<PAGE>
As Filed With the Securities and Exchange Commission on June 29, 1999.
Registration No. 333-78431
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 2 to
FORM S-1
REGISTRATION STATEMENT
Under
The Securities Act of 1933
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Allscripts, Inc.
(Exact name of registrant as specified in its charter)
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Delaware 5122 36-3444974
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification No.)
incorporation or Classification Code
organization) Number)
2401 Commerce Drive
Libertyville, Illinois 60048
(847) 680-3515
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive office)
---------------
Glen E. Tullman
Chairman and Chief Executive Officer
2401 Commerce Drive
Libertyville, Illinois 60048
(847) 680-3515
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
Joseph H. Greenberg Mitchell L. Hollins
Gardner, Carton & Douglas Sonnenschein Nath & Rosenthal
321 North Clark Street, Suite 2900 8000 Sears Tower
Chicago, Illinois 60610 Chicago, Illinois 60606
(312) 644-3000 (312) 876-8000
----------------
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. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
Proposed
Proposed Maximum
Amount Maximum Aggregate Amount of
Title of Each Class of to be Offering Price Offering Price Registration
Securities to be Registered Registered (1) Per Share (2) (2) Fee (3)
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<S> <C> <C> <C> <C>
Common Stock, par value $0.01
per share....................... 8,050,000 $12.00 $96,600,000 $26,855
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</TABLE>
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(1) Includes a maximum of 1,050,000 shares that may be purchased by the
underwriters to cover over-allotments, if any.
(2) Estimated solely for purposes of determining the amount of the
registration fee, in accordance with Rule 457(a).
(3) Of the total registration fee, $25,020 was paid at the time of the initial
filing of the registration statement and $1,835 is being paid herewith.
---------------
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 this registration
statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this preliminary prospectus is not complete and may be +
+changed. These securities may not be sold until the registration statement +
+filed with the Securities and Exchange Commission is effective. This +
+preliminary prospectus is not an offer to sell nor does it seek an offer to +
+buy these securities in any jurisdiction where the offer or sale is not +
+permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion. Dated June 29, 1999.
7,000,000 Shares
[LOGO]
Allscripts, Inc.
Common Stock
-----------
This is an initial public offering of shares of common stock of Allscripts,
Inc. All of the 7,000,000 shares of common stock are being sold by Allscripts.
Prior to this offering, there has been no public market for our common stock.
It is currently estimated that the initial public offering price per share will
be between $10.00 and $12.00. Application has been made for quotation of the
common stock on the Nasdaq National Market under the symbol "MDRX".
See "Risk Factors" beginning on page 6 to read about factors you should
consider before buying shares of the common stock.
-----------
Neither the Securities and Exchange Commission nor any other regulatory body
has approved or disapproved of these securities or passed upon the accuracy or
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
-----------
<TABLE>
<CAPTION>
Per Share Total
--------- --------
<S> <C> <C>
Initial public offering price............................ $ $
Underwriting discount.................................... $ $
Proceeds, before expenses, to Allscripts................. $ $
</TABLE>
The underwriters may, under specific circumstances, purchase up to an
additional 1,050,000 shares from Allscripts at the initial public offering
price less the underwriting discount.
-----------
The underwriters expect to deliver the shares in New York, New York on
, 1999.
Goldman, Sachs & Co.
Bear, Stearns & Co. Inc.
CIBC World Markets
Wit Capital Corporation
-----------
Prospectus dated , 1999.
<PAGE>
ALLSCRIPTS(TM)
MANAGEMENT SOLUTIONS
Connectivity @ The Point of Care
Pharmacy Managed Care
[Photo of patient [Photo of patient
consulting with consulting with
pharmacist] physician]
Pharmacy Benefits Managed Care Benefits
> Valuable Electronic > Control Medication Costs
Information . Increase Formulary
. e-Refill Compliance
. e-Messaging . Drug Utilization Review
> Decreased Costs > Managing Care
. Reduced Prescription Errors . Treatment Protocols
. Increased Patient
Compliance
Physician
[Photo of physician using TouchScript]
Using Allscripts
Physician Benefits
> 3Touch(TM) Speed & Simplicity
> Increased Revenue
> Increased Patient Satisfaction
> Time Savings from e-Scripts
> Internet Gateway
> Better Management of Financial Risk
> Fewer Phone Calls & Descriptions
Patient Benefits Pharmaceutical
Manufacturer Benefits
> Convenience > Internet Gateway
> Confidentiality to Physicians
> Compliance Programs > Improved Marketing
> Decreased . Physician Profiling
Medication Errors . e-Detailing
> Link Clinical and
Rx Information
Patient Pharmaceutical
[Photo of patient [Photo of machine
receiving prepackaged repackaging medications]
medication]
Manufacturer
<PAGE>
PROSPECTUS SUMMARY
This is a summary and does not contain all the information that may be
important to you. You should read the more detailed information included in
this prospectus. All information in this prospectus gives effect to a one-for-
six reverse split of our common stock effected on June 28, 1999. Except as
otherwise noted, the information contained in this prospectus assumes:
. the underwriters will not exercise the over-allotment option, and no
other person will exercise any other outstanding option or warrant;
. we will reincorporate in the state of Delaware upon the closing of this
offering, which will result in, among other things, our adoption of a
new Certificate of Incorporation and By-laws; and
. all outstanding shares of our Series A, B, C, D, F and G preferred stock
will convert into a total of 2,977,483 shares of common stock upon the
closing of this offering.
Allscripts, Inc.
We provide physicians with Internet and client/server medication management
solutions designed to improve the quality and cost effectiveness of
pharmaceutical healthcare. Our technology-based approach focuses on the point
of care, where the prescription originates, and creates an electronic dialogue
between physicians and other participants in the healthcare delivery process,
including patients, pharmacies, managed care organizations and pharmaceutical
manufacturers. We believe physicians find our solutions attractive because
incorporating these solutions into their office work flow can increase
efficiency and profitability and improve the quality of patient care.
The current process for prescribing and delivering medications is
inefficient, unnecessarily costly and error-prone. Our in-office and Internet-
based comprehensive solutions are designed to improve and streamline every step
of the pharmaceutical healthcare process in a way that can benefit each
participant. Our medication management solutions enable physicians to improve
their prescribing at the point of care by providing them with information about
potential adverse drug interactions, patient drug history and managed care
guidelines. This ready access to information during the prescribing process
reduces the time physicians spend clarifying and changing prescriptions and
enables them to better manage financial risk. Our products also enable
physicians to increase practice revenue by dispensing medications. In addition,
our solutions make it possible for patients to have their prescriptions
electronically routed to the pharmacy of their choice or to benefit from the
convenience, immediacy and confidentiality of receiving their medications in
the physician's office. Our solutions also benefit managed care organizations
by promoting higher physician compliance with their pharmacy guidelines, while
pharmacies benefit from improved communication with physicians, which enhances
efficiency and reduces the likelihood of errors.
We currently offer products in four categories: point-of-care medication
management, Internet products and services, information products and
prepackaged medications. Our TouchScript software enables electronic
prescribing, routing of prescription information and capturing of prescription
data at the point of care. Our other e-commerce products and services offer
physicians and their patients medication-related education and information
services. We also sell prepackaged medications to physicians so they can offer
their patients the convenience of receiving prescription medications in the
physician's office.
We believe that our experience in the pharmaceutical healthcare delivery
process gives us a competitive advantage. Through our business relationships
with thousands of physicians, we have developed an understanding of their
office work flow and business practices. Versions of TouchScript are currently
installed and used in over 150 physician practice sites, and we have
facilitated relationships
3
<PAGE>
between many of the country's largest managed care payers and our physician
customers under which our customers can obtain reimbursement for prescription
medications dispensed in their offices. In addition, our experience in
providing medication management solutions has given us a thorough understanding
of the complex and dynamic healthcare regulatory environment. Finally, we
believe that our management team, which is experienced in managing rapidly
growing public companies that use technology to change business processes,
further enhances our competitive advantage.
Corporate Information
Allscripts was incorporated in Illinois in 1986 and will be reincorporated
in Delaware upon the closing of this offering. Our executive offices are at
2401 Commerce Drive, Libertyville, Illinois 60048. Our telephone number is
(847) 680-3515; our Internet e-mail address is [email protected]; and our Web
site is www.Allscripts.com. Information contained on our Web site is not part
of this prospectus.
TouchScript(R) and MedSmart(R) are registered trademarks of Allscripts, Inc.
Allscripts(TM), 3Touch Prescribing(TM), Physician's Interactive(TM),
ScriptGuard(TM) and Intelligent Reminder(TM) are trademarks of Allscripts, Inc.
All other trademarks, brand marks, trade names and registered marks used in
this prospectus are trademarks, brand marks, trade names or registered marks of
their respective owners.
The Offering
<TABLE>
<S> <C>
Shares offered by
Allscripts............. 7,000,000
Shares to be outstanding
after the offering
(1).................... 18,929,799
Proposed Nasdaq National
Market symbol.......... MDRX
Use of proceeds......... To redeem all outstanding shares of our Series H, I and J
redeemable preferred stock, to repay the promissory note
to be issued in connection with our acquisition of
Shopping@Home and for general corporate purposes. See
"Use of Proceeds" and "Certain Relationships and Related
Party Transactions--Shopping@Home Acquisition" and "--
Redeemable Preferred Stock Redemptions."
</TABLE>
- -------
(1) The number of shares to be outstanding after the offering is based on:
. 8,932,299 shares outstanding as of May 31, 1999;
. 2,977,483 shares issuable upon conversion of all outstanding convertible
preferred stock; and
. 20,017 shares to be issued upon the closing of this offering under a
contingent payment obligation in connection with an acquisition we made
in 1995.
The number of shares to be outstanding after the offering does not include
an aggregate of up to 8,743,508 shares comprised of:
. 4,903,763 shares issuable upon the exercise of outstanding warrants,
4,895,430 of which are currently exercisable, at a weighted average
exercise price of $0.54 per share;
. 2,380,539 shares issuable upon the exercise of outstanding stock options
with a weighted average exercise price of $1.06 per share;
. 1,341,706 shares available for future grant under our Amended and
Restated 1993 Stock Incentive Plan; and
. up to 117,500 shares that may be issued under a contingent payment
obligation relating to the MedSmart acquisition.
See "Shares Eligible for Future Sale."
4
<PAGE>
Summary Consolidated Financial Data
(In thousands, except per share data)
The following table summarizes our financial data and should be read
together with our consolidated financial statements, including the related
notes, and the other financial information in this prospectus. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
Three Months
Ended
Year Ended December 31, March 31,
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1994 1995 1996 1997 1998 1998 1999
-------- -------- -------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Statements of Operations
Data:
Revenue................. $ 32,635 $ 33,310 $ 33,462 $ 30,593 $ 23,682 $ 6,351 $ 6,028
Gross profit............ 11,029 9,168 10,132 9,571 6,536 1,848 1,528
Loss from continuing
operations............. (3,019) (5,752) (4,430) (8,991) (7,694) (2,137) (2,214)
Gain from sale of
discontinued
operations............. -- -- -- -- -- -- 3,547
Net (loss) income....... (2,662) (4,363) (2,941) (10,799) (7,514) (1,750) 1,359
Net (loss) income to
common shareholders.... (2,988) (5,286) (3,864) (11,722) (9,929) (1,981) 660
Basic and diluted net
loss from continuing
operations per share... $ (8.34) $ (3.84) $ (1.87) $ (3.35) $ (1.66) $ (0.69) $ (0.34)
Weighted average shares
used in computing per
share calculation...... 401 1,737 2,854 2,956 6,076 3,410 8,490
Pro forma basic and
diluted net loss from
continuing operations
per share(1)........... $ (1.14) $ (0.27)
Shares used in computing
pro forma basic and
diluted net loss from
continuing operations
per share(1)........... 9,073 11,487
Other Operating Data:
Traditional revenue
(2).................... $ 32,635 $ 33,310 $ 33,462 $ 30,593 $ 22,338 $ 6,101 $ 5,235
E-commerce revenue (3).. -- -- -- -- 1,344 250 793
-------- -------- -------- -------- -------- ------- -------
Revenue................. $ 32,635 $ 33,310 $ 33,462 $ 30,593 $ 23,682 $ 6,351 $ 6,028
======== ======== ======== ======== ======== ======= =======
</TABLE>
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(1) Pro forma basic and diluted net loss from continuing operations per share
information is presented as if all outstanding shares of convertible
preferred stock were converted into common stock and also reflects the
contingent issuance of 20,017 shares of common stock upon the closing of
this offering.
(2) Traditional revenue is derived from the sale of prescription medications to
physicians through channels other than the Internet.
(3) E-commerce revenue is derived primarily from the sale of prescription
medications over the Internet to physicians and also includes revenue from
software license fees, computer hardware sales and leases, and related
services.
The "pro forma" column below shows our balance sheet data as if we had
completed our acquisitions of MedSmart and Shopping@Home on March 31, 1999. The
"pro forma as adjusted" column below shows our pro forma balance sheet data as
if on March 31, 1999 we had sold 7,000,000 shares of common stock at an assumed
initial public offering price of $11.00 per share and the application of the
net proceeds as described in "Use of Proceeds." The "pro forma as adjusted"
column also reflects the issuance of 20,017 shares of common stock upon the
closing of this offering under a contingent payment obligation. See Note 9 of
Notes to Unaudited Condensed Consolidated Financial Statements.
<TABLE>
<CAPTION>
March 31, 1999
------------------------------
Pro Forma
As
Actual Pro Forma Adjusted
-------- --------- ---------
<S> <C> <C> <C>
Balance Sheet Data:
Cash............................................. $ 8,023 $ 8,068 $44,180
Working capital.................................. 4,717 3,460 39,572
Total assets..................................... 22,528 25,278 62,040
Long-term debt, net of current portion........... 59 59 59
Redeemable preferred shares...................... 33,246 33,246 --
Total stockholders' equity (deficit)............. (26,038) (24,745) 45,263
</TABLE>
5
<PAGE>
RISK FACTORS
You should carefully consider the risks and uncertainties described below
and other information in this prospectus before deciding to invest in our
common stock. These are not the only risks and uncertainties that we face.
Additional risks and uncertainties that we do not currently know about or that
we currently believe are immaterial may also harm our business operations. If
any of these risks or uncertainties occurs, it could have a material adverse
effect on our business, the trading price of our common stock could decline and
you could lose all or part of your investment.
Risks Related to Our Company
If physicians do not accept our products and services, our growth will be
impaired.
Our business model depends on our ability to sell our TouchScript system to
physicians and other healthcare providers and to generate usage by a large
number of physicians. We have not achieved this goal with previous versions of
our software. Physician acceptance of our products and services will require
physicians to adopt different behavior patterns and new methods of conducting
business and exchanging information. We cannot assure you that physicians will
integrate our products and services into their office work flow or that
participants in the pharmaceutical healthcare market will accept our products
and services as a replacement for traditional methods of conducting
pharmaceutical healthcare transactions. Achieving market acceptance for our
products and services will require substantial marketing efforts and the
expenditure of significant financial and other resources to create awareness
and demand by participants in the pharmaceutical healthcare industry. If we
fail to achieve broad acceptance of our products and services by physicians and
other healthcare participants or to position our services as a preferred method
for pharmaceutical healthcare delivery, our prospects for growth will be
diminished.
Because our business model is new and unproven, our operating history is not
indicative of our future performance and our business is difficult to evaluate.
Because we have not yet successfully implemented our business model, we do
not have an operating history upon which you can evaluate our prospects, and
you should not rely upon our past performance to predict our future
performance. We sold our pharmacy benefit management business in March 1999.
For each of the last three fiscal years, revenue from this discontinued
operation exceeded revenue from continuing operations. We currently generate a
substantial majority of our revenue from the sale of prepackaged medications to
doctors for dispensing at the point of care, without the use of our TouchScript
system. Accordingly, our operating history is not indicative of our future
performance under our new business model. In attempting to implement our
business model, we are significantly changing our business operations, sales
and implementation practices, customer service and support operations and
management focus. We are also facing new risks and challenges, including a lack
of meaningful historical financial data upon which to plan future budgets, the
need to develop strategic relationships and other risks described below.
We have a substantial accumulated deficit because of our operating losses and
may never be profitable.
At March 31, 1999, we had an accumulated deficit of $49,405,000, and we
expect to continue to incur significant operating losses. We cannot be certain
that we will ever become profitable. If we do achieve profitability, we cannot
be certain that we can sustain or increase profitability on a quarterly or
annual basis in the future.
If we are unable to maintain existing relationships and create new
relationships with managed care payers, our prospects for growth will suffer.
We rely on managed care organizations to reimburse our physician customers
for prescription medications dispensed in their offices. While many of the
leading managed care payers and pharmacy benefit managers currently reimburse
our physicians for in-office dispensing, none of these payers is under
6
<PAGE>
a long-term obligation to do so. If we are unable to increase the number of
managed care payers that reimburse for in-office dispensing, or if some or all
of the payers who currently reimburse physicians decline to do so in the
future, utilization of our products and, therefore, our growth will be
impaired.
If we are unable to successfully introduce new products, our business prospects
will be impaired.
The successful implementation of our business model depends on our ability
to introduce certain new products, such as TouchScript Version 7 and Version
7.i, and to introduce these new products on schedule. See "Business--Products
and Services" and "--Product Development and Technology." We currently intend
to introduce these two products in the third quarter of 1999. We cannot assure
you that we will be able to introduce these products or our other products
under development on schedule, or at all. In addition, early releases of
software often contain errors or defects. We cannot assure you that, despite
our extensive testing, errors will not be found in our new product releases and
services before or after commercial release, which would result in product
redevelopment costs and loss of, or delay in, market acceptance. A failure by
us to introduce planned products or to introduce such products on schedule
could have a material adverse effect on our business prospects.
Our business will not be successful unless we establish and maintain strategic
relationships.
To be successful, we must establish and maintain strategic relationships
with leaders in a number of healthcare and Internet industry segments. This is
critical to our success because we believe that these relationships will enable
us to:
. extend the reach of our products and services to a larger number of
physicians and to other participants in the healthcare industry;
. develop and deploy new products;
. further enhance the Allscripts brand; and
. generate additional revenue.
Entering into strategic relationships is complicated because some of our
current and future strategic partners may decide to compete with us in some or
all of our markets. In addition, we may not be able to establish relationships
with key participants in the healthcare industry if we have relationships with
their competitors. Moreover, many potential strategic partners have resisted,
and may continue to resist, working with us until our products and services
have achieved widespread market acceptance.
Once we have established strategic relationships, we will depend on our
partners' ability to generate increased acceptance and use of our products and
services. To date, we have established only a limited number of strategic
relationships, and these relationships are in the early stages of development.
We have limited experience in establishing and maintaining strategic
relationships with healthcare and Internet industry participants. If we lose
any of these strategic relationships or fail to establish additional
relationships, or if our strategic relationships fail to benefit us as
expected, we may not be able to execute our business plan, and our business
will suffer.
If potential customers take a long time to evaluate the purchase of our
products and services, we could incur additional selling expenses and require
additional working capital.
The length of the selling cycle for our current TouchScript product depends
on a number of factors, including the nature and size of the potential customer
and the extent of the commitment being made by the potential customer, and is
difficult to predict. Because we are focusing our marketing efforts on large
healthcare organizations, the sale and implementation process has generally
taken longer due to these organizations' more complex decision-making
processes. If potential customers take longer than we expect to decide whether
to purchase our solutions, our selling expenses could increase, and we may need
to raise additional capital sooner than we would otherwise need to.
7
<PAGE>
If we cannot keep pace with advances in technology, our business could be
harmed.
If we cannot adapt to changing technologies, our products and services may
become obsolete, and our business would suffer. Because the Internet and
healthcare information markets are characterized by rapid technological change,
we may be unable to anticipate changes in our current and potential customers'
requirements that could make our existing technology obsolete. Our success will
depend, in part, on our ability to continue to enhance our existing products
and services, develop new technology that addresses the increasingly
sophisticated and varied needs of our prospective customers, license leading
technologies and respond to technological advances and emerging industry
standards and practices on a timely and cost-effective basis. The development
of our proprietary technology entails significant technical and business risks.
We may not be successful in using new technologies effectively or adapting our
proprietary technology to evolving customer requirements or emerging industry
standards.
Our future success depends upon our ability to grow, and if we are unable to
manage our growth effectively, we may incur unexpected expenses and be unable
to meet our customers' requirements.
We will need to expand our operations if we successfully achieve market
acceptance for our products and services. We cannot be certain that our
systems, procedures, controls and existing space will be adequate to support
expansion of our operations. Our future operating results will depend on the
ability of our officers and key employees to manage changing business
conditions and to implement and improve our technical, administrative,
financial control and reporting systems. An unexpectedly large increase in the
volume or pace of traffic on our Web site or the number of orders placed by
customers may require us to expand and further upgrade our technology. We may
not be able to project the rate or timing of increases in the use of our Web
site accurately or to expand and upgrade our systems and infrastructure to
accommodate such increases. Difficulties in managing any future growth could
have a significant negative impact on our business because we may incur
unexpected expenses and be unable to meet our customers' requirements.
If we lose the services of our key personnel, we may be unable to replace them,
and our business could be negatively affected.
Our success depends in large part on the continued service of our
management and other key personnel and our ability to continue to attract,
motivate and retain highly qualified employees. In particular, the services of
Glen E. Tullman, our Chairman and Chief Executive Officer, and David B. Mullen,
our President and Chief Financial Officer, are integral to the execution of our
business strategy. If one or more of our key employees leaves Allscripts, we
will have to find a replacement with the combination of skills and attributes
necessary to execute our strategy. Because competition for skilled employees is
intense, and the process of finding qualified individuals can be lengthy and
expensive, we believe that the loss of the services of key personnel could
negatively affect our business, financial condition and results of operations.
If we are unable to implement our acquisition strategy successfully, our
ability to expand our product and service offerings and our customer base may
be limited.
We recently completed the acquisition of TeleMed Corp. and have agreed in
principle to acquire Shopping@Home, Inc. In addition, we regularly evaluate
acquisition opportunities. Acquisitions involve numerous risks, including
difficulties in the assimilation of the operations, services, products and
personnel of the acquired company, the diversion of management's attention from
other business concerns, entry into markets in which we have little or no
direct prior experience, the potential loss of key employees of the acquired
company and our inability to maintain the goodwill of the acquired businesses.
In order to expand our product and service offerings and grow our business by
reaching new customers, we may continue to acquire businesses that we believe
are complementary. The successful implementation of this
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<PAGE>
strategy depends on our ability to identify suitable acquisition candidates,
acquire companies on acceptable terms, integrate their operations and
technology successfully with our own and maintain the goodwill of the acquired
business. We are unable to predict whether or when any prospective acquisition
candidate will become available or the likelihood that any acquisition will be
completed. Moreover, in pursuing acquisition opportunities, we may compete for
acquisition targets with other companies with similar growth strategies. Some
of these competitors may be larger and have greater financial and other
resources than we have. Competition for these acquisition targets could also
result in increased prices of acquisition targets.
Future acquisitions may result in potentially dilutive issuances of equity
securities, the incurrence of additional debt, the assumption of known and
unknown liabilities, the writeoff of software development costs and the
amortization of expenses related to goodwill and other intangible assets, all
of which could have a material adverse effect on our business, financial
condition, operating results and prospects. We have taken, and in the future
may take, charges against earnings in connection with acquisitions. The costs
and expenses incurred may exceed the estimates upon which we based these
charges.
Our business depends on our intellectual property rights, and if we are unable
to protect them, our competitive position will suffer.
Our business plan is predicated on our proprietary systems and technology,
including TouchScript. We protect our proprietary rights through a combination
of trademark, trade secret and copyright law, confidentiality agreements and
technical measures. We generally enter into non-disclosure agreements with our
employees and consultants and limit access to our trade secrets and technology.
We cannot assure you that the steps we have taken will prevent misappropriation
of technology. Misappropriation of our intellectual property would have a
material adverse effect on our competitive position. In addition, we may have
to engage in litigation in the future to enforce or protect our intellectual
property rights or to defend against claims of invalidity, and we may incur
substantial costs as a result.
If we are deemed to infringe on the proprietary rights of third parties, we
could incur unanticipated expense and be prevented from providing our products
and services.
We could be subject to intellectual property infringement claims as the
number of our competitors grows and the functionality of our applications
overlaps with competitive products. One of our potential competitors recently
filed a patent infringement lawsuit, which has since been settled on
undisclosed terms, against another of our potential competitors asserting broad
proprietary rights in processes similar to our medication management solutions.
While we do not believe that we have infringed or are infringing on any valid
proprietary rights of third parties, we cannot assure you that similar
infringement claims will not be asserted against us or that those claims will
be unsuccessful. We could incur substantial costs and diversion of management
resources defending any infringement claims. Furthermore, a party making a
claim against us could secure a judgment awarding substantial damages, as well
as injunctive or other equitable relief that could effectively block our
ability to provide products or services. In addition, we cannot assure you that
licenses for any intellectual property of third parties that might be required
for our products or services will be available on commercially reasonable
terms, or at all.
Factors beyond our control could cause interruptions in our operations, which
would adversely affect our reputation in the marketplace and our results of
operations.
To succeed, we must be able to operate our systems without interruption.
Certain of our communications and information services are provided through our
service providers. Our operations are vulnerable to interruption by damage from
a variety of sources, many of which are not within our control, including:
. power loss and telecommunications failures;
. software and hardware errors, failures or crashes;
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. computer viruses and similar disruptive problems; and
. fire, flood and other natural disasters.
We have no comprehensive plans for these contingencies. Any significant
interruptions in our services would damage our reputation in the marketplace
and have a negative impact on our results of operations.
We may be liable for use of data we provide.
We provide data for use by healthcare providers in treating patients.
Third-party contractors provide us with most of this data. Although no claims
have been brought against us alleging injuries related to the use of our data,
claims may be made in the future. While we maintain product liability insurance
coverage in an amount that we believe is sufficient for our business, we cannot
assure you that this coverage will prove to be adequate or will continue to be
available on acceptable terms, if at all. A claim brought against us that is
uninsured or under-insured could materially harm our financial condition.
If our security is breached, we could be subject to liability, and people could
be deterred from using our services.
The difficulty of securely transmitting confidential information over the
Internet has been a significant barrier to conducting e-commerce and engaging
in sensitive communications over the Internet. Our strategy relies on the use
of the Internet to transmit confidential information. We believe that any well-
publicized compromise of Internet security may deter people from using the
Internet for these purposes, and from using our system to conduct transactions
that involve transmitting confidential healthcare information.
It is also possible that third parties could penetrate our network security
or otherwise misappropriate patient information and other data. If this
happens, our operations could be interrupted, and we could be subject to
liability. We may have to devote significant financial and other resources to
protect against security breaches or to alleviate problems caused by breaches.
We could face financial loss, litigation and other liabilities to the extent
that our activities or the activities of third-party contractors involve the
storage and transmission of confidential information like patient records or
credit information. In addition, we could incur additional expenses if new
regulations regarding the use of personal information are introduced.
We are uncertain of our ability to obtain additional financing for our future
needs.
We expect the net proceeds of this offering, together with our existing
cash and borrowings under our line of credit, to be sufficient to meet our
anticipated needs for working capital and other cash requirements for at least
the next twelve months. We may need to raise additional funds sooner, however,
in order to fund more rapid expansion, to develop new or enhance existing
services or products, to respond to competitive pressures or to acquire
complementary products, businesses or technologies. We cannot be certain that
additional financing will be available on favorable terms, or at all. If
adequate financing is not available or is not available on acceptable terms,
our ability to fund our expansion, take advantage of potential acquisition
opportunities, develop or enhance services or products, or respond to
competitive pressures would be significantly limited.
If our content and service providers fail to perform adequately, our reputation
in the marketplace and results of operations could be adversely affected.
We depend on independent content and service providers for many of the
benefits we provide through our TouchScript system, including the maintenance
of managed care pharmacy guidelines, drug interaction reviews and the routing
of transaction data to third-party payers. Any problems with our
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providers that result in interruptions of our services or a failure of our
services to function as desired could damage our reputation in the marketplace
and have a material adverse effect on our results of operations. We may have no
means of replacing content or services on a timely basis or at all if they are
inadequate or in the event of a service interruption or failure.
We also expect to rely on independent content providers for the majority of
the clinical, educational and other healthcare information that we plan to
provide on our Web site. In addition, we will depend on our content providers
to deliver high quality content from reliable sources and to continually
upgrade their content in response to demand and evolving healthcare industry
trends. Any failure by these parties to develop and maintain high quality,
attractive content could impair the value of the Allscripts brand and our
results of operations.
If third-party payers force us to reduce our prices, our results of operations
could suffer.
We expect to derive a majority of our revenue from the sale, including over
the Internet, of prepackaged medications to physicians. We may be subject to
pricing pressures with respect to our future sales of prepackaged medications
arising from various sources, including practices of managed care organizations
and any governmental action requiring or allowing pharmaceutical reimbursement
under Medicare. If our pricing of prepackaged medications experiences
significant downward pressure, our business will be less profitable. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
We are subject to risks from litigation.
We are a defendant in numerous multi-defendant lawsuits involving the
manufacture and sale of dexfenfluramine, fenfluramine and phentermine. The
plaintiffs in these cases claim injury as a result of ingesting a combination
of these weight-loss drugs. While we do not believe we have any significant
liability in these lawsuits, in the event we were found liable in these
lawsuits or in any other lawsuits filed against us in the future in connection
with these weight-loss drugs or otherwise, and if our insurance coverage were
inadequate to satisfy these liabilities, it could have a material adverse
effect on our financial condition. See "Business--Legal Proceedings."
If our principal supplier fails or is unable to perform its contract with us,
we may be unable to meet our commitments to our customers.
We currently purchase a majority of the medications that we repackage from
McKesson HBOC, Inc. We have an agreement with this supplier that expires in
September 2001. Although we believe that there are a number of other sources of
supply of medications, if McKesson fails or is unable to perform under our
agreement, particularly at certain critical times during the year, we may be
unable to meet our commitments to our customers, and our relationships with our
customers could suffer.
Year 2000 problems may adversely affect us.
Based upon our assessment to date, we believe that all the medication
management products that we currently sell are Year 2000 compliant. We may,
however, discover Year 2000 compliance problems that will require substantial
revisions to our systems, products or services. In addition, third-party
software, hardware or services that we rely on may need to be revised or
replaced, all of which could be time consuming and expensive. Any failure to
address any problems that may arise on a timely basis could result in lost
revenue, increased operating costs, the loss of customers and other business
interruptions. As of May 31, 1999, we had incurred costs that we believe are
allocable to the Year 2000 problem of approximately $125,000.
In addition, we cannot assure you that physicians, payers, Internet access
companies, business partners and others outside our control will be Year 2000
compliant. In a worst-case scenario, these
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entities would fail to be Year 2000 compliant, resulting in a systemic failure
beyond our control, such as a prolonged Internet or communications failure or
power loss, which could also prevent us from operating our Web site
effectively, taking product orders, making product deliveries, transmitting
data or conducting other fundamental parts of our business. We have not
developed a contingency plan to address situations that may result if we or our
vendors are unable to achieve Year 2000 compliance. If circumstances require,
we will develop a contingency plan. The cost of developing and implementing
such a plan, if necessary, could be material. As the Year 2000 issue has many
elements and potential consequences, some of which are not reasonably
foreseeable, the ultimate impact of the Year 2000 on our operations could
differ materially from our expectations. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Year 2000."
Because of anti-takeover provisions in Delaware law and our Certificate of
Incorporation and By-laws, takeovers will be more difficult, possibly
preventing you from obtaining optimal share price.
Following the offering, certain provisions of Delaware law and our
Certificate of Incorporation and By-Laws could have the effect of making it
more difficult for a third party to acquire, or of discouraging a third party
from attempting to acquire, control of Allscripts. For example, our Certificate
of Incorporation and By-Laws will provide for a classified Board of Directors
and will allow us to issue preferred stock with rights senior to those of the
common stock without any further vote or action by the stockholders. In
addition, we will be subject to the anti-takeover provisions of Section 203 of
the Delaware General Corporation Law, which could have the effect of delaying
or preventing a change in control of Allscripts. See "Description of Capital
Stock--Preferred Stock" and "--Certain Limited Liability, Indemnification and
Anti-takeover Provisions."
Risks Related to Our Industry
If the healthcare environment becomes more restrictive, or we do not comply
with healthcare regulations, our existing and future operations may be
curtailed, and we could be subject to liability.
As a participant in the healthcare industry, our operations and
relationships are regulated by a number of federal, state and local
governmental entities. Because our business relationships with physicians are
unique, and the healthcare electronic commerce industry as a whole is
relatively young, the application of many state and federal regulations to our
business operations is uncertain. It is possible that a review of our business
practices or those of our customers by courts or regulatory authorities could
result in a determination that could adversely affect us. In addition, the
healthcare regulatory environment may change in a way that restricts our
existing operations or our growth. See "Business--Governmental Regulation."
. Electronic Prescribing. The use of our TouchScript software by physicians
to perform electronic prescribing, electronic routing of prescriptions to
pharmacies and dispensing is governed by state and federal law. The
application of these laws to our business is uncertain because many
existing laws and regulations, when enacted, did not anticipate methods
of e-commerce now being developed. The laws of many jurisdictions neither
specifically permit nor specifically prohibit electronic transmission of
prescription orders. Future regulation of these areas may adversely
affect us.
. Licensure. As a repackager and distributor of drugs to dispensing
physicians, we are subject to regulation by and licensure with the United
States Food and Drug Administration, the United States Drug Enforcement
Administration and various state agencies that regulate wholesalers or
distributors. Among the regulations applicable to our repackaging
operation are the FDA's "good manufacturing practices." The FDA has the
right, at any time, to inspect our facilities and operations to determine
if we are operating in compliance with the requirements for licensure and
all applicable laws and regulations. We believe that we currently possess
all licenses required to operate our business and that we are in
compliance with all of the requirements to maintain those
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licenses in full force and effect. If, however, we do not maintain all
necessary licenses, or the FDA finds any violations during one of its
periodic inspections, we could be subject to liability, and our operations
could be shut down.
. Physician Dispensing. Physician dispensing of medications for profit is
allowed in all states except Massachusetts, Montana, Texas and Utah. New
Jersey and New York allow physician dispensing of medications for profit,
but limit the number of days' supply that a physician may dispense. Other
states may enact legislation prohibiting or restricting physician
dispensing.
. Stark II. Congress enacted significant prohibitions against physician
self-referrals in the Omnibus Budget Reconciliation Act of 1993. This
law, commonly referred to as "Stark II," applies to physician dispensing
of outpatient prescription drugs that are reimbursable by Medicare or
Medicaid. We believe that the physicians who use our TouchScript system
or dispense drugs distributed by us are doing so in material compliance
with Stark II, either pursuant to an in-office ancillary services
exception or another applicable exception. If, however, it were
determined that the physicians who use our system or dispense
pharmaceuticals purchased from us were not in compliance with Stark II,
it could have a material adverse effect on our business, results of
operations and prospects.
. Drug Distribution. As a distributor of prescription drugs to physicians,
we and our customers are also subject to the federal anti-kickback
statute, which applies to Medicare, Medicaid and other state and federal
programs. The statute prohibits the solicitation, offer, payment or
receipt of remuneration in return for referrals or the purchase of goods,
including drugs, covered by the programs. The anti-kickback law provides
a number of exceptions or "safe harbors" for particular types of
transactions. We believe that our arrangements with our customers are in
material compliance with the anti-kickback statute and relevant safe
harbors. Many states have similar fraud and abuse laws, and we believe
that we are in material compliance with those laws. If, however, it were
determined that we were not in compliance with those laws, we could be
subject to liability, and our operations could be curtailed.
. Claims Transmission. As part of our services provided to physicians, our
system will electronically transmit claims for prescription medications
dispensed by a physician to many patients' managed care organizations
and payers for immediate approval and reimbursement. Federal law
provides that it is both a civil and a criminal violation for any person
to submit a claim to any payer, including, for example, Medicare,
Medicaid and all private health plans or managed care plans seeking
payment for any services or products that have not been provided to the
patient or overbilling for services or products provided. We have in
place policies and procedures that we believe assure that all claims
that are transmitted by our system are accurate and complete, provided
that the information given to us by our customer is also accurate and
complete. If, however, we do not follow those procedures and policies,
or they are not sufficient to prevent inaccurate claims from being
submitted, we could be subject to liability.
. Patient Information. Both federal and state laws regulate the disclosure
of confidential medical information, including information regarding
conditions like AIDS, substance abuse and mental illness. As part of the
operation of our business, our customers may provide to us patient-
specific information related to the prescription drugs that our customers
prescribe to their patients. We have policies and procedures that we
believe assure compliance with all federal and state confidentiality
requirements for handling of confidential medical information we receive.
If, however, we do not follow those procedures and policies, or they are
not sufficient to prevent the unauthorized disclosure of confidential
medical information, we could be subject to liability, fines and
lawsuits, or our operations could be shut down.
In June 1999, President Clinton announced that he intended to propose broad
Medicare reform legislation that would make available to Medicare recipients a
subsidized prescription drug benefit. While no federal price controls are
included in the current version of the proposed legislation, any legislation
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that reduces physician incentives to dispense medications in their offices
could adversely affect physician acceptance of our products. We cannot predict
whether or when future health care reform initiatives at the federal or state
level or other initiatives affecting our business will be proposed, enacted or
implemented or what impact such initiatives may have on our business, financial
condition or results of operations.
If the new and rapidly evolving Internet and electronic healthcare information
markets fail to develop as quickly as expected, our business prospects will be
impaired.
The Internet and electronic healthcare information markets are in the early
stages of development and are rapidly evolving. A number of market entrants
have introduced or developed products and services that are competitive with
one or more components of the solutions we offer. We expect that additional
companies will continue to enter these markets. In new and rapidly evolving
industries, there is significant uncertainty and risk as to the demand for, and
market acceptance of, recently introduced products and services. Because the
markets for our products and services are new and evolving, we are not able to
predict the size and growth rate of the markets with any certainty. We cannot
assure you that markets for our products and services will develop or that, if
they do, they will be strong and continue to grow at a sufficient pace. If
markets fail to develop, develop more slowly than expected or become saturated
with competitors, our business prospects will be impaired.
Consolidation in the healthcare industry could adversely affect our business.
Many healthcare industry participants are consolidating to create
integrated healthcare delivery systems with greater market power. As provider
networks and managed care organizations consolidate, competition to provide
products and services like ours will become more intense, and the importance of
establishing relationships with key industry participants will become greater.
These industry participants may try to use their market power to negotiate
price reductions for our products and services. If we were forced to reduce our
prices, our business would become less profitable unless we were able to
achieve corresponding reductions in our expenses.
If the Internet infrastructure does not continue to improve, our ability to use
the Internet on a large scale could be compromised.
If the Internet continues to experience significant growth in the number of
users and the level of use, then the Internet infrastructure may not be able to
continue to support the demands placed on it. The Internet may not prove to be
a viable commercial medium because of inadequate development of the necessary
infrastructure, lack of timely development of complementary products like high
speed modems, delays in the development or adoption of new standards and
protocols required to handle increased levels of Internet activity or increased
government regulation. Because our business plan relies heavily on the
viability of the Internet, our business will suffer if growth of the Internet
does not meet our expectations.
Risks Related to This Offering and Our Stock
The public market for our common stock may be volatile.
Prior to this offering, there has been no public market for our common
stock. We cannot guarantee that an active trading market will develop or be
sustained or that the market price of our common stock will not decline. Even
if an active trading market develops, the market price of our common stock is
likely to be highly volatile and could fluctuate significantly in response to
various factors, including:
. actual or anticipated variations in our quarterly operating results;
. announcements of technological innovations or new services or products by
us or our competitors;
. timeliness of our introductions of new products;
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. changes in financial estimates by securities analysts;
. conditions and trends in the electronic healthcare information, Internet,
e-commerce and pharmaceutical markets; and
. general market conditions and other factors.
In addition, the stock markets, especially the Nasdaq National Market, have
experienced extreme price and volume fluctuations that have affected the market
prices of equity securities of many technology companies, and Internet-related
companies in particular. These fluctuations have often been unrelated or
disproportionate to operating performance. The trading prices of many
technology companies' stocks are at or near historical highs. We cannot assure
you that these high trading prices will be sustained. These broad market
factors may materially affect the trading price of our common stock. General
economic, political and market conditions like recessions and interest rate
fluctuations may also have an adverse effect on the market price of our common
stock. In the past, following periods of volatility in the market price for a
company's securities, stockholders have often initiated securities class action
litigation. Any securities class action litigation could result in substantial
costs and the diversion of management's attention and resources.
Our quarterly operating results may vary.
Our quarterly operating results have varied in the past, and we expect that
they will continue to vary in future periods depending on a number of factors,
including seasonal variances in demand for our products and services, the
sales, installation and implementation cycles for our TouchScript system and
other factors described in this "Risk Factors" section of the prospectus. For
example, all other factors aside, our sales of prepackaged medications have
historically been highest in the fall and winter months. We expect to increase
activities and spending in substantially all of our operational areas. We base
our expense levels in part upon our expectations concerning future revenue, and
these expense levels are relatively fixed in the short term. If we have lower
revenue, we may not be able to reduce our spending in the short term in
response. Any shortfall in revenue would have a direct impact on our results of
operations. For these and other reasons, we may not meet the earnings estimates
of securities analysts or investors, and our stock price could suffer.
We may have substantial sales of our common stock after the offering.
Sales of substantial amounts of our common stock in the public market after
this offering, or the perception that such sales will occur, could adversely
affect the market price of our common stock and make it more difficult for us
to raise funds through equity offerings in the future. A substantial number of
outstanding shares of common stock and shares issuable upon exercise of
outstanding options and warrants will become available for resale in the public
market at prescribed times. Of the 18,929,799 shares to be outstanding after
the offering, the 7,000,000 shares offered by this prospectus will be eligible
for immediate sale in the public market without restriction by persons other
than our affiliates. Approximately 1,290,370 additional shares, including
approximately 51,460 shares issuable upon the cashless exercise of outstanding
warrants, will be eligible for immediate sale in the public market under Rule
144(k) of the Securities Act of 1933. Approximately 469,230 shares, including
approximately 137,390 shares issuable upon the cashless exercise of outstanding
warrants and approximately 291,930 shares previously issued upon the exercise
of options or issuable upon exercise of outstanding options, will be eligible
for sale 90 days after the date of this prospectus under Rules 144 and 701 of
the Securities Act. Approximately 9,915,210 additional shares and shares
issuable upon exercise of outstanding options and warrants will be eligible for
sale in the public market subject to the provisions of Rules 144 and 701 under
the Securities Act and any contractual restrictions on their transfer upon the
expiration of 180-day lock-up agreements with the underwriters. Goldman, Sachs
& Co. may, in its sole discretion and at any time without notice, release all
or any portion of the shares subject to lock-up agreements. After the offering,
the holders of approximately 9,945,547 of our shares of common stock and shares
issuable upon exercise
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of outstanding options and warrants will be entitled to registration rights
with respect to these shares until the holders may sell the shares under Rule
144(k) of the Securities Act. In addition, after the offering, we intend to
register 3,722,245 shares of common stock reserved for issuance under our
Amended and Restated 1993 Stock Incentive Plan. For more information, see
"Shares Eligible for Future Sale."
Because our executive officers and directors have substantial control of our
voting stock, takeovers not supported by them will be more difficult, possibly
preventing you from obtaining optimal share price.
The control of a significant amount of our stock by insiders could
adversely affect the market price of our common stock. After this offering, our
executive officers and directors will beneficially own or control 11,468,039
shares or 54.8% of the outstanding common stock. Our executive officers and
directors, acting collectively, will be able to control all matters requiring
shareholder approval, including the election of directors and approval of
significant corporate transactions. This control may delay or prevent a change
in control. For more information, see "Management," "Principal Stockholders"
and "Description of Capital Stock."
Investors will suffer immediate and substantial dilution.
The initial public offering price will be substantially higher than the net
tangible book value per share of common stock. If we sell 7,000,000 shares in
the offering at an assumed initial public offering price of $11.00 per share,
our net tangible book value per share will be $2.21, which is $8.79 below the
assumed per share initial public offering price. If we issue additional common
stock in the future, or outstanding options or warrants to purchase our common
stock are exercised, there will be further dilution. For more information, see
"Dilution."
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FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve risks and
uncertainties, including those discussed above and elsewhere in this
prospectus. We develop forward-looking statements by combining currently
available information with our beliefs and assumptions. These statements often
contain words like believe, expect, anticipate, intend, contemplate, seek,
plan, estimate or similar expressions. Forward-looking statements do not
guarantee future performance. Recognize these statements for what they are and
do not rely on them as facts.
USE OF PROCEEDS
The net proceeds to us from the sale of the 7,000,000 shares in this
offering at an assumed initial public offering price of $11.00 per share are
estimated to be $70,710,000, after deducting the underwriting discount and
estimated offering expenses payable by us, or $81,451,500 if the underwriters
exercise the over-allotment option in full.
We will use a portion of the net proceeds to redeem all of our outstanding
Series H, I and J redeemable preferred stock, a majority of which is held by
our affiliates, for a total of $29,110,563, plus accrued dividends, which at
May 31, 1999 were $5,242,960. We will also use net proceeds to repay the
$650,000 note to be issued as consideration for our acquisition of
Shopping@Home, which will bear interest at 6.0% per year and will be payable
upon the closing of this offering. Glen E. Tullman, our Chairman and Chief
Executive Officer, and Joseph E. Carey, our Chief Operating Officer, are
principal shareholders of Shopping@Home. We will use the remainder of the net
proceeds for general corporate purposes and working capital. We may use a
portion of the net proceeds to acquire complementary technologies or
businesses; however, we currently have no commitments or agreements and are not
involved in any negotiations with respect to any acquisitions. Pending use of
the net proceeds of this offering, we intend to invest the net proceeds in
interest-bearing, investment-grade securities. See "Certain Relationships and
Related Party Transactions--Shopping@Home Acquisition" and "--Redeemable
Preferred Stock Redemptions."
DIVIDEND POLICY
We have never declared or paid cash dividends on our common stock. We
currently intend to retain all available funds and any future earnings for use
in the operation and expansion of our business and do not anticipate paying any
cash dividends in the foreseeable future. In addition, under the terms of our
current bank line of credit, we are prohibited from paying dividends, other
than dividends payable in capital stock, on any of our shares.
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CAPITALIZATION
The following table shows our capitalization as of March 31, 1999 on an
actual, pro forma and pro forma as adjusted basis. The "actual" column reflects
our capitalization as of March 31, 1999 on an historical basis, without any
adjustments to reflect subsequent or anticipated events.
The "pro forma" column reflects our capitalization as of March 31, 1999
with adjustments for the following:
. our reincorporation in Delaware upon the closing of this offering, which
will result in, among other things, the adoption of a new Certificate of
Incorporation that provides for authorized capital stock of 75,000,000
shares of common stock and 1,000,000 shares of undesignated preferred
stock; and
. the issuance of 117,500 shares of common stock in connection with the
MedSmart acquisition.
The "pro forma as adjusted" column reflects our capitalization as of March
31, 1999 with the preceding "pro forma" adjustments and adjustments for the
following:
. the receipt of the estimated net proceeds from our sale of the 7,000,000
shares of our common stock in this offering at an assumed initial public
offering price of $11.00 per share and the application of a portion of
the net proceeds to redeem all of our outstanding Series H, I and J
redeemable preferred stock. See "Use of Proceeds;"
. the issuance of 20,017 shares of common stock upon the closing of this
offering under a contingent payment obligation in connection with an
acquisition we made in 1995. See Note 8 of Notes to Unaudited Condensed
Consolidated Financial Statements; and
. the automatic conversion of all shares of outstanding Series A, B, C, D,
F and G preferred stock into 2,977,483 shares of common stock upon the
closing of this offering.
None of the columns shown below reflects the following:
. the 4,903,763 shares of common stock issuable upon exercise of
outstanding warrants as of March 31, 1999, 4,895,430 of which were
exercisable as of that date at a weighted average exercise price of $0.54
per share. See "Description of Capital Stock--Warrants" and "Shares
Eligible for Future Sale;"
. the 3,744,281 shares reserved for issuance under our stock option plan,
of which 2,440,757 shares were subject to outstanding options as of March
31, 1999. Of those 2,440,757 shares, 953,745 were exercisable as of that
date. See "Management--Employee Benefit Plans--Amended and Restated 1993
Stock Incentive Plan;" and
. up to 117,500 shares that may be issued under a contingent payment
obligation relating to the MedSmart acquisition.
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The table below should be read in conjunction with our balance sheet as of
March 31, 1999 and the related notes, which are included elsewhere in this
prospectus:
<TABLE>
<CAPTION>
March 31, 1999
--------------------------------
Pro Forma
Actual Pro Forma As Adjusted
-------- --------- -----------
(In thousands)
<S> <C> <C> <C>
Long-term debt, net of current portion......... $ 59 $ 59 $ 59
Redeemable preferred shares:
Series I, cumulative, $1.00 par value,
1,339,241 shares authorized, issued and
outstanding, including $704,955 of
cumulative dividends; liquidation value of
$8,654,175, actual and pro forma; no shares
authorized, issued or outstanding, pro forma
as adjusted................................. 8,766 8,766 --
Series J, cumulative, $1.00 par value,
1,812,903 shares authorized, 1,803,838
issued and outstanding, including $949,510
of cumulative dividends; liquidation value
of $11,656,388, actual and pro forma; no
shares authorized, issued or outstanding,
pro forma as adjusted....................... 12,606 12,606 --
Series H, cumulative, $1.00 par value,
1,361,775 shares authorized, issued and
outstanding, including $3,183,430 of
cumulative dividends; liquidation value of
$8,800,000, actual and pro forma; no shares
authorized, issued or outstanding, pro forma
as adjusted................................. 11,874 11,874 --
Stockholders' equity (deficit):
Preferred shares, $1.00 par value; 25,000,000
shares authorized, 8,718,768 shares issued
and outstanding, actual and pro forma;
1,000,000 shares authorized, no shares
issued and outstanding, pro forma as
adjusted.................................... 8,719 8,719 --
Common shares: $0.01 par value, 125,000,000
shares authorized, 8,815,599 shares issued,
actual; 75,000,000 shares authorized,
8,933,099 shares issued, pro forma;
75,000,000 shares authorized, 18,930,599
shares issued, pro forma as adjusted........ 88 89 189
Treasury stock at cost; 34,465 common shares,
actual, pro forma and pro forma as
adjusted.................................... (68) (68) (68)
Unearned compensation........................ (126) (126) (126)
Additional paid-in capital................... 14,754 16,046 94,893
Accumulated deficit.......................... (49,405) (49,405) (49,625)
-------- -------- --------
Total stockholders' equity (deficit)....... (26,038) (24,745) 45,263
-------- -------- --------
Total capitalization..................... $ 7,267 $ 8,560 $ 45,322
======== ======== ========
</TABLE>
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DILUTION
Our pro forma net tangible book value (deficit) as of March 31, 1999 was
approximately $(28.2) million or $(2.37) per share of common stock. Pro forma
net tangible book value per share represents the amount of our total tangible
assets reduced by the amount of our total liabilities, after giving effect to
the MedSmart and Shopping@Home acquisitions, and the liquidation value of our
Series H, I and J redeemable preferred stock and accrued dividends, and divided
by the total number of shares of common stock outstanding after giving effect
to the automatic conversion upon the closing of this offering of our Series A,
B, C, D, F and G preferred stock, the issuance of 117,500 shares of common
stock in connection with the MedSmart acquisition and the issuance of 20,017
shares of common stock upon the closing of this offering under a contingent
payment obligation. Dilution in net tangible book value per share represents
the difference between the amount per share paid by purchasers of shares of
common stock in this offering and the net tangible book value per share of
common stock immediately after the closing of this offering. After giving
effect to the sale of the 7,000,000 shares of common stock offered by us at an
assumed initial public offering price of $11.00 per share, and after deducting
the underwriting discount and estimated offering expenses payable by us, our
pro forma net tangible book value at March 31, 1999 would have been
approximately $41.8 million or $2.21 per share of common stock. This represents
an immediate increase in net tangible book value of $4.58 per share to existing
shareholders and an immediate dilution of $8.79 per share to new investors in
the common stock. The following table illustrates this dilution on a per share
basis:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................. $11.00
Pro forma net tangible book value per share before this
offering..................................................... $(2.37)
Increase per share attributable to new investors.............. 4.58
------
Pro forma net tangible book value per share after this offering
(as adjusted).................................................. 2.21
------
Dilution per share to new investors............................. $ 8.79
======
</TABLE>
The following table summarizes on a pro forma basis, after giving effect to
this offering, as of March 31, 1999, the difference between the number of
shares of common stock purchased from us, the total consideration paid to us
and the average price per share paid by existing stockholders and by new public
investors:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
------------------ -------------------- Average Price
Number Percent Amount Percent Per Share
---------- ------- ------------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders..... 11,896,134 63.0% $ 25,196,883 24.7% $ 2.12
New public investors...... 7,000,000 37.0 77,000,000 75.3 11.00
---------- ----- ------------ -----
Totals.................... 18,896,134 100.0% $102,196,883 100.0%
========== ===== ============ =====
</TABLE>
The above information assumes no exercise of outstanding options and no
exercise of any options that we may grant in the future under our Amended and
Restated 1993 Stock Incentive Plan. As of March 31, 1999, there were
outstanding options to purchase 2,440,757 shares of common stock at a weighted
average exercise price of $1.05 per share. On that date, options to purchase
953,745 shares were exercisable. The above information also assumes no exercise
of outstanding warrants. As of March 31, 1999, there were outstanding warrants
to purchase 4,903,763 shares of common stock at a weighted average exercise
price of $0.54 per share, 4,895,430 of which were exercisable. Based on the pro
forma net tangible book value of $1.79 per share after this offering and the
assumed initial public offering price of $11.00 per share, dilution to new
investors would be $9.21 per share if all of the outstanding stock options and
warrants were exercised. See "Management--Employee Benefit Plans--Amended and
Restated 1993 Stock Incentive Plan," "Description of Capital Stock" and Note 12
of Notes to Consolidated Financial Statements.
20
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
You should read the selected consolidated financial data shown below in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and our financial statements and related notes
included elsewhere in this prospectus. The consolidated statements of
operations data for the years ended December 31, 1996, 1997 and 1998 and the
consolidated balance sheet data at December 31, 1997 and 1998 are derived from
the consolidated financial statements audited by PricewaterhouseCoopers LLP
that are included in this prospectus. The consolidated statements of operations
data for the years ended December 31, 1994 and 1995 and the balance sheet data
at December 31, 1994, 1995 and 1996 are derived from audited financial
statements that are not included in this prospectus. The balance sheet data as
of March 31, 1999 and the statements of operations data for the three-month
periods ended March 31, 1998 and 1999 were derived from our unaudited
consolidated financial statements that are included in this prospectus. The
unaudited financial statements include all adjustments, consisting of normal
recurring accruals, which we consider necessary for a fair presentation of the
consolidated financial position and results of operations for these periods.
The historical results are not necessarily indicative of results to be expected
for any future period. The statements of operations data below reflect the
pharmacy benefit management business that we sold March 1999 as a discontinued
operation. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
<TABLE>
<CAPTION>
Three Months Ended
Year Ended December 31, March 31,
--------------------------------------------- --------------------
1994 1995 1996 1997 1998 1998 1999
------- ------- ------- -------- -------- --------- ---------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statements of Operations
Data:
Revenue................. $32,635 $33,310 $33,462 $ 30,593 $ 23,682 $ 6,351 $ 6,028
Cost of revenue......... 21,606 24,142 23,330 21,022 17,146 4,503 4,500
------- ------- ------- -------- -------- --------- ---------
Gross profit............ 11,029 9,168 10,132 9,571 6,536 1,848 1,528
Operating expenses:
Selling, general and
administrative
expenses.............. 10,024 12,427 11,659 13,964 12,832 3,384 3,540
Amortization of
intangibles........... 506 495 529 409 372 93 93
Other operating
expenses.............. 1,210 1,318 1,034 2,568 430 112 --
------- ------- ------- -------- -------- --------- ---------
Loss from operations.... (711) (5,072) (3,090) (7,370) (7,098) (1,741) (2,105)
Interest expense........ (1,534) (1,005) (1,301) (1,621) (596) (396) (109)
Other expense........... (774) 325 (39) -- -- -- --
------- ------- ------- -------- -------- --------- ---------
Loss from continuing
operations............. (3,019) (5,752) (4,430) (8,991) (7,694) (2,137) (2,214)
Income (loss) from
discontinued
operations............. 357 1,389 1,489 (1,808) 970 387 26
Gain on sale of
discontinued
operations............. 3,547
------- ------- ------- -------- -------- --------- ---------
(Loss) income before
extraordinary items.... (2,662) (4,363) (2,941) (10,799) (6,724) (1,750) 1,359
Extraordinary loss from
early extinguishment of
debt................... -- -- -- -- (790) -- --
------- ------- ------- -------- -------- --------- ---------
Net (loss) income ...... (2,662) (4,363) (2,941) (10,799) (7,514) (1,750) 1,359
Accretion on mandatory
redeemable preferred
shares and accrued
dividends on preferred
shares................. (326) (923) (923) (923) (2,415) (231) (699)
------- ------- ------- -------- -------- --------- ---------
Net (loss) income to
common stockholders.... $(2,988) $(5,286) $(3,864) $(11,722) $ (9,929) $ (1,981) $ 660
======= ======= ======= ======== ======== ========= =========
Basic and diluted net
loss from continuing
operations per share... $ (8.34) $ (3.84) $ (1.87) $ (3.35) $ (1.66) $ (0.69) $ (0.34)
======= ======= ======= ======== ======== ========= =========
Weighted average shares
used in computing per
share calculation...... 401 1,737 2,854 2,956 6,076 3,410 8,490
======= ======= ======= ======== ======== ========= =========
Pro forma basic and
diluted net loss from
continuing operations
per share(1)........... $ (1.14) $ (0.27)
======== =========
Shares used in computing
pro forma basic and
diluted net loss from
continuing operations
per share(1)........... 9,073 11,487
======== =========
Other Operating Data:
Traditional revenue(2).. $32,635 $33,310 $33,462 $ 30,593 $ 22,338 $ 6,101 $ 5,235
E-commerce revenue(3)... -- -- -- -- 1,344 250 793
------- ------- ------- -------- -------- --------- ---------
Revenue................. $32,635 $33,310 $33,462 $ 30,593 $ 23,682 $ 6,351 $ 6,028
======= ======= ======= ======== ======== ========= =========
Balance Sheet Data (at
period end):
Cash.................... $ 1,118 $ 673 $ 665 $ 205 $ 718 $ 136 $ 8,023
Working capital......... 504 (2,730) 5,443 (3,023) 271 176 4,717
Total assets............ 25,275 23,701 26,713 19,387 18,920 17,895 22,528
Long-term debt, net of
current portion........ 5,033 4,814 15,093 11,276 59 11,276 59
Redeemable preferred
shares................. 7,949 8,873 9,796 10,719 32,547 10,950 33,246
Total stockholders'
equity (deficit)....... 1,649 (2,859) (6,700) (18,356) (26,792) (20,856) (26,038)
</TABLE>
- --------
(1) Pro forma basic and diluted net loss from continuing operations per share
information is presented as if all outstanding shares of convertible
preferred stock were converted into common stock and also reflects the
contingent issuance of 20,017 shares of common stock upon the closing of
this offering.
(2) Traditional revenue is derived from the sale of prescription medications to
physicians through channels other than the Internet.
(3) E-commerce revenue is derived primarily from the sale of prescription
medications over the Internet to physicians and also includes revenue from
software license fees, computer hardware sales and leases, and related
services.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
You should read the following discussion and analysis together with
"Selected Consolidated Financial Data" and our consolidated financial
statements and related notes included in this prospectus. This discussion
contains certain forward-looking statements that involve risks, uncertainties
and assumptions. You should read the cautionary statements made in this
prospectus as applying to related forward-looking statements wherever they
appear in this prospectus. Our actual results may be materially different from
the results we discuss in the forward-looking statements due to certain
factors, including those discussed in "Risk Factors" and other sections of this
prospectus.
Overview
We provide physicians with Internet and client/server medication management
solutions designed to improve the quality and cost effectiveness of
pharmaceutical healthcare.
From our inception in 1986 through 1996, we focused almost exclusively on
the sale of prepackaged medications to physicians, in particular those with a
high percentage of fee-for-service patients. The advent of managed prescription
benefit programs required providers to obtain reimbursement for medications
dispensed from managed care organizations rather than directly from their
patients. This new reimbursement methodology made it more difficult for our
physician customers to dispense medications to their patient base.
In 1997, under the direction of our new senior management team, we
intensified the focus of our efforts on the information aspects of medication
management, including the development of technology tools necessary for
electronic prescribing, routing of prescription information and submission of
medication claims for managed care reimbursement. In January 1998, we
introduced the first version of TouchScript that fully incorporated these
features. At the same time, we redirected our sales and marketing efforts away
from our traditional fee-for-service customer base to physicians who have a
large percentage of managed care patients. To implement our strategy fully, we
expect to increase the number of our sales, sales support, product development
and customer service personnel significantly.
As our strategic focus has shifted to medication management products and
solutions, the human resources needed to manage, implement and support our
strategy have been changing as well. Consequently, we have continually assessed
the skills and experience of our workforce to ensure an appropriate match with
our business objectives. This led to a significant turnover in staff since 1996
through reductions in force, employee terminations and employee attrition. The
costs associated with this reorganization consist primarily of severance costs
related to the reductions in force and employee terminations and have been
recorded as other operating expenses. We expect this reorganization to help
align our staffing with our strategic focus and to reduce administrative
expenses.
We currently derive our revenue from the sale of prepackaged medications,
software licenses, computer hardware and related services. For the twelve
months ended December 31, 1998 and the three months ended March 31, 1999, sales
of prepackaged medications represented 97.8% and 96.5%, respectively, of total
revenue.
Our shift in focus away from physicians with a high percentage of fee-for-
service patients to those who require technology-based services to operate
successfully in a managed care environment is reflected in the composition of
our revenue, as depicted in the following table:
<TABLE>
<CAPTION>
Quarter Ended
----------------------------------------
1998 1999
------------------------------- --------
June Dec.
March 31 30 Sept. 30 31 March 31
-------- ------ -------- ------ --------
(In thousands)
<S> <C> <C> <C> <C> <C>
Traditional revenue.................... $6,101 $5,807 $5,394 $5,036 $5,235
E-commerce revenue..................... 250 249 366 479 793
------ ------ ------ ------ ------
Total revenue........................ $6,351 $6,056 $5,760 $5,515 $6,028
====== ====== ====== ====== ======
</TABLE>
22
<PAGE>
Traditional revenue is derived from the sale of prescription medications to
physicians through non-Internet channels. We expect traditional revenue to
represent a decreasing percentage of total revenue in the future. E-commerce
revenue includes the sale of prescription medications over the Internet as well
as technology-related revenue for software license fees, computer hardware
sales and leases and related services. For the twelve months ended December 31,
1998 and the three months ended March 31, 1999, sales of prepackaged
medications represented 98.7% and 88.0%, respectively, of e-commerce revenue.
While some of our historical e-commerce revenue has represented a shifting of
traditional customers to TouchScript, and we expect a portion of future e-
commerce revenue to represent a shifting of traditional revenue, we anticipate
that most of the future growth in e-commerce revenue will be generated by new
customers.
As of March 31, 1999, we operated in one segment--the sale of medication
management products, which currently consist principally of TouchScript and
prepackaged medications. Our two other product categories, Internet products
and services and information products, did not exist at March 31, 1999 and
currently generate an immaterial amount of revenue. Nevertheless, these product
categories are central to our operating strategy. We anticipate that if these
product categories grow, the way our business is organized will change to
reflect the increasing importance of each of these products. If this occurs, we
may determine that we operate in multiple segments.
We believe that managed care prescription programs will continue to cover
an increasing percentage of patients for the foreseeable future. This trend
will have the effect of reducing the dispensing opportunities for our
traditional dispensing customers, thereby reducing the revenue that we have
historically recognized from these customers. Additionally, managed care
programs impose reduced reimbursement rates for the medications dispensed to
their plan participants, thus providing us with a dollar margin per
prescription dispensed that is lower than we have historically experienced.
Because a large portion of the medications dispensed by our TouchScript
customers are to managed care patients, we expect that the fastest growing
portion of our business will provide margins with respect to the sale of
prepackaged medications that are lower than we have historically experienced.
The length of the selling cycle for our current TouchScript product has
generally ranged from three to nine months and depends on a number of factors,
including the nature and size of the potential customer and the extent of the
commitment being made by the potential customer. Our customers currently
consist of physician practices that range in size from a single physician in
one location to as many as 40 physicians practicing in multiple locations.
Because we are now focusing our marketing efforts on large healthcare
organizations, the sale and implementation process has generally taken longer
due to these organizations' more complex decision-making processes. Typical
license agreements have a term of three years and provide for up-front fees for
hardware and installation services and monthly software license fees. Some
contracts include a 90-day evaluation period.
Medications sold to physicians are billed upon shipment with 30-day payment
terms. We collect, on behalf of TouchScript customers, amounts due from managed
care organizations for medications provided to patients in the office.
We recognize revenue from the sale of computer hardware when the hardware
is delivered and from the provision of installation services when the services
are performed. We recognize software fees ratably over the term of the license
agreement and medication revenue upon shipment of the product.
We do not believe that inflation has had a material effect on our results
of operations.
Recent Developments
In March 1999, in order to focus all of management's attention and
resources on the physician medication management business and due to the
significant resources necessary to remain competitive and sustain profitability
in the pharmacy benefit management business, we sold substantially all of the
assets, excluding cash and accounts receivable, of the pharmacy benefit
management business. The total
23
<PAGE>
consideration was approximately $7,500,000 in cash at closing and a contingent
payment of up to $8,400,000 based upon achieving certain milestones for the
one-year period following the closing. We expect to receive less than the
maximum contingent payment. This business had net sales of $52,866,000 and
$44,719,000 for the twelve months ended December 31, 1998 and 1997,
respectively, while recording an operating profit of $970,000 for fiscal 1998
versus an operating loss of $1,808,000 for fiscal 1997. The operating loss of
$1,808,000 for fiscal 1997 included a writedown of acquisition intangibles in
the amount of $3,300,000. The writedown was the result of the loss of customers
acquired in the acquisition of our mail order pharmacy business, reduced margin
contributions from other acquired customers and higher projected levels of
customer attrition. Our financial statements and the discussion in Management's
Discussion and Analysis of Financial Condition and Results of Operations
reflect the pharmacy benefit management business as a discontinued operation.
In the quarter ended March 31, 1999, we recognized a gain on the sale of this
business of $3,547,000, based upon the consideration received at closing. If we
receive any additional contingent payments, the gain, net of tax effects, will
be increased accordingly. See Note 17 of Notes to Consolidated Financial
Statements.
In May 1999, we acquired all of the outstanding stock of TeleMed Corp.,
which operates as MedSmart, in exchange for 117,500 shares of our common stock
and up to an additional 117,500 shares under specific circumstances. MedSmart
sells Internet-based physician drug education programs and medical books online
and by telephone. These products are intended to complement our existing line
of medication management products. MedSmart generated revenue of approximately
$1,600,000 with a net loss of approximately $330,000 for the fiscal year ended
December 31, 1998. The MedSmart acquisition will have the near-term effect of
increasing cash used in operating activities.
In May 1999, we agreed in principle to acquire substantially all of the
assets of Shopping@Home, Inc., a development-stage Internet retailer, in
exchange for a promissory note in the principal amount of $650,000, bearing
interest at 6.0% per year and payable upon the consummation of this offering.
We expect this transaction to be consummated in July 1999. We expect the
Internet software capabilities of Shopping@Home to enhance the development of
our Internet-based products. Shopping@Home generated no revenue and had
operating losses of approximately $325,000 for the fiscal year ended December
31, 1998. The Shopping@Home acquisition will have the near-term effect of
increasing cash used in operating activities. See "Certain Relationships and
Related Party Transactions--Shopping@Home Acquisition."
Results of Operations
The following table shows, for the periods indicated, our results of
operations expressed as a percentage of our revenue:
<TABLE>
<CAPTION>
Three Months
Ended
Year Ended December 31, March 31,
--------------------------- ---------------
1996 1997 1998 1998 1999
------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C>
Revenue........................ 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenue................ 69.7 68.7 72.4 70.9 74.6
------- ------- ------- ------ ------
Gross profit................... 30.3 31.3 27.6 29.1 25.4
Operating expenses:
Selling, general and
administrative expenses..... 34.8 45.6 54.2 53.3 58.7
Amortization of intangibles.. 1.6 1.3 1.6 1.5 1.5
Other operating expenses..... 3.1 8.4 1.8 1.8 0.0
------- ------- ------- ------ ------
Loss from operations........... (9.2) (24.0) (30.0) (27.5) (34.8)
Interest expense............... (3.9) (5.3) (2.5) (6.2) (1.8)
Other expense.................. (0.1) 0.0 0.0 0.0 0.0
------- ------- ------- ------ ------
Loss from continuing
operations.................... (13.2) (29.3) (32.5) (33.7) (36.6)
Income (loss) from discontinued
operations.................... 4.4 (5.9) 4.1 6.1 0.4
Gain from sale of discontinued
operations ................... -- -- -- -- 58.8
------- ------- ------- ------ ------
Income (loss) before
extraordinary items........... (8.8) (35.2) (28.4) (27.6) 22.6
Extraordinary loss from early
extinguishment of debt........ 0.0 0.0 (3.3) 0.0 0.0
------- ------- ------- ------ ------
Net (loss) income ............. (8.8)% (35.2)% (31.7)% (27.6)% 22.6%
======= ======= ======= ====== ======
</TABLE>
24
<PAGE>
Three Months Ended March 31, 1999 Compared to Three Months Ended
March 31, 1998
Total revenue for the three months ended March 31, 1999 decreased by 5.1%
or $323,000 from $6,351,000 in 1998 to $6,028,000 in 1999. Traditional revenue
for the three months ended March 31, 1999 decreased by 14.2% or $866,000 from
$6,101,000 in 1998 to $5,235,000 in 1999. E-commerce revenue increased by
217.2% or $543,000 from $250,000 in the first quarter of 1998, when we first
introduced our e-commerce products, to $793,000 in the first quarter of 1999.
The decrease in traditional revenue reflects lower utilization, attrition of
customers, price reductions in response to competitive pressures and a product
mix shift to lower-priced generic products. The increase in e-commerce revenue
reflects additional installations and increased use of TouchScript.
Cost of revenue for the three months ended March 31, 1999 decreased by 0.1%
or $3,000 from $4,503,000 in 1998 to $4,500,000 in 1999 due to the overall
decrease in revenue. As a percentage of total revenue, cost of revenue for the
three months ended March 31, 1999 increased to 74.6% from 70.9% in the prior
year period principally due to the price reductions noted above.
Selling, general and administrative expenses for the three months ended
March 31, 1999 increased by 4.6% or $156,000 over the prior year period due
primarily to additional spending of $534,000 for sales support personnel
needed to sell, implement and support the TouchScript installations, and
TouchScript product development personnel. These increases were partially
offset by reduced spending of $271,000 on sales personnel with the redirection
of the sales and marketing efforts toward targeted, large managed care-
oriented organizations, staff reductions in middle management personnel and
other smaller reductions in corporate and general administrative expenses. As
a result, selling, general and administrative expenses as a percentage of
total revenue increased to 58.7% for the three months ended March 31, 1999
from 53.3% of total revenue in the prior year period.
Amortization of intangibles for the three months ended March 31, 1999 did
not differ materially from the prior year period.
Other operating expenses for the three months ended March 31, 1999
decreased by 100% or $112,000 from the prior year period. The expense in 1998
consisted entirely of severance costs of nine sales personnel who were
terminated as part of the refocusing of our sales and marketing efforts toward
targeted, large managed care-oriented organizations. This was part of an
ongoing process of matching the skills and experience of our workforce with
our strategic objectives. The severance plan was announced during the quarter
ended March 31, 1998, and all payments were made in accordance with the
original plan by September 15, 1998.
Interest expense for the three months ended March 31, 1999 decreased by
72.5% or $287,000 over the prior year period due to the exchange of
subordinated convertible debentures for redeemable preferred stock and the
repayment of the term loan we had with our commercial bank in April 1998.
These amounts were partially offset by increased borrowings on our revolving
credit facility with our commercial bank. In addition, accretion on
mandatorily redeemable preferred shares and accrued dividends on preferred
shares increased by $468,000 in the 1999 period due to the issuance of
mandatorily redeemable preferred shares in April 1998.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Total revenue for 1998 decreased by 22.6% or $6,911,000 from $30,593,000 in
1997 to $23,682,000 in 1998. Traditional revenue decreased by 27.0% or
$8,255,000 from $30,593,000 in 1997 to $22,338,000 in 1998. The overall
decrease consists primarily of approximately $6,600,000 due to lower
utilization, attrition of customers, approximately $3,300,000 due to the
manufacturer withdrawal of two weight-loss products in October 1997 and
approximately $700,000 as a result of price reductions in response to
competitive pressures. This decrease was partially offset by increases in the
average selling price of brand products sold, which increased traditional
revenues by approximately $2,500,000 in 1998 over the prior year. In the first
quarter of 1998, we began to generate e-commerce revenue. We recognized
$1,344,000 of e-commerce revenue in 1998.
25
<PAGE>
Cost of revenue in 1998 decreased by 18.4% or $3,876,000 from $21,022,000
in 1997 to $17,146,000 due to the decrease in traditional revenue outlined
above. As a percentage of total revenue, cost of revenue for 1998 increased to
72.4% from 68.7% in the prior year. This percentage increase was principally
due to price reductions in response to competitive pressures, which increased
the cost of revenue as a percentage of revenue by approximately 5.0%, and
increased costs of production, warehousing and distribution, which increased
cost of revenue as a percentage of revenue by approximately 0.6%. These
increases were partially offset by a shift in product mix to higher percentage
margin products, which reduced cost of revenue as a percentage of revenue by
approximately 1.9%.
Selling, general and administrative expenses decreased by 8.1% or
$1,132,000 in 1998 compared to 1997, but increased as a percentage of total
revenue from 45.6% in 1997 to 54.2% in 1998. The decrease consists primarily of
$1,614,000 attributable to a reduction in sales personnel and related expenses
as a result of the reorganization of the sales and marketing efforts, and
$446,000 related to decreased expenses associated with general and
administrative functions. These decreases were partially offset by increased
spending of $492,000 for personnel needed to develop, sell, implement and
support the TouchScript product, an increase in bad debt expense of $263,000
and unearned compensation expense of $177,000.
Amortization of intangibles decreased by 9.0% or $37,000 in 1998 from the
prior year. The decrease in the amortization is the result of a writedown in
1997 of acquisition intangibles to net realizable value.
Other operating expenses decreased in 1998 by 83.2% or $2,138,000 over the
prior year period. The 1997 expense relates to a writedown of acquisition
intangibles in the amount of $2,328,000 and a severance charge of $240,000 for
a reduction in force of three sales and seven general and administrative staff
personnel. The expense in 1998 related to a reduction in force of nine sales
and ten general and administrative staff personnel.
Interest expense decreased in 1998 by 63.2% or $1,025,000 over the prior
year period due to the exchange of subordinated convertible debentures for
redeemable preferred stock and the repayment of the term loan in April 1998. In
addition, in 1998 we recognized an extraordinary loss of $790,000 from the
early extinguishment of debt relating to the exchange of the debentures for
redeemable preferred stock.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Revenue in 1997 decreased by 8.6% or $2,869,000 from $33,462,000 in 1996 to
$30,593,000 in 1997. The overall net decrease reflects lower utilization by,
and attrition of, customers, price reductions in response to competitive
pressures and a shift in product mix to lower-priced generic products.
Cost of revenue in 1997 decreased by 9.9% or $2,308,000 from $23,330,000 in
1996 to $21,022,000 due to the decrease in revenue outlined above. As a
percentage of total revenue, cost of revenue for 1997 decreased to 68.7% from
69.7% in the prior year period principally due to lower acquisition costs of
generic products and increased rebates from pharmaceutical manufacturers. These
amounts were partially offset by increased costs of production, warehousing and
distribution associated with our new production facility, which we moved to in
1997.
Selling, general and administrative expenses increased by 19.8% or
$2,305,000 in 1997 compared to 1996 and increased as a percentage of total
revenue from 34.8% in 1996 to 45.6% in 1997. The increase consists primarily of
$1,247,000 spent on the development of a sales support infrastructure needed to
sell, implement and support TouchScript installations, $470,000 for the
addition of new senior management personnel, $232,000 for moving costs and
increased lease costs associated with our new office and production facility,
$160,000 for increased information services staff, $408,000 for receivable
realization
26
<PAGE>
reserves primarily related to three weight-loss products that were withdrawn
from the market and $339,000 for general increases in general and
administrative expenses. These increases were partially offset by $715,000 in
sales personnel reductions as part of our reorganization of the sales process.
Amortization of intangibles decreased by 22.7% or $120,000 in 1997 from the
prior year period. The decrease is the result of certain intangibles becoming
fully amortized in 1996 and 1997.
Other operating expenses increased in 1997 by 148.4% or $1,534,000 over the
prior year period. The 1997 expense relates to a writedown of acquisition
intangibles and a reduction in force as part of the reorganization of our sales
process. The expense in 1996 related to the writeoff of software intangibles
related to a product rendered obsolete by TouchScript, in the amount of
$166,000, the recognition of a charge for severance costs related to four
individuals in the amount of $574,000 and $294,000 in costs related to the
shutdown of our Pennsylvania sales office.
Interest expense increased in 1997 by 24.6% or $320,000 over the prior year
period due to the annualized cost of our subordinated convertible debentures
issued in April 1996.
Other expense in 1996 relates to the loss recognized on the exchange of a
note receivable from a shareholder for common shares.
Selected Quarterly Operating Results
Our quarterly results of operations have generally been seasonal, with a
greater proportion of our revenue typically occurring in the first and fourth
quarters. This seasonality is primarily attributable to the fact that more
prescriptions are written in the winter months.
The following table shows our quarterly unaudited consolidated financial
information for the five quarters ended March 31, 1999 and each item as a
percentage of total revenue. We have prepared this information on the same
basis as the annual information presented in other sections of this prospectus.
In management's opinion, this information reflects all adjustments, all of
which are of a normal recurring nature, that are necessary for a fair
presentation of the results for these periods. You should not rely on the
operating results for any quarter to predict the results for any subsequent
period or for the entire fiscal year. You should be aware of possible variances
in our future quarterly results. See "Risk Factors--Risks Related to This
Offering and Our Stock--Our quarterly operating results may vary."
<TABLE>
<CAPTION>
Quarter Ended
----------------------------------------------
1998 1999
------------------------------------ --------
March 31 June 30 Sept. 30 Dec. 31 March 31
-------- ------- -------- ------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
Statements of Operations Data:
Revenue.......................... $ 6,351 $ 6,056 $ 5,760 $ 5,515 $ 6,028
Cost of revenue.................. 4,503 4,372 4,236 4,035 4,500
------- ------- ------- ------- -------
Gross profit..................... 1,848 1,684 1,524 1,480 1,528
Operating expenses:
Selling, general and
administrative expenses........ 3,384 3,283 3,160 3,005 3,540
Amortization of intangibles..... 93 93 93 93 93
Other operating expenses........ 112 -- -- 318 --
------- ------- ------- ------- -------
Loss from operations............. (1,741) (1,692) (1,729) (1,936) (2,105)
Interest expense................. (396) (81) (45) (74) (109)
Other expense.................... -- -- -- -- --
------- ------- ------- ------- -------
Loss from continuing operations.. (2,137) (1,773) (1,774) (2,010) (2,214)
Income (loss) from discontinued
operations...................... 387 294 201 88 26
Gain from sale of discontinued
operations...................... -- -- -- -- 3,547
------- ------- ------- ------- -------
Income (loss) before
extraordinary items............. (1,750) (1,479) (1,573) (1,922) 1,359
Extraordinary loss from early
extinguishment of debt.......... -- (790) -- -- --
------- ------- ------- ------- -------
Net (loss) income ............... $(1,750) $(2,269) $(1,573) $(1,922) $ 1,359
======= ======= ======= ======= =======
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
Quarter Ended
----------------------------------------------
1998 1999
------------------------------------ --------
March 31 June 30 Sept. 30 Dec. 31 March 31
-------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
As a Percentage of Revenue:
Revenue........................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenue................... 70.9 72.2 73.5 73.2 74.6
----- ----- ----- ----- -----
Gross profit...................... 29.1 27.8 26.5 26.8 25.4
Operating expenses:
Selling, general and
administrative expenses......... 53.3 54.2 54.9 54.5 58.7
Amortization of intangibles...... 1.5 1.5 1.6 1.7 1.5
Other operating expenses......... 1.8 -- -- 5.8 --
----- ----- ----- ----- -----
Loss from operations.............. (27.5) (27.9) (30.0) (35.2) (34.8)
Interest expense.................. (6.2) (1.3) (0.8) (1.3) (1.8)
Other expense..................... -- -- -- -- --
----- ----- ----- ----- -----
Loss from continuing operations... (33.7) (29.2) (30.8) (36.5) (36.6)
Income (loss) from discontinued
operations....................... 6.1 4.8 3.5 1.6 0.4
Gain from sale of discontinued
operations....................... -- -- -- -- 58.8
----- ----- ----- ----- -----
Income (loss) before extraordinary
items............................ (27.6) (24.4) (27.3) (34.9) 22.6
Extraordinary loss from early
extinguishment of debt........... -- (13.1) -- -- --
----- ----- ----- ----- -----
Net (loss) income................. (27.6)% (37.5)% (27.3)% (34.9)% 22.6%
===== ===== ===== ===== =====
</TABLE>
Discontinued Operations
The operating results of the pharmacy benefit management segment have been
segregated from continuing operations and reported as a separate line item on
the Consolidated Statements of Operations under the caption "Income (loss) from
discontinued operations." Additionally, we have restated our prior financial
statements to present the operating results of the pharmacy benefit management
business as a discontinued operation.
Operating results from discontinued operations were as follows:
<TABLE>
<CAPTION>
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Revenue............................ $42,225,000 $44,719,000 $52,866,000
Cost of revenue.................... 39,001,000 41,413,000 49,313,000
----------- ----------- -----------
Gross profit................... 3,224,000 3,306,000 3,553,000
Selling, general and administrative
expenses.......................... 1,735,000 5,114,000 2,583,000
----------- ----------- -----------
Operating income (loss)............ 1,489,000 (1,808,000) 970,000
----------- ----------- -----------
Income (loss) from discontinued
operations........................ $ 1,489,000 $(1,808,000) $ 970,000
=========== =========== ===========
</TABLE>
Revenue from discontinued operations increased by 5.9% or $2,494,000 from
$42,225,000 in 1996 to $44,719,000 in 1997 while increasing 18.2% or $8,147,000
to $52,866,000 in 1998. The increase in revenue reflects our focus on and
success within the specialty medication market business, primarily HIV
medications. These increases were partially offset by the loss of customers and
the repricing of certain accounts as part of the competitive renewal bid
process.
While these specialty medication customers generated significant revenue,
their gross profit margin percentage was lower than our historical customer
base. As a result, cost of revenue in 1997 increased by 6.2% or $2,412,000 from
1996 and increased as a percentage of revenue from 92.4% to 92.6%. Cost of
revenue in 1998 increased by 19.1% or $7,900,000 from 1997 and increased as a
percentage of revenue from 92.6% to 93.3%.
28
<PAGE>
Selling, general and administrative expenses of discontinued operations
remained relatively constant from 1996 to 1997, after consideration of a
$3,294,000 writedown of acquisition intangibles in 1997. Selling, general and
administrative expenses increased by $763,000 or 41.9% from $1,820,000 in 1997,
excluding the writedown of intangibles noted above, to $2,583,000 in 1998. This
increase relates to a $800,000 charge for uncollectible receivables, costs
associated with a major computer system conversion and increased administrative
and support costs to support higher revenue levels.
Liquidity and Capital Resources
Historically, our principal sources of funds were bank borrowings and the
sale of subordinated debt, redeemable preferred stock and equity securities. We
issued securities totaling approximately $10,000,000 in 1996 and $8,930,000 in
1998. We have used these capital resources to fund operating losses, working
capital, capital expenditures, acquisitions and retirement of debt. At March
31, 1999, we had an accumulated deficit of $49,405,000.
We have spent $771,000, $518,000 and $296,000 on software development costs
in fiscal 1998, 1997 and 1996, respectively. We project that we will spend
approximately $1,500,000 in fiscal 1999 on software development. No software
development costs have been capitalized to date; software development costs
will be capitalized in the future, after market acceptance has been
established.
Net cash used in operating activities in 1998 increased by approximately
$2,494,000 compared to 1997. Of this amount, changes in working capital
accounted for approximately $1,059,000 of the increase, principally as a result
of higher levels of receivables and inventory in the pharmacy benefit
management business. In March 1999, we sold substantially all the assets of
this business, excluding cash and accounts receivable. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Recent Developments."
We maintain allowances for uncollectible accounts to reflect our accounts
receivable balances at net realized value. The adequacy of the allowance is
determined by periodic reviews of individual customer accounts. The allowances
for uncollectible accounts at March 31, 1999 and December 31, 1998, $4,532,000
and $4,523,000, respectively, include approximately $2,600,000 for several
receivable balances with respect to which we have initiated legal action.
We have a line of credit with a bank for up to $10,000,000, subject to
levels of eligible accounts receivable and inventory. The line of credit
agreement expires on April 16, 2000. Borrowings under the line of credit are
collateralized by all of our assets. Covenants restrict the payment of
dividends, purchase or redemption of securities and the issuance of additional
debt without the bank's consent. As of March 31, 1999, we were able to borrow
up to $7,661,000 and had borrowed approximately $5,400,000 under this
agreement, at an interest rate of prime plus 0.5%, which was 8.5% at March 31,
1999. As we collect outstanding receivables from our pharmacy benefit
management business, our borrowing capacity will decrease.
At March 31, 1999, we had outstanding long-term debt and redeemable
preferred stock, at redemption value, including accrued dividends, totaling
approximately $34,007,000. Approximately $9,359,000 of the redeemable preferred
shares are mandatorily redeemable upon the closing of this offering. We intend
to redeem all of the outstanding redeemable preferred stock, approximately
$33,948,000 at March 31, 1999, with a portion of the net proceeds from this
offering. See "Use of Proceeds."
Capital expenditures were $1,242,000 in 1997 and $884,000 in 1998. The
increased level of expenditures in 1997 resulted from moving our office and
production operations to a new facility in that year.
At December 31, 1998, we had operating loss carryforwards available for
federal income tax reporting purposes of approximately $30,534,000. The
operating loss carryforwards expire in 2002 through 2013. Our ability to use
these operating loss carryforwards to offset future taxable income depends on a
29
<PAGE>
variety of factors, including possible limitations on usage under Internal
Revenue Code Section 382. Section 382 imposes an annual limitation on the
future utilization of operating loss carryforwards due to changes in ownership
resulting from the issuance of common shares, stock options, warrants and
preferred shares.
We expect the net proceeds from this offering, together with our existing
cash and borrowings under our line of credit, to be sufficient to meet our
anticipated needs for working capital and other cash requirements for at least
the next twelve months. See "Risk Factors--Risks Related to Our Company--We are
uncertain of our ability to obtain additional financing for our future needs."
Year 2000
Many existing computer programs use only two digits to identify a year.
These programs were designed and developed without addressing the impact of the
upcoming change in the century. If not corrected, many computer software
applications could fail or create erroneous results by, at or beyond the Year
2000. We use software, computer technology and other services internally
developed and provided by third-party vendors that may fail due to the Year
2000 phenomenon. For example, we are dependent on third-party vendors to host
our Internet servers, perform certain information processing functions and
provide other services critical to our business.
We have reviewed the Year 2000 compliance of our medication management
products and have tested these products to determine how they will function at
and beyond the Year 2000. Based upon our assessment to date, we believe that
all of the medication management products that we currently sell are Year 2000
compliant. We have contacted the small number of customers using certain older
versions of our products that are not Year 2000 compliant. We have offered
these customers upgrades to Year 2000 compliant versions of these products at
no cost.
We have assessed the Year 2000 readiness of all mission-critical hardware,
operating systems and third-party and proprietary software, which include
software for use in our accounting, order entry, database, security and other
operating systems. The failure of our software or systems to be Year 2000
compliant could have a material adverse effect on our corporate accounting
functions, our ability to fulfill orders and the operation of TouchScript and
our Web site. As part of the assessment of the Year 2000 compliance of these
systems, we have received assurances from our vendors that their software,
computer technology and other services are Year 2000 compliant. We have
expensed amounts incurred in connection with Year 2000 assessment through
December 31, 1998. Such amounts have not been material. As of April 1, 1999 we
have completed our assessment process, replaced all mission critical, non-
compliant hardware with hardware that is Year 2000 compliant, upgraded all
mission-critical third-party software, including operating systems, to Year
2000 compliant versions, upgraded proprietary software so that it is Year 2000
compliant, and audited the interfaces among our internal systems and between
those systems and external systems. We expect to complete the upgrading of
interfaces by August 1, 1999 and then immediately begin system-wide testing,
which we expect to be completed by October 1, 1999. At this time, we cannot
determine the expenses associated with this testing and any potential
remediation plan that may be incurred in the future. The failure of our
software and computer systems and of our third-party suppliers to be Year 2000
compliant could have a material adverse effect on us. As of May 31, 1999, we
had incurred costs that we believe are allocable to the Year 2000 problem of
approximately $125,000.
The Year 2000 readiness of the general infrastructure necessary to support
our operations is difficult to assess. For instance, we depend on the integrity
and stability of the Internet to provide our services. The infrastructure
necessary to support our operations consists of a network of computers and
telecommunications systems located throughout the world and operated by
numerous unrelated entities and individuals, none of which has the ability to
control or manage the potential Year 2000 issues that may impact the entire
infrastructure. Our ability to assess the reliability of this infrastructure is
limited and relies solely on generally available news reports, surveys and
comparable industry data. Based on these
30
<PAGE>
sources, we believe most entities and individuals who rely significantly on
the Internet are carefully reviewing and attempting to remediate issues
relating to Year 2000 compliance, but it is not possible to predict whether
these efforts will be successful in reducing or eliminating the potential
negative impact of Year 2000 issues. A significant disruption in the ability
to reliably access the Internet or portions of it would have an adverse effect
on demand for our products and services and would have a material adverse
effect on us.
We have not developed a contingency plan to address situations that may
result if we or our vendors are unable to achieve Year 2000 compliance. If
circumstances require, we will develop a contingency plan. The cost of
developing and implementing such a plan, if necessary, could be material. Any
failure of our material systems, our vendors' material systems or the Internet
to be Year 2000 compliant could have material adverse consequences for us.
These consequences could include difficulties in operating our Web site
effectively, taking product orders, making product deliveries, transmitting
data or conducting other fundamental parts of our business.
31
<PAGE>
BUSINESS
General
We provide physicians with Internet and client/server medication management
solutions designed to improve the quality and cost effectiveness of
pharmaceutical healthcare. Our technology-based approach focuses on the point
of care, where the prescription originates, and creates an electronic dialogue
between physicians and other participants in the healthcare delivery process,
including patients, pharmacies, managed care organizations and pharmaceutical
manufacturers. We believe physicians find our solutions attractive because
incorporating these solutions into their office work flow can increase
efficiency and profitability and improve the quality of patient care.
Our products are designed to improve every step of the pharmaceutical
healthcare process. We currently offer products in four categories: point-of-
care medication management, Internet products and services, information
products and prepackaged medications. Our TouchScript software enables
electronic prescribing, routing of prescription information and capturing of
prescription data at the point of care. Our other e-commerce products and
services offer physicians and their patients medication-related education and
information services. We also sell our prepackaged medications to physicians so
they can offer their patients the convenience of receiving prescription
medications in the physician's office.
Background
According to the Health Care Financing Administration, healthcare
expenditures in the United States totaled approximately $1.0 trillion in 1996,
or 14% of the country's gross domestic product, making it the largest single
sector of the economy. One of the fastest growing components of healthcare
expenditures is pharmaceutical costs, which last year totaled approximately
$100 billion, according to IMS HEALTH, a leading provider of pharmaceutical
information. According to the Health Care Financing Administration,
pharmaceutical costs are expected to increase at an annual rate of
approximately 10% through 2007, driven by an aging population, the accelerating
introduction of new drugs, direct-to-consumer advertising by pharmaceutical
manufacturers and cost advantages over alternate forms of care, most notably
inpatient hospital care. This in turn has created pressure on managed care
organizations to control pharmacy costs and improve the process of managing
medication treatments.
Physicians have also been affected as healthcare has shifted from a fee-
for-service model to managed care forms of reimbursement, which increasingly
transfer financial risk for pharmaceutical costs from traditional third-party
payers to physicians. This transfer of risk has often had an adverse financial
impact on physicians. Moreover, as healthcare becomes increasingly consumer
driven, patients are seeking more information, control and convenience, placing
additional time and financial pressures on physicians. These changes have led
many physicians in the United States to search for tools and solutions to
improve practice efficiency, increase revenue, comply with managed care
guidelines and address patient needs.
Rapid Growth of the Internet and E-commerce
The Internet is becoming an increasingly important medium in healthcare,
providing the opportunity for unprecedented communication and access to
information for all participants in the healthcare delivery process. We believe
that an increasing number of physicians regularly access the Internet,
indicating their willingness to adopt technology. Consumer usage of the
Internet continues to grow rapidly, and health and medical information was the
second most popular subject of Web-based information retrieval searches in 1997
according to Media Metrix, an independent Internet research firm. In addition,
Simba Information, Inc., a media and information industry market research firm,
estimates that e-commerce will grow from $28 billion in 1998 to over $100
billion by 2002.
32
<PAGE>
The Opportunity
The current process for prescribing and delivering medications is
inefficient, unnecessarily costly and error-prone. Physicians write virtually
all of the 2.8 billion annual prescriptions by hand, resulting in errors and
necessitating millions of telephone inquiries from pharmacies for clarification
and correction. When physicians write prescriptions, they often do not have
ready access to information that would help ensure that the prescription is
clinically sound, cost effective and compliant with managed care organizations'
pharmacy guidelines. The pharmacist or managed care organization checks this
information only after the physician writes the prescription. The inability of
managed care organizations to communicate with physicians at the time of
prescribing has made it difficult to manage pharmaceutical costs. The existing
process further inconveniences the patient, who must travel from the
physician's office to a pharmacy and must often wait for the prescription to be
filled. In addition, despite the fact that pharmaceutical manufacturers spend
billions of dollars promoting the use of their drugs, physicians have a
difficult time staying current on the rapidly expanding body of pharmaceutical
products and knowledge.
The Allscripts Solution
We have developed comprehensive in-office and Internet-based electronic
solutions that significantly streamline the process of prescribing and
delivering medications. Our TouchScript software enables physicians to improve
their prescribing at the point of care by providing ready access to information
about potential adverse drug interactions, patient drug history and managed
care preferences, including pharmacy guidelines and generic substitutes. Both
before and as the prescription is written, TouchScript reduces the possibility
of errors and the need for expensive and time-consuming intervention by
pharmacists and pharmacy benefit managers.
We offer or intend to offer other e-commerce products that address various
aspects of the medication management process. We currently have products that
enable physicians to purchase medications and supplies via the Internet and
make it possible for patients to have their prescriptions electronically routed
to the pharmacies of their choice or to receive their medications in their
physicians' offices. To physicians, we intend to offer Internet-based
information services to permit them to better care for their patients. To
patients, we intend to offer ancillary information and electronic services
focused on improving care, including patient education and compliance.
Our solution redesigns the pharmaceutical healthcare delivery process to
benefit each participant. By providing ready access to information during the
prescribing process, our system benefits physicians by reducing the amount of
time spent clarifying and changing prescriptions. In addition, our system
enables physicians to better manage financial risk and to increase practice
revenue through dispensing medications. Patients benefit from the convenience,
immediacy and confidentiality of receiving prescription medications in the
physician's office. Patients also gain access to valuable information that
enables them to play a more active role in managing their healthcare. Managed
care organizations benefit from higher physician compliance with their pharmacy
guidelines, resulting in lower overall costs. Pharmacies benefit from improved
communication with physicians, which enhances efficiency and reduces the
likelihood of errors.
We believe that the best way to improve the medication management process
is by focusing where the prescription originates--with the physician--and
motivating physicians to write prescriptions electronically. By combining
electronic prescribing and dispensing, innovative product design, state-of-the-
art software and hardware, and the Internet, we believe we offer an attractive
opportunity for physicians. Key advantages of our solution include:
. Ease of Use. TouchScript is easy to use, enabling a physician to complete
a prescription in as little as 20 seconds.
. Accessibility. TouchScript enables physicians to prescribe electronically
from a variety of locations on several different platforms, including
touch screen-enabled personal computers, and, in the near future, the
Internet and hand-held Microsoft CE devices.
33
<PAGE>
. Information. TouchScript provides valuable, objective information prior
to and during the prescribing process, enabling physicians to improve the
quality of their prescriptions.
. Financial Opportunity. TouchScript offers physicians a significant
financial opportunity through better management of pharmacy risk and
additional practice revenue from dispensing medications.
Competitive Advantage
We believe that we have several advantages over our current and potential
competitors:
. Physician Relationships. Our experience with thousands of physicians at
more than 2,500 sites across the United States enables us to understand
their office workflow and the way they conduct their business.
. Managed Care Experience. Over 60 managed care payers and pharmacy benefit
managers, including many of the country's largest, currently reimburse
our physician customers for prescription medications dispensed in their
offices.
. Regulatory Experience. We have a thorough understanding of, and operating
experience in, the dynamic and complex federal and state healthcare
regulatory environment.
. Installed Base. Versions of TouchScript are currently installed and used
in over 150 physician practice sites.
. Management. Our management team has substantial experience in managing
rapidly growing public companies that use technology to change business
processes.
The Allscripts Strategy
Our objective is to become the leading provider of medication management
solutions. Our strategy to achieve this objective includes the following:
. Accelerating sales of our medication management solutions through
expansion of marketing efforts, conversion of traditional dispensing-only
customers to TouchScript and development of strategic alliances with
physician practice management system vendors, physician-oriented Internet
portals and managed care organizations.
. Increasing customer utilization of our medication management products to
enhance the financial opportunity for physicians through a combination of
quality customer service and expansion of the number of managed care
organizations that reimburse physicians for prescription medications
dispensed in their offices.
. Enhancing our product line by developing additional Internet-based
products for physicians and their patients.
. Developing and marketing information products that use the data collected
during the electronic prescribing process.
Products and Services
Our product strategy is built around the physician prescribing
electronically at the point of care, where virtually all prescriptions are
initiated. Our e-commerce business is comprised of three major product
categories:
. point-of-care medication management,
. Internet products and services and
. information products.
Our traditional business consists of sales of prepackaged medications through
channels other than the Internet.
34
<PAGE>
Current and Future E-Commerce Products and Services
<TABLE>
<CAPTION>
Product or Service Key Features Availability
<S> <C> <C>
Point-of-Care Medication Management
TouchScript Version 6 Drug Utilization Review Currently Available
Formulary checking (800 plans)
Generic substitution
Automated Internet ordering
SCRIPT standard transmission
Online submission of pharmacy claims
Inventory management
ScriptGuard barcode scanning
Touch screen-enabled
TouchScript Outsourcing On-site pharmacy or dispensary Currently Available
management
TouchScript Version 7 All Version 6 features, plus: Expected Third Quarter
3Touch Prescribing 1999
Hand held enabled
- -----------------------------------------------------------------------------------------------------------
Internet Products and Services
Online Ordering (www.Allscripts.com) Medications for in-office dispensing Currently Available
Medical education materials
Physician's Interactive Internet and Interactive Voice Response drug Currently Available
education and detailing
TouchScript Version 7.i Internet-enabled electronic prescribing Expected Third Quarter
1999
Intelligent Reminder Patient compliance tracking *
Patient Education Health state information *
Managed care information
Drug information
- -----------------------------------------------------------------------------------------------------------
Information Products
Data Mining Products Prescribing data linked to diagnosis Currently Available
</TABLE>
* Release date to be determined.
35
<PAGE>
Point-of-Care Medication Management
TouchScript is a client/server and Internet-based software application that
physicians use to electronically prescribe, route prescriptions and dispense
medications. TouchScript provides the physician with ready access to
information during the prescribing process to facilitate writing a high-
quality prescription. This information includes patient drug history,
potential adverse drug interactions, generic drug alternatives and the
relative costs of medications and drug preferences of over 800 managed care
plans. The resulting prescription is legible, accurate and more likely to be
clinically safe and follow managed care guidelines, reducing the need for
subsequent communication between the physician and a pharmacist to correct or
clarify the prescription.
Once the prescribing process is completed, TouchScript offers a variety of
fulfillment options for the patient: electronic routing to a retail or mail
order pharmacy, printing a legible hard copy or receiving the medication in
the physician's office. If the patient chooses to receive the medication in
the physician's office and is carrying a pharmacy benefit card, the system can
submit the pharmacy claim electronically for immediate approval and
reimbursement by the managed care organization.
Drug inventory management is fully automated, and all medication orders and
receipts are handled via the Internet using a proprietary program. TouchScript
employs an industry standard electronic data interchange format for sending
and receiving prescription information called SCRIPT standard, which was
developed by the National Council for Prescription Drug Programs. This enables
two-way communication between physicians and pharmacists in a more efficient
way than can be accomplished over the telephone. In addition, TouchScript's
underlying relational database enables users to generate a variety of
clinical, financial and operational reports.
We designed TouchScript to be faster and easier for a physician to use than
a prescription pad. We currently offer TouchScript with a touch-screen
interface option, and we are developing and expect to offer 3Touch Prescribing
in the third quarter of 1999. We also plan to offer TouchScript on Internet
and hand-held Microsoft CE platforms in the near future. TouchScript learns
the physician's preferences dynamically, tailoring information on patients,
diagnoses, medications and instructions more precisely as usage increases.
We offer a number of outsourcing options. These range from Allscripts
providing employees to assist in the operation of the TouchScript system to
more comprehensive arrangements where we establish and manage the customer's
pharmacy operations.
Internet Products and Services
As an extension of our TouchScript medication management solutions, we
offer transaction-based
e-commerce services that enhance our business relationships with physicians.
We are also developing a number of informational and educational services for
physicians and patients to be offered through our Web site. We expect to
introduce additional services during the current fiscal year and plan to
expend significant resources for continued development.
Online Ordering. Through our Web site, www.Allscripts.com, we currently
sell pharmaceuticals to physicians, enabling them to provide patients with
medications in the office, and we plan to facilitate the delivery of
pharmaceutical products directly to patients in the future. We also enable
healthcare professionals to purchase medical-related texts, journals and
products online.
Physician's Interactive. This product enables pharmaceutical manufacturers
and managed care organizations to deliver drug education and detailing to
physicians more efficiently and cost-effectively via the Internet, without the
face-to-face interaction currently required. The product is also available
through Interactive Voice Response.
Intelligent Reminder. We intend to offer a service to track patient
compliance with prescribed treatment and to send reminders to patients,
physicians and managed care organizations. By increasing
36
<PAGE>
compliance, we expect to improve patient care and reduce unnecessary office
visits, benefiting patients, physicians and managed care organizations.
Patient Education. We intend to create a Web site that will provide
information to patients, enabling them to take a more active role in managing
and improving the quality and cost of their healthcare. Specific information
regarding health state, managed care and medications will be made available on
the Web site and via e-mail.
Information Products
Data Mining Products. As a by-product of electronic prescribing, we
accumulate data that correlates the medications prescribed with the related
diagnosis. This type of correlated data is not readily available on a broad
scale, and we believe that we can market it to pharmaceutical manufacturers and
managed care organizations.
Prepackaged Medications
We fulfill orders for prepackaged medications for our traditional and e-
commerce customers from our FDA-licensed repackaging facility in Libertyville,
Illinois. Enabling physicians to sell repackaged pharmaceuticals is an
important component of the financial opportunity we provide to physicians.
Sales and Marketing
We sell our products through an internal direct sales force and intend to
pursue strategic relationships with key suppliers of physician practice
management systems, physician-focused Internet portals and managed care
organizations to complement our internal efforts.
As of May 31, 1999, we employed 35 sales professionals who market directly
to large physician practices, clinics, integrated healthcare networks and
physician practice management organizations. We target sites with a large
number of high-volume prescribing physicians in states where in-office
dispensing is well-established or where many physicians bear financial risk for
pharmaceutical costs.
We use a variety of tools to attract prospective customers, including
editorials, articles and advertisements in trade journals, as well as executive
seminars, exhibits at selected trade shows and other direct marketing
techniques.
Merck-Medco Strategic Relationship
Merck-Medco Managed Care is the country's largest pharmacy benefits
manager, covering over 60 million people. We have a pilot agreement with Merck-
Medco to evaluate the effectiveness of our TouchScript medication management
solutions in affecting prescribing behavior and accelerating patient
participation in Merck-Medco's mail order prescription services. Merck-Medco
works closely with us to target high-volume prescribers and encourage them to
adopt the TouchScript system.
Customer Service and Support
Our customer service strategies are important to our ability to maximize
physician utilization of our medication management solutions. We provide our
customers with a range of services that begins before product implementation
and continues throughout our relationship. As of May 31, 1999, our TouchScript
customer service and support team consisted of 65 Account Executives, Regional
Managers and Customer Support Representatives. We expect our team to grow
substantially by the end of 1999.
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Implementation Services
Implementation involves site evaluation, work flow preparation, hardware
and software installation and training of physicians and their staff. Site
evaluation helps us understand how best to implement our solution within the
physician's office work flow. Physician training on the system can typically be
completed in 30 minutes or less. The physician's office staff is usually
trained in administrative and fulfillment functions in two to three hours. The
objective of the implementation process is to maximize the value added to the
physician's practice through electronic prescribing, routing to the appropriate
dispensing location and utilizing information.
Account Management and Customer Support
Once TouchScript is operational, our staff works to help the customer
realize the benefits of the system. Account Managers contact customers on a
regular basis, either in person, by telephone or online, monitor weekly
activity and help increase customer satisfaction. We provide toll-free
telephone and online support to our TouchScript customers 24 hours a day, seven
days a week. In addition, a separate group of Account Managers services more
than 2,500 physician practice locations across the country that purchase our
prepackaged medications.
Managed Care
Our Managed Care team is responsible for facilitating access to managed
care networks, acquiring and maintaining pharmacy guideline information for
over 800 payers and supporting ongoing relationships with payers and pharmacy
benefit managers.
Competition
Our industry is intensely competitive, rapidly evolving and subject to
rapid technological change. Many companies that offer products or services that
compete with one or more of our products or services have greater financial,
technical, product development, marketing and other resources than we have.
These organizations may be better known and may have more customers than we
have. We may be unable to compete successfully against these organizations. We
believe that we must gain significant market share with our products and
services before our competitors introduce alternative products and services
with features similar to ours.
We believe that there are no competitors in medication management that
offer a comprehensive solution with ease of use, accessibility, information
content and financial opportunity for physicians comparable to ours. However,
several organizations offer components that overlap with certain components of
our solutions and may become increasingly competitive with us in the future.
We face competition from several types of organizations, including the
following:
. physician practice management systems suppliers;
. electronic medical records providers;
. healthcare electronic data interchange providers;
. point-of-care dispensing providers;
. Internet pharmacies; and
. Internet information providers.
While many of these types of organizations are potential competitors, we
believe that there are opportunities to establish strategic relationships,
alliances or distribution agreements with some of them. Although we do not have
any existing agreements with these types of organizations, we intend to pursue
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these opportunities selectively. In addition, we expect that major software
information systems companies and others specializing in the healthcare
industry may offer products or services that are competitive with components of
our solutions.
Product Development and Technology
As of May 31, 1999, our software development department consisted of 19
technology professionals. These individuals, with expertise in application
development, documentation and quality assurance, are divided into cross-
functional teams responsible for our point-of-care and Internet solutions.
The key initiatives under development for 1999 include TouchScript Version
7, which features 3Touch Prescribing. In addition, we are developing software
to support a variety of Windows CE and Palm Pilot hand-held devices. We also
continue to develop our Internet products, including our Web-enabled
TouchScript Version 7.i, which will permit physicians to access the features of
TouchScript through the Internet, either directly or via healthcare portals.
TouchScript operates on Microsoft's NT and Windows operating systems. All
software products are developed using com-objects, Active Server Pages and C++
programming language. Our Internet applications are browser-independent and are
protected by a state-of-the-art firewall, which is a network interconnection
element that polices traffic flowing between the Allscripts internal network
and the Internet, and proxy servers that provide layered security defenses
against unauthorized access. We employ industry standard 128-bit encryption,
known as secure socket layers, to provide secure transfer of information over
the Internet.
Governmental Regulation
As a participant in the healthcare industry, our operations and
relationships are regulated by a number of federal, state and local
governmental entities. We believe we are in material compliance with all
applicable laws and that we have obtained all licenses necessary for the
operation of our business.
The use of our TouchScript software by physicians to perform electronic
prescribing, electronic routing of prescriptions to pharmacies and dispensing
is governed by state and federal law. States have differing prescription format
requirements, which we have programmed into TouchScript. Many existing laws and
regulations, when enacted, did not anticipate methods of e-commerce now being
developed. Federal law and the laws of several states neither specifically
permit nor specifically prohibit electronic transmission of prescription
orders. Given the rapid growth of e-commerce in healthcare, and particularly
the growth of the Internet, we expect many states, as well as the federal
government, to directly address these areas with regulation in the near future.
Physician dispensing of medications for profit is allowed in all states
except Massachusetts, Montana, Texas and Utah. Two states, New York and New
Jersey, allow physician dispensing of medications for profit, but limit the
number of days' supply that a physician can dispense. Many of the states
allowing physician dispensing for profit have regulations relating to
licensure, storage, labeling, record keeping and the degree of supervision
required by the physician over support personnel who assist in the non-
judgmental tasks associated with physician dispensing, like retrieving
medication bottles and affixing labels. We regularly monitor these laws and
regulations, in consultation with the governing agencies, to assist our
customers in understanding them so that they can materially comply.
Congress enacted significant prohibitions against physician self-referrals
in the Omnibus Budget Reconciliation Act of 1993. This law, commonly referred
to as "Stark II," applies to physician dispensing of outpatient prescription
drugs that are reimbursable by Medicare or Medicaid. Stark II, however,
includes an exception for the provision of in-office ancillary services,
including a physician's dispensing of outpatient prescription drugs, provided
that the physician meets the requirements of the exception. We believe that
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the physicians who use our TouchScript system or dispense drugs distributed by
us are doing so in material compliance with Stark II, either pursuant to the
in-office ancillary services exception or another applicable exception.
As a repackager and distributor of drugs to dispensing physicians, we are
subject to regulation by and licensure with the FDA, the DEA and various state
agencies that regulate wholesalers or distributors. Among the regulations
applicable to our repackaging operation are the FDA's "good manufacturing
practices." We are subject to periodic inspections by regulatory authorities of
our facilities, policies and procedures for compliance with applicable legal
requirements. We believe we are in material compliance with applicable federal
and state laws and regulations, including the FDA's "good manufacturing
practices," relating to our activities as a repackager and distributor of drugs
to dispensing doctors.
As a distributor of prescription drugs to physicians, we and our customers
are also subject to the federal anti-kickback statute, which applies to
Medicare, Medicaid and other state and federal programs. The statute prohibits
the solicitation, offer, payment or receipt of remuneration in return for
referrals or the purchase of goods, including drugs, covered by the programs.
The anti-kickback law provides a number of exceptions or "safe harbors" for
particular types of transactions. We believe that our arrangements with our
customers are in material compliance with the anti-kickback statute and
relevant safe harbors. Many states have similar fraud and abuse laws, and we
believe that we are in material compliance with those laws.
As part of our services provided to physicians, our system will
electronically transmit claims for prescription medications dispensed by a
physician to many patients' payers for immediate approval and reimbursement.
Federal law provides that it is both a civil and a criminal violation for any
person to submit a claim to any payer, including, for example, Medicare,
Medicaid and all private health plans and managed care plans, seeking payment
for any services or products that overbills or bills for items that have not
been provided to the patient. We believe that we have in place policies and
procedures to assure that all claims that are transmitted by our system are
accurate and complete, provided that the information given to us by our
customers is also accurate and complete.
Both federal and state laws regulate the disclosure of confidential medical
information, including information regarding conditions like AIDS, substance
abuse and mental illness. As part of the operation of our business, our
customers may provide to us patient-specific information related to the
prescription drugs that our customers prescribe to their patients. We believe
that we have policies and procedures to assure that any confidential medical
information we receive is handled in a manner that complies with all federal
and state confidentiality requirements.
History
Allscripts was initially organized to repackage and sell pharmaceuticals to
physicians for dispensing to their patients. When the current management team
arrived at Allscripts in late 1997, it recognized the need for a new set of
medication management solutions. The communication capabilities offered by the
Internet, paired with our existing relationships with managed care
organizations and with physicians, enabled us to create a new set of tools for
the physician with a first-to-market advantage. Management immediately
refocused Allscripts on information technology products rather than solely
dispensing repackaged pharmaceuticals. In recent years, we have invested
heavily in Internet and client/server software development to capture and
leverage the value of electronic information to all parties in the healthcare
equation: patients, physicians, managed care organizations, pharmacies and
pharmaceutical manufacturers.
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Employees
As of May 31, 1999, we employed 195 persons on a full-time basis, including
65 in customer service and support, 51 in general and administrative, 35 in
sales and marketing, 25 in production and warehousing and 19 in product
development. None of our employees is a member of a labor union or is covered
by a collective bargaining agreement. We believe we have excellent relations
with our employees.
Facilities
Our executive offices and state-of-the-art repackaging facilities are
located in Libertyville, Illinois in approximately 61,000 square feet of leased
space under a lease that expires in June 2004. We also lease space for a
separate, smaller repackaging facility in Grayslake, Illinois under a lease
that expires in June 2002. We believe that our facilities are adequate for our
current operations.
Insurance
Since June 1998, we have maintained occurrence-based product liability
insurance in the amount of $32,000,000 per occurrence and $32,000,000 per year
in the aggregate. Prior to that, we were covered by occurrence-based product
liability insurance in the amount of $15,000,000 per occurrence and $15,000,000
per year in the aggregate. While we believe our insurance is adequate for our
needs, we cannot assure you that we will be able to maintain this insurance in
the future or that this insurance will be sufficient to cover all possible
liabilities.
Legal Proceedings
We are involved in litigation incidental to our business from time to time.
We are not currently involved in any litigation in which we believe an adverse
outcome would have a material adverse effect on our business, financial
condition, results of operations or prospects. However, we have been involved
in litigation and are subject to certain claims as described below.
We are a defendant in approximately 115 multi-defendant lawsuits filed
between February 1998 and April 1999 and involving the manufacture and sale of
dexfenfluramine, fenfluramine and phentermine. The plaintiffs in these cases
claim cardiac and other injuries as a result of ingesting a combination of
these weight-loss drugs. Approximately 110 of these suits were filed in state
court in California; the remainder were filed in federal courts in Georgia and
Pennsylvania and in state courts in Texas, Nevada and West Virginia. In each of
these suits we are one of many defendants, including manufacturers and other
distributors of these drugs. We do not believe we have any significant
liability incident to the distribution or repackaging of these drugs, and we
have tendered defense of these lawsuits to our insurance carrier for handling.
The lawsuits are in various stages of litigation, and it is too early to
determine what, if any, liability we will have with respect to the claims made
in these lawsuits. If our insurance coverage in the amount of $15,000,000 per
occurrence and $15,000,000 per year in the aggregate is inadequate to satisfy
any resulting liability, we will have to defend these lawsuits and be
responsible for the damages, if any, that we suffer as a result of these
lawsuits. We do not believe that the outcome of these lawsuits will have a
material adverse effect on our business, financial condition, results of
operations or prospects.
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MANAGEMENT
Directors, Executive Officers and Key Employees
The following table sets forth the directors, executive officers and
certain key employees of Allscripts, their ages and the positions they held
with Allscripts as of June 15, 1999:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Directors and Executive Officers:
Glen E. Tullman................................ 39 Chairman of the Board and Chief Executive Officer
David B. Mullen................................ 48 President, Chief Financial Officer and Director
Joseph E. Carey................................ 41 Chief Operating Officer
James A. Rosenblum............................. 32 Chief Technology Officer
Steven M. Katz................................. 49 Executive Vice President, Sales and Marketing
John G. Cull................................... 37 Senior Vice President, Finance, Treasurer and Secretary
Philip D. Green(1)............................. 48 Director
M. Fazle Husain(2)............................. 35 Director
Michael J. Kluger(2)........................... 42 Director
L. Ben Lytle(1)(2)............................. 52 Director
Gary M. Stein(1)............................... 32 Director
Edward M. Philip............................... 34 Director (upon the closing of this offering)
Other Key Employees:
Donald J. Abramo............................... 47 Vice President, Managed Care
Clifford E. Berman............................. 40 General Counsel and Senior Vice President,
Regulatory and Legislative Affairs
Stanley A. Crane............................... 49 Vice President, Internet Services
Karl L. Greiter 38 General Manager, Point-of-Care Dispensing
II ................................
Philip J. Langley.............................. 32 Senior Vice President, Implementation Services
Steven Lefar................................... 32 Senior Vice President, Corporate Development
Gary 48 Senior Vice President, Outsourcing Options
Reiss ........................................
Brian D. 44 Vice President, Pharmacy Services
Ward ...................................
</TABLE>
- --------
(1)Member of Audit Committee.
(2)Member of Compensation Committee.
Glen E. Tullman has been the Chairman of the Board since May 1999 and our
Chief Executive Officer since August 1997. From October 1994 to July 1997, Mr.
Tullman was Chief Executive Officer of Enterprise Systems, Inc., a publicly
traded healthcare information services company providing resource management
solutions to large integrated healthcare networks. From 1983 to 1994, Mr.
Tullman was employed by CCC Information Services Group, Inc., a computer
software company servicing the insurance industry, most recently as President
and Chief Operating Officer. Mr. Tullman serves on the Board of Directors of
Insurance Auto Auctions, Inc.
David B. Mullen has been our President and Chief Financial Officer and a
director since August 1997. From January 1995 to June 1997, Mr. Mullen served
as Chief Financial Officer of Enterprise Systems, Inc. From 1983 to 1995, Mr.
Mullen was employed in various positions by CCC Information Services Group,
Inc., including Vice Chairman, President and Chief Financial Officer. Prior to
that, he was employed by Ernst & Young LLP.
Joseph E. Carey has been our Chief Operating Officer since April 1999. From
September 1998 to April 1999, he served as President and Chief Operating
Officer of Shopping@Home, Inc. Prior to that time, he was Senior Vice President
and General Manager of the Resource Management Group of HBO & Company, a
healthcare software firm. Mr. Carey joined HBO in 1997 with HBO's acquisition
of Enterprise Systems, Inc., where he held the role of President from 1993
until the acquisition.
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James A. Rosenblum has been our Chief Technology Officer since December
1998. Mr. Rosenblum joined Allscripts in December 1995. He served as our
Director of Product Development from January 1996 to August 1996 and our Vice
President, Technology from August 1996 to December 1998. From May 1994 to
December 1995, he was employed by Physician Dispensing Systems, Inc. (PDS), a
technology and medication dispensing firm that we acquired in December 1995.
Steven M. Katz has been our Executive Vice President, Sales and Marketing
since September 1997. From December 1994 to July 1997, Mr. Katz served as Chief
Operating Officer of Enterprise Systems, Inc. From December 1993 to November
1994, Mr. Katz was employed by CCC Information Services Group, Inc. as
President of the Insurance Division.
John G. Cull has been our Senior Vice President, Finance, Secretary and
Treasurer since 1995. From 1991 to 1993, Mr. Cull was our assistant controller,
and from 1993 to 1995 he was our controller. From 1986 to 1991, Mr. Cull was
controller of Federated Foods, Inc., a food brokerage company. Prior to joining
Federated Foods, Mr. Cull was employed by Arthur Andersen & Co.
Philip D. Green has been one of our directors since 1992. Mr. Green is a
founding partner of the Washington, D.C. based law firm of Green, Stewart,
Farber & Anderson, P.C., which was formed in 1989. From 1978 through 1989, Mr.
Green was a partner in the Washington, D.C. based law firm of Schwalb,
Donnenfeld, Bray & Silbert, P.C. Mr. Green practices healthcare law and
represents several major teaching hospitals.
M. Fazle Husain has been one of our directors since April 1998. Mr. Husain
is a Principal of Morgan Stanley Dean Witter & Co., an investment banking firm,
where he has been employed since 1991, and is a Managing Member of Morgan
Stanley Venture Partners III, L.L.C., the General Partner of Morgan Stanley
Venture Partners III, L.P., Morgan Stanley Venture Investors III, L.P. and The
Morgan Stanley Venture Partners Entrepreneur Fund, L.P. Mr. Husain was also
employed at Morgan Stanley Dean Witter from 1987 until 1989. Mr. Husain focuses
primarily on investments in the healthcare industry, including heathcare
services, medical devices and healthcare information technology. He serves on
the Board of Directors of IntegraMed America, Inc.
Michael J. Kluger has been one of our directors since 1994. He is a founding
partner of Liberty Partners, L.P., whose general partner is Liberty Capital
Partners, Inc., a New York investment management firm, where he has served as a
Managing Director since 1992. For five years prior thereto, Mr. Kluger was a
Director and Senior Vice President of Merrill Lynch Interfunding Inc., a
subsidiary of Merrill Lynch & Co., an investment banking and brokerage firm.
Mr. Kluger is also a managing director of Liberty Capital Partners, Inc. Mr.
Kluger serves on the Board of Directors of Monaco Coach Corporation.
L. Ben Lytle has been one of our directors since March 1999. He is Chairman
of the Board, President and CEO of Anthem, Inc., one of the largest healthcare
management companies in the United States. Before joining Anthem's predecessor
company in 1976, he held positions with LTV Aerospace, Associates Corp. of
North America and American Fletcher National Bank. Mr. Lytle serves on the
boards of IPALCO Enterprises, Inc., an energy company; Central Newspapers,
Inc., a media company; CID Equity Partners, a venture capital firm; and Duke
Realty Investments, Inc., a real estate investment firm.
Gary M. Stein has been one of our directors since April 1998. Mr. Stein is a
Vice President of Morgan Stanley Dean Witter & Co., an investment banking firm,
where he has been employed since 1997 and a Vice President of Morgan Stanley
Venture Partners III, L.L.C. Prior to joining Morgan Stanley Dean Witter in
1997, Mr. Stein was an Associate at Patricof & Co. Ventures, Inc., where he
focused on private equity investments in the healthcare industry from 1992 to
1997. Prior to that time, Mr. Stein was a Financial Analyst at Morgan Stanley &
Co., Inc. and Morgan Stanley Australia, Ltd.
Edward M. Philip is expected to join our Board of Directors upon the closing
of this offering. Mr. Philip has served as Chief Financial Officer and
Secretary of Lycos, Inc. since December 1995 and Chief Operating
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Officer of Lycos, Inc. since December 1996. From July 1991 to December 1995,
Mr. Philip was employed by The Walt Disney Company, where he served in various
finance positions, most recently as Vice President and Assistant Treasurer.
Prior to joining The Walt Disney Company, Mr. Philip was an investment banker
at Salomon Brothers Inc.
Donald J. Abramo has been our Vice President, Managed Care since February
1999. From January 1998 to January 1999, Mr. Abramo served as Regional Vice
President of Managed Care for Caremark International Inc., which has been a
wholly owned subsidiary of MedPartners Inc. since September 1996. From January
1997 to December 1997, Mr. Abramo served as Area Vice President for Caremark
International Inc., and from January 1994 to December 1996, he served as
Caremark's Director of Managed Care Sales. Prior to 1994, he was employed with
Baxter International and Blue Cross/Blue Shield.
Clifford E. Berman has been our General Counsel and Senior Vice President,
Regulatory and Legislative Affairs since July 1998. From September 1996 to July
1998, he served as Vice President of Legal Services for MedPartners, Inc. Prior
to that time, he held various positions at Caremark, Inc. Mr. Berman serves on
the Illinois State Board of Pharmacy and is Chairman of its Legislative and
Regulatory Committee. Mr. Berman is the past president of the Pharmaceutical
Care Management Association and currently serves on its Board of Directors.
Stanley A. Crane has been our Vice President, Internet Services since April
1999. From September 1998 to April 1999, he was Chief Technology Officer for
Shopping@Home, Inc. From January 1998 to September 1998, he was Chief
Technology Officer for MaxMiles, Inc., an Internet travel services company.
From August 1995 to January 1998, Mr. Crane was Chief Technology Officer for
Enterprise Systems, Inc., where he led a development team through its
successful migration from DOS-based applications to a system of Windows,
object-oriented, client/server applications. Prior to this, Mr. Crane held a
variety of roles with Lotus, Ashton-Tate and WordStar.
Karl L. Greiter has been our General Manager, Point-of-Care Dispensing since
September 1998. From November 1995 to August 1998, Mr. Greiter was our
controller. Before joining Allscripts, Mr. Greiter was employed by William G.
Ceas & Co., an investment banking firm.
Phillip J. Langley has been our Senior Vice President, Implementation
Services since August 1998. From 1989 to 1998, Mr. Langley served in a variety
of positions for CCC Information Services Group, Inc., most recently as Group
Vice President--North America Sales and Service.
Steven Lefar has been our Senior Vice President, Corporate Development since
April 1999. From 1996 to 1999, Mr. Lefar served as a Senior Manager in the
healthcare practice of Andersen Consulting, where he helped develop and
implement Covation, a joint venture that delivers outsourcing and e-commerce
services to healthcare providers. Prior to that, he was employed with Caremark
and APM, a healthcare consulting firm.
Gary Reiss has been our Senior Vice President, Outsourcing Operations since
March 1999. From July 1995 until that time, he was our Senior Vice President,
Customer and Field Services. Mr. Reiss co-founded Physician Dispensing Systems,
Inc., a technology and medication dispensing firm, which we acquired in
December 1995.
Brian D. Ward has been our Vice President, Pharmacy Services, since 1994.
Mr. Ward joined Allscripts in 1991. From 1989 to 1991, he was President of CAP
Services, a consulting firm specializing in pharmacy implementation and
hospital cost containment. Prior to 1989, Mr. Ward was employed by HPI
Healthcare, Inc., a hospital pharmacy management company.
Election of Directors
All of our directors were elected to the Board pursuant to the terms of our
Shareholders' Agreement among the holders of our preferred stock, certain of
the holders of our common stock and us. The Shareholders' Agreement will
terminate upon the closing of this offering.
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Following the offering, the Board of Directors will be composed of three
classes, with each class as nearly equal in number as possible. Upon the
expiration of the term of each class of directors, directors comprising that
class will be elected for a three-year term at the annual meeting of
stockholders in the year in which their term expires. Messrs. Green, Lytle and
Philip will serve in the class with a term that expires on the date of the
annual meeting of stockholders to be held in 2000. Messrs. Kluger, Mullen and
Stein will serve in the class with a term that expires on the date of the
annual meeting of stockholders to be held in 2001. Messrs. Husain and Tullman
will serve in the class with a term that expires on the date of the annual
meeting of stockholders to be held in 2002. All officers serve at the pleasure
of the Board of Directors. There are no family relationships among any of our
directors or executive officers.
Committees of the Board of Directors
The Board of Directors has established two standing committees: the Audit
Committee and the Compensation Committee. The Audit Committee recommends the
appointment of auditors and oversees our accounting and audit functions. The
Compensation Committee determines executive officers' salaries, bonuses and
other compensation and administers the Amended and Restated 1993 Stock
Incentive Plan.
Director Compensation
Our independent directors receive a fee of $1,000 for each meeting of the
Board of Directors that they attend. We also reimburse them for their travel
expenses. Under our Amended and Restated 1993 Stock Incentive Plan, these
directors are eligible to receive stock option grants at the discretion of the
Board of Directors or the Compensation Committee. In 1998, Mr. Green received
options to purchase 29,166 shares of our common stock at a per share exercise
price of $0.06. Also in 1998, Mr. Lytle received options to purchase 25,000
shares at a per share exercise price of $0.06. The options vest 25% per year
and become fully vested in 2002.
Pharmacy Advisory Board
Because of the important role pharmacy plays in medication management, we
have assembled a Pharmacy Advisory Board to consult on a variety of topics. The
Advisory Board will provide guidance to Allscripts in a number of key areas,
including the design and development of products and services, trends in
pharmacy and pharmaceutical care, and the planning and conducting of
pharmacoeconomic and medical research on issues such as electronic prescribing,
compliance programs and drug education.
J. Lyle Bootman, Ph.D., is Dean and Professor of the University of Arizona
College of Pharmacy and is Founding and Executive Director of the University of
Arizona Center for Health Outcomes and PharmacoEconomic (HOPE) Research. Dr.
Bootman has authored over 200 research articles and has been an invited speaker
at more than 300 healthcare meetings. He has published several books, including
"Principles of Pharmacoeconomics." Dr. Bootman was recently named to the
Institute of Medicine and serves as the current President of the American
Pharmaceutical Association.
James T. Doluisio, Ph.D., is the Hoeschst Roussel Professor of Pharmacy at
the University of Texas at Austin, where he also served as the Dean of the
College of Pharmacy from 1973 through 1998. Dr. Doluisio has written more than
90 papers on bioequivalency, biopharmaceutics, pharmacokinetics and on various
other pharmacy topics for national and international journals and textbooks.
Dr. Doluisio also served as President of the American Pharmaceutical
Association in 1982 and President of the American Association of Pharmaceutical
Scientists in 1988. From 1990 to 1995, he chaired the Board of the United
States Pharmacopeial Convention and recently served as the Inaugural Chairman
of Pharmaceutical Care Management Association's Deans Advisory Council. He has
served as a consultant to the FDA, as a member of the U.S. Office of Technology
Assessment Drug Bioequivalence Study Panel and as a consultant in Pharmacy to
the Surgeon General of the U.S. Air Force.
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Robert C. Johnson, Ph.D., is President of R.C. Johnson Associates, a
healthcare and association management consulting firm in Arizona, and he is
Professor of Pharmacy Administration and Executive Director of the Center for
the Advancement of Pharmacy Practice at Midwestern University's College of
Pharmacy. Mr. Johnson is a past Chairman and Chief Executive Officer of PCS
Health Systems, the nation's largest pharmacy benefit managers, and also served
as Corporate Vice President for Government Affairs for the McKesson Foundation.
He served as Chief Executive Officer of the California Pharmacists Association
for 20 years, and he is a past president of the American Pharmaceutical
Association.
Ronald P. Jordan, R.Ph., is a registered pharmacist, President of HCaliber
Consulting of East Greenwich, Rhode Island, an international healthcare
informatics firm, and Senior Vice President of Informatics at Hospice Pharmacia
L.L.C. of Philadelphia, Pennsylvania. Mr. Jordan is immediate past president of
the American Pharmaceutical Association and served as a member of its board of
trustees from 1994 through 1997. He served as a Trustee of the National Council
for Prescription Drug Programs, where he co-chaired the Standardization
Committee for over five years. Most recently, Mr. Jordan was appointed as one
of eleven members of the Health Care Financing Administration Medicare Coverage
Advisory Commission, and he was appointed to serve on the Rhode Island
Governor's Advisory Council on Health.
Delbert D. Konnor, PharmMS, is President and Chief Executive Officer of the
Pharmaceutical Care Management Association, a trade association representing
the major companies in the managed care pharmacy industry. In addition, he is
Adjunct Professor of Pharmaceutical Administration at Duquesne University and
Ohio Northern University. Mr. Konnor previously served as Vice President of
Professional Services for AARP Pharmacy Service. His key government pharmacy
positions have included Manager of the Voluntary Compliance Program for the
Drug Enforcement Administration and the Director of the first White House
Conference on Prescription Drug Misuse, Abuse and Diversion.
Debi Reissman, Pharm.D. is President of Rxperts Managed Care Consulting, a
consulting firm in Santa Ana, California that specializes in pharmacy benefit
consulting to physicians and the managed care industry. She is also an
Assistant Clinical Professor at the University of Southern California School of
Pharmacy. Dr. Reissman consults in the area of pharmacy benefit design and
prescription utilization management and has more than 19 years of experience in
the managed healthcare industry. She has held a variety of pharmacy management
positions, including Chief Executive Officer of Prescription Solutions, the
pharmacy benefit subsidiary of PacifiCare Health Systems. In addition to her
work experience, Dr. Reissman has been actively involved in national pharmacy
organizations, including the Academy of Managed Care Pharmacy where she chaired
the finance committee and served as treasurer for four years.
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Executive Compensation
This table summarizes the before-tax compensation for our named executive
officers for the fiscal year ended December 31, 1998. Named executive officers
include the Chief Executive Officer and the other four executive officers of
Allscripts whose salary and bonus earned during 1998 exceeded $100,000. Amounts
disclosed as "all other compensation" consist of our matching contributions
under our 401(k) plan.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation
Compensation Awards
------------ ------------
Securities
Name and Underlying All Other
Principal Position Salary($) Options(#) Compensation($)
------------------ ------------ ------------ ---------------
<S> <C> <C> <C>
Glen E. Tullman
Chairman of the Board and Chief
Executive Officer................... $225,000 548,083 $ 498
David B. Mullen
President and Chief Financial
Officer............................. 225,000 548,083 1,000
Steven M. Katz
Executive Vice President, Sales and
Marketing........................... 215,000 382,841 --
John G. Cull
Senior Vice President, Finance,
Treasurer and Secretary............. 140,000 19,164 1,000
James A. Rosenblum
Chief Technology Officer............ 105,000 32,498 1,000
</TABLE>
Option Grants in Last Fiscal Year
This table gives information relating to option grants to the named
executive officers during the year ended December 31, 1998. The options were
granted under our Amended and Restated 1993 Stock Incentive Plan. The potential
realizable value is calculated based on the term of the option at its time of
grant, 10 years. The calculation assumes that the fair market value on the date
of grant appreciates at the indicated rate compounded annually for the entire
term of the option and that the option is exercised at the exercise price and
sold on the last day of its term at the appreciated price. Stock price
appreciation of 0%, 5% and 10% is assumed pursuant to the rules of the
Securities and Exchange Commission. Based on the assumed initial public
offering price of $11.00 per share, the actual price appreciation may be
substantially greater than that assumed under these rules. We cannot assure you
that the actual stock price will appreciate over the 10-year option term at the
assumed levels or at any other defined level.
<TABLE>
<CAPTION>
Individual Grants
---------------------------------------------------
Percent Potential Realizable
of Total Fair Value at Assumed Annual
Number of Options Market Rates of Stock Price
Securities Granted Value at Appreciation for Option
Underlying in Exercise Grant Term
Options Fiscal Price Date Expiration -------------------------
Name Granted (#) 1998 (%) ($/Share) ($/Share) Date 0% 5% 10%
---- ----------- -------- --------- --------- ---------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Glen E. Tullman......... 548,083(1) 27.6% $0.06 $0.24 5/29/08 $98,655 $181,380 $308,296
David B. Mullen......... 548,083(1) 27.6 0.06 0.24 5/29/08 98,655 181,380 308,296
Steven M. Katz.......... 382,841(2) 19.3 0.06 0.24 5/29/08 68,911 126,695 215,347
John G. Cull............ 6,666(3) 0.3 0.06 0.24 5/29/08 1,200 2,206 3,750
12,498(3) 0.6 0.06 0.06 12/10/08 0 472 1,195
James A. Rosenblum...... 7,499(3) 0.4 0.06 0.24 5/29/08 1,350 2,482 4,218
24,999(3) 1.2 0.06 0.06 12/10/08 0 943 2,391
</TABLE>
- --------
(1) The options vested 25% on the grant date and 25% on August 1, 1998 and will
vest 25% on each of August 1, 1999 and 2000.
(2) The options vested 25% on the grant date and 25% on September 30, 1998 and
will vest 25% on each of September 1, 1999 and 2000.
(3) The options vest 25% on each of the first through fourth anniversaries of
the grant date.
47
<PAGE>
Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values
This table provides information regarding the exercise of options during
fiscal 1998 by the named executive officers. The value of unexercised in-the-
money options at fiscal year end is calculated using the difference between the
option exercise price and the fair market value at December 31, 1998, which the
Board of Directors determined to be $0.06 per share, multiplied by the number
of shares underlying the option. An option is in-the-money if the fair market
value of the common stock subject to the option is greater than the exercise
price. Based on the assumed initial public offering price of $11.00 per share,
the value of unexercised in-the-money options following the completion of this
offering is expected to significantly exceed the value of these options at
fiscal year end.
<TABLE>
<CAPTION>
Number of Securities Underlying Value of Unexercised
Shares Unexercised In-the-Money Options
Acquired on Options at Fiscal Year End (#) at Fiscal Year End ($)
Exercise Value ------------------------------- -------------------------
Name (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------ --------------- ---------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Glen E. Tullman......... 261,958 -- -- 286,125 -- 0
David B. Mullen......... -- -- 262,467 285,616 0 0
Steven M. Katz.......... -- -- 184,902 197,939 0 0
John G. Cull............ -- -- 75,287 39,707 0 0
James A. Rosenblum...... -- -- 37,702 44,186 0 0
</TABLE>
Employment and Other Agreements
Employment Agreements
We have entered into employment agreements with each of David B. Mullen and
Glen E. Tullman effective August 1, 1997, and with Steven M. Katz effective
September 2, 1997. Each agreement has an initial term ending December 31, 2000
and renews for consecutive one-year terms unless either party gives 30 days'
notice prior to the expiration of any term. Messrs. Mullen and Tullman are each
paid an annual salary of $225,000 and are each entitled to an annual bonus as
determined by the Board of Directors or the Compensation Committee. Mr. Katz is
paid an annual salary of $215,000 and is entitled to an annual bonus,
contingent upon the attainment of certain objectives, as determined by the
Chief Executive Officer in consultation with the Board of Directors or the
Compensation Committee. The agreements also provide that each of Messrs.
Mullen, Tullman and Katz will not compete with us during the term of his
employment and for one year thereafter. If we terminate any of Messrs. Mullen,
Tullman or Katz without Cause or if any of them terminates his employment For
Good Reason, as each of those terms is defined in the agreements, he will be
entitled to 12 months' salary as severance, as well as any salary that was
accrued but not yet paid as of the termination date, the unpaid performance
bonus, if any, for the calendar year preceding the termination date and any
performance bonus for the calendar year in which the termination date occurs
that would have been payable had there been no termination. The amount of these
performance bonuses is to be determined in the manner in which it would have
been determined had there been no termination.
Termination of Employment and Change in Control Arrangements
We have entered into stock option agreements with each of Messrs. Tullman,
Mullen and Katz pursuant to their employment agreements granting them options
to purchase shares of our common stock as follows: Mr. Tullman, 548,083 shares;
Mr. Mullen, 548,083 shares; and Mr. Katz, 382,841 shares. Under the option
agreements, in the event of a Change of Control, as defined in the stock option
agreements, vesting of the options will accelerate so that the unvested portion
of the options will vest immediately. The option agreements also provide for
accelerated vesting of a portion of the options in the event of termination of
employment without Cause, For Good Reason or because of death or disability, as
each of those terms is defined in the employment agreements.
48
<PAGE>
Under an agreement entered into between us and John G. Cull, if Mr. Cull is
discharged for any reason other than for Cause, as defined in the agreement,
Mr. Cull will be entitled to monthly payments equal to his then in-effect
monthly salary together with a pro rata bonus amount and a continuation of
health insurance benefits, for a period of 12 months. If, within six months of
a Change in Control of Allscripts, as defined in the agreement, Mr. Cull is
discharged by Allscripts other than for Cause or voluntarily terminates his
employment following a change in his position that materially reduces his level
of responsibilities or a material reduction in his overall level of
compensation, Mr. Cull will be entitled to monthly payments equal to his then
in-effect monthly salary for a period of 12 months together with a pro rata
bonus amount and a continuation of health insurance benefits. In addition, the
agreement provides that all existing stock options owned by Mr. Cull will
immediately vest upon the occurrence of the same events that require us to make
severance payments to him following a Change in Control. In addition, Mr. Cull
has agreed not to compete with us for a period of 12 months following the
termination of his employment.
Employee Benefit Plans
Amended and Restated 1993 Stock Incentive Plan
In May and June 1999, our Board of Directors and shareholders adopted and
approved our Amended and Restated 1993 Stock Incentive Plan, which, among other
things, increased the shares authorized for issuance under the plan by
1,300,000. The plan authorizes the grant of options to purchase up to an
aggregate of 4,393,489 shares. The plan provides that the number of shares of
common stock underlying stock incentives granted under the plan to any
individual in any twelve-month period may not exceed 3,000,000. The plan is
designed to grant stock incentives, including qualified and nonqualified
options to purchase common stock and stock appreciation rights, to key
individuals who perform services for us or on our behalf, such as employees,
officers, eligible directors, as defined in the plan, consultants and agents of
Allscripts. The purpose of the plan is to enable us to attract, retain and
motivate key individuals by providing them the opportunity to obtain an equity
interest in Allscripts. The Compensation Committee of our Board of Directors
administers the plan and determines the per share exercise price at the time
each stock incentive is granted; provided that in the case of qualified
incentive stock options, the exercise price is not less than fair market value
on the date of grant. The plan provides that if there is a change in our common
stock through a merger, consolidation, reorganization, recapitalization or
otherwise, or if there is a dividend on the common stock, payable in common
stock, or if there is a stock split, combination or other change in our issued
common stock, the common stock available under the plan and the common stock
subject to then-existing stock incentives shall be increased or decreased
proportionately. In 1998, we recognized compensation expense of approximately
$176,000 in connection with grants under the plan.
As of May 31, 1999, there were options outstanding under the plan to
purchase an aggregate of 2,380,539 shares of common stock, 932,900 of which
were currently exercisable. The weighted average per share exercise price for
all of these options is $1.06.
401(k) Plan
We have adopted a 401(k) retirement savings plan. This plan is available to
all employees who are at least 21 years old and who have been employed by us
for at least one year. An employee may contribute, on a pretax basis, up to the
maximum percent of the employee's total annual income from us permitted under
the Internal Revenue Code. Under the terms of the 401(k) plan, we match
employee contributions at 25% of the first 10% of eligible compensation
contributed by the employee to the plan. For "highly compensated employees" as
defined under the Internal Revenue Code, our matching percentage is 10% of the
first 10% of eligible compensation contributed by the employee. Contributions
are allocated to each employee's individual account and are, at the employee's
election, invested in one, all, or some combination of four investment funds.
Employee contributions are fully vested and non-forfeitable. Employees become
100% vested in our contributions after a period of three years.
49
<PAGE>
Compensation Committee Interlocks and Insider Participation
The members of the Compensation Committee of our Board of Directors are
Messrs. Husain, Kluger and Lytle. At various times during 1998, Mr. Green and
John M. Goense, Managing Director of Allstate Private Equity, a division of the
Investment Department of Allstate Insurance Company, and a former director of
Allscripts, were members of the Compensation Committee. None of these persons
has ever been an officer or employee of Allscripts or any of its subsidiaries.
Mr. Goense resigned from our Board of Directors in connection with the sale by
Allstate of its interest in Allscripts in May 1999. The sale was a part of
Allstate's disposition of its investments in certain private companies made
because of a change in Allstate's investment strategy. See "Certain
Relationships and Related Party Transactions--Series I and J Redeemable
Preferred Stock Private Placement," "--Redeemable Preferred Stock Redemptions,"
"--Certain Business Relationships" and "Description of Capital Stock--
Registration Rights."
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Our policy is that all transactions between us and our executive officers,
directors and principal stockholders be on terms no less favorable to us than
we could obtain from unaffiliated third parties or else be approved by our
disinterested directors.
Shopping@Home Acquisition
In May 1999, we agreed in principle to acquire substantially all of the
assets of Shopping@Home, Inc. in exchange for a promissory note in the
principal amount of $650,000, which equals the aggregate amount of cash
invested by the shareholders since the company's formation in October 1998. The
note will bear interest at a rate of 6.0% per year and will be payable upon the
consummation of this offering. We expect this transaction to be consummated in
July 1999. Messrs. Tullman and Carey are principal shareholders of
Shopping@Home.
Series I and J Redeemable Preferred Stock Private Placement
In April 1998, we sold 1,199,770 shares of Series I redeemable preferred
stock and 4,118,324 shares of common stock for an aggregate purchase price of
$8,000,000 to Morgan Stanley Venture Partners III, L.P., Morgan Stanley Venture
Investors III, L.P. and The Morgan Stanley Venture Partners Entrepreneur Fund,
L.P. Messrs. Husain and Stein, two of our directors, are affiliates of each of
these Morgan Stanley funds. We also sold 37,493 shares of Series I preferred
stock and 128,697 shares of common stock to Mr. Tullman for a purchase price of
$250,000, 14,997 shares of Series I preferred stock and 51,479 shares of common
stock to Mr. Mullen for a purchase price of $100,000, 3,749 shares of Series I
preferred stock and 12,869 shares of common stock to Mr. Carey for a purchase
price of $25,000, 4,499 shares of Series I preferred stock and 15,443 shares of
common stock to Mr. Rosenblum for a purchase price of $30,000, and 13,497
shares of Series I preferred stock and 46,331 shares of common stock to Michael
E. Cahr, a former director of Allscripts, for a purchase price of $90,000.
In connection with our sale of Series I preferred stock, we also issued
543,870 shares of Series J redeemable preferred stock and warrants to acquire
an aggregate of 696,833 shares of common stock at a per share exercise price of
$0.06 to Allstate Insurance Company. Mr. Goense, a former member of our
Compensation Committee, is Managing Director of Allstate Private Equity, a
division of the Investment Department of Allstate Insurance Company. We issued
the shares and warrants in exchange for debentures of Allscripts held by
Allstate in the principal amount of $3,382,704 plus accrued interest of
$131,785, which Allstate purchased from us in April 1996 for $3,000,000, and
Allstate's agreement to modify the redemption and dividend provisions of the
440,968 shares of Series H preferred stock held by Allstate. In the same
transaction, we issued 273,748 shares of Series J preferred stock and warrants
to purchase an aggregate of 659,669 shares of common stock at a per share
exercise price of $0.06 to Liberty Partners Holdings 6, L.L.C. and Liberty
Investment Partnership #6, of each of which Mr. Kluger, one
50
<PAGE>
of our directors, is a managing director, and to the State Board of
Administration of Florida, which has entered into an investment management
contract with Liberty Capital Partners Inc., of which Mr. Kluger is a managing
director. We issued the shares and warrants in exchange for debentures of
Allscripts held by the State Board of Administration of Florida in the
principal amount of $1,691,352 plus accrued interest of $65,892, which the
State Board of Administration of Florida purchased from us in April 1996 for
$1,500,000, and debentures held by Liberty Investment Partnership #6 in the
principal amount of $11,276 plus accrued interest of $439, as well as Liberty
Partners Holdings 6, L.L.C.'s agreement to modify the redemption and dividend
provisions of the 680,892 shares of Series H preferred stock held by it. In
connection with this financing, we also entered into a Right of First Offer and
Co-Sale Agreement with Allstate, the Liberty funds, the Morgan Stanley funds
and Messrs. Tullman, Mullen and Cahr.
Redeemable Preferred Stock Redemptions
We will use a portion of the net proceeds of this offering to redeem shares
of preferred stock held by some of our affiliates according to their redemption
terms as follows:
. $10,249,963 to redeem 815,594 shares of Series H preferred stock and
439,883 shares of Series J preferred stock held by Liberty Partners
Holdings 6, L.L.C.;
. $12,171,617 to redeem 217,459 shares of Series H preferred stock,
1,199,770 shares of Series I preferred stock and 268,204 shares of Series
J preferred stock held collectively by the Morgan Stanley Venture
Partners III, L.P., Morgan Stanley Venture Investors III, L.P. and The
Morgan Stanley Venture Partners Entrepreneur Fund, L.P.;
. $591,670 to redeem 18,929 shares of Series H preferred stock, 37,493
shares of Series I preferred stock and 23,346 shares of Series J
preferred stock held by Mr. Tullman;
. $240,022 to redeem 7,764 shares of Series H preferred stock, 14,997
shares of Series I preferred stock and 9,576 shares of Series J preferred
stock held by Mr. Mullen;
. $13,869 to redeem 796 shares of Series H preferred stock and 982 shares
of Series J preferred stock held by Mr. Cull;
. $185,691 to redeem 9,158 shares of Series H preferred stock, 3,749 shares
of Series I preferred stock and 11,295 shares of Series J preferred stock
held by Mr. Carey;
. $45,310 to redeem 796 shares of Series H preferred stock, 4,499 shares of
Series I preferred stock and 982 shares of Series J preferred stock held
by Mr. Rosenblum; and
. $48,540 to redeem 2,787 shares of Series H preferred stock and 3,438
shares of Series J preferred stock held by Mr. Green.
Certain Business Relationships
In each of the last three fiscal years, we retained the law firm of Green,
Stewart, Farber & Anderson, P.C., of which Mr. Green, one of our directors, is
a partner. We paid fees to Mr. Green's law firm of approximately $76,000 in
1996, $55,000 in 1997 and $36,000 in 1998.
From June 1997 through March 1999, we provided pharmacy benefit management
services for Anthem, Inc. Mr. Lytle, one of our directors, is Chairman of the
Board, President and Chief Executive Officer of Anthem. Anthem paid us
approximately $1,580,000 in 1997, approximately $2,982,000 in 1998 and
approximately $375,000 in 1999 for these services.
Registration Rights Agreement
See "Description of Capital Stock--Registration Rights."
51
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table provides information known to us with respect to the
beneficial ownership of our common stock as of June 15, 1999 and immediately
following this offering by:
. each stockholder known by us to own beneficially more than 5% of the
common stock;
. each director;
. our Chief Executive Officer and our other named executive officers; and
. all directors and executive officers as a group.
Beneficial ownership is a technical term broadly defined by the SEC to mean
more than ownership in the usual sense. In general, beneficial ownership
includes any shares that the holder can vote or transfer and stock options and
warrants that are exercisable currently or become exercisable within 60 days.
These shares are considered to be outstanding for the purpose of calculating
the percentage of outstanding Allscripts common stock owned by a particular
stockholder, but are not considered to be outstanding for the purpose of
calculating the percentage ownership of any other person. Except as otherwise
noted, to our knowledge, the stockholders named in this table have sole voting
and investment power for all shares shown as beneficially owned by them. Mr.
Philip, who is expected to join our Board of Directors upon the closing of this
offering, does not beneficially own any shares of our common stock.
<TABLE>
<CAPTION>
Percentage of
Total
-----------------
Shares Before After
Beneficially the the
Owned Offering Offering
------------ -------- --------
<S> <C> <C> <C>
Glen E. Tullman (1)............................ 581,832 6.4% 3.3%
David B. Mullen (2)............................ 389,722 4.3 2.2
Steven M. Katz................................. 185,053 2.1 1.1
John G. Cull (3)............................... 94,667 1.0 *
James A. Rosenblum (4)......................... 75,769 * *
Philip D. Green (5)............................ 97,387 1.1 *
M. Fazle Husain (6)............................ 6,141,366 57.5 33.7
Michael J. Kluger (7).......................... 3,804,181 32.3 19.4
L. Ben Lytle................................... 0 0.0 0.0
Gary M. Stein (6).............................. 6,141,366 57.5 33.7
Entities affiliated with Morgan Stanley Dean
Witter Venture Partners (6)................... 6,141,366 57.5 33.7
Liberty Partners Holdings 6, L.L.C. (7)........ 3,804,181 32.3 19.4
All directors and executive officers as a group
(11 persons) (8).............................. 11,468,039 81.2 54.8
</TABLE>
- --------
*Less than 1%.
(1) Includes 74,762 shares issuable upon the closing of this offering upon
conversion of convertible preferred stock and 80,158 shares issuable upon
exercise of warrants that are currently exercisable.
(2) Includes 30,665 shares issuable upon the closing of this offering upon
conversion of convertible preferred stock and 32,877 shares issuable upon
exercise of warrants that are currently exercisable.
(3) Includes 87,262 shares issuable upon exercise of options that will be
exercisable within 60 days, 3,144 shares issuable upon the closing of this
offering upon conversion of convertible preferred stock and 3,371 shares
issuable upon exercise of warrants that are currently exercisable.
(4) Includes 37,931 shares issuable upon exercise of options that will be
exercisable within 60 days, 3,144 shares issuable upon the closing of this
offering upon conversion of convertible preferred stock and 3,371 shares
issuable upon exercise of warrants that are currently exercisable.
(5) Includes 54,798 shares issuable upon exercise of options that will be
exercisable within 60 days, 11,005 shares issuable upon the closing of this
offering upon conversion of convertible preferred stock and 11,801 shares
issuable upon exercise of warrants that are currently exercisable.
52
<PAGE>
(6) Consists of: (a) 3,828,167 shares, 753,862 shares issuable upon the closing
of this offering upon conversion of convertible preferred stock and 808,258
shares issuable upon exercise of warrants that are currently exercisable,
in each case owned by Morgan Stanley Venture Partners III, L.P.;
(b) 367,680 shares, 72,404 shares issuable upon the closing of this
offering upon conversion of convertible preferred stock and 77,629 shares
issuable upon exercise of warrants that are currently exercisable, in each
case owned by Morgan Stanley Venture Investors III, L.P.; and (c) 165,739
shares, 32,636 shares issuable upon the closing of this offering upon
conversion of convertible preferred stock and 34,991 shares issuable upon
exercise of warrants that are currently exercisable, in each case owned by
The Morgan Stanley Venture Partners Entrepreneur Fund, L.P. Mr. Husain is a
Managing Member of Morgan Stanley Venture Partners III, L.L.C., which is
the General Partner of each of these three entities. Mr. Stein is a Vice
President of Morgan Stanley Venture Partners III, L.L.C. Each of Messrs.
Husain and Stein disclaim beneficial ownership of the shares held by these
entities, except to the extent of his proportionate interest therein. The
address for Messrs. Husain and Stein and these entities is c/o Morgan
Stanley Dean Witter Venture Partners, 1221 Avenue of the Americas, New
York, New York 10020.
(7) Consists of 907,235 shares, 532,031 shares issuable upon the closing of
this offering upon conversion of convertible preferred stock and 2,364,917
shares issuable upon exercise of warrants that are currently exercisable.
Mr. Kluger disclaims beneficial ownership of the shares held by these
entities, except to the extent of his proportionate interest therein. The
address for Mr. Kluger and these entities is c/o Liberty Partners, L.P.,
1177 Avenue of the Americas, New York, New York 10036.
(8) Includes the shares described in Notes 1 through 7.
53
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon the closing of this offering, our Certificate of Incorporation will
provide that our authorized capital stock consists of 75,000,000 shares of
common stock, $0.01 par value, and 1,000,000 shares of preferred stock, $0.01
par value. As of the date of this prospectus, there were 11,909,782 shares of
common stock outstanding and no shares of preferred stock outstanding. As of
the date of this prospectus, there were 354 holders of record of common stock.
All shares of common stock are, and the common stock being sold in this
offering will be, when issued, fully paid and non-assessable.
Common Stock
Holders of common stock will be entitled to one vote for each share held on
all matters subject to a vote of stockholders and will not have cumulative
voting rights. Accordingly, holders of a majority of the shares of common stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Holders of common stock will be entitled to receive
ratably any dividends that the Board of Directors may declare out of funds
legally available therefor, subject to any preferential dividend rights of
outstanding preferred stock. Upon the liquidation, dissolution or winding up of
Allscripts, the holders of common stock will be entitled to receive ratably the
net assets of Allscripts available after the payment of all debts and other
liabilities and subject to the prior rights of holders of any outstanding
preferred stock. Holders of common stock will have no preemptive, subscription,
redemption or conversion rights.
Preferred Stock
Under our Certificate of Incorporation, we will be authorized to issue
1,000,000 shares of preferred stock, which may be issued from time to time in
one or more series upon authorization by the Board of Directors. The Board of
Directors, without further approval of the stockholders, will be authorized to
fix the number of shares constituting any series, as well as the dividend
rights and terms, conversion rights and terms, voting rights and terms,
redemption rights and terms, liquidation preferences and any other rights,
preferences, privileges and restrictions applicable to each series of preferred
stock. The issuance of preferred stock, while providing flexibility in
connection with possible acquisitions and other corporate purposes, could also
adversely affect the voting power of the holders of common stock. The issuance
of preferred stock could also, under some circumstances, have the effect of
making it more difficult for a third party to acquire, or discouraging a third
party from acquiring, a majority of our outstanding voting stock or otherwise
adversely affect the market price of our common stock. We are not aware of any
plans by a third party to seek control of Allscripts and we have no current
plans to issue any preferred stock.
Warrants
As of May 31, 1999, we had warrants outstanding to purchase an aggregate of
4,903,763 shares of common stock at an average weighted exercise price of $0.54
per share, 4,895,430 of which are vested and presently exercisable. All of the
warrants allow cashless exercises. If they were all exercised in this way at
the closing of this offering, we would receive no cash payment, and an
additional 4,655,109 shares would be outstanding, assuming an initial public
offering price of $11.00 per share.
Registration Rights
Upon the closing of this offering, Liberty Partners Holdings 6, L.L.C.,
Morgan Stanley Venture Investors III, L.P., Morgan Stanley Venture Partners
III, L.P. and The Morgan Stanley Venture Partners Entrepreneur Fund, L.P.,
which collectively hold 6,659,752 shares of common stock and warrants
exercisable for an aggregate of 3,285,795 shares of common stock, will be
entitled to registration rights. Under our Registration Agreement, Liberty
Partners Holdings 6, L.L.C. and Morgan Stanley Venture Partners III, L.P.,
Morgan Stanley Venture Investors III, L.P. and The Morgan Stanley Venture
Partners
54
<PAGE>
Entrepreneur Fund, L.P., collectively, are each entitled to require us to
register their shares of common stock three times, but not more than once in
any six-month period. In addition, if we propose or are required to register
any of our common stock, either for our own account or for the account of other
of our stockholders, we are required to notify the holders described above, and
subject to certain limitations, to include in such registration all of the
common stock requested to be included by those holders. We are obligated to
bear the expenses, other than underwriting commissions, of the first
registration required by Liberty or the Morgan Stanley parties, and of all
incidental registrations. Any exercise of these registration rights may hinder
our efforts to arrange future financings and have an adverse effect on the
market price of our common stock.
Certain Limited Liability, Indemnification and Anti-takeover Provisions
Indemnification and Limitation of Liability
After the closing of this offering, our Certificate of Incorporation and
By-laws will provide that we shall, with some limitations, indemnify our
directors and officers against expenses, including attorneys' fees, judgments,
fines and certain settlements, actually and reasonably incurred by them in
connection with any suit or proceeding to which they are a party so long as
they acted in good faith and in a manner reasonably believed to be in or not
opposed to the best interests of Allscripts. This indemnification also applies
to a criminal action or proceeding, so long as the director or officer had no
reasonable cause to believe their conduct to have been unlawful.
Section 102 of the Delaware General Corporation Law permits a Delaware
corporation to include in its certificate of incorporation a provision
eliminating or limiting a director's liability to a corporation or its
stockholders for monetary damages for breaches of fiduciary duty. Delaware
General Corporation Law Section 102 provides, however, that liability for
breaches of the duty of loyalty, acts or omissions not in good faith or
involving intentional misconduct, or knowing violation of the law, and the
unlawful purchase or redemption of stock or payment of unlawful dividends or
the receipt of improper personal benefits cannot be eliminated or limited in
this manner. Our Certificate of Incorporation will include a provision that
eliminates, to the fullest extent permitted, director liability for monetary
damages for breaches of fiduciary duty.
Section 203 of Delaware General Corporation Law
Section 203 of the Delaware General Corporation Law prohibits certain
transactions between a Delaware corporation and an "interested stockholder,"
which is defined as a person who, together with any affiliates or associates,
beneficially owns, directly or indirectly, 15% or more of the outstanding
voting shares of a Delaware corporation. This provision prohibits certain
business combinations between an interested stockholder and a corporation for a
period of three years after the date the interested stockholder becomes an
interested stockholder, unless:
. the business combination is approved by the corporation's board of
directors prior to the date the interested stockholder becomes an
interested stockholder;
. the interested stockholder acquired at least 85% of the voting stock of
the corporation (other than stock held by directors who are also officers
or by certain employee stock plans) in the transaction in which it
becomes an interested stockholder; or
. the business combination is approved by a majority of the board of
directors and by the affirmative vote of 66 2/3% of the outstanding
voting stock that is not owned by the interested stockholder.
For this purpose, business combinations include mergers, consolidations,
sales or other dispositions of assets having an aggregate value in excess of
10% of the consolidated assets of the corporation, and certain transactions
that would increase the interested stockholder's proportionate share ownership
in the corporation.
55
<PAGE>
Special Meetings of Stockholders; No Stockholder Action By Written Consent
Our Certificate of Incorporation will provide that special meetings of our
stockholders may be called only by a majority of the Board of Directors, the
Chairman or the President. In addition, the Certificate of Incorporation will
provide that, following the closing of this offering, our stockholders may only
take actions at a duly called annual or special meeting of stockholders and may
not take action by written consent.
Advance Notice Requirements for Stockholder Proposals and Nomination of
Directors
Our By-laws will provide that stockholders seeking to bring business
before, or nominate directors at, any annual meeting of stockholders, must
provide timely notice in writing. To be timely, a stockholder's notice must be
given in writing to the Secretary of Allscripts not less than 120 days prior to
the meeting. The By-laws will also specify requirements for a stockholder's
notice to be in proper written form.
Classified Board of Directors
The Certificate of Incorporation and By-Laws will provide that the Board of
Directors is divided into three classes of directors serving staggered three-
year terms. As a result, one-third of our Board of Directors will be elected
each year. See "Management--Election of Directors."
Number of Directors; Removal; Vacancies
The By-Laws will provide that we have at least three directors, with the
exact number fixed by the Board of Directors. Vacancies on the Board of
Directors may be filled only by the affirmative vote of the remaining directors
then in office. The Certificate of Incorporation will provide that directors
may be removed only for cause and only by the holders of at least 80% of the
outstanding shares of stock entitled to vote generally in the election of
directors, voting together as a single class.
Transfer Agent and Registrar
The transfer agent and registrar for the common stock will be LaSalle Bank
N.A.
56
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
We will have 18,929,799 shares of common stock outstanding after this
offering, 19,979,799 shares if the underwriters' over-allotment option is
exercised in full. The 7,000,000 shares we will sell in this offering will be
freely tradable without restriction under the Securities Act by persons other
than our "affiliates" as that term is defined in Rule 144 under the Securities
Act. Approximately 1,290,370 additional shares, including approximately 51,460
shares issuable upon the cashless exercise of outstanding warrants, will be
eligible for immediate sale in the public market as of the date of this
prospectus under Rule 144(k) and approximately 469,230 additional shares,
including approximately 137,390 shares issuable upon the cashless exercise of
outstanding warrants, will be eligible for sale in the public market 90 days
after the date of this prospectus under Rule 144. Shares acquired in
transactions exempt from registration under the Securities Act are "restricted
securities" as that term is defined in Rule 144. Restricted shares may only be
resold if they are registered under the Securities Act or are sold under an
exemption from registration, like the exemption contained in Rule 144. The
following table summarizes the shares of our common stock eligible for future
sale over various time periods:
<TABLE>
<CAPTION>
Days after the Approximate shares becoming
date of this prospectus eligible for future sale(1) Comment
----------------------- --------------------------- -------
<C> <C> <S>
Upon effectiveness............. 8,290,370 Freely tradeable shares sold in this
offering and shares salable under Rule
144(k) that are not subject to 180-day
lockup.
90 days........................ 761,160 Shares salable under Rule 144 or 701
that are not subject to 180-day
lockup.
180 days....................... 9,915,210 Lockup released.
Between 181 days and 365 days.. 4,228,380 Restricted securities held for at
least 180 days but less than one year
as of the date falling 180 days after
the date of this prospectus.
</TABLE>
- --------
(1) All share numbers in this table assume the cashless exercise of all
outstanding warrants at the closing of this offering for an aggregate of
approximately 4,655,109 shares, assuming an initial public offering price
of $11.00 per share.
Our executive officers, directors, key employees and some of our
stockholders have agreed to a "lock up" at the request of the underwriters.
Under the lock up, they cannot sell or otherwise dispose of any of our common
stock in the public market for a period of 180 days after the date of this
prospectus without the written consent of Goldman, Sachs & Co. When the 180-day
lock-up period expires, approximately 8,003,480 additional shares, including
approximately 2,839,280 shares issuable upon the cashless exercise of
outstanding warrants, that are restricted securities will be eligible for sale
under Rule 144.
Currently under Rule 144, a person who has beneficially owned restricted
securities for at least one year may, subject to certain conditions, sell his
restricted securities. Generally, these persons may sell within any three-month
period a number of restricted shares that does not exceed the greater of (1) 1%
of our then outstanding common stock (189,298 shares immediately after the
offering) or (2) the average weekly trading volume of our common stock during
the four calendar weeks preceding the sale, subject to the filing of a Form 144
with respect to the sale. Sales under Rule 144 are also subject to requirements
concerning manner of sale, notice and availability of public information about
us. A person who is not deemed to have been our affiliate at any time during
the three months preceding the sale and who has beneficially owned his shares
for at least two years may sell restricted shares in the public market under
Rule 144(k) without regard to the requirements mentioned above, other than the
manner-of-sale requirement. Persons deemed to be affiliates must always sell
pursuant to Rule 144, even after expiration of the applicable holding periods.
57
<PAGE>
Shares that we have issued or that we may issue upon the exercise of
options that we have granted to consultants and employees prior to the date of
this prospectus also may be eligible for sale in the public market. Beginning
90 days after we become subject to the reporting requirements of the Securities
Exchange Act of 1934, Rule 701 under the Securities Act permits resales of
shares issued pursuant to certain compensatory benefit plans and contracts in
reliance upon certain provisions of Rule 144. Non-affiliates may sell without
complying with the public information, holding period, volume limitations or
notice provisions of Rule 144. Affiliates may sell without complying with the
holding period provisions of Rule 144. If all of the requirements of Rule 701
are met, approximately 291,930 shares of our common stock previously issued
upon the exercise of options or issuable upon the exercise of currently
outstanding options that will then be vested will be eligible for sale
beginning 90 days after the date of this prospectus. In addition, approximately
1,911,730 shares previously issued upon the exercise of options or issuable
upon the exercise of currently outstanding options that will then be vested
will be eligible for sale upon expiration of the 180-day lock-up period.
We intend to file a registration statement on Form S-8 under the Securities
Act to register for offer and sale the common stock subject to outstanding
stock options or reserved for issuance under our Amended and Restated 1993
Stock Incentive Plan and other outstanding options. See "Management--Employee
Benefit Plans." Shares issued after the effective date of this registration
statement upon the exercise of stock options registered on the registration
statement generally will be eligible for sale in the public market, subject to
the lock-up agreements discussed above and volume and other restrictions.
In addition, certain stockholders have registration rights with respect to
9,945,547 shares of our common stock. Registration of these securities subject
to registration rights under the Securities Act would result in the shares
becoming freely tradable without restriction under the Securities Act. See
"Description of Capital Stock--Registration Rights" and "Risk Factors--Risks
Related to This Offering and Our Stock--We may have substantial sales of our
common stock after the offering."
LEGAL MATTERS
Gardner, Carton & Douglas, Chicago, Illinois, will pass upon the validity
of the common shares offered by this prospectus. Sonnenschein Nath & Rosenthal,
Chicago, Illinois, has acted as counsel to the underwriters in connection with
certain legal matters relating to the common shares offered by this prospectus.
EXPERTS
The financial statements of Allscripts as of December 31, 1997 and 1998 and
for each of the three years in the period ended December 31, 1998 included in
this prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
WHERE TO FIND MORE INFORMATION
We have filed with the SEC a registration statement under the Securities
Act with respect to the common stock offered by this prospectus. This
prospectus does not contain all of the information that is in the registration
statement. For further information with respect to us and the common stock, you
should refer to the registration statement, including the related exhibits and
schedules. The statements contained in this prospectus as to the contents of
any document filed as an exhibit are of necessity brief descriptions and are
not necessarily complete; each of these statements is qualified in its entirety
by reference to the document.
58
<PAGE>
You may read and copy this registration statement, including the exhibits,
without charge and obtain copies at prescribed rates at the Public Reference
Room of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
regional offices of the SEC located at Seven World Trade Center, New York, New
York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. You can obtain information on the operation of the Public
Reference Room by calling the SEC at 1-800-SEC-0330. In addition, you can
obtain electronically filed documents, including registration statements,
reports and proxy statements and other information, from the SEC's Web site at:
http://www.sec.gov.
59
<PAGE>
ALLSCRIPTS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Audited Financial Statements
Report of Independent Accountants........................................ F-2
Consolidated Balance Sheets at December 31, 1997 and 1998................ F-3
Consolidated Statements of Operations for the years ended December 31,
1996, 1997 and 1998..................................................... F-5
Consolidated Statements of Shareholders' Equity (Deficit) for the years
ended December 31, 1996, 1997 and 1998.................................. F-6
Consolidated Statements of Cash Flows for the years ended December 31,
1996, 1997 and 1998..................................................... F-7
Notes to Consolidated Financial Statements............................... F-8
Unaudited Interim Financial Statements
Condensed Consolidated Balance Sheet at March 31, 1999................... F-25
Condensed Consolidated Statements of Operations for the three months
ended March 31, 1998 and March 31, 1999................................. F-27
Condensed Consolidated Statements of Cash Flows for the three months
ended March 31, 1998 and 1999........................................... F-28
Notes to Unaudited Condensed Consolidated Financial Statements........... F-29
Unaudited Condensed Consolidated Pro Forma Financial Information......... F-31
Unaudited Condensed Consolidated Pro Forma Balance Sheet at March 31,
1999.................................................................... F-32
Unaudited Condensed Consolidated Pro Forma Statement of Operations for
the year ended December 31, 1998........................................ F-33
Unaudited Condensed Consolidated Pro Forma Statement of Operations for
the three months ended March 31, 1999................................... F-34
Notes to Unaudited Condensed Consolidated Pro Forma Financial
Information............................................................. F-35
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Allscripts, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations and stockholders' equity (deficit) and of
cash flows present fairly, in all material respects, the financial position of
Allscripts, Inc. (an Illinois corporation) and Subsidiaries at December 31,
1997 and 1998, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1998 in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of Allscripts' management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Chicago, Illinois
May 12, 1999, except for the
information in Note 22, for which
the date is June 18, 1999
F-2
<PAGE>
ALLSCRIPTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Pro forma
December 31, as of
----------------------- December 31,
1997 1998 1998
----------- ----------- ------------
(unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash.................................... $ 204,981 $ 718,008 $ 718,008
Accounts receivable, net of allowances
of $3,431,947 in 1997 and $4,522,507 in
1998 and pro forma..................... 9,580,418 9,525,084 9,525,084
Inventories, net........................ 2,556,926 2,905,484 2,905,484
Prepaid and other assets................ 382,370 229,283 229,283
----------- ----------- -----------
Total current assets.................. 12,724,695 13,377,859 13,377,859
Fixed assets, net......................... 1,532,822 1,783,996 1,783,996
Intangible assets, net.................... 4,577,740 3,701,835 3,701,835
Debt issuance costs....................... 551,631 56,594 56,594
----------- ----------- -----------
Total assets.......................... $19,386,888 $18,920,284 $18,920,284
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE>
ALLSCRIPTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, CONTINUED
<TABLE>
<CAPTION>
Pro forma
December 31, as of
-------------------------- December 31,
1997 1998 1998
------------ ------------ ------------
(unaudited)
<S> <C> <C> <C>
LIABILITIES
Current liabilities:
Note payable........................ $ 2,500,000 $ 4,000,000 $ 4,000,000
Current portion of long-term debt... 4,692,932 -- --
Accounts payable.................... 6,698,770 7,830,158 7,830,158
Accrued expenses.................... 1,856,019 1,276,849 1,276,849
------------ ------------ ------------
Total current liabilities......... 15,747,721 13,107,007 13,107,007
Long-term debt, net of current
portion............................. 11,275,680 58,774 58,774
------------ ------------ ------------
Total liabilities................. 27,023,401 13,165,781 13,165,781
------------ ------------ ------------
Redeemable preferred shares:
Series I, cumulative, $1.00 par
value, 1,339,241 shares
authorized, issued and
outstanding, including $521,053 of
cumulative dividends; liquidation
value of $8,654,175................ -- 8,545,842 8,545,842
Series J, cumulative, $1.00 par
value, 1,812,903 shares
authorized, 1,803,838 issued and
outstanding, including $701,812 of
cumulative dividends; liquidation
value of $11,656,388............... -- 12,358,200 12,358,200
Series H, cumulative, $1.00 par
value, 1,361,775 shares
authorized, issued and
outstanding, including $2,303,430
and $3,007,430 of cumulative
dividends in 1997 and 1998,
respectively; liquidation value of
$8,800,000......................... 10,719,480 11,642,880 11,642,880
------------ ------------ ------------
10,719,480 32,546,922 32,546,922
------------ ------------ ------------
SHAREHOLDERS' EQUITY (DEFICIT)
Preferred shares:....................
Series A, $1.00 par value, 1,050,000
shares authorized, issued and
outstanding, liquidation value of
$1,050,000, convertible to common
shares; no shares issued and
outstanding, pro forma.............. 1,050,000 1,050,000 --
Series B, $1.00 par value, 533,333
shares authorized, issued and
outstanding, liquidation value of
$2,000,000, convertible to common
shares; no shares issued and
outstanding, pro forma.............. 533,333 533,333 --
Series C, $1.00 par value, 2,187,501
shares authorized, issued and
outstanding, liquidation value of
$7,000,003, convertible to common
shares; no shares issued and
outstanding, pro forma.............. 2,187,501 2,187,501 --
Series D, $1.00 par value, 1,833,334
shares authorized, issued and
outstanding, liquidation value of
$8,250,003, convertible to common
shares; no shares issued and
outstanding, pro forma.............. 1,833,334 1,833,334 --
Series F, $1.00 par value, 2,492,781
shares authorized, issued and
outstanding, liquidation value
$3,115,976, convertible to common
shares; no shares issued and
outstanding, pro forma.............. 2,492,781 2,492,781 --
Series G, $1.00 par value, 621,819
shares authorized, issued and
outstanding, liquidation value
$2,798,186, convertible to common
shares; no shares issued and
outstanding, pro forma.............. 621,819 621,819 --
------------ ------------ ------------
8,718,768 8,718,768 --
Common shares:
$0.01 par value, 125,000,000 shares
authorized, 3,425,052 and
8,358,654 shares issued and
outstanding in 1997 and 1998,
respectively; 75,000,000
authorized, 11,356,154 shares
issued and outstanding, pro
forma.............................. 34,252 83,587 113,562
Treasury stock at cost; 34,465 common
shares, actual and pro forma........ (67,817) (67,817) (67,817)
Unearned compensation................ -- (146,487) (146,487)
Additional paid-in capital........... 16,208,465 15,383,500 24,292,480
Accumulated deficit.................. (43,249,661) (50,763,970) (50,984,157)
------------ ------------ ------------
Total shareholders' equity
(deficit)........................ (18,355,993) (26,792,419) (26,792,419)
------------ ------------ ------------
Total liabilities, redeemable
preferred shares and
shareholders' equity (deficit)... $ 19,386,888 $ 18,920,284 $ 18,920,284
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE>
ALLSCRIPTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------------
1996 1997 1998
----------- ------------ -----------
<S> <C> <C> <C>
Revenue............................... $33,461,863 $ 30,593,032 $23,681,610
Cost of revenue....................... 23,330,282 21,021,946 17,146,182
----------- ------------ -----------
Gross profit...................... 10,131,581 9,571,086 6,535,428
Selling, general and administrative
expenses............................. 11,657,993 13,964,555 12,831,357
Amortization of intangibles........... 529,360 408,736 371,905
Other operating expenses.............. 1,034,169 2,567,652 430,345
----------- ------------ -----------
Loss from operations.............. (3,089,941) (7,369,857) (7,098,179)
Interest expense...................... (1,301,131) (1,621,214) (595,699)
Other expense......................... (38,956) -- --
----------- ------------ -----------
Loss from continuing operations....... (4,430,028) (8,991,071) (7,693,878)
Income (loss) from discontinued
operations........................... 1,489,000 (1,808,000) 970,000
----------- ------------ -----------
Loss before extraordinary item........ (2,941,028) (10,799,071) (6,723,878)
Extraordinary loss from early
extinguishment of debt............... -- -- (790,431)
----------- ------------ -----------
Net loss.............................. (2,941,028) (10,799,071) (7,514,309)
Accretion of mandatory redemption
value of preferred shares and accrued
dividends on preferred shares........ (923,400) (923,399) (2,415,143)
----------- ------------ -----------
Net loss attributable to common
shareholders......................... $(3,864,428) $(11,722,470) $(9,929,452)
=========== ============ ===========
Per share data--basic and diluted:
Loss from continuing operations...... $ (1.87) $ (3.35) $ (1.66)
Discontinued operations.............. 0.52 (0.61) 0.16
Extraordinary loss................... -- -- (0.13)
----------- ------------ -----------
Net loss............................. $ (1.35) $ (3.96) $ (1.63)
=========== ============ ===========
Per share data--pro forma basic and
diluted (unaudited):
Loss from continuing operations...... $ (1.14)
Discontinued operations.............. 0.11
Extraordinary loss................... (0.09)
-----------
Net loss............................. $ (1.12)
-----------
Weighted average shares of common
stock outstanding used in computing
basic and diluted loss per share..... 2,853,960 2,955,982 6,075,803
=========== ============ ===========
Weighted average shares of common
stock outstanding used in computing
pro forma basic and diluted loss per
share (unaudited).................... 9,073,303
===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE>
ALLSCRIPTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Notes
Additional Receivable
Preferred Common Paid-In Unearned from Sale Treasury Accumulated
Shares Shares Capital Compensation of Shares Stock Deficit
-------------------- ----------------- ----------- ------------ ---------- ----------------- ------------
Shares Amount Shares Amount Shares Amount
--------- ---------- --------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31,
1995............. 8,718,768 $8,718,768 2,866,299 $28,663 $17,970,544 -- $(35,000) (13,342) $(32,020) $(29,509,562)
Issuance of
1,616 common
shares under
option
agreements...... 1,616 16 2,409
Exchange of note
receivable from
shareholder for
6,837 common
shares.......... 35,000 (6,837) (14,367)
Cumulative
dividends in
arrears on
Series H
redeemable
preferred
shares.......... (704,000)
Accretion of
mandatory
redemption value
of preferred
shares.......... (219,400)
Net loss for the
year ended
December 31,
1996............ (2,941,028)
--------- ---------- --------- ------- ----------- --------- -------- ------- -------- ------------
Balance at
December 31,
1996............. 8,718,768 8,718,768 2,867,915 28,679 17,049,553 -- (20,179) (46,387) (32,450,590)
Issuance of
37,807 common
shares under
option
agreements...... 37,807 378 56,333 (14,286) (21,430)
Issuance of
519,530 common
shares to HBO &
Co. for
TouchScript
software........ 519,330 5,195 25,978
Cumulative
dividends in
arrears on
Series H
redeemable
preferred
shares.......... (704,000)
Accretion of
mandatory
redemption value
of preferred
shares.......... (219,399)
Net loss for the
year ended
December 31,
1997............ (10,799,071)
--------- ---------- --------- ------- ----------- --------- -------- ------- -------- ------------
Balance at
December 31,
1997............. 8,718,768 8,718,768 3,425,052 34,252 16,208,465 -- (34,465) (67,817) (43,249,661)
Issuance of
4,597,070 common
shares in Series
I Unit
Offering........ 4,597,070 45,970 963,120
Issuance of
336,532 common
shares under
option
agreements...... 336,532 3,365 53,956
Issuance of
1,326,661
warrants in
connection with
exchange of
subordinated
convertible
debentures for
Series J
redeemable
preferred
shares.......... 238,800
Unearned
compensation in
connection with
issuance of
1,985,165
options......... 322,741 $(322,741)
Compensation
expense......... 176,254
Cumulative
dividends in
arrears on
Series H
redeemable
preferred
shares.......... (704,000)
Cumulative
dividends in
arrears on
Series I
redeemable
preferred
shares.......... (521,053)
Cumulative
dividends in
arrears on
Series J
redeemable
preferred
shares.......... (701,812)
Accretion of
mandatory
redemption value
of preferred
shares.......... (323,278)
Issuance costs
of Series I Unit
Offering........ (153,439)
Net loss for the
year ended
December 31,
1998............ (7,514,309)
--------- ---------- --------- ------- ----------- --------- -------- ------- -------- ------------
Balance at
December 31,
1998............. 8,718,768 $8,718,768 8,358,654 $83,587 $15,383,500 $(146,487) $ -- (34,465) $(67,817) $(50,763,970)
========= ========== ========= ======= =========== ========= ======== ======= ======== ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE>
ALLSCRIPTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------------
1996 1997 1998
----------- ------------ -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss............................. $(2,941,028) $(10,799,071) $(7,514,309)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Depreciation and amortization...... 1,784,149 1,694,950 1,530,965
Provision for losses on accounts
receivable........................ 30,524 666,829 1,202,949
Exchange of note receivable for
common shares..................... 20,633 -- --
Write-off of intangible assets..... 196,865 5,621,994 --
Extraordinary loss................. -- -- 790,431
Compensation expense............... -- -- 176,254
Exchange of debentures in
satisfaction of accrued interest.. 400,000 875,680 439,281
Changes in assets and liabilities:
(Increase) decrease in accounts
receivable...................... (3,614,163) (108,088) (1,147,615)
(Increase) decrease in
inventories..................... (193,807) 246,965 (348,558)
(Increase) decrease in other
assets.......................... (56,413) (22,940) 154,347
Increase in accounts payable..... 759,879 265,609 1,131,388
(Decrease) increase in accrued
expenses........................ 296,238 (113,451) (580,230)
----------- ------------ -----------
Net cash used in operating
activities.................... (3,317,123) (1,671,523) (4,165,097)
----------- ------------ -----------
Cash flows from investing activities:
Capital expenditures................. (287,581) (1,191,941) (884,207)
Disposal of property, plant, and
equipment........................... -- 39,598 --
Acquisition of TouchScript software.. -- (49,971) --
----------- ------------ -----------
Net cash used in investing
activities.................... (287,581) (1,202,314) (884,207)
----------- ------------ -----------
Cash flows from financing activities:
Borrowings under bank agreements..... 370,000 2,500,000 4,000,000
Payments under bank agreements....... (5,070,000) -- (2,500,000)
Proceeds from issuance of
subordinated convertible
debentures.......................... 10,000,000 -- --
Proceeds from Series I Unit
Offering............................ -- -- 8,930,000
Payments under long-term
obligations......................... (825,931) (101,146) --
Repayment of term loan............... -- -- (4,692,932)
Payments on capital lease............ -- (20,107) --
Proceeds from exercise of common
share options....................... 2,425 56,712 57,321
Treasury stock purchases............. -- (21,430) --
Share and debt issue costs........... (880,414) -- (232,058)
----------- ------------ -----------
Net cash provided by financing
activities.................... 3,596,080 2,414,029 5,562,331
----------- ------------ -----------
Net increase (decrease) in cash........ (8,624) (459,808) 513,027
Cash, beginning of year................ 673,413 664,789 204,981
----------- ------------ -----------
Cash, end of year...................... $ 664,789 $ 204,981 $ 718,008
=========== ============ ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-7
<PAGE>
ALLSCRIPTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of Business
Allscripts, Inc. (an Illinois corporation) and its wholly owned
subsidiaries, Allscripts Pharmacy Centers, Inc., Prescription Management
Company, Inc., and Physician Dispensing Systems, Inc. (altogether referred to
as "Allscripts"), provide physicians with Internet and client/server medication
management solutions designed to improve the quality and cost effectiveness of
pharmaceutical healthcare. Allscripts grants uncollateralized credit to its
customers. Allscripts operates in one industry segment. As its product
offerings evolve, the manners in which its activities are internally reported
and its decisions are made could change. Allscripts will continually evaluate
its determination of operating segments. The company changed its name to
Allscripts, Inc. on October 20, 1997.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of Allscripts,
Inc. and its wholly owned subsidiaries. All significant intercompany
transactions have been eliminated.
Revenue Recognition
Through December 1998, Allscripts generated substantially all of its
revenue from the sale of medications for dispensing at the point of care.
Revenue is recognized upon shipment of the products. Revenue for services is
recognized when the related service is performed. Revenue for software license
fees is recognized after the software has been installed, training has been
completed and the customer begins utilizing the software. No revenue is
recognized where it is refundable or subject to the performance of future
obligations.
Manufacturer Rebates
Rebates from suppliers are recorded as a reduction of cost of revenue and
are recognized on an estimated basis upon shipment of the product to customers.
The difference between the amount estimated and the amount actually received is
reflected prospectively as a change of estimate. These revisions have not been
material.
Inventories
Inventories, which consist primarily of finished goods, are carried at the
lower of cost (specific identification) or market.
Fixed Assets
Fixed assets are stated at cost. Depreciation is computed on the straight-
line method over the estimated useful lives of the related assets, which range
from 2 to 7 years. Upon asset retirement or other disposition, cost and the
related allowance for depreciation are removed from the accounts, and gain or
loss is included in the consolidated statements of operations. Amounts expended
for repairs and maintenance are charged to operations as incurred.
Intangible Assets
Intangible assets, which are stated at cost, consist of software rights,
non-compete agreements, customer lists and goodwill. Allscripts' policy is to
amortize intangible assets using the straight-line method
F-8
<PAGE>
ALLSCRIPTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
over the remaining estimated economic life of those assets including the period
being reported on. Allscripts analyzes the value of its recorded intangible
assets on an ongoing basis to determine that the recorded amounts are
reasonable and are not impaired. The analysis includes a review of undiscounted
future cash flows for each group of acquired customers based on environmental
factors, customer retention, cash flow projections and other factors Allscripts
believes are relevant to determine if any impairment of the asset has occurred.
If impairment is noted, then future cash flows are discounted and the amount of
impairment is then measured and a writedown is recorded. If necessary, the
remaining amortization period is adjusted accordingly.
The average amortization periods for intangible assets for the years ended
December 31, 1996, 1997 and 1998 are as follows:
<TABLE>
<CAPTION>
1996 1997 1998
-------- ------- -------
<S> <C> <C> <C>
Capitalized software........................... 3 years 3 years 3 years
Non-compete agreements......................... 5 years 5 years 5 years
Customer lists................................. 5 years 2 years 2 years
Goodwill....................................... 15 years 5 years 5 years
</TABLE>
Debt Issuance Costs
Costs attributable to the issuance of significant debt are deferred and
amortized on a straight-line basis over the term of the related debt.
Use of Estimates
Generally accepted accounting principles require management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at year end
and the reported amounts of revenues and expenses during the year. Actual
results could differ from these estimates.
Concentration of Credit Risk
Financial instruments that potentially subject Allscripts to a
concentration of credit risk consist of cash and trade receivables.
Allscripts sells its products and services to healthcare providers and
employer funded benefit plans. Credit risk with respect to trade receivables is
generally diversified due to the large number of customers and their dispersion
across the entire United States. Trade receivables with employer funded benefit
plans are further diversified across many different industries. To reduce
credit risk, Allscripts performs ongoing credit evaluations of its customers
and their payment histories. In general, Allscripts does not require collateral
from its customers, but does enter into advance deposit, security or guarantee
agreements if appropriate.
Allscripts maintains its cash balances with one major commercial bank.
Income Taxes
Deferred tax assets or liabilities are established for temporary
differences between financial and tax reporting bases and are subsequently
adjusted to reflect changes in tax rates expected to be in effect
F-9
<PAGE>
ALLSCRIPTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
when the temporary differences reverse. A valuation allowance is established
for any deferred tax asset for which realization is not likely.
Stock Based Compensation
Effective December 31, 1996, Allscripts adopted Statement of Financial
Accounting Standards No. 123, "Accounting for Stock Based Compensation." As
provided by SFAS 123, Allscripts has elected to continue to account for its
stock based compensation programs according to the provisions of Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees."
Accordingly, compensation expense has been recognized to the extent of employee
or director services rendered based on the intrinsic value of compensatory
options or shares granted under the plans. Allscripts has adopted the
disclosure provisions required by SFAS 123.
Fair Value of Financial Instruments
The carrying amounts reported in the balance sheets for cash, accounts
receivable and accounts payable approximate their fair values due to the short
term nature of these financial instruments. The fair values of the note payable
to bank and the long term debt are estimated based on current interest rates
available to Allscripts for debt instruments with similar terms, degrees of
risk and remaining maturities. The carrying values of the note payable to bank
and the long term debt approximates their fair values.
Comprehensive Income
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" (FAS 130). FAS 130 establishes
standards for the reporting and display of comprehensive income and its
components in a full set of general purpose financial statements and is
effective for fiscal years beginning after December 15, 1997. To date,
Allscripts has not had any transactions that are required to be reported as
comprehensive income.
Net Loss Per Share
Basic and diluted net loss per common share are presented in conformity
with Statement of Financial Accounting Standards No. 128, "Earnings Per Share"
(FAS 128), for all periods presented.
In accordance with FAS 128, basic and diluted net loss per share has been
computed using the weighted average number of shares of common stock
outstanding during the period. Allscripts has excluded all outstanding
convertible preferred stock, which is convertible into 2,977,483 shares of
common stock, all outstanding warrants to purchase 4,892,136 shares of common
stock and all outstanding options to purchase 2,697,123 shares of common stock
from the calculation of diluted loss per share because all such securities are
antidilutive for all periods presented.
Software and Development Costs
Allscripts capitalizes purchased software that is ready for service and
software development costs incurred from the time technological feasibility of
the software is established until the software is ready for use. Research and
development costs and other computer software maintenance costs related to
software development are expensed as incurred. No software development costs
related to the TouchScript product have been capitalized to date; such costs
will be capitalized in the future after market acceptance has been established.
The costs of purchased software are amortized using the straight-line method
over three years.
F-10
<PAGE>
ALLSCRIPTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
The carrying value of a software and development asset is regularly
reviewed by Allscripts, and a loss is recognized when the net realizable value
falls below the unamortized cost.
Pro Forma Consolidated Balance Sheet and Net Loss per Share (unaudited)
If the offering contemplated by this prospectus is consummated, all of the
outstanding shares of Allscripts' convertible preferred stock will
automatically be converted into 2,977,483 shares of common stock.
Additionally, 20,017 shares of common stock are issuable upon the closing of
the offering pursuant to a contingent share payment obligation. Allscripts has
presented a pro forma balance sheet as if this conversion and contingent share
issuance happened on December 31, 1998 and the pro forma net loss per share
information for the year ended December 31, 1998 as if these transactions
occurred at the beginning of 1998.
The pro forma consolidated balance sheet also reflects Allscripts'
reincorporation in Delaware upon the closing of the offering.
3. Other Operating Expenses
Other operating expenses consist of the following for the years ended
December 31:
<TABLE>
<CAPTION>
1996 1997 1998
---------- ---------- --------
<S> <C> <C> <C>
Management reorganization and shutdown costs.... $ 867,502 $ 239,652 $430,345
Writeoff of software intangible................. 166,667 -- --
Writedown of acquisition intangibles............ -- 2,328,000 --
---------- ---------- --------
$1,034,169 $2,567,652 $430,345
========== ========== ========
</TABLE>
The management reorganization and shutdown costs relate to severance costs
associated with reductions in force and other severance arrangements and, in
1996, include the costs associated with the shutdown of Allscripts'
Pennsylvania sales office. The portion of the charges outlined above that
relates to management reorganization equals $573,727 in fiscal 1996, $239,652
in fiscal 1997 and $430,345 in fiscal 1998. The number and nature of employees
affected in each year is as follows: 1996, three administrative and one sales,
1997, seven administrative and three sales and 1998, ten administrative and
nine sales. As of March 31, 1999, all payments provided for had been made.
A summary of management reorganization and shutdown costs and related
payments is as follows:
<TABLE>
<CAPTION>
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Beginning balance.............................. $ 336,500 $ 285,515 $ 180,688
Expense........................................ 867,502 239,652 430,345
Adjustment to prior period..................... -- -- --
Payments....................................... (918,487) (344,479) (337,967)
--------- --------- ---------
Ending balance............................... $ 285,515 $ 180,688 $ 273,066
========= ========= =========
</TABLE>
Allscripts determined that an impairment of customer lists and goodwill
acquired in certain point-of-care-dispensing acquisitions occurred in 1997.
The impairment was triggered by the loss of customers and the reduced level of
operating profit being generated by the acquired customers. The impairment
analysis included a review of undiscounted future cash flows for each group of
acquired customers to determine if any impairment of the asset had occurred.
As a result, Allscripts has made a provision in 1997 of $2,328,000,
representing the estimated excess of the carrying value of the intangible
assets over the
F-11
<PAGE>
ALLSCRIPTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
discounted future cash flows. In addition, Allscripts reduced the remaining
amortization period to six and three years for goodwill and customer lists,
respectively, related to its mail order pharmacy business and five and two
years for goodwill and customer lists, respectively, related to its point-of-
care site dispensing business. The previous amortization periods had been 20
and 10 years for intangibles arising from those acquisitions. In testing for
impairment, Allscripts used the held-for-use model under SFAS 121.
4. Other Expense
Other expense consists of the following for the years ended December 31:
<TABLE>
<CAPTION>
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Loss on note receivable from shareholder
exchanged for common shares................... $38,956 $ -- $ --
======= ======= =======
</TABLE>
5. Fixed Assets
Fixed assets as of December 31 consist of the following:
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Office furniture and equipment..................... $3,214,670 $3,845,120
Production and warehouse equipment................. 2,039,390 2,170,198
Leasehold improvements............................. 473,086 584,139
Construction in progress........................... 27,317 39,213
---------- ----------
5,754,463 6,638,670
Less accumulated depreciation...................... 4,221,641 4,854,674
---------- ----------
$1,532,822 $1,783,996
========== ==========
</TABLE>
Included in fixed assets are $2,540,856 and $3,273,553 as of December 31,
1997 and 1998, respectively, related to revenue producing assets that are fully
depreciated.
Depreciation expense from continuing operations was approximately $558,000
in 1996, $522,000 in 1997 and $563,000 in 1998.
6. Intangible Assets
Intangible assets as of December 31 consist of the following:
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Capitalized software............................. $ 81,145 $ 81,145
Non-compete agreements........................... 515,000 515,000
Customer lists................................... 4,263,282 4,263,282
Goodwill......................................... 15,984,192 15,984,192
----------- -----------
20,843,619 20,843,619
Less accumulated amortization.................... 16,265,879 17,141,784
----------- -----------
$ 4,577,740 $ 3,701,835
=========== ===========
</TABLE>
Accumulated amortization includes writedowns in excess of normal
amortization.
F-12
<PAGE>
ALLSCRIPTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
7. Accrued Expenses
Accrued expenses as of December 31 consist of the following:
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Accrued employee compensation benefits and
payroll taxes................................... $ 580,839 $ 201,060
Accrued vacation pay............................. 422,011 549,686
Accrued severance................................ 180,688 273,066
Accrued commissions.............................. 346,591 41,629
Accrued interest................................. 159,739 3,526
Accrued--other................................... 166,151 207,882
---------- ----------
$1,856,019 $1,276,849
========== ==========
</TABLE>
8. Lease Commitments
Allscripts conducts its operations from leased premises and with equipment
under several operating leases. Total rent expense from continuing operations
was approximately $494,000, $491,000 and $599,000 for the years ended December
31, 1996, 1997 and 1998, respectively.
Future minimum rental payments for the next five years are as follows:
<TABLE>
<CAPTION>
Year Ending
December
31,
-----------
<S> <C>
1999.......................................................... $ 569,275
2000.......................................................... 546,104
2001.......................................................... 551,250
2002.......................................................... 540,491
2003 and thereafter........................................... 804,714
----------
Total minimum lease payments.................................. $3,011,834
==========
</TABLE>
9. Notes Payable
Notes payable as of December 31 consist of the following:
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Borrowings under revolving credit facility with
commercial bank................................. $2,500,000 $4,000,000
========== ==========
</TABLE>
During 1997 and up to April 16, 1998, Allscripts maintained a credit
arrangement with a commercial bank consisting of two components, a revolving
credit facility and a term loan. The revolving credit facility permitted
borrowings up to $10,000,000, limited by certain eligible working capital
requirements. At December 31, 1997, approximately $3,400,000 of borrowing
capacity was available. Interest was at prime plus 0.5% (9.00% at December 31,
1997). Borrowings under the revolving credit facility were collateralized by
accounts receivable, inventory, equipment and other assets. Allscripts was
required to maintain a compensating balance of $350,000 under the revolving
credit facility.
On April 16, 1998, Allscripts signed a new revolving credit agreement with
its commercial bank. As amended, the revolving credit facility permits
borrowings up to $10,000,000, limited by certain eligible working capital
requirements. At December 31, 1998, approximately $4,000,000 of borrowing
capacity was
F-13
<PAGE>
ALLSCRIPTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
available. Interest is at prime plus 0.5% (8.5% at December 31, 1998).
Borrowings under the revolving credit facility are collateralized by accounts
receivable, inventory, equipment and other assets. The revolving credit
facility expires on April 16, 2000.
The term loan, which was guaranteed by a certain preferred shareholder and
which was part of the credit arrangement with a commercial bank that expired on
April 30, 1998, was paid off in April 1998 from the proceeds of the Series I
Unit Offering.
Under the revolving credit agreement, Allscripts is required to maintain
certain financial ratios, including minimum net working capital, minimum EBITDA
and minimum capital funds. The agreement also prohibits the payment of
dividends. At December 31, 1998, Allscripts was in violation of certain
financial covenants for which it received a waiver from the bank.
10. Long-Term Obligations
On April 30, 1996, Allscripts completed a $10,000,000 financing in the form
of 8.0% convertible subordinated debentures due April 30, 2001. Interest on the
debentures is payable semiannually. The debentures can be converted into
2,683,152 common shares of Allscripts at a conversion price equal to $4.2024.
The debentures are convertible at the option of the holder. Under the terms of
the debenture agreements, Allscripts' ability to pay dividends is restricted
under certain circumstances.
In conjunction with the issuance of the Series I Preferred and common stock
(see Note 12), the majority of the outstanding subordinated convertible
debentures were exchanged for 1,803,838 shares of Series J Preferred (see Note
13). In connection with this exchange, Allscripts also issued to the Series J
Preferred shareholders 1,326,661 detachable warrants to purchase shares of
common stock of Allscripts for $0.06 per share. The warrants will expire five
years from the date of closing of the sale of Series I Preferred (see Note 12).
An extraordinary loss of $790,431 was recorded in the consolidated
statement of operations for the year ended December 31, 1998, consisting of the
writeoff of deferred financing costs related to Allscripts' convertible
subordinated debentures and the value of the warrants issued to the Series J
Preferred shareholders.
Long-term obligations as of December 31 consist of the following:
<TABLE>
<CAPTION>
1997 1998
----------- -------
<S> <C> <C>
Term loan, payable to a commercial bank, principal due
April 30, 1998; interest at prime; interest payable
monthly, collateralized by certificates of deposit or
letters of credit of a certain related party preferred
shareholder (Allstate Insurance Company).................. $ 4,692,932 $ --
Convertible subordinated debentures issued April 30, 1996
at par in the amount of $10,000,000; due April 30, 2001;
interest at 8.0% payable semiannually on April 30 and
October 31, potentially increasing 0.5% on each such
interest record date to a maximum of 1.5%; convertible
into 2,683,152 common shares at December 31, 1997 and
13,985 common shares at December 31, 1998 at $4.2024...... 11,275,680 58,774
----------- -------
15,968,612 58,774
Less current portion....................................... 4,692,932 --
----------- -------
$11,275,680 $58,774
=========== =======
</TABLE>
F-14
<PAGE>
ALLSCRIPTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
11. Income Taxes
Under the provisions of SFAS No. 109, "Accounting for Income Taxes,"
Allscripts recognizes a current tax asset or liability for current taxes
payable or refundable and a deferred tax asset or liability for the estimated
future tax effects of temporary differences between the carrying value of
assets and liabilities for financial reporting and their tax basis, excluding
goodwill, and carryforwards to the extent that these items are realizable. The
consolidated balance sheet includes the following:
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1998
--------------------------------------- ---------------------------------------
Current Noncurrent Total Current Noncurrent Total
----------- ------------ ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Deferred income tax..... $ 2,117,000 $ 11,471,000 $ 13,588,000 $ 2,555,000 $ 12,729,000 $ 15,284,000
Valuation allowance..... (2,117,000) (11,471,000) (13,588,000) (2,555,000) (12,729,000) (15,284,000)
----------- ------------ ------------ ----------- ------------ ------------
$ -- $ -- $ -- $ -- $ -- $ --
=========== ============ ============ =========== ============ ============
</TABLE>
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1998
-------------------------- --------------------------
Temporary Temporary
Difference Tax Effect Difference Tax Effect
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Provision for doubtful
accounts............... $ 3,432,000 $ 1,425,000 $ 4,522,507 $ 1,877,000
Acquisition costs....... 873,000 366,000 873,000 362,000
Vacation accrual........ 422,000 175,000 523,000 217,000
Bonus accrual........... 30,000 12,000 30,000 12,000
Severance reserve....... 77,000 32,000 -- --
Inventory reserve....... 235,000 98,000 154,000 64,000
Inventory
capitalization......... 24,000 10,000 56,000 23,000
Property, plant and
equipment.............. 675,000 280,000 138,000 57,000
Net operating loss...... 26,965,000 11,190,000 30,534,000 12,672,000
------------ ------------ ------------ ------------
Subtotal............ 32,733,000 13,588,000 36,830,507 15,284,000
Less: valuation
allowance.............. (32,733,000) (13,588,000) (36,830,507) (15,284,000)
------------ ------------ ------------ ------------
Total............... $ -- $ -- $ -- $ --
============ ============ ============ ============
</TABLE>
At December 31, 1997 and 1998, Allscripts has operating loss carryforwards
available for federal income tax reporting purposes of approximately
$26,965,000 and $30,534,000, respectively. The operating loss carryforwards
expire in 2002 through 2013. Allscripts' ability to utilize these operating
loss carryforwards to offset future taxable income is dependent on a variety of
factors, including possible limitations on usage pursuant to Internal Revenue
Code Section (IRC) 382. IRC 382 imposes an annual limitation on the future
utilization of operating loss carryforwards due to changes in ownership
resulting from the issuance of common shares, stock options, warrants and
convertible preferred shares.
No provision for income taxes has been made due to Allscripts' operating
losses.
12. Redeemable Preferred Shares and Shareholders' Equity
Redeemable Preferred Shares
The Series H Preferred shares are voting, nonparticipating and have a
liquidation preference upon dissolution of Allscripts of $6.462 per share plus
an amount equal to all unpaid dividends accrued thereon.
F-15
<PAGE>
ALLSCRIPTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
The Series H Preferred shares are senior to Series A, Series B, Series C,
Series D, Series F and Series G Preferred shares with respect to the
liquidation preference.
The shares are entitled to cumulative, quarterly dividends of 8.0% accruing
from the date of issuance and payable beginning September 15, 1998 and then
payable quarterly thereafter. Mandatory redemption of shares (at $6.462 per
share) in the proportion of 10%, 10%, 10%, and 70% of the total number of
shares originally issued was initially scheduled to begin on September 15, 1998
and occur annually thereafter through 2001, respectively.
In connection with the convertible subordinated debenture offering
described in Note 10, the terms of the Series H Preferred were amended.
Pursuant to such amendment, on September 15, 1998, Allscripts was required to
begin paying dividends quarterly. Allscripts was required to redeem shares of
Series H Preferred with a redemption value of $6.16 million and all accrued
dividends thereon on September 15, 2001.
In conjunction with the issuance of $8,930,000 of Series I Preferred on
April 16, 1998, the terms of the Series H Preferred were amended to extend the
maturity date five years from the closing of the sale of the Series I
Preferred. Allscripts will be required to redeem shares of Series H Preferred
equal to $8,800,000 plus all accrued dividends ($3,007,430 at December 31, 1998
or $2.21 per share) five years from the closing of the sale of Series I
Preferred. In consideration of the change in terms therein, Allscripts issued
916,657 warrants to purchase shares of common stock of Allscripts for $0.06 per
share to the holders of Series H Preferred. The warrants will expire five years
from the date of the closing of the sale of Series I Preferred.
On April 16, 1998, Allscripts effected the private placement of Series I
Preferred and common stock of Allscripts for $8,930,000. The common stock
component, 4,597,070 shares, represented 24.4% of Allscripts' common stock at
April 16, 1998, assuming exercise of all options and warrants and the
conversion of all convertible preferred stock into common stock. Based upon an
independent appraisal, $1,009,000 was allocated to the value of the common
stock issued in the Series I Unit Offering. The difference, $733,265, between
the amount initially recorded for the redeemable preferred stock and its
redemption value will be accreted over the life of the Series I Preferred
shares such that the Series I Preferred shares will be reflected at redemption
value at the date of redemption. The Series I Preferred shares are voting and
have a liquidation preference upon dissolution of Allscripts of $6.462 per
share plus an amount equal to all unpaid dividends accrued thereon. The Series
I Preferred shares are in parity with the Series J Preferred shares and senior
to Series A, Series B, Series C, Series D, Series F, Series G and Series H
Preferred shares with respect to liquidation preference.
A cumulative dividend on the Series I Preferred accrues at a rate of 8.5%
per annum. The Series I Preferred are to be redeemed at $8,654,175 plus any
accrued but unpaid dividends ($521,053 at December 31, 1998 or $0.39 per
share), upon a qualified initial public offering, but no later than five years
from the issuance date of the Series I Preferred. A qualified initial public
offering is defined as a firm commitment public offering with a per share price
of at least $4.80 and in which Allscripts receives at least $20,000,000 in net
proceeds.
Accrued dividends are payable only: (a) when declared by the Board, (b)
upon the liquidation, dissolution or winding up of Allscripts, (c) upon a
qualified initial public offering, or (d) upon a redemption event as defined
above.
As outlined above and in Note 10, the issuance of the Series I Preferred
securities required amendments to the terms of the Series H and an exchange of
the Subordinated Convertible debentures, among other things.
F-16
<PAGE>
ALLSCRIPTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
In conjunction with the issuance of the Series I Preferred and common
stock, all of the outstanding subordinated convertible debentures other than
debentures in the aggregate principal amount of $56,378 were exchanged for
1,803,838 shares of Series J Preferred. The Series J Preferred shares are
voting and have a liquidation preference upon dissolution of Allscripts of
$6.462 per share plus an amount equal to all unpaid dividends accrued thereon.
A cumulative dividend on the Series J Preferred accrues at a rate of 8.5%
per annum. The Series J Preferred Shares are to be redeemed at $11,656,388 plus
accrued dividends ($701,812 at December 31, 1998 or $0.39 per share) no later
than April 16, 2003. The terms for payment of accrued dividends are similar to
those for the Series I Preferred shares described above.
Preferred Shares
The Series A, Series B, Series C, Series D, Series F and Series G Preferred
shares are voting, nonparticipating, convertible, and have a liquidation
preference upon dissolution of Allscripts equal to $1.00, $3.75, $3.20, $4.50,
$1.25 and $4.50 per share, respectively. The Series G Preferred shares are
senior to the Series A, Series B, Series C, Series D and Series F Preferred
shares in respect to the liquidation preference. The Series C, Series D and
Series F Preferred shares are senior to the Series A and Series B Preferred
shares in respect to the liquidation preference. These preferred shareholders
have the option to convert their shares into common shares at prescribed rates.
Automatic conversion occurs upon the closing of a qualified initial public
offering, as defined. At December 31, 1998, Allscripts had reserved 2,977,483
common shares for issuance upon conversion of all outstanding convertible
preferred shares.
Warrants
Simultaneous with the Series H Unit Offering, Allscripts issued warrants to
purchase 156,428 shares of Allscripts' common shares for $7.50 per share to a
shareholder in exchange for the continuing guaranty of a term loan with
Allscripts' principal bank. The warrants expire in September 1999. Because the
exercise price of the warrants exceeded the per share value implied by the
Series H Unit Offering, no value was ascribed to the warrants.
In conjunction with the 1996 convertible subordinated debenture offering,
the term loan guaranteed by a shareholder was amended to extend the maturity
date to April 30, 1998. In exchange for extending its guaranty of such term
debt, Allscripts issued warrants to purchase an aggregate of 279,181 common
shares with a strike price of $4.2024. The warrants expire April 30, 2001.
Because the exercise price of the warrants exceeded the per share value implied
by the convertible subordinated debenture offering, no value was ascribed to
the warrants.
As a condition to the Series I Unit Offering, Allscripts amended the
maturity date of the Series H Preferred shares and exchanged the subordinated
convertible debentures for shares of Series J Preferred. In exchange for these
concessions, Allscripts issued detachable warrants to the holders of Series H
Preferred shares and holders of Series J Preferred shares in the aggregate
amounts of 916,657 and 1,326,661 shares of common stock, respectively. Based
upon an independent appraisal, $165,000 was allocated to the warrants issued to
the Series H Preferred shareholders, and the net loss attributable to the
common shareholders in 1998 was increased by this amount. Based upon an
independent appraisal, $238,800 was assigned to the value of the warrants
issued to the Series J Preferred shareholders. The warrants carry a strike
price of $0.06 and expire in April 2003.
As part of the Series H Unit Offering, Allscripts issued warrants to
purchase 2,269,633 shares of the common stock of Allscripts for $0.06 per
share. These warrants are on substantially the same terms as the above warrant
issuances. The warrants expire in September 1999. Based upon an independent
F-17
<PAGE>
ALLSCRIPTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
outside appraisal, Allscripts has allocated value from the Series H Unit
Offering of $1,097,000 to these warrants. This amount has been recorded as
additional paid-in capital and as a reduction in the initial carrying value of
the Series H Preferred shares. The carrying amount of the Series H preferred
shares is being periodically adjusted to their mandatory redemption value.
All of the above warrants may be exercised with payment of cash or the
surrender of additional warrants, such warrants to be valued by the excess of
fair market value of a common share on the day of exercise over the warrant
purchase price. In addition, the warrants may be adjusted in certain
circumstances in the event of dilutive financings, as defined.
At December 31, 1998, all outstanding warrants were fully vested and
exercisable, and Allscripts has reserved 4,892,136 common shares for issuance
upon the exercise of warrants.
Stock Option Plans
Allscripts has established several stock option plans under which officers,
employees, directors, consultants or agents are eligible to receive incentive
stock or nonqualified options to purchase shares of Allscripts' common shares.
In November 1993, Allscripts adopted the 1993 Stock Incentive Plan and
established the number of shares initially issuable under the plan at 150,000
shares. In addition, the several existing plans were amended to terminate
future grants under those plans and to provide for the transfer of shares
authorized for grant but not granted to the 1993 Stock Incentive Plan. The
exercise price for shares under these plans is determined by Allscripts' Board
of Directors at the date of grant. All options must be exercised within ten
years of the date of grant. The plans provide for exercise of options by
payment of cash, surrender of common shares or surrender of options. Options
vest on various schedules, primarily over three and four year periods from the
date of grant, and in certain circumstances upon a change in control. In
September 1994, the 1993 Stock Incentive Plan was amended to provide for
1,077,217 additional common shares to be issuable pursuant thereto. In December
1995, the 1993 Stock Incentive Plan was amended to provide for 578,331
additional common shares to be issued pursuant thereto. In July and September
1997, the 1993 Stock Incentive Plan was amended to provide for 684,151 and
500,000 additional common shares to be issued pursuant thereto. At December 31,
1998, options to purchase 2,905,258 common shares were authorized under those
plans, and options with respect to 1,434,122 shares were exercisable under
these plans.
In addition, in November 1993, Allscripts adopted the 1993 Amended and
Restated Eligible Directors Stock Option Plan and established the number of
shares issuable under the plan at 33,333 shares. The plan provides for
nonqualified option grants to eligible directors, as defined, of Allscripts
upon election to the Board of Directors or adoption of the plan and upon the
first and second anniversary of their directorship. The exercise price for
shares under these plans is determined by Allscripts' Board of Directors, at
the date of grant. The plans provide for exercise of options by payment of
cash, surrender of common shares or surrender of options. Options vest upon
grant. In February 1997, Allscripts adopted an amendment and restatement of the
1993 Stock Incentive Plan and terminated the Eligible Directors Stock Option
Plan. The amendment and restatement of the 1993 Stock Incentive Plan made
eligible directors (as defined in the Eligible Directors Stock Option Plan)
eligible for grants of stock incentives under the 1993 Stock Incentive Plan and
provided for the transfer to the 1993 Stock Incentive Plan of shares authorized
for grant but not granted under the Eligible Directors Stock Option Plan and of
shares underlying outstanding options under the Eligible Directors Stock Option
Plan that are terminated or canceled or that expire.
In addition, in 1990, Allscripts has issued options to purchase 7,760
shares of Allscripts' common stock outside of the plans under separate
agreement. These options were fully vested and exercisable at December 31,
1997.
F-18
<PAGE>
ALLSCRIPTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
In May 1998, in conjunction with the closing of the Series I Unit Offering,
the Board of Directors approved the cancellation and reissuance of options to
purchase 1,481,916 shares of Allscripts' common stock. The options covered by
the grant all have an exercise price of $0.06 per share. At December 31, 1998,
Allscripts has reserved 2,913,018 shares for issuance upon exercise of all
options.
Had Allscripts elected to apply the provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock Based Compensation" (SFAS
123) regarding recognition of compensation expense to the extent of the
calculated fair value of stock options granted in 1996, 1997 and 1998, reported
net income and earnings per share would have been reduced as follows:
<TABLE>
<CAPTION>
1996 1997 1998
---------- ----------- ----------
<S> <C> <C> <C>
Net loss, as reported................. $2,941,028 $10,799,071 $7,514,309
Pro forma net loss.................... 3,031,347 10,895,180 7,606,193
Pro forma net loss per share--basic
and diluted.......................... $ 1.06 $ 3.69 $ 1.25
</TABLE>
Under SFAS 123, compensation expense representing fair value of the option
grant is recognized over the vesting period. The initial impact on pro forma
net loss may not be representative of compensation expense in future years,
when the effect of amortization of multiple awards would be reflected in pro
forma earnings.
For purposes of the SFAS 123 pro forma net income and earnings per share
calculation, the fair value of each option grant is estimated as of the date of
grant using the Black-Scholes option pricing model. The weighted average
assumptions used in determining fair value as disclosed for SFAS 123 are shown
in the following table:
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Risk-free interest rate................................. 6.29% 5.99% 5.15%
Option life (years)..................................... 4 4 4
</TABLE>
Option activity for the years ended December 31, 1996, 1997 and 1998 is as
follows:
<TABLE>
<CAPTION>
Options Weighted Average Options
Outstanding Exercise Price Exercisable
----------- ---------------- -----------
<S> <C> <C> <C>
Balance at January 1, 1996............ 1,523,201 $2.10 745,255
Options granted..................... 195,850 1.50
Options exercised................... (1,616) 1.50
Options forfeited................... (339,423) 3.96
---------- ----- ---------
Balance at December 31, 1996.......... 1,378,012 1.50 802,049
Options granted..................... 1,655,218 2.34
Options exercised................... (37,807) 1.50
Options forfeited................... (265,066) 1.56
---------- ----- ---------
Balance at December 31, 1997.......... 2,730,357 2.04 1,100,948
Options granted..................... 1,985,165 0.06
Options exercised................... (336,522) 0.18
Options forfeited................... (198,301) 1.62
Options canceled.................... (1,483,576) 1.34
---------- ----- ---------
Balance at December 31, 1998.......... 2,697,123 $0.68 1,434,122
========== ===== =========
</TABLE>
F-19
<PAGE>
ALLSCRIPTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
For the years ended December 31, 1996, 1997 and 1998, the weighted average
fair value of options granted with an exercise price equal to market price was
$1.50, $2.34 and $0.06, respectively.
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- ---------------------------------------------------- --------------------------
Weighted
Average
Remaining Weighted Weighted
Number of Contractual Average Number of Average
Exercise Options Life Exercise Options Exercise
Prices Outstanding (in years) Price Exercisable Price
- -------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.06 1,660,897 9.43 $0.06 497,538 $ 0.06
1.50 899,453 6.26 1.50 856,214 1.50
2.16 10,350 7.63 2.16 5,820 2.16
2.34 110,330 8.00 2.34 58,457 2.34
3.00 8,333 6.04 3.00 8,333 3.00
10.24 7,760 1.13 10.24 7,760 10.24
--------- ---------
2,697,123 1,434,122
</TABLE>
13. Contingencies
The pharmaceutical repackaging industry is subject to stringent federal and
state regulations. Allscripts' repackaging operations are regulated by the Food
and Drug Administration as if Allscripts were a manufacturer. Allscripts is
also subject to regulation by the Drug Enforcement Administration in connection
with the packaging and distribution of controlled substances.
Allscripts is a defendant in numerous multi-defendant lawsuits involving
the manufacture and sale of dexfenfluramine, fenfluramine and phentermine. The
plaintiffs in these cases claim injury as a result of ingesting a combination
of these weight-loss drugs. These suits have been filed in various
jurisdictions throughout the United States and in each of these suits
Allscripts is one of many defendants, including manufacturers and other
distributors of these drugs. Allscripts does not believe it has any significant
liability incident to the distribution or repackaging of these drugs and it has
tendered defense of these lawsuits to its insurance carrier for handling. The
lawsuits are in various stages of litigation and it is too early to determine
what, if any, liability Allscripts will have with respect to the claims made in
these lawsuits. If Allscripts' insurance coverage in the amount of $15,000,000
per occurrence and $15,000,000 per year in the aggregate is inadequate to
satisfy any resulting liability, Allscripts will have to defend these lawsuits
and be responsible for the damages, if any, that Allscripts suffers as a result
of these lawsuits. Allscripts does not believe that the outcome of these
lawsuits will have a material adverse effect on its financial condition,
results of operations or cash flows.
14. Employment Matters and Agreements
In June 1996, October 1997, December 1997, March 1998 and December 1998,
certain executives and employees terminated their responsibilities with
Allscripts. In connection with these terminations, Allscripts entered into
severance agreements with these executives and employees. Total costs of
$574,000, $204,000 and $430,000, including amounts payable in the future
related to these agreements, have been included as management restructuring and
shutdown costs under Other Operating Expenses in 1996, 1997 and 1998,
respectively.
15. Savings Plan
Effective January 1, 1993, employees of Allscripts who meet certain
eligibility requirements can participate in Allscripts' 401(k) Savings and
Investment Plan. Under the plan, Allscripts may, at its
F-20
<PAGE>
ALLSCRIPTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
discretion, match the employee contributions. Allscripts recorded expenses from
continuing operations related to its matching contributions for the years ended
December 31, 1996, 1997 and 1998 of $35,418, $44,781 and $36,725, respectively.
16. Enterprise Systems, Inc. Agreement
During 1996 and 1997, Allscripts established a relationship with Enterprise
Systems, Inc. to further develop Allscripts' automated dispensing product and
introduce touch technology to its product. Enterprise developed a product
called Touchscript. On March 13, 1997, Enterprise Systems, Inc. entered into a
Merger Agreement with HBO & Company and subsequently on June 26, 1997 completed
said merger. On July 17, 1997, Allscripts entered into an agreement with HBO &
Company whereby HBO & Company assigned and transferred to Allscripts all of its
rights, title and interest in the Touchscript system and all corresponding
documentation therefor, including all copyrights, copyright registrations,
trademark applications and trademark registrations. In exchange, Allscripts
issued 519,530 shares of common stock.
The shares were recorded at fair market value determined by Allscripts of
$0.06 per share, thus assigning a value of $31,173 to the Touchscript software.
The software is being amortized on a straight-line basis over a three-year
period.
17. Discontinued Operations
On March 18, 1999, Allscripts signed a definitive agreement to sell certain
assets of its pharmacy benefit management operation to Pharmacare Management
Services, Inc., Pharmacare Direct, Inc., and Procare Pharmacy, Inc. The sale
closed on March 31, 1999. The aggregate purchase price is $15,400,000, payable
in the form of an up front payment at closing of $7,000,000 and a contingent
payment of up to $8,400,000 payable within 10 business days after the first
anniversary of the closing date. Additionally, the buyers purchased the
inventory at Allscripts' net cost, approximately $500,000, while Allscripts
retained the remaining working capital. The contingent payment is based upon
the number of prescription fillings (including original fillings and subsequent
refills) for the one-year period following the closing. Allscripts will receive
$23.12 for each traditional mail order prescription filling up to a maximum of
$5,000,000, $11.67 for each specialty mail order prescription filling up to a
maximum of $700,000 and $4.48 for each retail pharmacy prescription filling up
to a maximum of $2,700,000, in each case for fillings only from customers that
have been retained as of the anniversary date. Under certain circumstances, a
portion of the contingent payment can be paid prior to the anniversary date.
Allscripts expects to receive less than the maximum contingent payment.
The operating results of the pharmacy benefit management segment have been
segregated from continuing operations and reported as a separate line item on
the Consolidated Statements of Operations under the caption "Income (loss) from
discontinued operations." Additionally, Allscripts has restated its prior
financial statements to present the operating results of the pharmacy benefit
management operations as a discontinued operation.
F-21
<PAGE>
ALLSCRIPTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Operating results from discontinued operations were as follows:
<TABLE>
<CAPTION>
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Revenue............................ $42,225,000 $44,719,000 $52,866,000
Cost of revenue.................... 39,001,000 41,413,000 49,313,000
----------- ----------- -----------
Gross profit................... 3,224,000 3,306,000 3,553,000
Selling, general and administrative
expenses.......................... 1,735,000 5,114,000 2,583,000
----------- ----------- -----------
Operating income (loss)............ 1,489,000 (1,808,000) 970,000
----------- ----------- -----------
Income (loss) from discontinued
operations........................ $ 1,489,000 $(1,808,000) $ 970,000
=========== =========== ===========
</TABLE>
Included in revenue is $1,580,000 in 1997 and $2,982,000 in 1998 from
Anthem, Inc., a related party (see Note 20). Included in selling, general and
administrative expenses in 1997 is approximately $3,300,000 pertaining to the
writedown of intangible assets.
The components of assets and liabilities of discontinued operations
included in Allscripts' consolidated balance sheets at December 31 are as
follows:
<TABLE>
<CAPTION>
1997 1998
---------- -----------
<S> <C> <C>
Assets:
Accounts receivable............................... $5,715,000 $7,015,000
Inventory......................................... 317,000 521,000
Other............................................. 3,611,000 2,936,000
---------- -----------
Total assets....................................... $9,643,000 $10,472,000
Liabilities........................................ 4,879,000 6,192,000
---------- -----------
Net............................................ $4,764,000 $ 4,280,000
========== ===========
</TABLE>
18. Supplemental Cashflow Information
<TABLE>
<CAPTION>
1996 1997 1998
-------- -------- -----------
<S> <C> <C> <C>
Interest paid.................................... $640,057 $509,292 $ 294,171
Noncash investing and financing activity:
Exchange of 6,837 shares of common stock held
by a former executive for a note receivable
held by Allscripts, totaling $35,000 plus
interest...................................... 35,000 -- --
In connection with the agreement with HBO &
Company, issuance of 519,530 common shares
valued at $0.06 per share, in exchange for
software valued at $31,173.................... -- 31,173 --
Accretion of mandatory redemption value of
preferred shares.............................. 219,400 219,399 323,278
In connection with the $10,000,000, 8.0%
convertible subordinated debentures issued
April 30, 1996, issuance of $400,000 and
$875,680 of additional debentures in
satisfaction of accrued interest thereon for
the years ended December 31, 1996 and 1997,
respectively.................................. 400,000 875,680 --
In connection with the Series I Unit Offering,
issuance of 1,803,838 shares of Series J
Redeemable Preferred shares and 1,326,661
warrants in exchange for Allscripts'
outstanding convertible subordinated
debentures (in the aggregate principal amount
of $11,219,303) plus accrued interest thereon
through April 15, 1998 ($437,085 in
aggregate).................................... -- -- 11,656,388
Cumulative dividends in arrears on redeemable
preferred shares.............................. 704,000 704,000 1,926,865
</TABLE>
F-22
<PAGE>
ALLSCRIPTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
19. Recently Issued Accounting Pronouncements
During 1997 the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information." In
February 1998 the FASB issued SFAS No. 132 "Employers' Disclosures about
Pensions and other Postretirement Benefits." SFAS No. 131 specifies revised
guidelines for determining an entity's operating segments and the type and
level of financial information to be disclosed. This standard requires that
management identify operating segments based on the way that management
desegregates the entity for making internal operating decisions. SFAS No. 132
standardizes the disclosure requirements for pension and other postretirement
benefits.
As a result of the March 1999 sale of the pharmacy benefit management
segment, Allscripts currently operates in one segment. Allscripts does not
offer the types of benefit programs that fall under the guidelines of Statement
of Financial Accounting Standards No. 132--Employers' Disclosures about
Pensions and other Postretirement Benefits.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards for derivative instruments and requires recognition of all
derivatives as assets or liabilities in the statement of financial position and
measurement of those instruments at fair value. The statement is effective for
fiscal years beginning after June 15, 1999. To date, Allscripts has not entered
into any derivative financial instruments or hedging activities.
In June 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use." This standard requires companies to
capitalize qualifying computer software costs that are incurred during the
application's development stage and amortize them over the software's estimated
useful life. SOP 98-1 is effective for fiscal years beginning after December
15, 1998. Such costs were not material for the three-year period ended December
31, 1998. Allscripts is currently evaluating the impact of SOP 98-1 on its
financial statements and related disclosures.
20. Related Party Transactions
Since June 1997, Allscripts has provided pharmacy benefit management
services for Anthem, Inc. One of Allscripts' directors is Chairman of the
Board, President and Chief Executive Officer of Anthem (see Note 17).
21. Subsequent Events--Acquisitions
In May 1999, Allscripts acquired all of the outstanding stock of TeleMed
Corp., which does business as MedSmart, in exchange for 117,500 shares of
common stock and additional shares of common stock under certain circumstances.
MedSmart has recently entered the business of informing, or "detailing,"
physicians about specific pharmaceuticals over the Internet and through
Interactive Voice Response. MedSmart also sells medical books and practice-
related software to physicians.
In May 1999, Allscripts agreed in principle to acquire substantially all of
the assets of Shopping@Home Inc., a development stage Internet retailer, in
exchange for a promissory note in the principal amount of $650,000, bearing
interest at a rate of 6.0% per year, and payable upon the consummation of this
offering. Allscripts' Chief Executive Officer and Chief Operating Officer are
principal shareholders of Shopping@Home Inc.
Allscripts intends to account for these business combinations as purchases.
F-23
<PAGE>
ALLSCRIPTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
22. Subsequent Events--Other
On May 2, 1999, Allscripts' Board of Directors authorized (1) the merger of
Allscripts into a subsidiary incorporated in Delaware upon the closing of the
offering contemplated by this prospectus and (2) a one-for-six reverse common
stock split.
The reverse stock split and the reincorporation merger in Delaware were
subject to shareholder approval. Shareholder approval was obtained on June 18,
1999. Consequently, all common share information in the accompanying financial
statements has been adjusted to reflect the reverse stock split.
F-24
<PAGE>
ALLSCRIPTS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET
March 31, 1999
<TABLE>
<CAPTION>
1999 Pro Forma
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash................................................. $ 8,023,066 $ 8,023,066
Accounts receivable, net of allowances of $4,532,499,
actual and pro forma................................ 9,389,917 9,389,917
Inventories, net..................................... 2,396,032 2,396,032
Prepaid and other assets............................. 168,939 168,939
----------- -----------
Total current assets............................... 19,977,954 19,977,954
----------- -----------
Fixed assets, net...................................... 1,539,836 1,539,836
Intangible assets, net................................. 963,963 963,963
Debt issuance costs.................................... 45,890 45,890
----------- -----------
Total assets....................................... $22,527,643 $22,527,643
=========== ===========
</TABLE>
The accompanying notes are an integral part of the unaudited condensed
consolidated financial statements.
F-25
<PAGE>
ALLSCRIPTS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET, CONTINUED
March 31, 1999
<TABLE>
<CAPTION>
1999 Pro Forma
LIABILITIES ------------ ------------
<S> <C> <C>
Current liabilities:
Note payable...................................... $ 5,400,000 $ 5,400,000
Accounts payable.................................. 8,569,232 8,569,232
Accrued expenses.................................. 1,291,600 1,291,600
------------ ------------
Total current liabilities....................... 15,260,832 15,260,832
Long-term debt..................................... 58,774 58,774
------------ ------------
Total liabilities............................... 15,319,606 15,319,606
------------ ------------
Redeemable preferred shares:
Series I, cumulative, $1.00 par value, 1,339,241
shares authorized, issued and outstanding,
including $704,954 of cumulative dividends;
liquidation value of $8,654,175.................. 8,766,407 8,766,407
Series J, cumulative, $1.00 par value, 1,812,903
shares authorized, 1,803,838 issued and
outstanding, including $949,510 of cumulative
dividends; liquidation value of $11,656,388...... 12,605,898 12,605,898
Series H, cumulative, $1.00 par value, 1,361,775
shares authorized, issued and outstanding,
including $3,183,430 of cumulative dividends;
liquidation value of $8,800,000 ................. 11,873,730 11,873,730
------------ ------------
33,246,035 33,246,035
------------ ------------
SHAREHOLDERS' EQUITY (DEFICIT)
Preferred shares:
Series A, $1.00 par value, 1,050,000 shares
authorized, issued and outstanding, liquidation
value of $1,050,000, convertible to common
shares; no shares issued and outstanding, pro
forma............................................ 1,050,000 --
Series B, $1.00 par value, 533,333 shares
authorized, issued and outstanding, liquidation
value of $2,000,000, convertible to common
shares; no shares issued and outstanding, pro
forma............................................ 533,333 --
Series C, $1.00 par value, 2,187,501 shares
authorized, issued and outstanding, liquidation
value of $7,000,000, convertible to common
shares; no shares issued and outstanding, pro
forma............................................ 2,187,501 --
Series D, $1.00 par value, 1,833,334 shares
authorized, issued and outstanding, liquidation
value of $8,250,003, convertible to common
shares; no shares issued and outstanding, pro
forma............................................ 1,833,334 --
Series F, $1.00 par value, 2,492,781 shares
authorized, issued and outstanding, liquidation
value of $3,115,976, convertible to common
shares; no shares issued and outstanding, pro
forma............................................ 2,492,781 --
Series G, $1.00 par value, 621,819 shares
authorized, issued and outstanding, liquidation
value of $2,798,186, convertible to common
shares; no shares issued and outstanding, pro
forma............................................ 621,819 --
------------ ------------
8,718,768 --
Common shares:
$0.01 par value, 125,000,000 shares authorized,
8,815,599 shares issued and outstanding, actual;
75,000,000 authorized, 11,813,099 shares issued
and outstanding, pro forma....................... 88,156 118,131
Treasury stock at cost; 34,465 common shares actual
and pro forma..................................... (67,817) (67,817)
Unearned compensation.............................. (126,316) (126,316)
Additional paid-in capital......................... 14,754,091 23,663,071
Accumulated deficit................................ (49,404,880) (49,625,067)
------------ ------------
Total shareholders' equity (deficit)............ (26,037,998) (26,037,998)
------------ ------------
Total liabilities and shareholders' equity
(deficit)...................................... $ 22,527,643 $ 22,527,643
============ ============
</TABLE>
The accompanying notes are an integral part of the unaudited condensed
consolidated financial statements.
F-26
<PAGE>
ALLSCRIPTS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------
1998 1999
----------- ----------
<S> <C> <C>
Revenue............................................... $ 6,350,799 $6,027,757
Cost of revenue....................................... 4,502,880 4,499,513
----------- ----------
Gross profit...................................... 1,847,919 1,528,244
Selling, general and administrative expenses.......... 3,383,782 3,540,122
Amortization of intangibles........................... 93,442 93,442
Other operating expenses.............................. 111,946 --
----------- ----------
Loss from operations.............................. (1,741,251) (2,105,320)
Interest expense...................................... 396,169 109,145
----------- ----------
Loss from continuing operations....................... (2,137,420) (2,214,465)
Income from discontinued operations................... 386,971 26,394
Gain from sale of discontinued operations............. -- 3,547,161
----------- ----------
Net income (loss)..................................... (1,750,449) 1,359,090
Accretion of mandatory redemption value of preferred
shares and accrued dividends on preferred shares..... (230,850) (699,112)
----------- ----------
Net income (loss) attributable to common
shareholders......................................... $(1,981,299) $ 659,978
=========== ==========
Per share data--basic and undiluted:
Loss from continuing operations..................... $ (0.69) $ (0.34)
Discontinued operations............................. 0.11 0.00
Gain from sale of discontinued operation............ -- 0.42
----------- ----------
Net income (loss)................................... $ (0.58) $ 0.08
=========== ==========
Per share data--pro forma basic and diluted:
Loss from continuing operations..................... $ (0.27)
Discontinued operations............................. 0.00
Gain from sale of discontinued operations........... 0.31
----------
Net income.......................................... $ 0.04
==========
Weighted average shares of common stock outstanding
used in computing basic and diluted loss per share... 3,410,513 8,489,685
=========== ==========
Weighted average shares of common stock outstanding
used in computing pro forma basic and diluted loss
per share............................................ 11,487,185
==========
</TABLE>
The accompanying notes are an integral part of the unaudited condensed
consolidated financial statements.
F-27
<PAGE>
ALLSCRIPTS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------
1998 1999
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss).................................. $(1,750,449) $ 1,359,090
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization.................... 461,849 406,847
Provision for losses on accounts receivable...... 38,860 200,490
Gain on sale of discontinued operations.......... -- (3,547,161)
Compensation expense............................. -- 55,171
Changes in assets and liabilities:
(Increase) decrease in accounts receivable..... 727,289 (65,323)
Increase in inventories........................ (244,854) (179,556)
Decrease in other assets....................... 92,008 17,145
Increase in accounts payable................... 1,025,831 735,547
Decrease in accrued expenses................... (239,680) (315,327)
----------- -----------
Net cash provided by (used in) operating
activities.................................. 110,854 (1,333,077)
----------- -----------
Cash flows from investing activities:
Capital expenditures............................... (210,762) (273,649)
Proceeds from sale of discontinued operations...... -- 7,472,509
----------- -----------
Net cash provided by (used in) investing
activities.................................. (210,762) 7,198,860
----------- -----------
Cash flows from financing activities:
Borrowings under bank agreements................... -- 1,400,000
Proceeds from exercise of common share options..... 31,379 39,275
----------- -----------
Net cash provided by financing activities.... 31,379 1,439,275
----------- -----------
Net increase (decrease) in cash...................... (68,529) 7,305,058
Cash, beginning of period............................ 204,981 718,008
----------- -----------
Cash, end of period.................................. $ 136,452 $ 8,023,066
=========== ===========
</TABLE>
The accompanying notes are an integral part of the unaudited condensed
consolidated financial statements.
F-28
<PAGE>
ALLSCRIPTS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The quarterly financial information presented herein should be read in
conjunction with Allscripts' annual financial statements for the year ended
December 31, 1998. The unaudited interim financial statements reflect all
adjustments (all of which are of a normal recurring nature) that are, in the
opinion of management, necessary for a fair presentation of the results for the
interim periods. The results for the interim periods are not necessarily
indicative of the results to be expected for the year.
2. Net Loss Per Share
Basic and diluted net loss per common share are presented in conformity
with Statement of Financial Accounting Standards No. 128, "Earnings Per Share",
for all periods presented.
In accordance with FAS 128, basic and diluted net loss per share has been
computed using the weighted average number of shares of common stock
outstanding during the period. Allscripts has excluded all outstanding
convertible preferred stock, which is convertible into 2,977,483 shares of
common stock, all outstanding warrants to purchase 4,892,136 shares of common
stock and all outstanding options to purchase 2,440,757 shares of common stock
from the calculation of diluted loss per share because all such securities are
antidilutive for all periods presented.
3. Notes Payable
Under the revolving credit facility, Allscripts is required to maintain
certain financial ratios, including minimum net working capital, minimum EBITDA
and minimum capital funds. As of March 31, 1999, Allscripts was in violation of
certain financial covenants. In May 1999, Allscripts received a waiver for
these violations.
4. Stock Option Plans
On March 31, 1999, Allscripts granted an additional 308,259 options to
purchase common stock at an exercise price of $3.00.
<TABLE>
<CAPTION>
Weighted
Average
Options Exercise Options
Outstanding Price Exercisable
----------- -------- -----------
<S> <C> <C> <C>
Balance at December 31, 1998............. 2,697,123 $ 0.68 1,434,122
Options granted.......................... 308,259 3.00
Options exercised........................ (457,066) (0.09)
Options forfeited........................ (107,559) (1.14)
--------- ------ ---------
Balance at March 31, 1999................ 2,440,757 $ 1.05 953,745
========= ====== =========
</TABLE>
5. Warrants
On March 31, 1999, Allscripts issued warrants to purchase 11,666 shares of
common stock at $3.00 per share. Allscripts assigned a value of $3.00 to the
warrants and accordingly recorded expense in the amount of $35,000 in the first
quarter of 1999.
6. Contingencies
The pharmaceutical repackaging industry is subject to stringent federal and
state regulations. Allscripts' repackaging operations are regulated by the FDA
as if Allscripts were a manufacturer. Allscripts is also subject to regulation
by the DEA in connection with the packaging and distribution of controlled
substances.
Allscripts is a defendant in numerous multi-defendant lawsuits involving
the manufacture and sale of dexfenfluramine, fenfluramine and phentermine. The
plaintiffs in these cases claim injury as a result of ingesting a combination
of these weight-loss drugs. These suits have been filed in various
jurisdictions
F-29
<PAGE>
ALLSCRIPTS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
throughout the United States and in each of these suits Allscripts is one of
many defendants, including manufacturers and other distributors of these drugs.
Allscripts does not believe it has any significant liability incident to the
distribution or repackaging of these drugs, and it has tendered defense of
these lawsuits to its insurance carrier for handling. The lawsuits are in
various stages of litigation, and it is too early to determine what, if any,
liability Allscripts will have with respect to the claims made in these
lawsuits. If Allscripts' insurance coverage in the amount of $15,000,000 per
occurrence and $15,000,000 per year in the aggregate is inadequate to satisfy
any resulting liability, Allscripts will have to defend these lawsuits and be
responsible for the damages, if any, that Allscripts suffers as a result of
these lawsuits. Allscripts does not believe that the outcome of these lawsuits
will have a material adverse effect on its financial condition, results of
operations or cash flows.
7. Discontinued Operations
The operating results of the pharmacy benefit management segment have been
segregated from continuing operations and reported as a separate line item on
the Consolidated Statements of Operations under the caption "Income from
discontinued operations." Additionally, Allscripts has restated its prior
financial statements to present the operating results of the pharmacy benefit
management operation as a discontinued operation.
Operating results from discontinued operations were as follows:
<TABLE>
<CAPTION>
March 31,
----------------------- ---
1998 1999
----------- -----------
<S> <C> <C> <C>
Revenue..................................... $12,087,511 $14,291,828
Cost of revenue............................. 11,182,550 13,377,729
----------- -----------
Gross profit.............................. 904,961 914,099
Selling, general and administrative
expenses................................... 392,485 762,172
Amortization of intangibles................. 125,505 125,533
----------- -----------
Operating income............................ 386,971 26,394
----------- -----------
Income from discontinued operations......... $ 386,971 $ 26,394
=========== ===========
</TABLE>
Included in revenue is $1,242,406 in the first quarter of 1998 and $374,876
in the first quarter of 1999 from Anthem, Inc., a related party.
In the first quarter of 1999, Allscripts recognized a gain on the sale of
this business of $3,547,161, based upon the cash received at closing. This gain
does not reflect contingent payments from the buyer of up to $8,400,000, which
will be recognized if and when they are realized.
8. Income Taxes
Allscripts has made no provision (benefit) for income taxes, as it
anticipates at this time that the annual effective income tax rate will be
minimal or zero.
9. Pro Forma Information
If the offering contemplated by this prospectus is consummated, all of the
outstanding shares of Allscripts' convertible preferred stock would
automatically be converted into common stock. Additionally, 20,017 shares of
common stock are issuable upon the closing of the offering, pursuant to a
contingent share payment obligation. Allscripts has presented a pro forma
balance sheet as if this conversion and contingent stock issuance happened on
March 31, 1999 and pro forma net income (loss) per share information as if
these transactions happened as of January 1, 1999.
F-30
<PAGE>
ALLSCRIPTS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA FINANCIAL INFORMATION
The following unaudited condensed consolidated pro forma financial
information is based on the actual financial statements of Allscripts during
the periods presented, adjusted to give effect to (1) the change in the number
of authorized common shares of Allscripts upon its reincorporation in Delaware,
(2) the issuance of additional shares related to a contingent payment
obligation, (3) the redemption of the Redeemable Preferred Shares upon the
closing of the initial public offering, (4) the Conversion of Preferred Shares
Series A, B, C, D, F, and G into common shares upon the closing of the initial
public offering, and (5) the additional accretion of the Series H preferred
shares due to the initial public offering, collectively referred to as the "Pro
Forma Adjustments."
The unaudited condensed consolidated pro forma financial information for
the fiscal year ended December 31, 1998 and for the three-month period ended
March 31, 1999, gives effect to the Pro Forma Adjustments as if they had
occurred on January 1, 1998. The unaudited condensed consolidated pro forma
balance sheet at March 31, 1999 gives effect to the pro forma adjustments as if
they occurred on March 31, 1999. The adjustments are described in the
accompanying notes.
The pro forma consolidated financial information does not purport to
represent what Allscripts' results of operations would actually have been had
the Pro Forma Adjustments in fact occurred on such date or to project
Allscripts' results of operations for any future period. The pro forma
financial information should be read in conjunction with the consolidated
financial statements included elsewhere in this Prospectus and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
On May 2, 1999, Allscripts' Board of Directors adopted and, on June 18,
1999, Allscripts' shareholders approved, a one-for-six reverse split of its
common stock. All references in the unaudited condensed consolidated pro forma
financial information to number of shares, as well as per share amounts and
average number of shares outstanding, have been restated to reflect the stock
split as if it had been effective on January 1, 1998.
F-31
<PAGE>
ALLSCRIPTS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA BALANCE SHEET
As of March 31, 1999
(In thousands)
<TABLE>
<CAPTION>
Pro forma adjustments
--------------------------------------------------
Settlement Redemption
of of Conversion
contingent redeemable of Series H
payment preferred preferred and I Pro
Actual obligation shares shares accretion forma
------- ---------- ---------- ---------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash.................... $ 8,023 $ 8,023
Accounts receivable, net
of allowances of
$4,532................. 9,390 9,390
Inventories............. 2,396 2,396
Prepaid and other
assets................. 169 169
------- -------
Total current assets... 19,978 19,978
Other assets............ 2,550 2,550
------- -------
Total assets........... $22,528 $22,528
======= =======
LIABILITIES
Note payable............ $ 5,400 $ 5,400
Accounts payable........ 8,569 8,569
Accrued expenses........ 1,292 1,292
------- -------
Total current
liabilities........... 15,261 15,261
Long-term debt.......... 59 59
------- -------
Total liabilities...... 15,320 15,320
Redeemable preferred
shares:
Series I............... 8,766 $ (9,359)(c) $ 593 (e) --
Series J............... 12,606 (12,606)(c) --
Series H............... 11,874 (11,983)(c) 109 (e) --
-------
33,246
SHAREHOLDERS' EQUITY
(DEFICIT)
Preferred shares
(convertible):
Series A............... 1,050 $(1,050)(d) --
Series B............... 533 (533)(d) --
Series C............... 2,188 (2,188)(d) --
Series D............... 1,833 (1,833)(d) --
Series F............... 2,493 (2,493)(d) --
Series G............... 622 (622)(d) --
Common shares:
$0.01 par value,
125,000,000 shares
authorized, 8,815,599
issued outstanding,
actual; 75,000,000
shares authorized,
14,899,281 shares
issued and
outstanding, pro forma
(a)................... 88 31 (c) 30 (d) 149
Treasury stock at cost
...................... (68) (68)
Unearned compensation.. (126) (126)
Additional paid-in
capital............... 14,754 $ 220 (b) 33,917 (c) 8,689 (d) (702)(e) 56,878
Accumulated deficit.... (49,405) (220)(b) (49,625)
------- ----- -------- ------- ----- -------
Total shareholders'
equity (deficit)...... (26,038) -- 33,948 -- (702) 7,208
Total liabilities,
redeemable preferred
shares
and shareholders'
equity (deficit)...... $22,528 $ -- $ -- $ -- $ -- $22,528
======= ===== ======== ======= ===== =======
</TABLE>
See accompanying notes to unaudited condensed consolidated pro forma financial
information.
F-32
<PAGE>
ALLSCRIPTS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
Year Ended December 31, 1998
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
Actual Pro forma adjustments
------------ ------------------------------------------------------
Settlement of Redemption
Year Ended contingent of redeemable Conversion Series H
December 31, payment preferred of preferred and I
1998 obligation shares shares accretion Pro forma
------------ ------------- ------------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenue................. $ 23,682 $ 23,682
Cost of revenue......... 17,146 17,146
--------- ----------
Gross profit............ 6,536 6,536
Selling, general and
administrative
expenses............... 12,832 12,832
Amortization of
intangibles............ 372 372
Other operating
expenses............... 430 $ 220 (b) 650
--------- ------ ----------
Loss from operations.... (7,098) (220) (7,318)
Interest expense........ 596 -- 596
--------- ------ ----------
Loss from continuing
operations............. (7,694) (220) (7,914)
Accretion of mandatory
redemption value of
preferred shares and
accrued dividends on
preferred shares....... (2,415) $ 1,927(f) $(794)(g) (1,282)
--------- --------- ----- ----------
Net loss from continuing
operations attributable
to common
shareholders........... $ (10,109) $ (220) $ 1,927 $(794) $ (9,196)
========= ====== ========= ===== ==========
Basic and diluted loss
per share from
continuing operations.. $ (1.66) $ (0.77)
========= ==========
Weighted average shares
outstanding (basic and
diluted)............... 6,075,803 20,017 (b) 2,855,817(h) 2,977,483(d) 11,929,129
========= ====== ========= ========= ==========
</TABLE>
See accompanying notes to unaudited condensed consolidated pro forma financial
information.
F-33
<PAGE>
ALLSCRIPTS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
Three Months Ended March 31, 1999
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
Actual Pro forma adjustments
--------- -----------------------------------------------------
Three
months Settlement of Redemption of
ended contingent redeemable Conversion of Series H
March 31, payment preferred preferred and I
1999 obligations shares shares accretion Pro forma
--------- ------------- ------------- ------------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenue................. $ 6,028 $ 6,028
Cost of revenue......... 4,500 4,500
--------- ----------
Gross profit............ 1,528 1,528
Selling, general and
administrative
expenses............... 3,540 3,540
Amortization of
intangibles............ 93 93
--------- ----------
Loss from operations.... (2,105) (2,105)
Interest expense........ (109) (109)
--------- ----------
Loss from continuing
operations............. (2,214) (2,214)
Accretion of mandatory
redemption value of
preferred shares and
accrued dividends on
preferred shares....... (699) $ 608(f) $ 91(g) --
--------- --------- ---- ----------
Net loss from continuing
operations attributable
to common
shareholders........... $ (2,913) $ 608 $ 91 $ (2,214)
========= ========= ==== ==========
Basic and diluted loss
per share from
continuing operations.. $ (0.34) $ (0.15)
========= ==========
Weighted average shares
outstanding (basic and
diluted)............... 8,489,665 20,017(b) 2,855,817(h) 2,977,483(d) 14,342,982
========= ====== ========= ========= ==========
</TABLE>
See accompanying notes to the unaudited condensed consolidated pro forma
financial information.
F-34
<PAGE>
ALLSCRIPTS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED PRO FORMA
FINANCIAL INFORMATION
The following is an explanation of the pro forma adjustments.
(a) On May 2, 1999, the Board of Directors approved, and, on June 18, 1999, the
shareholders approved, the reincorporation of Allscripts in the State of
Delaware. This adjustment reflects the change in the number of authorized
common shares to 75,000,000.
(b)Other operating expenses$220
Additional paid-in capital(220)
This adjustment reflects an additional issuance of 20,017 common shares at
an assumed initial public offering price of $11.00 per share, issuable
upon the closing of the initial public offering by the terms of a
contingent payment obligation in connection with an acquisition Allscripts
made in 1995.
<TABLE>
<C> <S>
(c)Series I redeemable preferred shares $ 9,359
Series J redeemable preferred shares 12,606
Series H redeemable preferred shares 11,983
Common stock (31)
Additional paid-in capital (33,917)
</TABLE>
This adjustment reflects:
. the mandatory redemption of 1,339,241 Series I redeemable preferred
shares, including the payment of cumulative dividends of $704,954, and
the reduction of the number of authorized, issued and outstanding shares
from 1,339,241 (actual) to none (pro forma).
. the redemption of 1,803,838 Series J redeemable preferred shares,
including the payment of cumulative dividends of $949,510, the reduction
of the number of authorized shares from 1,812,903 (actual) to none (pro
forma) and the reduction of the number of issued and outstanding shares
from 1,803,838 (actual) to none (pro forma).
. the redemption of 1,361,775 Series H redeemable preferred shares,
including the payment of cumulative dividends of $3,183,430, and the
reduction of the number of authorized, issued and outstanding shares from
1,361,775 (actual) to none (pro forma).
. the issuance of 3,086,182 shares of common stock in the initial public
offering, at an assumed price of $11.00 per share, the proceeds of which
would be sufficient to redeem the Series H, I, and J redeemable preferred
shares.
<TABLE>
<C> <S>
(d)Series A preferred shares $ 1,050
Series B preferred shares 533
Series C preferred shares 2,188
Series D preferred shares 1,833
Series F preferred shares 2,493
Series G preferred shares 622
Common shares (30)
Additional paid-in capital (8,689)
</TABLE>
This adjustment reflects:
.the conversion of 1,050,000 Series A preferred shares to 152,161 common
shares.
.the conversion of 533,333 Series B preferred shares to 207,850 common
shares.
.the conversion of 2,187,501 Series C preferred shares to 885,447 common
shares.
.the conversion of 1,833,334 Series D preferred shares to 1,061,511 common
shares.
.the conversion of 2,492,781 Series F preferred shares to 415,441 common
shares.
.the conversion of 621,819 Series G preferred shares to 255,073 common
shares.
F-35
<PAGE>
ALLSCRIPTS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED PRO FORMA
FINANCIAL INFORMATION -- (Continued)
<TABLE>
<C> <S>
(e)Additional paid-in capital $ 702
Series I redeemable preferred shares (593)
Series H redeemable preferred shares (109)
</TABLE>
This adjustment reflects the accelerated accretion of Series H and Series
I redeemable preferred shares due to the initial public offering.
(f) This adjustment reflects the reversal of accrued dividends during the
period on redeemable preferred shares.
(g) This adjustment reflects the accretion on Series H and Series I redeemable
preferred shares assuming redemption occurred on January 1, 1998.
(h) This adjustment reflects the issuance of 2,855,817 shares of common stock
in the initial public offering at an assumed price of $11.00 per share, the
proceeds of which would be sufficient to redeem the Series H, Series I and
Series J redeemable preferred shares as if the transaction occurred on
January 1, 1998.
F-36
<PAGE>
UNDERWRITING
Allscripts and the underwriters named below (the "Underwriters") have
entered into an underwriting agreement with respect to the shares being
offered. Subject to certain conditions, each Underwriter has severally agreed
to purchase the number of shares indicated in the following table. Goldman,
Sachs & Co., Bear, Stearns & Co. Inc., CIBC World Markets Corp. and Wit Capital
Corporation are the representatives of the Underwriters.
<TABLE>
<CAPTION>
Number of
Underwriters Shares
------------ ---------
<S> <C>
Goldman, Sachs & Co.............................................
Bear, Stearns & Co. Inc.........................................
CIBC World Markets Corp.........................................
Wit Capital Corporation.........................................
---------
Total....................................................... 7,000,000
=========
</TABLE>
If the Underwriters sell more shares than the total number set forth in the
table above, the Underwriters have an option to buy up to an additional
1,050,000 shares from Allscripts to cover such sales. They may exercise that
option for 30 days. If any shares are purchased pursuant to this option, the
Underwriters will severally purchase shares in approximately the same
proportion as set forth in the table above.
The following table shows the per share and total underwriting discounts
and commissions to be paid to the Underwriters by Allscripts. Such amounts are
shown assuming both no exercise and full exercise of the Underwriters' option
to purchase additional shares.
<TABLE>
<CAPTION>
Paid by Allscripts
------------------
No Exercise Full Exercise
----------- -------------
<S> <C> <C>
Per Share...................................... $ $
Total.......................................... $ $
</TABLE>
Shares sold by the Underwriters to the public will initially be offered at
the initial public offering price set forth on the cover of this prospectus.
Any shares sold by the underwriters to securities dealers may be sold at a
discount of up to $ per share from the initial public offering price. Any
such securities dealers may resell any shares purchased from the underwriters
to certain other brokers or dealers at a discount of up to $ per share
from the initial public offering price. If all the shares are not sold at the
initial public offering price, the representatives may change the offering
price and the other selling terms.
At the request of Allscripts, the Underwriters have reserved up to 350,000
shares of common stock for sale to certain directors, employees and associates
of Allscripts at the initial public offering price. There can be no assurance
that any of the reserved shares will be purchased. The number of shares
available for sale to the general public in this offering will be reduced by
the number of reserved shares sold. Any reserved shares not so purchased will
be offered to the general public on the same basis as the other shares offered
hereby.
Allscripts, its directors, officers and certain other securityholders have
agreed with the Underwriters not to dispose of or hedge any of their shares of
common stock or securities convertible into or exchangeable for shares of
common stock during the period from the date of this prospectus continuing
through the date 180 days after the date of this prospectus, except with the
prior written consent of the representatives. See "Shares Eligible for Future
Sale" for a discussion of certain transfer restrictions.
Prior to this offering, there has been no public market for the common
stock. The initial public offering price for the common stock will be
negotiated among Allscripts and the representatives of the
U-1
<PAGE>
Underwriters. Among the factors to be considered in determining the initial
public offering price of the shares, in addition to prevailing market
conditions, will be Allscripts' historical performance, estimates of
Allscripts' business potential and earnings prospects, an assessment of
Allscripts' management and the consideration of the above factors in relation
to market valuation of companies in related businesses.
A prospectus in electronic format is being made available on an Internet
Web site maintained by Wit Capital Corporation. In addition, all dealers
purchasing shares from Wit Capital in this offering have agreed to make a
prospectus in electronic format available on Web sites maintained by each of
these dealers. Other than the prospectus in electronic format, the information
on such Web sites and any information contained on any other Web site
maintained by Wit Capital Corporation or such dealers is not part of this
prospectus or the registration statement of which this prospectus forms a part,
has not been approved or endorsed by Allscripts or any underwriter and should
not be relied on by prospective investors.
Wit Capital, a member of the National Association of Securities Dealers,
Inc., will participate in the offering as one of the underwriters. The National
Association of Securities Dealers, Inc. approved the membership of Wit Capital
on September 4, 1997. Since that time, Wit Capital has acted as an underwriter,
e-Manager or selected dealer in over 65 public offerings. Except for its
participation as a manager in this offering, Wit Capital has no relationship
with Allscripts, or any of its founders or significant stockholders.
Allscripts has applied for quotation of the common stock on the Nasdaq
National Market under the symbol "MDRX."
In connection with the offering, the Underwriters may purchase and sell
shares of common stock in the open market. These transactions may include short
sales, stabilizing transactions and purchases to cover positions created by
short sales. Short sales involve the sale by the underwriters of a greater
number of shares than they are required to purchase in the offering.
Stabilizing transactions consist of certain bids or purchases made for the
purpose of preventing or retarding a decline in the market price of the common
stock while the offering is in progress.
The Underwriters may also impose a penalty bid. This occurs when a
particular Underwriter repays to the Underwriters a portion of the underwriting
discount received by it because the representatives have repurchased shares
sold by or for the account of such Underwriter in stabilizing or short covering
transactions.
These activities by the Underwriters may stabilize, maintain or otherwise
affect the market price of the common stock. As a result, the price of the
common stock may be higher than the price that otherwise might exist in the
open market. If these activities are commenced, they may be discontinued by the
Underwriters at any time. These transactions may be effected on the Nasdaq
National Market, in the over-the-counter market or otherwise.
The Underwriters do not expect sales to discretionary accounts to exceed
five percent of the total number of shares offered.
Allscripts estimates that the total expenses of the offering, excluding
underwriting discounts and commissions, will be approximately $900,000.
Allscripts has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act.
U-2
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
No dealer, salesperson or other person is authorized to give any information
or to represent anything not contained in this prospectus. You must not rely on
any unauthorized information or representations. This prospectus is an offer to
sell only the shares offered hereby, but only under circumstances and in
jurisdictions where it is lawful to do so. The information contained in this
prospectus is current only as of its date.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 6
Forward-Looking Statements............................................... 17
Use of Proceeds.......................................................... 17
Dividend Policy.......................................................... 17
Capitalization........................................................... 18
Dilution................................................................. 20
Selected Consolidated Financial Data..................................... 21
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 22
Business................................................................. 32
Management............................................................... 42
Certain Relationships and Related Party Transactions..................... 50
Principal Stockholders................................................... 52
Description of Capital Stock............................................. 54
Shares Eligible for Future Sale.......................................... 57
Legal Matters............................................................ 58
Experts.................................................................. 58
Where to Find More Information........................................... 58
Index to Consolidated Financial Statements............................... F-1
Underwriting............................................................. U-1
</TABLE>
--------------
Through and including , 1999 (the 25th day after the date of this
prospectus), all dealers effecting transactions in these securities, whether or
not participating in this offering, may be required to deliver a prospectus.
This is in addition to a dealer's obligation to deliver a prospectus when
acting as an underwriter and with respect to an unsold allotment or
subscription.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
7,000,000 Shares
Allscripts, Inc.
Common Stock
--------------
[LOGO]
--------------
Goldman, Sachs & Co.
Bear, Stearns & Co. Inc.
CIBC World Markets
Wit Capital Corporation
Representatives of the Underwriters
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
Information Not Required In Prospectus
Item 13. Other Expenses of Issuance and Distribution
We will bear the expenses relating to the registration of common stock.
Except for the Securities and Exchange Commission registration fee, the
National Association of Securities Dealers, Inc. filing fee and the Nasdaq
National Market listing fee, the following expenses are estimates:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............. $ 26,855
National Association of Securities Dealers, Inc. filing fee..... 10,160
Nasdaq National Market listing fee.............................. 90,000
Blue Sky fees and expenses...................................... 5,000
Legal fees and expenses......................................... 400,000
Accountants' fees............................................... 250,000
Printing fees................................................... 100,000
Transfer agent fees............................................. 3,000
Miscellaneous................................................... 14,985
--------
Total....................................................... $900,000
========
</TABLE>
Item 14. Indemnification of Directors and Officers
Our Certificate of Incorporation and By-laws provide that we shall, subject
to certain limitations, indemnify our directors and officers against expenses
(including attorneys' fees, judgments, fines and certain settlements) actually
and reasonably incurred by them in connection with any suit or proceeding to
which they are a party so long as they acted in good faith and in a manner
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to a criminal action or proceeding, so long as
they had no reasonable cause to believe their conduct to have been unlawful.
Section 102 of the Delaware General Corporation Law permits a Delaware
corporation to include in its certificate of incorporation a provision
eliminating or limiting a director's liability to a corporation or its
stockholders for monetary damages for breaches of fiduciary duty. The enabling
statute provides, however, that liability for breaches of the duty of loyalty,
acts or omissions not in good faith or involving intentional misconduct, or
knowing violation of the law, and the unlawful purchase or redemption of stock
or payment of unlawful dividends or the receipt of improper personal benefits
cannot be eliminated or limited in this manner. Our Certificate of
Incorporation includes a provision that eliminates, to the fullest extent
permitted, director liability for monetary damages for breaches of fiduciary
duty.
Pursuant to the Underwriting Agreement as set forth in Exhibit 1.1, our
directors and officers are indemnified against certain civil liabilities that
they may incur under the Securities Act in connection with this registration
statement and the related prospectus.
We have purchased directors and officers liability insurance, which
provides coverage against certain liabilities.
In addition, some of our directors are indemnified against liabilities that
they may incur in their capacities as directors by third parties with which
they are affiliated.
Item 15. Recent Sales of Unregistered Securities
In the three years preceding the filing of this registration statement, we
sold the following securities (adjusted to give effect to a one-for-six reverse
stock split) that were not registered under the Securities Act:
II-1
<PAGE>
On April 30, 1996, we issued $10,000,000 principal amount of our 8.0%
Convertible Subordinated Debentures due 2001 to a group of accredited investors
for an aggregate consideration of $10,000,000. Exemption from registration is
claimed pursuant to Section 4(2) of the Securities Act, no public sale having
been involved.
On April 30, 1996, we issued a warrant to purchase 279,181 common shares at
a per share exercise price of $4.2024 to Allstate Insurance Company in
consideration of Allstate's guaranty of $4,692,932 of our indebtedness.
Exemption from registration is claimed pursuant to Section 4(2) of the
Securities Act, no public sale having been involved.
On July 17, 1997, we issued 519,530 common shares to HBO & Company in
exchange for all of HBO & Company's right, title and interest in and to the
TouchScript system. Exemption from registration is claimed pursuant to Section
4(2) of the Securities Act, no public sale having been involved.
On April 16, 1998, we issued warrants to purchase 916,657 common shares
with a per share exercise price of $0.06 and shares of Series H redeemable
preferred stock with modified redemption terms to the holders of Series H
preferred stock in exchange for their shares of Series H preferred stock.
Exemption from registration is claimed pursuant to Sections 3(a)(9) and 4(2) of
the Securities Act.
On April 16, 1998, we issued 1,339,241 shares of Series I redeemable
preferred stock and 4,597,070 common shares to a group of accredited investors
including members of management for an aggregate consideration of $8,930,000.
Exemption from registration is claimed pursuant to Section 4(2) of the
Securities Act, no public sale having been involved.
On April 16, 1998, we issued 1,803,838 shares of Series J redeemable
preferred stock and warrants to purchase 1,326,661 common shares with a per
share exercise price of $0.06 to the holders of the Debentures in exchange for
the Debentures and accrued interest thereon. Exemption from registration is
claimed pursuant to Sections 3(a)(9) and 4(2) of the Securities Act.
On March 31, 1999, we issued warrants to purchase 11,666 common shares with
a per share exercise price of $3.00 to certain non-employees.
On May 12, 1999, we issued an aggregate 117,500 common shares to the
stockholders of TeleMed Corp. in exchange for all of the outstanding capital
stock of TeleMed Corp. Exemption from registration is claimed pursuant to
Section 4(2) of the Securities Act, no public sale having been involved.
In the three years preceding the filing of this registration statement, we
have granted options to purchase an aggregate of common shares and have
issued an aggregate of 841,900 common shares to current and former employees
upon exercise of options for an aggregate exercise price of $110,315. Exemption
from registration is claimed pursuant to Rule 701 under the Securities Act.
Upon the closing of this offering, Allscripts, Inc., an Illinois
corporation, will merge with and into its wholly owned subsidiary, Allscripts,
Inc., a Delaware corporation. In connection with the merger, Allscripts, Inc.--
Delaware will issue shares of common stock to the holders of common stock of
Allscripts, in exchange for such holders' shares of common stock of Allscripts.
Exemption from registration is claimed pursuant to Section 3(a)(9) of the
Securities Act.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits--See Index to Exhibits.
(b) Financial Statement Schedules
Report of Independent Accountants
Schedule II--Valuation and Qualifying Accounts
II-2
<PAGE>
Item 17. Undertakings
The undersigned hereby undertakes to provide to the underwriter at the
closing specified in the underwriting agreements, certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 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.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of
Libertyville and State of Illinois on the 28th day of June, 1999.
Allscripts, Inc.
/s/ David B. Mullen
----------------------------------------
David B. Mullen
President and Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities indicated on the 28th day of June, 1999.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
* Chairman and Chief Executive Officer
_________________________________________ (Principal Executive Officer)
Glen E. Tullman
/s/ David B. Mullen President, Chief Financial Officer and
___________________________________________ Director (Principal Financial Officer)
David B. Mullen
* Senior Vice President, Finance, Treasurer
___________________________________________ and Secretary (Principal Accounting
John G. Cull Officer)
* Director
___________________________________________
Philip D. Green
* Director
___________________________________________
M. Fazle Husain
* Director
___________________________________________
Michael J. Kluger
* Director
___________________________________________
L. Ben Lytle
* Director
___________________________________________
Gary M. Stein
*/s/ David B. Mullen
___________________________________________
David B. Mullen, as attorney-in-fact
pursuant to power of attorney granted in
Registration Statement No. 333-78431
filed on May 14, 1999
</TABLE>
S-1
<PAGE>
Report of Independent Accountants on Financial Statement Schedule
To the Board of Directors
Allscripts, Inc.
Our audits of the consolidated financial statements referred to in our report
dated May 12, 1999 except for the information in Note 22 for which the date is
June 18, 1999 appearing in this Registration Statement also included an audit
of the financial statement schedule listed in Item 16(b) of this Registration
Statement. In our opinion, this financial statement schedule presents fairly,
in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.
/s/ PricewaterhouseCoopers LLP
Chicago, Illinois
May 12, 1999
FS-1
<PAGE>
Allscripts, Inc. and Subsidiaries
Valuation and Qualifying Accounts
Schedule II
<TABLE>
<CAPTION>
Beginning Charged to Deductions Ending
Balance Cost/expenses (Writeoffs) Balance
----------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
Allowance for accounts
receivable
Year ended December 31,
1996................... $ 3,213,086 $ 30,524 $ (102,121) $ 3,141,489
Year ended December 31,
1997................... 3,141,489 666,829 (376,371) 3,431,947
Year ended December 31,
1998................... 3,431,947 1,240,449 (149,889) 4,522,507
Valuation allowance for
deferred tax assets
Year ended December 31,
1996................... $ 9,821,000 $ 1,222,000 $ -- $ 11,043,000
Year ended December 31,
1997................... 11,043,000 2,545,000 -- 13,588,000
Year ended December 31,
1998................... 13,588,000 1,696,000 -- 15,284,000
</TABLE>
FS-2
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<C> <S> <C>
1.1** Form of Underwriting Agreement
2.1 Form of Plan of Merger between the Registrant and Allscripts,
Inc., an Illinois corporation
3.1 Form of Certificate of Incorporation
3.2 Form of By-laws
5.1* Opinion of Gardner, Carton & Douglas
10.1 Amended and Restated 1993 Stock Incentive Plan
10.2*** Asset Purchase Agreement, dated as of March 19, 1999, by and
among the Registrant, PharmaCare Management Services, Inc.,
PharmaCare Direct, Inc. and ProCare Pharmacy, Inc.
10.3 Twelfth Restated Registration Agreement dated as of June 18,
1999, by and among the Registrant, those Holders of the
Registrant's Series A Preferred, Series B Preferred, Series C
Preferred, Series D Preferred, Series F Preferred and Series
G Preferred listed in Schedule I attached thereto, the
Holders of the Extension Guaranty Warrants listed in Schedule
II thereto, the Holders of the 1996 Extension Guaranty
Warrants listed in Schedule II thereto, those Holders of
Common listed in Schedule III thereto, the Holders of Series
H Warrants and H Unit Common listed in Schedule IV thereto,
the Holders of Extension Series H Warrants listed in Schedule
IV thereto, the Holders of I Unit Common listed in Schedule V
thereto and the Holders of Debenture Warrants listed in
Schedule VI thereto.
10.4** Industrial Building Lease dated April 30, 1997 between G2
Limited Partnership and the Registrant.
10.5** Lease Agreement between American National Bank and Trust
Company of Chicago, as Trustee, and the Registrant dated
September 1996.
10.6** Employment Agreement effective August 1, 1997 between the
Registrant and Glen E. Tullman.
10.7** Employment Agreement effective August 1, 1997 between the
Registrant and David B. Mullen.
10.8** Employment Agreement effective September 2, 1997 between the
Registrant and Steven M. Katz.
10.9** Agreement dated May 1, 1995 between the Registrant and John
G. Cull.
10.10** Form of TouchScript Master License Agreement
10.11 Revolving Credit Agreement dated as of April 16, 1998 and
amended as of May 6, 1998 by and between Allscripts, Inc. and
LaSalle National Bank.
10.12++*** Supply Agreement dated August 27, 1998 between McKesson U.S.
Health Care and the Registrant.
10.13** Form of Series H Warrant
10.14** Form of Extension Guaranty Warrant
10.15** Form of 1996 Extension Guaranty Warrant
10.16** Form of Debenture Warrant
10.17** Form of Series H Extension Warrant
23.1 Consent of PricewaterhouseCoopers LLP
23.2* Consent of Gardner, Carton & Douglas (included in Exhibit
5.1)
23.3 Consent of Edward M. Philip
24.1** Powers of Attorney (included on signature page)
27.1** Financial Data Schedule
</TABLE>
- --------
* To be filed by amendment.
** Filed on May 14, 1999 as part of this Registration Statement.
*** Filed on June 7, 1999 as part of this Registration Statement.
++ Confidential treatment requested as to a portion of this exhibit.
E-1
<PAGE>
EXHIBIT 2.1
-----------
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER is entered into as of ____________,
1999 by ALLSCRIPTS, INC., an Illinois corporation (the "Company"), and
ALLSCRIPTS, INC., a Delaware corporation and a wholly owned subsidiary of the
Company ("Allscripts").
The parties to this Agreement hereby agree as follows:
1. The Merger. Upon the terms and subject to the conditions hereof, and
in accordance with the Delaware General Corporation Law ("DGCL") and the
Illinois Business Corporation Act ("IBCA"), the Company shall be merged with and
into Allscripts (the "Merger"). Following the Merger, Allscripts shall continue
as the surviving corporation under the name Allscripts, Inc. (the "Surviving
Corporation"), and the separate corporate existence of the Company shall cease.
2. Merger Consideration. Each common share of the Company issued and
outstanding immediately prior to the Effective Time (as defined in Section 3
hereof) shall by virtue of the Merger and without any action on the part of the
holder thereof be converted into one issued and outstanding share of Common
Stock, $0.01 par value per share, of the Surviving Corporation, whether or not
certificates representing such shares are then issued and delivered.
3. Effective Time. The Merger shall become effective at the time of
filing with the Secretary of State of the State of Delaware of a Certificate of
Ownership and Merger in accordance with the relevant provisions of the DGCL (the
time of the completion of such filing being the "Effective Time").
4. Certificate of Incorporation and Bylaws. Upon consummation of the
Merger at the Effective Time, the Certificate of Incorporation and Bylaws of
Allscripts in effect immediately prior to the Effective Time shall thereafter
continue in full force and effect as the Certificate of Incorporation and Bylaws
of the Surviving Corporation, until amended or repealed as provided therein or
by law.
<PAGE>
5. Officers and Directors. The officers of the Surviving Corporation
shall be the corresponding officers of the Company immediately prior to the
Effective Time, and the members of the Board of Directors of the Surviving
Corporation shall be as follows, which directors are to serve in office until
the annual meeting of stockholders in the year indicated below, or until their
successors shall have been elected and qualified and which directors are to
serve on such committees of the Board of Directors as they served on with the
Company immediately prior to the Effective Time:
Name of Director Expiration of Term
---------------- ------------------
Glen E. Tullman 2002
David B. Mullen 2001
Philip D. Green 2000
M. Fazle Husain 2002
Michael J. Kluger 2001
L. Ben Lytle 2000
Gary M. Stein 2001
6. Filing. Simultaneous with, and contingent upon, the consummation
by the Company of a Qualified Initial Public Offering (as defined in the
Company's Amended and Restated Articles of Incorporation), the parties hereto
shall cause to be executed in the manner required by the DGCL and IBCA and
delivered to the respective Secretaries of State of Delaware and Illinois such
documents as shall effect the Merger under the laws of Delaware and Illinois,
and the parties shall cause to be performed all necessary acts within the State
of Illinois and the State of Delaware and elsewhere to effect the Merger. The
Board of Directors and the proper officers of the Company and Allscripts are
hereby authorized, empowered and directed to do any and all acts and things, and
to make, execute, deliver, file and record any and all instruments, papers and
documents that shall be or become necessary, proper or convenient to carry out
or put into effect any of the provisions of this Agreement or of the Merger.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its officers thereunto duly authorized, all as of the
day and year first above written.
ALLSCRIPTS, INC., an Illinois corporation
By: ____________________________________
Its: Chief Executive Officer
Attest:
By: _____________________________
Its: Secretary
2
<PAGE>
EXHIBIT 3.1
-----------
CERTIFICATE OF INCORPORATION
OF
ALLSCRIPTS, INC.
(A Delaware Corporation)
FIRST: The name of the corporation is Allscripts, Inc.
SECOND: The address of the Corporation's registered office in the State
of Delaware is 1209 Orange Street, in the City of Wilmington, County of New
Castle. The name of the Corporation's registered agent at such address is The
Corporation Trust Company.
THIRD: The nature of the business and the objects and purposes to be
conducted or promoted by the Corporation are 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:
1. Authorized Shares. The total number of shares of stock of all classes
which the Corporation shall have authority to issue is seventy-six million
(76,000,000), of which one million (1,000,000) shall be shares of Preferred
Stock with a par value of $0.01 per share ("Preferred Stock"), and seventy-five
million (75,000,000) shall be shares of Common Stock with a par value of $0.01
per share ("Common Stock").
2. Preferred Stock.
(a) The Preferred Stock shall be issuable in series, and in connection
with the issuance of any series of Preferred Stock and to the extent now or
hereafter permitted by the laws of the State of Delaware, the Board of Directors
is authorized to fix by resolution the designation of each series, the stated
value of the shares of each series, the dividend rate or rates of each series
(which rate or rates may be expressed in terms of a formula or other method by
which such rate or rates shall be calculated from time to time) and the date or
dates and other provisions respecting the payment of dividends, the provisions,
if any, for a sinking fund for the shares of each series, the preferences of the
shares of each series in the event of the liquidation or dissolution of the
Corporation, the provisions, if any, respecting the redemption of the shares of
each series and, subject to requirements of the laws of the State of Delaware,
the voting rights (except that such shares shall not have more than one vote per
share), the terms, if any, upon which the shares of each series shall be
convertible into or exchangeable for any other shares of stock of the
Corporation and any other relative, participating, optional or other special
rights, and qualifications, limitations or restrictions thereof, of the shares
of each series.
(b) Preferred Stock of any series redeemed, converted, exchanged,
purchased, or otherwise acquired by the Corporation shall constitute authorized
but unissued Preferred Stock.
(c) All shares of any series of Preferred Stock, as between themselves,
shall rank equally and be identical (except that such shares may have different
dividend provisions); and all series of Preferred Stock, as between themselves,
shall rank equally and be identical except as set forth in resolutions of the
Board of Directors authorizing the issuance of such series.
<PAGE>
3. Common Stock.
(a) After dividends to which the holders of Preferred Stock may then be
entitled under the resolutions creating any series thereof have been declared
and after the Corporation shall have set apart the amounts required pursuant to
such resolutions for the purchase or redemption of any series of Preferred
Stock, the holders of Common Stock shall be entitled to have dividends declared
in cash, property, or other securities of the Corporation out of any net profits
or net assets of the Corporation legally available therefor, if, as and when
such dividends are declared by the Corporation's Board of Directors.
(b) In the event of the liquidation or dissolution of the Corporation's
business and after the holders of Preferred Stock shall have received amounts to
which they are entitled under the resolutions creating such series, the holders
of Common Stock shall be entitled to receive ratably the balance of the
Corporation's net assets available for distribution.
(c) Each share of Common Stock shall be entitled to one vote upon all
matters upon which stockholders have the right to vote, but shall not be
entitled to vote for the election of any directors who may be elected by vote of
the Preferred Stock voting as a class if so provided in the resolution creating
such Preferred Stock pursuant to Section 2(a) of this Article FOURTH.
4. Preemptive Rights. No holder of any shares of the Corporation shall
have any preemptive right to subscribe for or to acquire any additional shares
of the Corporation of the same or of any other class whether now or hereafter
authorized or any options or warrants giving the right to purchase any such
shares, or any bonds, notes, debentures or other obligations convertible into
any such shares.
FIFTH: The Corporation is to have perpetual existence.
SIXTH. The private property of the stockholders shall not be subject to
the payment of corporate debts to any extent whatever.
SEVENTH: Except as may otherwise be fixed by resolution of the Board of
Directors pursuant to the provisions of Article FOURTH hereof relating to the
rights of the holders of Preferred Stock to elect directors as a class, the
number of directors of the Corporation shall be fixed from time to time by or
pursuant to the By-Laws of the Corporation. The directors, other than those who
may be elected by the holders of Preferred Stock, shall be classified, with
respect to the time for which they severally hold office, into three classes, as
nearly equal in number as possible. The first class shall be initially elected
for a term expiring at the next ensuing annual meeting, the second class shall
be initially elected for a term expiring one year thereafter, and the third
class shall be elected for a term expiring two years thereafter, with each
member of each class to hold office until his successor is elected and
qualified. At each annual meeting of the stockholders of the Corporation held
after the initial classification and election of directors, the successors of
the class of directors whose term expires at that meeting shall be elected to
hold office for a term expiring at the annual meeting of stockholders held in
the third year following the year of their election.
Advance notice of stockholder nominations for the election of directors
shall be given in the manner provided in the By-Laws of the Corporation.
2
<PAGE>
Except as may otherwise be fixed by resolution of the Board of Directors
pursuant to the provisions of Article FOURTH hereof relating to the rights of
the holders of Preferred Stock to elect directors as a class, newly created
directorships resulting from any increase in the number of directors and any
vacancies on the Board of Directors resulting from death, resignation,
disqualification, removal or any other cause shall be filled by the affirmative
vote of a majority of the remaining directors then in office, even though less
than a quorum of the Board of Directors. Any director elected in accordance
with the preceding sentence shall hold office for the remainder of the full term
of the class of directors in which the new directorship was created (subject to
the requirements of this Article SEVENTH that all classes be as nearly equal in
number as possible) or in which the vacancy occurred and until such director's
successor shall have been elected and qualified. No decrease in the number of
directors constituting the Board of Directors shall shorten the term of an
incumbent director.
Subject to any rights of the holders of Preferred Stock to elect directors
as a class, a director may be removed only for cause and only by the affirmative
vote of the holders of 80% of the combined voting power of the then outstanding
shares of stock entitled to vote generally in the election of directors, voting
together as a single class.
In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized:
1. To adopt, amend and repeal the By-Laws of the Corporation. Any
By-Laws adopted by the directors under the powers conferred hereby may be
amended or repealed by the directors or by the stockholders.
Notwithstanding the foregoing or any other provision in this Certificate of
Incorporation or the By-Laws of the Corporation to the contrary, Article
II, Sections 3 and 7 and Article III, Sections 1, 2 and 3 of the By-Laws
shall not be amended or repealed and no provision inconsistent therewith
shall be adopted without the affirmative vote of the holders of at least
80% of the voting power of all the shares of the Corporation entitled to
vote generally in the election of directors, voting together as a single
class.
2. To fix and determine, and to vary the amount of, the working
capital of the Corporation, and to determine the use or investment of any
assets of the Corporation, to set apart out of any of the funds of the
Corporation available for dividends a reserve or reserves for any proper
purpose and to abolish any such reserve or reserves.
3. To authorize the purchase or other acquisition of shares of stock
of the Corporation or any of its bonds, debentures, notes, scrip, warrants
or other securities or evidence of indebtedness.
4. Except as otherwise provided by law, to determine the places
within or without the State of Delaware, where any or all of the books of
the Corporation shall be kept.
5. To authorize the sale, lease or other disposition of any part or
parts of the properties of the Corporation and to cease to conduct the
business connected therewith or again to resume the same, as it may deem
best.
6. To authorize the borrowing of money, the issuance of bonds,
debentures and other obligations or evidences of indebtedness of the
Corporation, secured or unsecured, and the inclusion of provisions as to
redeemability and convertibility into shares of stock of the Corporation or
otherwise; and the mortgaging or pledging, as security for money borrowed
or
3
<PAGE>
bonds, notes, debentures or other obligations issued by the Corporation, of
any property of the Corporation, real or personal, then owned or thereafter
acquired by the Corporation.
7. To authorize the negotiation and execution on behalf of the
Corporation of agreements with officers and other employees of the
corporation relating to the payment of severance compensation to such
officers or employees.
In addition to the powers and authorities herein or by statute expressly
conferred upon it, the Board of Directors may exercise all such powers and do
all such acts and things as may be exercised or done by the Corporation,
subject, nevertheless, to the provisions of the laws of the State of Delaware,
of this Certificate of Incorporation and of the By-Laws of the Corporation.
Subject to any limitation in the By-Laws, the members of the Board of
Directors shall be entitled to reasonable fees, salaries, or other compensation
for their services, as determined from time to time by the Board of Directors,
and to reimbursement for their expenses as such members. Nothing herein
contained shall preclude any director from serving the Corporation or its
subsidiaries or affiliates in any other capacity and receiving compensation
therefor.
Notwithstanding anything contained in this Amended and Restated Certificate
of Incorporation to the contrary, the affirmative vote of the holders of at
least 80% of the voting power of all shares of the Corporation entitled to vote
generally in the election of directors, voting together as a single class, shall
be required to alter, amend, adopt any provision inconsistent with or repeal
this Article SEVENTH.
EIGHTH: Both stockholders and directors shall have power, if the By-Laws
so provide, to hold their meetings and to have one or more offices within or
without the State of Delaware.
Except as may otherwise be fixed by resolution of the Board of Directors
pursuant to the provisions of Article FOURTH hereof relating to the rights of
the holders of Preferred Stock, any action required or permitted to be taken by
the stockholders of the Corporation may be effected at a duly called annual or
special meeting of such holders and may not be effected by any consent in
writing by such holders. Except as otherwise required by law and subject to the
rights of the holders of Preferred Stock, special meetings of stockholders may
be called only by the Chairman, if any, on his own initiative, the President on
his own initiative or by the Board of Directors pursuant to a resolution
approved by a majority of the entire Board of Directors. Notwithstanding
anything contained in this Amended and Restated Certificate of Incorporation to
the contrary, the affirmative vote of the holders of at least 80% of the voting
power of all shares of the Corporation entitled to vote generally in the
election of directors, voting together as a single class, shall be required to
alter, amend, adopt any provision inconsistent with or repeal this Article
EIGHTH.
NINTH: Except as otherwise provided in this Amended and Restated
Certificate of Incorporation, the Corporation reserves the right to amend,
alter, change or repeal any provision contained in this Amended and Restated
Certificate of Incorporation in the manner now or hereafter prescribed by
statute, and all rights conferred upon stockholders herein are granted subject
to this reservation.
TENTH:
(a) A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for
4
<PAGE>
any breach of the director's duty of loyalty to the Corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174 of
the General Corporation Law of the State of Delaware, or (iv) for any
transaction from which the director derived an improper personal benefit. If the
General Corporation Law of the State of Delaware, or any other applicable law,
is amended to authorize corporation action further eliminating or limiting the
personal liability of directors, then the liability of a director of the
Corporation shall be eliminated or limited to the fullest extent permitted by
the General Corporation Law of the State of Delaware, or any other applicable
law, as so amended. Any repeal or modification of this Section (a) by the
stockholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such repeal
or modification.
(b) (1) Each person who has or is made a party or is threatened to be made
a party to or is 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 or a person of whom he or she is the legal
representative is or was a director or officer of the Corporation or is or was
serving at the request of the Corporation as a director, officer or employee or
agent of another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans, whether
the basis of such proceeding is an 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 General Corporation Law
of the State of Delaware, or any other applicable 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 said law permitted the Corporation to provide prior to such
amendment), against all expenses, liability and loss (including attorneys' fees,
judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid
in settlement) reasonably incurred or suffered by such person in connection
therewith and such indemnification shall continue as to a person who has ceased
to be a director, officer, employee or agent and shall inure to the benefit of
his or her heirs, executors and administrators; provided, however, that except
as provided in paragraph (2) of this Section (b) with respect to proceedings
seeking to enforce rights to indemnification, the Corporation shall indemnify
any such person seeking indemnification in connection with a proceeding (or part
thereof) initiated by such person only if such proceeding (or part thereof) was
authorized by the Board of Directors of the Corporation. The right to
indemnification conferred in this Section (b) shall be a contract right and
shall include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final disposition; provided,
however, that if the General Corporation Law of the State of Delaware, or any
other applicable law, requires, the payment of such expenses incurred by a
director or officer 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 person while a
director or officer, including, without limitation, service to an employee
benefit plan) in advance of the final disposition of a proceeding shall be made
only upon delivery to the Corporation of an undertaking by or on behalf of such
director or officer to repay all amounts so advanced if it shall ultimately be
determined that such director or officer is not entitled to be indemnified under
this Section (b) or otherwise.
(2) If a claim under paragraph (1) of this Section (b) is not paid in full
by the Corporation within thirty days after a written claim has been received by
the Corporation, the claimant may at any time thereafter bring suit against the
Corporation to recover the unpaid amount of the claim and, if successful in
whole or in part, the claimant shall be entitled to be paid also the expense of
prosecuting such claim. It shall be a defense to any such action (other than an
action brought to enforce a claim for expenses incurred in defending any
proceeding in advance of its final disposition where the required
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undertaking, if any is required, has been tendered to the Corporation) that the
claimant has not met the standard of conduct which make it permissible under the
General Corporation Law of the State of Delaware, or any other applicable law,
for the Corporation to indemnify the claimant for the amount claimed, but the
burden of proving such defense shall be on the Corporation. Neither the failure
of the Corporation (including its Board of Directors, stockholders or
independent legal counsel) to have made a determination prior to the
commencement of such action that indemnification of the claimant is proper in
the circumstances because he or she has met the applicable standard of conduct
set forth in the General Corporation Law of the State of Delaware, or any other
applicable law, nor an actual determination by the Corporation (including its
Board of Directors, stockholders or independent legal counsel) that the claimant
has not met such applicable standard of conduct, shall be a defense to the
action or create a presumption that the claimant has not met the applicable
standard of conduct.
(3) The right to indemnification and the payment of expenses incurred in
defending a proceeding in advance of its final disposition conferred in this
Section (b) shall not be exclusive of any other right which any person may have
or hereafter acquire under any statute, provision of this Certificate of
Incorporation, By-Law, agreement, vote of stockholders or disinterested
directors or otherwise.
(4) 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 General Corporation Law of the State of Delaware, or any other
applicable law.
(5) The Corporation may, to the extent authorized from time to time by the
Board of Directors, grant rights to indemnification, and rights to be paid by
the Corporation the expenses incurred in defending any proceeding in advance of
its final disposition, to any employee or agent of the Corporation to the
fullest extent of the provisions of this Section (b) with respect to the
indemnification and advancement of expenses of directors and officers of the
Corporation.
(6) Any repeal or modification of this Section (b) by the stockholders of
the Corporation shall not adversely affect any right or protection of a
director, officer, employee or agent of the Corporation existing at the time of
such repeal or modification.
ELEVENTH: In determining whether an "Acquisition Proposal" is in the best
interests of the Corporation and its stockholders, the Board of Directors shall
consider all factors it deems relevant including, without limitation, the
following:
(a) The consideration being offered in the Acquisition Proposal, not only
in relation to the then current market price, but also in relation to the then
current value of the Corporation in a freely negotiated transaction and in
relation to the Board of Directors' estimate of the future value of the
Corporation as an independent entity; and
(b) Such other factors the Board of Directors determines to be relevant,
including among others the social, legal and economic effects upon employees,
suppliers, customers and the communities in which the Corporation is located, as
well as on the long term business prospects of the Corporation.
"Acquisition Proposal" means any proposal of any person (i) for a tender
offer, exchange offer or any other method of acquiring any equity securities of
the Corporation with a view to acquiring control
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of the Corporation, (ii) to merge or consolidate the Corporation with another
corporation, or (iii) to purchase or otherwise acquire all or substantially all
of the properties and assets of the Corporation.
This Article ELEVENTH shall not be interpreted to create any rights on
behalf of third persons, such as employees, suppliers, or customers.
TWELFTH: The Corporation has elected to be governed by Section 203 of the
General Corporation Law of Delaware.
THIRTEENTH: The name and mailing address of the incorporator is as
follows:
NAME MAILING ADDRESS
---- ---------------
Joseph H. Greenberg Gardner, Carton & Douglas
321 N. Clark Street, Suite 2900
Chicago, Illinois 60610-4795
THE UNDERSIGNED, being the sole incorporator hereinafter named, for the
purpose of forming a corporation pursuant to the General Corporation Law of the
State of Delaware, does make this Certificate, hereby declaring and certifying
that this is his act and deed and the facts herein stated are true, and
accordingly has set his hand this _____ day of June, 1999.
________________________________________________
Joseph H. Greenberg, Incorporator
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EXHIBIT 3.2
-----------
BY-LAWS
OF
ALLSCRIPTS, INC.
(A DELAWARE CORPORATION)
ARTICLE I.
Offices
Section 1. The registered office of Allscripts, Inc. (the "Corporation")
shall be in Wilmington, New Castle County, Delaware.
Section 2. The Corporation shall have its principal office at 2401
Commerce Drive, Libertyville, Illinois, and it may also have offices at such
other places as the board of directors may from time to time determine.
ARTICLE II.
Stockholders
Section 1. Annual Meeting. The annual meeting of stockholders for the
--------------
election of directors and for the transaction of such other business as may
properly come before the meeting shall be held on such date as the board of
directors shall fix each year. At an annual meeting of stockholders, only such
business shall be conducted as shall have been properly brought before the
meeting. To be properly brought before an annual meeting, business must be (a)
specified in the notice of meeting, or any supplement thereto, given by or at
the direction of the board of directors, (b) otherwise properly brought before
the meeting by or at the direction of the board of directors, or (c) otherwise
properly brought before the meeting by a stockholder. For business to be
properly brought before an annual meeting by a stockholder, the stockholder must
have given timely notice thereof in writing to the secretary of the Corporation
not less than one hundred and twenty (120) days prior to the meeting nor more
than one hundred and fifty (150) days prior to the meeting. A stockholder's
notice to the secretary of the Corporation shall set forth as to each matter the
stockholder proposes to bring before the annual meeting (a) a brief description
of the business desired to be brought before the annual meeting, (b) the name
and address, as they appear on the Corporation's stockholder records, of the
stockholder proposing such business, (c) the class and number of shares of the
Corporation which are beneficially owned by the stockholder, and (d) any
material interest of the stockholder in such business. Irrespective of anything
in these by-laws to the contrary, no business shall be conducted at an annual
meeting except in accordance with the procedures set forth in this Section 1.
The presiding officer of an annual meeting shall, if the facts warrant,
determine and declare to the meeting that business was not properly brought
before the meeting in accordance with the provisions of this Section 1, and if
it is so determined, shall so declare to the meeting and any such business not
properly brought before the meeting shall not be transacted.
<PAGE>
Section 2. Special Meetings. Special meetings of the stockholders may be
----------------
called only by the chairman, the president or the board of directors pursuant to
a resolution approved by a majority of the entire board of directors.
Section 3. Stockholder Action; How Taken. Any action required or
-----------------------------
permitted to be taken by the stockholders of the Corporation must be effected at
a duly called annual or special meeting of such holders and may not be effected
by any consent in writing by such holders.
Section 4. Place of Meeting. The board of directors may designate any
----------------
place, either within or without Delaware, as the place of meeting for any annual
or special meeting. In the absence of any such designation, the place of
meeting shall be the principal office of the Corporation designated in Section 2
of Article I of these by-laws.
Section 5. Notice of Meetings. Written or printed notice stating the
------------------
place, day and hour of the meeting and, in case of a special meeting, the
purpose or purposes for which the meeting is called, shall be delivered not less
than ten nor more than sixty days before the date of the meeting, or in the case
of a merger or consolidation, not less than twenty nor more than fifty days
before the date of the meeting, either personally or by mail, by or at the
direction of the chairman or the president, or the secretary, or the officer or
persons calling the meeting, to each stockholder of record entitled to vote at
such meeting. If mailed, such notice shall be deemed to be delivered when
deposited in the United States mails in a sealed envelope addressed to the
stockholder at his address as it appears on the records of the Corporation with
postage thereon prepaid.
Section 6. Record Date. For the purpose of determining (a) stockholders
-----------
entitled to notice of or to vote at any meeting of stockholders, or (b)
stockholders entitled to receive payment of any dividend, or (c) stockholders
for any other purpose, the board of directors may fix in advance a date as the
record date for any such determination of stockholders, such date in any case to
be not more than sixty days and not less than ten days, or in the case of a
merger or consolidation not less than twenty days, prior to the date on which
the particular action requiring such determination of stockholders is to be
taken.
Section 7. Quorum. The holders of not less than one-third of the stock
------
issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall be requisite and shall constitute a quorum at all
meetings of the stockholders for the transaction of business except as otherwise
provided by statute, by the certificate of incorporation or by these by-laws.
If, however, such quorum shall not be present or represented at any meeting of
the stockholders, the chairman of the meeting shall have the power to adjourn
the meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
notified.
When a quorum is present at any meeting, the vote of the holders of a
majority of the stock having voting power present in person or represented by
proxy shall decide any question brought before such meeting, unless the question
is one upon which by express provision of the statutes or of the certificate of
incorporation or of these by-laws, a different vote is required in which case
such express provision shall govern and control the decision of such question.
Section 8. Qualification of Voters. The board of directors may fix a day
-----------------------
and hour not more than sixty nor less than ten days prior to the day of holding
any meeting of stockholders as the time as of
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which the stockholders entitled to notice of and to vote at such a meeting shall
be determined. Only those persons who were holders of record of voting stock at
such time shall be entitled to notice of and to vote at such meeting.
Section 9. Procedure. The order of business and all other matters of
---------
procedure at every meeting of stockholders shall be determined by the chairman
of the meeting. The board of directors shall appoint two or more inspectors of
election to serve at every meeting of stockholders at which directors are to be
elected.
ARTICLE III.
Directors
Section 1. Number, Election and Terms. Except as otherwise fixed pursuant
--------------------------
to the provisions of Article Fourth of the certificate of incorporation relating
to the rights of the holders of any class or series of stock having a preference
over the common stock as to dividends or upon liquidation to elect additional
directors under specified circumstances, the number of directors shall be a
minimum of three and fixed from time to time by the board of directors. The
directors, other than those who may be elected by the holders of any class or
series of stock having a preference over the common stock as to dividends or
upon liquidation, shall be classified, with respect to the time for which they
severally hold office, into three classes, as near equal in number as possible,
as determined by the board of directors, one class to hold office initially for
a term expiring at the annual meeting of stockholders to be held in 2000,
another class to hold office initially for a term expiring at the annual meeting
of stockholders to be held in 2001 and another class to hold office initially
for a term expiring at the annual meeting of stockholders to be held in 2002,
with the members of each class to hold office until their successors are elected
and qualified. At each annual meeting of stockholders, the successors of the
class of directors whose term expires at that meeting shall be elected to hold
office for a term expiring at the annual meeting of stockholders held in the
third year following the year of their election.
The term the "entire board" as used in these by-laws means the total number
of directors which the Corporation would have if there were no vacancies.
Subject to the rights of holders of any class or series of stock having a
preference over the common stock as to dividends or upon liquidation,
nominations for the election of directors may be made by the board of directors
or a committee appointed by the board of directors or by any stockholder
entitled to vote in the election of directors generally. However, any
stockholder entitled to vote in the election of directors generally may nominate
one or more persons for election as directors at a meeting only if written
notice of such stockholder's intent to make such nomination or nominations has
been given, either by personal delivery or by United States mail, postage
prepaid, to the secretary of the Corporation not later than (a) with respect to
an election to be held at an annual meeting of stockholders, one hundred twenty
(120) days nor earlier than one hundred fifty (150) days prior to the
anniversary date of the immediately preceding annual meeting, and (b) with
respect to an election to be held at a special meeting of stockholders for the
election of directors, the close of business on the tenth day following the date
on which notice of such meeting is first given to stockholders. Each such
notice shall set forth: (a) the name and address of the stockholder who intends
to make the nomination and of the person or persons to be nominated; (b) a
representation that the stockholder is a holder of record of stock of the
Corporation entitled to vote at such meeting and intends to appear in person or
by proxy at the meeting to nominate the person or persons specified in the
notice; (c) a description of all arrangements or
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understandings between the stockholder and each nominee and any other person or
persons, naming such person or persons, pursuant to which the nomination or
nominations are to be made by the stockholder; (d) such other information
regarding each nominee proposed by such stockholder as would be required to be
included in a proxy statement filed pursuant to the proxy rules of the
Securities and Exchange Commission; and (e) the consent of each nominee to serve
as a director of the Corporation if so elected. The chairman of the meeting may
refuse to acknowledge the nomination of any person not made in compliance with
the foregoing procedure.
Section 2. Newly Created Directorships and Vacancies. Except as otherwise
-----------------------------------------
fixed pursuant to the provisions of Article Fourth of the certificate of
incorporation relating to the rights of the holders of any class or series of
stock having a preference over the common stock as to dividends or upon
liquidation to elect directors under specified circumstances, newly created
directorships resulting from any increase in the number of directors and any
vacancies on the board of directors resulting from death, resignation,
disqualification, removal or other cause shall be filled solely by the
affirmative vote of a majority of the remaining directors then in office, even
though less than a quorum of the board of directors. Any director elected in
accordance with the preceding sentence shall hold office for the remainder of
the full term of the class of directors to which such director's predecessor
shall have been elected and qualified. No decrease in the number of directors
constituting the board of directors shall shorten the term of any incumbent
director.
Section 3. Removal. Subject to the rights of any class or series of stock
-------
having a preference over the common stock as to dividends or upon liquidation to
elect directors under specified circumstances, any director may be removed from
office only for cause and only by the affirmative vote of the holders of 80% of
the combined voting power of the then outstanding shares of stock entitled to
vote generally in the election of directors, voting together as a single class.
Section 4. Regular Meetings. Regular meetings of the board of directors
----------------
shall be held at such times and place as the board of directors may from time to
time determine.
Section 5. Special Meetings. Special meetings of the board of directors
----------------
may be called by or at the request of the chairman or the president or by an
officer of the Corporation upon the request of a majority of the entire board.
The person or persons authorized to call special meetings of the board of
directors may fix any place, either within or without Delaware, as the place for
holding any special meeting of the board of directors called by them.
Section 6. Notice. Notice of regular meetings of the board of directors
------
need not be given. Notice of every special meeting of the board of directors
shall be given to each director at his usual place of business, or at such other
address as shall have been furnished by him for the purpose. Such notice shall
be given at least twenty-four hours before the meeting by telephone, by personal
delivery, by commercial courier, by mail or by facsimile transmission. Such
notice need not include a statement of the business to be transacted at, or the
purpose of, any such meeting.
Section 7. Quorum. A majority of the entire Board shall constitute a
------
quorum for the transaction of business at any meeting of the board of directors,
provided, that if less than a majority of the entire board is present at said
meeting, a majority of the directors present may adjourn the meeting from time
to time until a quorum is obtained without further notice. The act of the
majority of the directors present at a meeting at which a quorum is present
shall be the act of the board of directors unless the act of a greater number is
required by the certificate of incorporation or the by-laws of the Corporation.
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Section 8. Compensation. Directors who are also full time employees of
------------
the Corporation shall not receive any compensation for their services as
directors but they may be reimbursed for reasonable expenses of attendance. By
resolution of the board of directors, all other directors may receive either an
annual fee or a fee for each meeting attended, or both, and expenses of
attendance, if any, at each regular or special meeting of the board of directors
or of a committee of the board of directors; provided, that nothing herein
contained shall be construed to preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor.
Section 9. Committees. The board of directors may, by resolution passed
----------
by a majority of the entire board, designate one or more committees, each
committee to consist of two or more of the directors of the Corporation, which,
to the extent provided in the resolution, shall have and may exercise the powers
of the board of directors in the management of the business and affairs of the
Corporation and may authorize the seal of the Corporation to be affixed to all
papers which may require it. Such committee or committees shall have such name
or names as may be determined from time to time by resolution adopted by the
board of directors. Each committee shall keep regular minutes of its meetings
and report the same to the board of directors when required.
Section 10. Director Emeritus. The Board of Directors may by resolution
-----------------
appoint any former director who has retired from the Board of Directors as a
Director Emeritus. Directors Emeritus may, but are not required to, attend all
meetings (regular and special) of the Board of Directors and will receive notice
of such meetings; however, they shall not have the right to vote and they shall
be excluded from the number of directors for quorum and other purposes.
Directors Emeritus shall be appointed for one year terms and may be reappointed
for up to two additional one year terms.
ARTICLE IV.
Officers
Section 1. Number. The officers of the Corporation shall be a chairman, a
------
vice-chairman (if elected by the board of directors), a president, an executive
vice president (if elected by the board of directors), one or more vice
presidents (the number thereof to be determined by the board of directors), a
treasurer, a secretary and such other officers as may be elected in accordance
with the provisions of this Article.
Section 2. Election and Term of Office. The officers of the Corporation
---------------------------
shall be elected annually by the board of directors at the first meeting of the
board of directors held after each annual meeting of stockholders. If the
election of officers shall not be held at such meeting, such election shall be
held as soon thereafter as convenient. Vacancies may be filled or new offices
created and filled at any meeting of the board of directors. Each officer shall
hold office until his successor shall have been duly elected and shall have
qualified or until his death or until he shall resign or shall have been removed
in the manner hereinafter provided.
Section 3. Removal. Any officer or agent elected or appointed by the
-------
board of directors may be removed by the board of directors whenever in its
judgment the best interests of the Corporation would be served thereby, but such
removal shall be without prejudice to the contract rights, if any, of the person
so removed.
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Section 4. Vacancies. A vacancy in any office because of death,
---------
resignation, removal, disqualification or otherwise, may be filled by the board
of directors for the unexpired portion of the term.
Section 5. Chairman. The chairman shall preside at all meetings of the
--------
stockholders and the board of directors. If so appointed by the board of
directors he shall be the chief executive officer of the Corporation and shall
have those duties and responsibilities described in Section 8 of this Article.
He shall perform such other duties as may be prescribed by the board of
directors.
Section 6. Vice-Chairman. The vice-chairman (if elected by the board of
-------------
directors) shall, in the absence of the chairman, preside at all meetings of the
stockholders and the board of directors. If so appointed by the board of
directors he shall be the chief executive officer and shall have those duties
and responsibilities described in Section 8 of this Article. He shall perform
such other duties as may be prescribed by the board of directors and by the
chief executive officer if he does not have that position.
Section 7. President. The president shall in general be in charge of all
---------
operations of the Corporation and shall direct and administer the activities of
the Corporation in accordance with the policies, goals and objectives
established by the chief executive officer and the board of directors. In the
absence of the chief executive officer, the president shall assume his duties
and responsibilities. In the absence of the chairman and vice-chairman he shall
preside at all meetings of the stockholders and board of directors. He shall
perform such other duties as may be prescribed by the board of directors and
chief executive officer if he does not have that position.
Section 8. Chief Executive Officer. The chief executive officer of the
-----------------------
Corporation shall be either the chairman, the vice-chairman or the president as
determined by the board of directors. The chief executive officer shall provide
overall direction and administration of the business of the Corporation, he
shall interpret and apply the policies of the board of directors, establish
basic policies within which the various corporate activities are carried out,
guide and develop long range planning and evaluate activities in terms of
objectives. He may sign (with the secretary or any other proper officer of the
Corporation thereunto authorized by the board of directors, if such additional
signature is necessary under the terms of the instrument document being executed
or under applicable law, stock certificates of the Corporation, any deeds,
mortgages, bonds, contracts, or other instruments except in cases where the
signing and execution thereof shall be required by law to be otherwise signed or
executed, and he may execute proxies on behalf of the Corporation with respect
to the voting of any shares of stock owned by the Corporation. He shall have
the power to (1) designate management committees of employees deemed essential
in the operations of the Corporation, its divisions or subsidiaries, and appoint
members thereof, subject to the approval of the board of directors; (2) appoint
certain employees of the Corporation as vice presidents of one or several
divisions or operations of the Corporation, subject to the approval of the board
of directors, provided however, that any vice president so appointed shall not
be an officer of the Corporation for any other purpose; and (3) appoint such
other agents and employees as in his judgment may be necessary or proper for the
transaction of the business of the Corporation and in general shall perform all
duties incident to the office of chief executive.
Section 9. Executive Vice President. The executive vice president (if
------------------------
elected by the board of directors) shall report to either the chief executive
officer or the president as determined in the corporate organization plan
established by the board of directors. He shall direct and coordinate such
major activities as shall be delegated to him by his superior officer in
accordance with policies established and instructions issued by his superior
officer, the chief executive officer, or the board of directors.
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Section 10. Vice President. The board of directors may elect one or
--------------
several vice presidents. Each vice president shall report to either the chief
executive officer, the chief operating officer or the executive vice president
as determined in the corporate organization plan established by the board of
directors. Each vice president shall perform such duties as may be delegated to
him by his superior officers and in accordance with the policies established and
instructions issued by his superior officer, the chief executive officer or the
board of directors. The board of directors may designate any vice president as
a senior vice president and a senior vice president shall be senior to all other
vice presidents and junior to the executive vice president. In the event there
is more than one senior vice president, then seniority shall be determined by
and be the same as the annual order in which their names are presented to and
acted on by the board of directors.
Section 11. The Treasurer. The treasurer shall (a) have charge and
-------------
custody of and be responsible for all funds and securities of the Corporation;
receive and give receipts for moneys due and payable to the Corporation from any
source whatsoever, and deposit all such moneys in the name of the Corporation in
such banks, trust companies or other depositories as shall be selected by the
Corporation; (b) in general perform all the duties incident to the office of
treasurer and such other duties as from time to time may be assigned to him by
the chief executive officer, chief operating officer or by the board of
directors. If required by the board of directors, the treasurer shall give a
bond for the faithful discharge of his duties in such sum and with such surety
or sureties as the board of directors shall determine.
Section 12. The Assistant Treasurer. The assistant treasurer (or, if more
-----------------------
than one, the assistant treasurers) shall, in the absence or disability of the
treasurer, perform the duties and exercise the powers of the treasurer and shall
perform such other duties and have such other powers as the board of directors
may from time to time prescribe.
Section 13. The Secretary. The secretary shall: (a) keep the minutes of
-------------
the stockholders' and the board of directors' meetings in one or more books
provided for that purpose; (b) see that all notices are duly given in accordance
with the provisions of these by-laws or as required by law; (c) be custodian of
the corporate records and of the seal of the Corporation and see that the seal
of the corporation is affixed to all stock certificates prior to the issue
thereof and to all documents, the execution of which on behalf of the
Corporation under its seal is duly authorized in accordance with the provisions
of these by-laws or as required by law; (d) be custodian of the corporate
records and of the seal of the Corporation and see that the seal of the
Corporation is affixed to all stock certificates prior to the issue thereof and
to all documents, the execution of which on behalf of the Corporation under its
seal is duly authorized in accordance with the provisions of these by-laws; (e)
keep a register of the post office address of each stockholder which shall be
furnished to the secretary by such stockholder; (f) sign with the chairman,
president, or a vice president, stock certificates of the Corporation, the issue
of which shall have been authorized by resolution of the board of directors; (g)
have general charge of the stock transfer books of the Corporation; (h) in
general perform all duties incident to the office of secretary and such other
duties as from time to time may be assigned to him by the chief executive
officer, chief operating officer or by the board of directors.
Section 14. The Assistant Secretary. The assistant secretary (or, if more
-----------------------
than one, the assistant secretaries) shall in the absence or disability of the
secretary, perform the duties and exercise the powers of the secretary and shall
perform such other duties and have such other powers as the board of directors
may from time to time prescribe.
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ARTICLE V.
Fiscal Year
The fiscal year of the Corporation shall begin on the first day of January
in each year and end on the thirty-first day of December in each year.
ARTICLE VI.
Seal
The board of directors shall provide a corporate seal which shall be in the
form of a circle and shall have inscribed thereon the name of the Corporation
and the words "Corporate Seal, Delaware".
ARTICLE VII.
Waiver of Notice
Whenever any notice whatsoever is required to be given under the provisions
of these by-laws or under the provisions of the certificate of incorporation or
under the provisions of the laws of the state of Delaware, waiver thereof in
writing, signed by the person or persons entitled to such notice, whether before
or after the time stated therein, shall be deemed equivalent to the giving of
such notice.
ARTICLE VIII.
Amendments
Subject to the provisions of the certificate of incorporation, these by-
laws may be altered, amended or repealed at any regular meeting of the
stockholders, or at any special meeting of stockholders duly called for that
purpose, by a majority vote of the shares represented and entitled to vote at
such meeting; provided that in the notice of such special meeting notice of such
purpose shall be given. Subject to the laws of the State of Delaware, the
certificate of incorporation and these by-laws, the board of directors may by a
majority vote of those present at any meeting at which a quorum is present amend
these by-laws, or enact such other by-laws as in their judgment may be advisable
for the regulation of the conduct of the affairs of the Corporation.
8
<PAGE>
EXHIBIT 10.1
------------
ALLSCRIPTS, INC.
AMENDED AND RESTATED
1993 STOCK INCENTIVE PLAN
WHEREAS, on September 14, 1993, the Board of Directors of Allscripts, Inc.
(the "Company") approved the adoption of the Company's 1993 Stock Incentive Plan
(this "Plan" or the "1993 Plan");
WHEREAS, effective June __, 1999 the Company effected a reverse split of
its common shares, $0.01 par value per share (the "Common Shares"), pursuant to
which each Common Share was converted into one-sixth of a Common Share (the
"Reverse Split");
WHEREAS, all references in this Plan to numbers of Common Shares shall
reflect the Reverse Split;
WHEREAS, the Company has adopted an Incentive Stock Option Plan (the
"Initial Option Plan"), a 1990 Stock Option Plan (the "1990 Plan"), a Consultant
Option Plan (the "Consultant Plan") and an Amended and Restated 1993 Eligible
Director Stock Option Plan (the "Director Plan") (the Initial Option Plan, 1990
Plan, Consultant Plan and Director Plan being collectively referred to herein as
the "Predecessor Plans").
WHEREAS, the Board of Directors adopted resolutions on June 7, 1999
approving an amendment and restatement of this Plan and pursuant to such
resolutions, the Company wishes to amend and restate the Plan to contain the
following terms:
1. Purpose. The purpose of this Plan is to provide a means whereby the
-------
Company may, through the grant of stock incentives, including options to
purchase the Company's Common Shares and stock appreciation rights, to key
individuals who perform services for or on behalf of the Company (such as
employees, officers, Eligible Directors, consultants and agents of the Company),
attract and retain persons of ability as key individuals and motivate such
persons to exert their best efforts on behalf of the Company. "Eligible
Directors" shall be members of the Board of Directors of the Company who are not
employees or officers of the Company or of any other entity and who do not own
beneficially, or are not affiliated with an entity that owns beneficially 10% or
more of the Company's outstanding voting securities on the date when Stock
Incentives are to be granted to such persons under this Plan. The Plan
authorizes the grant to such key individuals of the Company of stock incentives
in the form of (a) incentive stock options ("ISOs") to purchase Common Shares of
the Company under Section 422 of the Internal Revenue Code of 1986, as amended
from time to time (the "Code"), (b) nonqualified stock options to purchase
Common Shares of the Company ("Nonqualified Options") and (c) stock appreciation
rights ("SARs") (ISOs, Nonqualified Options and SARs being referred to
collectively as "Stock Incentives").
2. Number of Shares Available Under Plan. Stock Incentives may be granted
-------------------------------------
by the Company from time to time to key individuals who perform services for or
on behalf of the Company (such recipients being hereafter referred to as
"grantees"). The maximum number of Common Shares to be issued pursuant to all
grants under this Plan shall be 4,393,489. The shares issued upon exercise of
Stock Incentives granted under this Plan may be authorized and unissued shares
or shares held by the Company in its treasury, or both. In the event of a
lapse, expiration, termination, forfeiture or
<PAGE>
cancellation of any Stock Incentive granted under this Plan or any Predecessor
Plan without the issuance of shares, the shares subject to or reserved for such
Stock Incentive may be used again for new grants of Stock Incentives hereunder;
provided that in no event may the number of Common Shares issued hereunder
exceed the total number of shares reserved for issuance. Any Common Shares
withheld or surrendered to pay withholding taxes pursuant to Section 9 or
withheld or surrendered in full or partial payment of the exercise price of an
ISO or Nonqualified Option pursuant to Section 5(e) and any Common Shares
covered by Stock Incentives which Stock Incentives are withheld or surrendered
to pay withholding taxes pursuant to Section 9 or withheld or surrendered in
full or partial payment of the exercise price of an ISO or Nonqualified Option
pursuant to Section 5(e) shall be added to the aggregate Common Shares available
for issuance. In no event shall the number of Common Shares underlying Stock
Incentives granted hereunder to any individual in any twelve-month period exceed
3,000,000 Common Shares.
3. Administration. This Plan shall be administered by the Compensation
--------------
Committee (the "Committee") as appointed by the Board of Directors of the
Company (the "Board"). To the extent required to comply with Rule 16b-3 under
the Securities Exchange Act of 1934, each member of the Committee shall qualify
as a "non-employee director," as defined therein.
The Committee may interpret the Plan, prescribe, amend, and rescind any
rules and regulations necessary or appropriate for the administration of the
Plan, and make such other determinations and take such other action as it deems
necessary or advisable, except, as otherwise expressly reserved in the Plan to
the Board.
The Committee may employ such legal counsel, consultants and agents as it
may deem desirable for the administration of the Plan and may rely upon any
opinion received from any such counsel or consultant and any computation
received from any such consultant or agent.
No member or former member of the Committee shall be liable for any action
or determination made in good faith with respect to the Plan or any Stock
Incentive awarded under it. To the maximum extent permitted by applicable law,
each member or former member of the Committee shall be indemnified and held
harmless by the Company against any cost or expense (including counsel fees) or
liability (including any sum paid in settlement of a claim with the approval of
the Company) arising out of any act or omission to act in connection with the
Plan unless arising out of such member's or former member's own fraud or bad
faith. Such indemnification shall be in addition to any rights of
indemnification the members or former members may have as directors or under the
By-Laws of the Company.
4. Eligibility and Awards. The Committee shall, subject to the
----------------------
limitations of the Plan, have full power and discretion to establish selection
guidelines; to select eligible persons for participation; and to determine the
form of grant, either in the form of ISOs, Non-qualified Options, SARs or
combinations thereof, the number of Common Shares subject to the grant, the fair
market value of the Common Shares, when necessary, the restriction and
forfeiture provisions relating to Common Shares, the time and conditions of
vesting or exercise, the conditions, if any, under which time of vesting or
exercise may be accelerated, the conditions, form, time, manner and terms of
payment of any award, and all other terms and conditions of the grant; provided,
--------
however, that ISOs shall not be granted to any individual who is not an employee
- -------
of the Company.
5. Terms and Conditions of Stock Incentives. Each Stock Incentive granted
----------------------------------------
under the Plan shall be evidenced by an agreement, in form approved by the
Committee which shall be subject to the
2
<PAGE>
following express terms and conditions and to such other terms and conditions as
the Committee may deem appropriate:
(a) Stock Incentive Period. Each Stock Incentive agreement shall
----------------------
specify the period for which the Stock Incentive thereunder is granted
(which, in the case of ISOs, shall not exceed ten years from the date of
grant or, in the case of a grant to a person who owns, directly or
indirectly, within the meaning of Section 424(d) of the Code, stock
representing more than 10% of the voting power of all classes of stock of
the Company, shall not exceed five years from the date of grant) and shall
provide that the Stock Incentive shall expire at the end of such period.
(b) Grant Period. Consistent with paragraph 11, an ISO must be
------------
granted within ten years of the date this amendment and restatement of this
Plan was adopted or the date this amendment and restatement of this Plan is
approved by the Shareholders of the Company, whichever is earlier.
(c) Exercise Price. The per share exercise price of each Stock
--------------
Incentive shall be determined by the Committee at the time any Stock
Incentive is granted, and, in the case of ISOs, shall not be less than the
fair market value (or if granted to a person who owns, directly or
indirectly, within the meaning of Section 424(d) of the Code, stock
representing more than 10% of the voting power of all classes of stock of
the Company, 110% of fair market value) (but in no event less than the par
value) of the Common Shares of the Company on the date the Stock Incentive
is granted. If the Company's Common Shares are actively traded or quoted
in an established market (such as a national securities exchange or the
National Association of Securities Dealers Automated Quotation System) the
fair market value of the Company's Common Shares shall be the price of the
Common Shares as of the close of the date the Stock Incentive is granted;
however, in all other cases the fair market value of the Company's Common
Shares shall be that value that the Committee shall have determined as the
fair market value in good faith and in its sole discretion.
(d) Exercise of Stock Incentive. No part of any Stock Incentive may
---------------------------
be exercised until the grantee shall have satisfied the conditions (e.g.,
----
such as remaining in the employ of the Company for a certain period of
time), if any, after the date on which the Stock Incentive is granted as
the Committee may specify in the Stock Incentive agreement. Subject in
each case to the provisions of paragraph (f) of this paragraph 5, any Stock
Incentive may be exercised, to the extent exercisable by its terms, at such
time or times as may be determined by the Committee.
(e) Payment of Purchase Price Upon Exercise of ISO or Nonqualified
--------------------------------------------------------------
Option. Upon the exercise of an ISO or Nonqualified Option, the purchase
------
price shall be paid in cash or, if the Stock Incentive agreement so
provides, (i) in Common Shares of the Company, valued at its fair market
value on the date of exercise, (ii) by surrender of other options for
Common Shares of the Company held by the grantee which have not expired,
with the surrender value being the amount by which the fair market value of
a Common Share on the date of exercise exceeds the exercise price of the
surrendered option(s), (iii) by surrender of SARs for their cash value, or
(iv) by any combination of the foregoing. Fair market value for purposes
of this paragraph (e) shall be determined as of the date of exercise
pursuant to the method described in paragraph (c) of this paragraph 5.
(f) Exercise in the Event of Death, Disability or Other Termination of
------------------------------------------------------------------
Employment. Subject to the limitations as to the exercisability of ISOs,
----------
which are described in
3
<PAGE>
subparagraphs (1), (2) and (3) below, and the remaining provisions of this
Plan, the Committee, in its sole discretion, shall determine the provisions
concerning the exercisability of options to be included in each grantee's
Stock Incentive Agreement.
(1) If an ISO grantee dies, his ISO may be exercised, to the
extent that the grantee could have done so at the date of his death,
by the person or persons to whom the grantee's rights under the ISO
pass by will or applicable law, or if no such person has such right,
by his executors or administrators, at any time, or from time to time,
for up to one year after the date of the grantee's death (as the
Committee may specify in the Stock Incentive Agreement) but not later
than the expiration date specified in paragraph (a) of this paragraph
5 if sooner than one year.
(2) If an ISO grantee's employment with the Company shall
terminate because of his permanent disability, he may exercise his
ISO, to the extent that he could have done so at the date of his
termination, at any time, or from time to time, within one year of
such termination but not later than the expiration date specified in
paragraph (a) of this paragraph 5 if sooner than one year. For this
purpose, the term "permanent disability" means the permanent
incapacity of a grantee to perform the usual duties of his employment
by reason of physical or mental impairment. Permanent disability
shall be deemed to exist when so determined by the Committee based
upon a written opinion of a licensed physician who has been approved
by the Committee.
(3) If an ISO grantee's employment with the Company shall
terminate for any reason other than death or permanent disability, he
may exercise his ISO, to the extent that he could have done so at the
date of his termination, at any time, or from time to time, within
three months of the date of his termination but not later than the
expiration date specified in paragraph (a) of this paragraph 5 if
sooner than three months.
(g) Transferability. Except as provided in this Section 5(g), no
---------------
Stock Incentive may be assigned or otherwise transferred. Each Stock
Incentive granted under the Plan shall be transferable by will and by the
laws of descent and distribution. In addition, under such rules and
procedures as the Committee may establish and subject to the discretion of
the Committee, the grantee of a Stock Incentive (other than an ISO) may
transfer such Stock Incentive, provided that (i) the applicable Stock
Incentive Agreement expressly so permits and (ii) the grantee provides such
documentation or information concerning any such transfer or transferee as
the Committee may reasonably request. Any Stock Incentives held by any
transferees shall be subject to the same terms and conditions that applied
immediately prior to the transfer. No ISO may be assigned or otherwise
transferred in any manner.
(h) Dollar Limitation. No ISO may be granted under the Plan to any
-----------------
employee if in the calendar year in which the ISO is first exercisable the
aggregate fair market value (determined as of the date of grant) of Common
Shares of the Company for which such employee has been granted ISOs which
first become exercisable in such calendar year exceeds $100,000. Any Stock
Incentive which violates the rules of this subparagraph (h) of this
paragraph 5 shall be deemed to be a Nonqualified Option rather than an ISO.
4
<PAGE>
(i) SAR's.
-----
(1) A grantee of an SAR shall have the right to receive cash or
Common Shares having a fair market value equal to the appreciation in
market value of a stated number of Common Shares from the date of
grant, or in the case of an SAR granted in tandem with or by reference
to an ISO or Nonqualified Option granted simultaneously with or prior
to the grant of such SAR, from the date of grant of the related stock
option to the date of exercise.
(2) SARs may be granted in tandem with or with reference to a
related ISO or Nonqualified Option, in which event the grantee may
elect to exercise either the option or the SAR (as to the same Common
Shares subject to the option and the SAR), or the SAR may be granted
independently of a related stock option. The right shall be
exercisable not more than ten years after the date of grant if granted
in tandem with or with reference to an ISO.
(3) Upon exercise of an SAR, the grantee shall be paid the excess
of the then fair market value of the number of shares to which the SAR
relates over the fair market value of such number of shares at the
date of grant of the SAR or of the related stock option, as the case
may be. Such excess shall be paid in cash or in Common Shares having
a fair market value equal to such excess, or a combination thereof, as
the Committee shall determine.
(j) Other Provisions. Each Stock Incentive agreement shall contain
----------------
such terms and provisions as the Committee may determine to be necessary or
desirable.
(k) No Rights as a Shareholder. No grantee shall have any rights as
--------------------------
a shareholder with respect to any Common Shares subject to his Stock
Incentive prior to the date of issuance to him of a certificate or
certificates for such shares.
6. Adjustments in Event of Change in Common Shares. If during the term
-----------------------------------------------
of this Plan, there shall be any change in the Company's Common Shares through a
merger, consolidation, reorganization, recapitalization or otherwise, or if
there shall be a dividend on the Company's Common Shares, payable in Common
Shares, or if there shall be a stock split, combination or other change in the
Company's issued Common Shares, the Common Shares available under this Plan
shall be increased or decreased proportionately to give effect to such change in
the Common Shares and the Common Shares subject to then existing Stock
Incentives shall be proportionately adjusted so that upon the issuance of Common
Shares pursuant to such Stock Incentives, the person receiving such Common
Shares will receive the securities which would have been received if the
issuance of Common Shares pursuant to the Stock Incentives had occurred
immediately prior to such merger, consolidation, reorganization,
recapitalization, dividend, stock split, combination or other change. Each such
Stock Incentive shall be adjusted to nearest whole share, rounding downwards. In
no event shall any fractional share become subject to a Stock Incentive
issued hereunder.
7. Compliance with Other Laws and Regulations. The Plan, the grant and
------------------------------------------
exercise of Stock Incentives thereunder, and the obligation of the Company to
sell and deliver Common Shares under such Stock Incentives, shall be subject to
all applicable federal and state laws, rules and regulations and to such
approvals by any government or regulatory agency as may be required. If at any
time the Committee shall determine in its discretion that the listing,
registration or qualification of the shares
5
<PAGE>
covered by the Plan upon any national securities exchange or under any state or
federal law, or the consent or approval of any government regulatory body, is
necessary or desirable as a condition of, or in connection with, the sale or
purchase of shares under the Plan, no shares will be delivered unless and until
such listing, registration, qualification, consent or approval shall have been
effected or obtained, or otherwise provided for, free of any conditions not
acceptable to the Committee. If shares are not required to be registered, but
are exempt from registration, upon exercising all or any portion of a Stock
Incentive, the Company may require each grantee (or any person acting under
paragraph 5(f)), to represent that the shares are being acquired for investment
only and not with a view to their sale or distribution, and to make such other
representations deemed appropriate by counsel to the Company. Stock certificates
evidencing unregistered shares acquired upon exercise of Stock Incentives shall
bear any legend required by applicable state securities laws and a restrictive
legend substantially as follows:
The securities represented hereby have not been registered under the Securities
Act of 1933, as amended (the "Act"), and may not be transferred in the absence
of such registration or an opinion of counsel acceptable to the Company that
such transfer will not require registration under such Act.
8. No Rights to Continued Employment. The Plan and any Stock Incentive
---------------------------------
granted under the Plan shall not confer upon any grantee any right with respect
to employment or the continuance of employment by the Company, nor shall they
affect in any way the right of the Company to terminate his relationship
(including his employment) at any time.
9. Withholding. The Committee in its discretion may cause to be made as a
-----------
condition precedent to the payment of any cash or stock, appropriate
arrangements for the withholding of any federal, state, local or foreign taxes.
10. Amendment, Suspension and Discontinuance. The Board may from time to
----------------------------------------
time amend, suspend or discontinue the Plan; provided, however, no action of the
Board may, without the approval of Shareholders (a) increase the number of
shares reserved for Stock Incentives pursuant to paragraph 2; (b) permit
granting of any ISO at any option price less than that determined in accordance
with paragraph 5(c); (c) change the eligibility of employees or class of persons
to receive the Stock Incentives (other than as described in paragraphs 1, 2 and
4); or (d) permit the granting of Stock Incentives after the termination date
provided for in paragraph 11.
11. Effective Date and Term. The Effective Date of the Plan shall be the
-----------------------
date of the approval of this amendment and restatement of the Plan by the
Shareholders of the Company within twelve months before or after this amendment
and restatement of the Plan is approved by the Company's Board of Directors.
This Plan shall terminate and no Stock Incentive shall be granted after the
expiration of the period of ten years from the date this amendment and
restatement of the Plan was adopted by the Board of Directors; provided that any
Stock Incentives previously granted may be exercised in accordance with their
terms.
12. The Plan shall be governed by and construed in accordance with the
laws of the State of Illinois.
6
<PAGE>
EXHIBIT 10.3
------------
TWELFTH RESTATED REGISTRATION AGREEMENT
---------------------------------------
TWELFTH RESTATED REGISTRATION AGREEMENT, dated as of June 18, 1999
("Agreement"), by and among Allscripts, Inc. (the "Company"), those Holders of
the Company's Series A Preferred, Series B Preferred, Series C Preferred, Series
D Preferred, Series F Preferred and Series G Preferred listed in Schedule I
attached hereto (collectively, the "Preferred Holders"), the Holders of the
Extension Guaranty Warrants listed in Schedule II hereto (the "Extension
Guaranty Warrant Holders"), the Holders of the 1996 Extension Guaranty Warrants
listed in Schedule II hereto (the "1996 Extension Guaranty Warrant Holders"),
those Holders of Common listed in Schedule III hereto, which Common
automatically converted from Class B Common at December 31, 1993 (the "Common
Holders"), the Holders of Series H Warrants and H Unit Common listed in Schedule
IV hereto (the "H Unit Holders"), the Holders of Extension Series H Warrants
listed in Schedule IV hereto (the "Extension Series H Warrant Holders"), the
Holders of I Unit Common listed in Schedule V hereto (the "I Unit Common
Holders") and the Holders of Debenture Warrants listed in Schedule VI hereto
(the "Debenture Warrant Holders").
R E C I T A L S
- - - - - - - -
A. Pursuant to those certain Series A Convertible Preferred Stock Purchase
Agreements by and between the Company and each of the Holders of Series A
Preferred dated as of June 19, 1986 and amended as of April 24, 1987, January
11, 1988, February 17, 1989 and May 12, 1989 and as may be further amended from
time to time (collectively, the "Series A Agreements"), the Company sold to the
Holders of Series A Preferred an aggregate of 1,050,000 shares of Series A
Preferred.
B. The Series A Agreements granted certain securities registration rights
to the Holders of Series A Preferred.
C. Pursuant to those certain Series B Convertible Preferred Stock Purchase
Agreements by and between the Company and each of the Holders of Series B
Preferred dated as of April 24, 1987 and amended as of January 11, 1988,
February 17, 1989 and May 12, 1989 and as may be further amended from time to
time (collectively, the "Series B Agreements"), the Company sold to the Holders
of Series B Preferred an aggregate of 533,333 shares of Series B Preferred.
D. The Series B Agreements granted certain securities registration rights
to the Holders of Series B Preferred.
E. Pursuant to that certain Medical Adviser Agreement dated February 23,
1987 and amended as of May 1, 1987 by and between the Company and Northwestern
Physicians Network ("NPN") (the "Adviser Agreement"), subject to NPN satisfying
certain conditions, the Company would have been obligated to issue to NPN
warrants (the "NPN Warrants") to purchase up to 47,280 shares of Common of the
Company.
F. The Company and the Holders of Series A Preferred deemed it desirable
for the Company to grant certain securities registration rights to NPN to induce
NPN to enter into the Adviser Agreement which rights were granted pursuant to
this Registration Agreement.
<PAGE>
G. On July 19, 1988 the Company notified NPN that the Company wished to
terminate the Adviser Agreement, effective October 17, 1988, in accordance with
its terms; the Adviser Agreement was thereby terminated and the Company is not
obligated to issue, and has not issued, any NPN Warrants to NPN.
H. Pursuant to those certain Series C Convertible Preferred Stock Purchase
Agreements dated as of January 11, 1988 and amended as of February 17, 1989 and
May 12, 1989 (the "Original Series C Agreements") by and among the Company and
Allstate Insurance Company and Providence Partnership II (collectively, the
"Original Series C Investors"), the Company sold to the Original Series C
Investors an aggregate of 500,000 shares of Original Series C Preferred. In
connection with the issuance of the Original Series C Preferred, the Original
Series C Investors were granted certain securities registration rights, which
registration rights, together with the registration rights of NPN and the
Holders of Series A Preferred and Series B Preferred, were incorporated into a
certain Second Restated Registration Agreement dated as of January 11, 1988 by
and among the Company, NPN and the Holders of Series A Preferred, Series B
Preferred and Original Series C Preferred ("Second Restated Registration
Agreement").
I. The Company has amended and restated the rights and preferences of the
Original Series C Preferred so as to create the Series C Preferred, and has
issued to the Holders of Series C Preferred as listed on Schedule I attached
hereto an aggregate of 2,187,501 shares of Series C Preferred pursuant to the
Original Series C Agreements, certain Series C Senior Convertible Preferred
Stock Purchase Agreements dated as of April 1, 1988 and amended as of February
17, 1989 and May 12, 1989 by and between the Company and each of such Holders
(the "Series C Agreements"), and the Original Series C Stock Dividend.
J. In connection with the sale of the Series C Preferred pursuant to the
Series C Senior Convertible Preferred Stock Purchase Agreements dated as of
April 1, 1988 and the issuance of Series C Preferred pursuant to the Original
Series C Stock Dividend, the Holders of Series C Preferred were granted certain
securities registration rights, which registration rights, together with the
registration rights of NPN and the Holders of Series A Preferred, Series B
Preferred and Original Series C Investors, were incorporated into a certain
Third Restated Registration Agreement dated as of April 22, 1988, by and among
the Company, NPN and the Holders of Series A Preferred, Series B Preferred and
Series C Preferred ("Third Restated Registration Agreement").
K. Pursuant to the Series D Senior Convertible Preferred Stock Purchase
Agreements dated as of May 1, 1989 (collectively, the "Original Series D
Agreements") by and between the Company and the Original Holders of the Series D
Preferred listed on Schedule I attached hereto, the Company sold to the Original
Holders of the Series D Preferred an aggregate of 1,300,000 shares of Series D
Preferred. In connection with the issuance of the Series D Preferred, the
Original Holders of the Series D Preferred were granted certain registration
rights, which registration rights together with the registration rights of the
Holders of the Series A Preferred, Series B Preferred and Series C Preferred,
were incorporated into a Fourth Restated Registration Agreement dated as of May
18, 1989 by and among the Company and the Holders of the Series A Preferred,
Series B Preferred and Series C Preferred and the Original Holders of Series D
Preferred (the "Fourth Restated Registration Agreement").
L. Pursuant to the Purchase Agreements for Series E Super Senior
Convertible Preferred Stock, 8.04% Subordinated Notes due November 30, 1993 and
warrants to purchase shares of Common Stock, dated as of November 15, 1990
(collectively, the "Warrant and Series E Agreements"), the
-2-
<PAGE>
Company sold to such Holders an aggregate of 621,819 shares of Series E
Preferred, Notes in an aggregate principal amount of $2,005,372 and warrants to
purchase an aggregate of 716,212 shares of Common (the "8.04% Warrants"). In
connection with the issuance of the 8.04% Warrants and the Series E Preferred,
Holders of the 8.04% Warrants and the Series E Preferred were granted certain
registration rights, which registration rights, together with the registration
rights granted to the Holders of the Series A Preferred, Series B Preferred and
Series C Preferred and the Original Holders of Series D Preferred were
incorporated into a Fifth Restated Registration Agreement, dated as of November
20, 1990 by and among the Company and the Holders of the Series A Preferred,
Series B Preferred, Series C Preferred, Series E Preferred and the 8.04%
Warrants and the Original Holders of Series D Preferred.
M. Pursuant to an Asset Purchase Agreement (the "Mailscripts Asset
Purchase Agreement") between Mailscripts, Inc., an Ohio corporation
("Mailscripts"), Direct Pharmaceutical Corporation, a Delaware corporation, and
the Company, dated as of October 22, 1991, the Company purchased, and
Mailscripts sold, certain assets of Mailscripts for consideration consisting of,
among other things, 800,000 shares of Class B Common.
N. Pursuant to an Asset Purchase Agreement (the "ISP Purchase Agreement")
between ISP Pharmaceuticals, Inc. ("ISP"), a Nevada corporation, and the
Company, dated as of November 22, 1991, the Company purchased, and ISP sold,
certain assets of ISP for consideration consisting of, among other things,
45,446 shares of Class B Common.
O. In connection with the issuance of the Class B Common to Mailscripts
and ISP, Mailscripts and ISP were granted certain registration rights, which
registration rights, together with the registration rights granted to the
Holders of the Series A Preferred, Series B Preferred, Series C Preferred,
Series E Preferred and the 8.04% Warrants and the Original Holders of Series D
Preferred were incorporated into a Sixth Restated Registration Agreement dated
as of November 22, 1991 by and among the Company and the Holders of Series A
Preferred, Series B Preferred, Series C Preferred, Series E Preferred and the
8.04% Warrants, the Original Holders of Series D Preferred, Mailscripts and ISP.
P. Pursuant to the Purchase Agreements for the Company's Series D
Preferred, dated as of December 15, 1991 (the "Series D Agreements"), the
Company sold 444,445 shares of Series D Preferred. In connection with the
issuance of such shares of Series D Preferred, the purchasers of such shares of
Series D Preferred were granted certain registration rights, which registration
rights, together with the registration rights granted to the Holders of the
Series A Preferred, Series B Preferred, Series C Preferred, Series D Preferred,
Series E Preferred, and the 8.04% Warrants, the original Holders of Series D
Preferred, Mailscripts and ISP were incorporated into a Seventh Restated
Registration Agreement dated as of December 30, 1991 by and among the Company
and the Holders of Series A Preferred, Series B Preferred, Series C Preferred,
Series D Preferred, Series E Preferred and the 8.04% Warrants, Mailscripts and
ISP.
Q. Pursuant to the Note Extension Agreement, dated as of January 15, 1993
(the "Note Extension Agreement"), the Company issued warrants to purchase an
aggregate of 53,985 shares of Common (the "1993 Warrants", which together with
the 8.04% Warrants shall hereinafter be collectively referred to as the
"Warrants").
R. Pursuant to the Warrant Purchase Agreement, dated as of January 31,
1993 (the "Warrant Purchase Agreement"), the Company issued warrants to purchase
an aggregate of 721,986 shares of Common (the "Guaranty Warrants"). Pursuant to
the provisions of Section 19 of the Eighth
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<PAGE>
Restated Registration Agreement, dated as of January 15, 1993, by and among the
Company, and the Holders of Series A Preferred, Series B Preferred, Series C
Preferred, Series D Preferred, Series E Preferred and the Warrants, Mailscripts
and ISP, the Company and the Holders of Proforma Conversion Stock who executed
the Ninth Restated Registration Agreement and who were parties to the Eighth
Restated Registration Agreement, amended and restated the Eighth Restated
Registration Agreement to provide for the grant to the issuees of the Guaranty
Warrants pursuant to the Warrant Purchase Agreement of certain registration
rights as set forth in the Ninth Restated Registration Agreement dated as of
January 31, 1993 by and among the Company and the Holders of Series A Preferred,
Series B Preferred, Series C Preferred, Series D Preferred, Series E Preferred,
the Warrants and the Guaranty Warrants, Mailscripts and ISP.
S. Pursuant to the Amendment to Warrants and Exchange Agreement, dated as
of September 22, 1994, the Company (i) issued an aggregate of 2,492,781 shares
of Series F Senior Convertible Preferred Stock to the Holders of the Notes and
the Series E Preferred in exchange for the Notes, all accrued but unpaid
interest thereon and all accrued but unpaid dividends on the Series E Preferred,
(ii) issued an aggregate of 621,819 shares of Series G Super Senior Convertible
Preferred Stock to the Holders of the Series E Preferred in exchange for all
issued and outstanding shares of Series E Preferred, (iii) amended and restated
the Warrants and issued Amended and Restated Warrants (as, from time to time,
such warrants may be amended and/or amended and restated, the "Amended and
Restated Warrants") in substitution therefor, and (iv) amended and restated the
Guaranty Warrants and issued Amended and Restated Guaranty Warrants (as, from
time to time, such warrants may be amended and/or amended and restated, the
"Amended and Restated Guaranty Warrants") in substitution therefor.
T. Pursuant to the Warrant Purchase Agreement dated as of September 22,
1994 (the "Extension Guaranty Warrant Purchase Agreement"), the Company issued
warrants to purchase an aggregate of 938,572 shares of Common (as, from time to
time, such warrants may be amended and/or amended and restated, the "Extension
Guaranty Warrants"). Pursuant to Amendment No. 1 dated as of April 30, 1996 to
the Extension Guaranty Warrant Purchase Agreement, the Company issued warrants
to purchase an aggregate of 1,675,090 shares of Common (as, from time to time,
such warrants may be amended and/or amended and restated, the "1996 Extension
Guaranty Warrants").
U. Pursuant to the Purchase Agreements for Series H Superior Senior
Redeemable Preferred Stock, warrants to purchase shares of Common Stock and
shares of Common Stock, dated as of September 22, 1994, the Company issued an
aggregate of 1,361,775 shares of Series H Preferred, warrants to purchase an
aggregate of 13,617,853 shares of Common (as, from time to time, such warrants
may be amended and/or amended and restated, the "Series H Warrants") and
9,078,566 shares of Common (the "H Unit Common"). Pursuant to the provisions of
the Ninth Restated Registration Agreement, dated as of January 31, 1993, by and
among the Company, and the Holders of Series A Preferred, Series B Preferred,
Series C Preferred, Series D Preferred, Series E Preferred, the Warrants and the
Guaranty Warrants, Mailscripts and ISP, the Ninth Restated Registration
Agreement was amended and restated to combine all registration provisions with
respect to H Unit Common and Common issued upon conversion of all Series A
Preferred, Series B Preferred, Series C Preferred, Series D Preferred, Series F
Preferred, Series G Preferred and the Class B Common and the exercise of the
Amended and Restated Warrants, the Amended and Restated Guaranty Warrants, the
Extension Guaranty Warrants and the Series H Warrants, all as set forth in the
Tenth Restated Registration Agreement, dated as of September 22, 1994.
V. Pursuant to an Agreement, Consent and Waiver, dated as of April 16,
1998, the Company issued warrants to purchase an aggregate of 5,500,000 shares
of Common (as, from time to
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<PAGE>
time, such warrants may be amended and/or amended and restated, the "Extension
Series H Warrants") to the Holders of the Series H Preferred.
W. Pursuant to the Exchange Agreement, dated as of April 16, 1998, the
Company issued, among other things, warrants to purchase an aggregate of
8,000,000 shares of Common (as, from time to time, such warrants may be amended
and/or amended and restated, the "Debenture Warrants") to the Holders of the
Debentures in exchange for the Debentures.
X. Pursuant to the Purchase Agreement for Series I Super Superior Senior
Redeemable Preferred Stock and shares of Common Stock, dated as of April 16,
1998, the Company issued an aggregate of up to 1,339,241 shares of Series I
Preferred and up to 27,582,487 shares of Common (the "I Unit Common"). Pursuant
to the provisions of the Tenth Restated Registration Rights Agreement, dated as
of September 22, 1994, the Tenth Restated Registration Agreement was amended and
restated to combine all registration provisions then existing with those with
respect to the Extension Series H Warrants, the Debenture Warrants and the I
Unit Common, all as set forth in the Eleventh Restated Registration Agreement,
dated as of April 16, 1998 (the "Eleventh Restated Registration Agreement").
Y. This Agreement specifically amends and restates the Eleventh Restated
Registration Agreement, dated as of April 16, 1998, by and among the Company,
and the Holders of Series A Preferred, Series B Preferred, Series C Preferred,
Series D Preferred, Series F Preferred, Series G Preferred, the Extension
Guaranty Warrants, the 1996 Extension Guaranty Warrants, Series H Warrants and H
Unit Common, the Extension Series H Warrants, the I Unit Common, the Debenture
Warrants, Mailscripts and ISP.
A G R E E M E N T S
- - - - - - - - - -
In consideration of the mutual covenants herein contained and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
1. Definitions. As used in this Agreement:
-----------
"Amended and Restated Guaranty Warrants" shall have the meaning given such
term in the Recitals hereto.
"Amended and Restated Warrants" shall have the meaning given such term in
the Recitals hereto.
"Class B Common" means the Company's Class B Common Stock, $.01 par value
per share, described in Article 4 of the Company's Articles of Incorporation,
and any Stock into which such stock may hereafter be changed, other than Voting
Common.
"Common" means the Company's Voting Common and Class B Common, and any
Stock into which such Voting Common and Class B Common may hereafter be changed.
"Company" means Allscripts, Inc., an Illinois corporation, and all
successor corporations thereto.
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<PAGE>
"Conversion Stock" means (a) H Unit Common and I Unit Common and (b) Voting
Common issued upon conversion or exercise, as the case may be, of (i) Series A
Preferred sold pursuant to the Series A Agreements, (ii) Series B Preferred sold
pursuant to the Series B Agreements, (iii) Series C Preferred (a) sold pursuant
to the Original Series C Agreements or the Series C Agreements or (b) issued
pursuant to the Original Series C Stock Dividend, (iv) Series D Preferred sold
pursuant to the Original Series D Agreements or the Series D Agreements, (v)
Series F Preferred, (vi) Series G Preferred, (vii) Extension Guaranty Warrants,
(viii) Series H Warrants, (ix) 1996 Extension Guaranty Warrants, (x) Extension
Series H Warrants, (xi) Debenture Warrants and (xii) Class B Common issued in
connection with the Mailscripts Asset Purchase Agreement or the ISP Asset
Purchase Agreement and any Voting Common issued or issuable as a dividend or
other distribution with respect to any such H Unit Common, I Unit Common, Voting
Common, Series A Preferred, Series B Preferred, Series C Preferred, Series D
Preferred, Series F Preferred, Series G Preferred, Extension Guaranty Warrants,
Series H Warrants, 1996 Extension Guaranty Warrants, Extension Series H Warrants
or Debenture Warrants.
"Debenture Warrant Holders" shall have the meaning given such term in the
Recitals hereto.
"Debenture Warrants" shall have the meaning given such term in the Recitals
hereto.
"Debentures" shall mean the Company's 8.0% Convertible Subordinated
Debentures due 2001.
"8.04% Warrants" shall have the meaning given such term in the Recitals
hereto.
"Extension Guaranty Warrant Purchase Agreement" shall have the meaning
given such term in the Recitals hereto.
"Extension Guaranty Warrants" shall have the meaning given such term in the
Recitals hereto.
"Extension Series H Warrant Holders" shall have the meaning given such term
in the Recitals hereto.
"Extension Series H Warrants" shall have the meaning given such term in the
Recitals hereto.
"Guaranty Warrants" shall have the meaning given such term in the Recitals
hereto.
"H Unit Common" shall have the meaning given such term in the Recitals
hereto.
"H Unit Holders" shall have the meaning given such term in the Recitals
hereto.
"Holders" means the Persons who shall, from time to time, own of record any
Security. The term "Holder" shall mean any one of the Holders.
"I Unit Common" shall have the meaning given such term in the Recitals
hereto.
"I Unit Common Holders" shall have the meaning given such term in the
Recitals hereto.
"Liberty" shall mean collectively Liberty Partners Holdings 6, L.L.C.,
State Board of Administration of Florida and Liberty Investment Partnership #6.
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<PAGE>
"MSVP" shall mean collectively Morgan Stanley Venture Partners III, L.P.,
Morgan Stanley Venture Investors III, L.P., and The Morgan Stanley Venture
Partners Entrepreneur Fund, L.P.
"1993 Warrants" shall have the meaning given such term in the Recitals
hereto.
"1996 Extension Guaranty Warrant Holders" shall have the meaning given such
term in the Recitals hereto.
"1996 Extension Guaranty Warrants" shall have the meaning given such term
in the Recitals hereto.
"Note Extension Agreement" shall have the meaning given such term in the
Recitals hereto.
"Notes" means the 8.04% Subordinated Notes due November 30, 1993 issued by
the Company pursuant to the Warrant and Series E Agreements in an aggregate
original principal amount of $2,005,372.
"Original Series C Agreements" shall have the meaning given such term in
the Recitals hereto.
"Original Series C Preferred" shall mean the Company's Series C Convertible
Preferred Stock, $1.00 par value, sold pursuant to the Original Series C
Agreements (as such term is defined in the Series C Agreements).
"Original Series C Stock Dividend" means the Series C Preferred issued to
the Original Series C Investors pursuant to Section 5.16 of the Series C
Agreements.
"Original Series D Agreements" shall have the meaning given such term in
the Recitals hereto.
"Person" means an individual, a corporation, a partnership, a limited
liability company, a trust, an unincorporated organization or a governmental
organization or any agency or political subdivision thereof.
"Proforma Conversion Stock" shall consist, at any time, of the shares of
then outstanding Conversion Stock, the Voting Common which would be issued if
the then outstanding Series A Preferred, Series B Preferred, Series C Preferred,
Series D Preferred, Series F Preferred, Series G Preferred and Class B Common
were converted into Voting Common immediately prior to such time and the Voting
Common which would be issued if the then outstanding Extension Guaranty
Warrants, Series H Warrants, 1996 Extension Guaranty Warrants, Extension Series
H Warrants and Debenture Warrants were exercised immediately prior to such time;
provided, however, that Proforma Conversion Stock shall not be deemed to include
- -------- -------
any shares after such shares have been sold pursuant to (i) a registration
statement under the Securities Act, (ii) Rule 144 promulgated by the Securities
and Exchange Commission under the Securities Act, or (iii) any other exemption
from registration to a Person who is free to resell such shares without
registration or restriction under the Securities Act; and provided, further,
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that at any time subsequent to the completion of a Qualified Initial Public
Offering, Proforma Conversion Stock shall not include any shares which are
eligible to be sold without registration under the Securities Act in compliance
with Rule 144 promulgated by the Securities and Exchange Commission under the
Securities Act. No shares of Proforma Conversion Stock shall be deemed to exist
from and after such time as there are less than 400,000 shares of Proforma
Conversion Stock in existence
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<PAGE>
(as such number may be adjusted for stock splits, stock combination, stock
dividends and recapitalizations affecting the Common).
"Prospectus" shall mean any prospectus which is a part of a Registration
Statement, together with all amendments or supplements thereto.
"Qualified Initial Public Offering" shall mean a firm commitment
underwritten public offering of Common registered under the Securities Act (i)
with the per share price to the public equal to at least $0.80 (as adjusted for
stock splits, stock combinations, stock dividends and recapitalizations
affecting the Common), and (ii) in which the Company receives proceeds net of
all costs, expenses and underwriting discounts and commissions of not less than
$20,000,000 (including proceeds received by the Company upon exercise of any
over-allotment option by the underwriters) in each case as determined by the
amounts set forth on the cover page of the prospectus for such offering.
"Registration Statement" shall mean any registration statement filed with
the Securities and Exchange Commission in accordance with the Securities Act,
together with all amendments or supplements thereto.
"Securities" shall mean any debt or equity securities of the Company,
whether now or hereafter authorized, and any instrument convertible into or
exchangeable for Securities or a Security. The term "Security" shall mean any
one of the Securities.
"Securities Act" shall mean the Securities Act of 1933, as amended prior to
or after the date of this Agreement, or any federal statute or statutes which
shall be enacted to take the place of such Act, together with all rules and
regulations promulgated thereunder.
"Securities and Exchange Commission" shall mean the United States
Securities and Exchange Commission or any successor to the functions of such
agency.
"Securities Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended prior to or after the date of this Agreement, or any federal statute
or statutes which shall be enacted to take the place of such Act, together with
all rules and regulations promulgated thereunder.
"Seller" shall mean each Holder of Securities of the Company as to which
Securities the Company would be required to file a Registration Statement or
which would be registered under the Securities Act at the request of such Holder
pursuant to any of the provisions of this Agreement.
"Series A Agreements" shall have the meaning given such term in the
Recitals hereto.
"Series A Preferred" shall mean the Company's Series A Convertible
Preferred Stock, $1.00 par value, sold pursuant to the Series A Agreements, and
any Stock into which such Stock may hereafter be changed, other than by exercise
of the conversion right of such Stock.
"Series B Agreements" shall have the meaning given such term in the
Recitals hereto.
"Series B Preferred" shall mean the Company's Series B Convertible
Preferred Stock, $1.00 par value, sold pursuant to the Series B Agreements, and
any Stock into which such Stock may hereafter be changed, other than by the
exercise of the conversion right of such Stock.
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<PAGE>
"Series C Agreements" shall have the meaning given such term in the
Recitals hereto.
"Series C Preferred" shall mean the Company's Series C Senior Convertible
Preferred Stock, $1.00 par value, sold pursuant to the Original Series C
Agreements and the Series C Agreements, or issued pursuant to the Original
Series C Stock Dividend, and any Stock into which such Stock may hereafter be
changed, other than by the exercise of the conversion right of such Stock.
"Series D Agreements" shall have the meaning given such term in the
Recitals hereto.
"Series D Preferred" shall mean the Company's Series D Senior Convertible
Preferred Stock, $1.00 par value, sold pursuant to the Original Series D
Agreements and the Series D Agreements, and any Stock into which such Stock may
hereafter be changed, other than by exercise of the conversion right of such
Stock, except for shares of Series D Senior Convertible Preferred, $1.00 par
value, sold to Doctors' Pharmacy, Inc. pursuant to that certain Asset Purchase
Agreement between the Company, Doctors' Pharmacy, Inc. and Direct
Pharmaceuticals Corporation.
"Series E Preferred" shall mean the Company's Series E Super Senior
Convertible Preferred Stock, $1.00 par value, sold pursuant to the Warrant and
Series E Agreements, and any Stock into which such Stock may hereafter be
changed, other than by the conversion right of such Stock.
"Series F Preferred" shall mean the Company's Series F Senior Convertible
Preferred Stock, $1.00 par value, and any Stock into which such Stock may
hereafter be changed, other than by the exercise of the conversion right of such
Stock.
"Series G Preferred" shall mean the Company's Series G Super Senior
Convertible Preferred Stock, $1.00 par value, and any Stock into which such
Stock may hereafter be changed, other than by the exercise of the conversion
right of such Stock.
"Series H Preferred" shall mean the Company's Series H Superior Senior
Redeemable Preferred Stock, $1.00 par value, and any Stock into which such Stock
may hereafter be changed.
"Series H Warrants" shall have the meaning given such term in the Recitals
hereto.
"Series I Preferred" shall mean the Company's Series I Super Superior
Senior Redeemable Preferred Stock, $1.00 par value, and any Stock into which
such Stock may hereafter be changed.
"Stock" shall include any and all shares, interests or other equivalents
(however designated) of, or participation in, corporate stock.
"Voting Common" shall mean the Company's Voting Common Stock, $.01 par
value per share, described in Article 4 of the Company's Articles of
Incorporation, and any Stock into which such Stock may hereafter be changed.
"Warrant and Series E Agreements" shall have the meaning given such term in
the Recitals hereto.
"Warrant Purchase Agreement" shall have the meaning given such term in the
recitals hereto.
"Warrants" shall have the meaning given such term in the Recitals hereto.
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<PAGE>
2. Required Registrations.
----------------------
A. Commencing on the date falling 180 days after the effective date of a
Qualified Initial Public Offering, upon the written request to register any
number of shares of Conversion Stock under the Securities Act made by Liberty,
the Company will use its best efforts to effect the registration of Conversion
Stock under the Securities Act and the registration or qualification thereof
under all applicable state securities or blue sky laws, but only to the extent
provided for in the following provisions of this Agreement. A request pursuant
to this Section 2.A. shall state the intended method of disposition of the
Conversion Stock sought to be registered. Whenever the Company shall, pursuant
to this Section 2.A., be requested by Liberty to effect the registration of any
Conversion Stock under the Securities Act, the Company shall promptly give
written notice of such proposed registration to MSVP, stating that MSVP has the
right to request that any or all of the Conversion Stock owned by it be included
in such registration. The Company shall include in such registration all
Conversion Stock with respect to which the Company receives written requests
pursuant to the preceding sentence from MSVP for inclusion therein; and
thereupon the Company will, subject to the limitations contained in Section 8,
as expeditiously as possible, use its best efforts to effect the registration,
under the Securities Act, of such Conversion Stock which the Company has been
requested to register for disposition by MSVP in accordance with the intended
method of disposition described in the request of Liberty, all to the extent
requisite to permit such sale or other disposition by MSVP of the Conversion
Stock so registered.
B. Liberty shall be entitled to require the Company to register Conversion
Stock pursuant to the provisions of Section 2.A. hereof three times, but no more
than once in any continuous six-month period. The foregoing registration rights
of Liberty shall not be deemed satisfied by the Company until a Registration
Statement shall have been filed by the Company with and made effective by the
Securities and Exchange Commission under the Securities Act pursuant to a
request made pursuant to Section 2.A. Liberty shall have the right to select
the investment banker or bankers who shall serve as the manager and/or co-
managers for the offering of Securities covered by such Registration Statement,
subject to the consent of the Company, which consent shall not be unreasonably
withheld.
C. Commencing on the date falling 180 days after the effective date of a
Qualified Initial Public Offering, upon the written request to register any
number of shares of Conversion Stock under the Securities Act made by MSVP, the
Company will use its best efforts to effect the registration of Conversion Stock
under the Securities Act and the registration or qualification thereof under all
applicable state securities or blue sky laws, but only to the extent provided
for in the following provisions of this Agreement. A request pursuant to this
Section 2.C. shall state the intended method of disposition of the Conversion
Stock sought to be registered. Whenever the Company shall, pursuant to this
Section 2.C., be requested by MSVP to effect the registration of any Conversion
Stock under the Securities Act, the Company shall promptly give written notice
of such proposed registration to Liberty, stating that Liberty has the right to
request that any or all of the Conversion Stock owned by it be included in such
registration. The Company shall include in such registration all Conversion
Stock with respect to which the Company receives written requests pursuant to
the preceding sentence from Liberty for inclusion therein; and thereupon the
Company will, subject to the limitations contained in Section 8, as
expeditiously as possible, use its best efforts to effect the registration,
under the Securities Act, of such Conversion Stock which the Company has been
requested to register for disposition by Liberty in accordance with the intended
method of disposition described in the request of MSVP, all to the extent
requisite to permit such sale or other disposition by Liberty of the Conversion
Stock so registered.
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<PAGE>
D. MSVP shall be entitled to require the Company to register Conversion
Stock pursuant to the provisions of Section 2.C. hereof three times, but no more
than once in any continuous six-month period. The foregoing registration rights
of MSVP shall not be deemed satisfied by the Company until a Registration
Statement shall have been filed by the Company with and made effective by the
Securities and Exchange Commission under the Securities Act pursuant to a
request made pursuant to Section 2.C. MSVP shall have the right to select the
investment banker or bankers who shall serve as the manager and/or co-managers
for the offering of Securities covered by such Registration Statement, subject
to the consent of the Company, which consent shall not be unreasonably withheld.
E. The Company shall be entitled to postpone for a reasonable time, not
exceeding 120 days, the filing of a Registration Statement pursuant to a request
made pursuant to Section 2.A. or 2.C. or its efforts to cause such Registration
Statement to become effective if at the time the right to delay is exercised the
Company shall determine in good faith that such offering would interfere with
any acquisition, financing or other transaction that the Company is actively
pursuing and is material to the Company or would involve initial or continuing
disclosure obligations that would not be in the best interests of the Company.
The Company may not exercise the right to delay more than once in any continuous
twelve-month period.
3. Incidental Registration. If the Company at any time proposes or is
-----------------------
required to register any of its shares of Common under the Securities Act or any
applicable state securities or blue sky laws on a form which permits inclusion
of the Conversion Stock, other than the registration under the Securities Act by
the Company of a Qualified Initial Public Offering, it will each such time give
written notice to Liberty and MSVP of its intention so to do. Upon the written
request of Liberty and/or MSVP given within 20 days after receipt of any such
notice, the Company will, subject to the limits contained in Section 8, use its
best efforts to cause all Conversion Stock which such Holders shall have
requested be registered, to be registered under the Securities Act and any
applicable state securities or blue sky laws, all to the extent requisite to
permit the sale or other disposition by such Holders of the Conversion Stock so
registered. No registrations of Conversion Stock under this Section 3 shall
relieve the Company of its obligation to effect registrations under Section 2
hereof, or shall constitute a registration request by Liberty or MSVP
thereunder. The Company shall have the right to select the investment banker or
bankers who shall serve as the manager and/or co-managers for all registrations
of offerings of Securities under this Section 3.
4. Registration Procedures. Whenever the Company is required by the
-----------------------
provisions of this Agreement to use its best efforts to effect the registration
of any Conversion Stock under the Securities Act, the Company will, as
expeditiously as possible:
(a) prepare and file with the Securities and Exchange Commission a
Registration Statement with respect to such Securities and use its
best efforts to cause such Registration Statement to become and remain
effective (provided that before filing a Registration Statement or
Prospectus or any amendments or supplements thereto, the Company will
furnish to counsel selected by the Holders of at least 51% of the
Conversion Stock included in such Registration Statement copies of all
such documents proposed to be filed, which documents will be subject
to the review of such counsel);
(b) prepare and file with the Securities and Exchange Commission such
amendments and supplements to such Registration Statement and the
Prospectus used in connection therewith as may be necessary to keep
such Registration Statement effective for a period of not less than
one year and to comply with the provisions of the Securities Act with
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<PAGE>
respect to the sale or other disposition of all Securities covered by
such Registration Statement during such period in accordance with the
intended method or methods of disposition by the Sellers thereof set
forth in such Registration Statement;
(c) furnish to each Seller such number of copies of such Registration
Statement, each amendment and supplement thereto, the Prospectus
included in the Registration Statement (including each preliminary
Prospectus), and such other documents, as such Seller may reasonably
request in order to facilitate the public sale or other disposition of
the Securities owned by such Seller;
(d) use every reasonable effort to register or qualify all the Securities
covered by such Registration Statement under such other securities or
blue sky laws of such jurisdictions as each Seller shall reasonably
request, and do any and all other acts and things which may be
necessary under such securities or blue sky laws to enable such Seller
to consummate the public sale or other disposition in such
jurisdiction of the Securities owned by such Seller covered by such
Registration Statement; provided, however, that the Company shall not
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be required to (i) qualify to do business as a foreign corporation in
any jurisdiction wherein it would not otherwise be required to qualify
but for this subparagraph, (ii) subject itself to taxation in any such
jurisdiction, or (iii) consent to general service of process in any
such jurisdiction;
(e) notify each Seller at any time when a Prospectus relating to the
Securities of such Seller covered by such Registration Statement is
required to be delivered under the Securities Act, of the happening of
any event as a result of which the Prospectus included in such
Registration Statement contains an untrue statement of a material fact
or omits any fact necessary to make the statements therein not
misleading, and at the request of any such Seller, prepare a
supplement or amendment to such Prospectus so that, as thereafter
delivered to the purchasers of the Securities covered by such
Registration Statement, such Prospectus will not contain an untrue
statement of a material fact or omit to state any fact necessary to
make the statements therein not misleading;
(f) cause all such Securities covered by such Registration Statement to be
listed on each securities exchange on which Securities of the same
class are then listed;
(g) provide a transfer agent and registrar for Voting Common not later
than the effective date of such Registration Statement;
(h) enter into such customary agreements (including an underwriting
agreement in customary form) and take all such other actions as the
holders of at least 51% of the Conversion Stock included in such
Registration Statement or underwriters, if any, reasonably request in
order to expedite or facilitate the disposition of such Securities
(including, without limitation, effecting a stock split or a
combination of shares);
(i) make available for inspection by any Seller, any underwriter
participating in any distribution pursuant to such Registration
Statement, and any attorney, accountant or other agent retained by any
such Seller 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
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<PAGE>
such Seller, underwriter, attorney, accountant or agent in connection
with such Registration Statement; and
(j) obtain a "cold comfort" letter from the Company's independent public
accountants in customary form and covering such matters of the type
customarily covered by cold comfort letters as the holders of at least
51% of the Conversion Stock included in such Registration Statement
reasonably request.
5. Expenses. All expenses incurred in effecting the first requested
--------
registrations provided for in each of Sections 2.A and 2.B. hereof and Sections
2.C. and 2.D. hereof and in effecting all of the registrations provided for in
Section 3 hereof, including, without limitation, all registration and filing
fees, printing expenses, fees and disbursements of counsel for the Company, fees
and disbursements of counsel for the Sellers (who shall be one firm of attorneys
selected by Sellers holding at least 51% of the Conversion Stock being offered),
underwriting expenses other than commissions, expenses of any audits incident to
or required by any such registration and expenses of complying with the
securities or blue sky laws of any jurisdictions pursuant to Subsection (D) of
Section 4 hereof, shall be borne and paid by the Company. All expenses incurred
in effecting the second and third requested registrations under each of Sections
2.A. and 2.B. hereof and Sections 2.C. and 2.D. hereof, shall be borne and paid
by the Holders of Securities who include Securities therein (and the Company, if
it includes Securities therein), such expenses to be shared among and paid by
such Persons in the ratio that the initial public offering price of the
Securities included by each such Person (as set forth in the Prospectus) bears
to the aggregate initial public offering price of all Securities included
therein.
6. Indemnification.
---------------
A. In the event of any registration of any of its Securities under the
Securities Act pursuant to this Agreement, the Company, to the extent permitted
by law, shall indemnify and hold harmless the Seller of such Securities, each
underwriter (as defined in the Securities Act), each other Person who
participates in the offering of such Securities, and each other Person, if any,
who controls (within the meaning of the Securities Act) such Seller, underwriter
or participating Person, against any losses, claims, damages or liabilities,
joint or several, to which such Seller, underwriter, participating Person or
controlling Person may become subject under the Securities Act or any other
statute or at common law, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) arise out of or are based upon (1) any alleged
untrue statement of any material fact contained, on the effective date thereof,
in any Registration Statement under which such Securities were registered under
the Securities Act, any preliminary Prospectus or final Prospectus contained
therein, or any summary Prospectus issued in connection with any Securities
being registered, or any amendment or supplement thereto, or (2) any alleged
omission to state in any such document a material fact required to be stated
therein or necessary to make the statements therein not misleading, and shall
reimburse each such Seller, or any such underwriter, participating Person or
controlling Person for any legal or other expenses reasonably incurred by such
Seller, underwriter, participating Person or controlling Person in connection
with investigating or defending any such loss, damage, liability or action;
provided, however, that the Company shall not be liable to any Seller, or any
- -------- -------
such underwriter, participating Person, or controlling Person in any such case
to the extent that any such loss, claim, damage or liability arises out of or is
based upon any alleged untrue statement or alleged omission made in such
Registration Statement, preliminary Prospectus, summary Prospectus, final
Prospectus, or amendment or supplement thereto in reliance upon and in
conformity with written information furnished to the Company by such Seller,
specifically for use therein.
-13-
<PAGE>
B. Each of Liberty and MSVP, severally and not jointly, indemnifies and
holds harmless each other, the Company, its directors and officers, each
underwriter (as defined in the Securities Act), and each other Person, if any,
who controls (within the meaning of the Securities Act) the Company, any
underwriter or such other Holder, against any losses, claims, damages, or
liabilities, joint or several, to which any such other Holder, the Company, any
such director or officer, any such underwriter, or any such Person may become
subject under the Securities Act or any other statute or at common law, insofar
as such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon (1) any alleged untrue statement of any material
fact contained, on the effective date thereof, in any Registration Statement
under which Securities owned by such Holder are registered under the Securities
Act, any preliminary Prospectus or final Prospectus contained therein, or any
summary Prospectus issued in connection with any such Securities being
registered, or any amendment or supplement thereto, or (2) any alleged omission
to state in any such document a material fact required to be stated therein or
necessary to make the statements therein not misleading, in either case to the
extent, but only to the extent, that such alleged untrue statement or alleged
omission was made in such Registration Statement, preliminary Prospectus,
summary Prospectus, final Prospectus, amendment or supplement in reliance upon
and in conformity with written information furnished to the Company by such
Holder specifically for use therein, and then only to the extent that such
alleged untrue statements or alleged omissions by such Holder were not based on
the authority of an expert as to which such Holder had no reasonable ground to
believe, and did not believe, that the statements made based on the authority of
such expert were untrue or that there was an omission to state a material fact.
Notwithstanding the foregoing provisions of this Subsection B, neither Liberty
nor MSVP shall be required to pay under such provisions an amount in excess of
the proceeds received by such Holder in payment for the Securities sold by such
Holder pursuant to the Registration Statement.
C. Indemnification similar to that specified in Subsections (A) and (B)
of this Section 6 shall be given by the Company and each of Liberty and MSVP
(with such modifications as shall be appropriate) covered by any registration or
other qualification of Securities under any federal or state securities law or
regulation other than the Securities Act with respect to any such registration
or other qualification effected pursuant to this Agreement.
D. Any Person which proposes to assert the right to be indemnified under
Subsections (A), (B), or (C) of this Section 6 shall, promptly after receipt of
notice of commencement of any action, suit or proceeding against such Person in
respect of which a claim is to be made against an indemnifying Person under such
Subsections (A), (B) or (C), notify each such indemnifying Person of the
commencement of such action, suit or proceeding, enclosing a copy of all papers
served. The indemnifying Person shall be entitled to participate in and, to the
extent such indemnifying Person may wish, to assume the defense of such action
at its own expense, with counsel chosen by it and reasonably satisfactory to the
Person claiming indemnification, and after notice from the indemnifying Person
of its election to assume the defense thereof the indemnifying Person will be
liable to the Person claiming indemnification only for legal fees and expenses
incurred by the Person claiming indemnification prior to the date upon which
such Person received notice that the indemnifying Person had chosen to assume
the defense of such action (including any costs incurred subsequent to that date
relating solely to organization or clean-up of work performed prior to such
date). The Person claiming indemnification shall have the right to employ
separate counsel in any such action and to participate in the defense thereof,
but the fees and expenses of such counsel shall not be at the expense of the
Person against whom indemnification is sought; provided, however, that
-------- -------
notwithstanding the foregoing, in any case when indemnification is sought
against the Company and (i) the Person seeking indemnification has been advised
by counsel that its defenses may be different from those of the Company, or (ii)
the Company has not proceeded in a timely manner to effect such defense, then
the fees and expenses of counsel for
-14-
<PAGE>
such Person shall be paid by the Company. In no event shall a Person against
whom indemnification is sought be obligated to indemnify any Person for any
settlement of any claim or action effected without the indemnifying Person's
consent.
E. The indemnification provided for under this Section 6 will remain in
full force and effect regardless of any investigation made by or on behalf of
the indemnified party or any officer, director or controlling Person of such
indemnified party and will survive the transfer of Securities.
F. In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in this Section 6 is for
any reason held to be unavailable to an indemnified party under Subsection A. B.
or C. above in respect to any losses, claims, damages or liabilities referred to
therein, then each applicable indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities in
such proportion as is appropriate to reflect the relative fault of the parties
in connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities. The relative fault of a party shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by such party and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The amount paid or payable by a party as a
result of the losses, claims, damages and liabilities referred to above shall be
deemed to include any legal or other fees or expenses reasonably incurred by
such party in connection with investigating or defending any action or claim.
Notwithstanding the provisions of this Section 6, neither Liberty nor MSVP shall
be required to contribute any amount in connection with any Registration
Statement in excess of the proceeds received by such Holder pursuant to such
Registration Statement.
7. Participation in Underwritten Registrations. No Person may
-------------------------------------------
participate in any underwritten registration hereunder unless such Person (i)
agrees to sell such Person's Securities on the basis provided in any
underwriting arrangements approved by the Persons entitled hereunder to approve
such arrangements and (ii) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents required
under the terms of such underwriting arrangements.
8. Marketing Restrictions.
----------------------
A. If
(1) Liberty is entitled and wishes to register any Conversion Stock
in a registration made pursuant to Sections 2.A. and 2.B. hereof, and
(2) the offering proposed to be made by Liberty is to be an
underwritten public offering, and
(3) the Company, MSVP or one or more other Holders of Securities
wishes to register Securities in such registration, and
(4) the managing underwriters of such public offering furnish a
written opinion that the total amount of Securities to be included in such
offering would exceed the maximum amount of Securities (as specified in
such opinion) which can be successfully marketed,
-15-
<PAGE>
then the relative rights to participate in such offering of Liberty, MSVP, the
Holders, if any, of Securities having the right to include such Securities in
such registration, and the Company shall be in the following order of priority:
First: Liberty shall be entitled to participate; and then
Second: MSVP shall be entitled to participate; and then
Third: The Company shall be entitled to participate; and then
Fourth: All Holders, if any, of other Securities having the right to
include such Securities in such registration shall be entitled to
participate in accordance with the relative priorities, if any, as shall
exist among them.
No Securities (issued or unissued) other than those registered and included in
the underwritten offering shall be offered for sale or other disposition by the
Company, Liberty or MSVP in a transaction which would require registration under
the Securities Act (except for sales pursuant to a registration statement on
Form S-8) until the expiration of 90 days after the effective date of the
Registration Statement filed pursuant to Sections 2.A. and 2.B. hereof, or such
earlier time consented to by the managing underwriters.
B. If
(1) MSVP is entitled and wishes to register any Conversion Stock in a
registration made pursuant to Sections 2.C. and 2.D. hereof, and
(2) the offering proposed to be made by MSVP is to be an underwritten
public offering, and
(3) the Company, Liberty or one or more other Holders of Securities
wishes to register Securities in such registration, and
(4) the managing underwriters of such public offering furnish a
written opinion that the total amount of Securities to be included in such
offering would exceed the maximum amount of Securities (as specified in
such opinion) which can be successfully marketed,
then the relative rights to participate in such offering of MSVP, Liberty, the
other Holders, if any, of Securities having the right to include such Securities
in such registration, and the Company shall be in the following order of
priority:
First: MSVP shall be entitled to participate; and then
Second: Liberty shall be entitled to participate; and then
Third: The Company shall be entitled to participate; and then
Fourth: All Holders, if any, of other Securities having the right to
include such Securities in such registration shall be entitled to
participate in accordance with the relative priorities, if any, as shall
exist among them.
-16-
<PAGE>
No Securities (issued or unissued) other than those registered and included in
the underwritten offering shall be offered for sale or other disposition by the
Company, Liberty or MSVP in a transaction which would require registration under
the Securities Act (except for sales pursuant to a registration statement on
Form S-8) until the expiration of 90 days after the effective date of the
Registration Statement filed pursuant to Sections 2.C. and 2.D. hereof, or such
earlier time consented to by the managing underwriters.
C. If
(1) Liberty or MSVP requests registration of Conversion Stock under
Section 3 hereof, and
(2) the offering proposed to be made is to be an underwritten public
offering, and
(3) the managing underwriters of such public offering furnish a
written opinion that the total amount of Securities to be included in such
offering would exceed the maximum amount of Securities (as specified in
such opinion) which can be successfully marketed,
then the relative rights to participate in such offering of Liberty, MSVP, the
other Holders, if any, of Securities having the right to include such Securities
in such registration, and the Company shall be in the following order of
priority:
First: The Person or Persons (including the Company in the case of an
offering initiated by the Company) requesting such registration shall be
entitled to participate in accordance with the relative priorities, if any,
as shall exist among them; and then
Second: Liberty, MSVP and all other Holders, if any, of Securities
having the right to include such Securities in such registration shall be
entitled to participate pro rata among themselves in accordance with the
number of shares of Voting Common which each such Holder shall have
requested be registered (for the purposes of this clause, Securities
convertible into or exchangeable or exercisable for Voting Common to be
treated as if they were so converted or exchanged or exercised immediately
prior to the filing of the Registration Statement covering such
registration); and then
Third: If such registration shall have been requested by a Person or
Persons other than the Company, the Company shall be entitled to include
Securities in such registration.
No Securities (issued or unissued) other than those registered and included in
the underwritten offering shall be offered for sale or other disposition by the
Company, Liberty or MSVP in a transaction which would require registration under
the Securities Act (except for sales pursuant to a registration statement on
Form S-8) until the expiration of 90 days after the effective date of the
Registration Statement in which Conversion Stock was included pursuant to
Section 3 hereof, or such earlier time consented to by the managing
underwriters.
9. Sale of Extension Guaranty Warrants, Series H Warrants, 1996 Extension
----------------------------------------------------------------------
Guaranty Warrants, Extension Series H Warrants and/or Debenture Warrants to
- ---------------------------------------------------------------------------
Underwriter. Notwithstanding anything in this Agreement to the contrary, in
- -----------
lieu of exercising any Extension Guaranty Warrants, Series H Warrants, 1996
Extension Guaranty Warrants, Extension Series H Warrants or Debenture
-17-
<PAGE>
Warrants prior to or simultaneously with the filing or the effectiveness of any
Registration Statement filed pursuant to this Agreement, the Holder of such
Extension Guaranty Warrants, Series H Warrants, 1996 Extension Guaranty
Warrants, Extension Series H Warrants and/or Debenture Warrants may sell such
Extension Guaranty Warrants, Series H Warrants, 1996 Extension Guaranty
Warrants, Extension Series H Warrants and/or Debenture Warrants to the
underwriter of the offering being registered if such underwriter consents
thereto and if such underwriter undertakes to exercise such Extension Guaranty
Warrants, Series H Warrants, 1996 Extension Guaranty Warrants, Extension Series
H Warrants or Debenture Warrants, before making any distribution pursuant to
such Registration Statement and to include the Conversion Stock among the
Securities being offered pursuant to such Registration Statement. The Company
agrees to cause the Conversion Stock to be issued within such time as will
permit the underwriter to make and complete the distribution contemplated by the
underwriting.
10. Assignability of Registration Rights. The registration rights set
------------------------------------
forth in this Agreement shall accrue to each subsequent Holder of Proforma
Conversion Stock who consents in writing to be bound by the terms and conditions
of this Agreement, provided, however, that the rights of Liberty set forth in
-------- -------
Subsections 2.A., 2.B. and 8.A. of this Agreement shall only accrue to a
subsequent Holder of all of Liberty's Proforma Conversion Stock who consents in
writing to be bound by the terms and conditions of this Agreement, and the
rights of MSVP set forth in Subsections 2.C., 2.D. and 8.B. of this Agreement
shall only accrue to a subsequent Holder of all of MSVP's Proforma Conversion
Stock who consents in writing to be bound by the terms and conditions of this
Agreement
11. Grant of Subsequent Registration Rights. The Company may not grant
---------------------------------------
registration rights to subsequent investors in the Company unless such rights
are subordinate to the rights of Liberty and MSVP or the grant of such rights is
consented to by Liberty and MSVP.
12. Severability. Whenever possible, each provision of this Agreement
------------
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be prohibited by or
invalid under applicable law, such provision will be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder of
this Agreement.
13. Rule 144. At the written request of Liberty or MSVP in connection
--------
with a proposal to sell Conversion Stock in compliance with Rule 144 promulgated
by the Securities and Exchange Commission under the Securities Act, the Company
shall furnish to such Holder, within ten days after receipt of such request, a
written statement as to whether or not the Company is in compliance with the
filing requirements of the Securities and Exchange Commission as set forth in
such Rule.
14. Descriptive Headings. The descriptive headings of this Agreement are
--------------------
inserted for convenience only and do not constitute a part of this Agreement.
15. Notices. All communications provided for hereunder shall be in
-------
writing and delivered by hand or by first-class or certified mail, postage
prepaid, to the following addresses, or such other addresses as shall be given
by notice delivered hereunder, and shall be deemed to have been received on the
day of personal delivery or within three business days after such mailing:
If to Liberty or MSVP, addressed to such Holder at its address as shown on
the books of the Company or its transfer agent;
-18-
<PAGE>
If to the Company, to:
Allscripts, Inc.
2401 Commerce Drive
Libertyville, Illinois 60048
Attention: President
With a copy to:
Joseph H. Greenberg
Gardner, Carton & Douglas
321 North Clark Street
Suite 2900
Chicago, Illinois 60610
or, as to such Holders or the Company, to such other persons or at such other
addresses as shall be furnished by any such party by like notice to the other
parties.
16. Termination. All rights under this Agreement shall terminate as to
-----------
any Holder at such time as such Holder is free to sell all shares of Proforma
Conversion Stock held by such Holder pursuant to paragraph (k) of Rule 144 under
the Securities Act or a comparable exemption from registration that enables the
Holder to sell all shares of Proforma Conversion Stock held by such Holder
without registration and without restriction as to the manner of sale or
otherwise.
17. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original but all of which shall
together constitute one and the same document.
18. Entire Agreement. This Agreement constitutes the entire agreement by
----------------
and among the parties hereto with respect to the subject matter hereof, and
supersedes and replaces in its entirety the Eleventh Restated Registration
Agreement, provided, however, that in the event the Company has not consummated
-------- -------
a Qualified Initial Public Offering registered pursuant to Registration
Statement No. 333-78431 (and/or any additional Registration Statement related
thereto and filed pursuant to Rule 462(b) under the Securities Act) on or before
December 31, 1999, this Agreement shall terminate and be of no further force or
effect and the Eleventh Restated Registration Agreement shall thereafter
continue in full force and effect.
19. Amendments and Governing Law. This Agreement may be amended, modified
----------------------------
or supplemented or any provision hereof waived only by a written instrument
executed by Liberty and MSVP. This Agreement shall be governed by and construed
in accordance with the laws of the State of Illinois applicable to contracts
made and to be performed in that state.
[Signatures on next page]
-19-
<PAGE>
Registration Agreement
- ----------------------
THE HOLDERS:
-----------
LIBERTY PARTNERS HOLDINGS 6, L.L.C.
By: /s/ Michael Kluger
-------------------------------------------
MORGAN STANLEY VENTURE PARTNERS III, L.P.
By: Morgan Stanley Venture Partners III, L.L.C.,
its General Partner
By: Morgan Stanley Venture Capital III, Inc.,
its Institutional Managing Member
By: /s/ Gary M. Stein, Vice President
-------------------------------------------
MORGAN STANLEY VENTURE INVESTORS III, L.P.
By: Morgan Stanley Venture Partners III, L.L.C.,
its General Partner
By: Morgan Stanley Venture Capital III, Inc.,
its Institutional Managing Member
By: /s/ Gary M. Stein, Vice President
-------------------------------------------
-20-
<PAGE>
Registration Agreement
- ----------------------
THE MORGAN STANLEY VENTURE PARTNERS
ENTREPRENEUR FUND, L.P.
By: Morgan Stanley Venture Partners III, L.L.C.,
its General Partner
By: Morgan Stanley Venture Capital III, Inc.,
its Institutional Managing Member
By: /s/ Gary M. Stein, Vice President
-------------------------------------
ESSEX VENTURE PARTNERS, L.P. FUND I
By: /s/ James Currie
-------------------------------------
Its: General Partner
PROVIDENCE PARTNERSHIP II
By: /s/ , Attorney in fact
--------------------------------------
a General Partner
/s/ Ralph A. Bard, III
----------------------------------------
Ralph A. Bard, III
________________________________________
Mary B. Bourquin
________________________________________
Katharine B. Dickson
/s/ Gordon R. Lang
----------------------------------------
Gordon R. Lang, individually and the
Gordon R. Lang IRA Rollover
Delaware Charter Guarantee and
Trust Company, Trustee
-21-
<PAGE>
Registration Agreement
- ----------------------
1987 MERCHANT INVESTMENT PARTNERSHIP
By: Merchant Capital, Inc., its general partner
By: /s/ Linda H. Hanauer
---------------------------------------------
Its: Chief Financial & Administrative Officer
BESSEMER VENTURE PARTNERS II L.P.,
a Delaware limited partnership
By: Deer II Co., a Delaware
general partnership
By: /s/ Robert H. Buescher
--------------------------------------
a General Partner
________________________________________________*
William T. Burgin
________________________________________________*
Brimstone Island Co. L.P.
________________________________________________*
Neill H. Brownstein
/s/ Robert H. Buescher
------------------------------------------------
Robert H. Buescher
/s/ James H. Furneaux
------------------------------------------------
James H. Furneaux
________________________________________________*
Christopher Gabrieli
________________________________________________*
Paul Bancroft III
-22-
<PAGE>
Registration Agreement
- ----------------------
CARDWELL CHILDREN'S TRUST
Dated June 1, 1987
By:_____________________________________________*
Its Trustee
________________________________________________*
R. Daniel Saxe, Jr.
________________________________________________*
Thomas F. Ruhm
________________________________________________*
John I. Wechsler
________________________________________________*
Ward W. Woods
*By: Robert H. Buescher,
Attorney-in-Fact /s/ Robert H. Buescher
----------------------
/s/ N. Goldfarb
------------------------------------------------
Norman M. Goldfarb
THE WOODLANDS VENTURE FUND, L.P.
By: The Woodlands Venture Partners, L.P.
By:_____________________________________________
A General Partner
________________________________________________
John N. Kapoor
-23-
<PAGE>
Registration Agreement
- ----------------------
ARROW PARTNERS C.V.
By:________________________________________
A General Partner
MAILSCRIPTS, INC.
By:________________________________________
Its:_______________________________________
ISP PHARMACEUTICALS, INC.
By:________________________________________
Its:_______________________________________
STATE BOARD OF ADMINISTRATION OF
FLORIDA
By: /s/ Michael Kluger
----------------------------------------
CHASE MANHATTAN TTEE FOR IBM CORP.
RETIREMENT PLAN TRUST DTD 12/18/45
By: /s/
----------------------------------------
Sr. Executive Vice President
Palisade Capital Management LLC
BANKERS TRUST TRUSTEE FOR CHRYSLER CORP.
EMPLOYEE #1 PENSION PLAN DTD 4/1/89
By: /s/
----------------------------------------
Sr. Executive Vice President
Palisade Capital Management LLC
-24-
<PAGE>
Registration Agreement
- ----------------------
EDWARD STEWART REVOCABLE TRUST
By:___________________________________
COMDISCO FOUNDATION
By: /s/
-----------------------------------
AWAD & ASSOCIATES L.P.
By:___________________________________
______________________________________
Nanette E. Scofield
/s/ Richard B. Felder
--------------------------------------
Richard B. Felder
______________________________________
Michael D. Mintz Trust U/A 8/12/92
LIBERTY INVESTMENT PARTNERSHIP #6
By: /s/ Michael Kluger
-----------------------------------
/s/ Marvin Sharfstein
--------------------------------------
Marvin Sharfstein
/s/ Warren Wood
--------------------------------------
Warren Wood
-25-
<PAGE>
Registration Agreement
- ----------------------
HAP INVESTMENT PARTNERSHIP
By: /s/ Harold D. Price
------------------------------------------------
/s/ Janice Robinson
---------------------------------------------------
Janice Robinson
/s/ Rober M. Zinn /s/ Carole S. Zinn
---------------------------------------------------
Robert M. Zinn and Carole S. Zinn, Trustees for the
Zinn Family Trust Dated 9/5/97
/s/ Andrew L. Turner
---------------------------------------------------
Andrew L. Turner
___________________________________________________
Jacqueline Sacher
/s/ Stanton Scherer
---------------------------------------------------
Bear Stearns Custodian for IRA for Stanton Scherer
/s/ Glen E. Tullman
---------------------------------------------------
Glen E. Tullman
/s/ David B. Mullen
---------------------------------------------------
David B. Mullen
___________________________________________________
Robert W. Rook, Jr.
/s/ Michael E. Cahr
---------------------------------------------------
Michael E. Cahr
/s/ James Rosenblum
---------------------------------------------------
James Rosenblum
-26-
<PAGE>
Registration Agreement
- ----------------------
/s/ Bernard Goldstein
--------------------------------------
Bernard Goldstein
______________________________________
Robert Compton
/s/ Lee Shapiro
--------------------------------------
Lee Shapiro
/s/ Warren Tullman
--------------------------------------
Warren Tullman
/s/ Jeffrey A. Surges
--------------------------------------
Jeffrey Surges
/s/ Joseph Carey
--------------------------------------
Joseph Carey
/s/ Stanley Crane
--------------------------------------
Stanley Crane
______________________________________
J. Laurence Costin
/s/ John Peterman
--------------------------------------
John Peterman
/s/ Scott Leisher
--------------------------------------
Scott Leisher
______________________________________
Arnie Millstein
-27-
<PAGE>
Registration Agreement
- ----------------------
THE COMPANY:
-----------
ALLSCRIPTS, INC.
By: /s/ John Cull
---------------------------
Its: Treasurer
-28-
<PAGE>
SCHEDULE I
----------
TO
--
TWELFTH RESTATED REGISTRATION AGREEMENT
---------------------------------------
I. Holders of Series A Preferred and Series B Preferred
----------------------------------------------------
1. Liberty Partners Holdings 6, L.L.C.
2. Morgan Stanley Venture Partners III, L.P.
3. Morgan Stanley Venture Investors III, L.P.
4. The Morgan Stanley Venture Partners Entrepreneur Fund, L.P.
5. State Board of Administration of Florida
6. Liberty Investment Partnership #6
7. Essex Venture Partners, L.P. Fund I
8. Providence Partnership II
9. Ralph A. Bard, III
10. Mary B. Bourquin
11. Katharine B. Dickson
12. Gordon R. Lang
II. Holders of Series C Preferred
-----------------------------
1. Liberty Partners Holdings 6, L.L.C.
2. Morgan Stanley Venture Partners III, L.P.
3. Morgan Stanley Venture Investors III, L.P.
4. The Morgan Stanley Venture Partners Entrepreneur Fund, L.P.
5. State Board of Administration of Florida
6. Liberty Investment Partnership #6
7. Providence Partnership II
<PAGE>
8. 1987 Merchant Investment Partnership
9. The Woodlands Venture Fund, L.P.
10. Bessemer Venture Partners II L.P., a Delaware limited partnership
11. William T. Burgin
12. Brimstone Island Co. L.P.
13. Neill H. Brownstein
14. Robert H. Buescher
15. Christopher Gabrieli
16. James H. Furneaux
17. Norman M. Goldfarb
18. Paul Bancroft III
19. Cardwell Children's Trust dated June 1, 1987
20. R. Daniel Saxe, Jr.
21. Thomas F. Ruhm
22. John I. Wechsler
23. John N. Kapoor
24. Arrow Partners C.V.
III. Holders of Series D Preferred
-----------------------------
1. Liberty Partners Holdings 6, L.L.C.
2. Morgan Stanley Venture Partners III, L.P.
3. Morgan Stanley Venture Investors III, L.P.
4. The Morgan Stanley Venture Partners Entrepreneur Fund, L.P.
5. State Board of Administration of Florida
6. Liberty Investment Partnership #6
-2-
<PAGE>
7. The Woodlands Venture Fund, L.P.
8. Bessemer Venture Partners II L.P., a Delaware limited partnership
9. William T. Burgin
10. Brimstone Island Co. L.P.
11. Neill H. Brownstein
12. Robert H. Buescher
13. Thomas F. Ruhm
14. John I. Wechsler
15. Ward W. Woods
16. Providence Partnership II
17. 1987 Merchant Investment Partnership
18. Arrow Partners C.V.
19. Christopher Gabrieli
20. Norman M. Goldfarb
21. Paul Bancroft III
22. R. Daniel Saxe
23. John N. Kapoor
24. The Gordon R. Lang IRA Rollover, Delaware Charter Guarantee & Trust
Company, Trustee
25. Ralph A. Bard, III
26. Mary B. Bourquin
27. Katharine B. Dickson
IV. Holders of Series F Preferred and Series G Preferred
----------------------------------------------------
1. Liberty Partners Holdings 6, L.L.C.
-3-
<PAGE>
2. Morgan Stanley Venture Partners III, L.P.
3. Morgan Stanley Venture Investors III, L.P.
4. The Morgan Stanley Venture Partners Entrepreneur Fund, L.P.
5. State Board of Administration of Florida
6. Liberty Investment Partnership #6
7. Providence Partnership II
8. Gordon R. Lang
9. 1987 Merchant Investment Partnership
10. The Woodlands Venture Fund, L.P.
11. Bessemer Venture Partners II L.P., a Delaware limited partnership
12. William T. Burgin
13. Brimstone Island Co. L.P.
14. Neill H. Brownstein
15. Robert H. Buescher
16. Christopher Gabrieli
17. James H. Furneaux
18. Norman M. Goldfarb
19. Paul Bancroft III
20. R. Daniel Saxe, Jr.
21. Thomas F. Ruhm
22. John I. Wechsler
23. Arrow Partners C.V.
24. Ward W. Woods
-4-
<PAGE>
SCHEDULE II
-----------
TO
--
TWELFTH RESTATED REGISTRATION AGREEMENT
---------------------------------------
Holders of Extension Guaranty Warrants
- --------------------------------------
1. Liberty Partners Holdings 6, L.L.C.
2. Morgan Stanley Venture Partners III, L.P.
3. Morgan Stanley Venture Investors III, L.P.
4. The Morgan Stanley Venture Partners Entrepreneur Fund, L.P.
5. State Board of Administration of Florida
6. Liberty Investment Partnership #6
Holders of 1996 Extension Guaranty Warrants
- -------------------------------------------
1. Liberty Partners Holdings 6, L.L.C.
2. Morgan Stanley Venture Partners III, L.P.
3. Morgan Stanley Venture Investors III, L.P.
4. The Morgan Stanley Venture Partners Entrepreneur Fund, L.P.
5. State Board of Administration of Florida
6. Liberty Investment Partnership #6
<PAGE>
SCHEDULE III
------------
TO
--
TWELFTH RESTATED REGISTRATION AGREEMENT
---------------------------------------
Holders of Common (Converted from Class B Common)
- -------------------------------------------------
1. Mailscripts, Inc.
2. ISP Pharmaceuticals, Inc.
<PAGE>
SCHEDULE IV
-----------
TO
--
TWELFTH RESTATED REGISTRATION AGREEMENT
---------------------------------------
Holders of Series H Warrants, Extension Series H Warrants and H Unit Common
- ---------------------------------------------------------------------------
1. Liberty Partners Holdings 6, L.L.C.
2. Morgan Stanley Venture Partners III, L.P.
3. Morgan Stanley Venture Investors III, L.P.
4. The Morgan Stanley Venture Partners Entrepreneur Fund, L.P.
5. State Board of Administration of Florida
6. Liberty Investment Partnership #6
7. Providence Partnership II
8. Ralph A. Bard, III
9. Mary B. Bourquin
10. Katharine B. Dickson
11. 1987 Merchant Investment Partnership
12. Bessemer Venture Partners II L.P., a Delaware limited partnership
13. William T. Burgin
14. Brimstone Island Co. L.P.
15. Neill H. Brownstein
16. Robert H. Buescher
17. Christopher Gabrieli
18. Norman M. Goldfarb
19. Paul Bancroft III
20. R. Daniel Saxe, Jr.
<PAGE>
21. Thomas F. Ruhm
22. John I. Wechsler
23. Arrow Partners C.V.
24. Ward W. Woods
25. National Health Systems, Inc.
Holders of Extension Series H Warrants
- --------------------------------------
26. Liberty Partners Holdings 6, L.L.C.
27. Morgan Stanley Venture Partners III, L.P.
28. Morgan Stanley Venture Investors III, L.P.
29. The Morgan Stanley Venture Partners Entrepreneur Fund, L.P.
30. State Board of Administration of Florida
31. Liberty Investment Partnership #6
32. Providence Partnership II
33. Ralph A. Bard, III
34. Mary B. Bourquin
35. Katharine B. Dickson
36. 1987 Merchant Investment Partnership
37. Bessemer Venture Partners II L.P., a Delaware limited partnership
38. William T. Burgin
39. Brimstone Island Co. L.P.
40. Neill H. Brownstein
41. Robert H. Buescher
42. Christopher Gabrieli
43. Norman M. Goldfarb
44. Paul Bancroft III
-2-
<PAGE>
45. R. Daniel Saxe, Jr.
46. Thomas F. Ruhm
47. John I. Wechsler
48. Arrow Partners C.V.
49. Ward W. Woods
50. National Health Systems, Inc.
-3-
<PAGE>
SCHEDULE V
----------
TO
--
TWELFTH RESTATED REGISTRATION AGREEMENT
---------------------------------------
Holders of I Unit Common
- ------------------------
1. Morgan Stanley Venture Partners III, L.P.
2. Morgan Stanley Venture Investors III, L.P.
3. The Morgan Stanley Venture Partners Entrepreneur Fund, L.P.
4. Glen E. Tullman
5. David B. Mullen
6. Robert W. Rook, Jr.
7. Michael E. Cahr
8. James Rosenblum
9. Bernard Goldstein
10. Robert Compton
11. Lee Shapiro
12. Warren Tullman
13. Jeffrey Surges
14. Joseph Carey
15. Stanley Crane
16. J. Laurence Costin
17. John Peterman
18. Scott Leisher
19. Arnie Millstein
<PAGE>
SCHEDULE VI
-----------
TO
--
TWELFTH RESTATED REGISTRATION AGREEMENT
---------------------------------------
Holders of Debenture Warrants
- -----------------------------
1. Liberty Partners Holdings 6, L.L.C.
2. Morgan Stanley Venture Partners III, L.P.
3. Morgan Stanley Venture Investors III, L.P.
4. The Morgan Stanley Venture Partners Entrepreneur Fund, L.P.
5. State Board of Administration of Florida
6. Liberty Investment Partnership #6
7. Chase Manhattan Ttee for IBM Corp. Retirement Plan Trust Dtd 12/18/45
8. Bankers Trust Trustee for Chrysler Corp. Employee #1 Pension Plan Dtd
4/1/89
9. Edward Stewart Revocable Trust
10. Comdisco Foundation
11. Awad & Associates L.P.
12. Nanette E. Scofield
13. Richard B. Felder
14. Michael D. Mintz Trust U/A 8/12/92
15. Marvin Sharfstein
16. Warren Wood
17. HAP Investment Partnership
18. Janice Robinson
19. Robert M. Zinn and Carole S. Zinn, Trustees for the Zinn Family Trust
Dated 9/5/97
20. Andrew L. Turner
<PAGE>
21. Jacqueline Sacher
22. Bear Stearns Custodian for IRA for Stanton Scherer
-2-
<PAGE>
EXHIBIT 10.11
-------------
________________________________________________________________________________
REVOLVING CREDIT AGREEMENT
Dated as of April 16, 1998
by and between
ALLSCRIPTS, INC.
and
LASALLE NATIONAL BANK
________________________________________________________________________________
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
SECTION 1. CERTAIN DEFINITIONS............................................. 1
1.1 Terms Defined in this Agreement................................. 1
1.2 Terms Defined in Collateral Documents........................... 8
SECTION 2. REVOLVING LOAN COMMITMENT; REVOLVING CREDIT
BORROWING PROCEDURES............................................ 8
2.1 Revolving Loan Commitment....................................... 8
2.2 Revolving Loan Borrowing Procedures............................. 9
2.3 Use of Proceeds................................................. 10
SECTION 3. INTENTIONALLY RESERVED.......................................... 10
SECTION 4. REVOLVING NOTE EVIDENCING REVOLVING LOANS....................... 10
4.1 Revolving Note.................................................. 10
4.2 Interest; Due Date Extension.................................... 10
SECTION 5. INTEREST; FEES; BALANCES........................................ 10
5.1 Interest Rates on Revolving Loans............................... 10
5.2 Interest Payment Dates.......................................... 11
5.3 Computation of Interest......................................... 11
5.4 Fees............................................................ 11
5.5 Intentionally Reserved.......................................... 11
5.6 Increased Costs; Capital Adequacy............................... 11
SECTION 6. REDUCTION OR TERMINATION OF REVOLVING LOAN
COMMITMENT; PREPAYMENTS......................................... 12
6.1 Reduction or Termination of the Revolving Loan Commitment
by the Borrower................................................. 12
6.2 Optional Prepayment of Revolving Loans.......................... 13
6.3 Mandatory Prepayment............................................ 13
6.4 Interest on Principal Prepaid................................... 13
SECTION 7. MAKING OF PAYMENTS.............................................. 13
7.1 Making of Payments.............................................. 13
7.2 Deposits to the Borrower's Account.............................. 14
7.3 Setoff.......................................................... 14
SECTION 8. REPRESENTATIONS AND WARRANTIES.................................. 14
8.1 Corporate Organization.......................................... 14
8.2 Authorization; No Conflict...................................... 15
8.3 Validity and Binding Nature..................................... 15
8.4 Financial Statements............................................ 15
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
8.5 Litigation and Contingent Liabilities........................... 15
8.6 Liens........................................................... 16
8.7 Subsidiaries.................................................... 16
8.8 Employee Benefit Plans.......................................... 16
8.9 Investment Company Act.......................................... 16
8.10 Public Utility Holding Company Act.............................. 16
8.11 Regulation U.................................................... 17
8.12 Hazardous Material.............................................. 17
8.13 Environmental Compliance........................................ 17
8.14 Accuracy of Information......................................... 17
8.15 Fair Consideration.............................................. 17
8.16 Labor Controversies............................................. 18
8.17 Tax Status...................................................... 18
8.18 No Default...................................................... 18
8.19 Compliance with Applicable Laws................................. 19
8.20 Capitalization.................................................. 19
SECTION 9. COVENANTS....................................................... 19
9.1 Reports, Certificates and Other Information..................... 19
9.2 Corporate Existence and Franchises.............................. 21
9.3 Books, Records and Inspections.................................. 21
9.4 Insurance....................................................... 21
9.5 Taxes and Liabilities........................................... 21
9.6 Limits on Revolving Loan Commitment............................. 21
9.7 Intentionally Reserved.......................................... 22
9.8 Minimum Net Working Capital..................................... 22
9.9 Indebtedness.................................................... 22
9.10 Intentionally Reserved.......................................... 22
9.11 Maximum Negative EBITDA; Minimum EBITDA......................... 22
9.12 Minimum Capital Funds........................................... 22
9.13 Purchase and Redemption of the Borrower's Securities; Dividend
and Interest Restrictions; Subordinated Debt Payments........... 23
9.14 Liens........................................................... 23
9.15 Guaranties, Loans, Advances or Investments...................... 23
9.16 Change in Nature of Business.................................... 24
9.17 Mergers, Consolidations, Sales.................................. 24
9.18 Leases.......................................................... 24
9.19 Capital Expenditures............................................ 24
9.20 Unconditional Purchase Obligations.............................. 24
10.1 Collateral Documents............................................ 25
9.22 Use of Proceeds................................................. 25
9.23 Transactions with Affiliates.................................... 25
9.24 Other Agreements................................................ 25
9.25 Compliance with Applicable Laws................................. 25
9.26 Environmental Matters........................................... 25
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
9.27 Accountant's Report............................................. 26
9.28 Landlord Consents............................................... 26
SECTION 10. COLLATERAL SECURITY............................................. 27
10.1 Collateral Documents............................................ 27
10.2 Deliveries; Further Assurances.................................. 27
SECTION 11. CONDITIONS TO EFFECTIVENESS..................................... 28
11.1 Effectiveness................................................... 28
11.2 All Revolving Loans............................................. 29
SECTION 12. EVENTS OF DEFAULT AND THEIR EFFECT.............................. 31
12.1 Events of Default............................................... 31
12.2 Effect of Event of Default...................................... 33
SECTION 13. GENERAL......................................................... 33
13.1 Waiver; Amendments.............................................. 33
13.2 Notices......................................................... 33
13.3 Computations.................................................... 34
13.4 Regulation U.................................................... 34
13.5 Costs, Expenses and Taxes....................................... 34
13.6 Indemnification................................................. 35
13.7 Captions and References......................................... 36
13.8 Governing Law; Jury Trial; Severability......................... 36
13.9 Counterparts.................................................... 37
13.10 Successors and Assigns.......................................... 37
13.11 Prior Agreements................................................ 37
13.12 Assignments; Participations..................................... 37
</TABLE>
SCHEDULES
<TABLE>
<S> <C> <C>
Schedule I Exceptions to Representations and Warranties................ I-1
Schedule II Indebtedness................................................ II-1
Schedule III Capital Stock............................................... III-1
</TABLE>
<PAGE>
REVOLVING CREDIT AGREEMENT
--------------------------
This Revolving Credit Agreement, dated as of April 16, 1998 (this
"Agreement"), is by and between ALLSCRIPTS, INC., an Illinois corporation (the
"Borrower"), and LASALLE NATIONAL BANK, a national banking association (herein,
together with its successors and assigns, called the "Bank").
W I T N E S E T H:
- - - - - - - - -
WHEREAS, the Borrower has requested that the Bank make certain revolving
loans to the Borrower; and
WHEREAS, the Bank has agreed to make such loans on the terms and subject to
the conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual agreements contained herein,
the parties hereto agree as follows:
SECTION 1. CERTAIN DEFINITIONS
1.1 Terms Defined in this Agreement. When used herein the following terms
-------------------------------
shall have the following respective meanings:
"Affiliate" means, with respect to any Person, any other Person directly or
---------
indirectly controlling, controlled by, or under direct or indirect common
control with, such Person. A Person shall be deemed to control another Person
if such first Person possesses, directly or indirectly, the power to direct or
cause the direction of the management and policies of such other Person, whether
through ownership of voting securities, by contract or otherwise.
"Authorized Officer" means the President, Chief Executive Officer or
------------------
Treasurer of the Borrower, as the case may be.
"Bank" - see Preamble.
---- --------
"Bank Parties" - see Section 13.6.
------------ ------------
"Base Rate" means, at any time and from time to time the rate of interest
---------
per annum which the Bank most recently announces as its base rate at Chicago,
Illinois, which rate shall not necessarily be the lowest rate of interest which
the Bank charges any of its customers.
"Borrower" - see Preamble.
--------
"Borrowing Base" means, on any given date, without duplication, the sum of
--------------
(i) an amount equal to eighty percent (80%) of the face amount (less maximum
discounts, credits and
<PAGE>
allowances which may be taken by or granted to the Account Debtor thereof in
connection therewith) of all existing Eligible Accounts of the Borrower that are
set forth in the Schedule of Accounts most recently delivered by the Borrower to
the Bank, plus (ii) an amount equal to the lesser of (A) forty-five percent
----
(45%) of the Eligible Inventory of the Borrower as set forth in the Schedule of
Inventory most recently delivered by the Borrower to the Bank and (B) fifty
percent (50%) of the amount of availability in respect of Eligible Accounts as
calculated pursuant to clause (i) of this definition.
"Business Day" means any day of the year on which the Bank is open for
------------
business in Chicago, Illinois.
"Capital Funds" means the sum of consolidated net worth of the Borrower
-------------
(including the value of all preferred stock of the Borrower).
"Capitalized Lease Obligations" means any amount payable with respect to
-----------------------------
any lease of any tangible or intangible property (whether real, personal or
mixed), however denoted, which either (i) is required by GAAP to be reflected as
a liability on the face of the balance sheet of the lessee thereunder or (ii)
based on actual circumstances existing and ascertainable, either at the
commencement of the term of such lease or at any subsequent time at which any
property becomes subject thereto, can reasonably be anticipated to impose on
such lessee substantially the same economic risks and burdens, having regard to
such lessee's obligations and the lessor's rights thereunder both during and at
the termination of such lease, as would be imposed on such lessee by any lease
which is required to be so reflected or by the ownership of the leased property.
"Closing Date" means the date of this Agreement, being the date first
------------
written above.
"Collateral" means all property and/or rights on or in which a Lien is
----------
granted to the Bank (or to any agent, trustee or other party acting on the
Bank's behalf) pursuant to this Agreement, any of the Collateral Documents or
any other instruments, agreements or documents provided for herein or therein or
delivered or to be delivered hereunder or thereunder or in connection herewith
or therewith.
"Collateral Documents" means, collectively, the Security Agreement, the
--------------------
Trademark Security Agreement, the Subsidiary Stock Pledge Agreement and any and
all other documents described in Section 10.1 or pursuant to which a Lien has
------------
been granted or is granted to the Bank (or to any agent, trustee, or other party
acting on the Bank's behalf) as security for any of the Liabilities, as any and
all of the foregoing documents may be amended, modified, supplemented or
restated from time to time with the Bank's advance written consent.
"Compliance Certificate" - see Section 9.1(c).
---------------------- --------------
"Credit Termination Date" means the earlier of (i) April 16, 2000 or (ii)
-----------------------
such other date on which the Revolving Loan Commitment shall terminate pursuant
to Section 12.2.
------------
2
<PAGE>
"Current Ratio" - see Section 9.10.
------------- ------------
"Dollar(s)" and the sign "$" means lawful money of the United States of
--------- ---
America.
"EBITDA" means, for any period, the consolidated net income (or loss) of
------
the Borrower and the Subsidiaries for such period calculated in accordance with
GAAP, (a) excluding (i) gains from the sale, exchange, transfer or other
disposition of property or assets not in the ordinary course of business of the
Borrower and the Subsidiaries and (ii) any other extraordinary or non-recurring
gains of the Borrower and the Subsidiaries, and (b) plus each of the following
----
for such period to the extent deducted in calculating such net income: (i)
depreciation and amortization, (ii) interest expense, (iii) taxes on or measured
by income and (iv) any extraordinary or non-recurring losses of the Borrower and
the Subsidiaries.
"Eligible Account" means any of the Borrower's Accounts which meets each of
----------------
the following requirements: (i) if it arises from the sale or lease of goods,
such goods have been shipped or delivered to the Account Debtor thereof; (ii) it
is a valid, legally enforceable obligation of the Account Debtor thereunder, and
is not subject to any offset, counterclaim or other defense on such Account
Debtor's part or to any claim on such Account Debtor's part denying liability
thereunder in whole or in part; (iii) it is subject to a perfected Lien in the
Bank's favor and is not subject to any other Lien whatsoever; (iv) it is
evidenced by an invoice rendered to such Account Debtor, and is not evidenced by
any instrument or chattel paper; (v) it is payable in Dollars; (vi) it is not
owing by any governmental agency or body other than "Medicare" or "Medicaid"
payments and/or reimbursements (unless specifically authorized by the Bank in
advance), (vii) it is not owing by any Account Debtor residing, located or
having its principal activities or place of business outside the United States
of America or who is not subject to service of process within the continental
United States of America; (viii) it is not owing by any Account Debtor involved,
as a debtor, in any bankruptcy or insolvency proceeding; (ix) it is not owing by
any Subsidiary; (x) it is not unpaid more than 90 days after the date of such
invoice; (xi) it is not owing by an Account Debtor which shall have failed to
pay in full any invoice evidencing any Account within 90 days after the date of
such invoice, unless the total invoice amounts of such Account Debtor which have
not been paid within 90 days of the date of such invoice represent less than 25%
of the total invoice amounts then outstanding of such Account Debtor; and (xii)
it is not an Account as to which the Bank, at any time or times hereafter,
determines, in good faith, that the prospect of payment or performance by the
Account Debtor thereof is or will be impaired. An Account of the Borrower which
is at any time an Eligible Account, but which subsequently fails to meet any of
the foregoing requirements, shall thereupon cease to be an Eligible Account.
Notwithstanding anything contained in this definition to the contrary, the
definition of "Eligible Account" shall not include any Accounts which shall have
been sold or otherwise transferred to Pharmacy Fund Receivables, Inc. ("PFR")
pursuant to a letter agreement dated October 20, 1997 between the Borrower and
PFR.
3
<PAGE>
"Eligible Inventory" means the Borrower's Inventory located in
------------------
Libertyville, Illinois, Grayslake, Illinois and in Columbus, Ohio which meets
each of the following requirements: (i) it is in such condition that it may be
sold in the ordinary course of the Borrower's business, (ii) in the case of
goods held for sale or lease, it is new and unused (except as the Bank may
otherwise consent in writing); (iii) it is owned by the Borrower and is subject
to a perfected Lien in the Bank's favor and is not subject to any other Lien
whatsoever; (iv) if any inventory has been produced by the Borrower, such
inventory has been produced by the Borrower in compliance with the Fair Labor
Standards Act of 1938, as amended, and all rules, regulations and orders
thereunder; and (v) the Bank, in good faith, has determined, in accordance with
the Bank's customary business practices, that it is not unacceptable due to age,
type, category and/or quantity. Any of the Borrower's Inventory which is
Eligible Inventory at any time, but which subsequently fails to meet any of the
foregoing requirements, shall thereupon cease to be Eligible Inventory.
"Environmental Claims" - see Section 9.26(d).
-------------------- ---------------
"Environmental Laws" means any and all federal, state or local
------------------
environmental or health and safety-related laws, regulations, rules, ordinances,
orders or directives.
"Equity Transaction" means the series of transactions pursuant to which the
------------------
Borrower shall issue (i) 27,582,487 Common Shares and 1,339,241 shares of Series
I Preferred Stock for an aggregate consideration of $8,930,000, (ii) 1,803,838
shares of Series I Preferred Stock and warrants to purchase 7,960,000 Common
Shares in exchange for 99.5% of the Borrower's outstanding 8.0% Convertible
Subordinated Debentures due 2001 and accrued interest thereon through April 15,
1998 and (iii) warrants to purchase 5,500,000 Common Shares to the holders of
the Borrower's Series H Preferred Stock in exchange for a delay in the
redemption of, and payment of dividends on, the Series H Preferred Stock, in
each case on terms and conditions satisfactory to the Bank.
"Erisa" means the Employee Retirement Income Security Act of 1974, as
-----
amended, and any successor statute of similar import, together with the
regulations thereunder and under the Internal Revenue Code of 1986, as amended,
in each case as in effect from time to time. References to sections of ERISA
shall be construed to also refer to any successor sections.
"Erisa Affiliate" means any corporation, trade or business that is, along
---------------
with the Borrower and any Subsidiary, a member of a controlled group of
corporations or a controlled group of trades or businesses, as described in
Sections 414(b) and 414(c), respectively, of the Internal Revenue Code of 1986,
as amended, or Section 4001 of ERISA.
"Event of Default" means any of the events described in Section 12.1.
---------------- ------------
"Existing Revolving Credit Agreement" means that certain Second Amended and
-----------------------------------
Restated Revolving Credit Agreement dated as of April 30, 1996 between the
Borrower and the Bank, as amended through the date hereof.
4
<PAGE>
"Existing Subsidiaries" means Allscrips Pharmacy Center, Inc., an Illinois
---------------------
corporation, Pharmacy Management Company, Inc., an Illinois corporation, and
Physician Dispensing Systems, Inc., a Delaware corporation.
"Existing Term Credit Agreement" means that certain Amended and Restated
------------------------------
Term Credit Agreement dated as of September 22, 1994 between the Borrower and
the Bank, as amended through the date hereof.
"GAAP" means the generally accepted accounting principles applied in the
----
preparation of the audited consolidated financial statements of the Borrower at
December 31, 1997, with such changes thereto as (i) shall be consistent with the
then-effective principles promulgated or adopted by the Financial Accounting
Standards Board and its predecessors and successors and (ii) shall be concurred
in by the independent certified public accountants of recognized standing
certifying any financial statements of the Borrower and its Subsidiaries.
"Hazardous Material" means any chemical, substance, material, object,
------------------
condition, waste or combination thereof which is or may be hazardous to human
health or safety or to the environment due to its radioactivity, ignitability,
corrosivity, reactivity, explosivity, toxicity, carcinogenicity, infectiousness
or other harmful or potentially harmful properties or effects, including,
without limitation, all of those chemicals, substances, materials, objects,
conditions, wastes or combinations thereof which are now or become listed,
defined or regulated in any manner by any federal state or local law based upon,
directly or indirectly, such properties or effects.
"Indebtedness" with respect to any Person means, as of the date of
------------
determination thereof, (i) all of such Person's indebtedness for borrowed money,
(ii) all indebtedness of such Person or any other Person secured by any Lien
with respect to any property or asset owned or held by such Person, regardless
whether the indebtedness secured thereby shall have been assumed by such Person,
(iii) all indebtedness of other Persons which such Person has directly or
indirectly guaranteed (whether by discount or otherwise), endorsed (otherwise
than for collection or deposit in the ordinary course of business), discounted
with recourse to such Person or with respect to which such Person is otherwise
directly or indirectly liable, including, without limitation, indebtedness in
effect guaranteed by such Person through any agreement (contingent or otherwise)
to (A) purchase, repurchase or otherwise acquire such Indebtedness or any
security therefor, (B) provide funds for the payment or discharge of such
indebtedness or any other liability of the obligor of such indebtedness (whether
in the form of loans, advances, stock purchases, capital contribution or
otherwise), (C) maintain the solvency of any balance sheet or other financial
condition of the obligor of such indebtedness or (D) make payment for any
products, materials or supplies or for any transportation or services regardless
of the nondelivery or nonfurnishing thereof, if in any such case the purpose or
intent of such agreement is to provide assurance that such indebtedness will be
paid or discharged or that any agreements relating thereto will be complied with
or that the holders of such indebtedness will be protected against loss in
respect thereof, (iv) all of such Person's
5
<PAGE>
Capitalized Lease Obligations, (v) all actual or contingent reimbursement
obligations with respect to letters of credit issued for such Person's account
and (vi) all of such Person's Redeemable Stock, as measured by the maximum fixed
repurchase price thereof. For purposes of the preceding clause (vi), the maximum
fixed repurchase price of any Redeemable Stock which does not have a fixed
repurchase price shall be calculated in accordance with the terms of such
Redeemable Stock as if such Redeemable Stock were repurchased on any date on
which Indebtedness shall be required to be determined hereunder.
"Indemnified Liabilities" - see Section 13.6.
----------------------- ------------
"Liabilities" means any and all of the Borrower's obligations to the Bank,
-----------
howsoever created, arising or evidenced, whether direct or indirect, absolute or
contingent, now or hereafter existing, or due or to become due, which arise out
of or in connection with this Agreement or the Related Documents, including,
without limitation, post-petition interest and costs in the event of a
proceeding under Title 11 of the United States Code.
"Lien" means any mortgage, pledge, lien, security interest or other charge,
----
encumbrance or preferential arrangement, including the retained security title
of a conditional vendor or lessor.
"Margin Stock" has the meaning given to such term in Regulation U.
------------
"Overadvance Sublimit" means (i) $2,000,000 from the Closing Date through
--------------------
March 31, 1999, (ii) $1,500,000 from April 1, 1999 through June 30, 1999, (iii)
$1,000,000 from July 1, 1999 through September 30, 1999, (iv) $500,000 from
October 1, 1999 through December 31, 1999 and (v) $0 thereafter, or such lesser
amounts as the Borrower may request pursuant to Section 6.1.
-----------
"PBGC" means the Pension Benefit Guaranty Corporation and any entity
----
succeeding to any or all of its functions under ERISA.
"Person" means an individual or a corporation, partnership, limited
------
liability company or partnership, trust, incorporated or unincorporated
association, joint venture, joint stock company, government (or any agency or
political subdivision thereof) or other entity of any kind.
"Plan" means a "pension plan", as such term is defined in ERISA, which is
----
subject to Title IV of ERISA (other than a multi-employer plan) and to which the
Borrower, any Subsidiary or any ERISA Affiliate may have any liability,
including any liability by reason of having been a substantial employer within
the meaning of Section 4063 of ERISA at any time during the preceding five
years, or by reason of being deemed to be a contributing sponsor under Section
4069 of ERISA.
6
<PAGE>
"Property" means, for purposes of all provisions of this Agreement relating
--------
to Hazardous Material, all real property heretofore, presently or hereafter
leased or owned by the Borrower or any Subsidiary.
"Redeemable Stock" means any equity security (or option or warrant related
----------------
thereto) that by its terms or otherwise is required to be purchased or redeemed
at any time prior to the date which falls 60 days after the Credit Termination
Date, or is redeemable at the option of the holder thereof at any time prior to
the date which falls 60 days after the Credit Termination Date.
"Regulation U" means Regulation U of the Board of Governors of the Federal
------------
Reserve System and any successor rule or regulation of similar import as in
effect from time to time.
"Related Documents" means, collectively, the Revolving Note, the Collateral
-----------------
Documents and all other documents, instruments and agreements executed by the
Borrower, the Subsidiaries or any other Person pursuant to or in connection with
this Agreement.
"Reportable Event" has the meaning given to such term in ERISA.
----------------
"Revolving Loan Commitment" means the Bank's commitment to make Revolving
-------------------------
Loans in an aggregate amount not to exceed the sum of the Revolving Loan
Sublimit and the Overadvance Sublimit, in each case as in effect as of such
time, pursuant to and in accordance with the terms of Section 2.1.
-----------
"Revolving Loan(s)" - see Section 2.1.
----------------- -----------
"Revolving Loan Sublimit" means $12,000,000.00, or such lesser amount as
-----------------------
the Borrower may request pursuant to Section 6.1.
-----------
"Revolving Note" - see Section 4.1.
-------------- -----------
"Schedule of Accounts" means an aged trial balance and reconciliation to
--------------------
the Borrowing Base in form and substance satisfactory to the Bank (which may at
the Bank's discretion include copies of original invoices) listing the
Borrower's Accounts, to be delivered on a monthly basis to the Bank by the
Borrower pursuant to Section 9.1(d).
--------------
"Schedule of Inventory" means a schedule in form and substance satisfactory
---------------------
to the Bank listing the Borrower's Inventory, to be delivered on a monthly basis
to the Bank by the Borrower pursuant to Section 9.1(d), describing such
--------------
Inventory by category, age and type.
"Schedule of Payables" means a detailed aged schedule in form and substance
--------------------
satisfactory to the Bank listing the Borrower's accounts payable, to be
delivered (from time to time at the Bank's request) to the Bank by the Borrower
pursuant to Section 9.1(d).
--------------
7
<PAGE>
"Security Agreement" - see Section 10.1.
------------------ ------------
"Subsidiary" means the Existing Subsidiaries and any other corporation of
----------
which the Borrower and/or any such Subsidiary own, directly or indirectly, such
number of outstanding shares as have more than 50% of the ordinary voting power
for the election of such corporation's directors.
"Subsidiary Stock Pledge Agreement" - see Section 10.1.
--------------------------------- ------------
"Tangible Capital Funds" means Capital Funds, minus the aggregate amount of
---------------------- -----
any intangible assets of the Borrower and each Subsidiary, including, without
limitation, covenants not to compete, prepayments, deferral charges (including
all capitalized expenses related to any initial public offering of the
Borrower's stock), goodwill, franchises, licenses, patents, trademarks, trade
names, copyrights, service marks and brand names, employee loans or advances and
intercompany advances or notes.
"Trademark Security Agreement" - see Section 10.1.
---------------------------- ------------
"Unmatured Event of Default" means any event which, with lapse of time or
--------------------------
notice or lapse of time and notice, will constitute an Event of Default if it
continues uncured.
"Warranty of Validity of Accounts" - see Section 11.1(b)(8).
-------------------------------- ------------------
"Welfare Plan" has the meaning given to such term in ERISA.
------------
1.2 Terms Defined in Collateral Documents. When used herein, the terms
-------------------------------------
"Account", "Account Debtor", "Equipment", "Inventory", "Lock Box" and "Lock Box
Account" shall have the meanings assigned thereto in the Security Agreement.
SECTION 2. REVOLVING LOAN COMMITMENT; REVOLVING CREDIT BORROWING
PROCEDURES
2.1 Revolving Loan Commitment. On the terms and subject to the conditions
-------------------------
set forth in this Agreement, the Bank agrees to make revolving loans (such loans
herein collectively called "Revolving Loans" and individually called a
"Revolving Loan") to the Borrower from time to time before the Credit
Termination Date in such aggregate amounts as the Borrower may from time to time
request but, subject to the immediately succeeding sentence, not exceeding at
any one time outstanding the lesser of (i) the Borrowing Base or (ii) the
Revolving Loan Sublimit. Notwithstanding the foregoing provisions of this
Section 2.1, the Bank agrees to make Revolving Loans to the Borrower from time
to time before the Credit Termination Date in such aggregate amounts as the
Borrower may from time to time request in excess of the lesser of (i) the
Borrowing Base and (ii) the Revolving Loan Sublimit (such Revolving Loans herein
collectively called "Overadvances" and individually called an
8
<PAGE>
"Overadvance"), provided, however, that in addition to the other terms set forth
in this Agreement, including those set forth in Section 11, the following
----------
conditions shall have been satisfied with respect to any such Overadvance:
(i) on the date of the initial Overadvance, EBITDA for each of
the two consecutive months prior to such date of the proposed disbursement
of such initial Overadvance shall not have been less than $125,000;
(ii) the aggregate amount of all Overadvances outstanding at any
one time shall not exceed the Overadvance Sublimit then in effect;
(iii) the aggregate amount of all Revolving Loans outstanding at
any one time shall not exceed the Revolving Loan Commitment; and
(iv) EBITDA for any period set forth below shall not be less
than the respective amount set forth below opposite such period:
<TABLE>
<CAPTION>
Period Minimum EBITDA
------ --------------
<S> <C>
Closing Date through June 30, 1998 $ 75,000
July 1, 1998 through September 30, 1998 $ 500,000
October 1, 1998 through December 31, 1998 $1,000,000
Each Calendar Quarter Thereafter $1,500,000
</TABLE>
The Borrower shall have the right to repay and reborrow any of the Revolving
Loans in increments of $50,000 (or integral multiples thereof); provided,
--------
however, that it shall be a condition precedent to any reborrowing that as of
- -------
the date of any reborrowing (any such date herein called a "Reborrowing Date")
all of the conditions to borrowing set forth in this Agreement shall be
satisfied and all representations and warranties made herein shall be true and
correct in all material respects as of such Reborrowing Date.
2.2 Revolving Loan Borrowing Procedures. The Borrower shall give the Bank
-----------------------------------
irrevocable telephonic notice of each proposed Revolving Loan borrowing no later
than 1:00 p.m., Chicago time, on the same Business Day as the proposed date of
such borrowing. Each such notice shall be effective upon receipt by the Bank
and shall specify the date and the amount of the borrowing, and subject to the
provisions of Section 2.1, the Bank agrees to make a Revolving Loan to the
-----------
Borrower on the date specified in such notice. Each request for a Revolving
Loan shall automatically constitute a representation and warranty by the
Borrower that, as of the date of such requested Revolving Loan, all conditions
precedent to the making of such Revolving Loan set forth in Section 2.1 and
-----------
Section 11 shall be satisfied. Each borrowing of a Revolving Loan shall be on a
- ----------
Business Day.
9
<PAGE>
2.3 Use of Proceeds. The proceeds of the Revolving Loans shall be used
---------------
(i) to repay in full and refinance the outstanding obligations of the Borrower
under the Existing Revolving Credit Agreement and (ii) for general working
capital purposes.
SECTION 3. INTENTIONALLY RESERVED
SECTION 4. REVOLVING NOTE EVIDENCING REVOLVING LOANS
4.1 Revolving Note. The Revolving Loans shall be evidenced by a
--------------
promissory note (herein, as the same may be amended, modified, supplemented or
restated from time to time, and together with any renewals thereof or exchanges
or substitutions therefor, called the "Revolving Note"), dated the Closing Date
(or such other date prior thereto as shall be satisfactory to the Bank), payable
to the order of the Bank in the maximum aggregate principal amount of
$14,000,000.00. The date and amount of each Revolving Loan made by the Bank and
of each repayment of principal thereon received by the Bank shall be recorded by
the Bank in its records. The aggregate unpaid principal amount so recorded
shall be rebuttable presumptive evidence of the principal amount owing and
unpaid on the Revolving Note. The failure so to record any such amount or any
error in so recording any such amount, however, shall not limit or otherwise
affect the Borrower's obligations hereunder or under the Revolving Note to repay
the principal amount of the Revolving Loans together with all interest accruing
thereon.
4.2 Interest; Due Date Extension. The Revolving Note shall provide for
----------------------------
the payment of interest as provided in Section 5. If any payment of principal
---------
of, or interest on, the Revolving Note falls due on a day that is not a Business
Day, then such due date shall be extended to the next following Business Day,
and additional interest shall accrue and be payable for the period of such
extension.
SECTION 5. INTEREST; FEES; BALANCES
5.1 Interest Rates on Revolving Loans. The Borrower hereby promises to
---------------------------------
pay interest on the unpaid principal amount of each Revolving Loan for the
period commencing on the date of such Revolving Loan until such Revolving Loan
is paid in full at a rate per annum equal to the Base Rate from time to time in
effect, plus (i) with respect to Revolving Loans which do not constitute
----
Overadvances, one-half of one percent (.50%) and (ii) with respect to
Overadvances, one and one-half percent (1.50%); provided, however, that in the
-------- -------
event that any principal of any Revolving Loan is not paid when due (whether by
acceleration or otherwise), the unpaid principal amount of such Revolving Loan
shall bear interest after the due date of such principal until such principal is
paid at a rate per annum equal to the Base Rate from time to time in effect (but
in no case less than the Base Rate in effect at any such
10
<PAGE>
due date), plus (i) with respect to Revolving Loans which do not constitute
----
Overadvances, three percent (3.0%) or (ii) with respect to Overadvances, four
percent (4.0%).
5.2 Interest Payment Dates. Accrued interest on each Revolving Loan shall
----------------------
be payable monthly on the last Business Day of each calendar month and at
maturity, commencing with the last Business Day of April, 1998. After maturity,
accrued interest on all Revolving Loans shall be payable on demand.
5.3 Computation of interest. Interest on each Revolving Loan shall be
-----------------------
computed for the actual number of days elapsed on the basis of a 360-day year.
The interest rate applicable to each Revolving Loan shall change during such
time simultaneously with each change in the Base Rate.
5.4 Fees.
----
(a) The Borrower agrees to pay to the Bank a fee at a rate per annum
equal to (i) one-quarter of one percent (.25%) of the amount by which the
Revolving Loan Sublimit exceeds the average unpaid daily closing balance of
the Revolving Loans (other than Overadvances) and (ii) one-half of one
percent (.50%) of the amount by which the Overadvance Sublimit exceeds the
average unpaid daily closing balance of the Overadvances, in each case with
the unpaid balance calculated for this purpose by applying payments
immediately upon receipt. Such fee, if any, shall be calculated on the
basis of a year of 360 days and actual days elapsed, and shall be payable
in arrears on the first day of each of the Borrower's fiscal quarters with
respect to the prior fiscal quarter.
(b) The Borrower shall pay to the Bank on the Closing Date a
commitment fee of $25,000, which fee shall be deemed to be fully earned and
non-refundable.
5.5 Intentionally Reserved.
----------------------
5.6 Increased Costs; Capital Adequacy.
---------------------------------
5.6.1 Increased Costs. If (i) Regulation D of the Board of Governors
---------------
of the Federal Reserve System, or (ii) after the date hereof, the adoption
of any applicable law, rule or regulation, or any change therein, or any
change in the interpretation or administration thereof by any governmental
authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by the Bank with
any request or directive (whether or not having the force of law) of any
such authority, central bank or comparable agency issued after the date
hereof shall:
(a) subject the Bank to any tax, duty or other charge with
respect to any Revolving Loan, the Revolving Note or its obligation to
make or maintain any Revolving Loan, or shall change the basis of
taxation of payments to the
11
<PAGE>
Bank of the principal of or interest on any Revolving Loan or any
other amounts due under this Agreement in respect of any Revolving
Loan or its obligation to make or maintain any Revolving Loan (except
for changes in the rate of tax on the overall net income of the Bank
imposed by the United States or the jurisdiction in which the Bank's
principal executive office is located); or
(b) impose, modify or deem applicable any reserve (including,
without limitation, any reserve imposed by the Board of Governors of
the Federal Reserve System), special deposit or similar requirement
against assets of, deposits with or for the account of, or credit
extended by, the Bank; or
(c) impose on the Bank any other condition affecting any
Revolving Loan, the Revolving Note or its obligation to make or
maintain any Revolving Loan;
and the result of any of the foregoing is to increase the cost to (or to
impose a cost on) the Bank of making or maintaining any Revolving Loan, or
to reduce the amount of any sum received or receivable by the Bank under
this Agreement or under the Revolving Note with respect thereto, then, upon
demand by the Bank (which demand shall be accompanied by a statement
setting forth the basis of such demand), the Borrower shall pay directly to
the Bank such additional amount or amounts as will compensate the Bank for
such increased cost or such reduction.
5.6.2 Capital Adequacy. If either (i) the introduction of or any
----------------
change in or in the interpretation of any law or regulation or (ii)
compliance by the Bank with any guideline or request from any central bank
or other governmental authority (whether or not having the force of law)
affects or would affect the amount of capital required or expected to be
maintained by the Bank or any corporation controlling the Bank and the Bank
determines that the amount of such capital is increased by or based upon
the existence of the Bank's commitment to lend hereunder and other
commitments of this type, then, upon demand by the Bank, the Borrower shall
immediately pay to the Bank, from time to time as specified by the Bank,
additional amounts sufficient to compensate the Bank in the light of such
circumstances, to the extent that the Bank reasonably determines such
increase in capital to be allocable to the existence of the Bank's
commitment to lend hereunder.
SECTION 6. REDUCTION OR TERMINATION OF REVOLVING LOAN COMMITMENT;
PREPAYMENTS
6.1 Reduction or Termination of the Revolving Loan Commitment by the
----------------------------------------------------------------
Borrower. The Borrower may from time to time on at least five Business Days'
- --------
prior written notice received by the Bank permanently reduce the amount of the
Revolving Loan Commitment but only upon repayment of the amount, if any, by
which the aggregate unpaid
12
<PAGE>
principal balance of the Revolving Loans exceeds the then reduced amount of the
Revolving Loan Sublimit or the Overadvance Sublimit, as applicable.
Notwithstanding anything contained in this Agreement to the contrary, any such
permanent reduction shall first reduce the Overadvance Sublimit in effect from
time to time and, upon reduction of the Overadvance Sublimit to zero (upon which
the Overadvance Sublimit shall be deemed to have been terminated), shall then be
applied to reduce the Revolving Loan Sublimit. Any such reduction shall be in an
aggregate amount of $1,000,000 or an integral multiple thereof, except to the
extent the outstanding Overadvance Sublimit shall be less than $1,000,000, in
which case the Borrower may terminate such remaining amount upon repayment of
the aggregate unpaid principal balance of the Overadvance. The Borrower may at
any time on like notice terminate the Revolving Loan Commitment upon payment in
full of the outstanding Revolving Loans and the fee described in Section 5.4(b).
--------------
6.2 Optional Prepayment of Revolving Loans. The Borrower may from time to
--------------------------------------
time, without premium or penalty (except default interest, if applicable),
prepay any Revolving Loan in whole or in part; provided, however, that partial
payments shall be in increments of $50,000 (or integral multiples thereof). The
Borrower agrees that the Bank shall apply amounts received by the Bank pursuant
to the provisions of Section 6.1 and this Section 6.2 first to any Overadvances
----------- -----------
then outstanding and then in such manner as the Bank shall elect in its sole
discretion.
6.3 Mandatory Prepayment.
--------------------
(a) The Borrower agrees that if at any time the aggregate unpaid principal
amount of the Revolving Loans shall exceed the amount of the Borrowing Base or
other applicable limit, it will forthwith make a mandatory prepayment of
principal balance of the Revolving Loans in an amount equal to such excess.
Each such mandatory prepayment shall be without premium or penalty.
(b) The Borrower agrees that the Bank shall apply amounts received by the
Bank pursuant to the provisions of any of the Collateral Documents to the
outstanding Liabilities first to any Overadvances then outstanding and then in
such manner as the Bank shall elect in its sole discretion. All such payments
shall be made without premium or penalty.
6.4 Interest on Principal Prepaid. Any prepayment of any Revolving Loan
-----------------------------
shall include accrued interest to the date of prepayment on the principal amount
being prepaid.
SECTION 7. MAKING OF PAYMENTS
7.1 Making of Payments. All payments (including those made pursuant to
------------------
Section 6) of principal of, or interest on, the Revolving Note and of any fees
- ---------
shall be made in immediately available funds by the Borrower to the Bank. All
such payments shall be made to the Bank at its principal office in Chicago, not
later than 12:00 noon, Chicago time, on the
13
<PAGE>
date due; and funds received after that hour shall be deemed to have been
received by the Bank on the next following Business Day.
7.2 Deposits to the Borrower's Account. The Bank shall have the right to
----------------------------------
deposit all proceeds of the Revolving Loans to the Borrower's account with the
Bank and shall have the right to charge such account (or any other account in
the Borrower's name) for all other Liabilities due from and payable by the
Borrower, and the Bank shall use reasonable efforts to provide notice to the
Borrower of any such charge.
7.3 Setoff.
------
(a) In addition to the Bank's rights with respect to the Lock Box Account,
the Borrower agrees that, if at any time (i) any amount owing by it under this
Agreement or any Related Document is then due and payable to the Bank or (ii)
any Event of Default shall have occurred and be continuing, then the Bank or any
other holder of the Revolving Note, in its discretion, may apply to the payment
of the Liabilities any and all balances, credits, deposits, accounts or moneys
of the Borrower then or thereafter with the Bank or such holder.
(b) Without limitation of Section 7.3(a), and in addition to the Bank's
--------------
rights with respect to the Lock Box Account, the Borrower agrees that, upon and
after the occurrence of any Event of Default, the Bank is hereby authorized, at
any time and from time to time, without notice to the Borrower, (i) to set off
against and to appropriate and apply to the payment of the Liabilities (whether
matured or unmatured, fixed or contingent or liquidated or unliquidated) any and
all amounts which the Bank is obligated to pay over to the Borrower (whether
matured or unmatured, and, in the case of deposits, whether general or special,
time or demand and however evidenced) and (ii) pending any such action, to the
extent necessary, to hold such amounts as Collateral to secure such Liabilities
and to dishonor any and all checks and other items drawn against any deposits so
held as the Bank in its sole discretion may elect.
SECTION 8. REPRESENTATIONS AND WARRANTIES
To induce the Bank to enter into this Agreement and to make Revolving Loans
hereunder, the Borrower represents and warrants to the Bank that except as
disclosed in Schedule I attached hereto:
----------
8.1 Corporate Organization. The Borrower and each Subsidiary is a
----------------------
corporation duly existing and in good standing under the laws of the state of
its incorporation and is duly qualified and in good standing as a foreign
corporation authorized to do business in each jurisdiction where the failure to
so qualify would materially and adversely affect the business, properties,
financial condition or results of operations of the Borrower and its
Subsidiaries, taken as a whole.
14
<PAGE>
8.2 Authorization; No Conflict. The Borrower's execution, delivery and
--------------------------
performance of this Agreement and each of the Related Documents to which it is a
party and the consummation of the transactions contemplated by this Agreement
and each of the Related Documents are within the Borrower's corporate powers,
have been duly authorized by all necessary corporate action, require no
governmental, regulatory or other approval, and do not and will not contravene
or conflict with any provision of (i) law, (ii) any judgment, decree or order
binding upon the Borrower or (iii) the Borrower's articles of incorporation or
by-laws, and do not and will not contravene or conflict with, or cause any Lien
to arise under, any provision of any agreement or instrument binding upon the
Borrower or upon any property of the Borrower.
8.3 Validity and Binding Nature. This Agreement and the Related Documents
---------------------------
to which the Borrower is a party are (or, when duly executed and delivered, will
be) the legal, valid and binding obligations of the Borrower enforceable against
the Borrower in accordance with their respective terms, except as such
enforceability may be limited by (i) bankruptcy, insolvency or similar laws
affecting the enforcement of creditors' rights generally or (ii) general
principles of equity, regardless of whether such enforceability is considered in
a proceeding in equity or at law.
8.4 Financial Statements.
--------------------
(a) All balance sheets, statements of operations and other financial data
which have been or shall hereafter be furnished to the Bank for the purposes of
or in connection with this Agreement (other than financial projections) do and
will present fairly the financial condition of the Persons involved as of the
dates thereof and the results of their operations for the period(s) covered
thereby.
(b) The Borrower's unaudited condensed consolidated balance sheets as of
December 31, 1997 and the related unaudited condensed consolidated statements of
the Borrower's income and retained earnings for the one year period ended on
such date, copies of which have been furnished to the Bank, fairly present the
Borrower's financial condition as at such date and the results of the Borrower's
operations for the period ended on such date, all in accordance with GAAP
(except for the absence of footnotes), consistently applied.
8.5 Litigation and Contingent Liabilities.
-------------------------------------
(a) As of the date of this Agreement, no litigation (including, without
limitation, derivative actions), arbitration proceedings, governmental
proceedings or investigations or regulatory proceedings are pending or
threatened against the Borrower or any Subsidiary in which either (i) the amount
in controversy exceeds $50,000 or (ii) the potential liability of the Borrower
or any Subsidiary could reasonably be estimated to exceed $50,000, nor does the
Borrower know of any basis for any of the foregoing. In addition, there are no
inquiries, formal or informal, which might give rise to such actions,
proceedings or investigations.
15
<PAGE>
(b) The Borrower and each Subsidiary has obtained all licenses, permits,
franchises and other governmental authorizations necessary to the ownership of
its properties or to the conduct of its businesses, a failure to obtain or
violation of which might materially and adversely affect the business,
properties, financial condition or results of operations of the Borrower and its
Subsidiaries, taken as a whole.
(c) The Borrower has either provided for or disclosed any material
contingent liabilities incurred prior to March 31, 1998 in the financial
statements referred to in Section 8.4(b).
--------------
8.6 Liens. None of the assets of the Borrower or any Subsidiary is
-----
subject to any Lien, except Liens securing the Liabilities and the liens set
forth in part (b) of Schedule II attached hereto (collectively referred to as
-----------
"Permitted Liens").
8.7 Subsidiaries. The Borrower has no Subsidiaries other than the
------------
Existing Subsidiaries.
8.8 Employee Benefit Plans. Each Plan complies in all material respects
----------------------
with all applicable statutes and governmental rules and regulations and during
the twelve consecutive-month period prior to the date of the execution and
delivery of this Agreement, (i) no Reportable Event has occurred and is
continuing with respect to any Plan, (ii) neither the Borrower nor any ERISA
Affiliate has withdrawn from any Plan or instituted steps to do so, (iii) no
steps have been instituted to terminate any Plan, (iv) every employee benefit
plan within the meaning of Section 3(3) of ERISA which is sponsored, or to which
contributions are made by the Borrower or any ERISA Affiliate has been
maintained in compliance with all applicable laws and regulations, including,
without limitation ERISA and the Internal Revenue Code of 1986, as amended, and
(v) no contribution failure has occurred with respect to any Plan sufficient to
give rise to a lien under Section 302(f) of ERISA. No condition exists or event
or transaction has occurred in connection with any Plan which could result in
the incurrence by the Borrower or any ERISA Affiliate of any material liability,
fine or penalty. Neither the Borrower nor any ERISA Affiliate is a member of or
contributes to any Multiemployer Plan. Neither the Borrower nor any ERISA
Affiliate has any contingent liability with respect to any postretirement
benefit under a Welfare Plan other than liability for continuation coverage
described in Part 6 of Title I of ERISA.
8.9 Investment Company Act. The Borrower is neither an "investment
----------------------
company" nor a company "controlled" by an "investment company", within the
meaning of the Investment Company Act of 1940, as amended.
8.10 Public Utility Holding Company Act. The Borrower is neither a
----------------------------------
"holding company", nor a "subsidiary company" of a "holding company", nor an
"affiliate" of a "holding company" or of a "subsidiary company" of a "holding
company", within the meaning of the Public Utility Holding Company Act of 1935,
as amended.
16
<PAGE>
8.11 Regulation U. The Borrower is not engaged principally, or as one of
------------
its important activities, in the business of extending credit for the purpose of
purchasing or carrying Margin Stock.
8.12 Hazardous Material. Neither the Borrower or any Subsidiary nor, to
------------------
the best of the Borrower's knowledge, any other Person, has ever used,
generated, processed, stored, disposed of, released or discharged any Hazardous
Material in, on, under, or about the Property or transported it to or from the
Property in material violation of any Environmental Laws, and none of the
Property contains any underground storage tanks. All Hazardous Materials at the
facilities of the Borrower and each Subsidiary are handled in compliance with
Environmental Laws in all material respects. All Hazardous Material is disposed
of in compliance with Environmental Laws in all material respects. The Borrower
has no knowledge, and neither the Borrower nor any Subsidiary has received
notification, administrative order or other notice of enforcement, cleanup,
removal or other governmental or regulatory actions completed, instituted or
threatened under any Environmental Laws, or of claims made or threatened by any
Person against the Borrower, any Subsidiary or the Property relating to damage,
contribution, cost recovery, compensation, loss or injury resulting from any
presence, release, discharge or migration of any Hazardous Material.
8.13 Environmental Compliance. The Borrower and each Subsidiary has
------------------------
obtained all permits required under all applicable Environmental Laws, and the
Borrower, each Subsidiary and their respective facilities are in compliance with
all applicable Environmental Laws in all material respects. The Borrower has no
reason to believe that it or any Subsidiary will be unable to obtain all
required permits or maintain compliance with all Environmental Laws, or that
inability to obtain all required permits or maintain compliance with all
Environmental Laws would impair the Borrower's ability to meet its obligations
under this Agreement.
8.14 Accuracy of Information. All written factual information heretofore
-----------------------
or contemporaneously furnished by the Borrower to the Bank for purposes of or in
connection with this Agreement or any of the Related Documents is, and all other
written factual information hereafter furnished by the Borrower to the Bank will
be, true and accurate in every material respect on the date as of which such
information is dated or certified, and the Borrower has not omitted and will not
omit any material fact necessary to prevent such information from being false or
misleading. The Borrower has disclosed to the Bank in writing all facts which
the Borrower reasonably believes could materially and adversely affect the
business, properties, financial condition or results of operations of the
Borrower and its Subsidiaries, taken as a whole, other than facts known
generally by the public and facts known generally by the public specifically in
respect of the industry in which the Borrower does business.
8.15 Fair Consideration. The Borrower has received fair consideration in
------------------
exchange for the Borrower's assumption of the Liabilities. The Borrower is not
"insolvent", and the Borrower's incurrence of obligations, direct or contingent,
to repay the Revolving Loans
17
<PAGE>
render the Borrower "insolvent." For purposes of this Section 8.15, a
------------
corporation is "insolvent" if (i) the "present fair salable value" (as defined
below) of its assets is less than the amount that will be required to pay its
probable liability on its existing debts and other liabilities (including
contingent liabilities) as they become absolute and matured, provided that for
purposes of this clause (i), redemption obligations of the Company in respect of
redeemable stock issued by the Company shall not be deemed to be a liability of
the Company; (ii) its property constitutes unreasonably small capital for it to
carry out its business as now conducted and as proposed to be conducted
including its capital needs; (iii) it intends to, or believes that it will,
incur debts beyond its ability to pay such debts as they mature (taking into
account the timing and amounts of cash to be received by it and amounts to be
payable on or in respect of its debt), or the cash available to it after taking
into account all other anticipated uses of its cash is anticipated to be
insufficient to pay all such amounts on or in respect of its debt when such
amounts are required to be paid; or (iv) it believes that final judgments
against it in actions for money damages will be rendered at a time when, or in
an amount such that, it will be unable to satisfy any such judgments promptly in
accordance with their terms (taking into account the maximum reasonable amount
of such judgments in any such actions and the earliest reasonable time at which
such judgments might be rendered), or the cash available to it after taking into
account all other anticipated uses of its cash (including the payments on or in
respect of debt referred to in clause (iii) of this Section 8.15), is
------------ ------------
anticipated to be insufficient to pay all such judgments promptly in accordance
with their terms. For purposes of this Section 8.15, the following terms have
------------
the following meanings: (x) the term "debts" includes any legal liability,
whether matured or unmatured, liquidated, absolute, fixed or contingent, (y) the
term "present fair salable value" when used with respect to assets means the
amount which may be realized, within a reasonable time, either through
collection or sale of such assets at their regular market value and (z) the term
"regular market value" means the amount which a capable and diligent businessman
could obtain for the property in question within a reasonable time from an
interested buyer who is willing to purchase under ordinary selling conditions.
8.16 Labor Controversies. There are no labor controversies pending or
-------------------
threatened against the Borrower or any Subsidiary which, if adversely
determined, would materially and adversely affect the business, properties,
financial condition or results of operations of the Borrower and its
Subsidiaries, taken as a whole.
8.17 Tax Status. The Borrower and each Subsidiary has made or filed all
----------
income and other tax returns, reports and declarations required by any
jurisdiction to which any of them are subject, has paid all taxes, assessments
and other charges shown or determined to be due on such returns, reports and
declarations (other than those being diligently contested in good faith by
appropriate proceedings), and has set aside adequate reserves against liability
for taxes, assessments and charges applicable to periods subsequent to those
covered by such returns, reports and declarations.
8.18 No Default. No event has occurred and is continuing and no condition
----------
exists which, upon the execution and delivery of, or consummation of any
transaction contemplated
18
<PAGE>
by, this Agreement or any Related Document, or upon the funding of any Revolving
Loan, will constitute an Event of Default or Unmatured Event of Default.
8.19 Compliance with Applicable Laws. The Borrower and each Subsidiary is
-------------------------------
in compliance with the requirements of all applicable laws, rules, regulations,
and orders of all governmental authorities (Federal, state, local or foreign,
and including, without limitation, environmental laws, rules, regulations and
orders), a breach of which would materially and adversely affect the business,
properties, financial condition or results of operations of the Borrower and its
Subsidiaries, taken as a whole.
8.20 Capitalization. After giving effect to the Equity Transaction, there
--------------
is set forth on Schedule III hereto a complete description of the capitalization
------------
of the Borrower and each of the Existing Subsidiaries (on a fully-diluted and
fully-converted basis).
SECTION 9. COVENANTS
Until the expiration or termination of the Revolving Loan Commitment and
thereafter until all Liabilities are paid in full, the Borrower agrees that,
unless at any time the Bank shall otherwise expressly consent in writing, it
will:
9.1 Reports, Certificates and Other Information.. Furnish to the Bank:
-------------------------------------------
(a) Audit Report. On or before the one hundred twentieth (120th) day after
------------
each of the Borrower's fiscal years, a copy of an unqualified annual
consolidated audit report of the Borrower prepared in conformity with GAAP, duly
certified by independent certified public accountants of recognized standing
selected by the Borrower with the Bank's consent, together with a certificate
from such accountants containing a computation of, and showing compliance with,
each of the financial ratios and restrictions contained in this Section 9 and to
---------
the effect that, in making the examination necessary for the signing of such
annual audit report by such accountants, (i) they have not become aware of any
Event of Default or Unmatured Event of Default that has occurred and is
continuing or, if they have become aware of any such event, describing it and
the steps, if any, being taken to cure it and (ii) they are aware that the Bank
is relying upon such accountants' certification of such annual audit reports and
they authorize such reliance.
(b) Interim Reports. On or before the thirtieth (30th) day after the end
---------------
of each month, a copy of unaudited consolidated financial statements of the
Borrower prepared in a manner consistent with the financial statements referred
to in Section 9.1(a) (but excluding footnotes), signed by an Authorized Officer
--------------
and consisting of, at least, a balance sheet as at the close of such month and
statements of income and retained earnings for such month and for the period
from the beginning of such fiscal year to the close of such month.
19
<PAGE>
(c) Certificates. At the Bank's option, contemporaneously with the
------------
furnishing of each annual financial statement and each monthly statement
provided for in this Section 9.1, a duly completed certificate in the form
-----------
supplied by the Bank to the Borrower (herein called a "Compliance Certificate"),
dated the date of such annual financial statement or such monthly statement and
signed by an Authorized Officer, which Compliance Certificate shall state that
no Event of Default or Unmatured Event of Default has occurred and is
continuing, or, if there is any such event, describes it and the steps, if any,
being taken to cure it. In addition, except in the case of a Compliance
Certificate dated the date of such annual financial statement, the Compliance
Certificate shall contain a computation of, and show compliance with, each of
the financial ratios and restrictions contained in this Section 9.
---------
(d) Schedules of Accounts, Inventory and Payables. On or before the
---------------------------------------------
thirtieth (30th) day of each calendar month, a summary Schedule of Accounts and
a summary Schedule of Inventory as at the last day of the immediately preceding
calendar month, each in form and substance satisfactory to the Bank. At the
Bank's request from time to time, a summary Schedule of Payables in form and
substance satisfactory to the Bank.
(e) Borrowing Base Certificate. On or before the fifteenth (15th) day of
--------------------------
each calendar month, an updated Borrowing Base Certificate in form and substance
satisfactory to the Bank which shall be as of the last day of the immediately
preceding month.
(f) Reports to SEC and to Shareholders. Promptly upon the filing or making
-----------------------------------
thereof, copies of each filing and report made by the Borrower with or to any
securities exchange or the Securities and Exchange Commission, and of each
material communication from the Borrower to its common shareholders generally.
(g) Notice of Default, Litigation and Erisa Matters. Forthwith upon
-----------------------------------------------
learning of the occurrence of any of the following, written notice thereof which
describes the same and the steps being taken by the Borrower or any Subsidiary
with respect thereto: (i) the occurrence of an Event of Default or an Unmatured
Event of Default, (ii) the institution of, or any adverse determination in, any
litigation, arbitration proceeding or governmental proceeding involving Borrower
or any Subsidiary in which any injunctive relief is sought or in which money
damages in excess of $50,000 are sought, (iii) the occurrence of a Reportable
Event with respect to any Plan, (iv) the institution of any steps by the
Borrower, any ERISA Affiliate, the PBGC or any other Person to terminate any
Plan, (v) the institution of any steps by the Borrower or any ERISA Affiliate to
withdraw from any Plan or Multiemployer Plan which could result in material
liability to the Borrower or any ERISA Affiliate, (vi) the failure to make a
required contribution to any Plan if such failure is sufficient to give rise to
a lien under Section 302(f) of ERISA, (vii) the taking of any action with
respect to a Plan which could result in the requirement that the Borrower or any
ERISA Affiliate furnish a bond or other security to the PBGC or such Plan or
Multiemployer Plan, or (viii) the occurrence of any event with respect to any
Plan or Multiemployer Plan which could result in the incurrence by the Borrower
or any ERISA Affiliate of any material liability, fine or penalty; and, promptly
after the incurrence thereof, notice of any material increase in the contingent
liability
20
<PAGE>
of the Borrower or any ERISA Affiliate with respect to any postretirement
Welfare Plan benefits.
(h) Insurance Reports. (i) On or before the ninetieth (90th) day after
-----------------
the close of each of the Borrower's fiscal years, a certificate signed by an
Authorized Officer that summarizes the property, casualty, liability and "key-
man" life insurance policies carried by the Borrower and that certifies that the
Bank is the "lender loss payee" of all property and casualty insurance policies
(such certificate to be in form and substance satisfactory to the Bank), and
(ii) written notification of any cancellation or material change in any such
insurance by the Borrower within five Business Days after receipt of any notice
(whether formal or informal) of such cancellation or change by any of its
insurers.
(i) Other Information. Such other information concerning the Borrower or
-----------------
any Subsidiary as the Bank may reasonably request from time to time.
9.2 Corporate Existence and Franchises. Except as otherwise expressly
----------------------------------
permitted in this Agreement, the Borrower shall maintain in full force and
effect, and cause each Subsidiary to maintain in full force and effect, its
separate existence and all rights, licenses, leases and franchises reasonably
necessary to the conduct of its business.
9.3 Books, Records and Inspections. The Borrower shall (i) maintain, and
------------------------------
cause any Subsidiary to maintain, complete and accurate books and records, (ii)
permit, and cause each Subsidiary to permit, the Bank to have access to such
books and records at reasonable times and in reasonable intervals, prior to the
occurrence of an Event of Default, and at any time after and during the
continuance of an Event of Default, and (iii) permit, and cause each Subsidiary
to permit, the Bank to inspect the Borrower's and any Subsidiary's properties
and operations at reasonable times and in reasonable intervals, prior to the
occurrence of an Event of Default, and at any time after and during the
continuance of an Event of Default.
9.4 Insurance. The Borrower shall maintain such insurance (a) as may be
---------
required by law or by the Collateral Documents and (b) as may be customarily
maintained by similarly situated companies.
9.5 Taxes and Liabilities. The Borrower shall promptly pay when due, and
---------------------
shall cause each Subsidiary to promptly pay when due, all taxes, duties,
assessments and other liabilities, except such taxes, duties, assessments and
other liabilities as the Borrower or a Subsidiary is diligently contesting in
good faith and by appropriate proceedings; provided that the Borrower or such
--------
Subsidiary has provided for and is maintaining adequate reserves with respect
thereto in accordance with GAAP.
9.6 Limits on Revolving Loan Commitment. Not permit the aggregate
-----------------------------------
outstanding principal amount of the Revolving Loans to exceed the then-current
Borrowing Base or other applicable limit set forth in this Agreement.
21
<PAGE>
9.7 Intentionally Reserved.
----------------------
9.8 Minimum Net Working Capital. Not permit the difference of (i) the
---------------------------
Borrower's current assets (disregarding any of the Borrower's intangible assets
and prepaid assets, including, without limitation, covenants not to compete,
prepayments, deferral charges, goodwill, franchises, licenses, patents,
trademarks, trade names, copyrights, service marks and brand names), less (ii)
----
the Borrower's current liabilities, to be less than $2,000,000 at any time.
9.9 Indebtedness. After giving effect to the Equity Transaction, not
------------
incur or permit to exist, or permit any Subsidiary to incur or permit to exist,
any Indebtedness except (i) the Revolving Loans, (ii) Capitalized Lease
Obligations not to exceed $400,000 in the aggregate at any time outstanding,
(iii) current accounts payable arising in the ordinary course of business and
(iv) the existing Indebtedness described in part (a) of Schedule II attached
-----------
hereto.
9.10 Intentionally Reserved.
----------------------
9.11 Maximum Negative Ebitda; Minimum Ebitda.
---------------------------------------
(a) Maximum Negative Ebitda. Not permit the negative consolidated
-----------------------
EBITDA, if any, for any quarter set forth below to be greater than the
respective amount set forth below opposite such quarter:
Quarter Maximum Negative EBITDA
------- -----------------------
Quarter Ending June 30, 1998 ($1,000,000)
Quarter Ending September 30, 1998 ($600,000)
(b) Minimum Ebitda. Not permit consolidated EBITDA for any quarter
--------------
set forth below to be less than the respective amount set forth below
opposite such quarter:
Quarter Minimum EBITDA
------- --------------
Quarter Ending December 31, 1998 $100,000
Each Quarter Thereafter $500,000
9.12 Minimum Capital Funds. Not permit the amount of Capital Funds at any
---------------------
time during any quarter set forth below to be less than the respective amount
set forth below opposite such quarter:
22
<PAGE>
<TABLE>
<CAPTION>
Quarter Minimum Capital Funds
------- ---------------------
<S> <C>
Quarter Ending June 30, 1998 $8,000,000
Quarter Ending September 30, 1998 $7,500,000
Quarter Ending December 31, 1998 $7,500,000
Quarter Ending March 31, 1999 $7,500,000
Quarter Ending June 30, 1999 $7,500,000
Quarter Ending September 30, 1999 $8,000,000
Quarter Ending December 31, 1999 $8,000,000
Each Quarter Thereafter $8,500,000
</TABLE>
9.13 Purchase and Redemption of the Borrower's Securities; Dividend and
------------------------------------------------------------------
Interest Restrictions; Subordinated Debt Payments. Other than as specifically
- -------------------------------------------------
permitted by the Bank and in connection with the Equity Transaction, not: (i)
purchase or redeem any shares of the Borrower's or any Subsidiary's capital
stock, any options or warrants with respect thereto or any other equity
securities of the Borrower or any Subsidiary; (ii) declare or pay any dividends
on any shares of the Borrower's or any Subsidiary's capital stock; or (iii) make
any other distribution or payment to shareholders or holders of options or
warrants in respect of the Borrower's or any Subsidiary's capital stock or set
aside any funds for any such purpose.
9.14 Liens. Without the prior written consent of the Bank, not create or
-----
permit to exist, or permit any Subsidiary to create or permit to exist, any Lien
with respect to any assets now owned or hereafter acquired other than Liens in
the Bank's favor and the Liens set forth in part (b) of Schedule II attached
-----------
hereto.
9.15 Guaranties, Loans, Advances or Investments. Not become, or be a
------------------------------------------
guarantor or surety of, or permit any Subsidiary to become, or be a guarantor or
surety of, or otherwise become or be responsible in any manner (whether by
agreement to purchase any obligations, stock, assets, goods or services, or to
supply or advance any funds, assets, goods or services, or otherwise) with
respect to any undertaking of any other Person, or make or permit to exist any
loans or advances to, or investments in, any other Person, except for (i) the
endorsement, in the ordinary course of collection, of instruments payable to it
or to its order, (ii) investments in obligations of the United States of America
and agencies thereof and obligations guaranteed by the United States of America
maturing within one year from the date of acquisition, (iii) certificates of
deposit, time deposits or repurchase agreements issued by commercial banks
organized under the laws of the United States of America or any state thereof
and having a combined capital, surplus, and undivided profits of not less than
$500,000,000, (iv) commercial paper, maturing not more than nine months from the
date of issue, provided that at the time of purchase, such commercial paper is
rated not lower than "P-1" or the then-equivalent rating by Moody's Investors
Service or "A-1" or the then-equivalent rating by Standard & Poor's Corporation
or, if both such rating services are discontinued, by such other nationally
recognized rating service or services, as the case may be, as the Borrower shall
select with the Bank's consent, (v) guaranties of which the Bank is the
23
<PAGE>
beneficiary and (vi) investments by the Borrower in the Existing Subsidiaries
and any other Subsidiary to the extent otherwise permitted hereunder; provided,
--------
however, that in the case of clauses (ii), (iii) and (iv) of this Section 9.15,
- ------- ------------ ----- ---- ------------
all such investments, certificates of deposit and commercial paper held by or
issued to the Borrower shall be pledged to the Bank, in a manner satisfactory to
the Bank, as security for the Liabilities.
9.16 Change in Nature of Business. Not make, or permit any of its
----------------------------
Subsidiaries to make, any material change in the nature of its business carried
on as of the date first stated above.
9.17 Mergers, Consolidations, Sales. Other than as previously disclosed to
------------------------------
the Bank in writing, not be a party to, or permit any Subsidiary to be a party
to, any merger, consolidation or exchange of stock, or purchase or otherwise
acquire all or substantially all of the assets or stock of any class of, or any
partnership or joint venture interest in, any other Person, or sell, transfer,
convey or lease all or any substantial part of its assets, or sell or assign,
with or without recourse, any receivables, except (i) the Borrower may sell or
assign any of its receivables in respect of factoring arrangements previously
disclosed in writing to the Bank and (ii) any Subsidiary of Borrower may merge
with and into Borrower or any other Subsidiary of Borrower, provided that, with
respect to any transaction described in this clause (ii), (A) no Event of
Default shall exist or be created by the consummation of any such merger, (B)
the Bank shall have received forty-five (45) days' prior written notice of any
such merger, (C) in respect of any such merger between two Subsidiaries of the
Borrower, the surviving entity shall be a wholly-owned Subsidiary of the
Borrower and (D) the Bank shall have received such agreements, documents and
instruments as the Bank reasonably shall require (x) to preserve the validity
and priority of the Liens in favor of the Bank on the Property transferred to
the surviving entity in connection with such merger and (y) in connection with
any such merger, including, without limitation, certified copies of the related
plan of merger and certificates of merger.
9.18 Leases. Not enter into or permit to exist, or permit any Subsidiary
------
to enter into or permit to exist, any arrangements under which the Borrower or
any Subsidiary leases as lessee any real or personal property, or any interest
therein, which arrangements require the Borrower and all Subsidiaries to pay
amounts of rent in excess in the aggregate, for all such leases of the Borrower
and all Subsidiaries at any one time outstanding, of $850,000 in any one of the
Borrower's fiscal years, excluding Capitalized Lease Obligations.
9.19 Capital Expenditures. Not expend, or permit any of its Subsidiaries
--------------------
to expend, in the aggregate, an amount for capital expenditures (excluding
payments made under capitalized leases) in excess of $1,550,000 in any one of
the Borrower's fiscal years.
9.20 Unconditional Purchase Obligations. Not enter into or be a party to,
----------------------------------
or permit any Subsidiary to enter into or be a party to, any contract for the
purchase of materials, supplies or other property or services, if such contract
requires the Borrower or any
24
<PAGE>
Subsidiary to make payment regardless of whether such materials, supplies or
other property or services are ever delivered.
9.21 Employee Benefit Plans. Not permit, and not permit any ERISA
----------------------
Affiliate to permit, any condition to exist in connection with any Plan which
might constitute grounds for the PBGC to institute proceedings to have such Plan
terminated or a trustee appointed to administer such Plan; and not engage in, or
permit to exist or occur, or permit any ERISA Affiliate to engage in, or permit
to exist or occur, any other condition, event or transaction with respect to any
Plan or Multiemployer Plan which could result in the incurrence by the Borrower
or any ERISA Affiliate of any material liability, fine or penalty.
9.22 Use of Proceeds. Not use or permit the direct or indirect use of any
---------------
proceeds of or with respect to the Revolving Loans for the purpose, whether
immediate, incidental or ultimate, of "purchasing or carrying" (within the
meaning of Regulation U) Margin Stock.
9.23 Transactions with Affiliates. Not enter into, or permit any
----------------------------
Subsidiary to enter into, any transaction with any Affiliate unless such
transaction is on terms and conditions at least as favorable to the Borrower or
such Subsidiary as the terms and conditions that would apply in a similar
transaction with a Person who is not an Affiliate.
9.24 Other Agreements. Not enter into, or permit any Subsidiary to enter
----------------
into, any agreement containing any provision which would be violated or breached
by the performance of the Borrower's obligations hereunder or under any
instrument or document delivered or to be delivered by the Borrower or any
Subsidiary hereunder or in connection herewith or which would violate or breach
any provision hereof or of any such instrument or document.
9.25 Compliance with Applicable Laws. Comply, and cause each Subsidiary to
-------------------------------
comply, with the requirements of all applicable laws, rules, regulations, and
orders of all governmental authorities (Federal, state, local or foreign, and
including, without limitation, environmental laws, rules, regulations and
orders), a breach of which would materially and adversely affect the business,
properties, financial condition or results of operations of the Borrower and its
Subsidiaries, taken as a whole, except where the Borrower or a Subsidiary is
contesting an alleged breach in good faith and by proper proceedings and for
which the Borrower or such Subsidiary is maintaining adequate reserves in
accordance with GAAP.
9.26 Environmental Matters.
---------------------
(a) For so long as Borrower or any Subsidiary owns, leases or otherwise
possesses any Property, not permit such Property or any portion thereof to be
involved in the use, generation, manufacture, storage, disposal or
transportation of Hazardous Material in material violation of any Environmental
Laws, other than as described in Schedule I hereto.
----------
(b) Obtain and maintain all material permits required under all
applicable federal, state, and local Environmental Laws.
25
<PAGE>
(c) For so long as Borrower or any Subsidiary owns, leases or otherwise
possesses any Property, keep and maintain such Property and each portion thereof
in material compliance with, and not cause or permit the Property or any portion
thereof to be in violation of, any material Environmental Law.
(d) Immediately notify the Bank in writing of:
(1) Any and all enforcement, cleanup, removal or other governmental
or regulatory actions completed, instituted or threatened, or notifications
of potential liability issued, pursuant to the application of any
Environmental Laws;
(2) Any and all claims made or threatened by any Person against the
Borrower, any Subsidiary or the Property relating to damage, contribution,
cost recovery, compensation, loss or injury resulting from any presence,
release, discharge or migration of any Hazardous Material (the matters set
forth in this clause (2) and the foregoing clause 1 being hereinafter
---------- --------
referred to as "Environmental Claims");
(3) Any and all settlement agreements, consent decrees or other
compromises which the Borrower or any Subsidiary shall enter into with
respect to any Environmental Claims; and
(4) Discovery of any occurrence or condition on any real property
adjoining or in the vicinity of the Property that could cause the Property
or any part thereof to be subject to any restrictions on the ownership,
occupancy, transferability or use thereof under any Environmental Law. The
Bank shall have the right to join and participate in, as a party if it so
elects, any legal proceedings or actions initiated in connection with any
lawsuits, claims or governmental or regulatory actions arising out of
Environmental Claims and the Borrower agrees to pay the Bank's reasonable
attorneys' fees in connection therewith.
(e) Not take any remedial action in response to the presence of any
Hazardous Material on, under, or about the Property, nor enter into any
settlement agreement, consent decree, or other compromise in respect to any
Environmental Claims, without the Bank's advance written consent.
9.27 Accountant's Report. The Borrower shall cause to be delivered to the
-------------------
Bank no later than 45 days after the Closing Date a copy of an unqualified
consolidated annual audit report of the Borrower and its Subsidiaries for the
fiscal year ended December 31, 1997, prepared in accordance with GAAP and duly
certified by Coopers & Lybrand.
9.28 Landlord Consents. The Borrower shall use its best efforts to obtain
-----------------
and deliver to the Bank on or before the thirtieth (30th) day after the date of
this Agreement a
26
<PAGE>
landlord consent and waiver, in form and substance satisfactory to the Bank,
executed by the landlord under each lease of real property to which the Borrower
is a party.
SECTION 10. COLLATERAL SECURITY
10.1 Collateral Documents. Payment and performance of all of the
--------------------
Liabilities shall be secured pursuant to each of the following, in each case in
form and substance satisfactory to the Bank:
(a) Security Agreement. A security agreement and financing
------------------
statement (herein, as the same may be amended, modified, supplemented or
restated from time to time with the Bank's advance written consent, called
the "Security Agreement");
------------------
(b) Trademark Security Agreement. A trademark security agreement
----------------------------
(herein, as the same may be amended, modified, supplemented or restated
from time to time with the Bank's advance written consent, called the
"Trademark Security Agreement");
-----------------------------
(c) Subsidiary Stock Pledge Agreement. A pledge agreement in
---------------------------------
respect of the equity interests of all of the Subsidiaries of the Borrower
(herein, as the same may be amended, modified, supplemented or restated
from time to time with the Bank's advance written consent, called the
"Subsidiary Stock Pledge Agreement"); and
---------------------------------
(d) Other Documents and Instruments. Such other documentation as
-------------------------------
the Bank may reasonably require.
10.2 Deliveries; Further Assurances. The Borrower agrees that it will, at
------------------------------
its sole expense, (i) without any request by the Bank, immediately deliver, or
cause to be delivered to the Bank, in due form for transfer (e.g., endorsed in
blank or accompanied by duly executed blank stock or bond powers), all
securities (including those hereafter acquired), chattel paper, instruments and
documents of title, if any, at any time representing all or any of the
Collateral, (ii) without request by the Bank, cause the Bank's security interest
under the Collateral Documents to be at all times duly noted on any certificate
of title issuable with respect to any of the Collateral and forthwith deliver or
cause to be delivered to the Bank each such certificate of title and (iii) upon
the Bank's request, forthwith execute and deliver, or cause to be executed and
delivered to the Bank, in due form for filing or recording (the Borrower hereby
agreeing to pay the cost of filing or recording the same in all public offices
deemed necessary by the Bank), such assignments, security agreements, mortgages,
deeds of trust, pledge agreements, warehouse receipts, bailee letters, consents,
waivers, financing statements, stock or bond powers and other documents, and do
such other acts and things, all as the Bank may from time to time reasonably
request, to establish and maintain to the Bank's satisfaction a valid, first
priority perfected security interest in all of the Borrower's present and/or
future assets (free of all other Liens whatsoever except Permitted Liens) to
secure payment of the
27
<PAGE>
Liabilities. The Borrower hereby irrevocably makes, constitutes and appoints
the Bank (and all other persons designated by the Bank for that purpose) as the
Borrower's true and lawful agent and attorney-in-fact to sign the Borrower's
name on any such agreements, instruments and documents referred to in clause
------
(iii) above and to deliver such agreements, instruments and documents to such
- -----
Persons as the Bank in its sole discretion may elect.
SECTION 11. CONDITIONS TO EFFECTIVENESS
11.1 Effectiveness. This Agreement shall become effective when executed
-------------
by the Borrower and the Bank and upon satisfaction of each of the following
conditions precedent:
(a) Fees and Expenses. The Borrower shall have paid all fees owed to the
-----------------
Bank and reimbursed the Bank for all expenses due and payable hereunder on or
before the date of such Revolving Loans including, but not limited to, (i) the
Bank's counsel fees provided for in Section 13.5 to the extent such counsel
------------
shall have requested payment of such fees and (ii) the commitment fee set forth
in Section 5.4(b).
--------------
(b) Documents. The Bank shall have received all of the following, each
---------
duly executed and delivered and dated the Closing Date or such earlier date as
shall be satisfactory to the Bank, in form and substance satisfactory to the
Bank:
(1) Related Documents. The Revolving Note and such other Related
-----------------
Documents, or amendments thereto, as the Bank may require.
(2) Leases. Certified copies of all leases (including ground
------
leases) affecting the Property.
(3) Licenses, Approvals and Permits. Certified copies of all
-------------------------------
licenses, approvals, and permits from federal, state, local and other
governmental or quasi-governmental authorities and public or private
utilities material to the operation of Borrower's and each Subsidiary's
business.
(4) Resolutions. Certified copies of resolutions of the Borrower's
-----------
Board of Directors and, where required, shareholders, authorizing or
ratifying the execution, delivery and performance of this Agreement, the
Related Documents to which the Borrower is a party and any other documents
provided for herein or therein to be executed by the Borrower.
(5) Consents. Certified copies of all documents evidencing any
--------
necessary corporate action, consents and governmental approvals, if any,
with respect to this Agreement, the Related Documents and any other
documents provided for herein or therein to be executed by the Borrower.
28
<PAGE>
(6) Incumbency and Signatures. A certificate of the Secretary or an
-------------------------
Assistant Secretary of the Borrower certifying the names of the officer or
officers of the Borrower authorized to sign this Agreement and the Related
Documents together with a sample of the true signature of each such
officer. The Bank may conclusively rely on each such certificate until
formally advised by a like certificate of any changes therein.
(7) Opinion of Borrower's Counsel. An opinion of Gardner Carton &
-----------------------------
Douglas, legal counsel to the Borrower, in form and substance acceptable to
the Bank and Bank's legal counsel.
(8) Warranty of Validity of Accounts. A Warranty of Validity of
--------------------------------
Accounts in the form supplied by the Bank to the Borrower.
(9) Financial Condition Certificate. A Financial Condition
-------------------------------
Certificate in the form supplied by the Bank to the Borrower.
(10) Constitutive Documents. Certified copies of the Borrower's and
----------------------
each Subsidiary's articles of incorporation and by-laws.
(11) Forms UCC-1 and UCC-2; Termination Statements. Forms UCC-1 and
---------------------------------------------
UCC-2 from the Borrower and each Subsidiary covering the Collateral,
together with such termination statements and other documents, if any, as
the Bank deems necessary or appropriate, shall have been filed in all
jurisdictions that the Bank deems necessary or advisable.
(12) Insurance Certificates. Certificates from the Borrower's
----------------------
insurance carriers evidencing that all required insurance coverage is in
effect, each designating the Bank as lender loss payee or additional
insured thereunder.
(c) Intentionally Omitted.
---------------------
(d) Intentionally Omitted.
---------------------
(e) Equity Investment; Term Credit Agreement. The Bank shall have
----------------------------------------
received evidence satisfactory to it that (i) the Equity Transaction shall
have been consummated, the terms and conditions of which shall have been
satisfactory to the Bank, and (ii) all of the obligations and liabilities
of the Borrower under the Term Credit Agreement shall have been paid and
performed in full with a portion of the proceeds of the equity investment
described in clause (i) of this paragraph (e).
11.2 All Revolving Loans. The Bank's obligation to make additional
-------------------
Revolving Loans is subject to the following additional conditions precedent:
29
<PAGE>
(a) No Default, etc. (i) No Event of Default or Unmatured Event of
----------------
Default shall have occurred and be continuing or will result from the making of
such Revolving Loan, (ii) the Borrower's representations and warranties
contained in Section 8 or contained in any Related Document shall be true and
---------
correct as of the date of such requested Revolving Loan with the same effect as
though made on the date thereof, (iii) the aggregate principal amount of the
Revolving Loans outstanding on the date of such requested Revolving Loan (after
giving effect to such Revolving Loan) shall not exceed the then-current
Borrowing Base or other applicable limit hereunder and (iv) there shall have
been no material adverse change with respect to the business, properties,
financial condition or results of operations of the Borrower or any Subsidiary
since the date of the previous Revolving Loan made hereunder or notice of any
prospective material adverse change with respect to any insurance maintained by
the Borrower.
(b) Litigation. (i) The Borrower shall have disclosed in writing to the
----------
Bank all existing or threatened claims, litigation (including, without
limitation, derivative actions), arbitration proceedings or governmental
proceedings affecting the Borrower or any Subsidiary not previously disclosed in
writing to the Bank before the date of the last previous Revolving Loan (or, in
the case of the initial Revolving Loan, since the date of this Agreement) which
the Borrower reasonably believes could materially and adversely affect the
business, properties, financial condition or results of operations of the
Borrower and its Subsidiaries, taken as a whole, (ii) the Borrower shall have
disclosed any and all material developments that have occurred with respect to
any previously disclosed claims, litigation (including, without limitation,
derivative actions), arbitration proceedings or governmental proceedings and
(iii) the Bank shall not have determined that any existing or threatened claims,
litigation (including, without limitation, derivative actions), arbitration
proceedings or governmental proceedings (or any material development in
connection therewith) is likely to have a material adverse impact on the
business, properties, financial condition or results of operations of the
Borrower or any Subsidiary or on the Borrower's ability to perform its
obligations hereunder or under any of the Related Documents.
(c) Certificate. The Bank shall have received a certificate signed by an
-----------
Authorized Officer and dated the date of such requested Revolving Loan
certifying satisfaction of the conditions specified in Section 11.2(a) and
---------------
(b)(i) and (ii).
- ------ ----
(d) Other. The Bank shall have received such other documents as the Bank
-----
may reasonably request in support of such requested Revolving Loan.
30
<PAGE>
SECTION 12. EVENTS OF DEFAULT AND THEIR EFFECT
12.1 Events of Default. Each of the following shall constitute an Event of
-----------------
Default under this Agreement:
(a) Nonpayment Of Revolving Loans. Default in the payment when due of the
-----------------------------
principal of or interest on any Revolving Loan, or the payment when due of any
fees or any other amounts payable by the Borrower hereunder.
(b) Nonpayment of Other Indebtedness. Default in the payment when due
--------------------------------
(subject to any applicable grace period), whether by acceleration or otherwise,
of any other Indebtedness of the Borrower or any Subsidiary the aggregate of
which exceeds $100,000, or default in the performance or observance of any
obligation or condition with respect to any such other Indebtedness if the
effect of such default is to accelerate the maturity of any such Indebtedness or
cause any of such Indebtedness to be prepaid, purchased or redeemed or to permit
the holder or holders thereof, or any trustee or agent for such holders, to
cause such Indebtedness to become due and payable prior to its expressed
maturity or to cause such Indebtedness to be prepaid, purchased or redeemed.
(c) Intentionally Omitted.
---------------------
(d) Intentionally Omitted.
---------------------
(e) Other Material Obligations. Default in the payment when due, or in
--------------------------
the performance or observance of, any material obligation of, or condition
agreed to by, the Borrower or any Subsidiary with respect to any material
purchase or lease of goods or services (except only to the extent that the
Borrower or such Subsidiary is contesting the existence of any such default in
good faith and by appropriate proceedings).
(f) Bankruptcy or Insolvency. The Borrower or any Subsidiary becomes
------------------------
insolvent or generally fails to pay, or admits in writing its inability to pay,
debts as they become due; or the Borrower or any Subsidiary applies for,
consents to, or acquiesces in the appointment of, a trustee, receiver or other
custodian for the Borrower, such Subsidiary or any property thereof, or makes a
general assignment for the benefit of creditors; or, in the absence of such
application, consent or acquiescence, a trustee, receiver or other custodian is
appointed for the Borrower or any Subsidiary or for a substantial part of the
property of any thereof and is not discharged within 90 days; or any bankruptcy,
reorganization, debt arrangement, or other case or proceeding under any
bankruptcy or insolvency law, or any dissolution or liquidation proceeding, is
commenced in respect of the Borrower or any Subsidiary, and if such case or
proceeding is not commenced by the Borrower or such Subsidiary, it is consented
to or acquiesced in by the Borrower or such Subsidiary or remains for 30 days
undismissed; or the Borrower or any Subsidiary takes any corporate action to
authorize, or in furtherance of, any of the foregoing.
31
<PAGE>
(g) Specified Noncompliance with this Agreement. Failure by the Borrower
-------------------------------------------
to comply with or to perform under Sections 9.6 through and including 9.19,
------------ ----
Section 9.22, Section 9.23, or Sections 9.26 through 9.28 hereunder.
- ------------ ------------ ------------- ----
(h) Other Noncompliance with this Agreement. Failure by the Borrower to
---------------------------------------
comply with or to perform any provision of this Agreement (and not constituting
an Event of Default under any of the other provisions of this Section 12) and
----------
continuance of such failure for ten (10) days after notice thereof to the
Borrower from the Bank or any other holder of the Revolving Note.
(i) Representations and Warranties. Any representation or warranty made
------------------------------
by the Borrower herein or in any Related Document is breached or is false or
misleading in any material respect, or any schedule, certificate, financial
statement, report, notice, or other writing furnished by the Borrower to the
Bank is false or misleading in any material respect on the date as of which the
facts therein set forth are stated or certified.
(j) Employee Benefit Plans. (i) Institution by the PBGC, the Borrower or
----------------------
any ERISA Affiliate of steps to terminate a Plan or to organize, withdraw from
or terminate a Multiemployer Plan if as a result of such reorganization,
withdrawal or termination, the Borrower or any ERISA Affiliate could be required
to make a contribution to such Plan or Multiemployer Plan, or could incur a
liability or obligation to such Plan or Multiemployer Plan, in excess of
$50,000, or (ii) a contribution failure occurs with respect to any Plan
sufficient to give rise to a lien under Section 302(f) of ERISA.
(k) Related Documents. The Borrower or any Subsidiary shall fail to
-----------------
comply with or to perform any provision of any of the Related Documents; or any
of the Related Documents shall fail to remain in full force and effect; or any
action shall be taken to discontinue any of the Related Documents or to assert
the invalidity of any thereof.
(l) Judgments. There shall be entered against the Borrower or any
---------
Subsidiary one or more judgments or decrees in excess of $50,000 in the
aggregate at any one time outstanding, excluding those judgments or decrees (i)
that shall have been stayed, vacated or bonded, (ii) that shall have been
outstanding less than 30 days from the entry thereof or (iii) for and to the
extent to which the Borrower or such Subsidiary is insured and with respect to
which the insurer specifically has assumed responsibility in writing or (iv) for
and to the extent to which the Borrower or such Subsidiary is otherwise
indemnified if the terms of such indemnification are satisfactory to the Bank.
(m) Change in Control. Unless otherwise approved in writing in advance by
-----------------
the Bank, (i) the existing shareholders of the Borrower as of the date hereof
shall cease to collectively own at any time at least seventy percent (70%) of
the issued and outstanding voting stock of the Borrower or (ii) any existing
shareholder of the Borrower as of the date hereof who owns at least five percent
(5%) of the issued and outstanding stock of the Borrower as of the date hereof
shall transfer fifty percent (50%) or more of the stock of
32
<PAGE>
Borrower owned by such existing shareholder as of the date hereof, whether
pursuant to a single transaction or multiple transactions.
(n) Change in Management. If at any time any two of Glen Tullman, David
--------------------
Mullen, Steve Katz and J. Gregory Cull shall cease to hold the offices such
Persons hold as of the date of this Agreement, and/or perform their respective
duties in respect thereof, and such Persons shall not have been replaced by
Persons acceptable to the Bank within thirty (30) days after any such cessation.
12.2 Effect of Event of Default. If any Event of Default described in
--------------------------
Section 12.1(f) shall occur, the Revolving Loan Commitment (if it has not
- ---------------
theretofore terminated) shall immediately terminate and all Revolving Loans
(including any Overadvances), the Revolving Note and all other Liabilities shall
become immediately due and payable, all without presentment, demand or notice of
any kind; and, in the case of any other Event of Default, the Bank may declare
the Revolving Loan Commitment (if it has not theretofore terminated) to be
terminated and all Revolving Loans (including any Overadvances), the Revolving
Note and all other Liabilities to be due and payable, whereupon the Revolving
Loan Commitment shall immediately terminate and all Revolving Loans (including
any Overadvances), the Revolving Note and all other Liabilities shall become
immediately due and payable, all without presentment, demand or notice of any
kind.
SECTION 13. GENERAL
13.1 Waiver; Amendments. No delay on the part of the Bank or any other
------------------
holder of the Revolving Note in the exercise of any right, power or remedy shall
operate as a waiver thereof, nor shall any single or partial exercise by any of
them of any right, power or remedy preclude other or further exercise thereof,
or the exercise of any other right, power or remedy. No amendment, modification
or waiver of, or consent with respect to, any provision of this Agreement or any
Related Document shall in any event be effective unless the same shall be in
writing and signed and delivered by the Bank, and then any such amendment,
modification, waiver or consent shall be effective only in the specific instance
and for the specific purpose for which given.
13.2 Notices. Except as otherwise provided in Section 2.2, all notices
------- -----------
hereunder shall be in writing. Notices given by mail shall be deemed to have
been given three days after the date sent if sent by registered or certified
mail, postage prepaid, and:
(a) if to the Borrower, addressed to the Borrower at its address shown
------------------
below its signature hereto; or
(b) if to the Bank, addressed to the Bank at the address shown below its
--------------
signature hereto; or in the case of each party, such other address as such
party, by written notice received by the other party to this Agreement, may have
designated as its address for notices.
33
<PAGE>
Notices given by telecopy shall be deemed to have been given when sent. Notices
given by personal delivery shall be deemed to have been given when delivered.
The Bank shall be entitled to rely upon all telephonic notices given pursuant to
Section 2.2, and the Borrower shall hold the Bank harmless from any loss, cost
- -----------
or expense ensuing from any such reliance.
13.3 Computations. Where the character or amount of any asset or liability
------------
or item of income or expense is required to be determined, or any consolidation
or other accounting computation is required to be made, for purposes of this
Agreement such determination or calculation shall, to the extent applicable and
except as otherwise specified in this Agreement, be made in accordance with GAAP
applied on a basis consistent with GAAP as GAAP is in effect as of the date of
the first financial statements delivered pursuant to Section 9.1.
-----------
13.4 Regulation U. The Bank represents that it, in good faith, is not
------------
relying either directly or indirectly upon any Margin Stock as collateral
security for the extension or maintenance by it of any credit provided for in
this Agreement.
13.5 Costs, Expenses and Taxes.
-------------------------
(a) The Borrower agrees to pay on demand all of the Bank's reasonable out-
of-pocket costs and expenses (including the reasonable fees and out-of-pocket
expenses of the Bank's counsel and of local counsel, if any, who may be retained
by said counsel) in connection with the preparation, execution and delivery of
this Agreement, the Related Documents and all other instruments or documents
provided for herein or delivered or to be delivered hereunder or in connection
herewith (including, without limitation, all amendments, supplements and waivers
executed and delivered pursuant hereto or in connection herewith). The Borrower
further agrees that the Bank, in its sole discretion, may deduct all such unpaid
amounts from the aggregate proceeds of the Revolving Loans.
(b) The reasonable costs and expenses which the Bank incurs in any manner
or way with respect to the following shall be part of the Liabilities, payable
by the Borrower on demand if at any time after the date of this Agreement the
Bank: (i) employs counsel for advice or other representation: (A) with respect
to the amendment or enforcement of this Agreement or the Related Documents or
with respect to any Collateral securing the Liabilities hereunder, (B) to
represent the Bank in any litigation, contest, dispute, suit or proceeding or to
commence, defend or intervene or to take any other action in or with respect to
any litigation, contest, dispute, suit or proceeding (whether instituted by the
Bank, the Borrower, any Subsidiary or any other Person) in any way or respect
relating to this Agreement, the Related Documents, the Borrower's affairs or any
Collateral or (C) to enforce any of the Bank's rights with respect to the
Borrower; (ii) takes any action to protect, collect, sell, liquidate or
otherwise dispose of any Collateral; and/or (iii) seeks to enforce or enforces
any of the Bank's rights and remedies with respect to the Borrower. Without
limiting the generality of the foregoing, such expenses, costs, charges and fees
include: reasonable fees, costs and expenses of attorneys, accountants and
consultants; court costs and expenses; court reporter fees, costs
34
<PAGE>
and expenses; long distance telephone charges; telegram and telecopier charges;
and expenses for travel, lodging and food.
(c) The Borrower further agrees to pay, and to save the Bank harmless from
all liability for, any stamp or other taxes which may be payable in connection
with the execution or delivery of this Agreement, the Related Documents, the
borrowings hereunder, the issuance of the Revolving Note or of any other
instruments or documents provided for herein or delivered or to be delivered
hereunder or in connection herewith.
(d) All of the Borrower's obligations provided for in this Section 13.5
------------
shall be Liabilities, and shall survive repayment of the Revolving Loans,
cancellation of the Revolving Note or any termination of this Agreement or any
Related Document.
13.6 Indemnification. In consideration of the Bank's execution and
---------------
delivery of this Agreement and the Bank's agreement to extend the Revolving Loan
Commitment, the Borrower hereby agrees to indemnify, exonerate and hold the Bank
and each of its officers, directors, employees and agents (herein collectively
called the "Bank Parties" and individually called a "Bank Party") free and
harmless from and against any and all actions, causes of action, suits, losses,
costs (including, without limitation, all documentary or other stamp taxes or
duties), liabilities and damages, and expenses in connection therewith
(irrespective of whether such Bank Party is a party to the action for which
indemnification hereunder is sought) (the "Indemnified Liabilities"), including,
without limitation, reasonable attorneys' fees and disbursements, incurred by
the Bank Parties or any of them as a result of, or arising out of, or relating
to:
(a) any transaction financed or to be financed in whole or in part,
directly or indirectly, with the proceeds of any Revolving Loan;
(b) the execution, delivery, performance, administration or enforcement of
this Agreement and the Related Documents in accordance with their respective
terms by any of the Bank Parties;
(c) the presence on or under the Property of any Hazardous Material or
underground storage tank, or any releases or discharges of any Hazardous
Material on, under or from the Property (including residual contamination
thereon or thereunder), or affecting natural resources; or the performance of
any activity undertaken on or off the Property or relating to the generation,
use, handling, treatment, removal, storage, decontamination, clean-up, transport
or disposal of any Hazardous Material at any time located on or under the
Property, irrespective of whether (i) the Borrower, any Subsidiary or any of
their respective employees, agents, contractors or subcontractors, (ii) any
predecessor in title, or any employees, agents, contractors or subcontractors of
the predecessor in title, or (iii) any third Persons occupying or present on the
Property who engaged in such activity prior to, during or subsequent to the term
of this Agreement or whether such activities were or will be taken in accordance
with applicable laws, regulations, codes and ordinances, except to the extent
any
35
<PAGE>
such Indemnified Liabilities arise solely on account of such Bank Party's gross
negligence or willful misconduct. If and to the extent that the foregoing
agreements described in this Section 13.6 may be unenforceable for any reason,
------------
the Borrower hereby agrees to make the maximum contribution to the payment and
satisfaction of each of the Indemnified Liabilities which is permissible under
applicable law. All of the Borrower's obligations under this Section 13.6
------------
shall survive repayment of the Revolving Loans, cancellation of the Revolving
Note, or any termination of this Agreement or any Related Document; or
(d) any misrepresentation or breach of any warranty or covenant herein.
13.7 Captions and References. The recitals to this Agreement (except for
-----------------------
definitions) and the section captions used in this Agreement are for convenience
only, and shall not affect the construction of this Agreement.
13.8 Governing Law; Jury Trial; Severability. This Agreement and the
---------------------------------------
Revolving Note shall be a contract made under and governed by the laws of the
State of Illinois, without regard to conflict of laws principles. Wherever
possible, each provision of this Agreement shall be interpreted in such manner
as to be effective and valid under applicable law, but if any provision of this
Agreement shall be prohibited by or invalid under such law, such provision shall
be ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Agreement. All obligations of the Borrower and rights of the Bank and any other
holders of the Revolving Note, which obligations and rights are described herein
or in the Revolving Note, shall be in addition to and not in limitation of those
provided by applicable law.
THE BORROWER AND THE BANK HEREBY IRREVOCABLY WAIVE ANY RIGHT TO TRIAL BY
JURY IN ANY ACTION OR PROCEEDING (I) TO ENFORCE OR DEFEND ANY RIGHTS UNDER OR IN
CONNECTION WITH THIS AGREEMENT, THE RELATED DOCUMENTS, THE REVOLVING LOANS OR
ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE
FUTURE BE DELIVERED IN CONNECTION HEREWITH OR THEREWITH, OR (II) ARISING FROM
ANY DISPUTE OR CONTROVERSY IN CONNECTION WITH OR RELATED TO THIS AGREEMENT, THE
RELATED DOCUMENTS, THE REVOLVING LOANS, OR ANY SUCH AMENDMENT, INSTRUMENT,
DOCUMENT OR AGREEMENT, AND AGREES THAT ANY SUCH ACTION OR COUNTERCLAIM SHALL BE
TRIED BEFORE A COURT AND NOT BEFORE A JURY.
THE BORROWER IRREVOCABLY AGREES THAT, SUBJECT TO THE BANK'S SOLE AND
ABSOLUTE ELECTION, ANY ACTION OR PROCEEDING IN ANY WAY, MANNER OR RESPECT
ARISING OUT OF THIS AGREEMENT, THE RELATED DOCUMENTS, THE REVOLVING LOANS OR ANY
AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE
FUTURE BE DELIVERED IN CONNECTION HEREWITH OR THEREWITH,
36
<PAGE>
OR ARISING FROM ANY DISPUTE OR CONTROVERSY ARISING IN CONNECTION WITH OR RELATED
TO THIS AGREEMENT, THE RELATED DOCUMENTS, THE REVOLVING LOANS OR ANY SUCH
AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT SHALL BE LITIGATED ONLY IN THE
COURTS HAVING SITUS WITHIN THE CITY OF CHICAGO, THE STATE OF ILLINOIS, AND THE
BORROWER HEREBY CONSENTS AND SUBMITS TO THE JURISDICTION OF ANY LOCAL, STATE OR
FEDERAL COURT LOCATED WITHIN SUCH CITY AND STATE. THE BORROWER HEREBY WAIVES ANY
RIGHT IT MAY HAVE TO TRANSFER OR CHANGE THE VENUE OF ANY LITIGATION BROUGHT
AGAINST THE BORROWER BY THE BANK IN ACCORDANCE WITH THIS SECTION 13.8.
------------
IF AND TO THE EXTENT ANY PROVISION OF ANY COLLATERAL DOCUMENT IS
INCONSISTENT WITH THE PROVISIONS OF THIS AGREEMENT, THE PROVISIONS OF THIS
AGREEMENT SHALL CONTROL.
13.9 Counterparts. This Agreement and any amendment or supplement hereto
------------
or any waiver granted in connection herewith may be executed in any number of
counterparts and by the different parties on separate counterparts and each such
counterpart shall be deemed to be an original, but all such counterparts shall
together constitute but one and the same Agreement.
13.10 Successors and Assigns. This Agreement shall be binding upon the
----------------------
Borrower, the Bank and their respective successors and assigns, and shall inure
to the benefit of the Borrower, the Bank and the Bank's successors and assigns.
The Borrower shall have no right to assign its rights or delegate its duties
under this Agreement.
13.11 Prior Agreements. The terms and conditions set forth in this
----------------
Agreement shall supersede all prior agreements, discussions, correspondence,
memoranda and understandings (whether written or oral) of the Borrower and the
Bank concerning or relating to the subject matter of this Agreement (including,
without limitation, the terms and conditions set forth in that certain
commitment letter dated February 27, 1998 issued by the Bank to the Borrower).
13.12 Assignments; Participations. (a) The Bank shall have the right to
---------------------------
assign to one or more banks or other financial institutions all or a portion of
its rights and obligations under this Agreement (including, without limitation,
all or a portion of the Revolving Loan Commitment, the Revolving Loans and the
Revolving Note) and the Collateral Documents. Upon any such assignment, (i) the
assignee shall become a party hereto and, to the extent of such assignment, have
all rights and obligations of the Bank hereunder and under the Collateral
Documents and (ii) the Bank shall, to the extent of such assignment, relinquish
its rights and be released from its obligations hereunder and under the
Collateral Documents. The Borrower hereby agrees to execute and deliver such
documents, and to take such other actions, as the Bank may reasonably request to
accomplish the foregoing.
37
<PAGE>
(b) In addition to the assignments permitted in clause (a) of this Section
---------- -------
13.12, the Bank and any assignee pursuant to clause (a) above shall have the
- ----- ----------
right to grant participations to one or more banks or other financial
institutions in or to any Revolving Loan hereunder (and the Collateral
Documents) and the Revolving Note held by the Bank or such assignee without
notice to or consent from the Borrower. No holder of a participation in all or
any part of the Revolving Loans (and the Collateral Documents) or the Revolving
Note shall have any rights under this Agreement; provided, however, that, to the
-------- -------
extent permitted by applicable law, each holder of a participation shall have
the same rights as the Bank under Section 7.3.
-----------
(c) The Borrower hereby consents to the disclosure of any information
obtained in connection herewith (i) by the Bank, to any bank or other financial
institution which is an assignee or potential assignee pursuant to clause (a)
----------
above, and (ii) by the bank and any assignee pursuant to clause (a) above, to
----------
any bank or other financial institution which is a participant or potential
participant pursuant to clause (b) above, it being understood that the Bank and
----------
each assignee shall advise any such bank or other financial institution of its
obligation to keep confidential any nonpublic information disclosed to it
pursuant to this Section 13.12. The Bank shall advise the Borrower of each bank
-------------
or other financial institution which becomes an assignee pursuant to clause (a)
----------
above, and the Bank and each assignee, as applicable, shall advise the Borrower
of each bank or other financial institution which becomes a participant pursuant
to clause (b) above.
----------
38
<PAGE>
Delivered at Chicago, Illinois as of the day and year first above written.
BORROWER: ALLSCRIPTS, INC., an
Illinois corporation
By: /s/ John Cull, Treasurer
--------------------------------
John Cull
Treasurer
2401 Commerce Drive
Libertyville, Illinois 60048-4464
Attention: John G. Cull
Telephone: (847) 680-3515
Telecopy: (847) 680-5830
BANK: LASALLE NATIONAL BANK, a national
banking association
By: /s/
------------------------------
Title: 1st Vice President
135 South LaSalle Street
Suite 212
Chicago, Illinois 60603
Attention: David E. Heise
Telephone: (312) 904-8101
Telecopy: (312) 904-4364
39
<PAGE>
FIRST AMENDMENT TO REVOLVING CREDIT AGREEMENT
---------------------------------------------
AND COLLATERAL DOCUMENTS
------------------------
This FIRST AMENDMENT TO REVOLVING CREDIT AGREEMENT AND COLLATERAL DOCUMENTS
(this "Amendment"), dated as of May 6, 1998, is by and between ALLSCRIPTS, INC.,
an Illinois corporation (the "Borrower"), and LASALLE NATIONAL BANK, a national
banking association (herein, together with its successors and assigns, called
the "Bank").
RECITALS:
--------
A. The Borrower and the Bank are parties to that certain Revolving Credit
Agreement dated as of April 16, 1998 (the "Revolving Credit Agreement"), subject
to the terms and conditions of which the Bank agreed to make certain loans and
other financial accommodations to the Borrower.
B. The Borrower has requested that the Bank agree to amend the Revolving
Credit Agreement in certain respects.
C. The Bank is willing to agree to such requests of the Borrower, subject
to the terms and conditions contained in this Amendment.
NOW, THEREFORE, in consideration of the foregoing and the mutual agreements
contained herein, and subject to the terms and conditions hereof, the Borrower
and the Bank hereby agree as follows:
1. Definitions. All capitalized terms used but not elsewhere defined in
this Amendment shall have the respective meanings ascribed to such terms in the
Revolving Credit Agreement, as amended by this Amendment.
2. Amendments to Revolving Credit Agreement. The Revolving Credit
----------------------------------------
Agreement hereby is amended as set forth below:
(a) Section 1.1. Section 1.1 of the Revolving Credit Agreement hereby
-----------
is amended by substituting the following definition in lieu of the current
version of such definition contained in Section 1.1 of the Revolving Credit
Agreement:
<PAGE>
"Borrowing Base" means, on any given date, without duplication, the
--------------
difference of (i) the sum of (a) an amount equal to eighty percent
(80%) of the face amount (less maximum discounts, credits and
allowances which may be taken by or granted to the Account Debtor
thereof in connection therewith) of all existing Eligible Accounts of
the Borrower that are set forth in the Schedule of Accounts most
recently delivered by the Borrower to the Bank, plus (b) an amount
----
equal to the lesser of (I) forty-five percent (45%) of the Eligible
Inventory of the Borrower as set forth in the Schedule of Inventory
most recently delivered by the Borrower to the Bank and (II) fifty
percent (50%) of the amount of availability in respect of Eligible
Accounts as calculated pursuant to clause (i)(a) of this definition,
less (ii) reserves in the aggregate amount of the face amounts of all
----
outstanding letters of credit which shall have been issued for the
account of the Borrower and otherwise permitted under the terms of
this Agreement.
(b) Section 9.9. Section 9.9 of the Revolving Credit Agreement hereby
-----------
is deleted in its entirety and the following is substituted in lieu
thereof:
"9.9 Indebtedness. After giving effect to the Equity
------------
Transaction, not incur or permit to exist, or permit any Subsidiary to
incur or permit to exist, any Indebtedness except (i) the Revolving
Loans, (ii) Capitalized Lease Obligations not to exceed $400,000 in
the aggregate at any time outstanding, (iii) current accounts payable
arising in the ordinary course of business, (iv) the existing
Indebtedness described in part (a) of Schedule II attached hereto and
-----------
(v) actual or contingent reimbursement obligations of the Borrower
with respect to letters of credit issued for the account of the
Borrower to the extent such letters of credit shall have been
disclosed to the Bank and the Bank shall have consented to the terms
and issuer thereof prior to issuance."
3. Conditions to Effectiveness. The effectiveness of this Amendment
---------------------------
shall be subject to the satisfaction of all of the following conditions in a
manner, form and substance satisfactory to the Bank:
(a) Representations and Warranties. All of the representations and
------------------------------
warranties of the Borrower set forth in the Revolving Credit Agreement and
the Collateral Documents shall be true and correct in all material
respects.
(b) Delivery of Documents. The following shall have been delivered to
---------------------
the Bank, each duly authorized and executed and in form and substance
satisfactory to the Bank:
(1) this Amendment;
(2) such evidence of the Borrower's authority to execute and
deliver this Amendment as the Bank may require, including but not
limited to a copy of
2
<PAGE>
resolutions duly adopted by the board of directors of the Borrower,
authorizing the execution by the Borrower of this Amendment, certified
as complete and correct by the secretary of the Borrower; and
(3) such other instruments, documents, certificates, consents,
waivers and opinions as the Bank reasonably may request.
(c) Payment of Fees and Expenses. The Borrower shall have paid all
----------------------------
fees and expenses of the Bank incurred in connection with this Amendment,
including, without limitation, reasonable attorneys' fees and expenses.
(d) Performance; No Default. The Borrower shall have performed and
-----------------------
complied with all agreements and conditions contained in the Revolving
Credit Agreement and the Collateral Documents to be performed by or
complied with by such Person prior to the date hereof, and no Event of
Default shall exist.
(e) No Material Adverse Effect. No Material Adverse Effect shall
--------------------------
have occurred since the date of the most recent financial statements for
the Borrower received by the Bank.
(f) Approvals. The approval and/or consent shall have been obtained
---------
from all persons whose approval or consent is necessary or required to
enable the Borrower to enter into this Amendment and the documents
delivered in connection with this Amendment and to perform its obligations
hereunder.
(g) Satisfaction of the Bank's Counsel. All legal matters incident
----------------------------------
to the transactions contemplated hereby shall be reasonably satisfactory
to counsel for the Bank.
The date on which all of the conditions set forth in this Paragraph 3 have been
satisfied (or waived by the Bank) is referred to herein as the "EFFECTIVE DATE."
4. References. From and after the Effective Date, all references in the
----------
Revolving Credit Agreement and the Collateral Documents to the Revolving Credit
Agreement shall be deemed to refer to the Revolving Credit Agreement, as amended
hereby.
5. Representations and Warranties. The Borrower hereby confirms to the
------------------------------
Bank that the representations and warranties set forth in the Revolving Credit
Agreement and the Collateral Documents are true and correct as of the date
hereof, except to the extent such representations and warranties expressly
relate to an earlier date. The Borrower represents and warrants to the Bank
that (a) it has full power and authority to execute and deliver this Amendment
and to perform its obligations hereunder, (b) upon the execution and delivery
hereof, this Amendment will be valid, binding and enforceable upon it in
accordance with its terms, (c) the execution and delivery of this Amendment does
not and will not contravene, conflict with, violate or constitute a default
under (i) the articles of incorporation of the Borrower
3
<PAGE>
or the bylaws of such Person or (ii) any applicable law, rule, regulation,
judgment, decree or order of which the Borrower has knowledge or any agreement,
indenture or instrument to which such Person is a party or is bound or which is
binding upon or applicable to all or any portion of its property and (d) no
Unmatured Event of Default or Event of Default presently exists.
6. Costs and Expenses. The Borrower agrees to reimburse the Bank for all
------------------
out of pocket expenses incurred in the preparation, negotiation and execution of
this Amendment and the consummation of the transactions contemplated hereby,
including, without limitation, the expenses and fees of counsel for the Bank.
7. No Further Amendments; Ratification of Liability. Except as amended
------------------------------------------------
hereby, the Revolving Credit Agreement and each of the Collateral Documents
shall remain in full force and effect in accordance with their respective terms.
The Borrower hereby ratifies and confirms its liabilities, obligations and
agreements under the Revolving Credit Agreement and the Collateral Documents,
all as amended by this Amendment, and the liens and security interests created
thereby, and acknowledges that (a) as of the date hereof, it has no defenses,
claims or set-offs to the enforcement of such liabilities, obligations and
agreements, (b) the Bank has fully performed all obligations to the Borrower
which the Bank may have had or have on and as of the date hereof and (c) the
Bank does not waive, diminish or limit any term or condition contained in any of
the Revolving Credit Agreement or the Collateral Documents. The Bank's
agreement to the terms of this Amendment or any other amendment of the Revolving
Credit Agreement or Collateral Documents shall not be deemed to establish or
create a custom or course of dealing between the Borrower and the Bank. This
Amendment and the documents executed and delivered pursuant to this Amendment
contain the entire agreement between the Bank and the Borrower with respect to
the transactions contemplated by this Amendment.
8. Counterparts. This Amendment may be executed in one or more
------------
counterparts, each of which shall be deemed an original, and all of which, when
taken together, shall constitute one and the same instrument.
9. Further Assurances. The Borrower covenants and agrees that it will at
------------------
any time and from time to time do, execute, acknowledge and deliver, or will
cause to be done, executed, acknowledged and delivered, all such further acts,
documents and instruments as reasonably may be required by the Bank in order to
effectuate fully the intent of this Amendment.
10. Severability. If any term or provision of this Amendment or the
------------
application thereof to any party or circumstance shall be held to be invalid,
illegal or unenforceable in any respect by a court of competent jurisdiction,
the validity, legality and enforceability of the remaining terms and provisions
of this Amendment shall not in any way be affected or impaired thereby, and the
affected term or provision shall be modified to the minimum extent permitted by
law so as most fully to achieve the intention of this Amendment.
4
<PAGE>
11. Captions. The captions in this Amendment are inserted for convenience
--------
of reference only and in no way define, describe or limit the scope or intent of
this Amendment or any of the provisions hereof.
[remainder of this page intentionally left blank]
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Amendment at Chicago, Illinois as of the day and year first above written.
BORROWER: ALLSCRIPTS, INC., an Illinois corporation
By: /s/ John Cull, Treasurer
---------------------------------------
John Cull
Treasurer
2401 Commerce Drive
Libertyville, Illinois 60048-4464
Attention: John G. Cull
Telephone: (847) 680-3515
Telecopy: (847) 680-5830
BANK: LASALLE NATIONAL BANK, a national
banking association
By: /s/ Jeffrey D. Steele
---------------------------------------
Title:
135 South LaSalle Street
Suite 212
Chicago, Illinois 60603
Attention: David E. Heise
Telephone: (312) 904-8101
Telecopy: (312) 904-4364
6
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of
our reports dated May 12, 1999 except as to the information in Note 22 for
which the date is June 18, 1999 relating to the financial statements and
financial statement schedule of Allscripts, Inc., which appear in such
Registration Statement. We also consent to the references to us under the
headings "Experts" and "Selected Consolidated Financial Data" in such
Registration Statement.
/s/ PricewaterhouseCoopers LLP
Chicago, Illinois
June 29, 1999
<PAGE>
EXHIBIT 23.3
CONSENT
Pursuant to Rule 438 promulgated under the Securities Act of 1933, as
amended, I, Edward M. Philip, hereby consent to the use of my name and any
references to me in this Registration Statement as becoming a director of
Allscripts, Inc. upon the closing of the initial public offering by Allscripts,
Inc. of its common stock.
Dated: June 28, 1999
/s/ Edward M. Philip
-------------------------
Edward M. Philip
