVIDED, HOWEVER, that no
securities may be offered in such registration for the account of persons other
than the Company (including for this purpose any affiliate of the Company) by
virtue of their also having "piggyback" registration rights, or otherwise,
unless the Registrable Securities requested to be included in such registration
are so included on a pro rata basis (by percentage of each class of securities)
as to such other persons holding "piggyback" registration rights and the Holders
requesting registration; and PROVIDED, FURTHER, that nothing in this paragraph
(e) shall be implied to permit the Company to include in such registration
shares of any person other than persons holding "piggyback" registration rights
unless the Registrable Securities requested to be included in such registration
are so included.
(f) EXPIRATION OF PIGGYBACK REGISTRATION RIGHTS. The Piggyback
Registration Rights shall survive the exercise of the Warrant or the
transactions or events pursuant to which such Registrable Securities were
issued, but all such rights will terminate in all events on __________, 2004 [7
years from Effective Date].
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SECTION 7.02: DEMAND REGISTRATION.
(a) REQUEST FOR REGISTRATION. Subject to the limitations set forth
below in this Section 7.02, any Holder or Holders who hold in the aggregate 50%
or more of the Registrable Securities (assuming exercise of the Warrants) may
after __________, 1998 [1 year from Effective Date] but prior to the Expiration
Date make written requests for the registration under the Securities Act of all
or part of their Registrable Securities (a "DEMAND REGISTRATION") and the
Company shall use its best efforts to effect such Demand Registration. The
Holders, as a group, shall be limited to one Demand Registration and thereafter
may not make any further written requests for registration other than Piggyback
Registrations pursuant to Section 7.01. Any written request for registration
which is never effectuated due to Section 7.02(b)(ii) or (iii) shall not count
as the Holders' Demand Registration.
(b) LIMITATIONS ON DEMAND REGISTRATION. The Company shall not be
required to effect a Demand Registration (i) if the Company, in its reasonable
judgment, determines that the filing of the registration statement at the time
requested would require disclosure of information not otherwise then required to
be disclosed and that such disclosure would adversely affect any material
business situation, transaction or negotiation then proposed, contemplated or
being engaged in by the Company, but in no event shall such delay exceed ninety
(90) days from the date of such request for registration; or (ii) if the timing
of the Demand Registration is such that a special audit of the Company would be
required in connection with the preparation of financial statements for the
registration, but in no event shall such delay exceed 90 days from the date of
such request for registration. The Company shall also not be required to effect
a Demand Registration if, within twenty (20) days after it receives a request
therefor, it or insiders who individually own more than five percent (5%) of the
Company's outstanding Common Stock agree to purchase the Warrants and/or the
underlying Warrant Shares from the requesting holders thereof at a price, in the
case of the Warrants, equal to the difference between the Exercise Price and the
then current market price of the Company's Common Stock, and, in the case of the
Warrant Shares, the current market price of the Company's Common Stock. For
purposes hereof, the current market price of the Company's Common Stock shall be
the average of the closing asked prices for the Company's Common Stock during
the ten (10) Business Day period preceding such request for registration.
(c) PAYMENT OF REGISTRATION EXPENSES FOR DEMAND REGISTRATION. The
Company shall pay all Registration Expenses in connection with the Demand
Registration as elected in the written request(s) for registration under Section
7.02(a) by the Holders of a majority of Registrable Securities (assuming
exercise of the Warrants) as to which the Demand Registration is requested.
Such Registration Expenses shall not include the fees of any counsel retained by
underwriters or any Holder and any underwriting fees or selling discounts or
commissions or transfer taxes.
(d) PROCEDURE FOR REQUESTING DEMAND REGISTRATION. Any request for a
Demand Registration shall specify the aggregate number of the Registrable
Securities
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proposed to be sold and the intended method of disposition. Within ten (10)
Business Days after receipt of such a request, the Company shall give written
notice of such registration request to all Holders, and, subject to the
limitations of Section 7.02(b), the Company shall include in such registration
all Registrable Securities with respect to which the Company has received
written requests for inclusion therein within ten (10) Business Days after the
date on which such notice is given. Each such request shall also specify the
aggregate number of Registrable Securities to be registered and the intended
method of disposition thereof.
(e) SELECTION OF UNDERWRITERS. If any Demand Registration is
requested to be in the form of an underwritten offering, the managing
underwriter shall be Hampshire Securities Corporation and the co-manager (if
any) and the independent pricer required under the rules of the NASD (if any)
shall be selected and obtained by the Holders of a majority of the Registrable
Securities to be registered (assuming exercise of the Warrants). Such selection
shall be subject to the Company's consent, which consent shall not be
unreasonably withheld. All fees and expenses of any managing underwriter, any
co-manager or any qualified independent underwriter or other independent pricer
(other than Registration Expenses otherwise required to be paid) required under
the rules of the NASD shall be paid for by the Holders whose shares are being
registered. If Hampshire Securities Corporation should decline to serve as
managing underwriter, the Holders of a majority of the Registrable Securities to
be registered (assuming exercise of the Warrants) may select and obtain one or
more managing underwriters. Such selection shall be subject to the Company's
consent, which shall not be unreasonably withheld.
SECTION 7.03: REGISTRATION PROCEDURES. If and whenever the Company is
required to use its best efforts to effect or cause the registration of any
Registrable Securities under the Securities Act as provided in this Article VII,
the Company shall, at its expense and as expeditiously as practicable:
(a) prepare and file with the SEC, as soon as practicable within
sixty (60) days (subject to extension for up to an additional thirty (30) days
provided that the Company has not exercised its deferral right contained in
Section 7.02(b) and does not within thirty (30) days exercise such deferral
right) after the end of the period within which requests for registration may be
given to the Company (but subject to the proviso for deferral contained in
Section 7.02(b) hereof) a Registration Statement relating to the registration on
any appropriate form under the Securities Act, which form shall be available for
the sale of the Registrable Securities in accordance with the intended method or
methods of distribution thereof, and use its best efforts to cause such
Registration Statements to become effective; PROVIDED that before filing a
Registration Statement or Prospectus or any amendment or supplements thereto,
including documents incorporated by reference after the initial filing of any
Registration Statement, the Company shall furnish to the selling Holders
pursuant to such Registration Statement and the underwriters, if any, copies of
all such documents proposed to be filed, which documents will be subject to the
review of such Holders and underwriters;
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(b) prepare and file with the SEC such amendments and post-effective
amendments to a Registration Statement as may be necessary to keep such
Registration Statement effective for a period of nine months commencing from the
date of effectiveness of the Registration Statement in the case of a Demand
Registration (twelve (12) months commencing from the date of effectiveness of
the Registration Statement in the case of a Piggyback Registration) or such
shorter period as may be required for the sale of the Warrant Shares in the open
market; cause the related Prospectus to be supplemented by any required
Prospectus supplement, and as so supplemented, to be filed pursuant to Rule 424
under the Securities Act; and comply with the provisions of the Securities Act
with respect to the disposition of all securities covered by such Registration
Statement during such period in accordance with the intended methods of
disposition by the sellers thereof set forth in such Registration Statement or
supplement to such Prospectus;
(c) notify the selling Holders and the managing underwriters, if any,
promptly, and (if requested by any such Person) confirm such advice in writing,
(i) when a Prospectus or any Prospectus supplement or post-effective amendment
has been filed, and, with respect to a Registration Statement or any
post-effective amendment, when the same has become effective; (ii) of any
request by the SEC for amendments or supplements to a Registration Statement or
related Prospectus or for additional information; (iii) of the issuance by the
SEC of any stop order suspending the effectiveness of a Registration Statement
or the initiation of any proceedings for that purpose; (iv) if at any time the
representations and warranties of the Company contemplated by paragraph (l)
below cease to be true and correct; (v) of the receipt by the Company of any
notification with respect to the suspension of the qualification of any of the
Registrable Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose; and (vi) of the happening of any
event that makes any statement made in the Registration Statement, the
Prospectus or any document incorporated therein by reference untrue or which
requires the making of any changes in the Registration Statement or Prospectus
so that they will not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading;
(d) make every reasonable effort to obtain the withdrawal of any
order suspending the effectiveness of a Registration Statement at the earliest
possible moment;
(e) if reasonably requested by the managing underwriters, immediately
incorporate in a prospectus supplement or post-effective amendment such
information as the managing underwriters believe (on advice of counsel) should
be included as required by applicable law relating to such sale of Registrable
Securities, including, without limitation, information with respect to the
purchase price being paid for the Registrable Securities by such underwriters
and with respect to any other terms of the underwritten (or "best-efforts"
underwritten) offering; and make all required filings of such prospectus
supplement or post-effective amendment as soon as notified of the matters to be
incorporated in such prospectus supplement or post-effective amendment;
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(f) furnish to each selling Holder and each managing underwriter,
without charge, at least one signed copy of the Registration Statement and any
posteffective amendment thereto, including financial statements and schedules,
all documents incorporated therein by reference and all exhibits (including
those incorporated by reference);
(g) deliver to each selling Holder and the underwriters, if any,
without charge, as many copies of the Prospectus or Prospectuses (including each
preliminary Prospectus) and any amendment or supplement thereto as such Persons
may reasonably request; the Company consents to the use of such Prospectus or
any amendment or supplement thereto by each of the selling Holders and the
underwriters, if any, in connection with the offering and sale of the
Registrable Securities covered by such Prospectus or any amendment or supplement
thereto;
(h) prior to any public offering of Registrable Securities, cooperate
with the selling Holders, the underwriters, if any, and their respective counsel
in connection with the attempt to register or qualify such Registrable
Securities for offer and sale under the securities or Blue Sky laws of such
jurisdictions within the United States as any seller or underwriter reasonably
requests in writing; keep each such registration or qualification effective
during the period such Registration Statement is required to be kept effective
and use reasonable efforts to enable the disposition in such jurisdictions of
the Registrable Securities covered by the applicable Registration Statement;
PROVIDED that the Company shall not be required to qualify generally to do
business in any jurisdiction where it is not then so qualified or to take any
action which would subject the Company to general service of process in any
jurisdiction where it is not at the time so subject or to subject itself to
taxation as doing business in any jurisdiction;
(i) cooperate with the selling Holders and the managing underwriters,
if any, to facilitate the timely preparation and delivery of certificates
representing Registrable Securities to be sold and not bearing any restrictive
legends; and enable such Registrable Securities to be in such denominations and
registered in such names as the managing underwriters may request at least two
Business Days prior to any sale of Registrable Securities to the underwriters;
(j) upon the occurrence of any event contemplated by paragraph
(c)(vi) above, prepare a supplement or post-effective amendment to the
applicable Registration Statement or related Prospectus or any document
incorporated therein by reference or file any other required document so that,
as thereafter delivered to the purchasers of the Registrable Securities being
sold thereunder, such Prospectus will not contain an untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein not misleading;
(k) with respect to each issue or class of Registrable Securities,
use its best efforts to cause all Registrable Securities covered by the
applicable Registration Statement to be listed on each securities exchange, if
any, on which similar securities
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issued by the Company are then listed or, if not then listed, cause such
Registered Securities to be included in a national automated quotation system;
(l) enter into such agreements (including an underwriting agreement)
and take all such other actions reasonably required in connection therewith in
order to expedite or facilitate the disposition of such Registrable Securities
and in such connection, if the registration is in connection with an
underwritten offering (i) make such representations and warranties, if any, to
the underwriters in form, substance and scope as are customarily made by issuers
to underwriters in underwritten offerings and confirm the same if and when
requested; (ii) obtain opinions of counsel to the Company and updates thereof
(which counsel and opinions (in form, scope and substance) shall be reasonably
satisfactory to the managing underwriters) addressed to the underwriters
covering the matters customarily covered in opinions requested in underwritten
offerings and such other matters as may be reasonably requested by such
underwriters; (iii) obtain "cold comfort" letters and updates thereof from the
Company's independent certified public accountants addressed to the
underwriters, if any, such letters to be in customary form and covering matters
of the type customarily covered in "cold comfort" letters obtained by
underwriters in connection with underwritten offerings; (iv) if an underwriting
agreement is entered into, the same shall set forth in full the indemnification
provisions and procedures of Section 7.04 hereof with respect to all parties to
be indemnified pursuant to said Section; and (v) the Company shall deliver such
documents and certificates as may be reasonably requested by the managing
underwriters to evidence compliance with clause (i) above and with any customary
conditions contained in the underwriting agreement or other agreement entered
into by the Company; the above shall be done at each closing under such
underwriting or similar agreement or as and to the extent required thereunder;
(m) provide a transfer agent and registrar and a CUSIP number for all
Registrable Securities, not later than the effective date of the applicable
Registration Statement;
(n) make available for inspection by a representative of the selling
Holders, any underwriter participating in any disposition pursuant to such
registration and any attorney or accountant retained by such selling Holders or
underwriter, all financial and other records, pertinent corporate documents and
properties of the Company, and cause the Company's officers, directors and
employees to supply all information reasonably requested by any such
representative, underwriter, attorney or accountant in connection with such
registration; PROVIDED, that any records, information or documents that are
designated by the Company in writing as confidential shall be kept confidential
by such Persons unless disclosure of such records, information or documents is
requested by court or administrative order;
(o) otherwise use its best efforts to comply with all applicable
rules and regulations of the SEC, and make generally available to its security
holders an earnings statement, covering a period of not less than twelve (12)
months satisfying the provisions of Section 11(a) or Rule 158 of the Securities
Act not later than sixteen (16)
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months after the first day of the month following the effective date of the
applicable Registration Statement;
(p) use its best efforts to cause such Registrable Securities covered
by such registration statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary to enable the sellers
thereof to consummate the disposition of such Registrable Securities; and
(q) take all such other actions as the Holders of a majority of the
Registrable Securities being sold (assuming exercise of the Warrants, as
applicable) and the underwriters, if any, reasonably request in order to
expedite or facilitate the disposition of such Registrable Securities.
Except as otherwise provided in this Agreement, the Company shall have
sole control in connection with the preparation, filing, withdrawal, amendment
or supplementing of each Registration Statement, the selection of underwriters
and the distribution of any preliminary prospectus included in the Registration
Statement, and may include within the coverage thereof additional shares of
Common Stock or other securities for its own account or for the account of one
or more of its other security holders.
Holders shall have no registration rights hereunder in respect of any
proposed transfer of such securities if, in the opinion of recognized securities
counsel to the Company acceptable to the Holders, (A) registration under the
Securities Act is not required for the transfer of the Registrable Securities in
the manner provided by such Holder or (B) a post-effective amendment to an
existing registration statement would be legally sufficient for such transfer
and such post-effective amendment is filed with the SEC and declared effective.
The provisions of subsections (a) (other than the proviso at the end
thereof), (d), (e), (h) (but only with respect to the first clause thereof),
(l), (n) and (p) above shall apply only in the event of a Demand Registration.
Expenses incurred in connection with this Section 7.03 shall be borne by the
respective parties as otherwise provided in this Agreement.
Each seller of Registrable Securities as to which any registration is
being effected shall furnish to the Company such information regarding the
distribution of such securities and such other information as may otherwise be
required by the Securities Act to be included in such Registration Statement.
SECTION 7.04: INDEMNIFICATION.
(a) INDEMNIFICATION BY COMPANY. The Company agrees to indemnify and
hold harmless each Holder, its officers, directors and agents and each Person
who controls such Holder or agents (within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act) against any and all losses,
claims, damages and
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liabilities, joint or several (including any reasonable investigation, legal and
other expenses incurred in connection with, and any amount paid in settlement
of, any action, suit or proceeding or any claim asserted), to which they, or any
of them, may become subject under the Securities Act, the Exchange Act or other
Federal or state law or regulation, at common law or otherwise, insofar as such
losses, claims, damages or liabilities arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact contained in any
Registration Statement, Prospectus or preliminary prospectus or any amendment
thereof or supplement thereto, or arise out of or are based upon any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading; PROVIDED, HOWEVER,
that such indemnity shall not inure to the benefit of any Holder (or any Person
controlling such Holder within the meaning of Section 15 of the Securities Act
or Section 20 of the Exchange Act) on account of any losses, claims, damages or
liabilities arising from the sale of the Registrable Securities if such untrue
statement or omission or alleged untrue statement or omission was made in such
Registration Statement, Prospectus or preliminary prospectus, or such amendment
or supplement, in reliance upon and in conformity with information furnished in
writing to the Company by the Holder specifically for use therein. The Company
shall also indemnify underwriters and selling brokers participating in the
distribution, their officers and directors and each Person who controls such
Persons (within the meaning of Section 15 of the Securities Act or Section 20 of
the Exchange Act) to the same extent as provided above with respect to the
indemnification of the Holders, if requested. This indemnity agreement shall be
in addition to any liability which the Company may otherwise have.
(b) INDEMNIFICATION BY SELLING HOLDERS. In connection with any
registration, each selling Holder will furnish to the Company in writing such
information as the Company reasonably requests for use in connection with any
Registration Statement or Prospectus and agrees to indemnify, to the same extent
as the indemnification provided by the Company in Section 7.04(a), the Company,
its directors and officers and each Person who controls the Company (within the
meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act)
but only insofar as such losses, claims, damages and liabilities arise out of or
are based upon any untrue statement or omission or alleged untrue statement or
omission which was made in the Registration Statement, the Prospectus or
preliminary prospectus or any amendment thereof or supplement thereto, in
reliance upon and in conformity with information furnished in writing by such
Holder to the Company specifically for use therein. In no event shall the
liability of any selling Holder hereunder be greater in amount than the dollar
amount of the net proceeds received by such Holder upon the sale of the
Registrable Securities giving rise to such indemnification obligation. The
Company shall be entitled to receive indemnities from underwriters and selling
brokers participating in the distribution, to the same extent as provided above
with respect to information so furnished in writing by such Persons specifically
for inclusion in any Prospectus, Registration Statement or preliminary
prospectus or any amendment thereof or supplement thereto.
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(c) CONDUCT OF INDEMNIFICATION PROCEDURE. Any party that proposes to
assert the right to be indemnified hereunder will, promptly after receipt of
notice of commencement of any action, suit or proceeding against such party in
respect of which a claim is to be made against an indemnifying party or parties
under this Section, notify each such indemnifying party of the commencement of
such action, suit or proceeding, enclosing a copy of all papers served. No
indemnification provided for in Section 7.04(a) or 7.04(b) shall be available to
any party who shall fail to give notice as provided in this Section 7.04(c) if
the party to whom notice was not given was unaware of the proceeding to which
such notice would have related and was prejudiced by the failure to give such
notice, but the omission so to notify such indemnifying party of any such
action, suit or proceeding shall not relieve it from any liability that it may
have to any indemnified party for contribution or otherwise than under this
Section. In case any such action, suit or proceeding shall be brought against
any indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate
in, and, to the extent that it shall 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 shall not be liable to such indemnified party
for any legal or other expenses, except as provided below and except for the
reasonable costs of investigation subsequently incurred by such indemnified
party in connection with the defense thereof. The indemnified party shall have
the right to employ its counsel in any such action, but the fees and expenses of
such counsel shall be at the expense of such indemnified party unless (i) the
employment of counsel by such indemnified party has been authorized in writing
by the indemnifying parties, (ii) the indemnified party shall have reasonably
concluded that there may be a conflict of interest between the indemnifying
parties and the indemnified party in the conduct of the defense of such action
(in which case the indemnifying parties shall not have the right to direct the
defense of such action on behalf of the indemnified party) or (iii) the
indemnifying parties shall not have employed counsel to assume the defense of
such action within a reasonable time after notice of the commencement thereof,
in each of which cases the fees and expenses of counsel shall be at the expense
of the indemnifying parties. An indemnifying party shall not be liable for any
settlement of any action, suit, proceeding or claim effected without its written
consent, which consent shall not be unreasonably withheld. It is understood
that the indemnifying party or parties shall not, in connection with any
proceeding or related proceedings in the same jurisdiction, be liable for the
fees and expenses of more than one separate firm in such jurisdiction at any one
time for all such indemnified party or parties.
SECTION 7.05: RESTRICTIONS ON PUBLIC SALE BY HOLDER OF REGISTRABLE
SECURITIES. Each Holder whose Registrable Securities are covered by a
Registration Statement filed pursuant to Article VII hereof agrees, if requested
by the managing underwriters in an underwritten offering, not to effect any
public sale or distribution of any securities of the Company of the same class
as the securities included in such Registration Statement, including a sale
pursuant to Rule 144 under the Securities Act (except as part of such
underwritten registration), during the ten (10)-day period prior to, and
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during the ninety (90)-day period beginning on, the closing date of each
underwritten offering made pursuant to such Registration Statement, to the
extent timely notified in writing by the managing underwriters.
ARTICLE VIII
OTHER MATTERS
SECTION 8.01: EXPENSES OF TRANSFER. The Company shall from time to time
promptly pay, subject to the provisions of Section 6.01 and paragraph (d) of
Section 2.02, all taxes and charges that may be imposed upon the Company in
respect to the issuance or delivery of Warrant Shares upon the exercise of this
Warrant by the Warrantholder.
SECTION 8.02: SUCCESSORS AND ASSIGNS. All the covenants and provisions of
this Warrant by or for the benefit of the Company shall bind and inure to the
benefit of its successors and assigns hereunder.
SECTION 8.03: AMENDMENTS AND WAIVERS. The provisions of this Warrant,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waiver or consents to departures from the provisions hereof
may not be given, unless the Company has obtained the written consent of Holders
of at least a majority of the outstanding Registrable Securities (assuming
exercise of the Warrants). Holders shall be bound by any consent authorized by
this Section whether or not certificates representing such Registrable
Securities have been marked to indicate such consent.
SECTION 8.04: COUNTERPARTS. This Warrant may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
so executed shall be deemed to be an original and all of which taken together
shall constitute one and the same agreement.
SECTION 8.05: GOVERNING LAW. This Warrant shall be governed by and
construed in accordance with the laws of the State of New York.
SECTION 8.06: SEVERABILITY. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstances, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provisions in every other respect and of the
remaining provisions contained herein shall not be affected or impaired thereby.
SECTION 8.07: INTEGRATION/ENTIRE AGREEMENT. This Warrant is intended by
the parties as a final expression of their agreement and intended to be a
complete and exclusive statement of the agreement and understanding of the
parties hereto in respect
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of the subject matter contained herein. This Warrant supersedes all prior
agreements and understandings between the parties with respect to such subject
matter.
SECTION 8.08: ATTORNEYS' FEES. In any action or proceeding brought to
enforce any provisions of this Warrant, or where any provisions hereof are
validly asserted as a defense, the successful party shall be entitled to recover
reasonable attorneys' fees and disbursements in addition to its costs and
expenses and any other available remedy.
SECTION 8.09: COMPUTATIONS OF CONSENT. Whenever the consent or approval
of Holders of a specified percentage of Registrable Securities is required
hereunder, Registrable Securities held by the Company or its affiliates (other
than the Warrantholder or subsequent Holders if they are deemed to be such
affiliates solely by reason of their holdings of such Registrable Securities)
shall not be counted in determining whether such consent or approval was given
by the Holders of such required percentage.
SECTION 8.10: NOTICES. Notice or demand pursuant to this Warrant to be
given or made by the Warrantholder to or on the Company shall be sufficiently
given or made if sent by first class mail, postage prepaid, addressed, until
another address is designated in writing by the Company, as follows:
Claimsnet.com inc.
12801 North Central Expressway
Dallas, Texas 75243
Any notice or demand authorized by this Warrant to be given or made by the
Company to or on the Warrantholder or a Holder of Registrable Securities shall
be sufficiently given or made if sent by first class mail, postage prepaid, to
the Warrantholder or the Holder of Registrable Securities at his or its last
known address as it shall appear on the books of the Company.
SECTION 8.11: HEADINGS. The headings herein are for convenience only and
are not part of this Warrant and shall not affect the interpretation thereof.
23
<PAGE>
IN WITNESS WHEREOF, this Warrant has been duly executed by the Company
under its corporate seal as of the ____ day of _____________, 1997.
Claimsnet.com inc.
By:_______________________________________
Name:
Title:
Attest:________________________
Secretary
The undersigned accepts this Warrant and
agrees to abide by the terms herein which are
applicable to the Warrantholder.
HAMPSHIRE SECURITIES CORPORATION
-------------------------------------------
(Name of Warrantholder)
By:________________________________________
(Name and title of duly authorized officer)
24
<PAGE>
ASSIGNMENT
(To be executed only upon assignment of Warrant Certificate)
For value received, _________________________ hereby sells, assigns
and transfers unto _____________________ the within Warrant Certificate,
together with all right, title and interest therein, and does hereby irrevocably
constitute and appoint __________________ attorney, to transfer said Warrant
Certificate on the books of the within-named Company with respect to the number
of Warrants set forth below, with full power of substitution in the premises:
NAME(S) OF
ASSIGNEE(S) ADDRESS NO. OF WARRANTS
And if said number of Warrants shall not be all the Warrants represented by the
Warrant Certificate, a new Warrant Certificate is to be issued in the name of
said undersigned for the balance remaining of the Warrants represented by said
Warrant Certificate.
Dated: ____________________, 19__ _____________________________________
Note: The above signature should
correspond exactly with the
name on the face of this
Warrant Certificate.
25
<PAGE>
SUBSCRIPTION FORM
(To be executed upon exercise of Warrant)
Claimsnet.com inc.:
The undersigned hereby irrevocably elects to exercise the right of purchase
represented by the within Warrant Certificate for, and to purchase thereunder,
_____________________ shares of Common Stock, as provided for therein, and
tenders herewith payment of the purchase price in full in the form of cash or a
certified or official bank check in the amount of $ .
If said number of shares shall not be all the shares purchasable under the
within Warrant Certificate, a new Warrant Certificate is to be issued in the
name of said undersigned for the balance remaining of the shares purchasable
thereunder.
Please issue a certificate or certificates for such shares of Common Stock
in the name of, and pay any cash for any fractional share to:
Name:______________________________
(Please Print Name, Address and Social
Security No.)
Address:_____________________________
____________________________________
_____________________________________
Social Security Number:______________
Signature:___________________________
NOTE: The above signature should correspond
exactly with the name on the first page of
this Warrant Certificate or with the name of
the assignee appearing in the assignment form
below.
26
<PAGE>
CASHLESS EXERCISE FORM
(To be executed upon exercise of Warrant
pursuant to Section 2.02(a)(ii))
The undersigned hereby irrevocably elects to surrender its Warrant for
________ shares of Common Stock pursuant to the Cashless Exercise provisions of
the within Warrant, as provided for in Section 2.02(a)(ii) of such Warrant.
If said number of shares shall not be all the shares exchangeable or
purchasable under the within Warrant, a new Warrant is to be issued in the name
of the undersigned for the balance remaining of the shares purchasable
thereunder.
Please issue a certificate or certificates for such shares of Common Stock
in the name of, and pay cash for fractional shares to:
Name:______________________________
(Please Print Name, Address and Social
Security No.)
Address:_____________________________
_____________________________________
_____________________________________
Social Security Number:______________
Signature:___________________________
NOTE: The above signature should correspond
exactly with the name on the first page of
this Warrant or with the name of the assignee
appearing in the assignment form below.
27
<PAGE>
Claimsnet.com inc.
1997 STOCK OPTION PLAN
Adopted April 5, 1997
I. Purpose.
The purpose of the claimsnet.com, inc. 1997 Stock Option Plan (the "Plan")
is to provide a means whereby selected employees, officers, directors, and
consultants of claimsnet.com, inc., a Delaware corporation (the "Company"), or
of any parent or subsidiary (as defined in subsection 5.7 hereof and referred to
hereinafter as "Affiliates") thereof, may be granted incentive stock options
and/or nonqualified stock options to purchase shares of common stock, $.10 par
value (the "Common Stock") in order to attract and retain the services or advice
of such employees, officers, directors, and consultants and to provide
additional incentive for such persons to exert maximum efforts for the success
of the Company and its Affiliates by encouraging stock ownership in the Company.
II. Administration.
Subject to Section 2.3 hereof, the Plan shall be administered by the Board
of Directors of the Company (the "Board") or, in the event the Board shall
appoint and/or authorize a committee of two or more members of the Board to
administer the Plan, by such committee. The administrator of the Plan shall
hereinafter be referred to as the "Plan Administrator."
The foregoing notwithstanding, in the event the Company shall register any
of its equity securities pursuant to Section 12(b) or 12(g) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and any directors are
eligible to receive options under the Plan, then with respect to grants to be
made to directors: (a) the Plan Administrator shall be constituted so as to meet
the requirements of Section 16(b) of the Exchange Act and Rule 16b-3 thereunder,
each as amended from time to time, or (b) if the Plan Administrator cannot be so
constituted, no options shall be granted under the Plan to any directors.
Section 2.1 Procedures. The Board shall designate one of the members of
the Plan Administrator as chairman. The Plan Administrator may hold meetings at
such times and places as it shall determine. The acts of a majority of the
members of the Plan Administrator present at meetings at which a quorum exists,
or acts approved in writing by all Plan Administrator members, shall be valid
acts of the Plan Administrator.
Section 2.2 Responsibilities. Except for the terms and conditions
explicitly set forth herein, the Plan Administrator shall have the authority, in
its discretion, to determine all matters relating to the options to be granted
under the Plan, including, without limitation, selection of whether an option
will be an incentive stock option or a nonqualified stock option, selection of
the individuals to be granted options, the number of shares to be subject to
each option, the exercise
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price per share, the timing of grants and all other terms and conditions of the
options. Grants under the Plan need not be identical in any respect, even when
made simultaneously. The Plan Administrator may also establish, amend, and
revoke rules and regulations for the administration of the Plan. The
interpretation and construction by the Plan Administrator of any terms or
provisions of the Plan or any option issued hereunder, or of any rule or
regulation promulgated in connection herewith, shall be conclusive and binding
on all interested parties, so long as such interpretation and construction with
respect to incentive stock options corresponds to the requirements of Internal
Revenue Code of 1986, as amended (the "Code") Section 422, the regulations
thereunder, and any amendments thereto. The Plan Administrator shall not be
personally liable for any action made in good faith with respect to the Plan or
any option granted thereunder.
2.3 Rule 16b-3 and Section 16(b) Compliance; Bifurcation of Plan. It
is the intention of the Company that the Plan comply in all respects with Rule
16b-3 under the Exchange Act to the extent applicable, and in all events the
Plan shall be construed in favor of its meeting the requirements of Rule 16b-3.
If any Plan provision is later found not to be in compliance with such Rule,
such provision shall be deemed null and void. The Board of Directors may act
under the Plan only if all members thereof are "disinterested persons" as
defined in Rule 16b-3 and further described in Section 4 hereof; and from and
after the date that the Company first registers a class of equity securities
under Section 12 of the Exchange Act, no director or officer or other Company
"insider" subject to Section 16 of the Exchange Act may sell shares received
upon the exercise of an option during the six month period immediately following
the grant of the option. Notwithstanding anything in the Plan to the contrary,
the Board, in its absolute discretion, may bifurcate the Plan so as to restrict,
limit, or condition the use of any provision of the Plan to participants who are
officers and directors or other persons subject to Section 16(b) of the Exchange
Act without so restricting, limiting, or conditioning the Plan with respect to
other participants.
SECTION 3. Stock Subject to The Plan. The stock subject to this Plan shall
be the Common Stock, presently authorized but unissued or subsequently acquired
by the Company. Subject to adjustment as provided in Section 7 hereof, the
aggregate amount of Common Stock to be delivered upon the exercise of all
options granted under the Plan shall not exceed in the aggregate 600,000 shares
as such Common Stock was constituted on the effective date of the Plan. If any
option granted under the Plan shall expire, be surrendered, exchanged for
another option, canceled, or terminated for any reason without having been
exercised in full, the unpurchased shares subject thereto shall thereupon again
be available for purposes of the Plan, including for replacement options which
may be granted in exchange for such surrendered, canceled, or terminated
options.
SECTION 4. Eligibility. An incentive stock option may be granted only to
any individual who, at the time the option is granted, is an employee of the
Company or any Affiliate thereof. A nonqualified stock option may be granted to
any employee, officer, director, or consultant of the Company or any Affiliate
thereof, whether an individual or an entity. Any party to whom an option is
granted under the Plan shall be referred to hereinafter as an "Optionee."
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<PAGE>
A director shall in no event be eligible for the benefits of the
Plan unless at the time discretion is exercised in the selection of a director
as a person to whom options may be granted, or in the determination of the
number of shares which may be covered by options granted to the director: (a)
the Board of Directors has delegated its discretionary authority over the Plan
to a committee consisting solely of "disinterested persons" (as defined below)
or (b) the Plan otherwise complies with the requirements of Rule 16b-3 under the
Exchange Act. For purposes of this paragraph, a "disinterested person" shall
mean a director (i) who was not during the one year prior to service as Plan
Administrator granted or awarded equity securities pursuant to the Plan or any
other plan of the Company or its Affiliates entitling the participants therein
to acquire equity securities of the Company or its Affiliates except as
permitted by Rule 16b-3(c)(2)(i), or (ii) who is otherwise considered to be a
"disinterested person" in accordance with such Rule 16b-3(c)(2)(i) or any other
applicable rules, regulations, or interpretations of the Securities and Exchange
Commission.
SECTION 5. Terms and Conditions of Options. Options granted under the Plan
shall be evidenced by written agreements which shall contain such terms,
conditions, limitations, and restrictions as the Plan Administrator shall deem
advisable and which are not inconsistent with the Plan. Notwithstanding the
foregoing, options shall include or incorporate by reference the following terms
and conditions:
5.1 Number of Shares and Price. The maximum number of shares that
may be purchased pursuant to the exercise of each option, and the price per
share at which such option is exercisable (the "exercise price"), shall be as
established by the Plan Administrator; provided, that the Plan Administrator
shall act in good faith to establish the exercise price which shall be not less
than 100% of the fair market value per share of the Common Stock at the time of
grant of the option with respect to incentive stock options; and provided,
further, that, with respect to incentive stock options granted to greater than
ten percent stockholders, the exercise price shall be as required by Section 6
hereof.
5.2 Term and Maturity. Subject to the restrictions contained in
Section 6 hereof with respect to granting stock options to greater than ten
percent stockholders, the term of each stock option shall be as established by
the Plan Administrator and, if not so established, shall be ten years from the
date of its grant, but in no event shall the term of any incentive stock option
exceed a ten year period. To ensure that the Company or Affiliate will achieve
the purpose and receive the benefits contemplated in the Plan, any option
granted to any Optionee hereunder shall, unless the condition of this sentence
is waived or modified in the agreement evidencing the option or by resolution
adopted by the Plan Administrator, be exercisable according to the following
schedule:
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<PAGE>
Period of Optionee's
Continuous Relationship
With the Company or
Affiliate From the Date Portion of Total Option
the Option is Granted Which is Exercisable
--------------------- --------------------
1 year 25%
2 years 50%
3 years 75%
4 years 100%
5.3 Exercise. Subject to the vesting schedule described in
subsection 5.2 hereof, each option may be exercised in whole or in part;
provided, that only whole shares may be issued pursuant to the exercise of any
option. Subject to any other terms and conditions herein, the Plan Administrator
may provide that an option may not be exercised in whole or in part for a stated
period or periods of time during which such option is outstanding; provided,
that the Plan Administrator may rescind, modify, or waive any such limitation at
any time and from time to time after the grant date thereof. During an
Optionee's lifetime, any incentive stock options granted under the Plan are
personal to such Optionee and are exercisable solely by such Optionee. Options
shall be exercised by delivery to the Company of notice of the number of shares
with respect to which the option is exercised, together with payment of the
exercise price in accordance with Section 5.4 hereof.
5.4 Payment of Exercise Price. Payment of the option exercise price
shall be made in full at the time the notice of exercise of the option is
delivered to the Company and shall be in cash, bank certified or cashier's
check, or personal check (unless at the time of exercise the Plan Administrator
in a particular case determines not to accept a personal check) for shares of
Common Stock being purchased.
The Plan Administrator can determine at the time the option is
granted in the case of incentive stock options, or at any time before exercise
in the case of nonqualified stock options, that additional forms of payment will
be permitted. To the extent permitted by the Plan Administrator and applicable
laws and regulations (including, without limitation, federal tax and securities
laws and regulations and state corporate law), an option may be exercised by:
(a) delivery of shares of Common Stock of the Company held by an
Optionee having a fair market value equal to the exercise price, such fair
market value to be determined in good faith by the Plan Administrator;
(b) delivery of a properly executed Notice of Exercise, together
with irrevocable instructions to a broker, all in accordance with the
regulations of the Federal Reserve Board, to promptly deliver to the Company the
amount of sale or loan proceeds to pay the exercise price and
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<PAGE>
any federal, state, or local withholding tax obligations that may arise in
connection with the exercise;
(c) delivery of a properly executed Notice of Exercise, together
with instructions to the Company to withhold from the shares of Common Stock
that would otherwise be issued upon exercise that number of shares of Common
Stock having a fair market value equal to the option exercise price.
5.5 Withholding Tax Requirement. The Company or any Affiliate
thereof shall have the right to retain and withhold from any payment of cash or
Common Stock under the Plan the amount of taxes required by any government to be
withheld or otherwise deducted and paid with respect to such payment. No option
may be exercised unless and until arrangements satisfactory to the Company, in
its sole discretion, to pay such withholding taxes are made. At its discretion,
the Company may require an Optionee to reimburse the Company for any such taxes
required to be withheld by the Company and withhold any distribution in whole or
in part until the Company is so reimbursed. In lieu thereof, the Company shall
have the right to withhold from any other cash amounts due or to become due from
the Company to the Optionee an amount equal to such taxes or retain and withhold
a number of shares having a market value not less than the amount of such taxes
required to be withheld by the Company to reimburse the Company for any such
taxes and cancel (in whole or in part) any such shares of Common Stock so
withheld. If required by Section 16(b) of the Exchange Act, the election to pay
withholding taxes by delivery of shares of Common Stock held by any person who
at the time of exercise is subject to Section 16(b) of the Exchange Act shall be
made either six months prior to the date the option exercise becomes taxable or
at such other times as the Company may determine as necessary to comply with
Section 16(b) of the Exchange Act. Although the Company may, in its discretion,
accept Common Stock as payment of withholding taxes, the Company shall not be
obligated to do so.
5.6 Nontransferability.
5.6.1 Option. Options granted under the Plan and the rights
and privileges conferred hereby may not be transferred, assigned, pledged, or
hypothecated in any manner (whether by operation of law or otherwise) other than
by will or by the applicable laws of descent and distribution or pursuant to a
qualified domestic relations order as defined in Section 414(p) of the Code, or
Title I of the Employee Retirement Income Security Act of 1974, as amended, or
the rules thereunder, and shall not be subject to execution, attachment, or
similar process. Any attempt to transfer, assign, pledge, hypothecate, or
otherwise dispose of any option under the Plan or of any right or privilege
conferred hereby, contrary to the Code or to the provisions of the Plan, or the
sale or levy or any attachment or similar process upon the rights and privileges
conferred hereby shall be null and void ab initio. The designation by an
Optionee of a beneficiary does not, in and of itself, constitute an
impermissible transfer under this subsection 5.6.1.
5.6.2 Stock. The Plan Administrator may provide in the
agreement granting the option that (a) the Optionee may not transfer or
otherwise dispose of shares acquired upon
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exercise of an option without first offering such shares to the Company for
purchase on the same terms and conditions as those offered to the proposed
transferee or (b) upon termination of employment of an Optionee the Company
shall have a six month right of repurchase as to the shares acquired upon
exercise, which right of repurchase shall allow for a maximum purchase price
equal to the fair market value of the shares on the termination date. The
foregoing rights of the Company shall be assignable by the Company upon
reasonable written notice to the Optionee.
5.7 Termination of Relationship. If the Optionee's relationship with
the Company or any Affiliate thereof ceases for any reason other than
termination for cause, death, or total disability, and unless by its terms the
option sooner terminates or expires, then the Optionee may exercise, for a three
month period, that portion of the Optionee's option which is exercisable at the
time of such cessation, but the Optionee's option shall terminate at the end of
the three month period following such cessation as to all shares for which it
has not theretofore been exercised, unless, in the case of a nonqualified stock
option, such provision is waived in the agreement evidencing the option or by
resolution adopted by the Plan Administrator within 90 days of such cessation.
If, in the case of an incentive stock option, an Optionee's relationship with
the Company or Affiliate thereof changes from employee to nonemployee (i.e.,
from employee to a position such as a consultant), such change shall constitute
a termination of an Optionee's employment with the Company or Affiliate and the
Optionee's incentive stock option shall terminate in accordance with this
subsection 5.7.
If an Optionee is terminated for cause, any option granted hereunder
shall automatically terminate as of the first discovery by the Company of any
reason for termination for cause, and such Optionee shall thereupon have no
right to purchase any shares pursuant to such option. "Termination for cause"
shall mean dismissal for dishonesty, conviction or confession of a crime
punishable by law (except minor violations), fraud, misconduct, or disclosure of
confidential information. If an Optionee's relationship with the Company or any
Affiliate thereof is suspended pending an investigation of whether or not the
Optionee shall be terminated for cause, all Optionee's rights under any option
granted hereunder likewise shall be suspended during the period of
investigation.
If an Optionee's relationship with the Company or any Affiliate
thereof ceases because of a total disability, the Optionee's option shall not
terminate or, in the case of an incentive stock option, cease to be treated as
an incentive stock option until the end of the 12 month period following such
cessation (unless by its terms it sooner terminates and expires). As used in the
Plan, the term "total disability" refers to a mental or physical impairment of
the Optionee which is expected to result in death or which has lasted or is, in
the opinion of the Company and two independent physicians, expected to last for
a continuous period of 12 months or more and which causes or is, in such
opinion, expected to cause the Optionee to be unable to perform his or her
duties for the Company and to be engaged in any substantial gainful activity.
Total disability shall be deemed to have occurred on the first day after the
Company and the two independent physicians have furnished their opinion of total
disability to the Plan Administrator.
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<PAGE>
For purposes of this subsection 5.7, a transfer of relationship
between or among the Company and/or any Affiliate thereof shall not be deemed to
constitute a cessation of relationship with the Company or any of its
Affiliates. For purposes of this subsection 5.7, with respect to incentive stock
options, employment shall be deemed to continue while the Optionee is on
military leave, sick leave, or other bona fide leave of absence (as determined
by the Plan Administrator). The foregoing notwithstanding, employment shall not
be deemed to continue beyond the first 90 days of such leave, unless the
Optionee's reemployment rights are guaranteed by statute or by contract.
As used herein, the term "Affiliate" shall be defined as follows:
(a) when referring to a subsidiary corporation, "Affiliate" shall mean any
corporation (other than the Company) in, at the time of the granting of the
option, an unbroken chain of corporations ending with the Company, if stock
possessing 50% or more of the total combined voting power of all classes of
stock of each of the corporations other than the Company is owned by one of the
other corporations in such chain; and (b) when referring to a parent
corporation, "Affiliate" shall mean any corporation in an unbroken chain of
corporations ending with the Company if, at the time of the granting of the
option, each of the corporations other than the Company owns stock possessing
50% or more of the total combined voting power of all classes of stock in one of
the other corporations in such chain.
5.8 Death of Optionee. If an Optionee dies while he or she has a
relationship with the Company or any Affiliate thereof or within the three month
period (or 12 month period in the case of totally disabled Optionees) following
cessation of such relationship, any option held by such Optionee, to the extent
that the Optionee would have been entitled to exercise such option, may be
exercised within one year after his or her death by the personal representative
of his or her estate or by the person or persons to whom the Optionee's rights
under the option shall pass by will or by the applicable laws of descent and
distribution.
5.9 Status of Stockholder. Neither the Optionee nor any party to
which the Optionee's rights and privileges under the option may pass shall be,
or have any of the rights or privileges of, a stockholder of the Company with
respect to any of the shares issuable upon the exercise of any option granted
under the Plan unless and until such option has been exercised.
5.10 Continuation of Employment. Nothing in the Plan or in any
option granted pursuant to the Plan shall confer upon any Optionee any right to
continue in the employ of the Company or of an Affiliate thereof, or to continue
to be engaged as a consultant to the Company or such Affiliate, or to interfere
in any way with the right of the Company or of any such Affiliate to terminate
his or her employment or other relationship with the Company at any time.
5.11 Modification and Amendment of Option. Subject to the
requirements of Section 422 of the Code with respect to incentive stock options
and to the terms and conditions and within the limitations of the Plan,
including, without limitation, Section 9.1 hereof, the Plan Administrator may
modify or amend outstanding options granted under the Plan. The modification
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<PAGE>
or amendment of an outstanding option shall not, without the consent of the
Optionee, impair or diminish any of his or her rights or any of the obligations
of the Company under such option. Except as otherwise provided herein, no
outstanding option shall be terminated without the consent of the Optionee.
Unless the Optionee agrees otherwise, any changes or adjustments made to
outstanding incentive stock options granted under the Plan shall be made in such
a manner so as not to constitute a "modification" as defined in Section 424(h)
of the Code and so as not to cause any incentive stock option issued hereunder
to fail to continue to qualify as an incentive stock option as defined in
Section 422(b) of the Code.
5.12 Limitation on Value for Incentive Stock Options. As to all
incentive stock options granted under the terms of the Plan, to the extent that
the aggregate fair market value (determined at the time of the grant of the
incentive stock option) of the shares of Common Stock with respect to which
incentive stock options are exercisable for the first time by the Optionee
during any calendar year (under the Plan and all other incentive stock option
plans of the Company, an Affiliate thereof or a predecessor corporation) exceeds
$100,000, such options shall be treated as nonqualified stock options. The
foregoing sentence shall not apply, and the limitation shall be that provided by
the Code or the Internal Revenue Service, as the case may be, if such annual
limit is changed or eliminated by (a) amendment of the Code or (b) issuance by
the Internal Revenue Service of (i) a Revenue ruling, (ii) a Private Letter
ruling to any of the Company, any Optionee, or any legatee, personal
representative, or distributee of any Optionee, or (iii) regulations.
5.13 Valuation of Common Stock Received Upon Exercise.
5.13.1 Exercise of Options Under Sections 5.4(a) and (c). The
value of Common Stock received by the Optionee from an exercise under Sections
5.4(a) and 5.4(c) hereof shall be the fair market value as determined by the
Plan Administrator, provided, that if the Common Stock is traded in a public
market, such valuation shall be the average of the high and low trading prices
or bid and asked prices, as applicable, of the Common Stock for the date of
receipt by the Company of the Optionee's delivery of shares under Section 5.4(a)
hereof or delivery of the Notice of Exercise under Section 5.4(c) hereof,
determined as of the trading day immediately preceding such date (or, if no sale
of shares is reported for such trading day, on the next preceding day on which
any sale shall have been reported).
5.13.2 Exercise of Option Under Section 5.4(b). The value of
Common Stock received by the Optionee from an exercise under Section 5.4(b)
hereof shall equal the sales price received for such shares.
SECTION 6. Greater Than Ten Percent Stockholders.
6.1 Exercise Price and Term of Incentive Stock Options. If incentive
stock options are granted under the Plan to employees who, at the time of such
grant, own greater than ten percent of the total combined voting power of all
classes of stock of the Company or any Affiliate thereof, the term of such
incentive stock options shall not exceed five years and the
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exercise price shall be not less than 110% of the fair market value of the
Common Stock at the time of grant of the incentive stock option. This provision
shall control notwithstanding any contrary terms contained in an option
agreement or any other document. The term and exercise price limitations of this
provision shall be amended to conform to any change required by a change in the
Code or by ruling or pronouncement of the Internal Revenue Service.
6.2 Attribution Rule. For purposes of subsection 6.1, in determining
stock ownership, an employee shall be deemed to own the stock owned, directly or
indirectly, by or for his or her brothers, sisters, spouse, ancestors, and
lineal descendants. Stock owned, directly or indirectly, by or for a
corporation, partnership estate, or trust shall be deemed to be owned
proportionately by or for its stockholders, partners, or beneficiaries. If an
employee or a person related to the employee owns an unexercised option or
warrant to purchase stock of the Company, the stock subject to that portion of
the option or warrant which is unexercised shall not be counted in determining
stock ownership. For purposes of this Section 6, stock owned by an employee
shall include all stock owned by him or her which is actually issued and
outstanding immediately before the grant of the incentive stock option to the
employee.
SECTION 7. Adjustments Upon Changes in Capitalization. The aggregate
number and class of shares for which options may be granted under the Plan, the
number and class of shares covered by each outstanding option, and the exercise
price per share thereof (but not the total price), and each such option, shall
all be proportionately adjusted for any increase or decrease in the number of
issued shares of Common Stock of the Company resulting from a split or
consolidation of shares or any like capital adjustment, or the payment of any
stock dividend.
7.1. Effect of Liquidation, Reorganization, or Change in Control.
7.1.1 Cash, Stock, or Other Property for Stock. Except as
provided in subsection 7.1.2 hereof, upon a merger (other than a merger of the
Company in which the holders of Common Stock immediately prior to the merger
have the same proportionate ownership of common stock in the surviving
corporation immediately after the merger), consolidation, acquisition of
property or stock, separation, reorganization (other than mere reincorporation
or creation of a holding company), or liquidation of the Company (each, an
"event"), as a result of which the stockholders of the Company receive cash,
stock, or other property in exchange for, or in connection with, their shares of
Common Stock, any option granted hereunder shall terminate, but the time during
which such options may be exercised shall be accelerated as follows: the
Optionee shall have the right immediately prior to any such event to exercise
such Optionee's option in whole or in part whether or not the vesting
requirements set forth in the option agreement have been satisfied.
7.1.2 Conversion of Options on Stock for Exchange Stock. If
the stockholders of the Company receive capital stock of another corporation
("Exchange Stock") in exchange for their shares of Common Stock in any
transaction involving a merger (other than a merger of the Company in which the
holders of Common Stock immediately prior to the merger
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<PAGE>
have the same proportionate ownership of common stock in the surviving
corporation immediately after the merger), consolidation, acquisition of
property or stock, separation, or reorganization (other than mere
reincorporation or creation of a holding company), all options granted hereunder
shall be converted into options to purchase shares of Exchange Stock unless the
Company and corporation issuing the Exchange Stock, in their sole discretion,
determine that any or all such options granted hereunder shall not be converted
into options to purchase shares of Exchange Stock but instead shall terminate in
accordance with the provisions of subsection 7.1.1 hereof. The amount and price
of converted options shall be determined by adjusting the amount and price of
the options granted hereunder in the same proportion as used for determining the
number of shares of Exchange Stock the holders of the Common Stock receive in
such merger, consolidation, acquisition, separation, or reorganization. Unless
the Board determines otherwise, the converted options shall be fully vested
whether or not the vesting requirements set forth in the option agreement have
been satisfied.
7.2 Fractional Shares. In the event of any adjustment in the number
of shares covered by an option, any fractional shares resulting from such
adjustment shall be disregarded and each such option shall cover only the number
of full shares resulting from such adjustment.
7.3 Determination of Board to Be Final. Except as otherwise required
for the Plan to qualify for the exemption afforded by Rule 16b-3 under the
Exchange Act, all adjustments under this Section 7 shall be made by the Board,
and its determination as to what adjustments shall be made, and the extent
thereof, shall be final, binding, and conclusive. Unless an Optionee agrees
otherwise, any change or adjustment to an incentive stock option shall be made
in such a manner so as not to constitute a "modification" as defined in Section
425(h) of the Code and so as not to cause the incentive stock option issued
hereunder to fail to continue to qualify as an incentive stock option as defined
in Section 422(b) of the Code.
SECTION 8. Securities Law Compliance. Shares shall not be issued with
respect to an option granted under the Plan unless the exercise of such option
and the issuance and delivery of such shares pursuant thereto shall comply with
all relevant provisions of law, including, without limitation, any applicable
state securities laws, the Securities Act of 1933, as amended (the "Act"), the
Exchange Act, the rules and regulations promulgated thereunder, and the
requirements of any stock exchange upon which the shares may then be listed, and
shall be further subject to the approval of counsel for the Company with respect
to such compliance, including, without limitation, the availability of an
exemption from registration for the issuance and sale of any shares hereunder.
Inability of the Company to obtain from any regulatory body having jurisdiction,
the authority deemed by the Company's counsel to be necessary for the lawful
issuance and sale of any shares hereunder or the unavailability of an exemption
from registration for the issuance and sale of any shares hereunder shall
relieve the Company of any liability in respect of the nonissuance or sale of
such shares as to which such requisite authority shall not have been obtained.
As a condition to the exercise of an option, if, in the opinion of counsel
for the Company, assurances are required by any relevant provision of the
aforementioned laws, the Company may
- 10 -
<PAGE>
require the Optionee to give written assurances satisfactory to the Company at
the time of any such exercise (a) as to the Optionee's knowledge and experience
in financial and business matters (and/or to employ a purchaser representative
reasonably satisfactory to the Company who is knowledgeable and experienced in
financial and business matters) and that such Optionee is capable of evaluating,
either alone or with the purchaser representative, the merits and risks of
exercising the option or (b) that the shares are being purchased only for
investment and without any present intention to sell or distribute such shares.
The foregoing requirements shall be inoperative if the issuance of the shares
upon the exercise of the option has been registered under a then currently
effective registration statement under the Act.
At the option of the Company, a stop-transfer order against any shares may
be placed on the official stock books and records of the Company, and a legend
indicating that the stock may not be pledged, sold, or otherwise transferred
unless an opinion of counsel is provided (concurred in by counsel for the
Company) stating that such transfer is not in violation of any applicable law or
regulation, may be stamped on stock certificates in order to assure exemption
from registration. The Plan Administrator may also require such other action or
agreement by the Optionees as may from time to time be necessary to comply with
the federal and state securities laws. NONE OF THE ABOVE SHALL BE CONSTRUED TO
IMPLY AN OBLIGATION ON THE PART OF THE COMPANY TO UNDERTAKE REGISTRATION OF THE
OPTIONS OR STOCK HEREUNDER.
Should any of the Company's capital stock of the same class as the stock
subject to options granted hereunder be listed on a national securities exchange
or on the NASDAQ National Market, all stock issued hereunder if not previously
listed on such exchange or market shall, if required by the rules of such
exchange or market, be authorized by that exchange or market for listing thereon
prior to the issuance thereof.
SECTION 9. Use of Proceeds. The proceeds received by the Company from the
sale of shares pursuant to the exercise of options granted hereunder shall
constitute general funds of the Company.
SECTION 10. Amendment and Termination.
10.1 Board Action. The Board may at any time suspend, amend, or
terminate the Plan, provided, that no amendment shall be made without
stockholder approval within 12 months before or after adoption of the Plan if
such approval is necessary to comply with any applicable tax or regulatory
requirement, including any such approval as may be necessary to satisfy the
requirements for exemptive relief under Rule 16b-3 of the Exchange Act or any
successor provision. Rights and obligations under any option granted before
amendment of the Plan shall not be altered or impaired by any amendment of the
Plan unless the Company requests the consent of the person to whom the option
was granted and such person consents in writing thereto.
- 11 -
<PAGE>
10.2 Automatic Termination. Unless sooner terminated by the Board,
the Plan shall terminate ten years from the earlier of (a) the date on which the
Plan is adopted by the Board or (b) the date on which the Plan is approved by
the stockholders of the Company. No option may be granted after such termination
or during any suspension of the Plan. The amendment or termination of the Plan
shall not, without the consent of the option holder, alter or impair any rights
or obligations under any option theretofore granted under the Plan.
SECTION 11. Effectiveness of the Plan. The Plan shall become effective
upon adoption by the Board so long as it is approved by the holders of a
majority of the Company's outstanding shares of voting capital stock at any time
within 12 months before or after the adoption of the Plan by the Board.
- 12 -
<PAGE>
claimsnet.com, inc.
[INCENTIVE][NONQUALIFIED] STOCK OPTION LETTER AGREEMENT
TO: ______________________
We are pleased to inform you that you have been selected by the Plan
Administrator of the claimsnet.com, inc. (the "Company") 1997 Stock Option Plan
(the "Plan") to receive a(n) [incentive] [nonqualified] option for the purchase
of ________ shares of the Company's common stock, $.10 par value, at an exercise
price of $____ per share (the "exercise price"). A copy of the Plan is attached
and the provisions thereof, including, without limitation, those relating to
withholding taxes, are incorporated into this Agreement by reference.
The terms of the option are as set forth in the Plan and in this
Agreement. The most important of the terms set forth in the Plan are summarized
as follows:
Term. The term of the option is ten years from date of grant, unless
sooner terminated.
Exercise. During your lifetime only you can exercise the option. The Plan
also provides for exercise of the option by the personal representative of your
estate or the beneficiary thereof following your death. You may use the Notice
of Exercise in the form attached to this Agreement when you exercise the option.
Payment for Shares. The option may be exercised by the delivery of:
(a) Cash, personal check (unless at the time of exercise the Plan
Administrator determines otherwise), or bank certified or cashier's checks;
(b) Unless the Plan Administrator in its sole discretion determines
otherwise, shares of the capital stock of the Company held by you having a fair
market value at the time of exercise, as determined in good faith by the Plan
Administrator, equal to the exercise price;
(c) Unless the Plan Administrator in its sole discretion determines
otherwise, a properly executed Notice of Exercise, together with instructions to
the Company to withhold from the shares that would otherwise be issued upon
exercise that number of shares having a fair market value equal to the option
exercise price; or
(d) Unless the Plan Administrator in its sole discretion determines
otherwise, a properly executed Notice of Exercise, together with irrevocable
instructions to a broker to promptly deliver to the Company the amount of sale
or loan proceeds to pay the exercise price.
Termination. The option will terminate immediately upon termination for
cause, as defined in the Plan, or three months after cessation of your
relationship with the Company or an Affiliate
- 1 -
<PAGE>
thereof, unless cessation is due to death or total disability, in which case the
option shall terminate 12 months after cessation of such relationship.
Transfer of Option. The option is not transferable except by will or by
the applicable laws of descent and distribution or pursuant to a qualified
domestic relations order.
Vesting. The option is vested according to the following schedule:
Period of Optionee's
Continuous Relationship
With the Company or
Affiliate From the Date Portion of Total Option
the Option is Granted Which is Exercisable
--------------------- --------------------
1 year 25%
2 years 50%
3 years 75%
4 years 100%
Date of Grant. The date of grant of the option is _______________.
YOUR PARTICULAR ATTENTION IS DIRECTED TO SECTION 8 OF THE PLAN WHICH
DESCRIBES CERTAIN IMPORTANT CONDITIONS RELATING TO FEDERAL AND STATE SECURITIES
LAWS THAT MUST BE SATISFIED BEFORE THE OPTION CAN BE EXERCISED AND BEFORE THE
COMPANY CAN ISSUE ANY SHARES TO YOU. THE COMPANY HAS NO OBLIGATION TO REGISTER
THE SHARES THAT WOULD BE ISSUED UPON THE EXERCISE OF YOUR OPTION, AND IF IT
NEVER REGISTERS THE SHARES, YOU WILL NOT BE ABLE TO EXERCISE THE OPTION UNLESS
AN EXEMPTION FROM REGISTRATION IS AVAILABLE. AT THE PRESENT TIME, EXEMPTIONS
FROM REGISTRATION UNDER FEDERAL AND STATE SECURITIES LAWS ARE VERY LIMITED AND
MIGHT BE UNAVAILABLE TO YOU PRIOR TO THE EXPIRATION OF THE OPTION. CONSEQUENTLY,
YOU MIGHT HAVE NO OPPORTUNITY TO EXERCISE THE OPTION AND TO RECEIVE SHARES UPON
SUCH EXERCISE. IN ADDITION, YOU SHOULD CONSULT WITH YOUR TAX ADVISOR CONCERNING
THE RAMIFICATIONS TO YOU OF HOLDING OR EXERCISING YOUR OPTIONS OR HOLDING OR
SELLING THE SHARES UNDERLYING SUCH OPTIONS.
You understand that, during any period in which the shares which may be
acquired pursuant to your option are subject to the provisions of Section 16 of
the Securities Exchange Act of 1934, as amended (and you yourself are also so
subject), in order for your transactions under the Plan to qualify for the
exemption from Section 16(b) provided by Rule 16b-3, a total of six months must
elapse between the grant of the option and the sale of shares underlying the
option.
- 2 -
<PAGE>
Please execute the Acceptance and Acknowledgement set forth below on the
enclosed copy of this Agreement and return it to the undersigned.
Very truly yours,
claimsnet.com, inc.
By:______________________
Name:
Title:
- 3 -
<PAGE>
ACCEPTANCE AND ACKNOWLEDGEMENT
I, a resident of the State of __________, accept the stock option
described above granted under the claimsnet.com, inc. 1997 Stock Option Plan,
and acknowledge receipt of a copy of this Agreement, including a copy of the
Plan. I have read and understand the Plan, including the provisions of Section 8
thereof.
Dated: _____________________
_______________________________________ ___________________________________
Taxpayer I.D. Number Signature
By his or her signature below, the spouse of the Optionee, if such
Optionee is legally married as of the date of such Optionee's execution of this
Agreement, acknowledges that he or she has read this Agreement and the Plan and
is familiar with the terms and provisions thereof, and agrees to be bound by all
the terms and conditions of this Agreement and the Plan.
Dated: _____________________
_________________________
Spouse's Signature
_________________________
Printed Name
- 4 -
<PAGE>
NOTICE OF EXERCISE
The undersigned, pursuant to a(n) [incentive] [nonqualified] Stock Option
Letter Agreement (the "Agreement") between the undersigned and claimsnet.com,
inc. (the "Company"), hereby irrevocably elects to exercise purchase rights
represented by the Agreement, and to purchase thereunder _______ shares (the
"Shares") of the Company's common stock, $.10 par value ("Common Stock"),
covered by the Agreement and herewith makes payment in full therefor.
1. If the sale of the Shares and the resale thereof has not, prior to the
date hereof, been registered pursuant to a registration statement filed and
declared effective under the Securities Act of 1933, as amended (the "Act"), the
undersigned hereby agrees, represents, and warrants that:
(a) the undersigned is acquiring the Shares for his or her own
account (and not for the account of others), for investment and not with a view
to the distribution or resale thereof;
(b) By virtue of his or her position, the undersigned has access to
the same kind of information which would be available in a registration
statement filed under the Act;
(c) the undersigned is a sophisticated investor;
(d) the undersigned understands that he or she may not sell or
otherwise dispose of the Shares in the absence of either (i) a registration
statement filed under the Act or (ii) an exemption from the registration
provisions thereof; and
(e) The certificates representing the Shares may contain a legend to
the effect of subsection (d) of this Section 1.
2. If the sale of the Shares and the resale thereof has been registered
pursuant to a registration statement filed and declared effective under the Act,
the undersigned hereby represents
- 1 -
<PAGE>
and warrants that he or she has received the applicable prospectus and a copy of
the most recent annual report, as well as all other material sent to
stockholders generally.
3. The undersigned acknowledges that the number of shares of Common Stock
subject to the Agreement is hereafter reduced by the number of shares of Common
Stock represented by the Shares.
Very truly yours,
____________________________________
(type name under signature line)
Social Security No. ________________
Address: ___________________________
____________________________________
- 2 -
<PAGE>
AGREEMENT AND PLAN OF MERGER
BY
AND AMONG
MEDICA SYSTEMS, INC.,
THE STOCKHOLDERS OF MEDICA SYSTEMS, INC.
AND
AMERICAN NET CLAIMS, INC.
AND
ANC HOLDINGS, INC.,
a wholly owned subsidiary of
AMERICAN NET CLAIMS, INC.
June 2, 1997
<PAGE>
Table of Contents
Page
1. Definitions ......................................................... 1
2. Basic Transaction ................................................... 4
3. Representations and Warranties of the Target and the Stockholders ... 5
4. Representations and Warranties of the Parent and Sub ................ 16
5. Covenants ........................................................... 17
6. Conditions to Obligation to Close ................................... 19
7. Indemnity Agreements ................................................ 21
8. Miscellaneous ....................................................... 24
<PAGE>
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (the "Agreement") is entered into as
hereinafter described, 1997, by and among American Net Claims, Inc., a Texas
corporation (the "Parent"), ANC Holdings, Inc., a wholly owned subsidiary of
American Net Claims, Inc, a Texas Corporation (the "Sub"), Medica Systems, Inc.,
a Texas corporation (the "Target"), Randall S. Lindner, individually, Michelle
C. Lindner, individually, and K. Scott Spurlock, individually (the
"Stockholders", or individually, a "Stockholder"). The Parent, the Sub, the
Target and the Stockholders are referred to collectively herein as the
"Parties."
This Agreement contemplates a tax-free merger of the Target with and into
the Sub in a reorganization pursuant to Code ss. 368(a)(2)(D). The Stockholders
will receive capital stock in the Parent in exchange for their capital stock in
the Target. The Parties expect that the Merger will further certain of their
business objectives, including, without limitation, the elimination of the
relationship of the Parent and the Target as licensor and licensee, vendor and
vendee, etc., the creation of a synergistic relationship whereby the Target will
have greater access to the markets tapped by the Parent for its products and
services, the Parent, through the Sub will have the ownership interest in
certain medical claims software which it has heretofore had to license and the
combination of resources which, without the Merger would require the Parent, the
Sub and/or the Target to purchase certain goods and services at a considerable
premium.
Now, therefore, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, the Parties agree as follows.
1. Definitions.
a. "Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.
b. "Cash Payment" has the meaning set forth in Article 2(b) below.
c "Certificate of Merger" has the meaning set forth in Article 2(g)
below.
d. "Closing" has the meaning set forth in Article 2(f) below.
e. "Closing Date" has the meaning set forth in Article 2(f) below.
f. "Code" means the Internal Revenue Code of 1986, as amended.
AGREEMENT AND PLAN OF MERGER PAGE 1
<PAGE>
g. "Confidential Information" means any information concerning the
businesses and affairs of the Target and its Subsidiaries, if any, that is not
already generally available to the public.
h. "Contingent Cash Payments" has the meaning set forth in Article 2(c)
below.
i. "Contingent Note(s)" has the meaning set forth in Article 2(d) below.
j. "Conversion Ratio" has the meaning set forth in Article 2(f)(v) below.
k. "Disclosure Schedule" has the meaning set forth in Article 3 below.
l. "Dissenting Share" means any Target Share which any stockholder who or
which has exercised his or its appraisal rights under the Texas Business
Corporation Act holds of record.
m. "Effective Time" has the meaning set forth in Article 2(d)(i) below.
n. "Environmental, Health and Safety Requirements" shall mean all federal,
state, local and foreign statutes, regulations, ordinances and similar
provisions having the force or effect of law, all judicial and administrative
orders and determinations, and all common law concerning public health and
safety, worker health and safety, and pollution or protection of the
environment, including without limitation all those relating to the presence,
use, production, generation, handling, transportation, treatment, storage,
disposal, distribution, labeling, testing, processing, discharge, release,
threatened release, control, or cleanup of any hazardous materials, substances
or wastes, chemical substances or mixtures, pesticides, pollutants,
contaminants, toxic chemicals, petroleum products or byproducts, asbestos,
polychlorinated biphenyls, noise or radiation.
o. "GAAP" means United States generally accepted accounting principles as
in effect from time to time.
p. "IPO" means the first sale of any securities issued by the Parent
pursuant to a registration statement filed with the SEC or any state agency. For
purposes of Article 2(c) and (d) of this Agreement pertaining to the Contingent
Cash Payments and the Contingent Notes, an IPO shall be deemed to have occurred
at the time that any registration statement filed by the Parent with the SEC is
declared effective or the Parent issues any of its securities in violation of
the requirements of the Securities Act or the securities laws of any state. The
parties anticipate that an IPO will occur pursuant to the letter of intent dated
January 27, 1997, (the "Letter of Intent") whereby National Securities
Corporation has agreed to act as the Managing Underwriter for the initial public
offering of the Parent's common capital stock pursuant to the terms and subject
to the conditions contained therein, a copy of which letter of intent the Target
and the Stockholders acknowledge as having been received by them.
q. "IRS" means the Internal Revenue Service.
AGREEMENT AND PLAN OF MERGER PAGE 2
<PAGE>
r. "Knowledge" means actual knowledge after reasonable investigation.
s. "Merger" has the meaning set forth in Article 2(a) below.
t. "Most Recent Fiscal Quarter End" has the meaning set forth in Article
3(f) below.
u. "Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).
v. "Parent" has the meaning set forth in the preface above.
w. "Parent Share(s)" means any share of the Common Stock, no par value per
share, of the Parent.
x. "Party" has the meaning set forth in the preface above.
y. "Person" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization, or a governmental entity (or any department, agency, or political
subdivision thereof).
z. "Requisite Sub Stockholder Approval" means the affirmative vote of the
holders of two thirds of the Parent Shares in favor of this Agreement and the
Merger.
aa. "Requisite Stockholder Approval" means the affirmative vote of the
holders of two thirds of the Target Shares in favor of this Agreement and the
Merger.
bb. "SEC" means the Securities and Exchange Commission.
cc. "Securities Act" means the Securities Act of 1933, as amended.
dd. "Securities Exchange Act" means the Securities Exchange Act of 1934,
as amended.
ee. Security Interest means any mortgage, pledge, lien, encumbrance,
charge, or other security interest, other than liens for taxes not yet due and
payable or for taxes that the taxpayer is contesting in good faith through
appropriate proceedings, and for which the taxpayer has set up the appropriate
reserve.
ff. "Stockholder" means any Person who or which holds any Target Shares.
gg. "Sub" has the meaning set forth in the preface above.
AGREEMENT AND PLAN OF MERGER PAGE 3
<PAGE>
hh. "Subsidiary" means any corporation with respect to which a specified
Person (or a Subsidiary thereof) owns a majority of the common stock or has the
power to vote or direct the voting of sufficient securities to elect a majority
of the directors.
ii. "Surviving Corporation" has the meaning set forth in Article 2(a)
below.
jj. "Target" has the meaning set forth in the preface above.
kk. "Target Share" means any share of the Common Stock, no par value per
share, of the Target.
ll. "Texas Business Corporation Act" means the general corporation law of
the State of Texas, as amended.
2. Basic Transaction.
a. The Merger. On and subject to the terms and conditions of this
Agreement, the Target will merge with and into the Sub (the "Merger") at the
Effective Time. The Sub shall be the corporation surviving the Merger (the
"Surviving Corporation").
b. The Cash Payment. In addition to the exchange of Parent Shares for the
Target Shares as described below and the other consideration as provided for in
this Article 2., the Stockholders shall be paid a Cash Payment of ONE HUNDRED
THOUSAND AND NO/100 DOLLARS ($100,000.00) on the Closing Date, paid as follows:
i. To Randall S. Lindner - $69,860.00;
ii. To Michelle C. Lindner - $2,740.00; and
iii. To K. Scott Spurlock - $27,400.00.
c. The Contingent Cash Payments. In addition to the exchange of Parent
Shares for the Target Shares as described below and the other consideration as
provided for in this Article 2., the Stockholders shall be paid Contingent Cash
Payments of ONE HUNDRED TWENTY-FIVE THOUSAND AND NO/100 DOLLARS ($125,000.00) on
or before SIXTY (60) days after the first IP0 of the Parent. Notwithstanding the
foregoing, in the event that an IP0 has not occurred within FIVE (5) years of
the Effective Time, the Target and the Stockholders understand and agree that
the Stockholders will have no right or claim to, and will not be entitled to
receive the $1 25,000.00 Contingent Cash Payments. If and when the Contingent
Cash Payments are to be made, they will be paid as follows:
AGREEMENT AND PLAN OF MERGER PAGE 4
<PAGE>
i. To Randall S. Lindner - $87,325.00;
ii. To Michelle C. Lindner - $3,425.00; and
iii. To K. Scott Spurlock - $34,250.00.
d. The Contingent Notes. In addition to the exchange of Parent Shares for
the Target Shares as described below and the other consideration as provided for
in this Article 2., on the Closing Date, the Stockholders shall receive
Contingent Notes in the collective principal sum of TWO HUNDRED TWENTY-FIVE
THOUSAND AND NO/l00 DOLLARS ($225,000.00) in the form attached hereto as
Exhibits "A", "Al" and "A2". Notwithstanding the foregoing, the parties
understand and agree that in the event that an IPO does not occur within FIVE
(5) years of the Effective Time, the Target and the Stockholders understand and
agree that the Contingent Notes will be of no value, void and of no force and
effect.
e. Payments With Respect to Accounts Receivable. In addition to the Parent
Shares for the Target Shares as described below and the other consideration as
provided for in this Article 2., the Stockholders shall be paid FIFTY PERCENT
(50%) of all amounts, if any, collected relating to the accounts receivable of
the Target existing on the Closing Date. The Stockholders shall be afforded the
right to inspect the accounts receivable records of the Sub for a period of
EIGHTEEN (18) months after the Closing Date to monitor the amounts, if any,
collected relating to the accounts receivable of the Target existing on the
Closing Date. The Parent and Sub shall use good faith efforts in attempting to
collect all such receivables and will not release, cancel, or in any way modify
any such receivable or portion thereof, unless there is a valid complaint by the
customer to which the receivable related. The amounts, if any, collected
relating to the accounts receivable of the Target shall be paid to the
Stockholders within thirty (30) days of the collection of those accounts
receivable and shall be paid to the Stockholders in the following proportions:
i. To Randall S. Lindner -69.86%;
ii. To Michelle C. Lindner - 2.74%; and
iii. To K. Scott Spurlock - 27.4%.
f. The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of McKinley Ringer
Zeiger, PC., 10440 North Central Expressway, Suite 1400, Dallas, Texas 75231,
commencing at 9:00 a.m. local time on the fifth business day following the
satisfaction of, or waiver of, all conditions to the obligations of the Parties
to consummate the transactions contemplated hereby (other than conditions with
respect to actions the respective Parties will take at the Closing itself) or
such other date as the Parties may mutually determine (the "Closing Date");
provided however, that the Closing Date shall be no later than May 30, 1997.
AGREEMENT AND PLAN OF MERGER PAGE 5
<PAGE>
g. Actions at the Closing. At the Closing, (i) the Target will deliver to
the Sub the various certificates, instruments, and documents referred to in
Article 6(a) below, (ii) the Parent and/or the Sub will deliver to the Target
the various certificates, instruments, and documents referred to in Article 6(b)
below and (iii) the Parent, Sub and the Target will cause to be filed with the
Secretary of State of the State of Texas a Certificate of Merger in the form
attached hereto as Exhibit "B" (the "Certificate of Merger").
h. Effect of Merger.
i. General. The Merger shall become effective at the time (the
"Effective Time") the Parent, Sub and the Target file the Certificate of
Merger with the Secretary of State of the State of Texas. The Merger shall
have the effect set forth in the Texas Business Corporation Act. The
Surviving Corporation may, at any time after the Effective Time, take any
action (including executing and delivering any document) in the name and
on behalf of either the Parent, Sub and/or the Target in order to carry
out and effectuate the transactions contemplated by this Agreement.
ii. Certificate of Incorporation, Bylaws, Directors and Officers.
The Certificate of Incorporation and the Bylaws of the Sub in effect as of
the Effective Time will remain the Certificate of Incorporation and the
Bylaws of the Surviving Corporation without any modification or amendment
by reason of the Merger. The Directors and the Officers of the Sub shall
retain their respective positions and terms of office without any
modification by reason of the Merger.
iii. Conversion of Target Shares. At and as of the Effective Time,
each Target Share shall be converted into 410.9589041 Parent Shares (the
ratio of 410.9589041 Parent Shares to one Target Share is referred to
herein as the "Conversion Ratio"). No Target Share shall be deemed to be
outstanding or to have any rights other than those 730 presently issued
and outstanding in the hands of the Stockholders.
iv. Parent Shares. Each Parent Share issued and outstanding at and
as of the Effective Time will remain issued and outstanding.
i. Transfer of the Parent Shares. Immediately after the Effective Time,
(A) the Parent will furnish to each of the Stockholders, a stock certificate
representing that number of Parent Shares equal to the product of (I) the
Conversion Ratio times (II) the number of outstanding Target Shares owned by
each Stockholder and (B) Each Stockholder will surrender his/her Target Shares
to the Parent for cancellation.
j. Closing of Transfer Records. Upon the signing of this Agreement and
pending the Effective Time, transfers of Target Shares shall not be made on the
stock transfer books of the Target.
AGREEMENT AND PLAN OF MERGER PAGE 6
<PAGE>
3. Representations and Warranties of the Target and the Stockholders. Each of
the Target and the Stockholders, jointly and severally, represents and warrants
to the Parent and the Sub that the statements contained in this Article 3 are
correct and complete as of the date of this Agreement and will be correct and
complete as of the Closing Date (as though made then and as though the Closing
Date were substituted for the date of this Agreement throughout this Article 3),
except as set forth in the disclosure schedule accompanying this Agreement and
initialed by the Parties (the "Disclosure Schedule"). The Disclosure Schedule
will be arranged in paragraphs corresponding to the lettered and numbered
paragraphs contained in this Article 3.
a. Organization of the Target. The Target is a corporation duly organized,
validly existing, and in good standing under the laws of the jurisdiction of its
incorporation. The Target has no Subsidiaries.
b. Authorization of Transaction. Each of the Target and the Stockholders
has full power and authority (including full corporate power and authority) to
execute and deliver this Agreement and to perform its obligations hereunder.
Without limiting the generality of the foregoing, the board of directors of the
Target and the Stockholders have duly authorized the execution, delivery, and
performance of this Agreement by the Target. This Agreement constitutes the
valid and legally binding obligation of the Target and the Stockholders,
enforceable in accordance with its terms and conditions.
c. Non-contravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby will (i)
violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which any of the Target and/or the Stockholders
is subject or any provision of the charter or bylaws of any of the Target or
(ii) conflict with, result in a breach of, constitute a default under, result in
the acceleration of, create in any party the right to accelerate, terminate,
modify, or cancel, or require any notice under any agreement, contract, lease,
license, instrument, or other arrangement to which any of the Target and/or the
Stockholders is a party or by which it or they is/are bound or to which any of
its assets is subject (or result in the imposition of any Security Interest upon
any of its assets), except where the violation, conflict, breach, default,
acceleration, termination, modification, cancellation, failure to give notice,
or Security Interest would not have a material adverse effect on the business,
financial condition, operations, results of operations, or future prospects of
the Target or on the ability of the Parties to consummate the transactions
contemplated by this Agreement. None of the Stockholders or the Target needs to
give any notice to, make any filing with, or obtain any authorization, consent,
or approval of any government or governmental agency in order for the Parties to
consummate the transactions contemplated by this Agreement, except where the
failure to give notice, to file, or to obtain any authorization, consent, or
approval would not have a material adverse effect on the business, financial
condition, operations, results of operations, or future prospects of the Target
or on the ability of the Parties to consummate the transactions contemplated by
this Agreement.
AGREEMENT AND PLAN OF MERGER PAGE 7
<PAGE>
d. Brokers' Fees. The Target and the Stockholders each has no liability or
obligation to pay any fees or commissions to any broker, finder, or agent with
respect to the transactions contemplated by this Agreement for which the Parent
or the Sub could become liable or obligated.
e. Title to Assets. The Target has good and marketable title to, or a
valid leasehold interest in, the properties and assets used by it, located on
its premises, free and clear of all Security Interests, except for properties
and assets disposed of in the Ordinary Course of Business. Without limiting the
generality of the foregoing, the Target has good and marketable title to all of
the assets used by it, free and clear of any Security Interest or restriction on
transfer.
f. Subsidiaries. The Target has no Subsidiary.
g. Liabilities. The total liabilities of the Target at Closing will not
exceed $100,000. No representation or warranty is made as to the components of
such liabilities.
h. Events Subsequent to Most Recent Fiscal Year End. Since December 31,
1996, there has not been any material adverse change in the business, financial
condition, operations, results of operations, or future prospects of the Target
taken as a whole. Without limiting the generality of the foregoing, since that
date:
i. the Target has not sold, leased, transferred, or assigned any
material assets, tangible or intangible, outside the ordinary course of
business;
ii. the Target has not entered into any material agreement,
contract, lease, or license outside the ordinary course of business;
iii. no party (including any of the Target) has accelerated,
terminated, made material modifications to, or canceled any material
agreement, contract, lease, or license to which any of the Target is a
party or by which any of them is bound;
iv. the Target has not imposed any Security Interest upon any of its
assets, tangible or intangible;
v. the Target has not made any material capital expenditures outside
the Ordinary Course of Business;
vi. the Target has not made any material capital investment in, or
any material loan to, any other Person outside the Ordinary Course of
Business;
vii. the Target has not created, incurred, assumed, or guaranteed
any indebtedness for borrowed money and capitalized lease obligations;
AGREEMENT AND PLAN OF MERGER PAGE 8
<PAGE>
viii. the Target has not granted any license or sublicense of any
material rights under or with respect to any Intellectual Property;
ix. there has been no change made or authorized in the charter or
bylaws of the Target;
x. the Target has not issued, sold, or otherwise disposed of any of
its capital stock, or granted any options, warrants, or other rights to
purchase or obtain (including upon conversion, exchange, or exercise) any
of its capital stock;
xi. Target has not declared, set aside, or paid any dividend or made
any distribution with respect to its capital stock (whether in cash or in
kind) or redeemed, purchased, or otherwise acquired any of its capital
stock;
xii. the Target has not experienced any material damage,
destruction, or loss (whether or not covered by insurance) to its
property;
xiii. the Target has not made any loan to, or entered into any other
transaction with, any of its directors, officers, and employees outside
the Ordinary Course of Business;
xiv. the Target has not entered into any employment contract or
collective bargaining agreement, written or oral, or modified the terms of
any existing such contract or agreement;
xv. the Target has not granted any increase in the base compensation
of any of its directors, officers, and employees outside the Ordinary
Course of Business;
xvi. the Target has not adopted, amended, modified, or terminated
any bonus, profit-sharing, incentive, severance, or other plan, contract,
or commitment for the benefit of any of its directors, officers, and
employees (or taken any such action with respect to any other Employee
Benefit Plan);
xvii. the Target has not made any other material change in
employment terms for any of its directors, officers, and employees; and
xviii. the Target has not committed to any of the foregoing.
i. Liabilities. The Target does not have any aggregate liabilities at the
date of this Agreement in excess of $100,000, provided that no representation or
warranty is made as to the components of such amount.
AGREEMENT AND PLAN OF MERGER PAGE 9
<PAGE>
j. Legal Compliance. To the knowledge of the Stockholders and the Target,
the Target has complied with all applicable laws (including rules, regulations,
codes, plans, injunctions, judgments, orders, decrees, rulings, and charges
thereunder) of federal, state, local, and foreign governments (and all agencies
thereof), and to the knowledge of the Stockholders no action, suit, proceeding,
hearing, investigation, charge, complaint, claim, demand, or notice has been
filed or commenced against the Target alleging any failure so to comply, except
where the failure to comply would not have a material adverse effect on the
business, financial condition, operations, results of operations, or future
prospects of the Target.
k. Tax Matters.
i. The Target has filed all Income Tax Returns that it was required
to file. All such Income Tax Returns were correct and complete in all
material respects. All Income Taxes owed by the Target (whether or not
shown on any Income Tax Return) have been paid. The Target currently is
not the beneficiary of any extension of time within which to file any
Income Tax Return.
ii. There is no material dispute or claim concerning any Income Tax
liability of the Target either (A) claimed or raised by any authority in
writing or (B) as to which any of the Stockholders and the directors and
officers of the Target has Knowledge.
iii. The Target has not waived any statute of limitations in respect
of Income Taxes or agreed to any extension of time with respect to an
Income Tax assessment or deficiency.
iv. The Target is not a collapsible corporation. The Target has not
been a United States real property holding corporation within the meaning
of Code ss.897(c)(2) during the applicable period specified in Code
ss.897(c)(1)(A)(ii). The Target is not a party to any tax allocation or
sharing agreement.
v. The unpaid Income Taxes of the Target (A) did not, as of the Most
Recent Fiscal Month End, exceed by any material amount the reserve for
Income Tax liability (rather than any reserve for deferred taxes
established to reflect timing differences between book and tax income) set
forth on the face of the Most Recent Balance Sheet (rather than in any
notes thereto) and (B) will not exceed by any material amount that reserve
as adjusted for operations and transactions through the Closing Date in
accordance with the past custom and practice of the Target in filing their
Income Tax Returns.
l. Real Property. The Target owns no interest in any real property except
for its lease of its business premises, a copy of which is attached hereto as
Exhibit "D". With respect to the lease in Exhibit "D":
AGREEMENT AND PLAN OF MERGER PAGE 10
<PAGE>
(1) the lease is legal, valid, binding, enforceable, and in
full force and effect in all material respects;
(2) no party to the lease is in material breach or default,
and no event has occurred which, with notice or lapse of time, would
constitute a material breach or default or permit termination,
modification, or acceleration thereunder;
(3) no party to the lease has repudiated any material
provision thereof;
(4) there are no material disputes, oral agreements, or
forbearance programs in effect as to the lease;
(5) the Target has not assigned, transferred, conveyed,
mortgaged, deeded in trust, or encumbered any interest in the
leasehold; and
(6) all facilities leased thereunder have received all
approvals of governmental authorities (including material licenses
and permits) required in connection with the operation thereof, and
have been operated and maintained in accordance with applicable
laws, rules, and regulations in all material respects.
m. Intellectual Property.
i. The Target has not interfered with, infringed upon,
misappropriated, or violated any material Intellectual Property rights of
third parties in any material respect, and none of the Stockholders, the
directors and/or officers of the Target has ever received any charge,
complaint, claim, demand, or notice alleging any such interference,
infringement, misappropriation, or violation (including any claim that any
of the Target must license or refrain from using any Intellectual Property
rights of any third party). To the Knowledge of any of the Stockholders
and the directors and officers of the Target, no third party has
interfered with, infringed upon, misappropriated, or violated any material
Intellectual Property rights of any of the Target in any material respect.
ii. ss.3(m)(ii) of the Disclosure Schedule identifies each patent or
registration which has been issued to any of the Target with respect to
any of its Intellectual Property, identifies each pending patent
application or application for registration which any of the Target has
made with respect to any of its Intellectual Property, and identifies each
material license, agreement, or other permission which any of the Target
has granted to any third party with respect to any of its Intellectual
Property (together with any exceptions). The Target has delivered to the
Parent correct and complete copies of all such patents, registrations,
applications, licenses, agreements, and permissions (as amended to date).
ss.3(m)(ii) of the Disclosure Schedule also identifies each material trade
name or unregistered trademark used by any of the Target in connection
with any of its businesses. With respect
AGREEMENT AND PLAN OF MERGER PAGE 11
<PAGE>
to each item of Intellectual Property required to be identified in
ss.3(m)(ii) of the Disclosure Schedule:
(1) the Target possess all right, title, and interest in and
to the item, free and clear of any Security Interest, license, or
other restriction;
(2) the item is not subject to any outstanding injunction,
judgment, order, decree, ruling, or charge;
(3) no action, suit, proceeding, hearing, investigation,
charge, complaint, claim, or demand is pending or, to the Knowledge
of any of the Stockholders, the directors and officers of the
Target, is threatened which challenges the legality, validity,
enforceability, use, or ownership of the item; and
(4) the Target has not ever agreed to indemnify any Person for
or against any interference, infringement, misappropriation, or
other conflict with respect to the item.
iii. ss.3(m)(iii) of the Disclosure Schedule identifies each
material item of Intellectual Property that any third party owns and that
the Target uses pursuant to license, sublicense, agreement, or permission.
The Target has delivered to the Parent correct and complete copies of all
such licenses, sublicenses, agreements, and permissions (as amended to
date). With respect to each such item of used Intellectual Property
required to be identified in ss.3(m)(iii) of the Disclosure Schedule:
(1) the license, sublicense, agreement, or permission covering
the item is legal, valid, binding, enforceable, and in full force
and effect in all material respects;
(2) no party to the license, sublicense, agreement, or
permission is in material breach or default, and no event has
occurred which with notice or lapse of time would constitute a
material breach or default or permit termination, modification, or
acceleration thereunder;
(3) no party to the license, sublicense, agreement, or
permission has repudiated any material provision thereof; and
(4) the Target has not granted any sublicense or similar right
with respect to the license, sublicense, agreement, or permission.
n. Tangible Assets. The buildings, machinery, equipment, and other
tangible assets that the Target and its Subsidiaries own and lease are free from
material defects (patent and latent), have
AGREEMENT AND PLAN OF MERGER PAGE 12
<PAGE>
been maintained in accordance with normal industry practice, and are in good
operating condition and repair (subject to normal wear and tear).
o. Contracts. ss.3(o) of the Disclosure Schedule contains every material
written contract to which the Target is a party, and/or any material oral or
written contract to which the Target is a party regarding a partnership or joint
venture, any agreement (or group of related agreements) under which it has
created, incurred, assumed, or guaranteed any material indebtedness for borrowed
money, or any material capitalized lease obligation, or under which it has
imposed a Security Interest on any of its assets, tangible or intangible, any
agreement concerning confidentiality or non-competition, any agreement involving
any of the Stockholders and their Affiliates (including any buy-sell agreement),
any profit sharing, stock option, stock purchase, stock appreciation, deferred
compensation, severance, or other material plan or arrangement for the benefit
of its current or former directors, officers, and employees, any collective
bargaining agreement, any agreement for the employment of any individual on a
full-time, part-time, consulting, or other basis providing material severance
benefits, any agreement under which it has advanced or loaned any amount to any
of its directors, officers, and employees outside the Ordinary Course of
Business, or any agreement under which the consequences of a default or
termination could have a material adverse effect on the business, financial
condition, operations, results of operations, or future prospects of the Target.
"Material" for the purposes of this section, shall be deemed to mean any item
requiring the expenditure of in excess of THREE THOUSAND AND NO/l00 DOLLARS
($3,000.00) per month, or an annual expenditure of in excess of THIRTY THOUSAND
AND NO/100 DOLLARS ($30,000.00).
The Target has delivered to the Parent a correct and complete copy of each
written agreement listed in ss.3(o) of the Disclosure Schedule (as amended to
date) with respect to each such agreement: (A) the agreement is legal, valid,
binding, enforceable, and in full force and effect in all material respects; (B)
no party is in material breach or default, and no event has occurred which with
notice or lapse of time would constitute a material breach or default, or permit
termination, modification, or acceleration, under the agreement; and (C) no
party has repudiated any material provision of the agreement.
p. Notes and Accounts Receivable. All accounts receivable of the Target
are reflected on the books and records, are valid receivables subject to no
set-off or counterclaims, are current and collectible, and to the knowledge of
Stockholders will be collected in accordance with their terms at their recorded
amounts, subject to only a reserve for bad debts of $30,000.
q. Powers of Attorney. To the Knowledge of any of the Stockholders, the
directors and officers of the Target and its Subsidiaries, there are no
outstanding powers of attorney executed on behalf of any of the Target.
r. Insurance. ss. Target maintains no insurance policies.
AGREEMENT AND PLAN OF MERGER PAGE 13
<PAGE>
s. Litigation. The Target is not subject to any outstanding injunction,
judgment, order, decree, ruling, or charge or (ii) is a party or, to the
Knowledge of any of the Stockholders, the directors and officers of the Target,
is threatened to be made a party to any action, suit, proceeding, hearing, or
investigation of, in, or before any court or quasi-judicial or administrative
agency of any federal, state, local, or foreign jurisdiction or before any
arbitrator.
t. Product Warranty. To the Knowledge of the Stockholders and the Target,
substantially all of the products manufactured, sold, leased, and delivered by
the Target have conformed in all material respects with all applicable
contractual commitments and all express and implied warranties, and the Target
does not have any material liability (whether known or unknown, whether asserted
or unasserted, whether absolute or contingent, whether accrued or unaccrued,
whether liquidated or unliquidated, and whether due or to become due) for
replacement or repair thereof or other damages in connection therewith, subject
only to the reserve for product warranty claims set forth on the face of the
Most Recent Balance Sheet (rather than in any notes thereto) as adjusted for
operations and transactions through the Closing Date in accordance with the past
custom and practice of the Target. No products manufactured, sold, leased, and
delivered by the Target are subject to any terms or conditions which are out of
the Ordinary Course of Business.
u. Product Liability. To the Knowledge of the Stockholders and the Target,
the Target does not have any material liability (whether known or unknown,
whether asserted or unasserted, whether absolute or contingent, whether accrued
or unaccrued, whether liquidated or unliquidated, and whether due or to become
due) arising out of any injury to individuals or property as a result of the
ownership, possession, or use of any product manufactured, sold, leased, or
delivered by the Target.
v. Employees. To the Knowledge of any of the Stockholders and the
directors and officers of the Target, no executive, key employee, or significant
group of employees plans to terminate employment with any of the Target and its
Subsidiaries during the next 12 months. The Target is not a party to or bound by
any collective bargaining agreement, nor has experienced any strike or material
grievance, claim of unfair labor practices, or other collective bargaining
dispute. The Target has not committed any material unfair labor practice. None
of the Stockholders and the directors and officers of the Target has any
Knowledge of any organizational effort presently being made or threatened by or
on behalf of any labor union with respect to employees of any of the Target.
w. Employee Benefits. The Target has no Employee Benefit Plan or to which
the Target contributes or has any obligation to contribute and the Target has
never maintained any qualified or non-qualified Employee Benefit Plan.
x. Guaranties. The Target is not a guarantor or otherwise is responsible
for any liability or obligation (including indebtedness) of any other Person.
AGREEMENT AND PLAN OF MERGER PAGE 14
<PAGE>
y. Environmental, Health, and Safety Matters.
i. To the knowledge of the Stockholders, the Target and its
Affiliates has complied and is in compliance, in each case in all material
respects, with all Environmental, Health, and Safety Requirements.
ii. Without limiting the generality of the foregoing, to the
knowledge of the Stockholders, each of the Target and its respective
Affiliates, has obtained, has complied, and is in compliance with, in each
case in all material respects, all material permits, licenses and other
authorizations that are required pursuant to Environmental, Health, and
Safety Requirements for the occupation of its facilities and the operation
of its business.
iii. The Target and its respective Affiliates has not received any
written or oral notice, report or other information regarding any actual
or alleged material violation of Environmental, Health, and Safety
Requirements, or any material liabilities or potential material
liabilities (whether accrued, absolute, contingent, unliquidated or
otherwise), including any material investigatory, remedial or corrective
obligations, relating to any of them or its facilities arising under
Environmental, Health, and Safety Requirements.
iv. None of the following exists at any property or facility owned
or operated by the Target: (1) underground storage tanks, (2)
asbestos-containing material in any friable and damaged form or condition,
(3) materials or equipment containing polychlorinated biphenyls, or (4)
landfills, surface impoundments, or disposal areas.
v. The Target, or any or its Affiliates has not treated, stored,
disposed of, arranged for or permitted the disposal of, transported,
handled, or released any substance, including without limitation any
hazardous substance, or owned or operated any property or facility (and no
such property or facility is contaminated by any such substance) in a
manner that has given or would give rise to material liabilities,
including any material liability for response costs, corrective action
costs, personal injury, property damage, natural resources damages or
attorney fees, pursuant to the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended ("CERCLA") or the Solid
Waste Disposal Act, as amended ("SWDA") or any other Environmental,
Health, and Safety Requirements.
vi. Neither this Agreement nor the consummation of the transaction
that is the subject of this Agreement will result in any material
obligations for site investigation or cleanup, or notification to or
consent of government agencies or third parties, pursuant to any of the
so-called "transaction-triggered" or "responsible property transfer"
Environmental, Health, and Safety Requirements.
AGREEMENT AND PLAN OF MERGER PAGE 15
<PAGE>
z. Certain Business Relationships With the Target. None of the
Stockholders and their Affiliates has been involved in any material business
arrangement or relationship with any of the Target within the past 12 months,
and none of the Stockholders and their Affiliates owns any material asset,
tangible or intangible, which is used in the business of the Target.
aa. Disclosure. The representations and warranties contained in this
Article 3 do not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements and
information contained in this Article 3 not misleading.
bb. Investment. Each of the Target and the Stockholders (i) understands
that the Parent Shares and the Contingent Notes have not been, and will not be,
registered under the Securities Act, or under any state securities laws, and are
being offered and sold in reliance upon federal and state exemptions for
transactions not involving any public offering, (ii) is acquiring the Parent
Shares and the Contingent Notes solely for the Stockholders' own account for
investment purposes, and not with a view to the distribution thereof, (iii) is a
sophisticated investor with knowledge and experience in business and financial
matters, (iv) has received certain information concerning the Parent and has had
the opportunity to obtain additional information as desired in order to evaluate
the merits and the risks inherent in holding the Parent Shares and the
Contingent Notes and (v) is able to bear the economic risk and lack of liquidity
inherent in holding the Parent Shares and the Contingent Notes.
cc. Continuity of Stockholder Interests. No Stockholder has any present
plan, intention, or arrangement to dispose of any of the Parent Shares received
in the merger if such disposition would reduce the fair value of the Parent
Shares (with such fair value measured as of the Effective Date) retained by the
Stockholder to an amount less than Sixty Percent (60) percent of the fair value
of all consideration received by the Stockholder pursuant to the Merger. In
addition, the Stockholders represent and warrant, covenant and agree that the
Stockholders as a group will not dispose of any of the Parent Shares received in
the merger within eighteen (18) months of the Merger if such disposition would
reduce the aggregate fair value of the Parent Shares (with such fair value
measured as of the Effective Date) retained by the Stockholders to an amount
less than Sixty Percent (60) of the aggregate fair value of the all
consideration received by the Stockholders pursuant to the Merger, unless the
Stockholders obtain an opinion of counsel reasonably satisfactory to the Parent
and Sub that such transfer will not violate the continuity of shareholder
interest requirement set forth in Reg. ss. 1.368-1. Any Stockholder wishing to
dispose of any Parent Shares received in the Merger that are subject to the
limit of this section 3(cc) shall provide written notice to Parent, not less
than 60 days prior to the intended date of disposition, specifying the number of
Parent Shares of which the Stockholder proposes to dispose.
dd. The Target and the Stockholders understand and agree that the Parent
Shares received pursuant to the transactions contemplated by this Agreement will
not be registered for resale under the Securities Act of 1933 (the "Securities
Act"). As such, these shares will be subject to resale restrictions as set forth
in Rule 144 of the Securities Act and certain other resale limitations as
provided for in this Agreement.
AGREEMENT AND PLAN OF MERGER PAGE 16
<PAGE>
4. Representations and Warranties of the Parent and Sub. The Parent and Sub each
represents and warrants to the Target that the statements contained in this
Article 4 are correct and complete as of the date of this Agreement and will be
correct and complete as of the Closing Date (as though made then and as though
the Closing Date were substituted for the date of this Agreement throughout this
Article 4), except as set forth in the Disclosure Schedule. The Disclosure
Schedule will be arranged in paragraphs corresponding to the numbered and
lettered paragraphs contained in this Article 4.
a. Organization. The Sub is a corporation duly organized, validly
existing, and in good standing under the laws of the jurisdiction of its
incorporation.
b. Capitalization. As of the Effective Date, the entire authorized capital
stock of the Parent shall consist of FORTY-FIVE MILLION (45,000,000) having no
par value, of which SEVEN MILLION FIVE HUNDRED THOUSAND (7,500,000) Parent
Shares will be then issued and outstanding and no Parent Shares will be then
held in treasury. As of the Effective Date, the Parent will have FIVE MILLION
(5,000,000) authorized shares of preferred capital stock, of which none will be
outstanding or held in treasury. As of the Effective Date, SEVEN HUNDRED FIFTY
THOUSAND (750,000) Parent Shares will be reserved for an incentive stock option
plan for employees, officers, directors, and consultants of the Company to
purchase, with such options to be granted at the sole discretion of the Board of
Directors. None of the 750,000 shares referenced above has been issued to or
reserved for and employee, officer, director or consultant as of the Closing
Date. All of the Parent Shares to be issued in the Merger have been duly
authorized and, upon consummation of the Merger, will be validly issued, fully
paid, and nonassessable. At the Closing Date the Parent Shares received by the
Stockholders pursuant to this Agreement shall constitute no less than 3.84615%
of the issued and outstanding capital stock of the Parent. At the date hereof
and at the Closing Date the Parent will not have any shares of preferred stock
outstanding or any options, warrants, conversion rights, subscription rights, or
any rights of any nature whatsoever to acquire, in any way, common stock or
preferred stock of the Parent, except as described in the Letter of Intent.
c. Authorization of Transaction. The Parent and Sub each has full power
and authority (including full corporate power and authority) to execute and
deliver this Agreement and to perform its obligations hereunder. This Agreement
constitutes the valid and legally binding obligation of the Parent and Sub,
enforceable in accordance with its terms and conditions.
d. Non-contravention. To the Knowledge of any director or officer of the
Parent and Sub, neither the execution and the delivery of this Agreement, nor
the consummation of the transactions contemplated hereby, will (i) violate any
constitution, statute, regulation, rule, injunction, judgment, order, decree,
ruling, charge, or other restriction of any government, governmental agency, or
court to which the Parent and Sub each is subject or any provision of the
charter or bylaws of the Parent or Sub or (ii) conflict with, result in a breach
of, constitute a default
AGREEMENT AND PLAN OF MERGER PAGE 17
<PAGE>
under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any
agreement, contract, lease, license, instrument or other arrangement to which
the Parent or Sub is a party or by which it is bound or to which any of its
assets is subject, except where the violation, conflict, breach, default,
acceleration, termination, modification, cancellation, or failure to give notice
would not have a material adverse effect on the ability of the Parties to
consummate the transactions contemplated by this Agreement. To the Knowledge of
any director or officer of the Parent and Sub, and other than in connection with
the applicable provisions of the Texas Business Corporation Act, the Securities
Exchange Act, the Securities Act, and the state securities laws, the Parent and
Sub each does not need to give any notice to, make any filing with, or obtain
any authorization, consent, or approval of any government or governmental agency
in order for the Parties to consummate the transactions contemplated by this
Agreement, except where the failure to give notice, to file, or to obtain any
authorization, consent, or approval would not have a material adverse effect on
the ability of the Parties to consummate the transactions contemplated by this
Agreement.
e. Brokers' Fees. The Parent and Sub each does not have any liability or
obligation to pay any fees or commissions to any broker, finder, or agent with
respect to the transactions contemplated by this Agreement for which any of the
Target and its Subsidiaries could become liable or obligated.
f. Continuity of Business Enterprise. It is the present intention of the
Parent and Sub each to continue at least one significant historic business line
of the Target, or to use at least a significant portion of the Target's historic
business assets in a business, in each case within the meaning of Reg.
ss.1.368-1(d).
g. Piggy-Back Registration Rights. The Parent Shares received pursuant to
the transactions contemplated by this Agreement will not be registered for
resale under the Securities Act and will not be included in the IPO. However,
subject to the restrictions contained in Article 3(cc), or as otherwise
restricted by this Agreement, the Parent will use its reasonable best efforts to
ensure that the Parent Shares received by the Target pursuant to the
transactions contemplated by this Agreement be included in any registration of
Parent Shares under the Securities Act which occurs after the date the IPO is
declared effective by the SEC, if any. The piggy-back registration rights hereby
granted shall be subject to the Stockholders furnishing such information
regarding themselves as shall be required to effect the registration of their
Parent Shares, the Stockholders entering into and performing the obligations
under an underwriting agreement, in usual and customary form satisfactory to the
Parent and the managing underwriter of such offering. Further, in the event any
Parent Shares of the Stockholders are included in a registration statement as
contemplated by this subsection, to the extent permitted by law, the
Stockholders and each of them will indemnify and hold harmless the Parent, each
of its directors, each of its officers who have signed the registration
statement, each person, if any, who controls the Parent, within the meaning of
the Securities Act, any underwriter and any other selling shareholder in such
registration statement or any of its directors or officers or any person which
controls any such selling shareholder against
AGREEMENT AND PLAN OF MERGER PAGE 18
<PAGE>
any losses, claims, damages or liabilities (jointly and severally) to which the
Parent or any such director, officer, controlling person or underwriter or
controlling person, or other selling shareholder, director, officer or
controlling person may become subject, under the Securities Act, the Securities
Exchange Act, or other federal or state law, insofar as such losses, claims,
damages, or liabilities (or actions in respect thereto) arise out of or are
based upon any of the following statements, omissions or violations
(collectively, a "Violation"):
i. any untrue statement or alleged untrue statement of a material
fact with respect to a Stockholder or that Stockholder's Parent Shares
contained in such registration statement, including any preliminary
prospectus or final prospectus contained therein or any amendments or
supplements thereto,
ii. the omission or alleged omission to state therein a material
fact with respect to a Stockholder or that Stockholder's Parent Shares
required to be stated therein, or necessary to make the statements therein
not misleading, or
iii. any violation or alleged violation by the Stockholder of the
Securities Act, the Securities Exchange Act, any state securities law or
any rule or regulation promulgated under the Securities Act, the
Securities Exchange Act or any state securities law;
in each case to the extent (and only to the extent) that such Violation occurs
in reliance upon and in conformity with written information furnished by such
Stockholder expressly for use in connection with such registration; and such
Stockholder will reimburse any legal or other expenses reasonably incurred by
the Parent or any such director, officer, controlling person, underwriting or
controlling person or other shareholder, officer, director or controlling person
in connection with investigating or defending such loss, claim, damage,
liability, or action.
Further, In the event any Parent Shares of the Stockholders are included in a
registration statement as contemplated by this subsection, to the extent
permitted by law, the Parent will indemnify and hold harmless the Stockholders
against any losses, claims, damages or liabilities (jointly and severally) to
which the Stockholders may become subject with respect to any (i) untrue
statement or alleged untrue statement of a material fact in the registration
statement or any preliminary or final prospectus; (ii) any omission or alleged
omission of a material fact required to make the statements contained in the
registration statement or any preliminary or final prospectus not misleading;
and (iii) any violation or alleged violation by the Parent of the Securities
Act, the Securities Exchange Act, any state securities law or any rule or
regulation promulgated under the Securities Act, the Securities Exchange Act or
any state securities law. The Parent will reimburse any legal or other expenses
reasonably incurred by any Stockholder in connection with investigating or
defending such loss, claim, damage, liability, or action. In addition, the
Parent shall at its own expense prepare an file all required pre-effective and
post-effective amendments and supplements and revised propsectuses that the SEC
may require and it shall furnish a reasonable number of preliminary, final,
supplemental and revised prospectuses to the Stockholders.
AGREEMENT AND PLAN OF MERGER PAGE 19
<PAGE>
h. Post Closing Obligations with Respect to an IPO. The Parent and the Sub
shall use reasonable business efforts to pursue an IPO after the Closing for a
period of FIVE (5) years.
i. Post Closing Payment of Certain Debt. As soon as practical after the
Closing Date and in no event more than THIRTY (30) days after the Closing Date,
the Parent will cause the Sub to pay all amounts outstanding under that certain
promissory note issued by the Target, dated April 28, 1997, payable to the order
of Vision Software, Inc., in the original principal amount of $35,556, with the
outstanding balance as of the Closing Date being approximately $32,000.
j. Post Closing Directorship of the Sub. As soon as practical after the
Closing Date and in no event more than THIRTY (30) days after the Closing Date,
the Parent will cause the Sub to elect Randall S. Lindner as one of its
Directors.
5. Covenants. The Parties agree as follows with respect to the period from and
after the execution of this Agreement.
a. General. Each of the Parties will use its reasonable best efforts to
take all action and to do all things necessary, proper, or advisable in order to
consummate and make effective the transactions contemplated by this Agreement
(including satisfaction, but not waiver, of the closing conditions set forth in
Article 6 below).
b. Notices and Consents. The Target will give any notices to third
parties, and will use its reasonable best efforts to obtain any third party
consents, that the Parent reasonably may request in connection with the matters
referred to in Article 3(c) above.
c. Regulatory Matters and Approvals. Each of the Parties will give any
notices to, make any filings with (if any are required), and use its reasonable
best efforts to obtain any authorizations, consents, and approvals of
governments and governmental agencies in connection with the matters referred to
in Article 3(c) and Article 4(d) above (if any are required). Without limiting
the generality of the foregoing, the Target will call a special meeting of its
stockholders (the "Special Target Meeting") as soon as reasonably practicable in
order that the stockholders may consider and vote upon the adoption of this
Agreement and the approval of the Merger in accordance with the Texas Business
Corporation Act.
d. Listing of Parent Shares. The Parent will use its reasonable best
efforts to cause the Parent Shares that will be issued in the Merger to the
Stockholders, to be approved for listing within and pursuant to the next public
offering, if any, after the IPO of the Parent.
e. Operation of Business. The Target will not engage in any practice, take
any action, or enter into any transaction outside the Ordinary Course of
Business. Without limiting the generality of the foregoing:
AGREEMENT AND PLAN OF MERGER PAGE 20
<PAGE>
i. the Target will not authorize or effect any change in its charter
or bylaws;
ii. the Target will not grant any options, warrants, or other rights
to purchase or obtain any of its capital stock or issue, sell, or
otherwise dispose of any of its capital stock (except upon the conversion
or exercise of options, warrants, and other rights currently outstanding);
iii. the Target will not declare, set aside, or pay any dividend or
distribution with respect to its capital stock (whether in cash or in
kind), or redeem, repurchase, or otherwise acquire any of its capital
stock;
iv. the Target will not issue any note, bond, or other debt security
or create, incur, assume, or guarantee any indebtedness for borrowed money
or capitalized lease obligation;
v. the Target will not impose any Security Interest upon any of its
assets;
vi. the Target will not make any capital investment in, make any
loan to, or acquire the securities or assets of any other Person;
vii. the Target will not make any change in employment terms for any
of its directors, officers, and employees other than the severance payment
agreement with Christine Walker, in the amount of $7,000; and
viii. the Target will not commit to any of the foregoing.
f. Full Access. The Target will permit representatives of the Parent to
have full access to all premises, properties, personnel, books, records
(including tax records), contracts, and documents of or pertaining to each of
the Target. The Parent and Sub each will treat and hold as such any Confidential
Information it receives from any of the Target in the course of the reviews
contemplated by this Article 5(f), will not use any of the Confidential
Information except in connection with this Agreement, and, if this Agreement is
terminated for any reason whatsoever, agrees to return to the Target all
tangible embodiments (and all copies) thereof which are in its possession.
g. Notice of Developments. Each Party will give prompt written notice to
the other of any material adverse development causing a breach of any of its own
representations and warranties in Article 3 and Article 4 above. No disclosure
by any Party pursuant to this Article 5(g), however, shall be deemed to amend or
supplement the Disclosure Schedule or to prevent or cure any misrepresentation,
breach of warranty, or breach of covenant.
AGREEMENT AND PLAN OF MERGER PAGE 21
<PAGE>
h. Exclusivity. The Target will not solicit, initiate, or encourage the
submission of any proposal or offer from any Person relating to the acquisition
of all or substantially all of the capital stock or assets of any of the Target
(including any acquisition structured as a merger, consolidation, or share
exchange). The Target shall notify the Parent immediately if any Person makes
any proposal, offer, inquiry, or contact with respect to any of the foregoing.
i. Continuity of Business Enterprise. The Sub will continue at least one
significant historic business line of the Target, or use at least a significant
portion of the Target's historic business assets in a business, in each case
within the meaning of Reg. ss.1.368-1(d).]
6. Conditions to Obligation to Close.
a. Conditions to Obligation of the Sub. The obligation of the Sub to
consummate the transactions to be performed by it in connection with the Closing
is subject to satisfaction of the following conditions:
i. this Agreement and the Merger shall have received the Requisite
Stockholder Approval to the Merger;
ii. the Target shall have procured all of the third party consents
specified in Article 5 above;
iii. the representations and warranties set forth in Article 3 above
shall be true and correct in all material respects at and as of the
Closing Date;
iv. the Target shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing;
v. no action, suit, or proceeding shall be pending or threatened
before any court or quasi-judicial or administrative agency of any
federal, state, local, or foreign jurisdiction or before any arbitrator
wherein an unfavorable injunction, judgment, order, decree, ruling, or
charge would (A) prevent consummation of any of the transactions
contemplated by this Agreement, (B) cause any of the transactions
contemplated by this Agreement to be rescinded following consummation, (C)
affect adversely the right of the Surviving Corporation to own the former
assets, to operate the former businesses, and to control the former
Subsidiaries of the Target, or (D) affect adversely the right of any of
the former Subsidiaries of the Target to own its assets and to operate its
businesses (and no such injunction, judgment, order, decree, ruling, or
charge shall be in effect);
vi. the Target shall have delivered to the Sub a certificate to the
effect that each of the conditions specified above in Article 6(a)(i)-(v)
is satisfied in all respects;
AGREEMENT AND PLAN OF MERGER PAGE 22
<PAGE>
vii. the Parties shall have received all other authorizations,
consents, and approvals of governments and governmental agencies referred
to in this Agreement or required by law;
viii. the Sub shall have received from counsel to the Target an
opinion to be attached to this Agreement as Exhibit "E", in a form
mutually agreeable to the parties hereto attached hereto, addressed to the
Sub, and Dated as of the Closing Date;
ix. the Sub shall have received the resignations, effective as of
the Closing Date, of each director and officer of the Target other than
those whom the Sub shall have specified in writing at Closing; and
x. all actions to be taken by the Target in connection with
consummation of the transactions contemplated hereby and all certificates,
opinions, instruments, and other documents required to effect the
transactions contemplated hereby will be reasonably satisfactory in form
and substance to the Sub.
The Sub may waive any condition specified in this Article 6(a) if it
executes a writing so stating at or prior to the Closing.
b. Conditions to Obligation of the Target. The obligation of the Target to
consummate the transactions to be performed by it in connection with the Closing
is subject to satisfaction of the following conditions:
i. the Target shall have received a copy of the Requisite Sub
Stockholder Approval;
ii. the representations and warranties set forth in Article 4 above
shall be true and correct in all material respects at and as of the
Closing Date;
iii. the Sub and the Parent shall have performed and complied with
all of its covenants hereunder in all material respects through the
Closing, including to mean the tendering of the Cash Payment and the
Contingent Notes;
iv. no action, suit, or proceeding shall be pending or threatened
before any court or quasi-judicial or administrative agency of any
federal, state, local, or foreign jurisdiction or before any arbitrator
wherein an unfavorable injunction, judgment, order, decree, ruling, or
charge would (A) prevent consummation of any of the transactions
contemplated by this Agreement, (B) cause any of the transactions
contemplated by this Agreement to be rescinded following consummation, (C)
affect adversely the right of the Surviving Corporation to own the former
assets, to operate the former businesses, and to control the former
Subsidiaries of the Target, or (D) affect adversely the right of any of
the former
AGREEMENT AND PLAN OF MERGER PAGE 23
<PAGE>
Subsidiaries of the Target to own its assets and to operate its
businesses (and no such injunction, judgment, order, decree, ruling, or
charge shall be in effect);
v. the Sub shall have delivered to the Target a certificate to the
effect that each of the conditions specified above in Article 6(b)(i)-(iv)
is satisfied in all respects;
vi. this Agreement and the Merger shall have received the Requisite
Stockholder Approval;
vii. the Parties shall have received all other authorizations,
consents, and approvals of governments and governmental agencies referred
to in this Agreement or legally required;
viii. the Target shall have received from counsel to the Parent and
the Sub, an opinion attached to this Agreement as Exhibit "F", in a form
mutually agreeable to the parties hereto, addressed to the Target, and
dated as of the Closing Date;
ix. the Stockholders shall have received the Cash Payment and the
Contingent Notes;
x. the Parent shall have entered into employment agreements with
Randall Lindner and Scott Spurlock in a form and on terms acceptable to
the parties thereto; and
xi. all actions to be taken by the Parent and the Sub in connection
with consummation of the transactions contemplated hereby and all
certificates, opinions, instruments, and other documents required to
effect the transactions contemplated hereby will be reasonably
satisfactory in form and substance to the Target.
The Target may waive any condition specified in this Article 6(b) if it
executes a writing so stating at or prior to the Closing.
7. Indemnity Agreements.
a. Target and Stockholders' Agreement to Indemnify. Subject to the
provisions of Section 7(d) of this Agreement, the Target and the Stockholders,
jointly and severally, shall indemnify and hold harmless the Parent and the Sub,
jointly and severally, from and against;
i. Any and all liabilities, obligations and/or losses resulting from
any breach of any representation and warranty or nonfulfillment of any
covenant on the part of the Target or the Stockholders to the Parent or
the Sub contained in this Agreement, or any other agreement, certificate
or other instrument furnished or to be furnished to the Parent or the Sub
by the Stockholders or by the Target pursuant to this Agreement, other
than the employment agreements.
AGREEMENT AND PLAN OF MERGER PAGE 24
<PAGE>
ii. Any and all liabilities, obligations and/or losses incurred or
imposed in connection with or based upon any provision of any federal,
state or local law or regulation or common law, including Environmental,
Health, and Safety Requirements, pertaining to health, safety or
environmental protection and arising out of any act or omission of Target,
Target's employees, agents or representatives or Target's predecessors in
interest occurring on or prior to the Closing Date or arising out of the
ownership, use, handling, control or operation of any plant, equipment,
container, facility, site, area or property from which any substance was
released into the environment on or prior to the Closing Date. The term
"release" means any spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, dumping or disposing
into the environment. The term "environment" means any surface or ground
water, drinking water supply, land, surface or subsurface strata, or the
ambient air.
iii. Any and all liabilities, obligations and/or losses directly or
indirectly accrued or accruing, or arising out of or resulting from or
based upon or related to or under ERISA or under Subparts A, B, or D of
Part I of Subchapter D of Chapter 1 of Subtitle A of the Internal Revenue
Code (the "Code"), attributable to acts or ommissions occurring prior to
the Closing Date.
iv. To the extent that taxes with respect to any period or portion
thereof up to and including the Closing Date exceed $75,000.
v. All actions, suits, proceedings, demands, assessments, judgments,
costs and expenses, including fees and disbursements of counsel, incident
to any of the foregoing.
b. Parent's and the Sub's Indemnity Agreement. Subject to the provisions
of Section 7(d) of this Agreement, the Parent and the Sub, jointly and
severally, shall indemnify, defend and hold harmless the Target from and
against:
i. Any and all liabilities and obligations (including without
limitation, federal, state or other taxes of whatever kind, but excluding
any sales or use taxes resulting from this transaction or any assessments,
interest and penalties thereon) of, or claims or causes of action,
including products liability, against the Parent, the Sub, or the Target
which arise with respect to any acts or omissions occurring in periods of
operation of the Sub by the Parent or the Sub beginning after the Closing
Date.
ii. Any and all liabilities, obligations and/or losses resulting
from any breach of any representation and warranty or nonfulfillment of
any covenant on the part of the Parent or the Sub to Target or the
Stockholders contained in this Agreement.
iii. All actions, suits, proceedings, demands, assessments,
judgments, costs and expenses, including fees and disbursements of
counsel, incident to any of the foregoing.
AGREEMENT AND PLAN OF MERGER PAGE 25
<PAGE>
c. Indemnification Procedure.
i. The indemnified party shall give the indemnifying party prompt
written notice of the assertion of any third party claim of which the
indemnified party has knowledge, which is covered by the indemnity
agreement set forth above and, if the indemnifying party notifies the
indemnified party of its desire to do so, the indemnifying party may
undertake the defense thereof by representatives chosen by the
indemnifying party, but acceptable to the indemnified party in its
reasonable discretion.
ii. If the indemnifying party, within a reasonable time after notice
of any such claim fails to defend or states that it will not defend, the
indemnified party may and will have the right to undertake the defense,
compromise or settlement of such claim on behalf of and for the account
and risk of the indemnifying party, subject to the right of the
indemnifying party to assume the defense of such claim at any time prior
to settlement, compromise or final determination thereof. Notwithstanding
anything contained herein to the contrary, in no event shall Target or any
of the Stockholders have any obligation or duty to defend Parent, Sub, or
any other person. No person entitled to indemnification under this
Agreement may settle any claim without the consent of the indemnifying
party.
iii. After any final judgment or award shall have been rendered by a
court, arbitration board or administrative agency of competent
jurisdiction, or a settlement shall have been consummated, or the parties
to the claim shall have arrived at a mutually binding agreement with
respect to each separate third party claim indemnified hereunder, the
indemnified party shall forward to the indemnifying party notice of any
sums due and owing by the indemnifying party with respect to such claim
and the indemnifying party shall pay such sums to the indemnified party in
cash or by certified check, within thirty (30) days after the date of such
notice.
d. Liability Limitations.
i. No party shall have any liability under this Agreement, or be
subject to any claim for indemnification under this Article 7, unless
notice of such claim is given on or before the latter of (i) the fourth
anniversary of the Closing Date, or (ii) the fourth anniversary of the
date on which such claim accrued; provided, however, that claims may be
asserted with respect to tax matters, environmental matters or ERISA
matters at any time on or before the date upon which the loss or liability
to which any such claim may relate it barred by all applicable statutes of
limitation.
ii. Notwithstanding anything contained in this Agreement to the
contrary, no party to this Agreement shall be required to indemnify any
other party with respect to any
AGREEMENT AND PLAN OF MERGER PAGE 26
<PAGE>
liability, obligation or loss unless the amount of such liability,
obligation or loss, when aggregated with all other liabilities,
obligations, and/or losses sustained by the party to be indemnified, shall
equal or exceed Five Thousand Dollars ($5,000.00), at which time claims
may be asserted by the indemnified party against any indemnifying party
for all liabilities, obligations, and/or losses sustained without any
deduction for the Five Thousand Dollar ($5,000.00) limit stated above.
Moreover, notwithstanding anything contained in this Agreement to the
contrary, in no event shall the Stockholders obligations on the one hand,
nor the Parent's or the Sub's obligations on the other hand, under this
Article 7. exceed the following amounts, under the following
circumstances:
(1) In the event that the Parent is still a private company at
the time the claim for indemnity is made, a sum not to exceed in the
aggregate $100,000.00, plus the amounts paid to the Stockholders
under Article 2(e) of this Agreement, with each Stockholder being
obligated only for his or her Pro Rata Share of such amount; or
(2) In the event that the Parent is a public company at the
time the claim for indemnity is made, the sum of THREE MILLION AND
NO/100 DOLLARS ($3,000,000.00) in the aggregate, with each
Stockholder being obligated only for his or her Pro Rata Share of
such amount.
iii. Notwithstanding anything contained in this Agreement to the
contrary, in no event shall a Stockholder be obligated to pay more than
his or her Pro Rata Share of any indemnification obligation. For the
purposes of this Agreement, the term "Pro Rata Share" with respect to each
Stockholder shall mean:
(1) Randall S. Lindner -69.86%;
(2) Michelle C. Lindner - 2.74%; and
(3) K. Scott Spurlock - 27.4%.
iv. Notwithstanding anything contained in this Agreement to the
contrary, in the event that the Parent is a public company at the time the
claim for indemnity accrues, neither the Parent, nor the Sub may attempt
to collect any sum due or owing pursuant to the indemnity contained in
this Article 7., unless and until the Rule 144 of the Securities Act
restrictions on resale are removed from the Parent Shares received by the
Stockholders pursuant to this Agreement.
8. Miscellaneous.
a. Survival. The representations, warranties, and covenants of the Parties
will survive the Effective Time for a period of four (4) years, except any
representation or warranty regarding
AGREEMENT AND PLAN OF MERGER PAGE 27
<PAGE>
taxes, which shall survive for the applicable statute of limitations. Further,
the obligations, if any, of the Parent and/or the Sub to make the Contingent
Cash Payments, the payments pursuant to the Contingent Notes and/or the payments
with respect to the accounts receivable of the Target, shall survive the
Closing.
b. Press Releases and Public Announcements. No Party shall issue any press
release or make any public announcement relating to the subject matter of this
Agreement without the prior written approval of the other Party; provided,
however, that any Party may make any public disclosure it believes in good faith
is required by applicable law (in which case the disclosing Party will use its
best efforts to advise the other Party prior to making the disclosure).
c. No Third Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns.
d. Entire Agreement. This Agreement (including the documents referred to
herein) constitutes the entire agreement between the Parties and supersedes any
prior understandings, agreements, or representations by or between the Parties,
written or oral, to the extent they related in any way to the subject matter
hereof.
e. Succession and Assignment. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No Party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the other Party.
f. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
g. Headings. The section headings contained in this Agreement are inserted
for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
h. Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if (and then two
business days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below or such other address as specified by a party:
If to the Target or the Stockholders:
Randall S. Lindner
8601A Fathom Circle
Austin, Texas 78750
AGREEMENT AND PLAN OF MERGER PAGE 28
<PAGE>
Michelle C. Lindner
8601A Fathom Circle
Austin, Texas 78750
K. Scott Spurlock
3217 Doe Run
Austin, TX 78748
Copy to:
Small, Craig & Werkenthin, P.C.
100 Congress Avenue
Suite 1100
Austin, Texas 78701
ATTN: Bill McIlhany
If to the Parent or the Sub:
American Net Claims, Inc.
Bo W. Lycke, President
12801 N. Central Expy #1255
Dallas, Texas 75243
Copy to:
McKinley Ringer Zeiger, PC.
Attn.: John C. Willems, III
10440 North central Expressway
Suite 1400
Dallas, Texas 75231
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
Party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other Party
notice in the manner herein set forth.
i. Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Texas. The choice of law
provision of this Agreement shall be applied with no effect given to the
principles of conflicts of law, and without regard to the Choice of Law rules of
the State of Texas.
AGREEMENT AND PLAN OF MERGER PAGE 29
<PAGE>
j. Amendments and Waivers. The Parties may mutually amend any provision of
this Agreement at any time prior to the Effective Time with the prior
authorization of their respective boards of directors; provided, however, that
any amendment effected subsequent to stockholder approval will be subject to the
restrictions contained in the Texas Business Corporation Act. No amendment of
any provision of this Agreement shall be valid unless the same shall be in
writing and signed by both of the Parties. No waiver by any Party of any
default, misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
k. Severability. Any term or provision of this Agreement that is invalid
or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
l. Settlement of Disputes. The following agreements are made with respect
to the settlement of disputes arising under the terms and conditions of this
Agreement:
i. If a dispute arises out of or relates to this Agreement,
including to mean any of its Exhibits, or the breach or default of this
Agreement, the parties shall first, in good faith, attempt to negotiate a
settlement of that dispute, breach or default.
ii. If the dispute, breach or default cannot be settled through
negotiation, the parties agree and shall proceed to binding arbitration
through the American Arbitration Association in accordance with its
Commercial Arbitration Rules under the Federal Arbitration Act, and
judgment upon the award rendered by the arbitrator(s) may be entered in
any court having jurisdiction thereof.
iii. Any provisional remedy (including injunctive relief) which a
party to this Agreement may want to elect, shall be available
notwithstanding the provisions relating to arbitration of disputes. Any
party may seek such provisional remedy from the appropriate court of law
pending arbitration, and such proceeding in which the provisional remedy
was sought will then be stayed pending the final award of the arbitration.
iv. The expenses of arbitration conducted pursuant to this paragraph
shall be born by the parties in such proportions as the arbitrator(s)
shall decide.
m. Expenses. Each of the Parties will bear its own costs and expenses
(including legal fees and expenses) incurred in connection with this Agreement
and the transactions contemplated hereby. Notwithstanding the foregoing, the
Parent has agreed to pay FIVE THOUSAND AND NO/l00 DOLLARS ($5,000.00) of the
Target's attorneys fees in connection with this Agreement and the transactions
contemplated hereby, payable at the Closing.
AGREEMENT AND PLAN OF MERGER PAGE 30
<PAGE>
n. Construction. The Parties have participated jointly in the negotiation
and drafting of this Agreement. In the event an ambiguity or question of intent
or interpretation arises, this Agreement shall be construed as if drafted
jointly by the Parties and no presumption or burden of proof shall arise
favoring or disfavoring any Party by virtue of the authorship of any of the
provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context otherwise requires. The
word "including" shall mean including without limitation.
o. Incorporation of Exhibits and Schedules. The Exhibits and
Schedules identified in this Agreement are incorporated herein by reference and
made a part hereof.
p. In the event that this Agreement is not executed by all parties on or
before June 2, 1997, this Agreement shall be null and void and any offer
contained herein shall be withdrawn. Time is of the essence in construing this
Section 8p.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on as
on this the 2 day of June, 1997.
PARENT:
American Net Claims, Inc.
By: /s/ Bo W. Lycke
--------------------------
Bo W. Lycke, President
SUB.
ANC Holdings, Inc.
By: /s/ Bo W. Lycke
--------------------------
Bo W. Lycke, President
TARGET:
Medica Systems, Inc.
AGREEMENT AND PLAN OF MERGER PAGE 31
<PAGE>
By: /s/ Randall S. Lindner
-----------------------------------
Randall S. Lindner, President
THE STOCKHOLDERS:
/s/ Randall S. Lindner
-----------------------------------
Randall S. Lindner, Individually
/s/ Michelle C. Lindner
-----------------------------------
Michelle C. Lindner, Individually
/s/ K. Scott Spurlock
-----------------------------------
K. Scott Spurlock, Individually
AGREEMENT AND PLAN OF MERGER PAGE 32
<PAGE>
EXHIBIT AND SCHEDULE LIST
Exhibit A -- Contingent Note in the principal sum of ONE HUNDRED
FIFTY-SEVEN THOUSAND ONE HUNDRED EIGHTY-FIVE AND NO/100 DOLLARS
($157,185.00)
Exhibit Al -- Contingent Note in the principal sum of SIX THOUSAND ONE
HUNDRED SIXTY-FIVE AND NO/100 DOLLARS ($6,165.00)
Exhibit A2 -- Contingent Note in the principal sum of SIXTY-ONE THOUSAND
SIX HUNDRED FIFTY AND NO/100 DOLLARS ($61,650.00)
Exhibit B -- [RESERVED]
Exhibit C -- [RESERVED]
Exhibit D -- Lease of Target's Business Premises [INCLUDED IN EXHIBIT 3o
TO DISCLOSURE SCHEDULE]
Exhibit E -- Opinion of Counsel to the Target
Exhibit F -- Opinion of Counsel to Parent and Sub
Disclosure Schedule -- Exceptions to Representations and Warranties
AGREEMENT AND PLAN OF MERGER PAGE 33
<PAGE>
EXHIBIT "A"
CONTINGENT NOTE
Date: May __, 1997
Maker: American Net Claims, Inc.
Maker's Mailing Address (including county): 12801 N. Central Expy #1255, Dallas,
Dallas County, Texas 75243
Payee: Randall S. Lindner
Place for Payment (including county):
Principal Amount: ONE HUNDRED FIFTY-SEVEN THOUSAND ONE HUNDRED EIGHTY-FIVE AND
NO/100 DOLLARS ($157,185.00)
Annual Interest Rate on Unpaid Principal which shall begin to accrue from the
date of the occurrence of the initial "IPO" as that term is defined in that one
certain Agreement and Plan of Merger by and among American Net Claims, Inc., ANC
Holdings, Inc., a wholly owned subsidiary of American Net Claims, Inc., Medica
Systems, Inc., Randall S. Lindner, Michelle C. Lindner, and K. Scott Spurlock
(the "Agreement"): EIGHT PERCENT (8%)
Annual Interest Rate on Matured, Unpaid Amounts: The highest amount allowed by
law
Terms of Payment (principal and interest): Maker's obligation to pay principal
and interest is contingent upon the occurrence of an IPO. All principal and
accrued interest hereunder shall be due and payable on or before ONE (1) year
after the occurrence of the initial IPO.
Maker promises to pay to the order of Payee at the place for payment and
according to the terms of payment the principal amount plus interest at the
rates stated above. All unpaid amounts shall be due by the final scheduled
payment date.
On default in the payment of this note, the unpaid principal balance and
earned interest on this note shall become immediately due at the election of
Payee. Maker and each surety, endorser, and guarantor waive all demands for
payment, presentation for payment, notices of intention to accelerate maturity,
notices of acceleration of maturity, protests, and notices of protest.
UNSECURED NOTE PAGE 1
<PAGE>
If this note is given to an attorney for collection, or if suit is brought
for collection, or if it is collected through probate, bankruptcy, or other
judicial proceeding, then Maker shall pay Payee all costs of collection,
including reasonable attorney's fees and court costs, in addition to other
amounts due. Reasonable attorney's fees shall be 10.0% of all amounts due unless
either party pleads otherwise.
Interest on the debt evidenced by this note shall not exceed the maximum
amounts of nonusurious interest that may be contracted for, taken, reserved,
charged, or received under law; any interest in excess of that maximum amount
shall be credited on the principal of the debt or, if that has been paid,
refunded. On any acceleration or required or permitted prepayment, any such
excess shall be canceled automatically as of the acceleration or prepayment or,
if already paid, credited on the principal of the debt or, if the principal of
the debt has been paid, refunded. This provision overrides other provisions in
this and all other instruments concerning the debt.
This Note is subject to and expressly contingent upon the terms and
conditions contained in the Agreement, specifically meaning to include, but not
be limited to the provisions contained in Article 2(d) of the Agreement.
When the context requires, singular noun and pronouns include the plural.
Maker may prepay any amounts due under this note at any time, without
penalty.
American Net Claims, Inc.
By: ___________________________
Bo W. Lycke, President
Maker
UNSECURED NOTE PAGE 2
<PAGE>
EXHIBIT "A1"
CONTINGENT NOTE
Date: May , 1997
Maker: American Net Claims, Inc.
Maker's Mailing Address (including county): 12801 N. Central Expy #1255, Dallas,
Dallas County, Texas 75243
Payee: Michelle C. Lindner
Place for Payment (including county):
Principal Amount: SIX THOUSAND ONE HUNDRED SIXTY-FIVE AND NO/100 DOLLARS
($6,165.00)
Annual Interest Rate on Unpaid Principal which shall begin to accrue from the
date of the occurrence of the initial "IPO" as that term is defined in that one
certain Agreement and Plan of Merger by and among American Net Claims, Inc., ANC
Holdings, Inc., a wholly owned subsidiary of American Net Claims, Inc., Medica
Systems, Inc., Randall S. Lindner, Michelle C. Lindner, and K. Scott Spurlock
(the "Agreement"): EIGHT PERCENT (8%)
Annual Interest Rate on Matured, Unpaid Amounts: The highest amount allowed by
law
Terms of Payment (principal and interest): Maker's obligation to pay principal
and interest is contingent upon the occurrence of an IPO. All principal and
accrued interest shall be due and payable on or before ONE (1) year after the
occurrence of the initial IPO.
Maker promises to pay to the order of Payee at the place for payment and
according to the terms of payment the principal amount plus interest at the
rates stated above. All unpaid amounts shall be due by the final scheduled
payment date.
On default in the payment of this note, the unpaid principal balance and
earned interest on this note shall become immediately due at the election of
Payee. Maker and each surety, endorser, and guarantor waive all demands for
payment, presentation for payment, notices of intention to accelerate maturity,
notices of acceleration of maturity, protests, and notices of protest.
<PAGE>
If this note is given to an attorney for collection, or if suit is brought
for collection, or if it is collected through probate, bankruptcy, or other
judicial proceeding, then Maker shall pay Payee all costs of collection,
including reasonable attorney's fees and court costs, in addition to other
amounts due. Reasonable attorney's fees shall be 10.0% of all amounts due unless
either party pleads otherwise.
Interest on the debt evidenced by this note shall not exceed the maximum
amounts of nonusurious interest that may be contracted for, taken, reserved,
charged, or received under law; any interest in excess of that maximum amount
shall be credited on the principal of the debt or, if that has been paid,
refunded. On any acceleration or required or permitted prepayment, any such
excess shall be canceled automatically as of the acceleration or prepayment or,
if already paid, credited on the principal of the debt or, if the principal of
the debt has been paid, refunded. This provision overrides other provisions in
this and all other instruments concerning the debt.
This Note is subject to and expressly contingent upon the terms and
conditions contained in the Agreement, specifically meaning to include, but not
be limited to the provisions contained in Article 2(d) of the Agreement.
When the context requires, singular noun and pronouns include the plural.
Maker may prepay any amounts due under this note at any time, without
penalty.
American Net Claims, Inc.
By: ___________________________
Bo W. Lycke, President
Maker
<PAGE>
EXHIBIT "A2"
CONTINGENT NOTE
Date: May __, 1997
Maker: American Net Claims, Inc.
Maker's Mailing Address (including county): 12801 N. Central Expy #1255, Dallas,
Dallas County, Texas 75243
Payee: K. Scott Spurlock
Place for Payment (including county):
Principal Amount: SIXTY-ONE THOUSAND SIX HUNDRED FIFTY AND NO/100 DOLLARS
($61,650.00)
Annual Interest Rate on Unpaid Principal which shall begin to accrue from the
date of the occurrence of the initial "IPO" as that term is defined in that one
certain Agreement and Plan of Merger by and among American Net Claims, Inc., ANC
Holdings, Inc., a wholly owned subsidiary of American Net Claims, Inc., Medica
Systems, Inc., Randall S. Lindner, Michelle C. Lindner, and K. Scott Spurlock
(the "Agreement"): EIGHT PERCENT (8%)
Annual Interest Rate on Matured, Unpaid Amounts: The highest amount allowed by
law
Terms of Payment (principal and interest): Maker's obligation to pay principal
and interest is contingent upon the occurrence of an IPO. All principal and
accrued interest shall be due and payable on or before ONE (1) year after the
occurrence of the initial IPO.
Maker promises to pay to the order of Payee at the place for payment and
according to the terms of payment the principal amount plus interest at the
rates stated above. All unpaid amounts shall be due by the final scheduled
payment date.
On default in the payment of this note, the unpaid principal balance and
earned interest on this note shall become immediately due at the election of
Payee. Maker and each surety, endorser, and guarantor waive all demands for
payment, presentation for payment, notices of intention to accelerate maturity,
notices of acceleration of maturity, protests, and notices of protest.
UNSECURED NOTE PAGE 1
<PAGE>
If this note is given to an attorney for collection, or if suit is brought
for collection, or if it is collected through probate, bankruptcy, or other
judicial proceeding, then Maker shall pay Payee all costs of collection,
including reasonable attorney's fees and court costs, in addition to other
amounts due. Reasonable attorney's fees shall be 10.0% of all amounts due unless
either party pleads otherwise.
Interest on the debt evidenced by this note shall not exceed the maximum
amounts of nonusurious interest that may be contracted for, taken, reserved,
charged, or received under law; any interest in excess of that maximum amount
shall be credited on the principal of the debt or, if that has been paid,
refunded. On any acceleration or required or permitted prepayment, any such
excess shall be canceled automatically as of the acceleration or prepayment or,
if already paid, credited on the principal of the debt or, if the principal of
the debt has been paid, refunded. This provision overrides other provisions in
this and all other instruments concerning the debt.
This Note is subject to and expressly contingent upon the terms and
conditions contained in the Agreement, specifically meaning to include, but not
be limited to the provisions contained in Article 2(d) of the Agreement.
When the context requires, singular noun and pronouns include the plural.
Maker may prepay any amounts due under this note at any time, without
penalty.
American Net Claims, Inc.
By: ___________________________
Bo W. Lycke, President
Maker
UNSECURED NOTE PAGE 2
<PAGE>
EXHIBIT E
May _______, 1997
Re: Agreement and Plan of Merger (the "Agreement") by and among
American Net Claims, Inc (the "Parent"), ANC Holdings, Inc. (the
"Sub"), Medical Systems, Inc. (the "Target"), Randall S. Lindner,
Individually, Michelle C. Lindner, Individually and K. Scott
Spurlock, Individually (the "Stockholders," or Individually, a
"Stockholder")
Gentlemen:
We have acted as legal counsel for the Target and the Stockholders in
connection with the Agreement, including to mean all of the Agreement's exhibits
and schedules.
In our capacity as counsel to the Target and the Stockholders, we have
been asked to render certain opinions in connection with the Agreement. All
capitalized terms used herein but not otherwise defined herein shall have the
meaning set forth in the Agreement.
As to various questions of fact material to our opinion, we have relied
exclusively on the representations contained in the Agreement and on
certificates provided by officers of the Target and the Stockholders. A matter
stated in this opinion that is "to our knowledge," as to which we "know" or are
"aware," or "known to us" refers only to our actual knowledge in providing
legal services to the Target and the Stockholders in connection with the
Agreement and the transactions contemplated therein, and is so stated to reflect
the fact that, while we have not been informed that the matters stated are
factually inaccurate (based on information we have as a result of representing
the Parent and Sub in connection with the Agreement and the transactions
contemplated therein) we have made no independent factual investigation with
respect to such statement or matter and no inference relative thereto should be
taken, other than to make a due inquiry of the officers of the Target and the
Stockholders with respect to the matters at issue.
These opinions are given as of the date of this letter. In rendering these
opinions, we have examined the Agreement, and the corporate resolutions of the
shareholders and directors of the Target and the Stockholders authorizing and
approving the Agreement with the Target and the Stockholders, and the
transactions contemplated thereby.
Based on the foregoing and having regard for such legal considerations as
we deem relevant, it is our opinion that:
<PAGE>
1. The Target is a corporation validly existing and in good standing under
the laws of the State of Texas. The Target has the corporate power and corporate
authority to own, lease and operate its property, and to carry on its business
as now conducted.
2. The Target has the corporate power and corporate authority to enter
into, execute, deliver and perform its obligation under the terms of the
Agreement. The execution, delivery and performance of each of the Agreement and
the related documents has been duly authorized by all necessary corporate action
on the part of Target and the Stockholders. Each officer of the Target and each
Stockholder executing the Agreement and the related documents has been duly
authorized to execute and deliver the Agreement and the related documents on
behalf of the Target and/or the Stockholders as the case may warrant.
3. The Agreement has been duly executed and delivered by Target and the
Stockholders, and constitutes the valid and binding obligation of Target and the
Stockholders. The Agreement is enforceable against Target and Stockholders in
accordance with its terms.
4. The Stockholders each have all requisite power, authority and, to the
undersigned's best knowledge, capacity to enter into, execute, deliver and
perform their obligations under the Agreement.
5. The Agreement has been executed and delivered by Stockholders and
constitutes the valid and binding obligation of each of the Stockholders and is
enforceable against each Stockholder in accordance with its terms.
6. To our knowledge, there are no actions, suits, arbitration proceedings
or claims pending or threatened against Target at law or in equity or before any
federal, state or other governmental authority or regulatory body. To our
knowledge, there are no actions, suits, arbitration proceedings or claims
pending or threatened against the Stockholders, at law or in equity or before
any federal, state or other governmental authority or regulatory body which
would affect the enforceability of the Agreement.
7. No consent or waiver of, filing with, authorization, approval or other
action by Shareholders, or any federal or Texas governmental authority or
regulatory body, which has not already been obtained or done, is required in
connection with the execution, delivery and performance by Target or the
Stockholders of the Agreement, or is required as a condition to the validity or
enforceability of the Agreement, other than filing the Articles of Merger.
8. The execution, delivery and performance by The Target of the Agreement
does not (a) to our knowledge result in a breach or violation of the Certificate
of Incorporation or By-Laws of Target; (b) to our knowledge, result in a
violation of any judgment, order, writ, injunction or decree to which Parent or
the Sub are subject; (c) result in the creation of any lien on any of the
collateral, except as contemplated by the Agreement; or (d) to our knowledge,
conflict with,
2
<PAGE>
constitute an event of default under, or result in a breach or violation of the
provisions of any agreement under which either Target Sub has borrowed money.
The opinions set forth herein are qualified as stated therein and are
qualified further by the following:
(a) In rendering the opinions set forth above, we have relied, to the
extent we believe appropriate, as to matters of fact, (i) upon certificates or
statements of public officials and of the officers of the Target as appropriate,
and (ii) upon representations and warranties of Target contained in the
Agreement and the related documents and we have made no independent
investigation or verification of said facts. No opinion is being expressed as to
the effect of any event, fact or circumstance of which we have no actual
knowledge.
(b) We have assumed the competency of the signatories to the documents
other than our clients', the genuineness of all signatures other than our
clients', the authenticity of all documents submitted to us as originals, the
conformity to original documents of all documents submitted to us as certified
or photostatic copies, and the accuracy and completeness of all records made
available to us.
(c) We have assumed that (i) with respect to any parties other than Target
and Stockholders, the documents have been duly authorized, executed and
delivered by the parties thereto, are within their corporate or individual
powers as the case may warrant, and that they are in compliance with all
applicable laws, rules and regulations governing the conduct of their respective
businesses and this transaction, (ii) with respect to any parties other than
Target and Stockholders, the documents are their legal, valid and binding
obligations, (iii) the documents will be enforced in circumstances and in a
manner which are commercially reasonable, (iv) with respect to any parties other
than Target and Stockholders, the parties to the documents are not subject to
any statute, rule or regulation or any impediment that requires them or our
clients to obtain the consent, or to make any declaration or filing with any
governmental authority in connection with the transactions contemplated by the
documents, and (v) the terms, provisions and conditions relating to the
transaction referred to in this opinion letter are reflected solely in the
documents described above and there are no other agreements or understandings
between the parties except as reflected in such documents.
(d) The opinions herein expressed are qualified to the extent that: (i)
the enforceability, of any rights or remedies in, any agreement or instrument
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance or transfer, equitable subordination, or similar laws and
doctrines affecting the rights of creditors generally and general equitable
principles; (ii) the availability of specific performance, injunctive relief or
any other equitable remedy is subject to the discretion of a court of competent
jurisdiction and (iii) the provisions of any document, agreement or instrument
that may require indemnification or contribution for liabilities under the
provisions of any federal or state securities laws or in respect of the
negligence or wrongful conduct of the indemnified party.
3
<PAGE>
We express no opinion as to the enforceability of(i) any indemnification
obligation under which a party is to be indemnified for its own actions; or (ii)
any employment agreements contemplated by the Agreement. No opinions other than
those expressed herein may be implied or inferred from this letter. This letter
is provided solely for your benefit and may not be relied upon by any third
party without our written consent. The opinions expressed herein are limited to
matters of Texas law. This letter and opinions expressed herein incorporate by
reference the Common Exceptions contained in the State Bar of Texas Business Law
Section Legal Opinions Committee Report on Opinions in business Transactions.
[SUBJECT TO REVISIONS AND QUALIFICATIONS REQUIRED BY SMALL, CRAIG &
WERKENTHIN, P.C. OPINION COMMITTEE]
Very truly yours,
SMALL, CRAIG & WERKENTHIN, P.C.
cc:
4
<PAGE>
EXHIBIT F
(Date)
Small Craig & Werkenthin
Suite 1100, 100 Congress Avenue
Austin, TX 78701-4099
Re: Agreement and Plan of Merger (the "Agreement") by and among American
Net Claims, Inc (the "Parent"), ANC Holdings, Inc. (the "Sub"), Medica Systems,
Inc. (the "Target"), Randall S. Lindner, individually, Michelle C. Lindner,
individually, and K. Scott Spurlock, individually (the "Stockholders", or
individually, a "Stockholder")
Gentlemen:
We have acted as legal counsel for the Parent and the Sub in connection
with the Agreement, including to mean all of the Agreement's exhibits and
schedules.
In our capacity as counsel to the Parent and the Sub, we have been asked
to render certain opinions in connection with the Agreement. All capitalized
terms used herein but not otherwise defined herein shall have the meaning set
forth in the Agreement.
As to various questions of fact material to our opinion, we have relied
exclusively on the representations contained in the Agreement and on
certificates provided by officers of the Parent and Sub. A matter stated in this
opinion that is "to our knowledge", as to which we "know" or are "aware", or
"known to us" refers only to my actual knowledge in providing legal services to
the Parent and Sub in connection with the Agreement and the transactions
contemplated therein, and is so stated to reflect the fact that, while we have
not been informed that the matters stated are factually inaccurate (based on
information we have as a result of representing the Parent and Sub in connection
with the Agreement and the transactions contemplated therein) we have made no
independent factual investigation with respect to such statement or matter and
no inference relative thereto should be taken, other than to make a due inquiry
of the officers of the Parent and the Sub with respect to the matters at issue.
These opinions are given as of the date of this letter. In rendering these
opinions, we have examined the Agreement, and the corporate resolutions of the
shareholders and directors of the Parent and the Sub authorizing and approving
the Agreement with the Target and the Stockholders, and the transactions
contemplated thereby.
Based on the foregoing and having regard for such legal considerations as
we deem relevant, it is our opinion that:
1. Each of the Parent and the Sub is a corporation validly existing and in
good standing under the laws of the State of Texas. Each of the Parent and the
Sub has the corporate
<PAGE>
Small Craig & Werkenthin
May 17, 1997
Page 2
power and corporate authority to own, lease and operate its property, and to
carry on its business as now conducted.
2. Each of the Parent and the Sub has the corporate power and corporate
authority to enter into, execute, deliver and perform its obligations under the
terms of the Agreement. The execution, delivery and performance of each of the
Agreement has been duly authorized by all necessary corporate action on the part
of Parent and Sub. Each officer of the Parent and the Sub executing the
Agreement and the related documents has been duly authorized to execute and
deliver the Agreement and the related documents on behalf of Parent and/or the
Sub as the case may warrant.
3. The Agreement has been duly executed and delivered by Parent and Sub,
and constitutes the valid and binding obligation of Parent and Sub. The
Agreement is enforceable against Parent and Sub in accordance with its terms.
4. To our best knowledge, there are no actions, suits, arbitration
proceedings or claims pending or threatened against Parent or the Sub at law or
in equity or before any federal, state or other governmental authority or
regulatory body which would affect the enforceability of the Agreement.
5. No consent or waiver of, filing with, authorization, approval or other
action by the Parent or the Sub, or any federal or Texas governmental authority
or regulatory body, which has not already been obtained or done, is required in
connection with the execution, delivery and performance by Parent or the Sub of
the Agreement, or is required as a condition to the validity or enforceability
of the Agreement.
6. The execution, delivery and performance by each of the Parent and the
Sub of the Agreement does not (a) to our best knowledge result in a breach or
violation of the Certificate of Incorporation or By-Laws of either the Parent or
the Sub; (b) to our best knowledge, result in a violation of any judgment,
order, writ, injunction or decree to which Parent or the Sub are subject; or (c)
to our best knowledge, conflict with, constitute an event of default under, or
result in a breach or violation of the provisions of any agreement under which
either the Parent or the Sub has borrowed money.
The opinions set forth herein are qualified as stated therein and are
qualified further by the following:
<PAGE>
Small Craig & Werkenthin
May 17, 1997
Page 3
(a) In rendering the opinions set forth above, we have relied, to the
extent we believe appropriate, as to matters of fact. (i) upon certificates or
statements of public officials and of the officers of the Parent and/or the Sub
as appropriate, and (ii) upon representations and warranties of Parent and Sub
contained in the Agreement and the related documents and we have made no
independent investigation or verification of said facts. No opinion is being
expressed as to the effect of any event, fact or circumstance of which we have
no actual knowledge.
(b) We have assumed the competency of the signatories to the documents
other than our clients', the genuineness of all signatures other than our
clients', the authenticity of all documents submitted to us as originals, the
conformity to original documents of all documents submitted to us as certified
or photostatic copies, and the accuracy and completeness of all records made
available to us.
(c) We have assumed that (i) with respect to any parties other than Parent
and Sub, the documents have been duly authorized, executed and delivered by the
parties thereto, are within their corporate or individual powers as the case may
warrant, and that they are in compliance with all applicable laws, rules and
regulations governing the conduct of their respective businesses and this
transaction, (ii) with respect to any parties other than Parent and Sub, the
documents are their legal, valid and binding obligations, (iii) the documents
will be enforced in circumstances and in a manner which are commercially
reasonable, (iv) with respect to any parties other than Parent and Sub, the
parties to the documents are not subject to any statute, rule or regulation or
any impediment that requires them or my clients to obtain the consent, or to
make any declaration or filing with any governmental authority in connection
with the transactions contemplated by the documents, and (v) the terms,
provisions and conditions relating to the transaction referred to in this
opinion letter are reflected solely in the documents described above and there
are no other agreements or understandings between the parties except as
reflected in such documents.
(d) The opinions herein expressed are qualified to the extent that: (i)
the enforceability, of any rights or remedies in, any agreement or instrument
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance or transfer, equitable subordination, or similar laws and
doctrines affecting the rights of creditors generally and general equitable
principles; (ii) the availability of specific performance, injunctive relief or
any other equitable remedy is subject to the discretion of a court of competent
jurisdiction and (iii) the provisions of any document, agreement or instrument
that (a) may require indemnification or contribution for liabilities under the
provisions of any federal or state securities laws or in respect of the
negligence or wrongful conduct of the indemnified party or
John C Willems, III
cc: clients
<PAGE>
DISCLOSURE SCHEDULE
Pursuant to Section 3 of that certain Agreement and Plan of Merger by and among
Medica Systems, Inc., the Stockholders of Medica Systems, Inc. and American Net
Claims, Inc. and ANC Holdings, Inc., a wholly owned subsidiary of American Net
Claims, Inc. (the "Agreement") this Disclosure Schedule qualifies certain
representations and warranties contained in Section 3 of the Agreement and shall
be construed as part of the Agreement. In the event of any conflict between the
Agreement and this Disclosure Schedule, this Disclosure Schedule shall control.
o 3c. Articles of Merger must be filed to effectuate the merger.
o 3e. Target has granted a Security Interest in the following assets to secure
the note described in Section 3h(i) below:
(a) All accounts;
(b) all unbilled work-in-progress;
(c) all contract rights for services performed or for computer software
sold or licensed;
(d) all extensions, alterations, substitutions, replacements, renewals, and
rights belonging or in any way appertaining to all or any part of the
foregoing or acquired for use in connection herewith;
(e) all right, title, and interest of Target to and under all agreements
now existing or hereafter entered into for the use, assignment,
transfer, sale, or other disposition of the whole or any part of the
foregoing;
(f) all proceeds of any of the foregoing.
o 3e. Target uses certain office furniture and equipment owned by certain
Stockholders.
o 3g. Target does not maintain financial statements prepared in accordance with
generally accepted accounting principles. Target has certain obligations
described in License Agreements that are not referenced in Section 3g. Target
has incurred obligations and payables in the ordinary course of business and
obligations for professional fees, including accounting and attorneys fees.
o 3h(i). Target has issued a Note to Vision Software, Inc. in the original
principal amount of $35,556 which is secured by the assets described above in
3e.
o 3h(ii) Target has agreed to pay certain legal and accounting fees.
o 3h(iii) Target terminated a license agreement with Reimbursement Assurance
Corporation, and Medinet EDI Solutions, LLC. Target has added program work to
a License Agreement with United Medicorp and MDIP.
Page 1 of 3
<PAGE>
o 3h(iv) Target has granted a Security Interest in certain assets described in
3e above to secure the note described in 3(h)(i).
o 3h(viii). Target has granted licenses to Intellectual Property which are
contained in EXHIBIT 3m(ii) of this Disclosure Schedule.
o 3h(xiii), (xiv) and (xvii). Target has entered into a severance agreement
with Christine Walker under which she will be entitled to thirty (30) days
prior notice and two months salary in the event her employment is terminated
within two years of closing. The severance agreement is oral. Such severance
agreement is included in EXHIBIT 3o of this Disclosure Schedule.
o 3i. Target has certain obligations under its License Agreements which are not
included in the amount stated in Section 3(i).
o 3m(i) Target was sued by Vision Software, Inc. alleging misappropriation of
Intellectual Property rights. Such suit was settled and Target was released.
o 3m(i). The Target believes that one company may have infringed,
misappropriated, or violated Intellectual Property rights of the Target.
o 3m(ii) The License Agreements granted by the Target are attached as EXHIBIT
3m(ii).
o 3m(ii) The Target uses the trade name "Cyber Claim."
o 3m(iii) Target uses various third-party software under authority granted by
shrinkwrap license agreements provided by the owners of such software. These
agreements are attached as EXHIBIT 3m(iii).
o 3o. Attached hereto as EXHIBIT 3(o) are all material written contracts to
which the Target is a party. The Target has oral agreements to pay for (i)
accounting services with Al Prinz; (ii) legal services with Small, Craig &
Werkenthin, P.C.; (iii) agreements to pay employees one week vacation after
six months and two weeks after one year; and (iv) the Severance Agreement
with Christine Walker, described above.
o 3t. The Target has certain obligations under the License Agreements to which
it is a party, which include repair, enhancements and updates.
Page 2 of 3
<PAGE>
o 3z Certain Stockholders have allowed Target to use certain office furniture
and equipment owned by such Stockholders.
INITIALS:
/s/ [ILLEGIBLE]
----------------
/s/ [ILLEGIBLE]
----------------
/s/ [ILLEGIBLE]
----------------
/s/ [ILLEGIBLE]
----------------
/s/ [ILLEGIBLE]
----------------
/s/ [ILLEGIBLE]
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Page 3 of 3
<PAGE>
AMENDMENT TO AGREEMENT AND PLAN OF MERGER
This Amendment (the "Amendment") to the Agreement and Plan of Merger dated
as of May 30, 1997, (the "Merger Agreement") is entered into by and among
American Net Claims, Inc., a Texas corporation (the "Parent"), ANC Holdings,
Inc., a wholly owned subsidiary of American Net Claims, Inc., a Texas
Corporation (the "Sub"), Medica Systems, Inc., a Texas corporation (the
"Target"), Randall S. Lindner, individually, Michelle C. Lindner, individually,
and K. Scott Spurlock, individually (the "Stockholders", or individually, a
"Stockholder") the same parties that entered into the Merger Agreement, and is
intended to amend and supplement the terms and conditions of such Merger
Agreement.
WITNESSETH:
WHEREAS, the parties to this Amendment are entering into this Amendment
concurrently with the execution of the Merger Agreement; and
WHEREAS FURTHER, the parties hereto intend this Amendment to amend and
supplement the Merger Agreement, without which amendments and supplements,
neither party would have entered into the Merger Agreement.
NOW, THEREFORE, for and in consideration of the foregoing and mutual
promises and conditions contained herein, in the Merger Agreement and for good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto covenant and agree as follows:
1. All capitalized terms used herein shall be deemed to have the same meaning as
defined in the Merger Agreement.
2. The parties hereto wish to add to the definitions contained in Article 1. of
the Merger Agreement by adding the following definition as Article 1(nn) of the
Merger Agreement:
"mm. "Intellectual Property" means (a) all inventions (whether patentable
or unpatentable and whether or not reduced to practice), all improvements
thereto, and all patents, patent applications, and patent disclosures,
together with all reissuances, continuations, continuations-in-part,
revisions, extensions, and reexaminations thereof, (b) all trademarks,
service marks, trade dress, logos, trade names, and corporate names,
together with all translations, adaptations, derivations, and combinations
thereof and including all goodwill associated therewith, and all
applications, registrations, and renewals in connection therewith, (c) all
copyrightable works, all copyrights, and all applications, registrations
and renewals in connection therewith, (d) all mask works and all
applications, registrations and renewals in connection therewith, (e) all
trade secrets and confidential business information (including ideas,
research and development, know-how, formulas, compositions, manufacturing
and production processes and techniques, technical data, designs,
drawings,
AMENDMENT TO AGREEMENT AND PLAN OF MERGER PAGE 1
<PAGE>
source codes, specifications, customer and supplier lists, pricing and
cost information, and business and marketing plans and proposals), (f) all
computer software (including data, source codes and related
documentation), (g) all other proprietary rights, and (h) all copies and
tangible embodiments thereof (in whatever form or medium)."
3. The parties hereto wish to amend Article 3(i) of the Merger Agreement by
deleting Article 3(i) of the Merger Agreement and putting in its place the
following Article 3(i):
"i. Liabilities. The Target does not have any aggregate liability
(whether known or unknown, whether asserted or unasserted, whether
absolute or contingent, whether accrued or unaccrued, whether liquidated
or unliquidated, and whether due or to become due, in excess of
$100,000.00, provided that no warranty is made as to the components of
such amount."
4. The parties hereto wish to add to Article 7(d) of the Merger Agreement by
adding the following subparagraph to Article 7(d) of the Merger Agreement:
"v. Notwithstanding anything contained in this Agreement to the
contrary, each party understands and agrees that there may be instances
where each party may have liability for an indemnity claim under this
Agreement relating to the same series of facts. The parties fully intend
that in such instances, if any, the trier(s) of fact will apportion such
liability to each party as the trier(s) of fact deem appropriate given the
proportionate culpability of each party."
6. The parties hereto wish to add to Disclosure Schedule of the Merger Agreement
by stating that notwithstanding anything in the Merger Agreement or the
Disclosure statement to the contrary, the attorneys fees owed to the law firm of
Small, Craig & Werkenthin, P.C. shall not exceed the total sum of EIGHTEEN
THOUSAND AND NO/100 DOLLARS ($18,000.00), inclusive of the FIVE THOUSAND AND
NO/100 DOLLARS ($5,000.00) agreed as being paid in cash at the Closing.
7. Except to the extent specifically amended and modified herein, the Merger
Agreement shall remain in full force and effect and shall be unchanged. To the
extent that the terms and conditions of this Amendment conflicts with any of the
terms and conditions of the Merger Agreement, this Amendment shall prevail.
8. The parties agree that the Closing Date Shall be extended to June 2, 1997.
AMENDMENT TO AGREEMENT AND PLAN OF MERGER PAGE 2
<PAGE>
9. This Amendment shall, for all purposes, be incorporated in the Merger
Agreement by reference as if set out therein verbatim and shall become a part
thereof form the date hereof. To the extent that this Amendment conflicts with
or modifies the Merger Agreement, this Amendment shall control.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on May
30, 1997.
PARENT:
American Net Claims, Inc.
By: /s/ Bo W. Lycke
-----------------------------------
Bo W. Lycke, President
SUB:
ANC Holdings, Inc.
By: /s/ Bo W. Lycke
-----------------------------------
Bo W. Lycke, President
TARGET:
Medica Systems, Inc.
By: /s/ Randall S. Lindner
-----------------------------------
Randall S. Lindner, President
THE STOCKHOLDERS:
/s/ Randall S. Lindner
-----------------------------------
Randall S. Lindner, Individually
/s/ Michelle C. Lindner
-----------------------------------
Michelle C. Lindner, Individually
/s/ K. Scott Spurlock
-----------------------------------
K. Scott Spurlock, Individually
AMENDMENT TO AGREEMENT AND PLAN OF MERGER PAGE 3
<PAGE>
NOTE
(Secured by Security Agreement)
Date: July 31, 1996
Maker: American NET Claims, Inc.
Payee: American Medical Finance, Inc.
Place for Payment (include County): 12801 N. Central Expressway, Suite 1515,
Dallas, Dallas County, Texas 75243
Principal Amount: Three million seven hundred forty thousand dollars
($3,740,000)
Annual Interest Rate on Unpaid Principal from Date of Funding: NINE AND ONE HALF
PERCENT (9.5%)
Terms of Payment (principal and interest): Principal and interest shall be due
and payable not less than on the one (1) year anniversary date of the first
closing under the private placement of the capital stock of the Maker, presently
being coordinated by BlueStone Capital, 575 Fifth Avenue, New York, New York
10017 (but by whom ultimately coordinated); after such one year anniversary, the
Principal and Interest shall be due and payable on demand, interest being
calculated on the unpaid principal balance to the date of each installment paid
and the payment made credited first to the discharge of interest accrued and the
balance to the reduction of the principal. Accrued and unpaid interest shall be
computed on the basis of the actual days elapsed in a year consisting of 360
days on the Principal; after such one year anniversary, interest shall be due
and payable on demand. In no event will this note be due later than July 31,
2001.
Annual Interest Rate on Matured, Unpaid Amounts: The highest rate allowed by law
Security for Payment:
A security interest created and granted in the following security
agreement:
Date: July 31, 1996
NOTE (SECURED BY SECURITY AGREEMENT) PAGE 1
<PAGE>
Debtor: Maker herein
Secured Party: Payee herein
County where collateral located: Dallas County
Collateral: All of the internet software intellectual property rights, all
internet technology and technology rights of that business owned by Maker
primarily located at 12801 N. Central Expressway, Suite 1515. Dallas, Dallas
County, Texas 75243, but wherever located, including all additions, accessions
and the proceeds therefrom.
Other security for payment: NONE
Maker promises to pay to the order of Payee at the place for payment and
according to the terms of payment the principal amount plus interest at the
rates stated above. All unpaid amounts shall be due by the final scheduled
payment date.
On default in the payment of this note or in the performance of any
obligation in any instrument securing or collateral to it, this note and all
obligations in all instruments securing or collateral to it shall become
immediately due at the election of Payee. Maker and each surety, endorser, and
guarantor waive all demands for payment, presentations for payment, notices of
intention to accelerate maturity. notices of acceleration of maturity, protest,
and notices of protest.
If this note or any instrument securing or collateral to it is given to an
attorney for collection or enforcement, or if suit is brought for collection or
enforcement, or if it is collected or enforced through probate, bankruptcy, or
other judicial proceeding, then Maker shall pay Payee reasonable attorney's fees
in addition to other amounts due. Reasonable attorney's fees shall be 10.0% of
all amounts due unless either party pleads otherwise.
Nothing in this note shall authorize the collection of interest in excess
of the highest rate allowed by law.
Maker reserves the right to prepay the outstanding principal balance of
this Note, in whole or in part, at any time and from time to time, without
premium or penalty. Any such pre-payment shall be made together with payment of
interest accrued on the amount of principal being prepaid through the date of
such prepayment, and shall be applied to the installments of principal due
hereunder in the inverse order of maturity.
Each Maker is responsible for the entire amount of this note.
NOTE (SECURED BY SECURITY AGREEMENT) PAGE 2
<PAGE>
The terms Maker and Payee and other nouns and pronouns include the plural
if more than one.
Maker shall not be deemed to be in default of this note unless and until
Maker shall have been given seven (7) days written notice and opportunity to
cure such default, via certified mail return receipt requested.
American NET Claims, Inc.
By: /s/ Bo W. Lycke
Bo W. Lycke, President
MAKER
NOTE (SECURED BY SECURITY AGREEMENT) PAGE 3
<PAGE>
SECURITY AGREEMENT
(Consumer Goods, Equipment and Farm Products)
THE STATE OF TEXAS )
) KNOW ALL MEN BY THESE PRESENTS:
COUNTY OF DALLAS )
That American NET Claims, Inc. whose address is C/O John C. Willems,
Registered Agent, 10440 North Central Expressway, Suite 1400, Dallas, Dallas
County, Texas 75231, hereinafter called "Debtor" (whether one or more, hereby
GRANTS to American Medical Finance, Inc. whose address is 12801 N. Central
Expressway, Suite 1515, Dallas, Dallas County, Texas 75243, hereinafter called
"Secured Party" (whether one or more), a security interest in the following
described personal property now located and situated at: 12801 N. Central
Expressway, Suite 1515, Dallas, Dallas County, Texas 75243, Texas, together with
all additions and accessions thereto (in the event such property be livestock,
then together with the increase, if any, therefrom), and proceeds thereof (the
inclusion of such proceeds does not authorize Debtor to sell, dispose of or
otherwise use the Collateral in any manner not authorized by this agreement),
all hereinafter called the "Collateral", to-wit:
All of the internet software, licenses, intellectual property rights,
internet technology and technology rights of that business owned by
American NET Claims, Inc. primarily located at 12801 N. Central
Expressway, Suite 1515, Dallas, Dallas County, Texas 75243, but wherever
located, including but not limited to all additions, accessions and the
proceeds therefrom, which Collateral is of the following
classification(s):
[x] Consumer Goods [ ] Equipment (Farm Use)
[ ] Equipment (Business Use) [ ] Farm Products
and which Collateral is to be wholly or partly affixed to real estate or other
goods, a description of which real estate or other goods is as follows: (if not
to be so affixed, insert the word "None"): NONE
This security interest is to secure the payment of an indebtedness
owing by Debtor to Secured Party and evidenced by that one certain promissory
note, dated of even date herewith, in the original principal sum of three
million seven hundred forty thousand dollars ($3,740,000), executed by Debtor,
payable to the order of Secured Party as follows: As therein provided, and
bearing interest as therein stipulated, providing for acceleration of maturity
and for attorney's fees; and to secure all renewals and extensions of all or any
part of said indebtedness hereby secured.
Debtor warrants, covenants, represents and agrees as follows:
SECURITY AGREEMENT (Consumer Goods, Equipment and Farm Products) Page 1
<PAGE>
(1) That Debtor is the full owner of said Collateral and has
authority to grant this security interest therein; that no Financing Statement
is on file covering the Collateral or its proceeds; and except for the security
interest granted hereby, there is no lien or encumbrance in or on the
Collateral, unless otherwise expressly stated herein.
(2) That Debtor's residence is the address shown at the beginning
hereof, and Debtor will immediately notify Secured Party in writing of any
change of such residence.
(3) That the Collateral will not be sold, transferred, rented,
leased, pledged, made subject to a security agreement, or removed from its
present location above named without the written consent of Secured Party and
that the Collateral will not be misused or abused, wasted or allowed to
deteriorate, except for ordinary wear and tear from its intended use. The
Collateral shall remain in Debtor's possession or control at all times at
Debtor's risk of loss.
(4) That the Collateral will be used primarily for the
classification of use above stated, and for no other use without the written
consent of Secured Party. The Collateral will not be affixed to any real estate
or other goods so as to become a fixture on real estate or accession to other
goods, unless such real estate or other goods be described herein above; if said
Collateral is to be so affixed, Debtor will upon demand of Secured Party furnish
written consent or consents to the security interest hereby created or
disclaimer or disclaimers signed by all persons having an interest in the real
estate or other goods.
(5) That Debtor will sign and execute, upon request of Secured
Party, any Financing Statement or other document or procure any documents and
pay all connected costs, necessary to protect the security interest granted
hereby against the rights or interests of third persons.
(6) That Debtor will protect the title and possession of the
Collateral and will pay promptly, when due and before becoming delinquent, all
taxes and assessments now existing or hereafter levied or assessed against said
Collateral or any part thereof, and will keep said Collateral insured, if
insurable, to the extent of the original amount of the indebtedness hereby
secured or to the full insurable value of said Collateral, whichever is the
lesser, against loss or damage by fire, windstorm and theft and any other hazard
or hazards as may be reasonably required from time to time by Secured Party, in
such form and with such insurance company or companies as may be approved by
Secured Party and will deliver to Secured Party the policies of such insurance,
having attached thereto such mortgage indemnity clause as Secured Party shall
direct, and will deliver renewals of such policies to Secured Party at least ten
(10) days before any such insurance policies expire; any sums which may become
due under any such policy, or policies, may be applied by Secured Party, at his
option, to reduce said indebtedness, whether due or not, or Secured Party may
permit Debtor to use said sums to repair or replace all Collateral damages or
destroyed and covered by such insurance.
SECURITY AGREEMENT (Consumer Goods, Equipment and Farm Products) Page 2
<PAGE>
In the event Debtor shall fail to keep said Collateral in good
repair and condition, or to pay promptly when due all taxes and assessments, as
aforesaid, or to preserve the prior security interest hereby granted in said
Collateral, or to keep said Collateral insured, as aforesaid, or to deliver the
policy or policies of insurance or the renewal thereof to Secured Party, as
aforesaid, then Secured Party may, at his option, but without being required to
do so, make such repairs, pay such taxes and assessments, remove any prior liens
or security interests and prosecute or defend any suits in relation to the prior
security interest of this agreement in said Collateral, or insure and keep
insured said Collateral in an amount not to exceed that above stipulated; that
any sum which may be so paid out by Secured Party and all sums paid for
insurance premiums, as aforesaid, including the costs, expenses and attorney's
fees paid in any suit affecting said Collateral when necessary to protect the
security interest hereof shall bear interest from the dates of such payments at
the highest rate stated in said note or notes and shall be paid by Debtor to
Secured Party upon demand, at the same place at which said note or notes are
payable and shall be part of the indebtedness hereby secured and recoverable as
such in all respects.
Debtor shall be in default under this Security Agreement upon the
happening of any of the following events or conditions (herein called an "Event
of Default"):
(1) Debtor's failure to pay when due, or declared due, the
indebtedness hereby secured, or any installment thereof, principal or interest;
(2) Debtor's default in the punctual performance of any of the
obligations, covenants, terms or provisions contained herein or in the note or
notes hereby secured;
(3) If any warranty, covenant or representation made herein by
Debtor proves to have been false in any material respect when so made;
(4) Debtor's dissolution, termination of existence, insolvency or
business failure, or Debtor making an assignment for the benefit of creditors or
the commission of an act of bankruptcy, or the institution of voluntary or
involuntary bankruptcy proceedings, or the taking over of the Collateral or any
part thereof by a Receiver for Debtor or the placing of same in the custody of
any court or an officer or appointee thereof;
(5) Loss, theft, substantial damage, destruction, sale, abandonment
or encumbrance of or to the Collateral or any part thereof.
Upon the occurrence of an Event of Default, and at any time
thereafter, Secured Party may elect, Debtor hereby expressly waiving notice,
demand and presentment, to declare the entire indebtedness hereby secured
immediately due and payable.
In the event of default in the payment of said indebtedness when due
or declared due, Secured Party, without waiving any rights and remedies of a
Secured Party under the
SECURITY AGREEMENT (Consumer Goods, Equipment and Farm Products) Page 3
<PAGE>
Uniform Commercial Code of Texas, shall have the right to require Debtor to
assemble the Collateral and make it available to Secured Party at a place to be
designated by Secured Party which is reasonably convenient to both Parties, and
the right to take immediate possession of any and all of the Collateral and for
the purpose shall have the right to enter upon the premises where said
Collateral may be located and remove the same or may leave the same where it is
then located, and sell the Collateral or such part thereof as Secured Party may
elect (without exhausting the power to sell the remainder or any part thereof at
Public Sale as herein provided or at Public or Private Sale as provided in the
Uniform Commercial Code of Texas) at Public Sale to the highest bidder for cash
at the Courthouse door of the County herein above stated where the Collateral is
now located, after having first given notice of the time, place and terms of
such Public Sale by posting a written or printed notice (which notice shall also
show the then location of the Collateral to be sold) of said sale at the
Courthouse door of said County, at least ten days before the day of sale and
after sending reasonable notice to Debtor and to such other person or persons
legally entitled thereto under the Uniform Commercial Code of Texas, of the time
and place of the Public Sale; the Collateral to be sold may be sold as an
entirety or in such parcels as Secured Party may elect and it shall not be
necessary for Secured Party to have actual possession of the Collateral or to
have it present when the sale is made, but full and perfect title shall pass
wheresoever said Collateral may then be, and Secured Party thus selling said
Collateral shall deliver to the purchaser thereof a Bill of Sale or Transfer
therefor, binding Debtor to warrant and forever defend the title to such
Collateral, and out of the proceeds of the sale pay the reasonable expenses of
retaking, holding, preparing for sale, selling and the like, reasonable
attorney's fees and legal expenses so incurred by Secured Party, and the balance
remaining shall thereupon be applied toward the payment of the amount then owing
on the indebtedness hereby secured, including principal, interest and attorney's
fees as provided herein and in said Note, rendering the balance, if any, and
surplus, if any, to the person or persons legally entitled thereto under the
Uniform Commercial Code of Texas, but if there be any deficiency, Debtor shall
remain liable therefor. Secured Party shall have the right to purchase at such
Public Sale, being the highest bidder. The recitals in the Bill of sale or
Transfer to the purchaser at such sale shall be prima fade evidence of the truth
of the matters therein stated and all prerequisites to said sale required
hereunder and under the Uniform Commercial Code of Texas shall be presumed to
have been performed.
Secured Party, in addition to the rights and remedies provided for
in the preceding paragraph, shall have all the rights and remedies of a Secured
Party under the Uniform Commercial Code of Texas and Secured Party shall be
entitled to avail himself of all such other rights and remedies as may now or
hereafter exist at law or in equity for the collection of said indebtedness and
the enforcement of the covenants herein and the foreclosure of the security
interest created hereby and the resort to any remedy provided hereunder or
provided by the Uniform Commercial Code of Texas, or by any other law of Texas,
shall not prevent the concurrent or subsequent employment of any other
appropriate remedy or remedies.
The requirement of reasonable notice to Debtor of the time and place
of any Public Sale of the Collateral or of the time after which any Private
Sale, or any other intended
SECURITY AGREEMENT (Consumer Goods, Equipment and Farm Products) Page 4
<PAGE>
disposition thereof is to be made, shall be met if such notice is mailed,
postage prepaid, to Debtor at the address of Debtor designated at the beginning
of this Security Agreement, at least five days before the date of any Public
Sale or at least five days before the time after which any Private Sale or other
disposition is to be made.
Secured Party may remedy any default, without waiving same, or may
waive any default without waiving any prior or subsequent default.
The security interest herein granted shall not be affected by nor
affect any other security taken for the indebtedness hereby secured, or any part
thereof; and any extensions may be made of the indebtedness and this security
interest and any releases may be executed of the Collateral, or any part
thereof, herein conveyed without affecting the priority of this security
interest or the validity thereof with reference to any third person, and the
holder of said indebtedness shall not be limited by any election of remedies if
he chooses to foreclose this. security interest by suit. The right to sell under
the terms hereof shall also exist cumulative with said suit; and one method so
resorted to shall not bar the other, but both may be exercised at the same or
different times, nor shall one be a defense to the other
The pronouns used in this agreement are in the masculine gender but
shall be construed as feminine or neuter as occasion may require. "Secured
Party" and "Debtor" as used in this agreement include, shall bind and shall
inure to the benefit of the respective heirs, executors or administrators,
successors, representatives, receivers, trustees or assigns of such parties. If
there be more than one Debtor, their obligations shall be joint and several.
The law governing this secured transaction shall be the Uniform
Commercial Code of Texas and other applicable laws of the State of Texas. All
terms used herein which are defined in the Uniform Commercial Code of Texas
shall have the same meaning herein as in said Code.
The security interest granted herein is a purchase money security
interest.
EXECUTED on July 31, 1996.
Secured Party: Debtor:
American Medical Finance, Inc. American Net Claims, Inc.
/s/ C. Kelly Campbell /s/ Bo W. Lycke
- ----------------------------------- -----------------------------------
C. Kelly Campbell, Vice President Bo W. Lycke, President
SECURITY AGREEMENT (Consumer Goods, Equipment and Farm Products) Page 5
<PAGE>
[Letterhead of American NET Claims Inc.]
March 26, 1997
Mr. Terry A. Lee
Executive Vice President
American NET Claims Inc.
12801 N. Central Expwy., Suite 1515
Dallas, Texas 75243
Subject: Employment Agreement of Sept. 17, 1996, Amendment.
Dear Terry:
This letter will amend the subject agreement in paragraphs III 3.; III 5.;
III 8.A.; III 8.b.
The Company has granted you 50,000 shares of Common Stock. These shares
are subject to:
a) All other terms of the subject agreement except as noted above,
b) Being granted prior to the current Private Equity Placement,
c) Any dilution that occurs.
These shares are granted in lieu of any and all "equity compensation" in
the referenced paragraphs for the period beginning September 17, 1996 and ending
December 31, 1997.
Thank you for your contribution. I sincerely wish you continued success
with American NET Claims.
THE COMPANY: THE EMPLOYEE:
- ------------ -------------
American NET Claims Inc.
Bo W. Lycke, President/Chairman Terry A. Lee, Executive Vice President
/s/ Bo W. Lycke /s/ Terry A. Lee
- ----------------------------------- -----------------------------------
<PAGE>
EMPLOYMENT AGREEMENT
This Agreement is made on 9/17/1996, between American NET Claims,
Inc., ("the Company") and Terry A. Lee ("the Employee").
I. TERM:
1. Company hereby employs the Employee to render full time
services to the Company at the direction of its officers for a
period of twenty-four (24) months, commencing on even date
with this Agreement and ending twenty-four (24) months from
today. Unless otherwise terminated in accordance with the
other provisions of this Agreement, this Agreement shall
automatically renew annually after the initial twenty-four
(24) month term, unless a thirty (30) day advance written
notice to the contrary is served by either party. Such notice
shall be delivered at least thirty days in advance of the
anniversary date of this Agreement.
II. DUTIES:
1. The Employee hereby accepts employment by the Company for the
term and upon the conditions set forth in this Agreement, and
shall during the term of this Agreement:
a. Perform his duties to the best of his ability, and in an
efficient, faithful and businesslike manner, and carry
out the policies and directives of the Company.
b. Devote his full time and attention to the performance of
such duties, and to the exclusion of any other active
business involvement unless approved, in advance and in
writing, by the President of the Company or any other
authorized officer of the Company.
c. Not become involved in any matters which may adversely
affect or reflect upon the Company.
d. Not become engaged, either directly or indirectly, in
any manner whatsoever or in any capacity, whether as
principal, agent, partner, officer, director, employee,
advisor, consultant, or otherwise, in any business or
activity in competition with the business of the
Company, or which may adversely effect the Company.
e. Refrain from disclosing to anyone outside the Company,
except as required in the normal course of business,
Company Proprietary Information which includes, but is
not limited to, the following:
EMPLOYMENT AGREEMENT PAGE - 1
<PAGE>
customer lists, trade secrets, vendor lists, Company
financial statements and information, market plans,
product drawings, products designs, product
specifications, processes, techniques, inventions,
research projects, Company strategies and other
information concerning the Company obtained while in the
employ of the Company not generally known to the public
or to persons involved in the same business as the
Company.
III. BASE COMPENSATION AND BONUSES:
1. The Employee shall receive an annual salary of ONE HUNDRED
TWENTY-FIVE THOUSAND AND NO/100 DOLLARS ($125,000.00) payable
in accordance with the customary payroll practices of the
Company.
2. Notwithstanding the foregoing, in the event that the Employee
is terminated without cause or under numbered paragraph
VIII(1)(h), hereof, the Employee shall receive FORTY THOUSAND
AND NO/100 DOLLARS ($40,000.00) in consideration of the
termination of the Employee.
3. If the financial plan of the Company, approved by the Board of
Directors (as submitted to the Company's Bridge Financier,
BlueStone Capital, in August 1996, hereinafter referred to as
the Financial Plan") are achieved, then the Employee will
receive an annual bonus of $60,000, for a bonus period
prorated to the earlier to occur of December 31, 1997, or one
(1) week prior to any public offering of equity.
4. If the Financial Plan is changed by the Board of Directors,
and the change reduces the forecasted cash/liquidity, the
Employee's bonus remains unchanged. If action or lack thereof
by Employee, in the sole discretion of the board of directors
of the Company, results in a liquidity of less than 90 percent
of the cash/liquidity figure in the Financial Plan, the
Employee shall not be entitled to a bonus.
5. In addition to the cash bonus, the Employee is entitled to
"equity compensation" in the form of newly issued capital
stock of the Company, if the Company remains private. In the
alternative and in lieu of and not in addition to the "equity
compensation" in the form of newly issued capital stock of the
Company if the Company remains private, in the event that the
Company goes "public" the Employee is entitled to "equity
compensation" in the form stock, options and/or warrants (the
form being at the sole option of the board of directors of the
Company), if and when the Company goes public. The price of
any options granted shall be the market price of the Company's
capital stock at the time of the granting of the options. The
options must be accepted by the Employee, if at all, within
sixty (60) days of
EMPLOYMENT AGREEMENT PAGE - 2
<PAGE>
their grant and must be exercised, if at all, within one
hundred twenty (120) days of their grant by the Employee
tendering all cash within such time period.
6. In either event of the Company remaining private or going
public, the bonuses, whether the bonus is in the form of a
cash bonus or equity compensation, are contingent upon the
Employee achieving the targets stated in the Financial Plan
and approved by the Board of Directors of the Company.
7. Notwithstanding anything in this Agreement to the contrary,
any capital stock, options and warrants to be issued may come
with restrictions that are common for Companies making an
initial public offering.
8. The bonus in the form of "equity compensation" shall be
calculated, delivered and subject to the following:
a. If the Company goes public:
The value of the stock, options and/or warrants to be
conveyed to the Employee if the Company goes public
shall be two times (2x) the annual total cash
compensation of the Employee plus the cash bonus to be
paid to the Employee during the year of this Agreement
in which the Company goes public. By way of example and
for illustration purposes only:
o The Employee has a base compensation per year of
$125,000 and is entitled to a performance bonus of
$50,000. Therefore, the total annual cash
compensation would then be equal $175,000.00.
o Given the above assumptions in the example, the
Employee would be entitled to receive a bonus in
the form of "equity compensation" valued at 2.0 x
$175,000 equaling $350,000.
o The $350,000 worth of "equity compensation" would
then be converted into common capital stock of the
Company as the common capital stock of the Company
was trading on the "valuation date".
o The "valuation date" for the purposes of
calculating the bonus in the form of "equity
compensation" until December 31, 1997, shall be
the earlier to occur of December 31, 1997, or one
(1) week prior to any public offering of equity.
For all years subsequent to 1997, the valuation
date shall be the last day of the calendar year of
each year for which a bonus in the
EMPLOYMENT AGREEMENT PAGE - 3
<PAGE>
form of "equity compensation" shall be due.
Notwithstanding the foregoing, in the event the
public offering of equity occurs during 1997, the
Employee shall be entitled to be eligible to
receive two (2) bonuses (one for the portion of
the year the Company was privately held and one
for the portion of the year that the Company was
publicly held on a pro-rated basis). For example,
if the public offering of equity occurs on June
15, 1997, the Employee shall be eligible to earn a
bonus in the form of "equity compensation" for the
time period the Company was private through and
including June 7, 1997. The Employee shall also,
be eligible to earn a bonus in the form of "equity
compensation" for the time period when the Company
was public from and after June 8, 1997, to
December 31, 1997.
o The bonus in the form of "equity compensation" due
if the Company goes public, shall be delivered to
the Employee within 120 days after the end of any
period for which it relates.
b. If the Company remains private:
The stock, options and/or warrants, if any, to be
conveyed to the Employee if the Company remains private
shall be equal to and paid as follows:
o Five percent (5%) of the then existing common
capital stock of the Company for the first year of
this Agreement.
o The stock, options and/or warrants, if any, to be
conveyed to the Employee if the Company remains
private shall be equal to an additional four
percent (4%) of the then existing common capital
stock of the Company for the second year of this
Agreement.
o If the Company remains private, the bonus in the
form of "equity compensation", is due upon the
release of the Company's accounting records for
that year, by the Company's CPA, for the calendar
year ending December 31, 1997.
9. Notwithstanding anything in this Agreement to the contrary,
all compensation to the Employee shall cease upon the
Employee's no longer being employed by the Company, unless
otherwise agreed to, in writing, or except as provided
EMPLOYMENT AGREEMENT PAGE - 4
<PAGE>
for in Article III(2) above or with respect to accrued annual
salary as provided for in Article III(1) above. Further, If
the Employee is not employed by the Company for any reason set
forth in Article VIII(1)(c) or (d) of this Agreement, the
Employee shall receive his cash bonus, if any, and "equity
compensation", if any, prorated to the last day of his
employment with the Company.
10. Notwithstanding anything in this Agreement to the contrary,
except for the last sentence in the immediately preceding
paragraph, the Employee shall be deemed to have no vested
rights or accrued rights in any bonus provided for hereunder,
whether in the form of cash or in the form of "equity
compensation", unless the Employee shall have been employed by
the Company on the last day of the period for which the bonus
in the form of cash or in the form of "equity compensation"
relates.
IV. COMPETITION:
1. In the event the Employee resigns from the Company or his
employment is terminated for any reason set forth in
Subparagraph a. through g. of numbered Paragraph VIII(1)
hereof, the Employee agrees that for a period of twelve (12)
months after the Employee's date of departure from the Company
he will not, in any manner whatsoever or in any capacity,
whether as principal, agent, partner, officer, director,
employee, advisor, consultant or otherwise, be employed by a
business that is competitive with the Company, or sell
products or services that meet the same specifications or are
substantially similar, to the same markets as the products
sold by the Company, or to the same customers, then existing,
of the Company. To be deemed to be a "same customer, then
existing, of the Company", the customer in question must have
done business with the Company sometime within the one (1)
year prior to the Employee's date of departure from the
Company.
2. In the event the Employee's employment is terminated for the
reason contained in Subparagraph h. of numbered Paragraph
VIII(1) hereof, the Employee agrees that for a period of six
(6) months after the Employee's date of departure from the
Company be will not, in any manner whatsoever or in any
capacity, whether as principal, agent, partner, officer,
director, employee, advisor, consultant or otherwise, be
employed by a business that is competitive with the Company,
or sell products or services that meet the same specifications
or are substantially similar, to the same markets as the
products sold by the Company, or to the same customers, then
existing, of the Company.
EMPLOYMENT AGREEMENT PAGE - 5
<PAGE>
3. Regardless of the reason for the employee's termination of
employment, the Employee agrees that for the period when
competition is restricted, the Employee agrees not to:
a. Employ, or in any manner interfere with the employment
of any of the then existing employees, agents or
representatives of the Company.
b. Either directly or indirectly, induce, solicit, or
influence, or attempt to induce, solicit, or influence,
any client or customer of the Company to terminate or
materially change its relationship with the Company.
c. Either directly or indirectly, request or advise any
present or future merchandise resource, supply resource,
or service resource of the Company to withdraw, curtail,
or cancel the furnishing or sales of merchandise,
supplies, or services to the Company.
d. Either directly or indirectly, induce, solicit, or
influence, or attempt to induce, solicit, or influence,
any employee, representative or agent of the Company
(including sales persons or sales representatives
whether or not they are independent contractors) to
terminate their employment or to terminate their
relationship with the Company.
4. In the event a court holds that any of the above restrictions
are invalid or unenforceable, the parties hereby request that
the intent of such provisions be carried out by judicial
modification to make such restrictions reasonable and within
the law. The parties hereby request the trier(s) of fact in
any proceeding in which they are involved, to amend or delete
provisions of this Agreement in accordance with the spirit and
underlying intent of this Agreement as is deemed necessary by
such trier(s) of fact in order to make this Agreement comply
with law. Any such deletion or amendment shall apply only
where the Court rendering the same has jurisdiction. Further,
the employee hereby specifically acknowledges and agrees that
the time period restricting competition as provided for in
this Agreement shall be tolled during the time period of any
breach of this Agreement by the Employee.
5. CONSIDERATION FOR COVENANT NOT TO COMPETE AGREEMENT: The
Employee hereby acknowledges and agrees that but for the
Employee's agreements concerning not competing with the
Company as contained in numbered paragraph 4 of this
Agreement, the Company never would have hired the Employee.
Therefore, the Employee hereby acknowledges and agrees that
there is separate and distinct, good and valuable
consideration given with respect to such agreement not to
compete with the Company. Further, as additional consideration
for the agreements of the Employee concerning not competing
with the Company, the Employee
EMPLOYMENT AGREEMENT PAGE - 6
<PAGE>
acknowledges and agrees that five per cent (5%) of the
Employee's salary (or hourly wage as the case may be) is paid
to the Employee as further consideration for such agreements
of the Employee concerning not competing with the Company.
V. COMPANY PROPRIETARY INFORMATION:
1. Company Proprietary Information includes, but is not limited
to, the following: information relating to any formula,
pattern, device or compilation of information techniques,
pricing, forms, procedures, processes, mailing lists, sales
methods, models, drawings, memoranda and other material or
records of proprietary nature, technical data, records and
policy matters relating to research, finance, accounting,
sales, promotion, schematics, personnel, management and
operations, customer list, price lists, customer service
requirements, costs to providing services, names of suppliers
and customers, arrangements entered into with suppliers and
customers, including, but not limited to, marketing
strategies, and trade secrets of the Company and in general,
any process or device for continuous use in the operation of
the business of the Company obtained while in the employ of
the Company not generally known to the public or to persons
involved in the same business as the Company. The Employee
agrees that in the performance of his duties he has received
and will continue to receive both written and oral Company
Proprietary Information.
2. The Employee agrees that the use of Company Proprietary
Information is strictly limited to that which is necessary in
the Company's business and within the scope of his employment.
Except as required in the conduct of the Company's business
and within the scope of his employment, the Employee agrees to
maintain secret all Company Proprietary information and agrees
not to disclose such Company Proprietary information to any
other person, firm or corporation either during or after his
employment with the Company. The Employee further agrees not
to use any Company Proprietary Information for his own benefit
or the benefit of any other person, firm or corporation, in
any manner whatsoever or in any capacity, whether as
principal, agent, partner, officer, director, employee,
advisor, consultant or otherwise, either during or after his
employment with the Company.
3. The Employee agrees that all Company Proprietary information
in his possession from time to time (original and all copies
thereof) shall be and remain the Company's sole property, and
agrees to use all reasonable precautions to insure that such
Company Proprietary information shall be properly protected
and kept from unauthorized persons.
EMPLOYMENT AGREEMENT PAGE - 7
<PAGE>
4. The Employee agrees that in the event of termination of his
employment for any reason, or upon request, he shall deliver
promptly to the Company all Company Proprietary Information.
VI. EMPLOYEE BENEFITS:
1. The Employee shall be entitled to participate in any health
insurance, life insurance, or any other benefit programs
established by the Company for its employees. Any bonuses
provided for herein or which may otherwise be given from time
to time, at the sole discretion of the Company, shall be
calculated by "certified public accountants" of the Company.
All bonus payments are in addition to compensation agreed to
and are not subject to question or dispute as long as the
"certified public accountants" of the Company calculate them
in accordance with this Agreement.
VII. ASSIGNMENT:
1. This Agreement is personal in nature, and the Employee shall
not assign or transfer any of his obligations under this
Agreement. The Company shall not assign the or transfer any of
the obligations of the Company under this Agreement. Any
attempt to assign the obligations under the terms and
conditions of this Agreement shall be null and void and shall
constitute a material breach of this Agreement.
VIII. GROUNDS FOR TERMINATION OF EMPLOYMENT:
1. The following shall be deemed grounds for termination of the
Employee:
a. Because of theft, misappropriation or embezzlement of
Company property, property of any officer, shareholder,
director or employee, or property of any customer of the
Company or supplier of the Company.
b. Because of dishonesty in the performance of his duties
for the Company or fraud against the Company, which
fraud shall consist of making false representations
known to be false (or concealing material facts) with
the intent to deceive the Company, or its officers,
directors or shareholders, for the purpose of obtaining
for himself something of value to which he is not
entitled under this Agreement, and which has the effect
of damaging the Company, either financially, legally or
in its relations with its suppliers or customers.
c. If he has become so disabled, either physically or
mentally, as to preclude him from performing his job
hereunder, where any or all such
EMPLOYMENT AGREEMENT PAGE - 8
<PAGE>
periods of disablement total in excess of eight (8)
weeks during any one twelve (12) month period. The
Company reserves the right to verify the disability of
the Employee if any such disability exceeds five (5)
working days. Such verification shall be performed in a
timely manner consistent with the nature of the
disability by a licensed medical doctor of the Company's
choosing and at the Company's expense. In addition, the
Company shall pay any other reasonable and customary
expense the Employee may incur which are required to
accomplish such verification. The Employee's employment
may be terminated if he fails to consent to and
cooperate fully with such verification of disability. In
addition, the Employee's employment may be terminated if
the Employee's disability is not confirmed by such
verification. Notwithstanding the foregoing, the Company
shall always comply with any local, state or federal
law, rule or regulation regarding employment of the
disabled.
d. Conviction of a crime punishable as a felony, or
imprisonment for any crime whether felony or
misdemeanor, for a period of time in excess of five (5)
days.
e. Failure to comply with any of the terms and conditions
of this Agreement.
f. Direct insubordination or the failure to comply with any
reasonable directive or order of a superior.
g. In the conduct of the business of the Company, violation
of any state or federal law regarding discrimination
against individuals by reason of their age, race, sex or
religion, or the sexual harassment of any individual.
h. Any other reason which in the sole reasonable judgement
of the Company is in the best interests of the Company.
2. Notwithstanding anything in this Agreement to the contrary, no
notice written shall be required to terminate the employment
of the Employee under Subparagraph a. through g. of numbered
Paragraph VIII(1) hereof and oral notice shall suffice.
IX. MISCELLANEOUS:
1. SEVERABILITY: Should any provision hereof be deemed illegal or
unenforceable, the other provisions hereof shall be given
effect separately therefrom and shall not be affected thereby.
EMPLOYMENT AGREEMENT PAGE - 9
<PAGE>
2. NOTICE: Any notice required or permitted to be given under
this Agreement shall be in writing, shall be effective five
(5) days after mailing and shall be sent by Certified Mail,
return receipt requested, to the last known address of the
party to whom such notice is addressed.
3. CHOICE OF LAW: It is the intention of the parties that the
laws of the State of Texas shall govern this Agreement.
4. PARAGRAPH HEADINGS: Paragraph and other headings contained in
this Agreement are for reference purposes only, and shall not
affect, in any way, the meaning or interpretation of this
Agreement.
5. PARTIES IN INTEREST: This Agreement shall inure to the benefit
of and be binding upon the respective heirs, successors and
assigns (where permitted) of the parties hereto.
6. ENTIRE AGREEMENT: This Agreement constitutes the entire
agreement between the parties hereto, and there are no
agreements or understandings relating to the subject matter
hereof between the parties other than those set forth herein
or herein provided for. This Agreement cannot be changed,
modified, or amended except in writing signed by the parties
thereto.
7. NEGOTIATION OF THE AGREEMENT: This Agreement was fully
reviewed and negotiated on behalf of each party by legal
counsel representing their interests and shall not be
construed against the interests of either party as the drafter
of this Agreement.
8. SETTLEMENT OF DISPUTES: The following agreements are made with
respect to the settlement of disputes arising under the terms
and conditions of this Agreement:
a. If a dispute arises out of or relates to this Agreement,
including to mean any of its Exhibits, or the breach or
default of this Agreement, the parties shall first, in
good faith, attempt to negotiate a settlement of that
dispute, breach or default.
b. If the dispute, breach or default cannot be settled
through negotiation, the parties agree and shall proceed
to binding arbitration through the American Arbitration
Association in accordance with its Commercial
Arbitration Rules, and judgment upon the award rendered
by the arbitrator(s) may be entered in any court having
jurisdiction thereof.
c. Any provisional remedy (including injuctive relief)
which a party to this Agreement may want to elect, shall
be available notwithstanding
EMPLOYMENT AGREEMENT PAGE - 10
<PAGE>
the provisions relating to arbitration of disputes. Any
party may seek such provisional remedy from the
appropriate court of law pending arbitration, and such
proceeding in which the provisional remedy was sought
will then be stayed pending the final award of the
arbitration.
d. The expenses of arbitration conducted pursuant to this
paragraph shall be born by the parties in such
proportions as the arbitrator(s) shall decide.
IN WITNESS WHEREOF, the parties have executed this Agreement on
9/17/1996.
THE COMPANY:
American NET Claims, Inc.
BY: /s/ Bo W. Lycke
-----------------------------------
Title: Pres.
--------------------------------
THE EMPLOYEE:
/s/ Terry A. Lee
- --------------------------------------
Terry A. Lee
EMPLOYMENT AGREEMENT PAGE - 11
<PAGE>
SERVICE AGREEMENT
This Services Agreement (the "Agreement") is entered into by and between
American NET Claims, Inc., a Texas corporation ("ANC") and American Medical
Finance, Inc., a Texas corporation ("AMF").
Recitals
WHEREAS, ANC has been incorporated in 1996 and has developed a business
model for the purpose of acquiring, developing and marketing internet software
technology.
WHEREAS FURTHER, ANC has purchased (the "Purchase") all of the internet
software licenses, intellectual property rights, internet technology and
technology rights from AMF.
WHEREAS FURTHER, ANC plans to develop, test and market the asset purchased
from AMF.
WHEREAS FURTHER, ANC intends to raise funds via the Private Placement and
public offering markets, and will become self-sufficient at that time.
WHEREAS FURTHER, ANC does not have the staffing and other resources on
hand necessary to conduct certain of its activities with respect to the
continued development of the software technology.
WHEREAS FURTHER, AMF has the staffing and other resources on hand or
available to it, which allows it to coordinate the activities and the services
necessary and convenient relating to the needs of ANC.
WHEREAS FURTHER, ANC desires and has agreed to engage the services of AMF
under the terms and conditions as hereinafter expressed, and AMF has agreed to
have its services engaged by ANC under the terms and conditions as hereinafter
expressed.
WHEREAS FURTHER, this writing is intended to form the basis between ANC
and AMF of the agreements, terms, conditions and consideration for the services
to be rendered to and on behalf of each relative to the Purchase.
NOW, THEREFORE, for and in consideration of the mutual covenants as herein
contained and based on the foregoing, the parties hereto agree as follows:
1. Incorporation of Paragraphs. The above and foregoing Recital paragraphs are
substantive
SERVICE AGREEMENT PAGE 1
<PAGE>
in nature and are hereby incorporated herein by reference as contractual
representations, warranties, duties and obligations of the parties hereto and
are meant to be, and are hereby deemed as being, integral parts to this
Agreement.
2. Employment of the Services of AMF as an Independent Contractor. The parties
to this Agreement hereby enter into this Agreement to employ the services of AMF
as an Independent Contractor for the purposes of performing management services
on behalf of ANC. AMF acknowledges that neither it, nor any of its employees
shall be deemed or become an employee of ANC. As such, AMF acknowledges and
agrees to comply with the laws of the United States and the State of Texas
concerning federal and state tax laws. AMF agrees to file all income tax returns
required of Independent Contractors and to pay all taxes owed, including but not
limited to periodic estimated income tax payments and 941 taxes relative to its
employees. AMF further agrees to indemnify and hold harmless ANC against any and
all claims arising from AMF's failure to pay any tax when due.
3. Services to be Provided. AMF shall provide the following services for the
benefit of ANC on an as needed basis:
a. Providing services relating to all prospective developmental,
marketing, operating, financial and acquisition contractual
agreements which lead to the implementation of ANC's business model
and drafting of such agreements, as needed;
b. Providing accounting and financial services relating to the
implementation of the business model of ANC;
c. Providing administrative, management, marketing, acquisition and
operational services relating to the business model of ANC, and in
general,
d. Providing the overall management of all activities relating to the
business model of ANC;
e. General coordination of the activities and services necessary and
convenient relating to the business model of ANC; and the
f. Labor necessary in order to achieve the services necessary and
convenient relating to the business model of ANC.
4. Responsibility for Proportionate Share of Overhead. The parties acknowledge
and agree that to deliver the services and achieve the goals of each and in
order to smoothly coordinate all of the management and other activities relating
to the Purchases, the parties will office together and will share the overhead
expenses related to such office sharing. "Exhibit A", attached hereto,
represents the current costs to be incorporated into this agreement. Costs on
"Exhibit A" are subject to revision after each six (6) month period. AMF will
notify ANC of the new
SERVICE AGREEMENT PAGE 2
<PAGE>
charges, accordingly.
5. Consideration. The consideration for this Agreement shall be deemed the
services rendered by AMF to ANC and the compensation paid by ANC to AMF and the
sharing of the overhead and office space as described above.
6. Payments Under this Agreement. The parties mutually acknowledge and agree
that each month, there shall be a calculation of the services rendered by AMF to
ANC related to this Agreement (the "Monthly Statement"). The Monthly Statement
shall be prepared by AMF and submitted to ANC. The Monthly Statement shall
detail among other things, the amounts owed to AMF for services rendered and
expenses incurred that previous month. If any amounts or items with respect to
the Monthly Statement are contested by either party to this Agreement, such
dispute shall be handled in accordance with the other terms and conditions of
this Agreement relating to the settlement of disputes. As needed, the charged
amount on the monthly statement may be added to the Line of Credit Agreement
between ANC and AMF, dated July 31, 1996.
7. At Will Agreement. This Agreement shall be deemed to be an "at will"
agreement and either party may cancel this Agreement by giving the other written
notice of the intent to cancel. Cancellation shall be effective as is set out in
the written notice of the intent to cancel.
8. Control of Activities. The parties mutually acknowledge and agree that ANC
shall not control the activities of AMF, its handling of its employees,
negotiation strategies, hours of work or any other matters relative to the
services to be provided by AMF to ANC. Notwithstanding the foregoing, ANC shall
be permitted to dictate to AMF the parameters within which AMF must work.
9. Authority to Bind. Nothing in this Agreement shall be construed to constitute
AMF as the partner, employee, representative or direct agent of ANC, nor shall
Contractor have any authority to bind ANC in any respect, it being intended that
AMF shall be and remain an Independent Contractor responsible only for its own
actions, and subject to the terms herein. AMF shall not, without ANC's prior
written approval make representations or guarantees concerning any of the
Purchases.
10. Settlement of Disputes. The following Agreements are made:
a. If a dispute arises out of or relates to this Agreement, including to
mean any of its Exhibits, or the breach or default of this Agreement, the
parties shall first, in good faith, attempt to negotiate a settlement of
that dispute, breach or default.
b. If the dispute, breach or default cannot be settled through
negotiation, the parties agree and shall proceed to binding arbitration,
through the American Arbitration Association in Dallas, Texas, in
accordance with its Commercial Arbitration Rules and judgment upon the
award rendered by the arbitrator(s) may be entered in any court having
SERVICE AGREEMENT PAGE 3
<PAGE>
jurisdiction thereof.
c. Any provisional remedy (including injunctive relief and the appointment
of a receiver) which a party to this Agreement may want to elect, shall be
available notwithstanding the provisions relating to arbitration of
disputes. Any party may seek such provisional remedy from the appropriate
court of law pending arbitration, and such proceeding in which the
provisional remedy was sought will then be stayed pending the final award
of the arbitration.
d. The expenses of arbitration conducted pursuant to this paragraph shall
be born by the parties in such proportions as the arbitrator(s) shall
decide.
11. Notices. All notices, demands, requests and other communications required or
permitted hereunder, or under any other Loan Document except as otherwise
provided therein, shall be in writing and shall be deemed to be given and
delivered (except where actual receipt is specified herein or in any other Loan
Document), upon actual receipt by personal delivery, receipt of notice via
overnight delivery, second day delivery, registered mail, or certified mail,
postage fully prepaid, return receipt requested, addressed to either party, as
the case may be, at its address or at such other address as such party may have
specified theretofore by notice delivered in accordance with this Article.
Rejection or other refusal to accept or the inability to deliver because of
changed address of which no notice thereof was given shall be deemed to be
receipt of the notice, demand, request or other communication.
12. Successors and Assigns. This Agreement shall be binding upon ANC and AMF and
their respective successors, and assigns and shall inure to the benefit of ANC
and AMF and their respective successors, and assigns; provided that AMF shall
not assign any of its rights, duties or obligations hereunder without the prior
written consent of ANC.
13. Severability Clause. Should any provision hereof be deemed illegal or
unenforceable, then any other provisions hereof shall be given effect separately
therefrom and shall not be affected thereby.
14. Amendments; Governing Law. This Agreement and the rights and obligations of
the parties hereunder (i) may be changed only by an instrument in writing signed
by ANC and AMF and (ii) shall be construed in accordance with and governed by
the laws of the state of Texas.
15. Further Assurances. The parties to this Agreement mutually, both
individually and collectively, covenant and agree that they will do any and all
things reasonably necessary after the date of this Agreement in order to
effectuate all the terms and conditions of this Agreement. Each party agrees to
cooperate with the other including but not limited to signing any and all
documents necessary in order to effectuate the other terms and conditions of
this Agreement.
16. Counterpart Execution. This Agreement may be executed in several
counterparts, each of
SERVICE AGREEMENT PAGE 4
<PAGE>
which shall be fully effective as an original and all of which together shall
constitute one and the same instrument.
17. Facsimile Execution. The parties hereby agree that a facsimile copy of this
Agreement will be deemed an original for all purposes, and each hereby waives
the necessity of providing the original copy of this Agreement to bind the
other.
18. Headings. Article, section and/or subsection headings used in this Agreement
are for convenience of reference only and shall not affect the construction or
interpretation of this Agreement.
19. Waiver. No delay or omission to exercise any right, power of remedy accruing
to any party hereto shall impair any such right, power or remedy of such party
nor shall it be construed to be a waiver of any such right, power or remedy nor
constitute any course of dealing or performance hereunder. No waiver shall be
effective unless it is in writing and is received by the waiving party.
20. Attorney's Fees. If any action, suit or other proceeding is instituted
concerning or arising out of this Agreement, the prevailing party shall recover
from the non-prevailing party all of such party's costs, any attorney's fees
incurred in each and every action, suit or other proceeding, including any and
all appeals or petitions therefrom. As used herein, "prevailing party" shall
mean the party entitled to recover its cost of such action, suit or proceeding,
whether or not the suit proceeds to final judgment.
21. Incorporation of Exhibits and Schedules. Any and all Exhibits and Schedules
to this Agreement shall be deemed to be part of this Agreement and are hereby
intended to be incorporated herein by reference as if set out verbatim.
22. References. All references to "Article" contained herein are, unless
specifically indicated otherwise, references to sections of this Agreement.
Whenever herein the singular number is used, the same shall include the plural
where appropriate, and words of any gender shall include each other gender where
appropriate.
23. Performance. Performance under the terms and conditions of this Agreement
has and will take place in Dallas, Texas.
24. Representations to Survive this Agreement. The representations, warranties
and covenants of the Provider contained herein shall survive the purchase of the
Purchased Accounts Receivable and the termination of this Agreement.
SERVICE AGREEMENT PAGE 5
<PAGE>
IN WITNESS WHEREOF, AMF and ANC have caused this Agreement to be duly
executed on the 5th day of August, 1997.
AMF:
By: /s/ C. Kelly Campbell
----------------------------------
C. Kelly Campbell, VP & CFO
ANC:
By: /s/ Bo W. Lycke
----------------------------------
Bo W. Lycke, President
SERVICE AGREEMENT PAGE 6
<PAGE>
EXHIBIT A
Indirect Costs:
Auto $ 80
Advertising (newspaper recruiting ads) 300
Equipment rental (furniture & fixtures, computers & software, etc.) 5,000
Employee insurance benefits 1,100
Employer FICA/Medicare 900
FUTA/SUTA 300
Meals 300
Express mail 200
Hotel 600
Office 150
Rent 2,000
Salaries (1/2 of 5 admin. salaries) 11,500
Telephone 1,300
Travel 3,000
Dues & subscriptions 20
Office equipment rental (photo copiers, postage meter 200
machines)
Office supplies 600
Postage 100
Printing (letterhead, Bus cards, marketing brochures, etc. 500
--------
Total Indirect Costs $ 28,150
--------
Direct costs:
Computer supplies $ 200
Meals 100
Hotel 50
Travel 100
Outside professional consultants 1,000
Market testing & research 2,500
Office supplies 150
Telephone 2,800
Travel 100
Salaries (9 employees) 25,600
Employer FICA/Medicare 2,000
Employee insurance benefits 2,400
--------
Total Direct Costs $ 37,000
--------
Total monthly charge to ANC $ 65,150
========
SERVICE AGREEMENT PAGE 7
<PAGE>
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is made on this date to
be effective on the date stated at the end of this Agreement (the "Effective
Date"), between American Net Claims, Inc., ("the Company") and Randall S.
Lindner, ("the Employee").
I. TERM:
1. Company hereby employs the Employee to render full time
services to the Company at the direction of its officers for
an "Initial Term" of thirty-six (36) months, commencing on the
Effective Date and ending thirty-six (36) months from the
Effective Date.
2. Unless otherwise terminated in accordance with the other
provisions of this Agreement, this Agreement shall
automatically renew annually after the Initial Term of this
Agreement, unless a thirty (30) day advance written notice to
the contrary is served by either party. Such notice shall be
delivered at least thirty days in advance of the anniversary
date of this Agreement.
II. DUTIES:
1. The Employee hereby accepts employment by the Company as a
Vice President of Technology for the term and upon the
conditions set forth in this Agreement, and shall during the
term of this Agreement:
a. Perform his duties to the best of his ability, and in an
efficient, faithful and businesslike manner, and carry
out the policies and directives of the Company.
b. Devote his full time and attention to the performance of
such duties, and to the exclusion of any other active
business involvement unless approved, in advance, by the
President of the Company or any other authorized officer
of the Company.
c. Not become involved in any matters which may adversely
affect or reflect upon the Company.
d. Not become engaged, either directly or indirectly, in
any manner whatsoever or in any capacity, whether as
principal, agent, partner, officer, director, employee,
advisor, consultant, or otherwise, in
EMPLOYMENT AGREEMENT PAGE-1
<PAGE>
any business or activity in competition with the
business of the Company, or which may adversely effect
the Company.
e. Refrain from disclosing to anyone outside the Company,
except as required in the normal course of business,
Company Proprietary Information which includes, but is
not limited to, the following: customer lists, trade
secrets, vendor lists, Company financial statements and
information, market plans, product drawings, products
designs, product specifications, processes, techniques,
inventions, research projects, Company strategies and
other information concerning the Company obtained while
in the employ of the Company not generally known to the
public or to persons involved in the same business as
the Company.
III. BASE COMPENSATION:
1. The Employee shall receive annual compensation agreed upon by
both parties during the term of this Agreement. This pay may
be adjusted upward from time to time based on performance of
the Employee, at the Company's sole discretion. The Employee
shall initially receive annual compensation of ONE HUNDRED
THOUSAND AND NO/l00 DOLLARS ($100,000.00) payable in at least
semi-monthly installments during the term of this Agreement.
2. Notwithstanding the foregoing, in the event that the Employee
is terminated without cause or under numbered paragraph
VIII(1)(g) hereof, the Employee shall receive the following
severance compensation in consideration of the termination of
the Employee:
a. THIRTY THOUSAND AND NO/100 DOLLARS ($30,000.00) in the
event that such termination occurs during the first one
year after the Effective Date of this Agreement;
b. TWENTY-FIVE THOUSAND AND NO/l00 DOLLARS ($25,000.00) in
the event that such termination occurs during the second
year after the Effective Date of this Agreement;
c. TWENTY THOUSAND AND NO/l00 DOLLARS ($20,000.00) in the
event that such termination occurs during the third year
after the Effective Date of this Agreement; and
d. After the end of the third year from the Effective Date
of this Agreement, the Employee shall be entitled to no
severance
EMPLOYMENT AGREEMENT PAGE-2
<PAGE>
compensation in the event that the Employee is
terminated without cause or under numbered paragraph
VIII(1)(g) hereof.
3. Except for accrued salary for which the Employee has not been
paid, all compensation to the Employee shall cease upon the
Employee's no longer being employed by the Company, unless
otherwise agreed to, in writing. This specifically is meant to
include the agreement that the Employee's right to all
"Bonuses" (defined as any type of additional compensation for
the services of the Employee, whether in the form of stock,
cash or any other benefit or compensation to or for the
benefit of the Employee), if any, shall terminate upon the
employee's no longer being employed by the Company, unless
specifically provided otherwise by an employee benefit plan
adopted generally by the Company for its employees (and then,
only to the extent the Employee is included by qualification
or general reference in such plan), or as otherwise agreed by
a subsequent writing signed by the duly authorized
representative of the Company. Unless the Employee shall have
been employed by the Company on the last day of the period for
which Bonuses, if any, under this Agreement relate, no Bonuses
shall be due or owing to the Employee, unless otherwise
specifically agreed by a subsequent writing signed by the duly
authorized representative of the Company. The Employee shall
be entitled to Bonuses based on the schedule defined in
Schedule I and Exhibit A attached hereto and made a part
hereof.
IV. COMPETITION:
1. In the event the Employee resigns from the Company or his
employment is terminated for any reason set forth in
Subparagraph a. through e. of numbered Paragraph VIII(1)
hereof the Employee agrees that for a period of one (1) year
after the Employee's date of departure from the Company he
will not, in any manner whatsoever or in any capacity, whether
as principal, agent, partner, officer, director, employee,
advisor, consultant or otherwise, for profit or not, sell
products or services that meet the same specifications or are
substantially similar to the products sold by the Company to
the same customers, then existing, of the Company, regardless
of where those customers are located. To be deemed to be a
"same customer, then existing, of the Company", the customer
in question must have done business with the Company sometime
within the one (1) year prior to the Employee's date of
departure from the Company. In the event that the Employee is
terminated from employment for either reason set forth in
Subparagraph f. or g. of numbered Paragraph VIII(1) hereof,
the Employee agrees that the same restrictions against
competition and same Market Area as stated above in this
paragraph shall apply, but the time period prohibiting
competition shall be shortened to six (6) months.
EMPLOYMENT AGREEMENT PAGE-3
<PAGE>
2. In the event the Employee becomes subject to any restriction
against competition by reason of the immediately preceding
paragraph, the Employee agrees that during the period of
restricted competition, the Employee will not, directly or
indirectly, for profit or not, do as follows:
a. Employ, or in any manner interfere with the employment
of any of the then existing employees, agents or
representatives of the Company.
b. Either directly or indirectly, induce, solicit, or
influence, or attempt to induce, solicit, or influence,
any client or customer of the Company to terminate or
materially change its relationship with the Company.
c. Either directly or indirectly, request or advise any
present or future merchandise resource, supply resource,
or service resource of the Company to withdraw, curtail,
or cancel the furnishing or sales of merchandise,
supplies, or services to the Company.
d. Either directly or indirectly, induce, solicit, or
influence, or attempt to induce, solicit, or influence,
any employee, representative or agent of the Company
(including sales persons or sales representatives
whether or not they are independent contractors) to
terminate their employment or to terminate their
relationship with the Company.
3. In the event a court holds that any of the above restrictions
are invalid or unenforceable, the parties hereby request that
the intent of such provisions be carried out by judicial
modification to make such restrictions reasonable and within
the law. The parties hereby request the trier(s) of fact in
any proceeding in which they are involved, to amend or delete
provisions of this Agreement in accordance with the spirit and
underlying intent of this Agreement as is deemed necessary by
such trier(s) of fact in order to make this Agreement comply
with law. Any such deletion or amendment shall apply only
where the Court rendering the same has jurisdiction. The
Employee hereby specifically acknowledges and agrees that the
time period restricting competition as provided for in this
Agreement shall be tolled during the time period of any breach
of this Agreement by the Employee.
4. The Employee acknowledges that a breach of the restrictions
against engaging in a competitive activity contained in this
Section will cause
EMPLOYMENT AGREEMENT PAGE-4
<PAGE>
irreparable damage to the Company, the exact amount of which
will be difficult to ascertain, and that the remedies at law
for any such breach will be inadequate. Accordingly, the
Employee and the Company agree that if the Employee breaches
the restrictions against engaging in a competitive activity
contained in this Section, then the Company shall be entitled
to injunctive relief, without posting bond or other security.
5. CONSIDERATION FOR COVENANT NOT TO COMPETE AGREEMENT: The
Employee hereby acknowledges and agrees that but for the
Employee's agreements concerning not competing with the
Company as contained in numbered paragraph IV of this
Agreement, the Company never would have hired the Employee, or
in the event that the Employee had already been employed by
the Company, that the Company never would have continued the
employment of the Employee. Therefore, the Employee hereby
acknowledges and agrees that there is separate and distinct,
good and valuable consideration given with respect to such
agreement not to compete with the Company. Further, as
additional consideration for the agreements of the Employee
concerning not competing with the Company, the Employee
acknowledges and agrees that five per cent (5%) of the
Employee's salary (or hourly wage as the case may be) is paid
to the Employee as further consideration for the agreements of
the Employee concerning not competing with the Company [in the
event that this Agreement is executed by an existing Employee
of the Company, such Employee acknowledges and agrees that
concurrently with the execution of this agreement, such
Employee has received an increase in pay equal to five per
cent (5%) of the Employee's salary (or hourly wage as the case
may be) and that such increase is and shall be paid to such
Employee as further consideration for the agreements of the
Employee concerning not competing with the Company].
V. COMPANY PROPRIETARY INFORMATION:
1. Company Proprietary Information includes, but is not limited
to, the following: information relating to any formula,
pattern, device or compilation of information, source codes,
techniques, pricing, forms, procedures, processes, mailing
lists, customer lists and/or data bases, sales methods,
models, drawings, memoranda and other material or records of
proprietary nature, technical data, records and policy matters
relating to research, finance, accounting, sales, promotion,
schematics, personnel, management and operations, price lists,
customer service requirements, costs to providing services,
names of suppliers and customers, arrangements entered into
with suppliers and customers, including, but not limited to,
marketing strategies, and trade secrets of the Company and in
EMPLOYMENT AGREEMENT PAGE-5
<PAGE>
general, any process or device for continuous use in the
operation of the business of the Company obtained while in the
employ of the Company not generally known to the public or to
persons involved in the same business as the Company, meaning
specifically to include any of the foregoing items,
information, data, compilations or lists developed in whole or
in part by the Employee.
2. The Employee agrees that any Company Proprietary Information
is and shall be and remain the sole and exclusive property of
the Company, regardless of whether or not the Employee had any
hand in the development or origination of the Company
Proprietary Information. This Agreement shall constitute the
Employee's assignment to the Company of any and all right,
title and interest in and to Company Proprietary Information
the Employee had any hand in the development or origination of
on behalf of the Company or on Company time. The Employee
agrees that in the performance of his duties he has received
and will continue to receive both written and oral Company
Proprietary Information.
3. The Employee agrees that the use of Company Proprietary
Information is strictly limited to that which is necessary in
the Company's business and within the scope of his employment.
Except as required in the conduct of the Company's business
and within the scope of his employment, the Employee agrees to
maintain secret all Company Proprietary Information and agrees
not to disclose such Company Proprietary Information to any
other person, firm or corporation either during or after his
employment with the Company. The Employee further agrees not
to use any Company Proprietary Information for his own benefit
or the benefit of any other person, firm or corporation, in
any manner whatsoever or in any capacity, whether as
principal, agent, partner, officers, director, employee,
advisor, consultant or otherwise, either during or after his
employment with the Company, for profit or not.
4. The Employee agrees that all Company Proprietary Information
in his possession from time to time (original and all copies
thereof) shall be and remain the Company's sole property, that
the Employee will not claim any ownership interest in any part
of the Company Proprietary Information and agrees to use all
reasonable precautions to insure that such Company Proprietary
Information shall be properly protected and kept from
unauthorized persons.
5. The Employee agrees that in the event of termination of his
employment for any reason, or at any time upon request, he
shall deliver promptly to the Company all Company Proprietary
Information.
EMPLOYMENT AGREEMENT PAGE-6
<PAGE>
VI. EMPLOYEE BENEFITS:
1. The Employee shall be entitled to a maximum allowance for
actual expenses incurred in the relocation of the Employee to
the Dallas, Texas area in the amount of TWO THOUSAND FIVE
HUNDRED AND NO/100 DOLLARS ($2,500.00).
2. The Employee shall be entitled to participate in any health
insurance, life insurance, or any other benefit or bonus
programs which are or may be established by the Company at its
sole discretion for its employees, subject to any plan
qualification requirements, including but not limited to the
Stock Option Plan (the "Plan") described in Schedule 1
attached hereto and incorporated herein by reference.
Notwithstanding any Company Employee Manual terms or
conditions to the contrary, the Employee shall be deemed to be
entitled to two (2) weeks vested vacation time immediately
upon the signing of this Agreement (normal policy is that only
one week will vest after six months of employment). Additional
vacation time will accrue monthly, totaling two (2) weeks per
year of employment. The Company shall pay for the parking of
the Employee at the offices of the Company in Dallas, Texas.
3. Bonuses, if any, may be given from time to time, at the sole
discretion of the Company, calculated by "in house"
accountants of the Company. All bonus payments are in addition
to compensation agreed to and are not subject to question or
dispute.
4. Unless otherwise specifically provided for in this Agreement,
the Employee shall be deemed to have no vested rights or
accrued rights in any employee benefit or bonus provided for
hereunder, whether in the form of cash, equity compensation
(if there is any such agreement), or other things of value,
unless specifically stated herein to the contrary, or unless
otherwise specifically agreed by a subsequent writing signed
by the duly authorized representative of the Company.
VII. ASSIGNMENT:
1. This Agreement is personal in nature, and the Employee shall
not assign or transfer any of his obligations under this
Agreement. The Company shall not assign the or transfer any of
the obligations of the Company under this Agreement.
EMPLOYMENT AGREEMENT PAGE-7
<PAGE>
2. Any attempt to assign the obligations under the terms and
conditions of this Agreement shall be null and void and shall
constitute a material breach of this Agreement.
VIII. GROUNDS FOR TERMINATION OF EMPLOYMENT:
1. The following shall be deemed grounds for termination of the
Employee, immediately, with or without any written notice:
a. Because of theft, misappropriation or embezzlement of
Company property, property of any officer, shareholder,
director or employee, or property of any customer of the
Company or supplier of the Company.
b. Because of dishonesty in the performance of his duties
for the Company or fraud against the Company, which
fraud shall consist of making false representations
known to be false (or concealing material facts) with
the intent to deceive the Company, or its officers,
directors or shareholders, for the purpose of obtaining
for himself something of value to which he is not
entitled under this Agreement, and which has the effect
of damaging the Company, either financially, legally or
in its relations with its suppliers or customers.
c. Conviction of a crime punishable as a felony, or
imprisonment for any crime whether felony or
misdemeanor, for a period of time in excess of five (5)
days.
d. Failure to comply with any of the terms and conditions
of this Agreement.
e. In the conduct of the business of the Company, violation
of any state or federal law regarding discrimination
against individuals by reason of their age, race, sex or
religion, the sexual harassment of any individual, or
the disability of any individual.
f. If the Employee cannot physically or mentally render
satisfactory service to the Company, understanding that
the Company will make all reasonable attempts to
accommodate the Employee under the law.
g. Any other reason which in the sole reasonable judgement
of the Company is in the best interests of the Company.
EMPLOYMENT AGREEMENT PAGE-8
<PAGE>
IX. MISCELLANEOUS:
SEVERABILITY AND SURVIVAL: Should any provision hereof be
deemed illegal or unenforceable, the other provisions hereof
shall be given effect separately therefrom and shall not be
affected thereby. The restrictions against competition and
with respect to Company Proprietary Information contained in
this Agreement shall survive the termination of this
Agreement.
2. NOTICE: Unless otherwise provided for to the contrary under
this Agreement, any notice required or permitted to be given
under this Agreement shall be in writing, shall be effective
five (5) days after mailing and shall be sent by Certified
Mail, return receipt requested, to the last known address of
the party to whom such notice is addressed.
3. COMPANY POLICIES. The Employee agrees to comply with any and
all the Company's policies, regulations and procedures
including but not limited to those which now or hereafter in
effect or which may relate to the matters set forth in this
Agreement. Periodically, at the request of the Company, the
Employee also agrees to execute and/or respond fully,
truthfully, accurately and completely to all customary
employment documents or questionnaires as may be submitted to
the Employee in connection therewith.
4. CHOICE OF LAW: It is the intention of the parties that the
laws of the State of Texas shall govern this Agreement,
without regard to the rules relating to conflict of laws or
choice of law.
5. PARAGRAPH HEADINGS: Paragraph and other headings contained in
this Agreement are for reference purposes only, and shall not
affect, in any way, the meaning or interpretation of this
Agreement.
6. PARTIES IN INTEREST: This Agreement shall inure to the benefit
of and be binding upon the respective heirs, successors and
assigns (where permitted) of the parties hereto.
7 CONFLICT: To the extent that this Agreement conflicts with any
of the terms and conditions of any Company Employee Manual or
similar document, the terms of this Agreement shall control.
8. ENTIRE AGREEMENT: This Agreement constitutes the entire
agreement between the parties hereto, and there are no
agreements or
EMPLOYMENT AGREEMENT PAGE-9
<PAGE>
understandings relating to the subject matter hereof between
the parties other than those set forth herein or herein
provided for. This Agreement cannot be changed, modified, or
amended except in writing signed by the parties thereto.
9. SETTLEMENT OF DISPUTES: The following agreements are made with
respect to the settlement of disputes arising under the terms
and conditions of this Agreement:
a. If a dispute arises out of or relates to this Agreement,
including to mean any of its Exhibits, or the breach or
default of this Agreement, the parties shall first, in
good faith, attempt to negotiate a settlement of that
dispute, breach or default.
b. If the dispute, breach or default cannot be settled
through negotiation, the parties agree and shall proceed
to binding arbitration through the American Arbitration
Association in accordance with its Commercial
Arbitration Rules, and judgment upon the award rendered
by the arbitrator(s) may be entered in any court having
jurisdiction thereof.
c. Any provisional remedy (including injunctive relief)
which a party to this Agreement may want to elect, shall
be available notwithstanding the provisions relating to
arbitration of disputes. Any party may seek such
provisional remedy from the appropriate court of law
pending arbitration, and such proceeding in which the
provisional remedy was sought will then be stayed
pending the final award of the arbitration.
d. The expenses of arbitration conducted pursuant to this
paragraph shall be borne by the parties in such
proportions as the arbitrator(s) shall decide.
Executed to be effective on June 2, 1997.
THE COMPANY:
AMERICAN NET CLAIMS INC.
BY: [ILLEGIBLE]
Title: [ILLEGIBLE]
EMPLOYMENT AGREEMENT PAGE-10
<PAGE>
THE EMPLOYEE:
/s/ Randall S. Lindner
- ---------------------------------
Randall S. Lindner
EMPLOYMENT AGREEMENT PAGE-11
<PAGE>
SCHEDULE 1
On April 5, 1997, the Board of Directors of the Company and stockholders
of the Company adopted the Plan. The Plan provides for the grant of options to
purchase up to 750,000 shares of Common Stock to employees, officers, directors,
and consultants of the Company. Options may be either "incentive stock options"
within the meaning of Section 422 of the United States Internal Revenue Code of
1986, as amended (the "Code"), or non-qualified options. Incentive stock options
may be granted only to employees of the Company, while non-qualified options may
be issued to non-employee directors, consultants, and others, as well as to
employees of the Company.
The Plan will be administered by "disinterested members" of the Board of
Directors (as defined by Rule 16b-3 under the Exchange Act), who determine,
among other things, the individuals who shall receive options, the time period
during which the options may be partially or fully exercised, the number of
shares of Common Stock issuable upon the exercise of each option, and the option
exercise price.
The exercise price per share of Common Stock subject to an incentive
option may not be less than the fair market value per share of Common Stock on
the date the option is granted. The per share exercise price of the Common Stock
subject to a non-qualified option may be established by the Board of Directors.
The aggregate fair market value (determined as of the date the option is
granted) of Common Stock for which any person may be granted incentive stock
options which first become exercisable in any calendar year may not exceed
$100,000. No person who owns, directly or indirectly, at the time of the
granting of an incentive stock option to such person, 10% or more of the total
combined voting power of all classes of stock of the Company (a "10%
Stockholder") shall be eligible to receive any incentive stock options under the
Plan unless the exercise price is at least 110% of the fair market value of the
shares of Common Stock subject to the option, determined on the date of grant.
Non-qualified options are not subject to such limitation.
No stock option may be transferred by an optionee other than by will or
the laws of descent and distribution, and, during the lifetime of an optionee,
the option will be exercisable only by the optionee. In the event of termination
of employment other than by death or disability, the optionee will have no more
than three months after such termination during which the optionee shall be
entitled to exercise the option, unless otherwise determined by the Board of
Directors. Upon termination of employment of an optionee by reason of death or
permanent and total disability, such optionee's options remain exercisable for
one year thereafter to the extent such options were exercisable on the date of
such termination. No similar limitation applies to non-qualified options.
Options under the Plan must be issued within ten years from the effective
date of the Plan. The effective date of the Plan is April 5, 1997. Incentive
stock options granted under the Plan cannot be exercised more than ten years
from the date of grant. Incentive stock options
EMPLOYMENT AGREEMENT PAGE-12
<PAGE>
issued to a 10% Stockholder are limited to five year terms. Options granted
under the Plan generally provide for the payment of the exercise price in cash
and may provide for the payment of the exercise price by delivery to the Company
of shares of Common Stock already owned by the optionee having a fair market
value equal to the exercise price of the options being exercised, or by a
combination of such methods. Therefore, if so provided in an optionee's options,
such optionee may be able to tender shares of Common Stock to purchase
additional shares of Common Stock and may theoretically exercise all of his
stock options with no additional investment other than the purchase of his
original shares.
Any unexercised options that expire or that terminate upon an employee's
ceasing to be employed by the Company become available again for issuance under
the Plan.
To date, no options have been granted under the Plan.
EMPLOYMENT AGREEMENT PAGE-13
<PAGE>
EXHIBIT A
Bonus Plan for Randall Lindner
$10,000 Paid upon completion, testing and successful production of a claim
format generator for use with CyberClaim.
$5,000 Paid upon completion of a browser interface implementation of
CyberClaim for production mode utilizing Top Speed browser solution
and eliminating the requirement for Citrix terminal emulation.
Bonus will be paid in the first two week pay period upon successful completion
of the above objectives.
EMPLOYMENT AGREEMENT PAGE-14
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 of our
report dated April 1, 1997 except for Notes C, H and K for which the date is
_____________, 1997, on our audit of the financial statements of
claimsnet.com inc., and our report dated June 2, 1997, on our audit of the
financial statements of Medica Systems, Inc. We also consent to the reference
to our firm under the caption "Experts".
/s/ King Griffin & Adamson P.C.
-------------------------------
KING GRIFFIN & ADAMSON P.C.
Dallas, Texas
September 23, 1997
