<PAGE>
As Filed With the Securities and Exchange Commission on May 14, 1999.
Registration No. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
FORM S-1
REGISTRATION STATEMENT
Under
The Securities Act of 1933
--------------
Allscripts, Inc.
(Exact name of registrant as specified in its charter)
--------------
Delaware 5122 36-3444974
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code Number) Identification No.)
incorporation or
organization)
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 Gardner, Carton & Mitchell L. Hollins Sonnenschein Nath
Douglas 321 North Clark Street, Suite & Rosenthal 8000 Sears Tower Chicago,
2900 Chicago, Illinois 60610 (312) Illinois 60606 (312) 876-8000
644-3000
--------------
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
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Proposed
Maximum Amount of
Title of Each Class of Aggregate Registration
Securities to be Registered Offering Price (1) Fee
- ------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, par value $0.01 per share... $90,000,000 $25,020
- ------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
(1) Estimated solely for purposes of determining the amount of the
registration fee, in accordance with Rule 457(o).
--------------
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.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<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 May 14, 1999.
Shares
Allscripts, Inc.
Common Stock
-----------
This is an initial public offering of shares of common stock of Allscripts,
Inc. All of the 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 $ and $ . Application will be made for quotation of the
common stock on the Nasdaq National Market under the symbol "MDRX".
See "Risk Factors" beginning on page 8 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 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
-----------
Prospectus dated , 1999.
<PAGE>
ALLSCRIPTS{TM)
MEDICATION MANAGEMENT SOLUTIONS
Medication Management
Solutions
-------------------------------
Connectivity
@
The Point of 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
. "Error-free" Prescriptions . Treatment Protocols
. Compliance with . Increased Patient
Managed Care Guidelines Compliance
[Photo of physician using TouchScript]
Physician Benefits
> Increased Revenue
> Increased Patient Satisfaction
> Time Savings from e-Prescriptions
> Internet Gateway
> Better Management of Financial Risk
Patient Benefits Pharmaceutical
Manufacturer Benefits
> Convenience > Internet Gateway
> Confidentiality to Physicians
> Compliance > Improved Marketing
> Decreased Channels
Medication Errors . Physician Prescribing
Profiling
. e-Detailing
[Photo of patient [Photo of machine
receiving prepackaged repackaging medications]
medication]
<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. Except as otherwise noted, the information contained in this
prospectus assumes: (1) the underwriters will not exercise the over-allotment
option, and no other person will exercise any other outstanding option or
warrant; (2) we will effect a one-for-six reverse split of our common stock
prior to the closing of this offering; (3) 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 (4) all outstanding shares of our Series A, B, C, D, F and G preferred
stock will convert into a total of 2,977,554 shares of common stock upon the
closing of this offering.
Allscripts, Inc.
Our Business
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 our solutions offer benefits to all participants and
provide a compelling value proposition for physicians to incorporate our
TouchScript medication management product into their office work flow.
Our products are designed to improve and streamline 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 prepackaged medications to
physicians so they can offer their patients the convenience of receiving
prescription medications in the physician's office.
Our Market Opportunity
In 1998, pharmaceutical costs in the United States totaled approximately
$100 billion, and they are expected to increase by approximately 10% per year
through 2007. We believe that the current healthcare environment has brought
pressure upon managed care organizations and, in turn, physicians, to control
costs and to improve the process of managing medication treatments.
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. This lack of information results in inefficiency, delays
and additional costs. The existing process also inconveniences the patient, who
must travel from the physician's office to a pharmacy and must often wait for
the prescription to be filled.
Our Solution
Taking advantage of the unprecedented opportunity for connectivity offered
by the Internet, we have developed in-office and Internet-based end-to-end
solutions that significantly streamline the process of prescribing and
delivering medications. Our TouchScript software enables physicians to improve
their
3
<PAGE>
prescribing at the point of care by providing information about potential
adverse drug interactions, patient drug history and managed care guidelines. In
addition, our medication management solutions make it possible for patients to
have their prescription electronically routed to the pharmacy of their choice
or to receive their medication in the physician's office.
Our solution redesigns the pharmaceutical healthcare delivery process in a
way that can benefit each participant:
. Physicians. Physicians benefit from ready access to information during
the prescribing process, which reduces the time they spend clarifying and
changing prescriptions and enables them to better manage financial risk
and increase practice revenue from dispensing medications.
. Patients. 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. Managed care organizations benefit from
higher physician compliance with their pharmacy guidelines, resulting in
lower overall costs.
. Pharmacies. Pharmacies benefit from improved connectivity 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. We believe
we offer a unique value proposition to physicians by combining electronic
prescribing and dispensing with innovative product design, state-of-the-art
software and hardware, and Internet connectivity.
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 work flow 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 is experienced in managing rapidly
growing public companies that use technology to change business
processes.
Our Strategy
Our objective is to become the leading provider of medication management
solutions. Key elements of our strategy include: (1) accelerating sales of our
medication management solutions to physicians, (2) increasing utilization of
our medication management solutions after installation, (3) developing
Internet-based products for physicians and their patients and (4) developing
and marketing information products using the data collected during the
electronic prescribing process.
4
<PAGE>
Recent Developments
. PBM Disposition. In March 1999, in order to focus management's attention and
resources on the physician medication management business, we sold
substantially all of the assets, excluding cash and accounts receivable, of
our pharmacy benefit management (PBM) business. The total consideration was
approximately $7,500,000 in cash at closing and a contingent cash payment of
up to $8,400,000 based upon achieving certain milestones for the one-year
period following the closing.
. MedSmart Acquisition. In May 1999, we acquired all of the outstanding stock
of TeleMed Corp., which does business as MedSmart, in exchange for 117,500
shares of our common stock and up to an additional 117,500 shares of common
stock under specific 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, online and by telephone, medical books and practice-
related software to physicians.
. Shopping@Home Acquisition. 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 $600,000, 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 6.0% per year, and will be payable upon the closing of this
offering. We expect the transaction to be consummated in May 1999. Glen E.
Tullman, our Chairman and Chief Executive Officer, and Joseph E. Carey, our
Chief Operating Officer, are principal shareholders of Shopping@Home. We
expect the Internet software capabilities of Shopping@Home to enhance the
development of our Internet-based products. See "Certain Relationships and
Related Party Transactions--Shopping@Home Acquisition."
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Recent Developments."
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.
5
<PAGE>
The Offering
<TABLE>
<S> <C>
Shares offered by
Allscripts.............
Shares to be outstanding
after the offering
(1)....................
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:
. 8,781,134 shares outstanding as of March 31, 1999;
. 2,977,554 shares issuable upon conversion of the convertible preferred
stock outstanding as of March 31, 1999;
. 117,500 shares issued in connection with the MedSmart acquisition; 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 8,765,583 shares comprised of:
. 4,892,136 shares issuable upon the exercise of currently exercisable
warrants at a weighted average exercise price of $0.53 per share;
. 2,452,423 shares issuable upon the exercise of outstanding stock options
with a weighted average exercise price of $1.06 per share;
. 1,303,524 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."
6
<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. We account for
our revenue in two categories--traditional revenue and e-commerce revenue.
Traditional revenue is derived from the sale of prescription medications to
physicians through channels other than the Internet. E-commerce revenue is
derived primarily from the sale of prescription medications over the Internet
to physicians and also includes revenue from electronic transfer fees, software
license fees, computer hardware sales and leases, and related services. 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
------- ------- ------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Statements of Operations
Data:
Traditional revenue..... $32,635 $33,310 $33,462 $30,593 $22,338 $6,101 $5,235
E-commerce revenue...... -- -- -- -- 1,344 250 793
------- ------- ------- ------- ------- ------ ------
Total 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) (2,179)
Gain from sale of
discontinued
operations............. -- -- -- -- -- -- 3,831
Net (loss) income....... (2,662) (4,363) (2,941) (10,799) (7,514) (1,750) 1,678
Net (loss) income to
common shareholders.... (2,988) (5,286) (3,864) (11,722) (9,929) (1,981) 979
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)........... $ (1.12) $(0.25)
Shares used in computing
pro forma basic and
diluted net loss from
continuing operations
per share(1)........... 9,073 11,467
</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.
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 shares of common stock at an assumed
initial public offering price of $ 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 7 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 $8,101 $
Working capital................................... 5,001 3,880
Total assets...................................... 22,528
Long-term debt, net of current portion............ 59 59
Redeemable preferred shares....................... 33,246 33,246
Total stockholders' equity (deficit).............. (25,754)
</TABLE>
7
<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, our business, financial condition,
operating results or prospects could be materially harmed. In that case, the
trading price of our common stock could decline, and you could lose all or part
of your investment.
Risks Related to Our Company
We may not achieve broad acceptance of our products and services by physicians
and others
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. Failure
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 would have a material adverse effect on
our business, financial condition, results of operations and prospects.
Our business is difficult to evaluate because our business model is new and
unproven
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
cannot assure you that we will be able to implement our business model
successfully.
We have a substantial accumulated deficit and may never be profitable
At March 31, 1999, we had an accumulated deficit of $49,086,000, 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.
8
<PAGE>
We rely on our relationships with managed care organizations
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 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, it
could have a material adverse effect on our business, financial condition,
results of operations and prospects.
Our business prospects depend on the successful introduction of new products
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. Any failure by
us to introduce planned products or to introduce such products on schedule
could have a material adverse effect on our business, financial condition,
results of operations and prospects.
We rely on 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, such as our relationship
with Merck-Medco Managed Care, we will depend on our partners' ability to
generate increased acceptance and use of our products and services. See
"Business--Sales and Marketing--Merck-Medco Managed Care." 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
9
<PAGE>
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 would suffer significantly.
Potential customers could take a long time to evaluate the purchase of our
products and services
One element of our strategy is to market our services directly to large
healthcare organizations. We do not control many of the factors that will
influence physicians' and payers' buying decisions. We expect that the sale and
implementation process may be lengthy and may involve a significant technical
evaluation and commitment of capital and other resources by physicians and
payers. The sale and implementation of our products and services are often
subject to delays due to physicians' and payers' internal budgets and
procedures for approving large capital expenditures and deploying new
technologies within their networks.
We face significant 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.
There are many companies that offer products or services that are
competitive with certain components of our solutions and that may become
increasingly competitive with us in the future. These include:
. 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.
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. Some of our
strategic partners and large customers may also compete with us.
Our failure to keep pace with advances in technology could harm our business
If we cannot adapt to changing technologies, our business, results of
operations, financial condition and prospects could be materially and adversely
affected. The Internet and healthcare information markets are characterized by
rapid technological change, changes in users' and customers' requirements,
frequent new service and product introductions embodying new technologies and
the emergence of new industry standards and practices 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.
10
<PAGE>
We may not be able to manage growth effectively
We will need to expand our operations if we successfully achieve market
acceptance for our products and services. Difficulties in managing any future
growth could have a significant negative impact on our business, financial
condition, results of operations and prospects. 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.
Our success depends on our key personnel
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, results of operations and
prospects.
We are subject to risks associated with acquisitions
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 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 write-off 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.
11
<PAGE>
Our competitive position depends on our ability to protect our intellectual
property rights
Our ability to compete depends upon 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 business, financial condition, results of
operations and prospects. 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.
We may infringe on the proprietary rights of third parties
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 has
recently filed a patent infringement lawsuit 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. This type of
judgment would have a material adverse effect on our business, financial
condition, results of operations and prospects. 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.
We are vulnerable to interruptions in our 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;
. 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 have a negative impact on our business,
results of operations, financial condition and prospects.
We may be liable for use of data we provide
We provide data for use by healthcare providers in providing care to
patients. Third-party contractors provide us with most of this data. Although
no claims have been brought against us to date regarding 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 business, financial condition, results of operations and prospects.
12
<PAGE>
We may not be able to prevent security breaches
Any breaches in our security system could have a material adverse effect on
our business, results of operations, financial condition and prospects. 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. 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 our patient and other information. 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. This limitation could
have a material adverse effect on our business, financial condition, results of
operations and prospects.
We depend on our content and service providers
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 providers that
result in interruptions of our services or a failure of our services to
function as desired could have a material adverse effect on our business,
results of operations, financial condition and prospects. 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 have a material adverse effect on our business,
financial condition, results of operations and prospects.
We may be subject to pricing pressures
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
13
<PAGE>
Medicare. If our pricing of prepackaged medications experiences significant
downward pressure, it could have a material adverse effect on our business,
financial condition, results of operations and prospects. 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 business, financial condition, results of operations and
prospects. See "Business--Legal Proceedings."
We rely upon our principal supplier
We currently purchase a majority of the medications that we repackage from
one supplier. 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 our principal supplier were to fail or be unable to perform
under our agreement, particularly at certain critical times during the year, it
could have a material adverse effect on our business, financial condition,
results of operations and prospects.
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, any of which could have a material adverse effect on our
business, results of operations, financial condition and prospects.
In addition, we cannot assure you that physicians, payers, Internet access
companies, business partners and others outside our control will be Year 2000
compliant. The failure by these entities to be Year 2000 compliant could result
in a systemic failure beyond our control, such as a prolonged Internet or
communications failure, which could also prevent us from delivering our
services to customers, decrease the use of the Internet or prevent users from
accessing our services. This failure could have a material adverse effect on
our business, financial condition, results of operations and prospects. 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."
Certain provisions may have anti-takeover effects
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."
14
<PAGE>
Risks Related to Our Industry
We are subject to government regulation and legal uncertainties
As a participant in the healthcare industry, our operations and
relationships are regulated by a number of governmental entities at the
federal, state and local levels. Because our business relationships with
physicians are unique, and the healthcare electronic commerce industry as a
whole is relatively young, many aspects of our business operations have not yet
been the subject of state or federal regulatory interpretation. 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 our operations. In addition, the healthcare regulatory environment may
change in a way that restricts our existing operations or our growth. Any
significant restriction could have a material adverse effect on our business,
financial condition, results of operations and prospects. 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. 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 (FDA), the United States Drug
Enforcement Administration (DEA) and various state agencies that regulate
wholesalers/distributors. Among the regulations applicable to our
repackaging operation are the FDA's "good manufacturing practices."
Because of our FDA license, 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 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, it could have a
material adverse effect on our business, financial condition, results of
operations and prospects.
. 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,
Medicaid and various other federal and state programs. We believe that
the physicians who use our TouchScript system and dispense drugs
distributed by us are doing so in material compliance with Stark II,
either pursuant to an in-office ancillary supplies exemption or another
applicable exemption. If, however, it were determined that the physicians
who use our system were not in compliance with Stark II, it could have a
material adverse effect on our business, financial condition, results of
operations and prospects.
. Drug Distribution. As a distributor of prescription drugs to physicians,
we and our customers are also potentially governed by the federal anti-
kickback statute, which applies to Medicare, Medicaid and other state and
federal programs. The statute prohibits the 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 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
15
<PAGE>
are in material compliance with those laws. If, however, it were
determined that we were not in compliance with those laws, it could have
a material adverse effect on our business, financial condition, results
of operations and prospects.
. Claims Submissions. As part of our services provided to physicians, our
system will electronically submit claims for prescription medications
dispensed by a physician to the patient's managed care organization for
immediate approval (adjudication) and reimbursement. Federal law
provides that it is both a civil and a criminal violation for any person
to submit a claim to any private health plan or managed care plan
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 we submit are accurate and complete, provided that the information
given to us by physicians 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, it could have a
material adverse effect on our business, financial condition, results of
operations and prospects.
. Patient Information. Both federal and state laws regulate the disclosure
of confidential medical information. This is particularly true with
respect to information regarding conditions like AIDS, substance abuse
and mental illness. As part of the operation of our business, we may
gather or handle 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, it could have a material
adverse effect on our business, financial condition, results of
operations and prospects.
The Internet and electronic healthcare information markets are new and rapidly
evolving
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, it could have a material adverse effect on our business,
financial condition, results of operations and prospects.
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 the
healthcare industry consolidates, competition to provide products and services
to industry participants 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, financial condition, results of operations and prospects
could suffer unless we were able to achieve corresponding reductions in our
expenses.
We depend on continued improvements in the Internet infrastructure
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
16
<PAGE>
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.
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;
. 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, which would
have a material adverse effect on our business, financial condition, results of
operations and prospects.
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. 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
17
<PAGE>
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
shares to be outstanding after the offering, the shares
offered by this prospectus will be eligible for immediate sale in the public
market without restriction by persons other than our affiliates. An additional
shares, including 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, and shares, including
shares issuable upon the cashless exercise of outstanding warrants and
shares 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. A total of outstanding shares and shares issuable
upon exercise of outstanding options and warrants are subject to 180-day lock-
up agreements with the underwriters. Upon the expiration of these lock-up
agreements, of these shares 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. 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 of our shares of common stock and shares
issuable upon exercise 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 or 144(k) of the Securities Act. In addition, after the
offering, we intend to register 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."
Our executive officers and directors have substantial control of our voting
stock
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
shares or % 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 shares in
the offering at an assumed initial public offering price of $ per share,
our net tangible book value per share will be $ , which is $ below the
assumed initial public offering price of $ per share. 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."
Forward-looking statements may prove inaccurate
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. We are not obligated to update forward-looking
statements. Because we cannot predict all of the risks and uncertainties that
may affect us, or control the ones we do predict, these risks and uncertainties
can cause our results to differ materially from the results we express in our
forward-looking statements.
18
<PAGE>
USE OF PROCEEDS
The net proceeds to us from the sale of the shares in this
offering at an assumed initial public offering price of $ per share are
estimated to be $ , after deducting the underwriting discount and
estimated offering expenses payable by us, or $ 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
April 30, 1999 were $5,040,428. We will also use net proceeds to repay the
$600,000 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.
19
<PAGE>
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
shares of our common stock in this offering at an assumed initial public
offering price of $ 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 7 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 2,977,554 shares of common stock upon the
closing of this offering.
None of the columns shown below reflects the following:
. the 4,892,136 shares of common stock issuable upon exercise of
outstanding warrants as of March 31, 1999, all of which were exercisable
as of that date at a weighted average exercise price of $0.53 per share.
See "Description of Capital Stock--Warrants" and "Shares Eligible for
Future Sale;"
. the 3,755,947 shares reserved for issuance under our stock option plan,
of which 2,452,423 shares were subject to outstanding options as of March
31, 1999. Of those 2,452,423 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.
20
<PAGE>
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 $
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,
shares issued, pro forma as adjusted........ 88 89
Treasury stock at cost; 34,465 common shares,
actual, pro forma and pro forma as
adjusted.................................... (68) (68)
Unearned compensation........................ (126) (126)
Additional paid-in capital................... 14,719
Accumulated deficit.......................... (49,086) (49,086)
-------- --------
Total stockholders' equity (deficit)....... (25,754)
-------- --------
Total capitalization..................... $ 7,551 $
======== ========
</TABLE>
21
<PAGE>
DILUTION
Our pro forma net tangible book value (deficit) as of March 31, 1999 was
approximately $ million or $ 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 shares of common stock offered by us at an
assumed initial public offering price of $ 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 $ million or $ per share of common stock. This represents
an immediate increase in net tangible book value of $ per share to existing
shareholders and an immediate dilution of $ 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.................. $
Pro forma net tangible book value per share before this
offering...................................................... $
Increase per share attributable to new investors...............
------
Pro forma net tangible book value per share after this offering
(as adjusted)...................................................
------
Dilution per share to new investors.............................. $
======
</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...... 11,896,205 % $ % $
New public investors.......
---------- ----- ----------- -----
Totals..................... 100.0% $ 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 2,452,423 shares of common stock at a weighted
average exercise price of $1.06 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 4,892,136 shares of common stock at a weighted average exercise
price of $0.53 per share, all of which were exercisable. Based on the pro forma
net tangible book value of $ per share after this offering and the assumed
initial public offering price of $ per share, dilution to new investors
would be $ 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.
22
<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. We account for our revenue in two categories--traditional revenue
and e-commerce revenue. 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:
Traditional revenue..... $32,635 $33,310 $33,462 $ 30,593 $ 22,338 $ 6,101 $ 5,235
E-commerce revenue...... -- -- -- -- 1,344 250 793
------- ------- ------- -------- -------- --------- ---------
Total 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 11,363 13,964 12,832 3,384 3,505
Amortization of
intangibles........... 506 495 529 409 372 93 93
Other operating
expenses.............. 1,210 1,318 1,330 2,568 430 112 --
------- ------- ------- -------- -------- --------- ---------
Loss from operations.... (711) (5,072) (3,090) (7,370) (7,098) (1,741) (2,070)
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) (2,179)
Income (loss) from
discontinued
operations............. 357 1,389 1,489 (1,808) 970 387 26
Gain on sale of
discontinued
operations............. 3,831
------- ------- ------- -------- -------- --------- ---------
(Loss) income before
extraordinary items.... (2,662) (4,363) (2,941) (10,799) (6,724) (1,750) 1,678
Extraordinary loss from
early extinguishment of
debt................... -- -- -- -- (790) -- --
------- ------- ------- -------- -------- --------- ---------
Net (loss) income ...... (2,662) (4,363) (2,941) (10,799) (7,514) (1,750) 1,678
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) $ 979
======= ======= ======= ======== ======== ========= =========
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)........... $ (1.12) $ (0.25)
======== =========
Shares used in computing
pro forma basic and
diluted net loss from
continuing operations
per share(1)........... 9,053 11,467
======== =========
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 5,001
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) (25,754)
</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.
23
<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 to
implement 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.
We derive our revenue from the sale of prepackaged medications, software
licenses, computer hardware and related services. We account for our revenue in
two categories--traditional revenue and e-commerce revenue. Traditional revenue
is derived from the sale of prescription medications to physicians through
channels other than the Internet. We expect traditional revenue to represent a
decreasing percentage of total revenue in the future. E-commerce revenue is
derived primarily from the sale of prescription medications over the Internet
to physicians and also includes revenue from electronic transfer fees, software
license fees, computer hardware sales and leases, and related services.
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. The selling cycle for our current TouchScript product
has generally ranged from three to nine months. 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. Certain contracts may
include a 90-day evaluation period.
Medications sold to physicians are billed upon shipment with 30-day payment
terms. For TouchScript customers, we collect, on their behalf, 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.
24
<PAGE>
Recent Developments
In March 1999, in order to focus all of management's attention and
resources on the physician medication management business, we sold
substantially all of the assets, excluding cash and accounts receivable, of our
PBM business. The total 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. The PBM
business had net sales of $52,866,000 and operating profit of $970,000 for the
year ended December 31, 1998. Our financial statements and the discussion in
Management's Discussion and Analysis of Financial Condition and Results of
Operations reflect the PBM business as a discontinued operation. In the quarter
ended March 31, 1999, we recognized a gain on the sale of the PBM business of
$3,831,000, 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.
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 $600,000, bearing
interest at 6.0% per year and payable upon the consummation of this offering.
We expect this transaction to be consummated in May 1999. We expect the
Internet software capabilities of Shopping@Home to enhance the development of
our Internet-based products. See "Certain Relationships and Related Party
Transactions--Shopping@Home Acquisition."
Results of Operations
The following table shows, for the periods indicated, our consolidated
statements 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>
Traditional revenue...... 100.0% 100.0% 94.3% 96.1% 86.8%
E-commerce revenue....... 0.0 0.0 5.7 3.9 13.2
------- ------- ------- --------- ---------
Total 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.............. 34.0 45.6 54.2 53.3 58.2
Amortization of
intangibles........... 1.6 1.3 1.6 1.5 1.5
Other operating
expenses.............. 4.0 8.4 1.8 1.8 0.0
------- ------- ------- --------- ---------
Loss from operations..... (9.3) (24.0) (30.0) (27.5) (34.3)
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.............. (13.3) (29.3) (32.5) (33.7) (36.1)
Income (loss) from
discontinued
operations.............. 4.4 (5.9) 4.1 6.1 0.4
Gain from sale of
discontinued operations
........................ -- -- -- -- 63.5
------- ------- ------- --------- ---------
Income (loss) before
extraordinary items..... (8.9) (35.2) (28.4) (27.6) 27.8
Extraordinary loss from
early extinguishment of
debt.................... 0.0 0.0 (3.3) 0.0 0.0
------- ------- ------- --------- ---------
Net (loss) income ....... (8.9)% (35.2)% (31.7)% (27.6)% 27.8%
======= ======= ======= ========= =========
</TABLE>
25
<PAGE>
Three Months Ended March 31, 1999 Compared to Three Months Ended March 31, 1998
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 by, and 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 3.6% or $121,000 over the prior year period due
primarily to the addition of sales support personnel needed to sell, implement
and support the TouchScript installations, and the addition of TouchScript
product development personnel. These increases were partially offset by reduced
spending on sales personnel with the redirection of the sales and marketing
efforts toward targeted, large managed care organizations and staff reductions
in middle management personnel. As a result, selling, general and
administrative expenses as a percentage of total revenue increased to 58.2% 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
related to a charge for the restructuring of the sales force.
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
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 reflects the impact of
manufacturer withdrawal of two weight-loss products in October 1997, 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. We introduced our e-commerce products in the first quarter of 1998,
which produced revenue of $1,344,000 in that year.
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 period principally due to price reductions
in response to competitive pressures, the manufacturer withdrawal noted above,
increased costs of production, warehousing and distribution and a shift to a
greater percentage of managed care prescriptions.
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 relates to a
reduction in sales personnel and related expenses as a result of the
restructuring of the sales
26
<PAGE>
and marketing efforts and decreased expenses associated with general and
administrative functions. These decreases were partially offset by increases in
personnel needed to develop, sell, implement and support the TouchScript
product.
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 write down 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 write down of acquisition
intangibles and a reduction in force as part of the restructuring of the sales
organization. The expense in 1998 related to the restructuring of the sales
force.
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
Traditional 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 22.9% or
$2,601,000 in 1997 compared to 1996 and increased as a percentage of total
revenue from 34.0% in 1996 to 45.6% in 1997. The increase relates to the
development of a sales support infrastructure needed to sell, implement and
support TouchScript installations, addition of senior management, increased
investment in e-commerce product development, establishment of inventory
realization reserves associated with the withdrawal from the market of three
weight-loss products and receivable realization reserves with respect to
customers reliant on these products, and moving costs and increased lease costs
associated with our new office and production facility. These increases were
partially offset by reductions in sales personnel selling our traditional
products as part of our restructuring of the sales process to focus on the sale
of e-commerce products and services to large managed care organizations.
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 93.0% or $1,238,000 over the
prior year period. The 1997 expense relates to a write down of acquisition
intangibles and a reduction in force as part of the restructuring of our sales
organization. The expense in 1996 related to the write off of software
development costs, the write off of software intangibles, the recognition of a
charge for a management restructuring and the 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.
27
<PAGE>
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:
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
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 3,505
Amortization of
intangibles................ 93 93 93 93 93
Other operating expenses.... 112 -- -- 318 --
------- ------- ------- ------- -------
Loss from operations......... (1,741) (1,692) (1,729) (1,936) (2,070)
Interest expense............. (396) (81) (45) (74) (109)
Other expense................ -- -- -- -- --
------- ------- ------- ------- -------
Loss from continuing
operations.................. (2,137) (1,773) (1,774) (2,010) (2,179)
Income (loss) from
discontinued operations..... 387 294 201 88 26
Gain from sale of
discontinued operations..... -- -- -- -- 3,831
------- ------- ------- ------- -------
Income (loss) before
extraordinary items......... (1,750) (1,479) (1,573) (1,922) 1,678
Extraordinary loss from early
extinguishment of debt...... -- (790) -- -- --
------- ------- ------- ------- -------
Net (loss) income ........... $(1,750) $(2,269) $(1,573) $(1,922) $ 1,678
======= ======= ======= ======= =======
<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:
Traditional revenue.......... 96.1% 95.9% 93.6% 91.3% 86.8%
E-commerce revenue........... 3.9 4.1 6.4 8.7 13.2
------- ------- ------- ------- -------
Total 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 58.1
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) (34.2)
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) (36.0)
Income (loss) from
discontinued operations..... 6.1 4.8 3.5 1.6 0.4
Gain from sale of
discontinued operations..... -- -- -- -- 63.5
------- ------- ------- ------- -------
Income (loss) before
extraordinary items......... (27.6) (24.4) (27.3) (34.9) 27.9
Extraordinary loss from early
extinguishment of debt...... -- (13.1) -- -- --
------- ------- ------- ------- -------
Net (loss) income............ (27.6)% (37.5)% (27.3)% (34.9)% 27.9%
======= ======= ======= ======= =======
</TABLE>
28
<PAGE>
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 $49,086,000.
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 PBM business. In March
1999, we sold substantially all the assets of the PBM business, excluding cash
and accounts receivable. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Recent Developments."
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 PBM receivables, 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
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.
29
<PAGE>
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.
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 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.
At this time, 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. 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.
30
<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 our solutions offer benefits to all participants and
provide a compelling value proposition for physicians to incorporate our
TouchScript medication management product into their office work flow.
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 (HCFA), 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 HCFA, 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 connectivity 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,
it is estimated that e-commerce will grow from $28 billion in 1998 to over $100
billion by 2002.
31
<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 in-office and Internet-based electronic end-to-end
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
connectivity 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 Internet connectivity, we believe we offer a
unique value proposition 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.
32
<PAGE>
. Information. TouchScript provides valuable, objective information prior
to and during the prescribing process, enabling physicians to improve the
quality of their prescriptions.
. Value Proposition. 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 value proposition 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: (1) point-of-care medication management, (2) Internet products and
services and (3) information products. Our traditional business consists of
sales of prepackaged medications through channels other than the Internet.
33
<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
Just-in-time 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.
34
<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 (adjudication)
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 just-in-time
inventory 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
35
<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 our value proposition.
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 April 30, 1999, we employed 20 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 Managed Care
Merck-Medco is the country's largest pharmacy benefits manager, covering
over 60 million people. In 1997, we initiated 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 April 30, 1999, our
TouchScript customer service and support team consisted of 34 Account
Executives, Regional Managers and Customer Support Representatives. We expect
our team to grow substantially by the end of 1999.
36
<PAGE>
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
We believe that there are no competitors in medication management that
offer a comprehensive solution with ease of use, accessibility, information
content and value proposition 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
these opportunities selectively. See "Risk Factors--Risks Related to Our
Company--We face significant competition."
Product Development and Technology
As of April 30, 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.
37
<PAGE>
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 (PIX) and proxy servers that provide
layered security defenses against unauthorized access. We employ secure socket
layers (SSL) 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 governmental entities at the
federal, state and local levels. 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. All states allow
electronic, faxed and/or written prescriptions, so that users in every state
can use TouchScript as a means of routing prescriptions. Many existing laws and
regulations, when enacted, did not anticipate methods of e-commerce now being
developed. The laws of several states and the United States Drug Enforcement
Administration (DEA), which governs controlled substances, 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 DEA, 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. All other states allow
physician dispensing for profit, typically subject to regulations relating to
licensure, 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, Medicaid and various other federal and
state programs. Stark II, however, includes an exemption for the provision of
in-office ancillary supplies, including outpatient prescription drugs, provided
that the physician meets the requirements of the exemption. We believe that the
physicians who use our TouchScript system and dispense drugs distributed by us
are doing so in material compliance with Stark II, either pursuant to the in-
office ancillary supplies exemption or another applicable exemption.
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 (FDA), the DEA and various state agencies that regulate
wholesalers/distributors. Among the regulations applicable to our repackaging
operation are the FDA's "good manufacturing practices." We are subject to
periodic inspections by
38
<PAGE>
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 potentially governed by the federal anti-kickback statute, which
applies to Medicare, Medicaid and other state and federal programs. The statute
prohibits the 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 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 submit claims for prescription medications dispensed by a
physician to the patient's managed care organization 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 health plan, including 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 we submit are accurate and complete, provided that the
information given to us by physicians is also accurate and complete.
Both federal and state laws regulate the disclosure of confidential medical
information. This is particularly true with respect to information regarding
conditions like AIDS, substance abuse and mental illness. As part of the
operation of our business, we may gather or handle 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 connectivity 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.
39
<PAGE>
Employees
As of April 30, 1999, we employed 174 persons on a full-time basis. 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 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 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.
40
<PAGE>
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 May 10, 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
Other Key Employees:
Donald J. Abramo............................... 47 Vice President, Managed Care
Clifford E. Berman............................. 39 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 Executive 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.
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
41
<PAGE>
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.
Donald J. Abramo has been our Vice President, Managed Care since February
1999. Prior to that time, he served as Regional Vice President of Managed Care
for MedPartners/Caremark. Prior to MedPartners' merger with Caremark, Mr.
Abramo served as Caremark's Director of Managed Care Sales. Prior to that, he
was employed with Baxter International and Blue Cross/Blue Shield.
42
<PAGE>
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 Executive Vice President, Outsourcing Operations
since March 1999. From July 1995 until that time, he was our Executive 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.
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 and Lytle
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.
43
<PAGE>
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 US Air Force.
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 HCFA Medicare Coverage Advisory Commission, and he was
appointed to serve on the Rhode Island Governor's Advisory Council on Health.
44
<PAGE>
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.
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 $ per share, the actual price appreciation may be
substantially
45
<PAGE>
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.
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 $ 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
46
<PAGE>
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.
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 (1) a change in his position that materially reduces his
level of responsibilities or (2) 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 1997, our Board of Directors and shareholders adopted and approved our
Amended and Restated 1993 Stock Incentive Plan. In May 1999, our Board of
Directors voted to increase the shares authorized for issuance under the plan
by 1,300,000, subject to approval by our shareholders prior to completion of
this offering. The plan authorizes the grant of options to purchase up to an
aggregate of 4,393,489 shares. 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
47
<PAGE>
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 March 31, 1999, there were options outstanding under the plan to
purchase an aggregate of 2,452,423 shares of common stock, 953,745 of which are
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.
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 other 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 $600,000, 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
May 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
48
<PAGE>
Partners III, L.P., Morgan Stanley Venture Investors III, L.P. and The Morgan
Stanley Venture Partners Entrepreneur Fund, L.P. (the "Morgan Stanley
Parties"). Messrs. Husain and Stein, two of our directors, are affiliates of
each of the Morgan Stanley Parties. 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 of our directors,
is a managing director, and to the State Board of Administration of Florida
(the "Liberty Parties"), 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 Parties, the Morgan Stanley
Parties 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 the Liberty Parties;
. $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 by the Morgan Stanley Parties;
. $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;
49
<PAGE>
. $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."
50
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table provides information known to us with respect to the
beneficial ownership of our common stock as of May 14, 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.
<TABLE>
<CAPTION>
Percentage of
Total
-----------------
Shares Before After
Beneficially the the
Owned Offering Offering
------------ -------- --------
<S> <C> <C> <C>
Glen E. Tullman (1)............................ 581,831 6.4% %
David B. Mullen (2)............................ 389,724 4.3
Steven M. Katz................................. 185,053 2.1
John G. Cull (3)............................... 92,843 1.0
James A. Rosenblum (4)......................... 75,560 *
Philip D. Green (5)............................ 97,389 1.1
M. Fazle Husain (6)............................ 6,141,373 57.5
Michael J. Kluger (7).......................... 3,804,185 32.3
L. Ben Lytle................................... 0 *
Gary M. Stein (6).............................. 6,141,373 57.5
Entities affiliated with Morgan Stanley Dean
Witter Venture Partners (6)................... 6,141,373 57.5
Entities affiliated with Liberty Partners, L.P.
(7)........................................... 3,804,185 32.3
All directors and executive officers as a group
(11 persons) (8).............................. 11,391,943 81.4
</TABLE>
- --------
*Less than 1%.
(1) Includes 74,760 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 32,879 shares issuable upon
exercise of warrants that are currently exercisable.
(3) Includes 85,439 shares issuable upon exercise of options that will be
exercisable within 60 days, 3,142 shares issuable upon the closing of this
offering upon conversion of convertible preferred stock and 3,372 shares
issuable upon exercise of warrants that are currently exercisable.
(4) Includes 37,182 shares issuable upon exercise of options that will be
exercisable within 60 days, 3,142 shares issuable upon the closing of this
offering upon conversion of convertible preferred stock and 3,372 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, 11,006 shares issuable upon the closing of this
offering upon conversion of convertible preferred stock and 11,802 shares
issuable upon exercise of warrants that are currently exercisable.
51
<PAGE>
(6) Consists of: (a) 3,828,163 shares, 753,862 shares issuable upon the closing
of this offering upon conversion of convertible preferred stock and 808,259
shares issuable upon exercise of warrants that are currently exercisable,
in each case owned by Morgan Stanley Venture Partners III, L.P.;
(b) 367,681 shares, 72,406 shares issuable upon the closing of this
offering upon conversion of convertible preferred stock and 77,630 shares
issuable upon exercise of warrants that are currently exercisable, in each
case owned by Morgan Stanley Venture Investors III, L.P.; and (c) 165,740
shares, 32,638 shares issuable upon the closing of this offering upon
conversion of convertible preferred stock and 34,994 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: (a) 895,339 shares, 490,048 shares issuable upon the closing
of this offering upon conversion of convertible preferred stock and
2,118,564 shares issuable upon exercise of warrants that are currently
exercisable, in each case owned by Liberty Partners Holdings 6, L.L.C.; (b)
79 shares, 278 shares issuable upon the closing of this offering upon
conversion of convertible preferred stock and 1,631 shares issuable upon
exercise of warrants that are currently exercisable, in each case owned by
Liberty Investment Partnership #6; and (c) 11,814 shares, 41,711 shares
issuable upon the closing of this offering upon conversion of convertible
preferred stock and 244,721 shares issuable upon exercise of warrants that
are currently exercisable, in each case owned by the State Board of
Administration of Florida. Mr. Kluger is a managing director of Liberty
Partners Holdings 6, L.L.C. and Liberty Investment Partnership #6 and of
Liberty Capital Partners Inc., which has entered into an investment
management contract with the State Board of Administration of Florida. 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.
52
<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 11,896,205 shares of
common stock outstanding and no shares of preferred stock outstanding. As of
the date of this prospectus, there were 291 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 April 30, 1999, we had warrants outstanding to purchase an aggregate
of 4,892,136 shares of common stock at an average weighted exercise price of
$0.53 per share, all 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 shares would be outstanding, assuming an initial public
offering price of $ per share.
Registration Rights
Upon the closing of this offering, holders of shares of common stock,
including, among others, the Liberty Parties, the Morgan Stanley Parties and
Messrs. Tullman, Mullen, Cull, Carey, Rosenblum and Cahr, will be entitled to
registration rights. In addition, holders of warrants exercisable for an
aggregate of shares of common stock will be entitled to registration
rights with respect to the shares of common stock issuable upon exercise of the
warrants. Under our Registration Agreement, 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 with some limitations, to include in the 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 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.
53
<PAGE>
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 (DGCL) 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. DGCL 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 DGCL 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 (1)
the business combination is approved by the corporation's board of directors
prior to the date the interested stockholder becomes an interested stockholder,
(2) 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 (3) 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.
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.
54
<PAGE>
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
.
55
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
We will have shares of common stock outstanding after this
offering, shares if the underwriters' over-allotment option is
exercised in full. The 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. An additional shares, including 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 an
additional shares, including 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. The remaining
shares were acquired in transactions exempt from registration under
the Securities Act and, therefore, 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............. Freely tradeable shares sold in this
offering and shares salable under Rule
144(k) that are not subject to 180-day
lockup.
90 days........................ Shares salable under Rule 144 or 701
that are not subject to 180-day
lockup.
180 days....................... Lockup released.
Between 181 days and 365 days.. Restricted securities held for one
year or less 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
shares, assuming an initial public offering price of $ per
share.
Our executive officers and directors 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, an additional shares, including 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 ( 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.
56
<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, shares of our common stock 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,
shares 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
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.
57
<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.
58
<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-23
Condensed Consolidated Statements of Operations for the three months
ended March 31, 1998 and March 31, 1999................................. F-25
Condensed Consolidated Statements of Cash Flows for the three months
ended March 31, 1998 and 1999........................................... F-26
Notes to Unaudited Condensed Consolidated Financial Statements........... F-27
Unaudited Condensed Consolidated Pro Forma Financial Information......... F-29
Unaudited Condensed Consolidated Pro Forma Balance Sheet at March 31,
1999.................................................................... F-30
Unaudited Condensed Consolidated Pro Forma Statement of Operations for
the year ended December 31, 1998........................................ F-31
Unaudited Condensed Consolidated Pro Forma Statement of Operations for
the three months ended March 31, 1999................................... F-32
Notes to Unaudited Condensed Consolidated Pro Forma Financial
Information............................................................. F-33
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Allscripts, Inc.
The reverse stock split discussed in Note 22 to the financial statements has
not been approved by Allscripts, Inc. shareholders as of May 14, 1999. When it
is effective, we will be in a position to furnish the following report:
"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
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, 11,336,208 shares
issued and outstanding, pro
forma.............................. 34,252 83,587 113,363
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 24,072,492
Accumulated deficit.................. (43,249,661) (50,763,970) (50,763,970)
------------ ------------ ------------
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>
Traditional revenue................... $33,461,863 $ 30,593,032 $22,337,673
E-commerce revenue.................... -- -- 1,343,937
----------- ------------ -----------
Total 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............................. 11,362,160 13,964,555 12,831,357
Amortization of intangibles........... 529,360 408,736 371,905
Other operating expenses.............. 1,330,002 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...... $ (1.12)
Discontinued operations.............. 0.11
Extraordinary loss................... (0.09)
-----------
Net loss............................. $ (1.10)
-----------
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).................... 9,053,357
===========
</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
1,793,003
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. 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
Allscripts accounts for its revenue in two categories--traditional revenue
and e-commerce revenue. Traditional revenue is derived from the sale of
medications to physicians through channels other than the Internet. E-commerce
revenue is derived primarily from the sale of medications over the Internet to
physicians and also includes revenue from electronic transfer fees, software
license fees, computer hardware sales and leases and related services.
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. Rebates from suppliers are
recognized upon shipment of the product to customers.
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 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.
F-8
<PAGE>
ALLSCRIPTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
This review includes an assessment of environmental factors, customer
retention, cash flow projections and other factors Allscripts believes are
relevant. It is possible that those estimates of anticipated future cash flows,
other factors or the remaining estimated economic life of the remaining
intangible assets could be significantly reduced in the near term. As a result,
the carrying amount of the remaining intangible assets could be reduced
materially in the near term.
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 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" (SFAS
123). 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.
F-9
<PAGE>
ALLSCRIPTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
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 convertible
preferred stock, warrants and outstanding stock options 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.
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 2,977,554 shares of common stock. Allscripts
has presented a pro forma balance sheet as if this conversion happened on
December 31, 1998 and the pro forma net loss per share information for the year
ended December 31, 1998 as if this conversion occurred at the beginning of
1998. Additionally, 20,017 shares of common stock are issuable upon the closing
of the offering pursuant to a contingent share payment obligation. The pro
forma balance sheet and pro forma net loss per share information for the year
ended December 31, 1998 do not reflect this issuance because an initial public
offering price has not yet been determined.
The pro forma consolidated balance sheet also reflects Allscripts'
reincorporation in Delaware upon the closing of the offering.
F-10
<PAGE>
ALLSCRIPTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
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>
Software development costs...................... $ 295,833 $ -- $ --
Management reorganization and shutdown costs.... 867,502 239,652 430,345
Write-off of software intangible................ 166,667 -- --
Write-down of acquisition intangibles........... -- 2,328,000 --
---------- ---------- --------
$1,330,002 $2,567,652 $430,345
========== ========== ========
</TABLE>
Allscripts determined that an impairment of intangible assets acquired in
certain acquisitions occurred in 1997. Allscripts prepared projections of
future results of operations for the remaining amortization periods. The
projections indicated that the carrying value of the intangible assets was in
excess of the future results. 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 discounted projected income. 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.
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.
F-11
<PAGE>
ALLSCRIPTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
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 write-downs in excess of normal
amortization.
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, hiring and relocation......... 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>
F-12
<PAGE>
ALLSCRIPTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
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 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
write-off of deferred financing costs related to Allscripts' convertible
subordinated debentures and the value of the warrants issued to the Series J
Preferred shareholders.
F-13
<PAGE>
ALLSCRIPTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
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>
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>
F-14
<PAGE>
ALLSCRIPTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
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. 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.
F-15
<PAGE>
ALLSCRIPTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
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.
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 2,977,554
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.
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.
F-16
<PAGE>
ALLSCRIPTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
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
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
F-17
<PAGE>
ALLSCRIPTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
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.
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>
F-18
<PAGE>
ALLSCRIPTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
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>
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 (the "FDA") as if Allscripts were a manufacturer.
Allscripts is also subject to regulation by the Drug Enforcement Administration
("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 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
F-19
<PAGE>
ALLSCRIPTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
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 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. ("ESi") to further develop Allscripts' automated dispensing
product and introduce touch technology to its product. ESi 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 therefore, 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 (PBM) operation to Pharmacare
Management Services, Inc., Pharmacare Direct, Inc., and Procare Pharmacy, Inc.
("Buyer"). 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 an $8,400,000 contingent payment payable within 10 business days
after the first anniversary of the closing date. Additionally, the Buyer
purchased the PBM 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 as they
relate to baseline prescription fillings, as mutually agreed to by both
parties. Baseline prescription fillings have been established for both mail
order and retail prescription card, and the contingent payment of $8,400,000
has been assigned $5,700,000 to mail order and $2,700,000 to retail
prescription card. Under certain circumstances, a portion of the contingent
payment can be paid prior to the anniversary date.
F-20
<PAGE>
ALLSCRIPTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
The operating results of the PBM 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 PBM operations 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>
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............................................. $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-21
<PAGE>
ALLSCRIPTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
19. Recently Issued Accounting Pronouncements
During 1997 the Financial Accounting Standards Board ("FASB") 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 PBM 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.
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. Anthem paid Allscripts
approximately $1,580,000 in 1997 and $2,982,000 in 1998.
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 $600,000, 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.
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 are
subject to shareholder approval. Shareholder approval was obtained on ,
1999. Consequently, all common share information in the accompanying financial
statements have been adjusted to reflect the reverse stock split.
F-22
<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-23
<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.................................. 1,007,997 1,007,997
------------ ------------
Total current liabilities....................... 14,977,229 14,977,229
Long-term debt..................................... 58,774 58,774
------------ ------------
Total liabilities............................... 15,036,003 15,036,003
------------ ------------
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, 11,793,153 shares issued
and outstanding, pro forma....................... 88,156 117,932
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......................... 14,719,091 23,408,083
Accumulated deficit................................ (49,086,277) (49,086,277)
------------ ------------
Total shareholders' equity (deficit)............ (25,754,395) (25,754,395)
------------ ------------
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-24
<PAGE>
ALLSCRIPTS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------
1998 1999
----------- -----------
<S> <C> <C>
Traditional revenue.................................. $ 6,100,353 $ 5,234,551
E-commerce revenue................................... 250,446 793,206
----------- -----------
Total 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 3,505,122
Amortization of intangibles.......................... 93,442 93,442
Other operating expenses............................. 111,946 --
----------- -----------
Loss from operations............................. (1,741,251) (2,070,320)
Interest expense..................................... 396,169 109,145
----------- -----------
Loss from continuing operations...................... (2,137,420) (2,179,465)
Income from discontinued operations.................. 386,971 26,394
Gain from sale of discontinued operations............ -- 3,830,764
----------- -----------
Net income (loss).................................... (1,750,449) 1,677,693
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) $ 978,581
=========== ===========
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........... -- 0.45
----------- -----------
Net income (loss).................................. $ (0.58) $ 0.11
=========== ===========
Per share data--pro forma basic and diluted:
Loss from continuing operations.................... $ (0.25)
Discontinued operations............................ 0.00
Gain from sale of discontinued operations.......... 0.33
-----------
Net income......................................... $ 0.08
===========
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........................................... 11,467,239
===========
</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 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) $1,677,693
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........... -- (3,830,764)
Compensation expense.............................. -- 20,171
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 (1,330,077)
----------- ----------
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-26
<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"
(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 convertible
preferred stock, warrants and outstanding stock options 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 319,925 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.......................... 319,925 3.00
Options exercised........................ (457,066) (0.09)
Options forfeited........................ (107,559) (1.14)
--------- ------ ---------
Balance at March 31, 1999................ 2,452,423 $ 1.06 953,745
========= ====== =========
</TABLE>
5. Contingencies
The pharmaceutical repackaging industry is subject to stringent federal and
state regulations. Allscripts' repackaging operations are regulated by the Food
and Drug Administration (the "FDA") as if Allscripts were a manufacturer.
Allscripts is also subject to regulation by the Drug Enforcement Administration
("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-27
<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.
6. Discontinued Operations
The operating results of the PBM 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 PBM 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>
In the first quarter of 1999, Allscripts recognized a gain on the sale of
this business of $3,830,764, 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.
7. 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.
8. 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. Allscripts has presented a pro
forma balance sheet as if this conversion happened on March 31, 1999 and pro
forma net income (loss) per share information as if this transaction happened
as of January 1, 1999. Additionally, 20,017 shares of common stock are issuable
upon the closing of the offering, pursuant to a contingent share payment
obligation. The pro forma balance sheet and pro forma net income (loss) per
share information do not reflect this issuance because an initial public
offering price has not yet been determined.
F-28
<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 the
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, subject to
shareholder approval, 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-29
<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........ 1,008 1,008
------- -------
Total current
liabilities........... 14,977 14,977
Long-term debt.......... 59 59
------- -------
Total liabilities...... 15,036 15,036
Redeemable preferred
shares:
Series I............... 8,766 $ (9,359)(c) $ 593 (n) --
Series J............... 12,606 (12,606)(d) --
Series H............... 11,874 (11,983)(e) 109 (n) --
-------
33,246
SHAREHOLDERS' EQUITY
(DEFICIT)
Preferred shares
(convertible):
Series A............... 1,050 $(1,050)(g) --
Series B............... 533 (533)(h) --
Series C............... 2,188 (2,188)(i) --
Series D............... 1,833 (1,833)(j) --
Series F............... 2,493 (2,493)(k) --
Series G............... 622 (622)(l) --
Common shares:
$0.01 par value,
125,000,000 shares
authorized, 8,815,599
issued outstanding,
actual; 75,000,000
shares authorized,
11,813,170 shares
issued and
outstanding, pro forma
(a)................... 88 30 (m) 118
Treasury stock at cost
...................... (68) (68)
Unearned compensation.. (126) (126)
Additional paid-in
capital............... 14,719 $ (b) 33,948 (f) 8,689 (m) (702)(n)
Accumulated deficit.... (49,086) (b)
------- ----- -------- ------- ----- -------
Total shareholders'
equity (deficit)...... (25,754) -- 33,948 -- (702) 7,492
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-30
<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>
Traditional revenue..... $ 22,338 $ 22,338
E-commerce revenue...... 1,344 1,344
--------- ---------
Total 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 $ (b)
--------- ------ ---------
Loss from operations.... (7,098)
Interest expense........ 596 -- 596
--------- ------ ---------
Loss from continuing
operations............. (7,694)
Accretion of mandatory
redemption value of
preferred shares and
accrued dividends on
preferred shares....... (2,415) $1,927(o) $(629)(p) (1,117)
--------- ------ ----- ---------
Net loss from continuing
operations attributable
to common
shareholders........... $ (10,109) $ $1,927 $(629) $
========= ====== ====== ===== =========
Basic and diluted loss
per share from
continuing operations.. $ (1.66) $
========= =========
Weighted average shares
outstanding (basic and
diluted)............... 6,075,803 20,017 (b) 2,977,554(m) 9,073,374
========= ====== ========= =========
</TABLE>
See accompanying notes to unaudited condensed consolidated pro forma financial
information.
F-31
<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>
Traditional revenue..... $ 5,235 $ 5,235
E-commerce revenue...... 793 793
--------- ----------
Total revenue......... 6,028 6,028
Cost of revenue......... 4,500 4,500
--------- ----------
Gross profit............ 1,528 1,528
Selling, general and
administrative
expenses............... 3,505 3,505
Amortization of
intangibles............ 93 93
--------- ----------
Loss from operations.... (2,070) (2,070)
Interest expense........ (109) (109)
--------- ----------
Loss from continuing
operations............. (2,179) (2,179)
Accretion of mandatory
redemption value of
preferred shares and
accrued dividends on
preferred shares....... (699) $608(o) $ 91(p) --
--------- ---- ---- ----------
Net loss from continuing
operations attributable
to common
shareholders........... $ (2,878) $608 $ 91 $ (2,179)
========= ==== ==== ==========
Basic and diluted loss
per share from
continuing operations.. $ (0.34) $ (0.19)
========= ==========
Weighted average shares
outstanding (basic and
diluted)............... 8,489,665 20,017(b) 2,977,554(m) 11,487,256
========= ====== ========= ==========
</TABLE>
See accompanying notes to the unaudited condensed consolidated pro forma
financial information.
F-32
<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, subject to shareholder
approval, 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) This adjustment reflects an additional issuance of 20,017 common shares at
$ per share as a result of the initial public offering, in connection
with a contingent payment obligation.
(c) To reflect the mandatory redemption of 1,339,241 Series I redeemable
preferred shares, including the payment of cumulative dividends of
$704,954, and to reduce the number of authorized, issued and outstanding
shares from 1,339,241 (actual) to none (pro forma).
(d) To reflect the redemption of 1,803,838 Series J redeemable preferred
shares, including the payment of cumulative dividends of $949,510, and to
reduce the number of authorized shares from 1,812,903 (actual) to none (pro
forma); and to reduce the number of issued and outstanding shares from
1,803,838 (actual) to none (pro forma).
(e) To reflect the redemption of 1,361,775 Series H redeemable preferred
shares, including the payment of cumulative dividends of $3,183,430, and to
reduce the number of authorized, issued and outstanding shares from
1,361,775 (actual) to none (pro forma).
(f) To reflect the issuance of shares of common stock in the initial
public offering, at $ per share. The proceeds of which are used to
redeem the Series H, I and J redeemable preferred shares.
(g) To reflect the conversion of 1,050,000 Series A Preferred Shares to 152,175
common shares.
(h) To reflect the conversion of 533,333 Series B Preferred Shares to 207,856
common shares.
(i)To reflect the conversion of 2,187,501 Series C Preferred Shares to 885,460
common shares.
(j)To reflect the conversion of 1,833,334 Series D Preferred Shares to
1,061,523 common shares.
(k)To reflect the conversion of 2,492,781 Series F Preferred Shares to 415,455
common shares.
(l)To reflect the conversion of 621,819 Series G Preferred Shares to 255,085
common shares.
(m) To reflect the conversion of 8,718,768 Preferred Shares (series A, B, C, D,
F and G) to 2,977,554 common shares at stated conversion rates.
(n) To reflect accelerated accretion of Series H and Series I redeemable
preferred shares, due to the initial public offering.
(o) To reverse accrued dividends during the period on redeemable preferred
shares.
(p) To adjust accretion on Series H and Series I redeemable preferred shares to
reflect additional accretion assuming redemption occurred on January 1,
1998.
F-33
<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. and CIBC World Markets Corp. 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.....................................
-------------
Total...................................................
=============
</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
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 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 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
U-1
<PAGE>
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.
Allscripts will apply 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 $700,000.
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............................................................. 8
Use of Proceeds.......................................................... 19
Dividend Policy.......................................................... 19
Capitalization........................................................... 20
Dilution................................................................. 22
Selected Consolidated Financial Data..................................... 23
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 24
Business................................................................. 31
Management............................................................... 41
Certain Relationships and Related Party Transactions..................... 48
Principal Stockholders................................................... 51
Description of Capital Stock............................................. 53
Shares Eligible for Future Sale.......................................... 56
Legal Matters............................................................ 57
Experts.................................................................. 57
Where to Find More Information........................................... 57
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares
Allscripts, Inc.
Common Stock
--------------
[LOGO]
--------------
Goldman, Sachs & Co.
Bear, Stearns & Co. Inc.
CIBC World Markets
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.............. $25,020
National Association of Securities Dealers, Inc. filing fee...... 9,500
Nasdaq National Market listing fee............................... 50,000
Blue Sky fees and expenses....................................... *
Legal fees and expenses.......................................... *
Accountants' fees................................................ *
Printing fees.................................................... *
Transfer agent fees.............................................. *
Miscellaneous.................................................... *
-------
Total........................................................ $ *
=======
</TABLE>
- --------
* To be supplied by amendment
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 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 issued an aggregate of common shares to current and former
employees upon exercise of options for an aggregate exercise price of $ .
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, ,
a Delaware corporation. In connection with the merger, 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 13th day of May, 1999.
Allscripts, Inc.
/s/ Glen E. Tullman
----------------------------------------
Glen E. Tullman
Chairman and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENT, that each of the undersigned hereby
constitutes and appoints, jointly and severally, Glen E. Tullman and David B.
Mullen, or either of them (with full power to each of them to act alone), as
his true and lawful attorneys-in-fact and agents, each with full power of
substitution and resubstitution, for him and on his behalf to sign, execute and
file this Registration Statement, any or all amendments (including, without
limitation, post-effective amendments) to this Registration Statement, and any
and all additional registration statements filed pursuant to Rule 462(b)
related to this Registration Statement, and to file the same, with all exhibits
thereto and all documents required to be filed with respect therewith, with the
Securities and Exchange Commission or any regulatory authority, granting unto
such attorneys-in-fact and agents, and each of them, full power and authority
to do and perform each and every act and thing requisite and necessary to be
done in connection therewith and about the premises in order to effectuate the
same as fully to all intents and purposes as he might or could do if personally
present, hereby ratifying and confirming all that such attorneys-in-fact and
agents, or any of them, or his or their substitute or substitutes, may lawfully
do or cause to be done.
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 13th day of May, 1999.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ Glen E. Tullman 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
/s/ John G. Cull Senior Vice President, Finance, Treasurer
___________________________________________ and Secretary (Principal Accounting
John G. Cull Officer)
/s/ Philip D. Green Director
___________________________________________
Philip D. Green
/s/ M. Fazle Husain Director
___________________________________________
M. Fazle Husain
/s/ Michael J. Kluger Director
___________________________________________
Michael J. Kluger
/s/ L. Ben Lytle Director
___________________________________________
L. Ben Lytle
/s/ Gary M. Stein Director
___________________________________________
Gary M. Stein
</TABLE>
S-1
<PAGE>
Report of Independent Accountants on Financial Statement Schedule
To the Board of Directors
of Allscripts, Inc.
The reverse stock split discussed in Note 22 to the financial statements
appearing in this Registration Statement has not been approved by Allscripts,
Inc. shareholders as of May 14, 1999. When it is effective, we will be in a
position to furnish the following report:
"Our audits of the consolidated financial statements referred to in our
report dated May 12, 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
4.1* Specimen Common Stock Certificate
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
, 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* Agreement between the Registrant and Merck-Medco Managed Care
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)
24.1 Powers of Attorney (included on signature page)
27.1 Financial Data Schedule
</TABLE>
- --------
*To be filed by amendment.
E-1
<PAGE>
EXHIBIT 1.1
ALLSCRIPTS, INC.
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
-------------------------
UNDERWRITING AGREEMENT
-------------------------
........................., 1999
Goldman, Sachs & Co.
Bear, Stearns & Co. Inc.
CIBC World Markets Corp.
As representatives of the several Underwriters
named in Schedule I hereto,
c/o Goldman, Sachs & Co.
85 Broad Street,
New York, New York 10004
Ladies and Gentlemen:
Allscripts, Inc., an Illinois corporation, proposes, subject to the
terms and conditions stated herein and concurrently with the consummation of the
Reincorporation Merger described below, to issue and sell to the Underwriters
named in Schedule I hereto (the "Underwriters") an aggregate of _________ shares
(the "Firm Shares") and, at the election of the Underwriters, up to _______
additional shares (the "Optional Shares") of common stock, par value $.01 per
share ("Stock") of _________, the surviving corporation in such Reincorporation
Merger (the Firm Shares and the Optional Shares that the Underwriters elect to
purchase pursuant to Section 2 hereof being collectively called the "Shares").
Subsequent to the date hereof and prior to the First Time of Delivery
(as defined in Section 4 below), it is contemplated that Allscripts, Inc. will
be merged (the "Reincorporation Merger") with and into ___________, a Delaware
corporation ("Merger Corp."), pursuant to an Agreement and Plan of Merger dated
_______, 1999 (the "Merger Agreement") by and between the Company and Merger
Corp. in order to effect the reincorporation of Allscripts, Inc. in Delaware.
All references in this Agreement to the "Company" shall mean (1) Allscripts,
Inc., an Illinois corporation, prior to consummation of the Reincorporation
Merger and (2) _________, the surviving corporation in such Reincorporation
Merger, concurrently with and subsequent to consummation of the Reincorporation
Merger.
1. The Company represents and warrants to, and agrees with, each of
the Underwriters that:
(a) A registration statement on Form S-1 (File No. 333-.........) (the
"Initial Registration Statement") in respect of the Shares has been filed with
the Securities and Exchange Commission (the "Commission"); the Initial
Registration Statement and any post-effective amendment thereto, each in the
form heretofore delivered to you, and, excluding exhibits thereto to you for
each of the other Underwriters, have been declared
<PAGE>
effective by the Commission in such form; other than a registration statement,
if any, increasing the size of the offering (a "Rule 462(b) Registration
Statement"), filed pursuant to Rule 462(b) under the Securities Act of 1933, as
amended (the "Act"), which became effective upon filing, no other document with
respect to the Initial Registration Statement has heretofore been filed with the
Commission; and no stop order suspending the effectiveness of the Initial
Registration Statement, any post-effective amendment thereto or the Rule 462(b)
Registration Statement, if any, has been issued and no proceeding for that
purpose has been initiated or threatened by the Commission (any preliminary
prospectus included in the Initial Registration Statement or filed with the
Commission pursuant to Rule 424(a) of the rules and regulations of the
Commission under the Act is hereinafter called a "Preliminary Prospectus"; the
various parts of the Initial Registration Statement and the Rule 462(b)
Registration Statement, if any, including all exhibits thereto and including the
information contained in the form of final prospectus filed with the Commission
pursuant to Rule 424(b) under the Act in accordance with Section 5(a) hereof and
deemed by virtue of Rule 430A under the Act to be part of the Initial
Registration Statement at the time it was declared effective, each as amended at
the time such part of the Initial Registration Statement became effective or
such part of the Rule 462(b) Registration Statement, if any, became or hereafter
becomes effective, are hereinafter collectively called the "Registration
Statement"; and such final prospectus, in the form first filed pursuant to Rule
424(b) under the Act, is hereinafter called the "Prospectus";
(b) No order preventing or suspending the use of any Preliminary
Prospectus has been issued by the Commission, and each Preliminary Prospectus,
at the time of filing thereof, conformed in all material respects to the
requirements of the Act and the rules and regulations of the Commission
thereunder, and did not contain an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that this representation and warranty
shall not apply to any statements or omissions made in reliance upon and in
conformity with information furnished in writing to the Company by an
Underwriter through Goldman, Sachs & Co. expressly for use therein;
(c) The Registration Statement conforms, and the Prospectus and any
further amendments or supplements to the Registration Statement or the
Prospectus will conform, in all material respects to the requirements of the Act
and the rules and regulations of the Commission thereunder and do not and will
not, as of the applicable effective date as to the Registration Statement and
any amendment thereto, and as of the applicable filing date as to the Prospectus
and any amendment or supplement thereto, contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided, however, that
this representation and warranty shall not apply to any statements or omissions
made in reliance upon and in conformity with information furnished in writing to
the Company by an Underwriter through Goldman, Sachs & Co. expressly for use
therein; there is no material document of a character required to be described
in the Registration Statement or the Prospectus or to be filed as an exhibit to
the Registration Statement which is not described or filed as required;
(d) Neither the Company nor any of its subsidiaries has sustained
since the date of the latest audited financial statements included in the
Prospectus any material loss or interference with its business from fire,
explosion, flood or other calamity, whether or not
-2-
<PAGE>
covered by insurance, or from any labor dispute or court or governmental action,
order or decree, otherwise than as set forth or contemplated in the Prospectus;
and, since the respective dates as of which information is given in the
Registration Statement and the Prospectus, there has not been any change in the
capital stock or long-term debt of the Company or any of its subsidiaries or any
material adverse change, or any development involving a prospective material
adverse change, in or affecting the general affairs, management, financial
position, stockholders' equity or results of operations of the Company and its
subsidiaries, otherwise than as set forth or contemplated in the Prospectus;
(e) The Company and its subsidiaries have good and marketable title in
fee simple to all real property and good and marketable title to all personal
property owned by them, in each case free and clear of all liens, encumbrances
and defects except such as are described in the Prospectus or such as do not
materially affect the value of such property and do not interfere with the use
made and proposed to be made of such property by the Company and its
subsidiaries; and any real property and buildings held under lease by the
Company and its subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such property and buildings by the
Company and its subsidiaries;
(f) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of its jurisdiction of
incorporation, with power and authority (corporate and other) to own its
properties and conduct its business as described in the Prospectus, and has been
duly qualified as a foreign corporation for the transaction of business and is
in good standing under the laws of each other jurisdiction in which it owns or
leases properties or conducts any business so as to require such qualification,
or is subject to no material liability or disability by reason of the failure to
be so qualified in any such jurisdiction; and each subsidiary of the Company has
been duly incorporated and is validly existing as a corporation in good standing
under the laws of its jurisdiction of incorporation;
(g) The Company has an authorized and outstanding capitalization as
set forth in the Prospectus, and all of the issued shares of capital stock of
the Company have been duly and validly authorized and issued, are fully paid and
non-assessable and conform to the description of the Stock contained in the
Prospectus; and all of the issued shares of capital stock of each subsidiary of
the Company have been duly and validly authorized and issued, are fully paid and
non-assessable and (except for directors' qualifying shares) are owned directly
or indirectly by the Company, free and clear of all liens, encumbrances,
equities or claims;
(h) The unissued Shares to be issued and sold by the Company to the
Underwriters hereunder have been duly and validly authorized and, when issued
and delivered against payment therefor as provided herein, will be duly and
validly issued and fully paid and non-assessable and will conform to the
description of the Stock contained in the Prospectus;
(i) The issue and sale of the Shares by the Company and the compliance
by the Company with all of the provisions of this Agreement and the consummation
of the transactions herein contemplated will not conflict with or result in a
breach or violation of any of the terms or provisions of, or constitute a
default under, any indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument to which the Company or any of its
-3-
<PAGE>
subsidiaries is a party or by which the Company or any of its subsidiaries is
bound or to which any of the property or assets of the Company or any of its
subsidiaries is subject, nor will such action result in any violation of the
provisions of the Certificate of Incorporation or By-laws of the Company or any
of its subsidiaries or any statute or any order, rule or regulation of any court
(federal, state, local, foreign or otherwise) or federal, state, local, foreign
or other governmental agency or body having jurisdiction over the Company or any
of its subsidiaries or any of their properties (collectively, "Governmental
Authority"); and no consent, approval, authorization, order, registration or
qualification of or with any such court or Governmental Authority is required
for the issue and sale of the Shares or the consummation by the Company of the
transactions contemplated by this Agreement, except the registration under the
Act of the Shares and such consents, approvals, authorizations, registrations or
qualifications as may be required under state securities or Blue Sky laws in
connection with the purchase and distribution of the Shares by the Underwriters;
(j) Neither the Company nor any of its subsidiaries is in violation of
its Certificate of Incorporation or By-laws or in default in the performance or
observance of any material obligation, agreement, covenant or condition
contained in any indenture, mortgage, deed of trust, loan agreement, lease or
other agreement or instrument to which it is a party or by which it or any of
its properties may be bound;
(k) The statements set forth in the Prospectus under the caption
"Description of Capital Stock", insofar as they purport to constitute a summary
of the terms of the Stock, under the captions "Risk Factors -- We are subject to
Government Regulation and Legal Uncertainties" and "-- We may have substantial
sales of our common stock after the Offering," "Business -- Government
Regulation," "Management -- Employment and Other Agreements," "--Employee
Benefit Plans," "Certain Relationships and Related Party Transactions," "Shares
Eligible for Future Sale," and "Underwriting", insofar as they purport to
describe the provisions of the laws and documents referred to therein, are
accurate and fair;
(l) Other than as set forth in the Prospectus, there are no legal or
governmental proceedings pending to which the Company or any of its subsidiaries
is a party or of which any property of the Company or any of its subsidiaries is
the subject which, if determined adversely to the Company or any of its
subsidiaries, would individually or in the aggregate have a material adverse
effect on the current or future consolidated financial position, stockholders'
equity or results of operations of the Company and its subsidiaries; and, to the
best of the Company's knowledge, no such proceedings are threatened or
contemplated by Governmental Authorities or threatened by others;
(m) The Company is not and, after giving effect to the offering and
sale of the Shares, will not be an "investment company", as such term is defined
in the Investment Company Act of 1940, as amended (the "Investment Company
Act");
(n) Neither the Company nor any of its affiliates does business with
the government of Cuba or with any person or affiliate located in Cuba within
the meaning of Section 517.075, Florida Statutes;
-4-
<PAGE>
(o) PricewaterhouseCoopers LLP, who have certified certain financial
statements of the Company and its subsidiaries, are independent public
accountants as required by the Act and the rules and regulations of the
Commission thereunder; and
(p) The Company has reviewed its operations and that of its
subsidiaries and any third parties with which the Company or any of its
subsidiaries has a material relationship to evaluate the extent to which the
business or operations of the Company or any of its subsidiaries will be
affected by the Year 2000 Problem. As a result of such review, the Company has
no reason to believe, and does not believe, that the Year 2000 Problem will have
a material adverse effect on the general affairs, management, the current or
future consolidated financial position, business prospects, stockholders' equity
or results of operations of the Company and its subsidiaries or on the ability
of the Company to perform its obligations under this Agreement ("Material
Adverse Effect") or result in any material loss or interference with the
Company's business or operations. The "Year 2000 Problem" as used herein means
any significant risk that computer hardware or software used in the receipt,
transmission, processing, manipulation, storage, retrieval, retransmission or
other utilization of data or in the operation of mechanical or electrical
systems of any kind will not, in the case of dates or time periods occurring
after December 31, 1999, function at least as effectively as in the case of
dates or time periods occurring prior to January 1, 2000.
(q) The consolidated financial statements and schedules included in
the Registration Statement present fairly the consolidated financial position of
the Company as of the respective dates of such financial statements, and the
consolidated results of operations and cash flows of the Company for the
respective periods covered thereby, all in conformity with generally accepted
accounting principles consistently applied throughout the periods involved,
except as disclosed in the Prospectus, and the supporting schedules included in
the Registration Statement present fairly the information required to be stated
therein. The financial information set forth in the Prospectus under the
captions "Summary Consolidated Financial Data" and "Selected Consolidated
Financial Data" presents fairly on the basis stated in the Prospectus, the
information set forth therein. The pro forma information included in the
Prospectus presents fairly the information shown therein, has been prepared in
accordance with generally accepted accounting principles and the Commission's
rules and guidelines with respect to pro forma information, has been properly
compiled on the pro forma basis described therein, and, in the opinion of the
Company, the assumptions used in the preparation thereof are reasonable and the
adjustments used therein are appropriate under the circumstances.
(r) The Company together with its subsidiaries owns and possesses all
right, title and interest in and to, or has duly licensed from third parties a
valid, enforceable right to use, all patents, patent rights, licenses,
inventions, software, copyrights, know-how (including trade secrets and other
unpatented or unpatentable proprietary or confidential information, systems or
procedures), trademarks, service marks and trade names (collectively, "Patent
and Proprietary Rights") currently or proposed to be employed by it in
connection with its business, and neither the Company nor any of its
subsidiaries has received any notice of infringement or misappropriation of, or
conflict with, asserted rights of others with respect to any Patent or
Proprietary Rights, or is aware of any facts which would render any Patent or
Proprietary Rights invalid or inadequate to protect the interest of the Company
or its subsidiaries therein, or is aware of any facts which would give rise to a
valid claim of infringement or misappropriation by the Company or its
subsidiaries of the Patent and
-5-
<PAGE>
Proprietary Rights of others, and which infringement, misappropriation or
conflict or invalidity or inadequacy, individually or in the aggregate, would or
could be expected to result in a Material Adverse Effect;
(s) The Company and its subsidiaries are in compliance in all respects
with applicable federal, state, local and foreign laws and regulations
(including laws and regulations which regulate (i) the dispensing of
pharmaceuticals and controlled substances, (ii) the licensure of persons or
entities which engage in the business of repackaging, and selling and/or
dispensing, on a wholesale or retail basis, pharmaceuticals and controlled
substances, (iii) the licensure of persons or entities which engage in the
practice of medicine or osteopathy, (iv) the submission of claims to third party
payors, including the Medicare and Medicaid programs, for pharmaceuticals and
controlled substances provided to their beneficiaries including, without
limitation, the Medicare and Medicaid Anti-Fraud and Abuse Amendments, 42 U.S.C.
(S)(S) 1320a-7 through 1320a-8, and the Ethics in Patient Referral Act, 42
U.S.C. (S) 1395nn, (v) the disclosure of confidential information regarding the
medical records, conditions and treatments of individual patients and (vi) the
disposal of medical waste), except where the failure to be in compliance would
not have a Material Adverse Effect. The Company has no knowledge of, nor has the
Company received notice of, any existing violation or alleged violation by the
Company or any of its subsidiaries of any such laws or regulations, except where
such violation would not, individually or together with other such violations,
have a Material Adverse Effect. None of the Company or any of its subsidiaries
or any of their respective directors and officers is currently under
investigation or prosecution for, nor has any one or more of them been convicted
of a criminal offense related to the delivery of a prescription, prescription
drug or other health care item or service, the neglect or abuse of patients or
the obstruction of an investigation of any such criminal offense. The Company
(x) does not provide any "Designated Health Services" as that term is defined in
the Stark Act, (y) does not sell prescription pharmaceutical drugs directly to
patients or refer patients to other sellers of prescription pharmaceutical
drugs, or make or receive referrals for any products or services which are
covered by Medicare or Medicaid, or (z) has in place reasonable procedures to
safeguard against any claims submitted by the Company to payors on behalf of
physicians from being altered or submitted more than once.
(t) The Company and each of its subsidiaries has obtained all
licenses, permits, certificates, authorizations, accreditations, approvals or
consents (collectively, the "Licenses") required by any federal, state, foreign
or local regulatory agencies or bodies to properly and legally operate or
conduct the business in which it is engaged on the date hereof and which are
necessary or desirable for the successful conduct of its business as conducted
and as proposed to be conducted, except where the failure to obtain required
Licenses would not, individually or in the aggregate, have a Material Adverse
Effect. Each License has been duly obtained, is valid and in full force and
effect, and is renewable by its terms or in the ordinary course of business.
None of the Company or any of its subsidiaries is subject to any pending or
threatened administrative or judicial proceeding to revoke, cancel or declare
any License granted to it invalid in any respect. Except for matters which would
not, individually or in the aggregate, have a Material Adverse Effect, none of
the Company or any of its subsidiaries (i) is acting outside the scope and
authority granted to it pursuant to any such License, or otherwise is in default
or in violation with respect to any such License, and no event has occurred
which constitutes, or with due notice or lapse of time or both may constitute, a
default by it or a violation of, any License and (ii) has permitted any License
granted to it to
-6-
<PAGE>
lapse since its original effective date. The Company and its subsidiaries have
completed and submitted, on a timely basis, all reports and filings associated
with their businesses as are required by any Governmental Authority, except
where the failure to complete and submit any such reports or filings would not,
individually or in the aggregate, have a Material Adverse Effect.
(u) The Company and each of its subsidiaries has filed all necessary
federal and state income, franchise, sales and use tax returns and has paid all
taxes shown as due thereon, and there is no tax deficiency that has been, or to
the knowledge of the Company might be, asserted against the Company, any of its
subsidiaries, or any of their respective properties or assets that would or
could be expected to have a Material Adverse Effect.
(v) The Company and its subsidiaries carry, or are covered by,
insurance in such amounts and covering such risks as is adequate for the conduct
of their businesses and the value of their properties and as is customary for
companies engaged in similar businesses in similar industries.
(w) Immediately prior to the Reincorporation Merger, Merger Corp. will
be duly incorporated and validly existing as a corporation in good standing
under the laws of the State of Delaware; the execution, delivery and performance
of the Merger Agreement and all documents and instruments executed and delivered
in connection with the Reincorporation Merger have been authorized by all
necessary corporate action (including, without limitation, stockholder approval)
on the part of each of the Company and Merger Corp.; all consents, approvals,
authorizations, orders, Licenses, certificates, permits, registrations or
qualifications required to be obtained in connection with the Reincorporation
Merger have been obtained, other than such consents, approvals, authorizations,
orders, Licenses, certificates, permits, registrations or qualifications which,
individually or in the aggregate, would not have a Material Adverse Effect; the
consummation of the Reincorporation Merger will not (i) conflict with or result
in a breach or violation of any of terms or provisions of, or constitute a
default under, any indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument to which the Merger Corp., the Company or any of its
subsidiaries was or is bound or to which any of the property or assets of the
Company or any of its subsidiaries was or is subject, (ii) result in any
violation of the provisions of the Certificate of Incorporation or By-laws of
Merger Corp., the Company or any of its subsidiaries or (iii) result in any
violation of the provisions of any statute or any order, rule or regulation of
any court or Governmental Authority having jurisdiction over Merger Corp., the
Company or any of its subsidiaries or any of their properties, other than, in
the case of clauses (i) and (iii) above, such conflicts, breaches, violations or
defaults that, individually or in the aggregate, would not have a Material
Adverse Effect;
2. Subject to the terms and conditions herein set forth, (a) the
Company agrees to issue and sell to each of the Underwriters, and each of the
Underwriters agrees, severally and not jointly, to purchase from the Company, at
a purchase price per share of $................, the number of Firm Shares set
forth opposite the name of such Underwriter in Schedule I hereto, and (b) in the
event and to the extent that the Underwriters shall exercise the election to
purchase Optional Shares as provided below, the Company agrees to issue and sell
to each of the Underwriters, and each of the Underwriters agrees, severally and
not jointly, to purchase from the Company, at the purchase price per share set
forth in clause (a) of this
-7-
<PAGE>
Section 2, that portion of the number of Optional Shares as to which such
election shall have been exercised (to be adjusted by you so as to eliminate
fractional shares) determined by multiplying such number of Optional Shares by a
fraction, the numerator of which is the maximum number of Optional Shares which
such Underwriter is entitled to purchase as set forth opposite the name of such
Underwriter in Schedule I hereto and the denominator of which is the maximum
number of Optional Shares that all of the Underwriters are entitled to purchase
hereunder.
The Company hereby grants to the Underwriters the right to purchase at
their election up to _______ Optional Shares, at the purchase price per share
set forth in the paragraph above, for the sole purpose of covering sales of
shares in excess of the number of Firm Shares. Any such election to purchase
Optional Shares may be exercised only by written notice from you to the Company,
given within a period of 30 calendar days after the date of this Agreement,
setting forth the aggregate number of Optional Shares to be purchased and the
date on which such Optional Shares are to be delivered, as determined by you but
in no event earlier than the First Time of Delivery (as defined in Section 4
hereof) or, unless you and the Company otherwise agree in writing, earlier than
two or later than ten business days after the date of such notice.
3. Upon the authorization by you of the release of the Firm Shares,
the several Underwriters propose to offer the Firm Shares for sale upon the
terms and conditions set forth in the Prospectus.
4. (a) The Shares to be purchased by each Underwriter hereunder, in
definitive form, and in such authorized denominations and registered in such
names as Goldman, Sachs & Co. may request upon at least forty-eight hours' prior
notice to the Company shall be delivered by or on behalf of the Company to
Goldman, Sachs & Co., for the account of such Underwriter, against payment by or
on behalf of such Underwriter of the purchase price therefor by wire transfer of
Federal (same-day) funds to the account specified by the Company to Goldman,
Sachs & Co. at least forty-eight hours in advance. The Company will cause the
certificates representing the Shares to be made available for checking and
packaging at least twenty-four hours prior to the Time of Delivery (as defined
below) with respect thereto at the office of Goldman, Sachs & Co., 85 Broad
Street, New York, New York 10004 (the "Designated Office"). The time and date
of such delivery and payment shall be, with respect to the Firm Shares, 9:30
a.m., New York City time, on ............., 1999 or such other time and date as
Goldman, Sachs & Co. and the Company may agree upon in writing, and, with
respect to the Optional Shares, 9:30 a.m., New York time, on the date specified
by Goldman, Sachs & Co. in the written notice given by Goldman, Sachs & Co. of
the Underwriters' election to purchase such Optional Shares, or such other time
and date as Goldman, Sachs & Co. and the Company may agree upon in writing.
Such time and date for delivery of the Firm Shares is herein called the "First
Time of Delivery", such time and date for delivery of the Optional Shares, if
not the First Time of Delivery, is herein called the "Second Time of Delivery",
and each such time and date for delivery is herein called a "Time of Delivery".
(b) The documents to be delivered at each Time of Delivery by or on
behalf of the parties hereto pursuant to Section 7 hereof, including the cross
receipt for the Shares and any additional documents requested by the
Underwriters pursuant to Section 7(k) hereof, will be
-8-
<PAGE>
delivered at the offices of Sonnenschein Nath & Rosenthal, 8000 Sears Tower,
Chicago, Illinois 60606-6404 (the "Closing Location"), and the Shares will be
delivered at the Designated Office, all at such Time of Delivery. A meeting
will be held at the Closing Location at .......p.m., New York City time, on the
New York Business Day next preceding such Time of Delivery, at which meeting the
final drafts of the documents to be delivered pursuant to the preceding sentence
will be available for review by the parties hereto. For the purposes of this
Section 4, "New York Business Day" shall mean each Monday, Tuesday, Wednesday,
Thursday and Friday which is not a day on which banking institutions in New York
are generally authorized or obligated by law or executive order to close.
5. The Company agrees with each of the Underwriters:
(a) To prepare the Prospectus in a form approved by you and to file
such Prospectus pursuant to Rule 424(b) under the Act not later than the
Commission's close of business on the second business day following the
execution and delivery of this Agreement, or, if applicable, such earlier time
as may be required by Rule 430A(a)(3) under the Act; to make no further
amendment or any supplement to the Registration Statement or Prospectus which
shall be disapproved by you promptly after reasonable notice thereof; to advise
you, promptly after it receives notice thereof, of the time when any amendment
to the Registration Statement has been filed or becomes effective or any
supplement to the Prospectus or any amended Prospectus has been filed and to
furnish you with copies thereof; to advise you, promptly after it receives
notice thereof, of the issuance by the Commission of any stop order or of any
order preventing or suspending the use of any Preliminary Prospectus or
prospectus, of the suspension of the qualification of the Shares for offering or
sale in any jurisdiction, of the initiation or threatening of any proceeding for
any such purpose, or of any request by the Commission for the amending or
supplementing of the Registration Statement or Prospectus or for additional
information; and, in the event of the issuance of any stop order or of any order
preventing or suspending the use of any Preliminary Prospectus or prospectus or
suspending any such qualification, promptly to use its best efforts to obtain
the withdrawal of such order;
(b) Promptly from time to time to take such action as you may
reasonably request to qualify the Shares for offering and sale under the
securities laws of such jurisdictions as you may request and to comply with such
laws so as to permit the continuance of sales and dealings therein in such
jurisdictions for as long as may be necessary to complete the distribution of
the Shares, provided that in connection therewith the Company shall not be
required to qualify as a foreign corporation or to file a general consent to
service of process in any jurisdiction;
(c) Prior to 10:00 a.m., New York City time, on the New York Business
Day next succeeding the date of this Agreement and from time to time, to furnish
the Underwriters with copies of the Prospectus in New York City in such
quantities as you may reasonably request, and, if the delivery of a prospectus
is required at any time prior to the expiration of nine months after the time of
issue of the Prospectus in connection with the offering or sale of the Shares
and if at such time any event shall have occurred as a result of which the
Prospectus as then amended or supplemented would include an untrue statement of
a material fact or omit to state any material fact necessary in order to make
the statements therein, in the light of the circumstances under which they were
made when such Prospectus is delivered, not
-9-
<PAGE>
misleading, or, if for any other reason it shall be necessary during such period
to amend or supplement the Prospectus in order to comply with the Act, to notify
you and upon your request to prepare and furnish without charge to each
Underwriter and to any dealer in securities as many copies as you may from time
to time reasonably request of an amended Prospectus or a supplement to the
Prospectus which will correct such statement or omission or effect such
compliance, and in case any Underwriter is required to deliver a prospectus in
connection with sales of any of the Shares at any time nine months or more after
the time of issue of the Prospectus, upon your request but at the expense of
such Underwriter, to prepare and deliver to such Underwriter as many copies as
you may request of an amended or supplemented Prospectus complying with Section
10(a)(3) of the Act;
(d) To make generally available to its securityholders as soon as
practicable, but in any event not later than eighteen months after the effective
date of the Registration Statement (as defined in Rule 158(c) under the Act), an
earnings statement of the Company and its subsidiaries (which need not be
audited) complying with Section 11(a) of the Act and the rules and regulations
thereunder (including, at the option of the Company, Rule 158);
(e) During the period beginning from the date hereof and continuing to
and including the date 180 days after the date of the Prospectus, not to offer,
sell, contract to sell or otherwise dispose of, except as provided hereunder any
securities of the Company that are substantially similar to the Shares,
including but not limited to any securities that are convertible into or
exchangeable for, or that represent the right to receive, Stock or any such
substantially similar securities (other than pursuant to (i) employee stock
option plans existing on, or upon the conversion or exchange of convertible or
exchangeable securities outstanding as of, the date of this Agreement, or (ii)
private placements of the Company's securities, provided that in the case of
this clause (ii), the Company has obtained written agreements from the persons
receiving such securities substantially to the effect set forth in this
Subsection 5(e) hereof in form and substance satisfactory to you), without your
prior written consent;
(f) To furnish to its stockholders as soon as practicable after the
end of each fiscal year an annual report (including a balance sheet and
statements of income, stockholders' equity and cash flows of the Company and its
consolidated subsidiaries certified by independent public accountants) and, as
soon as practicable after the end of each of the first three quarters of each
fiscal year (beginning with the fiscal quarter ending after the effective date
of the Registration Statement), to make available to its stockholders
consolidated summary financial information of the Company and its subsidiaries
for such quarter in reasonable detail;
(g) During a period of five years from the effective date of the
Registration Statement, to furnish to you copies of all reports or other
communications (financial or other) furnished to stockholders, and to deliver to
you (i) as soon as they are available, copies of any publicly available reports
and financial statements furnished to or filed with the Commission or any
national securities exchange on which any class of securities of the Company is
listed; and (ii) such additional information concerning the business and
financial condition of the Company as you may from time to time reasonably
request (such financial statements to be on a consolidated basis to the extent
the accounts of the Company and its subsidiaries are consolidated in reports
furnished to its stockholders generally or to the Commission);
-10-
<PAGE>
(h) To use the net proceeds received by it from the sale of the Shares
pursuant to this Agreement in the manner specified in the Prospectus under the
caption "Use of Proceeds";
(i) To use its best efforts to list for quotation the Shares on the
Nasdaq National Market ("Nasdaq"); and
(j) To file with the Commission such information on Form 10-Q or Form
10-K as may be required by Rule 463 under the Act; and
(k) If the Company elects to rely upon Rule 462(b), the Company shall
file a Rule 462(b) Registration Statement with the Commission in compliance with
Rule 462(b) by 10:00 P.M., Washington, D.C. time, on the date of this Agreement,
and the Company shall at the time of filing either pay to the Commission the
filing fee for the Rule 462(b) Registration Statement or give irrevocable
instructions for the payment of such fee pursuant to Rule 111(b) under the Act.
(l) The Company will use its best efforts to cause articles of merger
to be filed with the Illinois Secretary of State, a certificate of merger to be
filed with the Secretary of State of Delaware, and such other documents as are
required by the Illinois Business Corporation Act and the Delaware General
Corporation Law to be filed with the Secretary of State of Illinois and the
Secretary of State of Delaware in order to effect the Reincorporation Merger to
be duly filed prior to or concurrently with the First Time of Delivery, and to
cause the Reincorporation Merger to become effective in accordance with all
applicable laws prior to or concurrently with such First Time of Delivery.
(m) Prior to the First Time of Delivery, the Company will deliver to
the counsel for the Underwriters (i) a waiver (collectively, the "Waivers")
signed by each person and entity which possesses any registration rights
pursuant to that certain Eleventh Restated Registration Agreement dated April
16, 1998 (the "Registration Agreement") pursuant to which such person or entity
irrevocably waives (A) any and all rights (whether pursuant Section 2, 3 or 4 of
the Registration Agreement or otherwise) to receive notice of or to have any
securities held by such person or entity registered under the Act pursuant to
the Registration Statement and (B) any and all rights pursuant to Section 2 of
the Registration Agreement to require the Company to file a registration
statement under the Act with the Commission at any time in the future with
respect to any securities held by such person or entity, or (ii) an amendment to
the Registration Agreement having the same effect as the Waivers (the
"Registration Agreement Amendment").
(o) Prior to the First Time of Delivery, the Company will deliver to
the Representatives and counsel for the Underwriters a certificate of good
standing (or the equivalent thereof), dated as of a date within 10 days prior to
the First Time of Delivery, issued by each Governmental Authority which has
jurisdiction over the business of the Company or its subsidiaries in each
jurisdiction in which the Company or its subsidiaries hold a License.
(p) All of the issued and outstanding shares of Series A, B, C, D, F
and G Preferred Stock of the Company will be converted into 2,977,554 shares of
Common Stock at or before the First Time of Delivery.
-11-
<PAGE>
6. The Company covenants and agrees with the several Underwriters
that the Company will pay or cause to be paid the following: (i) the fees,
disbursements and expenses of the Company's counsel and accountants in
connection with the registration of the Shares under the Act and all other
expenses in connection with the preparation, printing and filing of the
Registration Statement, any Preliminary Prospectus and the Prospectus and
amendments and supplements thereto and the mailing and delivering of copies
thereof to the Underwriters and dealers; (ii) the cost of printing or producing
any Agreement among Underwriters, this Agreement, the Blue Sky Memorandum,
closing documents (including any compilations thereof) and any other documents
in connection with the offering, purchase, sale and delivery of the Shares;
(iii) all expenses in connection with the qualification of the Shares for
offering and sale under state securities laws as provided in Section 5(b)
hereof, including the fees and disbursements of counsel for the Underwriters in
connection with such qualification and in connection with the Blue Sky survey;
(iv) all fees and expenses in connection with listing the Shares on Nasdaq; (v)
the filing fees incident to, and the fees and disbursements of counsel for the
Underwriters in connection with, securing any required review by the National
Association of Securities Dealers, Inc. of the terms of the sale of the Shares;
(vi) the cost of preparing stock certificates; (vii) the cost and charges of any
transfer agent or registrar; (viii) all costs and expenses of the Underwriters,
including the fees and disbursements of counsel for the Underwriters, incident
to the offer and sale of Shares by the Underwriters to certain employees and
affiliated persons of the Company and its subsidiaries, and (ix) all other costs
and expenses incident to the performance of its obligations hereunder which are
not otherwise specifically provided for in this Section. It is understood,
however, that, except as provided in this Section, and Sections 8 and 11 hereof,
the Underwriters will pay all of their own costs and expenses, including the
fees of their counsel, stock transfer taxes on resale of any of the Shares by
them, and any advertising expenses connected with any offers they may make.
7. The obligations of the Underwriters hereunder, as to the Shares to
be delivered at each Time of Delivery, shall be subject, in their discretion, to
the condition that all representations and warranties and other statements of
the Company herein are, at and as of such Time of Delivery, true and correct,
the condition that the Company shall have performed all of its obligations
hereunder theretofore to be performed, and the following additional conditions:
(a) The Prospectus shall have been filed with the Commission pursuant
to Rule 424(b) within the applicable time period prescribed for such filing
by the rules and regulations under the Act and in accordance with Section
5(a) hereof; if the Company has elected to rely upon Rule 462(b), the Rule
462(b) Registration Statement shall have become effective by 10:00 P.M.,
Washington, D.C. time, on the date of this Agreement; no stop order
suspending the effectiveness of the Registration Statement or any part
thereof shall have been issued and no proceeding for that purpose shall
have been initiated or threatened by the Commission; and all requests for
additional information on the part of the Commission shall have been
complied with to your reasonable satisfaction;
(b) Sonnenschein Nath & Rosenthal, counsel for the Underwriters, shall
have furnished to you such written opinion or opinions (a draft of each
such opinion is attached as Annex II(a) hereto), dated such Time of
Delivery, with respect to the matters covered in paragraphs (i), (ii),
(viii), (xiii) and (xviii) of subsection (c) below as
-12-
<PAGE>
well as such other related matters as you may reasonably request, and such
counsel shall have received such papers and information as they may
reasonably request to enable them to pass upon such matters;
(c) Gardner, Carton & Douglas, counsel for the Company, shall have
furnished to you their written opinion (a draft of such opinion is attached
as Annex II(b) hereto), dated such Time of Delivery, in form and substance
satisfactory to you, to the effect that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Delaware, with the requisite corporate power and authority to own
its properties and conduct its business as described in the
Prospectus;
(ii) The Company has an authorized capitalization as set forth
in the Prospectus, and all of the issued shares of capital stock of
the Company (including the Shares being delivered at such Time of
Delivery) have been duly and validly authorized and issued and are
fully paid and non-assessable; and the Shares conform to the
description of the Stock contained in the Prospectus;
(iii) The Company has been duly qualified as a foreign
corporation for the transaction of business and is in good standing
under the laws of each other jurisdiction in which it owns or leases
properties or conducts any business so as to require such
qualification or is subject to no material liability or disability by
reason of failure to be so qualified in any such jurisdiction (such
counsel being entitled to rely in respect of the opinion in this
clause upon opinions of local counsel and in respect of matters of
fact upon certificates of officers of the Company, provided that such
counsel shall state that they believe that both you and they are
justified in relying upon such opinions and certificates);
(iv) Each subsidiary of the Company has been duly incorporated
and is validly existing as a corporation in good standing under the
laws of its jurisdiction of incorporation; and all of the issued
shares of capital stock of each such subsidiary have been duly and
validly authorized and issued, are fully paid and non-assessable, and
(except for directors' qualifying shares) are owned directly or
indirectly by the Company, free and clear of all liens, encumbrances,
equities or claims (such counsel being entitled to rely in respect of
the opinion in this clause upon opinions of local counsel and in
respect to matters of fact upon certificates of officers of the
Company or its subsidiaries, provided that such counsel shall state
that they believe that both you and they are justified in relying upon
such opinions and certificates);
(v) Immediately prior to the consummation of the
Reincorporation Merger, Allscripts, Inc. was duly incorporated and
validly existing as a corporation in good standing under the laws of
the State of Illinois and Merger Corp. was duly incorporated and
validly existing as a corporation in good standing under the laws of
the State of Delaware; the execution, delivery and
-13-
<PAGE>
performance of the Merger Agreement and all documents and instruments
executed and delivered in connection with the Reincorporation Merger
were authorized by all necessary corporate action (including, without
limitation, stockholder approval) on the part of each of Allscripts,
Inc. and Merger Corp.; to the best of such counsel's knowledge, all
consents, approvals, authorizations, orders, Licenses, certificates,
permits, registrations or qualifications required to be obtained in
connection with the Reincorporation Merger were obtained, other than
such consents, approvals, authorizations, orders, Licenses,
certificates, permits, registrations or qualifications which,
individually or in the aggregate, would not have a Material Adverse
Effect; the Reincorporation Merger did not and will not (i) conflict
with or result in a breach or violation of any of terms or provisions
of, or constitute a default under, any indenture, mortgage, deed of
trust, loan agreement or other agreement or instrument known to such
counsel to which Merger Corp., the Company or any of its subsidiaries
was or is bound or to which any of the property or assets of Merger
Corp., the Company or any of its subsidiaries was or is subject, (ii)
result in any violation of the provisions of the Certificate of
Incorporation or By-laws of Merger Corp., the Company or any of its
subsidiaries or (iii) result in any violation of the provisions of any
statute or any order, rule or regulation known to such counsel of any
court or Governmental Authority having jurisdiction over Merger Corp.,
the Company or any of its subsidiaries or any of their properties,
other than, in the case of clauses (i) and (iii) above, such
conflicts, breaches, violations or defaults that, individually or in
the aggregate, would not have a Material Adverse Effect; articles of
merger and a certificate of merger and such other documents as are
required by the Illinois Business Corporation Act and the Delaware
General Corporation Law to be filed with the Secretary of State of
Illinois and the Secretary of State of Delaware have been duly filed,
and the Reincorporation Merger became effective in accordance with all
applicable laws;
(vi) The Company and its subsidiaries have good and
marketable title in fee simple to all real property owned by them, in
each case free and clear of all liens, encumbrances and defects except
such as are described in the Prospectus or such as do not materially
affect the value of such property and do not interfere with the use
made and proposed to be made of such property by the Company and its
subsidiaries; and any real property and buildings held under lease by
the Company and its subsidiaries are held by them under valid,
subsisting and enforceable leases with such exceptions as are not
material and do not interfere with the use made and proposed to be
made of such property and buildings by the Company and its
subsidiaries (in giving the opinion in this clause, such counsel may
state that no examination of record titles for the purpose of such
opinion has been made, and that they are relying upon a general review
of the titles of the Company and its subsidiaries, upon opinions of
local counsel and abstracts, reports and policies of title companies
rendered or issued at or subsequent to the time of acquisition of such
property by the Company or its subsidiaries, upon opinions of counsel
to the lessors of such property and, in respect to matters of fact,
upon certificates of officers of the Company or its subsidiaries,
provided that such counsel shall state that they
-14-
<PAGE>
believe that both you and they are justified in relying upon such
opinions, abstracts, reports, policies and certificates);
(vii) To the best of such counsel's knowledge and other than
as set forth in the Prospectus, there are no legal or governmental
proceedings pending to which the Company or any of its subsidiaries is
a party or of which any property of the Company or any of its
subsidiaries is the subject which could individually or in the
aggregate reasonably be expected to have a Material Adverse Effect;
and, to the best of such counsel's knowledge, no such proceedings are
threatened or contemplated by Governmental Authorities or threatened
by others;
(viii) This Agreement has been duly authorized, executed and
delivered by the Company;
(ix) The issue and sale of the Shares being delivered at such
Time of Delivery by the Company and the compliance by the Company with
all of the provisions of this Agreement and the consummation of the
transactions herein contemplated will not conflict with or result in a
breach or violation of any of the terms or provisions of, or
constitute a default under, any indenture, mortgage, deed of trust,
loan agreement or other agreement or instrument known to such counsel
to which the Company or any of its subsidiaries is a party or by which
the Company or any of its subsidiaries is bound or to which any of the
property or assets of the Company or any of its subsidiaries is
subject, nor will such action result in any violation of the
provisions of the Certificate of Incorporation or By-laws of the
Company or any statute or any order, rule or regulation known to such
counsel of any court or Governmental Authority having jurisdiction
over the Company or any of its subsidiaries or any of their
properties;
(x) No consent, approval, authorization, order, registration
or qualification of or with any such court or Governmental Authority
is required for the issue and sale of the Shares or the consummation
by the Company of the transactions contemplated by this Agreement,
except the registration under the Act of the Shares, and such
consents, approvals, authorizations, registrations or qualifications
as may be required under state securities or Blue Sky laws in
connection with the purchase and distribution of the Shares by the
Underwriters;
(xi) Neither the Company nor any of its subsidiaries is in
violation of its Certificate of Incorporation or By-laws or, to the
best knowledge of such counsel, is in default in the performance or
observance of any material obligation, agreement, covenant or
condition contained in any indenture, mortgage, deed of trust, loan
agreement, lease or other agreement or instrument to which it is a
party or by which it or any of its properties may be bound;
-15-
<PAGE>
(xii) The statements set forth in the Prospectus under the
caption "Description of Capital Stock", insofar as they purport to
constitute a summary of the terms of the Stock, under the captions
"Risk Factors -- We may have substantial sales of our common stock
after the Offering," "Management --Employment and Other Agreements,"
"-- Employee Benefit Plans," "Certain Relationships and Related Party
Transactions," "Shares Eligible for Future Sale," and "Underwriting",
insofar as they purport to describe the provisions of the laws and
documents referred to therein, are accurate and fair;
(xiii) The Company is not an "investment company", as such term
is defined in the Investment Company Act;
(xiv) Except as disclosed in the Prospectus, no person has the
right, contractual or otherwise, to cause the Company or any of its
subsidiaries to issue, or register pursuant to the Act, any shares of
capital stock of the Company, or any of its subsidiaries, upon the
issue and sale of the Shares to be sold by the Company to the
Underwriters pursuant to this Agreement;
(xv) The Company together with its subsidiaries owns and
possesses all right, title and interest in and to, or has duly
licensed from third parties a valid, enforceable right to use, all
Patent and Proprietary Rights currently or proposed in the Prospectus
to be employed by it in connection with its business; and to the best
knowledge of such counsel after due inquiry, neither the Company nor
any of its subsidiaries has received any notice of infringement or
misappropriation of, or conflict with, asserted rights of others with
respect to any Patent or Proprietary Rights, and such counsel is not
aware of any facts which could reasonably be expected to render any
Patent or Proprietary Rights invalid or inadequate to protect the
interest of the Company or its subsidiaries therein, or which could
reasonably be expected to give rise to a valid claim of infringement
or misappropriation by the Company or its subsidiaries of the Patent
and Proprietary Rights of others, and which infringement,
misappropriation or conflict or invalidity or inadequacy, individually
or in the aggregate, would or could reasonably be expected to have a
Material Adverse Effect;
(xvi) The Registration Statement and the Prospectus and any
further amendments and supplements thereto made by the Company prior
to such Time of Delivery (other than the financial statements and
related schedules therein, as to which such counsel need express no
opinion) comply as to form in all material respects with the
requirements of the Act and the rules and regulations thereunder;
although they do not assume any responsibility for the accuracy,
completeness or fairness of the statements contained in the
Registration Statement or the Prospectus, except for those referred to
in the opinion in subsection (xii) of this section 7(c), they have no
reason to believe that, as of its effective date, the Registration
Statement or any further amendment thereto made by the Company prior
to such Time of Delivery (other than the financial statements and
related schedules therein, as to which such counsel need express no
opinion) contained an untrue statement of a material
-16-
<PAGE>
fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading or that, as
of its date, the Prospectus or any further amendment or supplement
thereto made by the Company prior to such Time of Delivery (other than
the financial statements and related schedules therein, as to which
such counsel need express no opinion) contained an untrue statement of
a material fact or omitted to state a material fact necessary to make
the statements therein, in the light of the circumstances under which
they were made, not misleading or that, as of such Time of Delivery,
either the Registration Statement or the Prospectus or any further
amendment or supplement thereto made by the Company prior to such Time
of Delivery (other than the financial statements and related schedules
therein, as to which such counsel need express no opinion) contains an
untrue statement of a material fact or omits to state a material fact
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; and they do
not know of any amendment to the Registration Statement required to be
filed or of any contracts or other documents of a character required
to be filed as an exhibit to the Registration Statement or required to
be described in the Registration Statement or the Prospectus which are
not filed or described as required.
(d) Green, Stewart, Farber & Anderson, P.C., counsel for the Company,
shall have furnished to you their written opinion, dated such Time of
Delivery, in form and substance satisfactory to you, to the effect that:
(i) The statements set forth in the Prospectus under the
captions "Risk Factors -- We are subject to government regulation and
legal uncertainties" and "Business -- Government Regulation," insofar
as they purport to describe the provisions of the laws and documents
referred to therein, are accurate, complete and fair;
(ii) The conduct of the business of the Company and each of
its subsidiaries is in compliance in all respects with applicable
federal, state, local and foreign laws and regulations (including laws
and regulations which regulate (a) the dispensing of pharmaceuticals
and controlled substances, (b) the licensure of persons or entities
which engage in the business of repackaging, and selling and/or
dispensing, on a wholesale or retail basis, pharmaceuticals and
controlled substances, (c) the licensure of persons or entities which
engage in the practice of medicine or osteopathy, (d) the submission
of claims to third party payors, including the Medicare and Medicaid
programs, for pharmaceuticals and controlled substances provided to
their beneficiaries including, without limitation, the Medicare and
Medicaid Anti-Fraud and Abuse Amendments, 42 U.S.C. (S)(S) 1320a-7
through 1320a-8, and the Ethics in Patient Referral Act, 42 U.S.C. (S)
1395nn, (e) the disclosure of confidential information regarding the
medical records, conditions and treatments of individual patients and
(f) the disposal of medical waste), except where the failure to be in
compliance would not, individually or in the aggregate, have a
Material Adverse Effect; and
-17-
<PAGE>
(iii) The Company and each of its subsidiaries have obtained
all Licenses required by any Governmental Authority to properly and
legally operate or conduct the businesses in which it is engaged on
the date of such opinion and which are necessary for the successful
conduct of its business as it is conducted and proposed in the
Prospectus to be conducted, and each such License has been duly
obtained, is valid and in full force and effect. To the best of such
counsel's knowledge, none of the Company or any of its subsidiaries
(a) is subject to any pending or threatened administrative or judicial
proceeding to revoke, cancel or declare any License granted to it
invalid in any respect, (b) is acting outside the scope and authority
granted to it pursuant to any such License, or otherwise is in default
or in violation with respect to any such License, and no event has
occurred which constitutes, or with due notice or lapse of time or
both may constitute, a default by it or a violation of, any License
and (c) has permitted any License granted to it to lapse since its
original effective date, except for any such lapses which did not,
individually or in the aggregate, have a Material Adverse Effect.
In rendering opinions (ii) and (iii) above, such counsel may state
that with respect to jurisdictions other than federal, Illinois and
jurisdictions in which such counsel is licensed, such opinion is based on
their examination of the most recent service compilations available of the
laws of the jurisdictions in question, the published rules or regulations,
if any, of the officials administering such laws, and the case law as to
which such counsel has actual knowledge. Such counsel may rely upon the
opinion of Arent Fox Kintner Plotkin & Kahn as to matters relating to
compliance with laws and regulations administered by the Food & Drug
Administration. Such counsel may also rely upon the opinion of competent
local counsel satisfactory to counsel to the Underwriters as to matters
arising under the laws of jurisdictions other than federal, Illinois and
states in which such counsel is licensed.
(e) On the date of the Prospectus at a time prior to the execution of
this Agreement, at 9:30 a.m., New York City time, on the effective date of
any post-effective amendment to the Registration Statement filed subsequent
to the date of this Agreement and also at each Time of Delivery,
PricewaterhouseCoopers LLP shall have furnished to you a letter or letters,
dated the respective dates of delivery thereof, in form and substance
satisfactory to you, to the effect set forth in Annex I hereto (the
executed copy of the letter delivered prior to the execution of this
Agreement is attached as Annex I(a) hereto and a draft of the form of
letter to be delivered on the effective date of any post-effective
amendment to the Registration Statement and as of each Time of Delivery is
attached as Annex I(b) hereto);
(f) (i) Neither the Company nor any of its subsidiaries shall have
sustained since the date of the latest audited financial statements
included in the Prospectus any loss or interference with its business from
fire, explosion, flood or other calamity, whether or not covered by
insurance, or from any labor dispute or court or governmental action, order
or decree, otherwise than as set forth or contemplated in the Prospectus,
and (ii) since the respective dates as of which information is given in the
Prospectus there shall not have been any change in the capital stock or
long-term debt of the Company or any of its subsidiaries or any change, or
any development involving a prospective change, in or affecting the general
affairs, management, financial position, stockholders' equity or results of
operations of the Company and its
-18-
<PAGE>
subsidiaries, otherwise than as set forth or contemplated in the
Prospectus, the effect of which, in any such case described in clause (i)
or (ii), is in the judgment of the Representatives so material and adverse
as to make it impracticable or inadvisable to proceed with the public
offering or the delivery of the Shares being delivered at such Time of
Delivery on the terms and in the manner contemplated in the Prospectus;
(g) On or after the date hereof (i) no downgrading shall have occurred
in the rating accorded the Company's debt securities or preferred stock by
any "nationally recognized statistical rating organization", as that term
is defined by the Commission for purposes of Rule 436(g)(2) under the Act,
and (ii) no such organization shall have publicly announced that it has
under surveillance or review, with possible negative implications, its
rating of any of the Company's debt securities or preferred stock;
(h) On or after the date hereof there shall not have occurred any of
the following: (i) a suspension or material limitation in trading in
securities generally on the New York Stock Exchange or on Nasdaq; (ii) a
suspension or material limitation in trading in the Company's securities on
Nasdaq; (iii) a general moratorium on commercial banking activities
declared by either Federal, New York or Illinois State authorities; or (iv)
the outbreak or escalation of hostilities involving the United States or
the declaration by the United States of a national emergency or war, if the
effect of any such event specified in this clause (iv) in the judgment of
the Representatives makes it impracticable or inadvisable to proceed with
the public offering or the delivery of the Shares being delivered at such
Time of Delivery on the terms and in the manner contemplated in the
Prospectus;
(i) The Shares to be sold at such Time of Delivery shall have been
duly listed for quotation on Nasdaq; and
(j) The Company has obtained and delivered to the Underwriters
executed copies of agreements from all officers, directors and key
employees named in the Prospectus, certain other employees of the Company
who are securityholders, and all persons who will beneficially own or have
the right to acquire 1.0% or more of the outstanding Shares immediately
after the First Time of Delivery (assuming no exercise of the Underwriters'
over-allotment option), substantially to the effect set forth in Subsection
5(e) hereof in form and substance satisfactory to you;
(k) The Company shall have complied with the provisions of Section
5(c) hereof with respect to the furnishing of prospectuses on the New York
Business Day next succeeding the date of this Agreement;
(l) The Company shall have furnished or caused to be furnished to you
at such Time of Delivery certificates of officers of the Company
satisfactory to you as to the accuracy of the representations and
warranties of the Company herein at and as of such Time of Delivery, as to
the performance by the Company of all of its obligations hereunder to be
performed at or prior to such Time of Delivery, as to the matters set forth
in subsections (a) and (e) of this Section and as to such other matters as
you may reasonably request;
-19-
<PAGE>
(m) The Reincorporation Merger shall have became effective in
accordance with all applicable laws. Articles of merger shall have been
filed with the Illinois Secretary of State, a certificate of merger shall
have been filed with the Secretary of State of Delaware, and such other
documents as are required by the Illinois Business Corporation Act and the
Delaware General Corporation Law to be filed with the Secretary of State of
Illinois and the Secretary of State of Delaware in order to effect the
Reincorporation Merger shall have been filed and evidence of such filings
satisfactory to counsel to the Underwriters shall have been delivered to
such counsel; and
(n) The Company shall have delivered duly executed Waivers from each
person possessing registration rights pursuant to the Registration
Agreement, or a duly executed copy of the Registration Agreement Amendment.
8. (a) The Company will indemnify and hold harmless each Underwriter
against any losses, claims, damages or liabilities, joint or several, to which
such Underwriter may become subject, under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon an untrue statement or alleged untrue statement of a
material fact contained in any Preliminary Prospectus, the Registration
Statement or the Prospectus, or any amendment or supplement thereto, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse each Underwriter for any legal or
other expenses reasonably incurred by such Underwriter in connection with
investigating or defending any such action or claim as such expenses are
incurred; provided, however, that the Company shall not be liable in any such
case to the extent that any such loss, claim, damage or liability arises out of
or is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in any Preliminary Prospectus, the Registration Statement
or the Prospectus or any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by any Underwriter
through Goldman, Sachs & Co. expressly for use therein.
(b) Each Underwriter will indemnify and hold harmless the Company against
any losses, claims, damages or liabilities to which the Company may become
subject, under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon an
untrue statement or alleged untrue statement of a material fact contained in any
Preliminary Prospectus, the Registration Statement or the Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in each case
to the extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission was made in any Preliminary
Prospectus, the Registration Statement or the Prospectus or any such amendment
or supplement in reliance upon and in conformity with written information
furnished to the Company by such Underwriter through Goldman, Sachs & Co.
expressly for use therein; and will reimburse the Company for any legal or other
expenses reasonably incurred by the Company in connection with investigating or
defending any such action or claim as such expenses are incurred.
-20-
<PAGE>
(c) Promptly after receipt by an indemnified party under subsection (a) or
(b) above of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against the indemnifying
party under such subsection, notify the indemnifying party in writing of the
commencement thereof; but the omission so to notify the indemnifying party shall
not relieve it from any liability which it may have to any indemnified party
otherwise than under such subsection. In case any such action shall be brought
against any indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate
therein and, to the extent that it shall wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel satisfactory to such indemnified party (who shall not, except with the
consent of the indemnified party, be counsel to the indemnifying party), and,
after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party shall not be
liable to such indemnified party under such subsection for any legal expenses of
other counsel or any other expenses, in each case subsequently incurred by such
indemnified party, in connection with the defense thereof other than reasonable
costs of investigation. No indemnifying party shall, without the written
consent of the indemnified party, effect the settlement or compromise of, or
consent to the entry of any judgment with respect to, any pending or threatened
action or claim in respect of which indemnification or contribution may be
sought hereunder (whether or not the indemnified party is an actual or potential
party to such action or claim) unless such settlement, compromise or judgment
(i) includes an unconditional release of the indemnified party from all
liability arising out of such action or claim and (ii) does not include a
statement as to or an admission of fault, culpability or a failure to act, by or
on behalf of any indemnified party.
(d) If the indemnification provided for in this Section 8 is unavailable to
or insufficient to hold harmless an indemnified party under subsection (a) or
(b) above in respect of any losses, claims, damages or liabilities (or actions
in respect thereof) referred to therein, then each indemnifying party shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages or liabilities (or actions in respect thereof)
in such proportion as is appropriate to reflect the relative benefits received
by the Company on the one hand and the Underwriters on the other from the
offering of the Shares. If, however, the allocation provided by the immediately
preceding sentence is not permitted by applicable law or if the indemnified
party failed to give the notice required under subsection (c) above, then each
indemnifying party shall contribute to such amount paid or payable by such
indemnified party in such proportion as is appropriate to reflect not only such
relative benefits but also the relative fault of the Company on the one hand and
the Underwriters on the other in connection with the statements or omissions
which resulted in such losses, claims, damages or liabilities (or actions in
respect thereof), as well as any other relevant equitable considerations. The
relative benefits received by the Company on the one hand and the Underwriters
on the other shall be deemed to be in the same proportion as the total net
proceeds from the offering (before deducting expenses) received by the Company
bear to the total underwriting discounts and commissions received by the
Underwriters, in each case as set forth in the table on the cover page of the
Prospectus. The relative fault 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 the Company on the one hand or the Underwriters on the other and the
parties' relative intent, knowledge, access to information and opportunity to
correct or
-21-
<PAGE>
prevent such statement or omission. The Company and the Underwriters agree that
it would not be just and equitable if contributions pursuant to this subsection
(d) were determined by pro rata allocation (even if the Underwriters were
treated as one entity for such purpose) or by any other method of allocation
which does not take account of the equitable considerations referred to above in
this subsection (d). The amount paid or payable by an indemnified party as a
result of the losses, claims, damages or liabilities (or actions in respect
thereof) referred to above in this subsection (d) shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this subsection (d), no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Shares underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages which such Underwriter
has otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this subsection (d) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
(e) The obligations of the Company under this Section 8 shall be in
addition to any liability which the Company may otherwise have and shall extend,
upon the same terms and conditions, to each person, if any, who controls any
Underwriter within the meaning of the Act; and the obligations of the
Underwriters under this Section 8 shall be in addition to any liability which
the respective Underwriters may otherwise have and shall extend, upon the same
terms and conditions, to each officer and director of the Company (including any
person who, with his or her consent, is named in the Registration Statement as
about to become a director of the Company) and to each person, if any, who
controls the Company within the meaning of the Act.
9. (a) If any Underwriter shall default in its obligation to purchase the
Shares which it has agreed to purchase hereunder at a Time of Delivery, you may
in your discretion arrange for you or another party or other parties to purchase
such Shares on the terms contained herein. If within thirty-six hours after such
default by any Underwriter you do not arrange for the purchase of such Shares,
then the Company shall be entitled to a further period of thirty-six hours
within which to procure another party or other parties satisfactory to you to
purchase such Shares on such terms. In the event that, within the respective
prescribed periods, you notify the Company that you have so arranged for the
purchase of such Shares, or the Company notifies you that it has so arranged for
the purchase of such Shares, you or the Company shall have the right to postpone
such Time of Delivery for a period of not more than seven days, in order to
effect whatever changes may thereby be made necessary in the Registration
Statement or the Prospectus, or in any other documents or arrangements, and the
Company agrees to file promptly any amendments to the Registration Statement or
the Prospectus which in your opinion may thereby be made necessary. The term
"Underwriter" as used in this Agreement shall include any person substituted
under this Section with like effect as if such person had originally been a
party to this Agreement with respect to such Shares.
(b) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters by you and the Company as
provided in subsection (a)
-22-
<PAGE>
above, the aggregate number of such Shares which remains unpurchased does not
exceed one-eleventh of the aggregate number of all the Shares to be purchased at
such Time of Delivery, then the Company shall have the right to require each
non-defaulting Underwriter to purchase the number of shares which such
Underwriter agreed to purchase hereunder at such Time of Delivery and, in
addition, to require each non-defaulting Underwriter to purchase its pro rata
share (based on the number of Shares which such Underwriter agreed to purchase
hereunder) of the Shares of such defaulting Underwriter or Underwriters for
which such arrangements have not been made; but nothing herein shall relieve a
defaulting Underwriter from liability for its default.
(c) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters by you and the Company as
provided in subsection (a) above, the aggregate number of such Shares which
remains unpurchased exceeds one-eleventh of the aggregate number of all the
Shares to be purchased at such Time of Delivery, or if the Company shall not
exercise the right described in subsection (b) above to require non-defaulting
Underwriters to purchase Shares of a defaulting Underwriter or Underwriters,
then this Agreement (or, with respect to the Second Time of Delivery, the
obligations of the Underwriters to purchase and of the Company to sell the
Optional Shares shall thereupon terminate, without liability on the part of any
non-defaulting Underwriter or the Company, except for the expenses to be borne
by the Company and the Underwriters as provided in Section 6 hereof and the
indemnity and contribution agreements in Section 8 hereof; but nothing herein
shall relieve a defaulting Underwriter from liability for its default.
10. The respective indemnities, agreements, representations, warranties
and other statements of the Company and the several Underwriters, as set forth
in this Agreement or made by or on behalf of them, respectively, pursuant to
this Agreement, shall remain in full force and effect, regardless of any
investigation (or any statement as to the results thereof) made by or on behalf
of any Underwriter or any controlling person of any Underwriter, or the Company,
or any officer or director or controlling person of the Company, and shall
survive delivery of and payment for the Shares.
11. If this Agreement shall be terminated pursuant to Section 9 hereof,
the Company shall not then be under any liability to any Underwriter except as
provided in Sections 6 and 8 hereof; but, if for any other reason, any Shares
are not delivered by or on behalf of the Company as provided herein, the Company
will reimburse the Underwriters through you for all out-of-pocket expenses
approved in writing by you, including fees and disbursements of counsel,
reasonably incurred by the Underwriters in making preparations for the purchase,
sale and delivery of the Shares not so delivered, but the Company shall then be
under no further liability to any Underwriter except as provided in Sections 6
and 8 hereof.
12. In all dealings hereunder, you shall act on behalf of each of the
Underwriters, and the parties hereto shall be entitled to act and rely upon any
statement, request, notice or agreement on behalf of any Underwriter made or
given by you jointly or by Goldman, Sachs & Co. on behalf of you as the
representatives.
All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Underwriters shall be delivered or sent by mail, telex or
facsimile transmission to you as the representatives in care of Goldman, Sachs &
Co., 32 Old Slip, 21st Floor, New York,
-23-
<PAGE>
New York 10005, Attention: Registration Department; and if to the Company shall
be delivered or sent by mail to the address of the Company set forth in the
Registration Statement, Attention: Secretary; provided, however, that any notice
to an Underwriter pursuant to Section 8(c) hereof shall be delivered or sent by
mail, telex or facsimile transmission to such Underwriter at its address set
forth in its Underwriters' Questionnaire, or telex constituting such
Questionnaire, which address will be supplied to the Company by you upon
request. Any such statements, requests, notices or agreements shall take effect
upon receipt thereof.
13. This Agreement shall be binding upon, and inure solely to the benefit
of, the Underwriters, the Company and, to the extent provided in Sections 8 and
10 hereof, the officers and directors of the Company and each person who
controls the Company or any Underwriter, and their respective heirs, executors,
administrators, successors and assigns, and no other person shall acquire or
have any right under or by virtue of this Agreement. No purchaser of any of the
Shares from any Underwriter shall be deemed a successor or assign by reason
merely of such purchase.
14. Time shall be of the essence of this Agreement. As used herein, the
term "business day" shall mean any day when the Commission's office in
Washington, D.C. is open for business.
15. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK.
16. This Agreement may be executed by any one or more of the parties
hereto in any number of counterparts, each of which shall be deemed to be an
original, but all such counterparts shall together constitute one and the same
instrument.
-24-
<PAGE>
If the foregoing is in accordance with your understanding, please sign and
return to us six counterparts hereof, and upon the acceptance hereof by you, on
behalf of each of the Underwriters, this letter and such acceptance hereof shall
constitute a binding agreement between each of the Underwriters and the Company.
It is understood that your acceptance of this letter on behalf of each of the
Underwriters is pursuant to the authority set forth in a form of Agreement among
Underwriters, the form of which shall be submitted to the Company for
examination upon request, but without warranty on your part as to the authority
of the signers thereof.
Very truly yours,
ALLSCRIPTS, INC.
By: ________________________________
Name:
Title:
Accepted as of the date hereof:
Goldman, Sachs & Co.
Bear, Stearns & Co. Inc.
CIBC World Markets Corp.
By: _______________________________________
(Goldman, Sachs & Co.)
On behalf of each of the Underwriters
-25-
<PAGE>
SCHEDULE I
NUMBER OF OPTIONAL
SHARES TO BE
TOTAL NUMBER OF PURCHASED IF
FIRM SHARES MAXIMUM OPTION
UNDERWRITER TO BE PURCHASED EXERCISED
- -------------------------- --------------- ------------------
Goldman, Sachs & Co.......
Bear, Stearns & Co. Inc...
CIBC World Markets Corp...
--------------- ------------------
Total................
=============== ==================
-26-
<PAGE>
ANNEX I
Pursuant to Section 7(d) of the Underwriting Agreement, the accountants shall
furnish letters to the Underwriters to the effect that:
(i) They are independent certified public accountants with respect
to the Company and its subsidiaries within the meaning of the Act and the
applicable published rules and regulations thereunder;
(ii) In their opinion, the financial statements and any
supplementary financial information and schedules (and, if applicable,
financial forecasts and/or pro forma financial information) examined by
them and included in the Prospectus or the Registration Statement comply as
to form in all material respects with the applicable accounting
requirements of the Act and the related published rules and regulations
thereunder; and, if applicable, they have made a review in accordance with
standards established by the American Institute of Certified Public
Accountants of the unaudited consolidated interim financial statements,
selected financial data, pro forma financial information, financial
forecasts and/or condensed financial statements derived from audited
financial statements of the Company for the periods specified in such
letter, as indicated in their reports thereon, copies of which have been
separately furnished to the representatives of the Underwriters (the
"Representatives");
(iii) They have made a review in accordance with standards
established by the American Institute of Certified Public Accountants of
the unaudited condensed consolidated statements of income, consolidated
balance sheets and consolidated statements of cash flows included in the
Prospectus as indicated in their reports thereon copies of which have been
separately furnished to the Representatives and on the basis of specified
procedures including inquiries of officials of the Company who have
responsibility for financial and accounting matters regarding whether the
unaudited condensed consolidated financial statements referred to in
paragraph (vi)(A)(i) below comply as to form in all material respects with
the applicable accounting requirements of the Act and the related published
rules and regulations, nothing came to their attention that cause them to
believe that the unaudited condensed consolidated financial statements do
not comply as to form in all material respects with the applicable
accounting requirements of the Act and the related published rules and
regulations;
(iv) The unaudited selected financial information with respect to
the consolidated results of operations and financial position of the
Company for the five most recent fiscal years included in the Prospectus
agrees with the corresponding amounts (after restatements where applicable)
in the audited consolidated financial statements for such five fiscal
years;
(v) They have compared the information in the Prospectus under
selected captions with the disclosure requirements of Regulation S-K and on
the basis of limited procedures specified in such letter nothing came to
their attention as a result of the foregoing procedures that caused them to
believe that this information does not
-27-
<PAGE>
conform in all material respects with the disclosure requirements of Items
301, 302, and 402, respectively, of Regulation S-K;
(vi) On the basis of limited procedures, not constituting an
examination in accordance with generally accepted auditing standards,
consisting of a reading of the unaudited financial statements and other
information referred to below, a reading of the latest available interim
financial statements of the Company and its subsidiaries, inspection of the
minute books of the Company and its subsidiaries since the date of the
latest audited financial statements included in the Prospectus, inquiries
of officials of the Company and its subsidiaries responsible for financial
and accounting matters and such other inquiries and procedures as may be
specified in such letter, nothing came to their attention that caused them
to believe that:
(A) (i) the unaudited consolidated statements of income,
consolidated balance sheets and consolidated statements of cash flows
included in the Prospectus do not comply as to form in all material
respects with the applicable accounting requirements of the Act and
the related published rules and regulations, or (ii) any material
modifications should be made to the unaudited condensed consolidated
statements of income, consolidated balance sheets and consolidated
statements of cash flows included in the Prospectus for them to be in
conformity with generally accepted accounting principles;
(B) any other unaudited income statement data and balance sheet
items included in the Prospectus do not agree with the corresponding
items in the unaudited consolidated financial statements from which
such data and items were derived, and any such unaudited data and
items were not determined on a basis substantially consistent with the
basis for the corresponding amounts in the audited consolidated
financial statements included in the Prospectus;
(C) the unaudited financial statements which were not included
in the Prospectus but from which were derived any unaudited condensed
financial statements referred to in clause (A) and any unaudited
income statement data and balance sheet items included in the
Prospectus and referred to in clause (B) were not determined on a
basis substantially consistent with the basis for the audited
consolidated financial statements included in the Prospectus;
(D) any unaudited pro forma consolidated condensed financial
statements included in the Prospectus do not comply as to form in all
material respects with the applicable accounting requirements of the
Act and the published rules and regulations thereunder or the pro
forma adjustments have not been properly applied to the historical
amounts in the compilation of those statements;
(E) as of a specified date not more than five days prior to the
date of such letter, there have been any changes in the consolidated
capital stock (other than issuances of capital stock upon exercise of
options and stock
-28-
<PAGE>
appreciation rights, upon earn-outs of performance shares and upon
conversions of convertible securities, in each case which were
outstanding on the date of the latest financial statements included in
the Prospectus) or any increase in the consolidated long-term debt of
the Company and its subsidiaries, or any decreases in consolidated net
current assets or stockholders' equity or other items specified by the
Representatives, or any increases in any items specified by the
Representatives, in each case as compared with amounts shown in the
latest balance sheet included in the Prospectus, except in each case
for changes, increases or decreases which the Prospectus discloses
have occurred or may occur or which are described in such letter; and
(F) for the period from the date of the latest financial
statements included in the Prospectus to the specified date referred
to in clause (E) there were any decreases in consolidated net revenues
or operating profit or the total or per share amounts of consolidated
net income or other items specified by the Representatives, or any
increases in any items specified by the Representatives, in each case
as compared with the comparable period of the preceding year and with
any other period of corresponding length specified by the
Representatives, except in each case for decreases or increases which
the Prospectus discloses have occurred or may occur or which are
described in such letter; and
(vii) In addition to the examination referred to in their report(s)
included in the Prospectus and the limited procedures, inspection of minute
books, inquiries and other procedures referred to in paragraphs (iii) and
(vi) above, they have carried out certain specified procedures, not
constituting an examination in accordance with generally accepted auditing
standards, with respect to certain amounts, percentages and financial
information specified by the Representatives, which are derived from the
general accounting records of the Company and its subsidiaries, which
appear in the Prospectus, or in Part II of, or in exhibits and schedules
to, the Registration Statement specified by the Representatives, and have
compared certain of such amounts, percentages and financial information
with the accounting records of the Company and its subsidiaries and have
found them to be in agreement.
-29-
<PAGE>
ASSET PURCHASE AGREEMENT
BY AND AMONG
ALLSCRIPTS, INC.
AND
PHARMACARE MANAGEMENT SERVICES, INC.,
PHARMACARE DIRECT, INC.,
AND
PROCARE PHARMACY, INC.
DATED AS OF MARCH 19, 1999
<PAGE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT is entered into as of March 19, 1999, by
and among ALLSCRIPTS, INC., an Illinois corporation ("Seller"), and PHARMACARE
MANAGEMENT SERVICES, INC., a Delaware corporation ("PharmaCare"), PHARMACARE
DIRECT, INC., a Delaware corporation ("PharmaCare Direct"), and PROCARE
PHARMACY, INC., a Rhode Island corporation ("CVS ProCare") (each a "Buyer" and
collectively "Buyers"). The Buyers and the Seller are referred to collectively
herein as the "Parties".
RECITALS
--------
A. Seller owns certain assets used in the conduct of the business of
its Pharmacy Benefit Management Division.
B. Buyers desire to purchase from Seller, and Seller desires to sell
to Buyers, substantially all of such assets of the Pharmacy Benefit Management
Division (excluding Accounts Receivable) upon the terms and subject to the
conditions of this Agreement.
AGREEMENT
---------
NOW THEREFORE, in consideration of the mutual covenants,
representations and premises contained herein and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
Parties hereto agree as follows:
ARTICLE I.
DEFINITIONS
-----------
1.1. CERTAIN DEFINED TERMS. As used herein, the terms below shall
---------------------
have the following meanings. Any of such terms, unless the context otherwise
requires, may be used in the singular or plural, depending upon the reference.
"ACCOUNT RECEIVABLE" shall mean any account or note receivable,
whether billed or unbilled (but with respect to such unbilled receivables, only
to the extent billed within ninety (90) days after Closing), whether current or
noncurrent, arising out of the sale of goods or provision of services and other
benefits by the Division on or before the Closing Date.
"AFFILIATE" shall have the meaning set forth in the Securities
Exchange Act of 1934, as amended, and the rules and regulations thereunder.
"ASSETS" shall mean all of Seller's right, title and interest in and
to the properties, assets and rights of any kind, whether tangible or
intangible, real or personal, that are used or held for use in the business of
the Division, including without limitation, all of Seller's right, title and
interest in the following:
(a) all rights under all Contracts and Leases, including goodwill
associated therewith, other than (i) Contracts pursuant to which Seller has
rights that are utilized by Seller to any significant degree
<PAGE>
other than in the operation of the Division (such excluded Contracts being
referred to herein as "Company-Wide Contracts"), and (ii) Affiliate Contracts;
(b) all leasehold improvements of the Division;
(c) all Fixtures and Equipment;
(d) Inventory, to the extent purchased by Buyers pursuant to Section
2.3(b);
(e) all Books and Records;
(f) all Proprietary Rights, including goodwill associated therewith,
other than Proprietary Rights utilized by Seller to any significant degree other
than in the operation of the Division (such excluded Proprietary Rights being
referred to herein as "Company-Wide Proprietary Rights"), and all know-how of
the Division;
(g) all Permits to the extent transferable;
(h) the computer hardware, software and databases of the Division
that are identified on Schedule A;
----------
(i) deposits of customers of the Division that have been made to pre-
fund payments to pharmacies; and
(j) all claims, causes of action, choses in action, rights of
recovery and rights of set-off of any kind, against any person or entity, except
to the extent they relate to Excluded Assets or Excluded Liabilities;
but excluding therefrom the Excluded Assets.
"ASSUMED LIABILITIES" shall mean:
(a) all obligations of the Division under the Contracts, Leases and
other arrangements included in the definition of Assets either (i) to furnish
goods, services, and other benefits to another party after the Closing or (ii)
to pay for goods, services, and other benefits that another party will furnish
to it after the Closing;
(b) all liabilities for vacation entitlements through the Closing
Date of Rehired Employees (as defined in Section 7.6(a) hereof);
(c) any obligation of Seller to Teachers Insurance and Annuity
Association for the difference between the holdover rent and the regular rent
for Seller's Columbus, Ohio facility from February 1, 1999 through the Closing
Date; and
(d) obligations of the Division, if any, to repay advance co-payments
made by customers of the Division for prescription orders which the Division has
not filled as of the Closing;
provided, however, that the Assumed Liabilities shall not include any
- -------- -------
liabilities other than those enumerated above including, without limitation, any
liability of Seller (i) for unpaid Taxes (with respect
-2-
<PAGE>
to the Division or otherwise) for periods ending on or prior to the Closing or
for Taxes arising in connection with the consummation of the transactions
contemplated by this Agreement, (ii) for costs and expenses incurred in
connection with this Agreement and the transactions contemplated hereby, (iii)
under any Employee Benefit Plans (as defined in Section 4.16 hereof), except for
those described in (b) above, (iv) for borrowed money, (v) for rebates to
customers arising out of the sale of products for the period ending on or prior
to the Closing Date, or (vi) under this Agreement.
"BALANCE SHEET" shall mean the unaudited balance sheet of the Division
as of December 31, 1998.
"BOOKS AND RECORDS" shall mean (a) all records and lists of the
Division pertaining to the Assets, including customer lists and records, (b) all
product, business and marketing plans of the Division, and (c) all books,
ledgers, files, reports, plans, drawings and operating records of every kind
maintained by the Division, but excluding the Excluded Books and Records.
"CLOSING DATE" shall mean the first day that is (i) either the 15th
day of a calendar month or the last day of a calendar month, and (ii) falls
after the satisfaction or waiver of all conditions to the obligations of the
Parties to consummate the transactions contemplated hereby (other than
conditions with respect to actions the respective Parties will take at the
Closing itself), or such other date as the Parties may mutually determine.
"CODE" shall mean the Internal Revenue Code of 1986, as amended, and
the rules and regulations thereunder.
"CONTRACT" shall mean any written agreement, contract, purchase order,
license or commitment (other than commitments evidencing indebtedness) of the
Division, excluding all Leases.
"DISCLOSURE SCHEDULE" shall mean the schedules executed and delivered
by Seller to Buyers which set forth the exceptions to the representations and
warranties contained in Article IV hereof and certain other information called
for by this Agreement. Unless otherwise specified, each reference in this
Agreement to any schedule designated by a letter or number is a reference to the
schedule designated by such letter or number which is included in the Disclosure
Schedule.
"DIVISION" means the Seller with respect to its Pharmacy Benefit
Management Division.
"ENCUMBRANCE" shall mean any claim, lien, option, pledge, charge,
mortgage, security interest, right of first refusal or offer or other
restriction on use, transfer, receipt of income, or exercise of any other
attribute of ownership.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
"EXCLUDED ASSETS," notwithstanding any other provision of this
Agreement, shall mean the following assets of Seller which are not to be
acquired by Buyers hereunder:
(a) all cash and cash equivalents;
(b) all Accounts Receivable of the Division, and all rights to
rebates arising in connection with sales of products made on or before the
Closing Date, refunds, deposits (other than those customer
-3-
<PAGE>
deposits expressly included in the definition of Assets), prepayments or prepaid
expenses of the Division;
(c) this Agreement and all rights of Seller hereunder;
(d) the Excluded Books and Records;
(e) the Company-Wide Proprietary Rights;
(f) rights under Company-Wide Contracts;
(g) all claims, causes of action, choses in action, rights of
recovery, refunds and rights of set-off of any kind against any person or entity
arising out of or relating to (i) the Excluded Liabilities or (ii) the Excluded
Assets described in (a), (b), (c), (d), (e), (f) and (h) hereof; and
(h) the additional Excluded Assets listed on Schedule B attached
----------
hereto.
"EXCLUDED BOOKS AND RECORDS" shall mean Seller's minute books, stock
books and tax returns, other documents relating to the organization, maintenance
and existence of Seller as a corporation, and other such items to the extent
they relate to Excluded Assets or Excluded Liabilities.
"FINANCIAL STATEMENTS" shall mean (i) the unaudited Balance Sheet and
the related statement of operations for the twelve months ended December 31,
1998, and (ii) the unaudited balance sheet of the Division as of December 31,
1997 and the related statement of operations for the twelve months ended
December 31, 1997.
"FIXTURES AND EQUIPMENT" shall mean all of the furniture, fixtures,
furnishings, machinery, automobiles, trucks, spare parts, supplies, equipment
and other tangible personal property of the Division.
"GAAP" shall mean generally accepted accounting principles,
consistently applied.
"INVENTORY" shall mean all drug inventory of the Division held for
resale and all of the Division's raw materials, work in process, finished
products, wrapping, supply and packaging items and similar items, in each case
wherever the same may be located, but excluding discontinued and out-of-date
items.
"MATERIAL ADVERSE EFFECT" or "MATERIAL ADVERSE CHANGE" shall mean any
effect or change in the condition (financial or otherwise), business, results of
operations, assets, liabilities or operations of the Division that is materially
adverse to the condition (financial or otherwise), business, results of
operations, assets, liabilities or operations of the Division or to the ability
of Seller to consummate the transactions contemplated hereby.
"PERMITTED ENCUMBRANCES" shall mean (i) materialmen's, mechanics',
carriers', workmen's, repairmen's or other like liens arising in the ordinary
course of business for amounts not yet due or which are being contested in good
faith by appropriate proceedings, provided that Seller shall remain liable for
any liability or obligation secured by any such lien to the extent incurred on
or prior to the Closing, (ii) liens for current taxes or special assessments not
yet due or any taxes being contested in good faith by appropriate proceedings,
provided that Seller shall remain liable for all such Taxes and
-4-
<PAGE>
special assessments for all periods ending on or prior to the Closing or which
arise in connection with the transactions contemplated hereby, (iii) liens that
are immaterial in character, amount and extent, and which do not detract from
the marketability or value or interfere with the present or proposed use of the
properties they affect and which have not arisen in connection with the
borrowing of money, (iv) easements, rights of way, encroachments, restrictions
or similar conditions affecting or burdening the Assets which individually or in
the aggregate do not detract materially from the marketability, use or value of
the Assets, and (v) purchase money liens and liens securing rental payments
under capital lease arrangements assumed hereunder.
"PERMITS" shall mean all licenses, permits, franchises, approvals,
authorizations, certificates, registrations, consents or orders of, or filings
with, any governmental authority, whether foreign, federal, state or local, or
any other person, used or held for use in the operation of the Division and all
other rights and privileges necessary to allow the Division to own and operate
its business without any violation of law.
"TAX" shall mean any federal, state, local, foreign or other tax,
including without limitation income, capital gains, estimated income, business,
occupation, gross receipts, franchise, property, payroll, personal property,
sales, transfer, use, employment, commercial rent, occupancy, franchise or
withholding taxes, and any premium, including without limitation interest,
penalties and additions in connection therewith (whether payable directly or by
withholding and whether or not requiring the filing of a Tax return), and shall
include any liability for such amounts as a result of either being a member of a
combined, consolidated, unitary or affiliated group or having a contractual
obligation to indemnify any person or other entity.
1.2. OTHER DEFINED TERMS. The following terms shall have the
-------------------
meanings defined for such terms in the Sections set forth below:
<TABLE>
<CAPTION>
TERM SECTION
---- -------
<S> <C>
"ACCELERATION CONTRACTS" 2.4(d)
"ACCELERATION PAYMENTS" 2.4(d)
"ACTIONS" 4.10
"ACTUAL VOLUME" 2.4(a)
"AFFILIATE CONTRACTS" 4.26
"ANNIVERSARY DATE" 2.4(a)
"APPRAISER" 2.3(b)
"BASE PURCHASE PRICE" 2.3(a)
"BUYERS" Preamble
"CLAIM" 10.2(c)
"CLAIM NOTICE" 10.2(c)
"CLOSING" 3.1
"CLOSING INVENTORY" 2.3(b)
"CLOSING STATEMENT" 2.4(a)
"COMPANY-WIDE CONTRACTS" 1.1
"COMPANY-WIDE PROPRIETARY RIGHTS" 1.1
"CONTINGENT PURCHASE PRICE" 2.3(a)
"CVS PROCARE" Preamble
"DAMAGES" 10.2(a)
</TABLE>
-5-
<PAGE>
<TABLE>
<S> <C>
"DIVISION EMPLOYEES" 4.15
"DRW" 4.24
"EMPLOYEE BENEFIT PLANS" 4.16(a)
"ENVIRONMENTAL AND SAFETY REQUIREMENTS" 4.18(a)
"EXCLUDED LIABILITIES" 2.2
"HAZARDOUS SUBSTANCES" 4.18(b)
"INDEMNIFIED PARTY" 10.2(c)
"INDEMNIFYING PARTY" 10.2(c)
"LEASES" 4.4
"MARK(S)" 7.8
"MATERIAL CONTRACTS" 4.5
"NON-COMPETE PERIOD" 7.3
"NON- TRANSFERABLE ASSETS" 6.3
"PARENT" 2.7
"PARENT GUARANTEE" 2.7
"PARTIES" Preamble
"PHARMACARE" Preamble
"PHARMACARE DIRECT" Preamble
"PRESCRIPTION FILLINGS" 2.4(a)
"PROPRIETARY RIGHTS" 4.14(a)
"REHIRED EMPLOYEES" 7.6(a)
"RELATED PARTIES" 10.2(a)
"SELLER" Preamble
"TAKEOVER PROPOSAL" 6.1(d)
"TRANSITION SERVICES AGREEMENT" 8.7(a)
"YEAR 2000 PROBLEM" 4.23
</TABLE>
ARTICLE II.
PURCHASE AND SALE OF ASSETS
---------------------------
2.1. TRANSFER OF ASSETS. Upon the terms and subject to the
------------------
conditions contained herein, at the Closing, Seller will sell, convey, transfer,
assign and deliver to Buyers, and Buyers will acquire from Seller, the Assets,
free and clear of all Encumbrances other than Permitted Encumbrances and
Encumbrances securing Assumed Liabilities.
2.2. ASSUMPTION OF LIABILITIES. Upon the terms and subject to the
-------------------------
conditions contained herein, at the Closing, Buyers shall assume the Assumed
Liabilities. Buyers will not assume or have any responsibility, however, with
respect to any other obligation or liability of Seller (the "Excluded
Liabilities") not included within the definition of Assumed Liabilities. Buyers
hereby acknowledge that they are assuming the Assumed Liabilities and Buyers
agree to pay, discharge and perform all such liabilities and obligations
promptly when due. Seller hereby acknowledges that it is retaining the Excluded
Liabilities and Seller agrees to pay, discharge and perform all such liabilities
and obligations promptly when due.
-6-
<PAGE>
2.3. PURCHASE PRICE.
--------------
(a) Base Purchase Price. The purchase price for the Assets and the
-------------------
other obligations of Seller hereunder (including the covenant-not-to-compete in
Section 7.3) shall consist of the "Base Purchase Price" and the "Contingent
Purchase Price." The Base Purchase Price for the Assets shall be Seven Million
Dollars ($7,000,000), plus the value of the Closing Inventory purchased by
Buyers and as determined pursuant to Section 2.3(b). At the Closing, upon the
terms and subject to the conditions set forth herein, Buyers shall pay and
deliver to Seller the Base Purchase Price by wire transfer of immediately
available funds.
(b) Closing Inventory. On the day before the Closing Date, a
-----------------
physical count of the items of Inventory as of the Closing Date (the "Closing
Inventory") shall be conducted by a third party mutually agreeable to the
Parties (the "Appraiser"). Each Party shall have the right to observe the
physical count of the Closing Inventory. The Appraiser shall value the Closing
Inventory on the basis of Seller's net cost (including applicable discounts) of
the Closing Inventory. Buyers shall be obligated to purchase at the Closing all
of the Closing Inventory up to a maximum of $500,000 in value as determined by
the Appraiser. Buyers shall have the option to purchase the Closing Inventory at
the Closing to the extent it exceeds $500,000 in value.
(c) Seller and Buyers acknowledge that they will negotiate in good
faith regarding the allocation of the Purchase Price and that such allocation
will be consistent with the requirements of Section 1060 of the Code and the
regulations thereunder. Seller and Buyers agree to jointly complete and
separately file Internal Revenue Service Form 8594 with their respective federal
income tax returns for the tax year in which the Closing Date occurs. Seller
and Buyers further agree to jointly complete and separately file any amended
Internal Revenue Service Form 8594 to the extent required after the payment of
any amounts required to be paid as part of the Contingent Purchase Price.
Seller's Employer Identification Number is 36-3444974. The Employer
Identification Numbers of each of PharmaCare, PharmaCare Direct and CVS ProCare
are 05-0479173, 05-0496114 and 06-1474598, respectively.
2.4. CONTINGENT PURCHASE PRICE.
-------------------------
(a) Preparation of Closing Statement. Within ten (10) business days
--------------------------------
after the first anniversary of the Closing Date (the "Anniversary Date"),
PharmaCare, on behalf of itself and the other Buyers, shall prepare and deliver
to Seller a statement (the "Closing Statement") showing the volume of
prescription fillings (including original filling and subsequent refills)
("Prescription Fillings") during the one-year period following the Closing Date
attributable to each line of business comprising the Division, i.e., traditional
mail order, specialty mail order and retail pharmacy, in each case from (i) each
client of Seller listed on Schedule 2.4(a)(i) that on the Anniversary Date
------------------
remains under contract to, and, within the ninety (90) days prior to the
Anniversary Date, had any claim activity or submitted a current eligibility list
or update to, a Buyer or any subsequent assignee of, or successor to, the assets
comprising the business currently operated as the Division and has not submitted
a written notice of termination of such contract (or oral notice of termination
in the case of a contractual relationship that is not in writing), (ii) any
party that becomes a client of a Buyer due to Seller's relationship with any of
the brokers, agents or third-party administrators listed on Schedule 2.4(a)(ii)
-------------------
that on the Anniversary Date is under contract to, and, within the ninety (90)
days prior to the Anniversary Date, had any claim activity or submitted a
current eligibility list or update to, a Buyer or any subsequent assignee of, or
successor to, the assets comprising the business currently operated as the
Division and that has not submitted a written notice of termination of such
contract (or oral notice of termination in the case of a contractual
relationship that is
-7-
<PAGE>
not in writing), and (iii) each party identified on Schedule 2.4(a)(iii) that on
--------------------
the Anniversary Date is under contract to, and, within the ninety (90) days
prior to the Anniversary Date, had any claim activity or submitted a current
eligibility list or update to, a Buyer or any subsequent assignee of, or
successor to, the assets comprising the business currently operated as the
Division and has not submitted a written notice of termination of such contract
(or oral notice of termination in the case of a contractual relationship that is
not in writing). The Prescription Fillings volume during the one-year period
following the Closing Date from parties described in (i), (ii) and (iii) above
is referred to herein as the "Actual Volume." PharmaCare shall deliver to Seller
simultaneously with its delivery of the Closing Statement copies of all working
papers relevant to the determination of Actual Volume and access to all books
and records relevant to the determination of Actual Volume. PharmaCare shall
also deliver to Seller within ten (10) business days after the end of each
calendar quarter after the Closing Date until the Anniversary Date, a statement
showing the Actual Volume for such calendar quarter and the Actual Volume from
the Closing Date through the end of such calendar quarter.
(b) Contingent Purchase Price. The Contingent Purchase Price shall
-------------------------
equal the sum of (i) the number of Prescription Fillings included in Actual
Volume attributable to the traditional mail order business divided by 216,267
and multiplied by $5,000,000, up to a maximum of $5,000,000, such maximum to
include any Acceleration Payment made in respect of Acceleration Contracts (1)
or (2) below, (ii) the number of Prescription Fillings included in Actual Volume
attributable to the specialty mail order business divided by 60,000 and
multiplied by $700,000, up to a maximum of $700,000, such maximum to include any
Acceleration Payments made in respect of Acceleration Contracts (4), (5) or (6)
below, and (iii) the number of Prescription Fillings included in Actual Volume
attributable to the retail pharmacy business divided by 602,972 and multiplied
by $2,700,000, up to a maximum of $2,700,000, such maximum to include any
Acceleration Payment made in respect of Acceleration Contract (3) below.
(c) Payment of Contingent Purchase Price. In the event PharmaCare
------------------------------------
does not receive notice from Seller disputing the calculation of Actual Volume
within the time period specified in Section 2.5(a), Seller shall be deemed to
have agreed with such calculation and within two (2) business days following the
expiration of such time period, Buyers shall pay Seller the Contingent Purchase
Price by wire transfer of immediately available funds.
(d) Acceleration of Payments on Execution of Certain Contracts. In
----------------------------------------------------------
the event contracts meeting (or exceeding) the following criteria and otherwise
containing terms and conditions not materially less favorable than Seller's past
practice ("Acceleration Contracts") are signed by customers prior to the
Anniversary Date, then within two (2) business days of a Buyer's receipt of a
signed Acceleration Contract, Buyers shall pay Seller the amounts ("Acceleration
Payments") set forth below, which amounts shall be part of the Contingent
Purchase Price:
<TABLE>
<CAPTION>
CUSTOMER SUBJECT MATTER MINIMUMTERM OF CONTRACT ACCELERATIONPAYMENT
<S> <C> <C> <C> <C>
(1) BankOne Retirees-Trad. Mail Three Years $1,000,000
(2) BankOne New-Including Trad. Mail Three Years $ 700,000
(3) BankOne New-Including Retail Three Years $ 700,000
(4) State of Ohio ADAP-Specialty One Year $ 200,000
(5) State of Indiana ADAP-Specialty One Year $ 100,000
(6) State of Arkansas ADAP-Specialty One Year $ 100,000
</TABLE>
-8-
<PAGE>
(e) Tax Holdback. Notwithstanding any provision of this Section 2.4
------------
to the contrary, no payment of the first $100,000 of the Contingent Purchase
Price due to Seller will be made by Buyers prior to (i) the delivery by Seller
of a certificate from the tax commissioner of the State of Ohio indicating that
all sales and use taxes, interest and penalties have been paid by Seller
pursuant to Sections 5739.14 and 5741.14 of the Ohio Revised Code, or (ii)
Seller's demonstration to Buyers' reasonable satisfaction that such Sections of
the Ohio Revised Code are inapplicable to the transactions contemplated hereby.
2.5. DISPUTES REGARDING CONTINGENT PURCHASE PRICE.
-----------------------------------------------
(a) Disputed Amount. If Seller disagrees with the Closing Statement
---------------
used to calculate the Contingent Purchase Price, it shall notify PharmaCare of
such disagreement in writing specifying in detail the particulars of such
disagreement within thirty (30) calendar days after Seller's receipt of the
Closing Statement.
(b) Resolution of Disputed Amount. PharmaCare and Seller shall use
-----------------------------
reasonable efforts for a period of fifteen (15) calendar days after Seller's
delivery of the notice specified in Section 2.5(a) (or such longer period as
PharmaCare and Seller agree upon) to resolve any disagreements raised by Seller
with respect to the Closing Statement used to calculate the Contingent Purchase
Price. If, at the end of such period, PharmaCare and Seller do not resolve such
disagreements, PharmaCare and Seller shall jointly select an independent
accounting firm of recognized national standing to review the Closing Statement
used to calculate the Contingent Purchase Price and resolve any remaining
disagreements. In the event PharmaCare and Seller cannot agree upon an
accounting firm, they shall choose an accounting firm by lot from those "Big 5"
accounting firms having no material relationship to any Buyer or Seller and
having offices in locations suitable to conduct such review. The determination
by such independent accounting firm shall be final, binding and conclusive on
the Parties. PharmaCare and Seller shall use reasonable efforts to cause such
independent accounting firm to make its determination within thirty (30)
calendar days of accepting its selection. The fees and expenses of such
independent accounting firm shall be borne by the non-prevailing party;
provided, however, that if neither party is clearly the prevailing party, such
fees and expenses shall be borne equally by Buyers, on one hand, and Seller, on
the other.
2.6. CLOSING COSTS; TRANSFER TAXES AND FEES. Notwithstanding any
--------------------------------------
other provision herein, any documentary and transfer taxes and any sales, use or
other taxes imposed by reason of the transfers of Assets provided hereunder and
any deficiency, interest or penalty asserted with respect thereto shall be borne
by the party legally required to pay such taxes. The fees and costs of recording
or filing all applicable conveyancing instruments, if any, described in Section
3.2(a) shall be borne equally by Buyers, on one hand, and Seller, on the other.
2.7. PARENT GUARANTEE. The Parties hereby acknowledge that CVS
----------------
Corporation, a Delaware corporation and the ultimate parent of each of the
Buyers ("Parent"), is concurrently with the execution and delivery of this
Agreement, executing and delivering to Seller a Guarantee in the form attached
hereto as Schedule 2.7 (the "Parent Guarantee"), whereby Parent will guarantee
------------
to Seller all obligations of each of the Buyers. The Parties hereby acknowledge
that Seller would not enter into this Agreement without the benefit of the
Parent Guarantee.
-9-
<PAGE>
ARTICLE III.
CLOSING
-------
3.1. CLOSING. The closing of the transactions contemplated herein
-------
(the "Closing") shall be at 10:00 a.m. local time on the Closing Date at the
offices of Gardner, Carton & Douglas, 321 N. Clark Street, Suite 3400, Chicago,
Illinois 60610, or such other time or place as the Parties hereto may mutually
determine, and shall be effective as of the close of business on the Closing
Date.
3.2. DELIVERIES AND ACTIONS TAKEN AT CLOSING.
---------------------------------------
(a) Deliveries by Seller. To effect the sale and transfer referred
--------------------
to in Section 2.1 hereof, Seller will, at the Closing, deliver to Buyers one or
more of the following:
(i) good and sufficient bills of sale, assignments and other
instruments of transfer to convey to Buyers good and
merchantable title to the Assets, free and clear of all
Encumbrances of any kind, except the Permitted
Encumbrances and Encumbrances securing Assumed
Liabilities;
(ii) instruments evidencing the release of all Encumbrances
on the Assets securing Excluded Liabilities, other than
Permitted Encumbrances;
(iii) a copy of Seller's Amended and Restated Articles of
Incorporation certified by the Secretary of State of
Illinois, together with a good standing certificates
issued by the Secretary of State of Illinois and the
Secretary of State of Ohio, in each case as of a date
not more than ten (10) business days prior to the
Closing Date;
(iv) a copy of Seller's corporate bylaws certified by the
secretary of Seller as of the Closing Date;
(v) copies of the resolutions and other requisite corporate
actions of Seller, authorizing the execution and
delivery of this Agreement and the other documents and
instruments to be executed and delivered pursuant to
this Agreement, and the consummation by Seller of the
transactions contemplated hereby and thereby, which
copies have been certified by the secretary of Seller as
of the Closing Date;
(vi) a certificate of the secretary of Seller dated as of the
Closing Date certifying as to the genuineness of the
signatures of officers of Seller executing any
certificate, document, instrument or agreement to be
delivered pursuant to this Agreement, which incumbency
certificate shall include the true signatures of such
officers;
(vii) a statement signed by an officer of Seller under the
penalty of perjury in the form attached hereto as
Schedule 3.2(a)(vii); and
(viii) such other documents and instruments, including the
certificate referred to in Section 9.1, as Buyers or
their counsel reasonably shall deem necessary to
consummate the transactions contemplated hereby.
-10-
<PAGE>
(b) Deliveries by Buyers. To effect the sale and transfer referred
--------------------
to in Section 2.1 hereof, Buyers will, at the Closing, deliver to Seller:
(i) a wire transfer of immediately available funds in the
amount of the Base Purchase Price;
(ii) a copy of each Buyer's Certificate or Articles of
Incorporation certified by the Secretary of State of
Delaware or Rhode Island, as appropriate, together with
a good standing certificate issued by such Secretary, in
each case, as of a date not more than ten (10) business
days prior to the Closing Date;
(iii) a copy of each Buyer's corporate by-laws certified by
the secretary of such Buyer as of the Closing Date;
(iv) copies of the resolutions and other requisite corporate
actions of each Buyer authorizing the execution and
delivery of this Agreement and the other documents and
instruments to be executed and delivered pursuant to
this Agreement, and the consummation by such Buyer of
the transactions contemplated hereby and thereby, which
copies have been certified by the secretary of such
Buyer as of the Closing Date;
(v) instruments of assumption of the Assumed Liabilities;
(vi) a certificate of the secretary of each Buyer dated as of
the Closing Date certifying as to the genuineness of the
signatures of officers of such Buyer executing any
certificate, document, instrument or agreement to be
delivered pursuant to this Agreement, which incumbency
certificate shall include the true signatures of such
officers; and
(vii) such other documents and instruments, including the
certificate referred to in Section 8.1 hereof, as Seller
or its counsel reasonably shall deem necessary to
consummate the transactions contemplated hereby.
(c) Form of Instruments. To the extent that a form of any document
-------------------
to be delivered hereunder is not attached as an Exhibit hereto, such documents
shall be in form and substance, and shall be executed and delivered in a manner,
reasonably satisfactory to Buyers and Seller.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF SELLER
----------------------------------------
Seller hereby represents and warrants to Buyers as follows:
4.1. ORGANIZATION AND QUALIFICATION OF SELLER. Seller is a
----------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of Illinois. Seller has all requisite corporate power and
authority to own and operate the Division as it is presently being operated and
Seller is qualified to do business as a foreign corporation and is in good
standing in Ohio and in all other jurisdictions where failure to be so qualified
or in good standing is reasonably likely, individually or in the aggregate, to
have a Material Adverse Effect.
-11-
<PAGE>
4.2. AUTHORIZATION. Seller has all requisite corporate power and
-------------
authority, and has taken all corporate action necessary, to execute and deliver
this Agreement and to consummate the transactions contemplated hereby and to
perform its obligations hereunder. This Agreement has been duly executed and
delivered by Seller and is the legal, valid and binding obligation of Seller,
enforceable against it in accordance with its terms, subject to general
principles of equity and except as enforceability may be limited by applicable
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium or other
similar laws of general application relating to creditors' rights generally.
4.3. ASSETS. Except as set forth in Schedule 4.3 attached hereto,
------ ------------
Seller has good and marketable title to, or a valid leasehold interest in, all
of the Assets, subject to no Encumbrance, except for Permitted Encumbrances.
Except as set forth in Schedule 4.3 the Fixtures and Equipment are in all
------------
material respects in good working order and condition, ordinary wear and tear
excepted. The Assets, the Excluded Assets and the Non-Transferable Assets (as
defined in Section 6.3) (if any) constitute all the assets necessary for the
conduct of the business of the Division as presently conducted. No assets,
other than the Assets, the Excluded Assets and the Non-Transferable Assets (if
any), are used or held for use by Seller or any other person or entity in the
conduct of the business of the Division as presently conducted.
4.4. FACILITIES; LEASES. Schedule 4.4 contains a complete list of
------------------ ------------
all leases pursuant to which the Seller leases any real property or personal
property (the "Leases") used or held for use by the Division. All such Leases
are valid obligations of Seller and, to Seller's knowledge, of the other parties
thereto, and are in full force and effect. No event of default has occurred
which (whether with or without notice, lapse of time or both or the happening or
occurrence of any other event) would constitute a material default under any
such Lease on the part of Seller. Seller does not have any knowledge of the
occurrence of any event which (whether with or without notice, lapse of time or
both or the happening or occurrence of any other event) would constitute a
material default under any such Lease by any other party thereto. Seller enjoys
peaceful and undisturbed possession of all the leased real property covered by
such Leases, and Seller has in all material respects performed all the
obligations with respect thereto required through the date hereof to be
performed by it. To Seller's knowledge, all of the leased real property,
improvements and fixtures thereto are structurally sound and have no material
defects and are capable of being used in the conduct of the business of the
Division after the Closing in substantially the same manner as conducted before
the Closing. Seller owns no real property used or held for use by the Division.
4.5. CONTRACTS AND COMMITMENTS. (a) Schedule 4.5(a) lists the
------------------------- ---------------
following Contracts (excluding Company-Wide Contracts) to which Seller is a
party with respect to the Division (the "Material Contracts"):
(i) any distributor, dealer, manufacturer's representative,
sales agency or broker agreement;
(ii) any sales agreement (including oral agreements) with any
customer;
(iii) any agreement with any labor union;
(iv) any agreement with any supplier containing any provision
permitting any party other than Seller to renegotiate
the price or other terms, or containing any pay-back,
retroactive adjustment or other similar
-12-
<PAGE>
provision, upon the occurrence of a failure by the
Division to meet its obligations under the agreement
when due or the occurrence of any other event;
(v) any agreement or commitment for the future purchase of
fixed assets or the maintenance thereof or for the
future purchase of materials, supplies or equipment in
excess of the Division's normal operating requirements;
(vi) any agreement for the employment of any employee or for
the retention of consulting services of any other person
(whether of a legally binding nature or in the nature of
informal understandings) which is not terminable on
notice without cost or other liability to the Division,
except normal severance arrangements and accrued
vacation pay;
(vii) any bonus, incentive pay, deferred compensation,
severance, stay or change of control, pension, profit-
sharing, retirement, hospitalization, insurance, stock
purchase, stock option or other plan, agreement or
understanding pursuant to which benefits are provided to
any employee of the Division (other than group insurance
plans which are not self-insured and are applicable to
employees generally);
(viii) any agreement relating to the borrowing of money or to
the mortgaging or pledging of, or otherwise placing a
lien or security interest on, any asset of the Division,
including but not limited to, indebtedness by way of
lease or installment purchase arrangement, guarantee,
reimbursement obligations pertaining to letters of
credit, and all mortgages, pledges, conditional sales
contracts, chattel and purchase money mortgages and
other security arrangements;
(ix) any guaranty of any obligation for borrowed money or
otherwise or any agreement to indemnify not in the
ordinary course of business;
(x) any agreement, or group of related agreements with the
same party or any group of affiliated parties, under
which the Division has advanced or agreed to advance
money;
(xi) any assignment, license or other agreement with respect
to any form of intangible property including with
respect to any invention or know-how used in or related
to the business of the Division (other than license
agreements with respect to "off-the-shelf" software);
(xii) any agreement under which the Division has limited or
restricted its right to compete with any person in any
respect or use or disclose any information in its
possession (other than supplier and customer
confidentiality agreements entered into the ordinary
course of business);
(xiii) all agreements relating to joint ventures or agreements
involving a sharing of profits;
-13-
<PAGE>
(xiv) any contract relating to cleanup, abatement or other
actions in connection with environmental liabilities;
and
(xv) any other agreement, or group of related agreements with
the same party or any group of affiliated parties,
involving payments on an annual basis of more than
$50,000 or continuing over a period of more than six
months from the date or dates thereof (including
renewals or extensions optional with another party),
which agreement or group of agreements is not terminable
by the Division without penalty upon notice of thirty
(30) days or less; or
(xvi) any other agreement, instrument, commitment, plan or
arrangement, a copy of which would be required to be
filed with the Securities and Exchange Commission as an
exhibit to a registration statement on Form S-1 if the
Division were registering securities under the
Securities Act of 1933, as amended.
All of the Material Contracts are valid obligations of Seller and, to
Seller's knowledge, of the other parties thereto, and are in full force and
effect. Seller has duly performed in all material respects all of its
obligations under the Material Contracts to the extent those obligations to
perform have accrued, and no material violation of, or material default or
breach under, any Material Contracts by Seller or, to Seller's best knowledge,
any other party thereto has occurred and neither Seller nor, to Seller's best
knowledge, any other party has repudiated any provisions thereof. There is no
litigation pending nor, to Seller's best knowledge, threatened by any party with
respect to any Material Contract. Except as set forth on Schedule 4.5(a),
---------------
consummation of the transactions contemplated hereby will not violate any
Material Contract and will not give any person a right to terminate or modify
any rights of, or accelerate or augment any obligations of, or demand payment
by, Seller pursuant to any Material Contract. Except as set forth on Schedule
--------
4.5(a), Seller has not received written notice (or oral notice, in the case of a
- ------
contract that is not in writing) of termination or non-renewal of any Material
Contract and has no knowledge that the other party thereto has a current
intention to terminate or fail to renew a Material Contract. The consummation
of the transactions contemplated hereby will not result in any payment becoming
due from Seller under any Material Contract, nor accelerate the timing of future
payments or increase the amount of any such future payments.
(b) Schedule 4.5(b) contains a list of all Company-Wide Contracts.
---------------
(c) Schedule 4.5(c) is a true, correct and complete list of the
---------------
Division's customers, and accurately summarizes the provisions of Seller's
written and oral contracts with such customers that it purports to summarize.
4.6. PERMITS. The Division has all material Permits required to
-------
conduct its business as now being conducted. All such Permits of the Division
are valid and in full force and effect and are listed on Schedule 4.6. There is
------------
not now pending nor, to the best knowledge of Seller, threatened, any action by
any person or by or before any governmental or regulatory authority to revoke,
cancel, rescind, modify, or refuse to renew any of such Permits.
4.7. NO CONFLICT OR VIOLATION. Except as set forth on Schedule 4.7,
------------------------ ------------
none of Seller's execution, delivery or performance of this Agreement,
consummation of the transactions contemplated
-14-
<PAGE>
hereby, or compliance with any of the provisions hereof, will (a) violate or
conflict with any provision of the Articles of Incorporation or Bylaws of
Seller, (b) violate, conflict with, or result in a breach of any provision of,
or constitute a default (or an event which, with notice or lapse of time or
both, would constitute a default) under, or result in the termination of, or
accelerate the performance required by, or result in a right of termination or
acceleration under, or increase the amount payable by Seller under, or result in
the creation of any Encumbrance upon any of the Assets under, any of the terms,
conditions or provisions of any Contract, Lease or Permit (i) to which the
Division is a party or (ii) by which the Assets are bound, or (c) violate any
statute, rule, regulation, ordinance, code, order, judgment, ruling, writ,
injunction, decree or award.
4.8. FINANCIAL STATEMENTS. Seller has heretofore delivered to Buyers
--------------------
the Financial Statements, all as attached hereto as Schedule 4.8. The Financial
------------
Statements (a) were prepared in accordance with the books and records of Seller,
(b) have been prepared in accordance with GAAP consistently applied throughout
the periods covered thereby and (c) fairly present in all material respects the
assets, liabilities (including all reserves) and financial position of the
Division as of the respective dates thereof and the results of operations for
the periods covered thereby, subject to the lack of footnote disclosure and
other presentation items.
4.9. ABSENCE OF CERTAIN CHANGES. Except as disclosed in Schedule 4.9
-------------------------- ------------
attached hereto, since the date of the Balance Sheet, there has not been: (a)
any Material Adverse Change; (b) any material damage, destruction or loss
(whether or not covered by insurance) adversely affecting the properties,
Assets, liabilities, financial condition or results of operations of the
Division; (c) any increase in the compensation, commissions or perquisites
payable or to become payable by the Division to any employee of the Division, or
any payment of any bonus, profit sharing or other extraordinary compensation to
any employee of the Division (other than any such increase or payment paid or to
become payable not exceeding 4% over amounts paid during the year ended December
31, 1998); (d) any cancellation of any material debts owed to or claims held by
the Division or waiver of any material rights held by the Division; (e) any
sale, lease, abandonment or other disposition by the Division of any real
property, or, other than in the ordinary course of business and not exceeding
$50,000 in the aggregate based on the book value thereof, of any machinery,
equipment or other operating properties, or of any intangible assets; (f) any
change in the amount, aging or collectibility of the Accounts Receivable or
other debts due to Seller with respect to the Division or the allowances with
respect thereto or accounts payable from that reflected on the Financial
Statements which could reasonably be expected to have a Material Adverse Effect;
or (g) any action taken by Seller which, if taken subsequent to the execution of
this Agreement and on or prior to the Closing Date, would constitute a breach of
Seller's agreements set forth in Section 6.1(a), (b), (e), (f), (g) or (h) of
this Agreement.
4.10. LITIGATION. Except as disclosed in Schedule 4.10 attached
---------- -------------
hereto, there is no action, order, writ, injunction, judgment or decree
outstanding or any claim, suit, litigation, proceeding, labor dispute,
arbitration action, governmental audit or investigation (collectively,
"Actions") (a) pending, or to the best of Seller's knowledge, threatened against
the Division or the Assets, or (b) to the best of Seller's knowledge, pending or
threatened that seeks to delay, limit or enjoin the transactions contemplated by
this Agreement. The Division is not in default with respect to, or subject to,
any judgment, order, writ, injunction or decree of any court or governmental
agency, and there are no unsatisfied judgments against the Division or the
Assets.
4.11. UNDISCLOSED LIABILITIES. To Seller's knowledge, the Division
-----------------------
has no material liabilities, obligations or commitments of any nature (whether
absolute, accrued, contingent or otherwise and
-15-
<PAGE>
whether matured or unmatured), including without limitation Tax liabilities due
or to become due, except (a) liabilities which are reflected and reserved
against on the Balance Sheet which have not been paid or discharged since the
date thereof, (b) accounts payable and accrued expenses incurred in the ordinary
course of the Division's operations which have not caused the level of the
Division's accounts payable or accrued expenses to increase materially from the
amounts reflected on the Balance Sheet, (c) liabilities arising in the ordinary
course of business under Contracts, Leases, letters of credit, purchase orders,
licenses, Permits, purchase agreements and other agreements, business
arrangements and commitments described in the Disclosure Schedule and (d) as set
forth on Schedule 4.11.
-------------
4.12. COMPLIANCE WITH LAW. (a) The Division has not violated and is
-------------------
in compliance with all laws, statutes, ordinances, regulations, rules and orders
of any foreign, federal, state or local government and any other governmental
department or agency, and any judgment, decision, decree or order of any court
or governmental agency, department or authority, including without limitation,
Environmental Laws, except where such violation or lack of compliance is not
reasonably likely, individually or in the aggregate, to have a Material Adverse
Effect. Since January 1, 1996, Seller has not received any notice to the effect
that, or otherwise been advised that, the Division is not in such compliance
with any such statutes, regulations, rules, judgments, decrees, orders,
ordinances or other laws, and Seller has no knowledge that any existing
circumstances are likely to result in such violations of any of the foregoing.
(b) Neither the Division nor any of its stockholders, officers,
directors, employees and persons who provide professional services under
agreements with the Division, has engaged in any activities which are prohibited
under the federal Medicare and Medicaid statutes, 42 U.S.C. (S)1320a-7b, 42
U.S.C. (S)1395nn or 31 U.S.C. 3729, or the regulations promulgated pursuant to
such statutes or related federal, state or local statutes or regulations or
which are prohibited by rules of professional conduct, including without
limitation: (i) knowingly and willfully soliciting or receiving any
remuneration (including any kickback, bribe or rebate), directly or indirectly,
overtly or covertly, in cash or in kind or offering to pay such remuneration (a)
in return for referring an individual to a person for the furnishing or
arranging for the furnishing of any item or service for which payment may be
made in whole or in part by Medicare, Medicaid or other applicable governmental
third party payor, or (b) in return for purchasing, leasing, ordering or
arranging for or recommending the purchasing, leasing or ordering of any good,
facility, service, or item for which payment may be paid in whole or in part by
Medicare, Medicaid or other applicable governmental third party payor; (ii)
knowingly and willfully making or causing to be made a false statement or
representation of a material fact in any application for any benefit or payment.
(c) None of the Permits contains any material term, provision,
condition or limitation materially more adverse than those generally applicable
to entities engaged in the same businesses as the Division. The Division has,
to the extent applicable, (i) obtained all required material approvals for the
acquisition, construction, expansion of, investment in or operation of its
business as currently operated, (ii) obtained and maintained accreditation from
all generally recognized accrediting bodies for the Division's business as
required or otherwise customary in the industry in which the Division is
engaged, (iii) obtained and maintained in good standing its Medicare and
Medicaid Provider Agreements and other material governmental third party payor
agreements, and (iv) obtained and maintained all required material professional
licenses from all appropriate agencies and boards for the administration,
pharmacy, medical, nursing and allied health professional staffs of the
Division's facilities and programs, and all other required licenses,
certifications, approvals and authorizations from the state, the U.S. Department
of Health and Human Services, Health Care Financing Administration or any other
supervisory, regulatory or accrediting body having or claiming jurisdiction.
-16-
<PAGE>
4.13. THIRD PARTY PAYORS. The Division is in compliance with the
------------------
terms, conditions and provisions of participation in, and acting as a provider
or supplier to, the Medicare and Medicaid programs, except where such lack of
compliance is not reasonably likely, individually or in the aggregate, to have a
Material Adverse Effect. There is not pending nor, to Seller's knowledge,
threatened any proceeding or investigation under the Medicare or Medicaid
programs involving the Division.
4.14. PROPRIETARY RIGHTS. (a) Schedule 4.14(a) lists all of Seller's
------------------ ----------------
(i) domestic and foreign trademarks and servicemarks, trade names, brand names,
fictitious names and assumed names, and all registrations and pending
applications for registrations therefor, (ii) patents and copyrights and all
pending applications therefor, and (iii) other material licenses and other
proprietary rights (other than licenses with respect to "off-the-shelf"
software), in each case that are used in the operation of the Division
(collectively, "Proprietary Rights"). Except as set forth on Schedule 4.14(a),
----------------
all Proprietary Rights are either (i) owned by Seller and Seller has the sole
and exclusive power and authority to use, sell, transfer, assign and license
such Proprietary Rights, and has not entered into any licenses, sub-licenses or
agreements related to the use by any other person of such Proprietary Rights, or
(ii) subject to a valid transferable license to use such Proprietary Rights.
The Division has not interfered with, infringed upon, misappropriated, or
violated any material intellectual property rights of third parties in any
material respect and, to Seller's knowledge, no third party has interfered with,
infringed upon, misappropriated or violated any of the Proprietary Rights in any
material respect. The operation of the Division requires no intellectual
property rights other than the Proprietary Rights and the Company-Wide
Proprietary Rights.
(b) Schedule 4.14(b) lists all Company-Wide Proprietary Rights.
----------------
4.15. EMPLOYEES. Schedule 4.15 attached hereto lists all persons
--------- -------------
currently employed primarily by the Division (the "Division Employees") and all
persons providing services to the Division as independent contractors. Schedule
--------
4.15 states, with respect to such persons, their hourly rates of compensation,
- ----
base salaries or other basis for and amount of compensation, their total 1998
compensation, the commencement date of their employment, and their vacation
entitlements as of the date hereof. Except as set forth on Schedule 4.15 or
-------------
Schedule 4.16, there are no employment or severance or termination agreements,
- -------------
policies, plans, commitments or understandings, whether written or oral,
accruing to the benefit of any employee or independent contractor of the
Division. Other than financial and information systems support, no employee
other than Division Employees are necessary for the operation of the Division as
currently operated.
4.16. EMPLOYEE BENEFIT PLANS.
----------------------
(a) Except as set forth on Schedule 4.16, the Division does not
-------------
maintain or contribute (or have an obligation to contribute) to (i) any
"employee benefit plan" (as defined in Section 3(3) of ERISA), whether a single
employer, a multiple employer or a multiemployer plan, for the benefit of
employees or former employees of the Division, or (ii) any other plan, policy,
program, practice or arrangement providing compensation or benefits under which
the Division has any obligation or liability to any employee or former employee
of the Division (or any dependent or other beneficiary thereof) including,
without limitation, incentive, bonus, deferred compensation, vacation, holiday,
medical, severance, disability, death, stock option, stock purchase or other
similar benefit, whether written or unwritten (individually, an "Employee
Benefit Plan" and collectively, the "Employee Benefit Plans").
-17-
<PAGE>
(b) Each Employee Benefit Plan (and each related trust, custodial
account or insurance contract) has complied in form and in operation in all
material respects with its terms and all applicable governmental requirements,
including ERISA and the Code, and all contributions due under each such plan
have been or will be made by the date such contribution is or was required to be
made under the terms of the Plan or applicable law. Each Employee Benefit Plan
that is intended to be qualified under Section 401(a) of the Code has been so
qualified and no event has occurred since the date of such determination that
would adversely affect such qualification; each trust created under any such
Employee Benefit Plan is exempt from tax under Section 501(a) of the Code and
has been so exempt during the period from creation to date. Seller has provided
Buyers with access to the most recent determination letters from the Internal
Revenue Service relating to such Employee Benefit Plans and such determination
letter includes any new or modified requirements under the Tax Reform Act of
1986 and subsequent legislation enacted thereafter to the extent the remedial
amendment period with respect to such legislation has expired.
(c) No charge, complaint, action, suit, proceeding, hearing,
investigation, claim or demand with respect to the administration or investment
of the assets of any Employee Benefit Plan (other than routine claims for
benefits) is pending or, to Seller's best knowledge, threatened, and to the best
knowledge of Seller, no facts exist that could form the basis for any such
charge, complaint action, suit, proceeding, hearing, investigation, claim or
demand.
(d) The Division (i) has never contributed to, or been under any
obligation to contribute to, any multiemployer plan (as defined in Section 3(37)
of ERISA) and (ii) is not liable, directly or indirectly, with respect to any
such plan for a complete or partial withdrawal (within the meaning of Title IV
of ERISA) or due to the termination or reorganization of such a plan or an
employee benefit plan subject to the minimum funding requirements of the Code
and ERISA.
(e) The Division has never maintained or contributed, or had an
obligation to contribute, to a defined benefit plan subject to Title IV of ERISA
or an employee benefit plan subject to the minimum funding requirements of the
Code and ERISA.
(f) All employee benefits required to be paid or provided pursuant
to any Employee Benefit Plan now or formerly in effect with respect to employees
or former employees of the Division have been paid or provided (or adequate
provision has been made to pay or provide the same, and the same will be paid or
provided in full when due).
(g) Except as set forth on Schedule 4.16, no employee of the
-------------
Division is entitled to claim or receive severance pay or severance benefits.
The Division has fewer than 100 employees, and on that basis is not an
"employer", as defined in 29 U.S.C. Section 2101(a)(1), or otherwise subject to
the Worker Adjustment and Retraining Notification Act, as amended.
4.17. LABOR RELATIONS. The Division has complied in all material
---------------
respects with all applicable governmental requirements pertaining to the
employment of labor, including those relating to wages, hours, collective
bargaining, employment discrimination, sexual harassment, worker's compensation,
and the payment of or withholding of taxes, and there are no actions, suits,
charges, complaints, proceedings, investigations or audits pending or, to
Seller's knowledge, threatened against the Division in connection therewith.
There are no collective bargaining agreements relating to the Division's
relationship with any employee. The Division has not recognized any labor
organization, nor has any such organization been certified, as the exclusive
bargaining agent of any employees of the Division. There has been no demand on
behalf of any labor organization to represent any employees of the Division and
Seller has no knowledge of any present efforts of any labor organization for
authorization to represent any employees of the Division.
-18-
<PAGE>
There are no strikes, work stoppages or labor disputes pending or, to Seller's
knowledge, threatened, against the Division.
4.18. ENVIRONMENTAL, HEALTH, AND SAFETY.
---------------------------------
(a) At all times prior to the Closing, the Division has complied
and at Closing will be in compliance, in all material respects, with all
Environmental and Safety Requirements, and Seller has not received any notice,
report, or information (including information that litigation, investigation or
administrative or other proceedings of any kind are pending or threatened)
regarding any liabilities (whether accrued, absolute, contingent, unliquidated,
or otherwise), or any corrective, investigatory, or remedial obligations,
arising under Environmental and Safety Requirements relating to the Division or
the occupation or use of any of the Assets. For the purposes of this Agreement,
"Environmental and Safety Requirements" means all present governmental
requirements relating to the discharge or release of air pollutants, water
pollutants, process waste water, petroleum products or hazardous substances,
including, but not limited to, the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, the Occupational Safety and
Health Act of 1970, as amended, the Federal Water Pollution Control Act, as
amended, the Federal Resource Conservation and Recovery Act, as amended, the
Federal Clean Water Act, as amended, the Toxic Substances Control Act, as
amended, the Federal Clean Air Act, as amended, the Superfund Amendments and
Reauthorization Act, as amended, and any and all other comparable state or local
laws relating to public health and safety or work health and safety.
(b) No Hazardous Substances have been, or are currently, located
at, in, or under or emanating from either the Assets or any other property
currently or previously owned or operated by the Division in a manner which: (i)
violates any applicable Environmental and Safety Requirements, or (ii) requires
response, remedial, corrective action or cleanup of any kind under any
applicable Environmental and Safety Requirements. For purposes of this
Agreement, "Hazardous Substances" has the meaning set forth in Section 101(14)
of the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended, in the Federal Resource Conservation and Recovery Act, as
amended, and applicable state law and regulation, and shall also expressly
include petroleum, crude oil and any fraction thereof.
4.19. TAX MATTERS.
-----------
(a) Filing of Tax Returns. Seller has timely filed with the
---------------------
appropriate taxing authorities all returns relating to the Division (including
without limitation information returns and other material information) in
respect of Taxes required to be filed through the date hereof (or timely
extensions to file such returns) and will timely file any such returns (or
extensions) required to be filed on or prior to the Closing Date. The returns
and other information filed are complete and accurate in all material respects.
No claim has ever been made by an authority in a jurisdiction where Seller does
not file tax returns that Seller, with respect to the Division, is, or may be,
subject to taxation in that jurisdiction.
(b) Payment of Taxes. With respect to the Division, all Taxes
----------------
payable by Seller, in respect of periods beginning before the Closing Date, have
been timely paid, or will be timely paid by Seller, or an adequate reserve has
been established by Seller therefor, as set forth in the Financial Statements,
and Seller has no material liability for such Taxes in excess of the amounts so
paid or reserves so established.
-19-
<PAGE>
Seller has withheld and paid all such Taxes required to have been withheld and
paid in connection with amounts paid or owing to any employee, independent
contractor, creditor, stockholder, or other third party.
(c) Audits, Investigations or Claims. There are no pending or, to
--------------------------------
Seller's best knowledge, threatened, audits, investigations or claims for or
relating to any material additional liability of Seller in respect of Taxes with
respect to the Division, and there are no matters under discussion between
Seller and any governmental authorities with respect thereto. Seller has not
waived any statute of limitations in respect to Taxes or agreed to any extension
of time with respect to a tax assessment or deficiency.
(d) Tax Liens. There are no tax liens on any of the Assets, except
---------
for liens for current taxes not yet due and payable.
4.20. INSURANCE. Schedule 4.20 contains a complete and accurate list
--------- -------------
of all policies or binders of fire, liability, worker's compensation, product
liability and other forms of insurance maintained by Seller on the Division or
the Assets. Such insurance provides coverage to the extent and in the manner as
may be required by law and by any and all Material Contracts to which the
Division is a party.
4.21. INVENTORY. Schedule 4.21 hereto contains a complete and
--------- -------------
accurate list of all of the addresses at which all Inventory is located. The
Inventory consists only of items that are good and merchantable, of quality and
quantity commercially usable and salable in the ordinary course of business, and
are valued at cost, including any appropriate discounts, and the present
quantities of all Inventory are reasonable and appropriate to conduct the
operations of the Division after the Closing in the manner heretofore conducted.
4.22. GOVERNMENTAL AND OTHER THIRD-PARTY CONSENTS.
-------------------------------------------
(a) no consent or approval of, notice to, waiver by or registration
or filing with any governmental authority is required to be made by Seller to
permit Seller to sell the Assets to Buyers, other than those set forth on
Schedule 4.22(a); and
- ----------------
(b) no consent of or notice to, or waiver by, any person or entity
is required for the assignment of any Permit, Material Contract or Lease to
Buyers, other than those set forth on Schedule 4.22(b).
----------------
4.23. YEAR 2000 COMPLIANCE. No facts have come to Seller's attention
--------------------
that would reasonably lead it to believe that the Year 2000 Problem (as defined
below) is reasonably likely to have a Material Adverse Effect. As used in this
Section, "Year 2000 Problem" means the risk that a computer application used by
the Division may be unable to recognize and perform properly date-sensitive
functions involving certain dates prior to and any date after December 31, 1999,
taking into account leap years, including the year 2000.
4.24. BROKERS. Except for Dain Rauscher Wessels ("DRW"), no person
-------
will be entitled to any brokerage commissions, finder's fees or similar
compensation arising out of or due to any act of Seller in connection with the
transactions contemplated by this Agreement. Seller shall be solely responsible
for any and all fees of DRW.
-20-
<PAGE>
4.25. CUSTOMERS. Schedule 4.25 sets forth (a) the names of all
--------- -------------
current customers of the Division that ordered goods and services from the
Division which accounted for over 1% of the total net sales of the Division for
the twelve-month period ended December 31, 1998 and (b) the amount of sales
generated for each such customer during such period. Except as set forth on
Schedule 4.25, Seller has not received any written notice (or oral notice, if
- -------------
the contractual relationship at issue is not in writing) that any such customer
of the Division (i) has ceased, or intends to cease, to use the products, goods
or services of the Division or (ii) has substantially reduced or intends to
substantially reduce, the use of products, goods or services of the Division,
including in each case after the consummation of the transactions contemplated
hereby, and has no knowledge of any current intention on the part of any such
customer to cease or substantially reduce the use of products, goods or services
of the Division.
4.26. AFFILIATE TRANSACTIONS. Schedule 4.26 describes all contracts,
---------------------- -------------
agreements, arrangements or transactions between the Division and any other
division of Seller or any of Seller's Affiliates, including any entity that is
under common control with Seller ("Affiliate Contracts"), setting forth the
terms thereof.
4.27. OPINION OF FINANCIAL ADVISOR. The Board of Directors of Seller
----------------------------
has received the opinion of DRW addressed to such Board, dated the date hereof,
to the effect that, as of such date, the Purchase Price is fair to Seller.
4.28. INDEBTEDNESS TO AND FROM SELLER, AFFILIATES, OFFICERS,
------------------------------------------------------
DIRECTORS AND EMPLOYEES. Seller is not indebted to any employee of the
- -----------------------
Division, except for amounts due as normal salaries, wages, benefits or
reimbursement of ordinary business expenses. The Division is not indebted to
any other division of Seller or any Affiliate of Seller. No director, officer
or employee of the Division is now, or on the Closing Date will be, indebted to
Seller except for ordinary business expense advances due from employees of the
Division.
4.29. ACCURACY OF WARRANTIES. No representation or warranty by
----------------------
Seller in this Agreement contains any untrue statement of a material fact or
omits to state a material fact necessary to make the statements contained herein
not misleading.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF BUYERS
----------------------------------------
Buyers hereby, jointly and severally, represent and warrant to Seller
as follows:
5.1. ORGANIZATION AND QUALIFICATION. Each of PharmaCare, PharmaCare
------------------------------
Direct and Parent is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware. CVS ProCare is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Rhode Island
5.2. AUTHORIZATION. Each Buyer has all requisite corporate power and
-------------
authority, and has taken all corporate action necessary, to execute and deliver
this Agreement, to consummate the transactions contemplated hereby and to
perform its obligations hereunder. This Agreement has been duly executed and
delivered by each Buyer and is the legal, valid and binding obligation of each
Buyer, enforceable against each Buyer in accordance with its terms, subject to
general principles of equity and except as enforceability may be limited by
applicable bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium or other similar laws of general application relating to creditors'
rights
-21-
<PAGE>
generally. Parent has all requisite corporate power and authority, and
has taken all corporate action necessary, to execute and deliver the Parent
Guarantee, to consummate the transactions contemplated thereby and to perform
its obligations thereunder. The Parent Guarantee has been duly executed and
delivered by Parent and is the legal, valid and binding obligation of Parent,
enforceable against Parent in accordance with its terms, subject to general
principles of equity and except as enforceability may be limited by applicable
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium or other
similar laws of general application relating to creditors' rights generally.
5.3. NO CONFLICT OR VIOLATION. None of any Buyer's execution,
------------------------
delivery or performance of this Agreement, consummation of the transactions
contemplated hereby, or compliance with any of the provisions hereof, will (a)
violate or conflict with any provision of the Certificate or Articles of
Incorporation or Bylaws of such Buyer, (b) violate, conflict with, or result in
a breach of any provision of, or constitute a default (or an event which, with
notice or lapse of time or both, would constitute a default) under, or result in
the termination of, or accelerate the performance required by, or result in a
right of termination or acceleration under, or result in the creation of any
encumbrance upon any of the assets of such Buyer under, any of the terms,
conditions or provisions of any contract, indebtedness, note, bond, indenture,
security or pledge agreement, commitment, license, lease, franchise, permit,
agreement, or other instrument or obligation (i) to which such Buyer is a party
or (ii) by which such Buyer's assets are bound or (c) violate any statute, rule,
regulation, ordinance, code, order, judgment, ruling, writ, injunction, decree
or award, except in the case of (b) and (c), for such violations, conflicts,
breaches, defaults, terminations, accelerations or encumbrances as are not
reasonably likely to have a material adverse effect on such Buyer's ability to
consummate the transactions contemplated hereby.
5.4. GOVERNMENTAL CONSENTS. Except as set forth on Schedule 5.4, no
--------------------- ------------
consent or approval of, notice to, or filing with any governmental authority is
required to be made by any Buyer in order to permit such Buyer to purchase the
Assets from Seller.
5.5. BROKERS. There are no claims for brokerage commissions,
-------
finder's fees or similar compensation arising out of due to any act of Buyers in
connection with the transactions contemplated by this Agreement.
5.6. FINANCING. On the Closing Date, Buyers will have sufficient
---------
cash resources available to finance the transactions contemplated hereby.
5.7. LITIGATION. To each Buyer's best knowledge, there is no Action
----------
pending or threatened that seeks to delay, limit or enjoin the transactions
contemplated by this Agreement.
ARTICLE VI.
PRE-CLOSING COVENANTS OF SELLER AND BUYERS
------------------------------------------
The Parties agree as follows:
6.1. CONDUCT OF BUSINESS. From the date hereof through the Closing
-------------------
Date, Seller shall operate the Division in the ordinary course of business and
in accordance with past practice and Seller will not take any action
inconsistent with this Agreement or with the consummation of the Closing.
Without limiting the generality of the foregoing, the Division shall not, except
as specifically contemplated by this Agreement or consented to in writing by
PharmaCare, which consent shall not be unreasonably withheld:
-22-
<PAGE>
(a) enter into, extend, materially modify, terminate, waive any
material right under or renew any Material Contract or Lease, except in the
ordinary course of business;
(b) sell, assign, transfer, convey, lease, mortgage, pledge or
otherwise dispose of or encumber any of the Assets (other than the sale of
Inventory in the ordinary course of business), or any interests therein, except
for sales or dispositions in the ordinary course of business that do not exceed
$25,000 in the aggregate;
(c) fail to maintain or sell Inventory consistent with its past
practices;
(d) solicit or, unless the fiduciary duties of Seller's directors
and officers otherwise require, consider from any corporation, business or
person any inquiries, proposals or offers relating to the disposition of the
Assets or the merger or consolidation of Seller with any corporation (a
"Takeover Proposal"), or, unless the fiduciary duties of Seller's directors and
officers otherwise require, divulge or otherwise disclose to any corporation,
business or person information concerning any aspects of the terms of this
Agreement. Seller shall promptly notify PharmaCare orally, and confirm in
writing, all relevant details relating to inquiries or proposals which Seller
may receive relating to any of the matters referred to in this Section 6.1(d);
(e) cancel any of the Division's insurance policies;
(f) fail to pay its accounts payable, or fail to pay or discharge
when due any liabilities, in the ordinary course of business, other than in
connection with a dispute by the Division as to the validity of such liability;
(g) fail to maintain its assets in substantially their current
state of repair, excepting normal wear and tear;
(h) make any loans or advances to any partnership, firm or
corporation, or, except for expense reimbursements incurred by agents or
employees in the ordinary course of business, any individual;
(i) intentionally do any other act which would cause any
representation or warranty of Seller in this Agreement to be or become untrue in
any material respect; or
(j) enter into any agreement, or otherwise become obligated, to do
any action prohibited hereunder.
6.2. ACCESS. Until the Closing or the earlier termination of this
------
Agreement, Seller shall afford to Buyers, and to their respective officers,
employees and authorized representatives, full access, during normal business
hours, to all properties, books, records and corporate documents pertaining to
the Division as may be reasonably requested. Until the Closing to the extent
such information pertains to the Division, and for a period of not less than
three (3) years from the date hereof to the extent such information does not
pertain to the Division, each Buyer shall hold all non-published and
confidential information obtained from Seller in strict confidence and shall not
disclose any such information to persons other than those of its officers,
directors, employees and representatives who have a need to know, or make any
commercial use thereof whatsoever. If this Agreement is terminated prior to
Closing
-23-
<PAGE>
for any reason, all such information and copies thereof shall be
returned to Seller within five (5) business days.
6.3. NOTICES AND CONSENTS. Seller will give the notices to third
--------------------
parties, and up to and after the Closing (to the extent not obtained at Closing)
will use its commercially reasonable efforts to obtain the third party consents
described on Schedule 4.22(b). Each of the Parties will give the notices to,
----------------
make the filings with, and use its commercially reasonable efforts to obtain the
authorizations, consents, and approvals of governments and governmental agencies
described on Schedule 4.22(a) and Schedule 5.4.
---------------- ------------
To the extent Seller is unable prior to Closing to obtain a consent
described on Schedule 4.22(b) necessary to transfer any Asset, such Asset shall
----------------
not be transferred at Closing (each a "Non-Transferable Asset"), and Seller
shall subcontract its interest in such Non-Transferable Asset to a Buyer and
take all such other actions as shall be necessary to provide to such Buyer the
economic benefit of such Non-Transferable Asset, including, without limitation,
at the request and expense of such Buyer, enforcement of any rights of Seller on
behalf and for the account of such Buyer. Seller further agrees to execute and
deliver to the appropriate Buyer at such time as any such consent to the
transfer of any such Non-Transferable Asset is obtained by Seller after the
Closing an assignment and assumption agreement satisfactory to such Buyer and
Seller and any such other documents or instruments as may be reasonably
necessary or advisable to transfer to such Buyer all of Seller's interest in and
title to such Non-Transferable Asset.
6.4. FURTHER ASSURANCES. Upon the terms and subject to the
------------------
conditions contained herein, each of the Parties hereto agrees (a) to use all
reasonable efforts to take, or cause to be taken, all actions and to do, or
cause to be done, all things necessary, proper or advisable to consummate and
make effective the transactions contemplated by this Agreement, (b) to execute
any further documents, instruments or conveyances of any kind which may be
reasonably necessary or advisable to carry out any of the transactions
contemplated hereunder, and (c) to cooperate with each other in connection with
the foregoing.
6.5. COLLECTION OF ACCOUNTS RECEIVABLE. At the Closing, Seller will
---------------------------------
retain hereunder, and subject to the limitations of this Section 6.5, shall have
the right and authority to bill (for a period of ninety (90) days after Closing
to the extent unbilled as of the Closing) and collect for its own account, all
Accounts Receivable and to take actions consistent with its past practices in
furtherance thereof. Seller shall, on a monthly basis, provide PharmaCare with
a trial balance of the Accounts Receivable on a customer-by-customer basis,
showing the aging thereof. Seller shall notify PharmaCare prior to taking any
collection actions with respect to the Accounts Receivable that are inconsistent
with its past practices; within thirty (30) days of such notice, PharmaCare and
Seller will agree on a proper course of action in collecting the Accounts
Receivable which reasonably accommodates both Seller's interests in collecting
the Accounts Receivable and the Buyers' interests in preserving customer
goodwill. Each Buyer shall within seventy-two (72) hours after receipt of any
payment in respect of any Account Receivable, properly endorse and deliver to
Seller any such payments received on account of any Account Receivable.
Payments received by a Buyer shall be applied to the invoice designated by the
payer of such payment, or, if no invoice is so designated by the payer, such
payment shall be applied to the outstanding invoices to such account debtor in
chronological order, beginning with the oldest invoice. Each Buyer shall within
seventy-two hours transfer or deliver to Seller any cash or other property that
such Buyer may receive in respect of any asset of Seller not constituting a part
of the Assets. As promptly as practicable after the Closing, the Parties shall
agree on the substance of, and shall send, a notice to the customers of the
Division indicating that Accounts Receivable should be paid to the order
-24-
<PAGE>
of Seller and that accounts receivable arising out of sales made by the Buyers
after the Closing Date should be paid to the order of the Buyers.
6.6. COOPERATION. Buyers will cooperate with Seller to obtain any
-----------
and all approvals and consents necessary to effect the transactions contemplated
by this Agreement.
6.7. NOTICE OF DEVELOPMENTS.
----------------------
(a) Seller will give prompt written notice to Buyers of any
development causing a breach of any of its representations and warranties in
Article IV (other than Sections 4.1, 4.2, 4.3 (as to title only), 4.5(c), 4.7,
4.22, 4.24 and 4.27, which are governed by Section 6.7(b) below)). Unless
Buyers have the right to terminate this Agreement pursuant to Section 11.1(ii)
by reason of the development and exercise that right within the period of twenty
(20) calendar days after notice thereof to Buyers, the written notice pursuant
to this Section 6.7(a) will be deemed to have amended the Disclosure Schedule,
to have qualified the representations and warranties contained in Article IV,
and to have cured any misrepresentation or breach of warranty that otherwise
might have existed hereunder by reason of the development.
(b) Each Party will give prompt written notice to the other Party
of any development causing a breach of any of its own representations and
warranties in Sections 4.1, 4.2, 4.3 (as to title only), 4.5(c), 4.7, 4.22, 4.24
or 4.27, in the case of Seller, and Article V, in the case of Buyers. No
disclosure by any Party pursuant to this Section 6.7(b), however, shall be
deemed to amend or supplement the Disclosure Schedule or to prevent or cure any
misrepresentation or breach of warranty.
6.8. CASUALTY LOSSES. In the event that there shall have been
---------------
suffered between the date hereof and the Closing any casualty loss relating to
the Assets that becomes known to Seller, Seller will promptly notify Buyers of
such event and, if a Closing occurs, shall assign to the appropriate Buyer
Seller's right to all insurance proceeds payable as a result of the occurrence
of the event resulting in such loss or damage.
ARTICLE VII.
OTHER AGREEMENTS OF THE PARTIES
-------------------------------
The Parties agree as follows:
7.1. GENERAL. In case at any time after the Closing any further
-------
action is necessary to carry out the purposes of this Agreement, each of the
Parties will take such further action (including the execution and delivery of
such further instruments and documents) as the other Party reasonably may
request, all at the sole cost and expense of the requesting Party (unless the
requesting Party is entitled to indemnification therefor under Article X
hereof).
7.2. LITIGATION SUPPORT. In the event and for so long as any Party
------------------
actively is contesting or defending against any action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand in connection with
(i) any transaction contemplated under this Agreement or (ii) any fact,
situation, circumstance, status, condition, activity, practice, plan,
occurrence, event, incident, action, failure to act, or transaction on or prior
to the Closing Date involving the Division, the other Party will
-25-
<PAGE>
cooperate with the contesting or defending Party and its counsel in the contest
or defense, make available its personnel at reasonable times and upon reasonable
notice, and provide such testimony and access to its books and records as shall
be necessary in connection with the contest or defense, all at the sole cost and
expense of the contesting or defending Party (unless the contesting or defending
Party is entitled to indemnification therefor under Article X hereof).
7.3. COVENANT NOT TO COMPETE. Seller agrees that for a period of
-----------------------
five (5) years (the "Non-Compete Period") from and after the Closing Date,
Seller will not engage directly or indirectly, whether as a stockholder,
partner, member, joint venturer, advisor, consultant or independent contractor,
in the traditional mail order pharmacy business, specialty mail order pharmacy
business, or retail pharmacy network business anywhere in the United States or
induce or attempt to induce any person or entity that is a customer or supplier
of any Buyer in any of such businesses or otherwise a contracting party with any
Buyer with respect to any of such businesses to terminate any written or oral
agreement or understanding with such Buyer with respect to such businesses or
otherwise modify its relationship with such Buyer with respect to such
businesses in a manner adverse to such Buyer; provided, however, that (i)
-------- -------
nothing contained in this Section 7.3 shall restrict the sale by Seller of
medication management products and/or services to physicians, patients, or
managed care providers or payors (other than the sale of traditional mail order
pharmacy services, specialty mail order pharmacy services or retail pharmacy
network services to third-party payors, which Seller shall be prohibited from
doing for the Non-Compete Period), including via the Internet, and (ii) no owner
of less than 1% of the outstanding stock of any publicly traded corporation
shall be deemed to engage solely by reason thereof in any of such corporation's
businesses. During the Noncompete Period, Seller shall not induce or attempt to
induce any Rehired Employee to leave their employ, or otherwise solicit the
employment of any Rehired Employee. If the final judgment of a court of
competent jurisdiction declares that any term or provision of this Section 7.3
is invalid or unenforceable, the Parties agree that the court making the
determination of invalidity or unenforceability shall have the power to reduce
the scope, duration, or area of the term or provision, to delete specific words
or phrases, or to replace any invalid or unenforceable term or provision with a
term or provision that is valid and enforceable and that comes closest to
expressing the intention of the invalid or unenforceable term or provision, and
this Agreement shall be enforceable as so modified after the expiration of the
time within which the judgment may be appealed.
7.4. BULK TRANSFER LAWS. The Parties agree to waive compliance with
------------------
the requirements of any applicable bulk sales law provisions of the uniform
commercial codes of the states in which the Assets are situated or which may
otherwise be applicable to the transactions contemplated hereby, other than
those relating to Taxes.
7.5. TAX MATTERS.
-----------
(a) Seller will be responsible for the preparation and filing of
all Tax returns for all activities of the Division for all periods ending on or
before the Closing Date (including the consolidated, unitary, and combined Tax
returns for Seller which include the operations of the Division for any period
ending on or before the Closing Date). Seller will make all payments required
with respect to any such Tax return; provided, however, that Buyers will
-------- -------
reimburse Seller concurrently therewith to the extent any payment Seller is
making relates to the operations of the Division for any period beginning after
the Closing Date.
(b) Buyers will be responsible for the preparation and filing of
all Tax returns for all activities of the Division for all periods beginning
after the Closing Date (other than for Taxes with
-26-
<PAGE>
respect to periods for which the consolidated, unitary, and combined Tax returns
of Seller will include the operations of the Division). Buyers will make all
payments required with respect to any such Tax return; provided, however, that
-------- -------
Seller will reimburse Buyers concurrently therewith to the extent any payment
Buyers are making relates to the operations of the Division for any period
ending on or before the Closing Date.
(c) In the case of any real or personal property or other ad
valorem Tax imposed on the Assets for a Tax period that includes, but does not
end on, the Closing Date, the portion of such Tax related to the portion of such
Tax period ending on the Closing Date shall be deemed to be the amount of such
Tax for the entire Tax period multiplied by a fraction, the numerator of which
is the number of days in the Tax period ending on the Closing Date and the
denominator of which is the number of days in the entire Tax period. Seller
shall be responsible for any such Tax relating to the portion of such Tax period
ending on the Closing Date, and Buyers shall be responsible for any such tax
relating to the portion of such Tax period beginning after the Closing Date.
7.6. EMPLOYEES AND EMPLOYEE BENEFIT PLANS.
------------------------------------
(a) Each Buyer shall extend offers of employment to those Division
Employees whom it desires to hire in its sole discretion (such employees who
accept such offers of employment are hereinafter referred to as "Rehired
Employees"), which offers shall be on terms and conditions comparable to the
terms and conditions offered by such Buyer to its current employees of like
position; provided, however, that any such offer of employment shall not be
-------- -------
construed to limit the ability of such Buyer to terminate any such employee
following the Closing Date for any reason. Seller shall terminate the
employment of all Rehired Employees immediately prior to the Closing and any
cost, expense or liability resulting from, or incurred in connection with, such
terminations, other than vacation entitlements, accrued on or prior to the
Closing Date shall be the sole responsibility of Seller. The appropriate Buyer
shall assume responsibility and all liabilities and obligations for vacation
entitlements through the Closing Date of Rehired Employees.
(b) Buyers agree that each Rehired Employee shall receive full
credit for service with Seller for purposes of determining such employee's
eligibility for and determining the amount of benefit entitlement for holidays,
sick days, vacations, and also for purposes of determining eligibility
(including, without limitation, waiting periods under group health plans),
vesting and benefits provided under any other employee benefit plan, program,
policy or other arrangement covering such employee established, continued or
otherwise sponsored by a Buyer or an Affiliate of a Buyer after the Closing
Date; provided, however, that such crediting of service shall not operate to
-------- -------
duplicate any benefit or the funding of any such benefit for any such period of
service and shall be permitted under the applicable plan of a Buyer or its
Affiliate.
7.7. POST-CLOSING CONDUCT OF BUSINESS. Buyers agree to use their
--------------------------------
commercially reasonable efforts to maximize Actual Volume from the Closing Date
through the Anniversary Date; provided that nothing contained herein shall
impose upon any Buyer an obligation to exceed the efforts of Seller to maximize
Actual Volume as utilized for periods prior to the Closing.
7.8. RIGHT TO USE SELLER'S TRADEMARKS. Buyers acknowledge, without
--------------------------------
limitation, that the "Allscripts" trademark, tradename and related tradedress,
(the "Mark(s)"), is a Company-Wide Proprietary Right; however, effective on the
Closing Date, Seller hereby grants to Buyers the limited, non-exclusive,
royalty-free right to use the Marks for the sole purpose of (i) selling the
Closing Inventory
-27-
<PAGE>
branded with the Marks, (ii) allowing customers to use pharmacy cards that are
branded with the Marks, to the extent that such cards were previously issued in
conjunction with Seller's operation of the Division and are in effect on the
Closing Date, and (iii) printing and distributing prescription labels, receipts,
packaging and other printed materials necessary to do business as a mail order
pharmacy, provided, however, that any such printed materials shall be provided
-------- -------
to Seller for its prior approval, which approval shall not be unreasonably
withheld. Each of such rights shall separately expire upon (i) with regard to
the Closing Inventory, the earlier to occur of the date such Closing Inventory
is depleted or the Anniversary Date, (ii) with regard to the pharmacy cards, for
so long as such cards are in effect, but in no event later than the Anniversary
Date, and (iii) with regard to the printed materials, the date falling 180 days
after the Closing Date. Notwithstanding the foregoing, nothing herein shall be
deemed to permit Buyers to use the Marks in any manner to advertise, promote or
otherwise exploit the Marks. Other than as specifically provided herein, Seller
reserves and retains any and all rights in and to the Marks.
7.9. USE OF PERMITS. The Parties acknowledge that the Permits are
--------------
not transferable by Seller to the Buyers. Buyers hereby agree to use their best
efforts to secure appropriate replacement licenses and permits for the Permits
as promptly as practicable after the date hereof. Seller hereby agrees to, to
the extent permitted by applicable law, (i) allow Buyers to use the Permits, and
(ii) execute powers of attorney and such other documents as may be required to
allow Buyers to operate such aspects of the business of the Division requiring
pharmacy or drug permits and/or licenses that Buyers cannot obtain prior to the
Closing, in each case for a period ending on the first to occur of (i) the 180th
day after Closing, and (ii) the obtaining by Buyers of the relevant replacement
permit; provided, however, that any power of attorney executed by Seller with
-------- -------
respect to its DEA license shall be effective for no more than sixty (60) days.
ARTICLE VIII.
CONDITIONS TO SELLER'S OBLIGATIONS
----------------------------------
The obligations of Seller to consummate the transactions provided for
hereby are subject to the satisfaction, on or prior to the Closing Date, of each
of the following conditions, any of which may be waived in writing by Seller:
8.1. REPRESENTATIONS, WARRANTIES AND COVENANTS. All representations
-----------------------------------------
and warranties of Buyers contained in this Agreement shall be true and correct
in all material respects (except those representations and warranties which are
qualified by materiality, which shall be true and correct in all respects) at
and as of the date of this Agreement and at and as of the Closing Date, and each
Buyer shall have performed and satisfied all agreements and covenants required
hereby to be performed by it prior to or on the Closing Date. Each Buyer shall
have delivered to Seller a certificate dated the Closing Date to such effect.
8.2. NO PROCEEDINGS. No Action by any governmental authority or
--------------
other person shall have been instituted which prevents the consummation of the
transactions contemplated hereby.
8.3. GOVERNMENTAL APPROVALS. Seller and Buyers shall have received
----------------------
all other material authorizations, consents, and approvals of governments and
governmental agencies described on Schedule 8.3.
------------
8.4. FAIRNESS OPINION. The fairness opinion of DRW referred to in
----------------
Section 4.27 hereof shall not have been withdrawn or materially modified.
-28-
<PAGE>
8.5. CLOSING DOCUMENTS. Buyers shall have made the deliveries to
-----------------
Seller described in Section 3.2(b).
8.6. OPINION OF COUNSEL FOR BUYERS. Seller shall have received the
-----------------------------
opinion, dated the Closing Date, of Edwards & Angell, LLP, counsel for Buyers,
the substance of which is substantially as set forth on Schedule 8.6.
------------
8.7. ADDITIONAL AGREEMENTS. (a) PharmaCare shall have executed a
---------------------
Transition Services Agreement (the "Transition Services Agreement")
substantially in the form of Schedule 8.7(a).
---------------
(b) PharmaCare shall have executed a Participating Pharmacy
Agreement with Seller, which shall be substantially in the form of Schedule
--------
8.7(b) hereto.
- -------------
8.8. ACCEPTANCE OF EMPLOYMENT. Each of Amy Andres and John Glaza
------------------------
shall have accepted CVS ProCare's offer of employment, which offer shall be on
terms not materially less favorable than those currently enjoyed by such persons
with Seller.
ARTICLE IX.
CONDITIONS TO BUYERS' OBLIGATIONS
---------------------------------
The obligations of Buyers to consummate the transactions provided for
hereby are subject to the satisfaction, on or prior to the Closing Date, of each
of the following conditions, any of which may be waived in writing by Buyers:
9.1. REPRESENTATIONS, WARRANTIES AND COVENANTS. All representations
-----------------------------------------
and warranties of Seller contained in this Agreement shall be true and correct
in all material respects (except those representations and warranties which are
qualified by materiality, which shall be true and correct in all respects) at
and as of the date of this Agreement and at and as of the Closing Date, and
Seller shall have performed and satisfied all agreements and covenants required
hereby to be performed by it prior to or on the Closing Date. Seller shall have
delivered to Buyers a certificate dated the Closing Date to such effect.
9.2. NO PROCEEDINGS OR LITIGATION. No Action by any governmental
----------------------------
authority or other person shall have been instituted which prevents the
consummation of the transactions contemplated hereby.
9.3. GOVERNMENTAL APPROVALS. Seller and Buyers shall have received
----------------------
all other material authorizations, consents, and approvals of governments and
governmental agencies described on Schedule 8.3.
------------
9.4. CLOSING DOCUMENTS. Seller shall have made the deliveries to
-----------------
Buyers described in Section 3.2(a).
9.5. OPINION OF COUNSEL FOR SELLER. Buyers shall have received the
-----------------------------
opinion, dated the Closing Date, of Gardner, Carton & Douglas, counsel for
Seller, the substance of which is substantially as set forth on Schedule 9.5.
------------
9.6. ADDITIONAL AGREEMENTS. Seller shall have executed the
---------------------
Transition Services Agreement.
-29-
<PAGE>
9.7. ACCEPTANCE OF EMPLOYMENT. Each of Amy Andres and John Glaza
------------------------
shall have accepted CVS ProCare's offer of employment, which offer shall be on
terms not materially less favorable than those currently enjoyed by such persons
with Seller.
ARTICLE X.
INDEMNIFICATION
---------------
10.1. SURVIVAL OF REPRESENTATIONS. The representations and
---------------------------
warranties of Seller contained in Sections 4.3 (other than as to title), 4.4,
4.5, 4.6, 4.8 through 4.11, 4.13, 4.14, 4.15, 4.17, 4.20, 4.21, 4.23, 4.25,
4.26, 4.28 and 4.29 herein shall survive the consummation of the transactions
contemplated hereby for the period ending one (1) year after the Closing Date.
All of the other representations and warranties of the Parties contained herein
shall survive the Closing and continue in full force and effect forever
thereafter (subject to any applicable statutes of limitations). No claim for
breaches of representations and warranties may be made after the applicable
survival period expires; provided, however, that any claim made during the
--------- -------
applicable survival period not resolved during such period shall survive the
expiration of such survival period and the terms of this Article shall apply to
such claim as if such survival period had not expired.
10.2. INDEMNIFICATIONS.
----------------
(a) By the Seller. Seller shall indemnify, save and hold harmless
-------------
Buyers and their respective shareholders, officers, directors, employees,
subsidiaries, representatives, agents and Affiliates (collectively "Related
Parties"), from and against any and all costs, losses, Taxes, liabilities,
obligations, damages, lawsuits, claims, demands, and expenses (whether or not
arising out of third-party claims), including without limitation reasonable
attorneys' fees and all amounts reasonably paid in investigation, defense or
settlement of any of the foregoing (herein, "Damages"), suffered by any Buyer or
its Related Parties and caused by (i) any breach of any representation or
warranty made by Seller in this Agreement (each representation and warranty
being read for this purpose without regard to any "materiality"; "Material
Adverse Effect", "in any material respect" or similar exception or qualifier
contained in any such representation or warranty); (ii) any breach of any
covenant or agreement made by Seller in this Agreement; or (iii) any Excluded
Liability (including without limitation any liability imposed upon any Buyer as
a result of the parties' failure to comply with any bulk sales or similar law);
provided, however, that there will be an aggregate ceiling equal to 30% of the
- -------- -------
Purchase Price on the obligations of Seller to indemnify, save and hold harmless
Buyers and their respective Related Parties from and against Damages pursuant to
Section 10.2(a)(i) and (ii) (and no ceiling on the obligations of Seller under
Section 10.2(a)(iii)). Seller will not have any liability (for indemnification
or otherwise) under Section 10.2(a)(i) or (ii) until the total of all Damages
with respect to such matters exceeds One Hundred Fifty Thousand Dollars
($150,000) in the aggregate, and then only to the extent of such excess (and no
such threshold with respect to matters covered by Section 10.2(a)(iii)). For
purposes of this Section 10.2(a), to the extent any claim for indemnification
may be properly made pursuant to Section 10.2(a)(iii) and either Section
10.2(a)(i) or (ii), then such claim for indemnification to such extent shall be
deemed to be made pursuant only to Section 10.2(a)(iii) and not pursuant to
Section 10.2(a)(i) or (ii).
(b) By Buyers. Buyers, on a joint and several basis, shall
---------
indemnify and save and hold harmless Seller and its Related Parties from and
against any and all Damages suffered by Seller or its Related Parties and caused
by (i) any breach of any representation or warranty made by any Buyer in this
Agreement; (ii) any breach of any covenant or agreement made by any Buyer in
this Agreement (except as provided in (iv) below); (iii) any Buyer's use of any
Permit, Non-Transferable Asset or Mark, but only
-3-
<PAGE>
to the extent such Damages arise out of such Buyer's actions after the Closing;
(iv) any breach by any Buyer of its covenants or agreements set forth in
Sections 2.3, 2.4, 2.5, the last paragraph of Section 6.3 and Sections 6.5 and
7.7 hereof; or (v) any Assumed Liability; provided, however, that there will be
-------- -------
an aggregate ceiling equal to 30% of the Purchase Price on the obligations of
Buyers to indemnify, save and hold harmless Seller and its Related Parties from
and against Damages pursuant to Section 10.2(b)(i) and (ii) (and no ceiling on
the obligations of Buyers under Sections 10.2(b)(iii), (iv) or (v)). Buyers will
not have any liability (for indemnification or otherwise) under Section
10.2(b)(i) or (ii) until the total of all Damages with respect to such matters
exceeds One Hundred Fifty Thousand Dollars ($150,000) in the aggregate, and then
only to the extent of such excess (and no such threshold with respect to matters
covered by Section 10.2(b)(iii), (iv) or (v)). For purposes of this Section
10.2(b), to the extent any claim for indemnification may be properly made
pursuant to Section 10.2(b)(iii), (iv) or (v) and either Section 10.2(b)(i) or
(ii), then such claim for indemnification to such extent shall be deemed to be
made pursuant to Section 10.2(b)(iii), (iv) or (v) and not pursuant to Section
10.2(b)(i) or (ii).
(c) Defense of Claims. If a claim for Damages (a "Claim") is to be
-----------------
made by a Party entitled to indemnification hereunder (the "Indemnified Party")
against the other Party (the "Indemnifying Party"), the Indemnified Party shall
give written notice (a "Claim Notice") to the Indemnifying Party as soon as
practicable after the Indemnified Party becomes aware of any fact, condition or
event which may give rise to Damages for which indemnification may be sought
under this Section 10.2. If any lawsuit or enforcement action is filed against
an Indemnified Party, written notice thereof shall be given to the Indemnifying
Party as promptly as practicable (and in any event within fifteen (15) calendar
days after the service of the citation or summons). The failure of any
Indemnified Party to give timely notice hereunder shall not affect rights to
indemnification hereunder, except to the extent that the Indemnifying Party
demonstrates actual damage caused by such failure. After such notice, if the
Indemnifying Party shall acknowledge in writing to the Indemnified Party that
the Indemnifying Party shall be obligated under the terms of its indemnity
hereunder in connection with such lawsuit or action, then the Indemnifying Party
shall be entitled, if it so elects, (i) to take control of the defense and
investigation of such lawsuit or action, (ii) to employ and engage attorneys of
its own choice to handle and defend the same (unless the named parties to such
action or proceeding include both the Indemnifying Party and the Indemnified
Party and the Indemnified Party has been advised in writing by counsel that
there may be one or more legal defenses available to such Indemnified Party that
are different from or additional to those available to the Indemnifying Party,
in which event the Indemnified Party shall be entitled at the Indemnifying
Party's cost, risk and expense, to separate counsel of its own choosing) and
(iii) to compromise or settle such claim, which compromise or settlement shall
be made only with the written consent of the Indemnified Party (such consent not
to be unreasonably withheld) unless the proposed settlement involves only the
payment of money damages by the Indemnifying Party. If the Indemnifying Party
fails to assume the defense of such claim within thirty (30) calendar days after
receipt of the Claim Notice, the Indemnified Party against which such claim has
been asserted will (upon delivering notice to such effect to the Indemnifying
Party) have the right to undertake, at the Indemnifying Party's cost and
expense, the defense, compromise or settlement of such claim on behalf of and
for the account and risk of the Indemnifying Party; provided, however, that such
-------- -------
Claim shall not be compromised or settled without the written consent of the
Indemnifying Party, (such consent not to be unreasonably withheld), unless the
proposed settlement involves only the payment of money damages by the
Indemnifying Party. In the event the Indemnified Party assumes the defense of
the claim, the Indemnified Party will keep the Indemnifying Party reasonably
informed of the progress of any such defense, compromise or settlement.
(d) Certain Benefits. The amount of any indemnification payable
under this Article X shall be net of any net insurance proceeds actually paid to
the Indemnified Party under any policy or policies
-31-
<PAGE>
of insurance covering the loss giving rise to the claim. The Indemnified Party
will use reasonable efforts to collect any such insurance and will account to
the Indemnifying Party therefor. The Parties agree to respond within a
reasonable time to any inquiry by the other Party as to the status of any such
insurance payment. All indemnification payments pursuant to this Article X shall
be deemed adjustments to the Purchase Price.
(e) Buyers' Right of Offset. Buyers shall have the right to offset
-----------------------
any unpaid indemnification obligations of Seller hereunder against any amount
due to Seller as Contingent Purchase Price.
(f) Exclusive Remedy. The Parties acknowledge and agree that the
----------------
foregoing indemnification provisions in this Article X shall be the exclusive
remedy of Buyers and Seller and their respective Related Parties with respect to
the Division and the transactions contemplated by this Agreement.
ARTICLE XI.
TERMINATION; REMEDIES
---------------------
11.1. TERMINATION. At any time before the Closing, this Agreement
-----------
may be terminated (i) by mutual written consent of the Parties; (ii) by either
Buyers, on the one hand, or Seller, on the other hand, if there has been a
material misrepresentation, a material breach of warranty, any breach of any
representation or warranty qualified as to materiality, or a material breach of
covenant by the other; (iii) by either Buyers, on the one hand, or Seller, on
the other hand, if the Closing does not occur on or before April 30, 1999 (or
such later date as the Parties shall mutually agree), unless the failure of the
Closing to occur by such date shall be due to the action or failure to act of
the Party seeking to terminate this Agreement, which action or failure to act
constitutes a breach of this Agreement; or (iv) by Seller, in connection with
the acceptance of a Takeover Proposal, whereupon Seller shall promptly pay
Buyers the sum of $300,000 plus Buyers' reasonable out-of-pocket expenses
incurred through the date of termination in connection with the transaction
contemplated by this Agreement, including attorneys' fees and expenses (which
amounts are expressly acknowledged by the Parties to not be a penalty), by wire
transfer of immediately available funds.
11.2. EFFECT OF TERMINATION. In the event of the termination of this
---------------------
Agreement pursuant to Section 11.1, written notice thereof shall forthwith be
given to the other Party specifying the provision hereof pursuant to which such
termination is made, and this Agreement shall forthwith become null and void and
of no further force or effect, and no Party hereto (or any of its Affiliates,
directors, officers, agents or representatives) shall have any liability or
obligation hereunder (except for any liability of any Party then in breach);
provided, however, that the provisions of Sections 6.2 (Access) and 12.6
- -------- -------
(Expenses) shall survive any such termination.
ARTICLE XII.
MISCELLANEOUS
-------------
12.1. ASSIGNMENT. Neither this Agreement nor any of the rights or
----------
obligations hereunder nor any of the assets comprising the business currently
operated as the Division may be assigned by any Party without the prior written
consent of the other Party; except that a Buyer may, without such consent,
transfer any of the assets comprising the business currently operated as the
Division (including by way of merger) and/or assign all such rights and
obligations, in each case, to one or more Affiliates of a Buyer
-32-
<PAGE>
or to a successor in interest to such Buyer that shall expressly assume all
obligations and liabilities of such Buyer under this Agreement. Such assumption
of the obligations and liabilities of a Buyer shall not relieve such Buyer of
its obligations and liabilities under this Agreement, including, without
limitation, such Buyer's obligations under Section 7.7 of this Agreement
(provided that the commercial reasonableness of such Buyer's efforts to maximize
Actual Volume under Section 7.7 shall be determined as if no such assignment by
such Buyer had occurred). Subject to the foregoing, this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns, and except as provided in Article X, no other
person shall have any right, benefit or obligation under this Agreement as a
third-party beneficiary or otherwise.
12.2. NOTICES. All notices, requests, demands and other
-------
communications which are required or may be given under this Agreement shall be
in writing and shall be deemed to have been duly given when received if
personally delivered; when transmitted if transmitted by telecopy, electronic or
digital transmission method; the day after it is sent, if sent for next day
delivery to a domestic address by recognized overnight delivery service (e.g.,
Federal Express); and upon receipt, if sent by certified or registered mail,
return receipt requested. In each case notice shall be sent to:
If to Seller,
addressed to: Allscripts, Inc.
2401 Commerce Drive
Libertyville, Illinois 60048
Attention: J. Gregory Cull
Fax No.: 847-680-1384
With a copy to: Gardner, Carton & Douglas
321 North Clark Street
Suite 2900
Chicago, Illinois 60610
Attention: Joseph H. Greenberg
Fax No.: 312-644-3381
If to any Buyer,
addressed to: c/o CVS Corporation
One CVS Drive
Woonsocket, RI 02895
Attention: Zenon P. Lankowsky
Fax No.: 401-765-7887
With a copy to: Edwards & Angell, LLP
2800 BankBoston Plaza
Providence, RI 02903
Attention: Christopher D. Graham, Esq.
Fax No: 401-276-6611
or to such other place and with such other copies as either Party may designate
as to itself by written notice to the others.
-33-
<PAGE>
12.3. CHOICE OF LAW. This Agreement shall be construed, interpreted
-------------
and the rights of the parties determined in accordance with the laws of the
State of Illinois (without reference to the choice of law provisions of Illinois
law), except with respect to matters of law concerning the internal corporate
affairs of any corporate entity which is a party to or the subject of this
Agreement, and as to those matters the law of the jurisdiction under which the
respective entity derives its powers shall govern.
12.4. ENTIRE AGREEMENT; AMENDMENTS AND WAIVERS. This Agreement,
----------------------------------------
together with all exhibits and schedules hereto and thereto (including the
Disclosure Schedule), constitutes the entire agreement between the Parties
pertaining to the subject matter hereof and supersede all prior agreements,
understandings, negotiations and discussions, whether oral or written, of the
Parties. THE REPRESENTATIONS AND WARRANTIES BY SELLER IN THIS AGREEMENT AND ANY
EXHIBITS OR SCHEDULES HERETO, AND ANY OTHER AGREEMENTS OR DOCUMENTS TO BE
EXECUTED BY SELLER IN CONNECTION HEREWITH, CONSTITUTE THE SOLE AND EXCLUSIVE
REPRESENTATIONS AND WARRANTIES OF SELLER TO BUYERS IN CONNECTION WITH THE
TRANSACTIONS CONTEMPLATED HEREBY, AND BUYERS UNDERSTAND, ACKNOWLEDGE AND AGREE
THAT ALL OTHER REPRESENTATIONS AND WARRANTIES OF ANY KIND OR NATURE EXPRESSED OR
IMPLIED (INCLUDING, BUT NOT LIMITED TO, ANY RELATING TO THE FUTURE OR HISTORICAL
FINANCIAL CONDITION, RESULTS OF OPERATIONS, ASSETS OR LIABILITIES OF THE
DIVISION) ARE SPECIFICALLY DISCLAIMED BY SELLER. This Agreement may not be
amended except by an instrument in writing signed on behalf of each of the
Parties hereto. No amendment, supplement, modification or waiver of this
Agreement shall be binding unless executed in writing by the Party to be bound
thereby. No waiver of any of the provisions of this Agreement shall be deemed or
shall constitute a waiver of any other provision hereof (whether or not
similar), nor shall such waiver constitute a continuing waiver unless otherwise
expressly provided.
12.5. COUNTERPARTS. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
12.6. EXPENSES. Except as otherwise specified in this Agreement, each
--------
Party hereto shall pay its own legal, accounting, out-of-pocket and other
expenses incident to this Agreement and to any action taken by such Party in
preparation for carrying this Agreement into effect.
12.7. INVALIDITY. In the event that any one or more of the provisions
----------
contained in this Agreement or in any other instrument referred to herein,
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, then to the maximum extent permitted by law, such invalidity,
illegality or unenforceability shall not affect any other provision of this
Agreement or any other such instrument.
12.8. PUBLICITY. No Party will issue any press release or make any
---------
other public statement relating to the transactions contemplated hereby unless
(i) mutually agreed to by the Parties, or (ii) required by law, regulation,
court order or the rules of any applicable stock exchange or the Nasdaq Stock
Market or of any applicable regulatory authority and any such release or
statement shall be subject to prior review by PharmaCare and Seller.
-34-
<PAGE>
12.9. KNOWLEDGE. The phrase "to the Seller's knowledge", or words of
---------
comparable import, shall mean facts or circumstances within the actual personal
knowledge, after reasonable inquiry, of any of Amy Andres, David Mullen, John
Cull, Glen Tullman and Michael Cahr.
12.10. JOINT DRAFTING. The Parties have participated jointly in the
--------------
negotiation and drafting of this Agreement and the other agreements and
documents to be executed by the Parties in connection herewith. In the event an
ambiguity or question of intent or interpretation arises, this Agreement and the
other agreements and documents to be executed by the Parties in connection
herewith shall be construed as if drafted jointly by the Parties and no
presumption or burden of proof shall arise favoring or disfavoring any Party by
virtue of the authorship of any of the provisions of this Agreement and the
other agreements and documents to be executed by the Parties in connection
herewith.
-35-
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
duly executed and delivered on their respective behalf, by their respective
officers thereunto duly authorized, all as of the day and year first above
written.
BUYERS:
PHARMACARE MANAGEMENT SERVICES, INC.
BY: /S/ GREG S. WEISHAR
--------------------------
NAME: GREG S. WEISHAR
------------------
ITS: PRESIDENT/COO
-------------------
PHARMACARE DIRECT, INC.
BY: /S/ GREG S. WEISHAR
--------------------------
NAME: GREG S. WEISHAR
--------------------
ITS: PRESIDENT/COO
-------------------
PROCARE PHARMACY, INC.
BY: /S/ DENNIS BURTON
------------------------
NAME: DENNIS BURTON
------------------
ITS: PRESIDENT
----------------
SELLER:
ALLSCRIPTS, INC.
BY: /S/ DAVID B. MULLEN
--------------------------
NAME: DAVID B. MULLEN
---------------------
ITS: PRESIDENT
---------------
<PAGE>
DEBENTURE WARRANT
-----------------
No. W-WarrantNo Warrant to Purchase Shares of
Common Stock (subject to
adjustment)
ALLSCRIPTS, INC.
Incorporated Under the Laws of the State of Illinois
THIS CERTIFIES THAT, for value received, Name or its assigns is entitled
to subscribe for and purchase during the period specified in this Warrant,
No Shares (subject to adjustment as hereinafter provided) fully paid and non-
assessable Common Shares, par value $.01 per share (the "Common"), of
ALLSCRIPTS, INC., an Illinois corporation (the "Corporation"), at the price of
$.01 per share, subject, however, to the provisions and upon the terms and
conditions hereinafter set forth.
1. Duration. The right to subscribe for and purchase shares of Common of
--------
the Corporation represented hereby shall expire at 5:00 P.M., Central Standard
Time, on April 15, 2003. The Corporation shall give 30 days' written notice to
the Holder of this Warrant to the effect that such right will expire on April
15, 2003. If, on such expiration date, the Corporation is then required,
pursuant to an effective request therefor, to effect, or is in the process of
effecting, a registration under the Securities Act for an underwritten public
offering in which shares of Warrant Stock are, pursuant to the Registration
Agreement, entitled to be included, or if the Corporation is in default of any
obligation created by Sections 2 and 3 of the Registration Agreement or of any
of its obligations under the Agreement regarding the transfer of this Warrant or
of any Warrant Stock or the registration of any Warrant Stock, or is in default
of any obligation created by (i) Sections 6.2 or 6.3 of the Agreement or (ii)
Sections 6.1(a) or (b) of the Agreement, if the Holder of this Warrant gives
written notice to the Corporation that the Corporation is in default under such
provisions, said right to subscribe for and purchase shares of Common shall
expire at 5:00 P.M., Central Standard Time on the later of (i) the 30th day
following the date on which such registration shall have become effective (but
in no event longer than 180 days beyond the date this Warrant would have
expired) or (ii) on the 30th day following the date all of such breaches have
been cured, as the case may be.
2. Method of Exercise; Payment; Issuance of New Warrant; Transfer and
------------------------------------------------------------------
Exchange. The purchase right represented by this Warrant may be exercised at
- --------
any time prior to expiration.
The Holder hereof may exercise this Warrant, in whole or in part, by the
surrender of this Warrant (with the subscription form attached hereto duly
executed) at the principal office of the Corporation, and by the payment to the
Corporation of the then applicable Warrant Price for the shares being purchased
upon such exercise by certified or official bank check or by surrender to the
Corporation of additional Warrants or other Securities. Any Warrant so
surrendered shall be valued at an amount equal to (i) the excess of the Fair
Market Value per share of Common over the Warrant Price, multiplied by (ii) the
number of shares of Common purchasable upon exercise of such Warrant, in each
case determined as of the date of surrender. Any other Security so surrendered
shall be valued at its Fair Market Value as of the date of surrender. In the
event of any exercise of the rights represented by this Warrant, (i) stock
certificates for the shares of Common so purchased shall be delivered to the
Holder
<PAGE>
hereof forthwith, and unless this Warrant has expired, a new Warrant
representing the number of shares, if any, with respect to which this Warrant
shall not then have been exercised or surrendered as consideration or partial
consideration for the exercise of this Warrant shall also be delivered to the
Holder hereof forthwith, and (ii) stock certificates for the shares of Common so
purchased shall be dated the date of exercise of this Warrant, and the Holder
exercising this Warrant shall be deemed for all purposes to be the Holder of the
shares of Common so purchased as of the date of such exercise. This Warrant may
not be transferred, in whole or in part, except by means of (i) a transfer made
in accordance with Section 7.2 of the Agreement, or (ii) a transfer exempt from
registration under the Securities Act permitted under and made in conformance
with Section 7.4 of the Agreement or (iii) a transfer to an underwriter made in
accordance with Section 9 of the Registration Agreement. This Warrant, if so
permitted to be transferred, may be transferred on the books of the Corporation
by the Holder hereof in person or by duly authorized attorney, upon surrender of
this Warrant at the principal office of the Corporation, properly endorsed and
upon payment of any necessary transfer tax or other governmental charge imposed
upon such transfer.
The issuance of stock certificates for shares of Common so purchased upon
exercise of this Warrant shall be made without charge to the Holder hereof for
any issuance tax in respect thereof or other cost incurred by the Corporation in
connection with such exercise and the related issuance of shares of Common. The
Corporation shall assist and cooperate with any Holder required to make any
governmental filings or obtain any governmental approvals prior to or in
connection with any exercise of this Warrant (including, without limitation,
making any filings required to be made by the Corporation). Notwithstanding
any other provision hereof, if an exercise of any portion of this Warrant is to
be made in connection with a registered public offering or sale of the
Corporation, the exercise of any portion of this Warrant may, at the election of
the Holder hereof, be conditioned upon the consummation of the public offering
or sale of the Corporation in which case such exercise shall not be deemed to be
effective until the consummation of such transaction.
This Warrant is exchangeable at the aforesaid principal office of the
Corporation for Warrants for the purchase of the same aggregate number of shares
of Common, each new Warrant to represent the right to purchase such number of
shares of Common as the Holder hereof shall designate at the time of such
exchange. All Warrants issued on transfers or exchanges shall be dated the date
hereof and shall be identical with this Warrant except as to the number of
shares of Common issuable pursuant hereto.
3. Stock Fully Paid; Reservation of Shares. The Corporation covenants and
---------------------------------------
agrees that all shares of Common which may be issued upon the exercise of the
rights represented by this Warrant shall, upon issuance, be fully paid and non-
assessable and free from all taxes, liens and charges with respect to issuance.
The Corporation further covenants and agrees that during the period within which
the rights represented by this Warrant may be exercised, the Corporation shall
at all times have authorized and reserved for the purpose of the issue upon
exercise of the subscription rights evidenced by this Warrant a sufficient
number of shares of Common to provide for the exercise of the rights represented
by this Warrant. If the Warrant Price is at any time less than the par value of
the Common or if the Warrant at any time is exercisable by its delivery alone
and without payment of any additional consideration, the Corporation also
covenants and agrees to cause to be taken such action (whether by lowering the
par value of the Common, the conversion of the Common from par value to no par
value, or otherwise) as will permit the exercise of this Warrant, without any
additional payment by the Holder hereof (other than payment of the Warrant
Price, if any, and applicable transfer taxes, if any), and the issuance of the
Common, which Common, upon issuance, will be fully paid and non-assessable.
-2-
<PAGE>
4. Adjustment of Number of Shares. The number of shares of Common
------------------------------
purchasable upon the exercise of this Warrant shall be subject to adjustment
from time to time upon the happening of certain events as follows:
(a) Reclassification, Consolidation or Merger. In case of any
-----------------------------------------
reclassification or change of outstanding Common issuable upon exercise of
the conversion right of this Warrant, or in case of any consolidation or
merger of the Corporation with or into another corporation which does not
constitute a liquidation under the Preferred Resolutions, this Warrant
shall, without payment of additional consideration therefor, be deemed
modified so as to provide that upon the exercise hereof, the Holder of this
Warrant shall procure, in lieu of each share of Common theretofore issuable
upon such exercise, the kind and amount of shares of Stock, other
securities, money and property receivable upon such reclassification,
change, consolidation or merger by the Holder of one share of Common
issuable upon exercise of the Warrant had such exercise occurred
immediately prior to such reclassification, change, consolidation or
merger. Such new Warrant shall be deemed to provide for adjustments which
shall be as nearly equivalent as may be practicable to the adjustments
provided for in this Section 4. The provisions of this subsection (a)
shall similarly apply to successive reclassifications, changes,
consolidations and mergers.
(b) Subdivision or Combination of Shares. If the Corporation, at any
------------------------------------
time while this Warrant is outstanding, shall subdivide or combine its
Common, the number of shares of Common purchasable upon exercise of this
Warrant shall be proportionately increased, in case of subdivision of
shares, as of the effective date of such subdivision, or if the Corporation
shall take a record of Holders of its Common for the purpose of a
subdividing, as of such record date, whichever is earlier, or shall be
proportionately decreased, in the case of combination of shares, as at the
effective date of such combination or, if the Corporation shall take a
record of Holders of its Common for the purpose of so combining, as of such
record date, whichever is earlier.
(c) Certain Dividends and Distributions. If the Corporation, at any
-----------------------------------
time while this Warrant is outstanding, shall:
(i) Stock Dividends. Pay a dividend payable in, effect a split-up
---------------
of, or make any other distribution of, Common, the number of shares of
Common purchasable upon exercise of this Warrant shall be increased,
as of the date the Corporation shall take a record of the Holders of
its Common, for the purpose of receiving such dividend, stock split-up
or other distribution (or if no such record is taken, as of the date
of such payment, stock split or other distribution), to that number of
shares determined by multiplying the number of shares of Common
purchasable upon exercise of this Warrant as determined immediately
prior to such record date (or if no such record is taken, then
immediately prior to such payment or other distribution), by a
fraction (1) the numerator of which shall be the total number of
shares of Common outstanding immediately after such dividend, stock
split or distribution (plus in the event that the Corporation paid
cash for fractional shares, the number of additional shares which
would have been outstanding had the Corporation issued fractional
shares in connection with said dividend, stock split or distribution),
and (2) the denominator of which shall be the total number of shares
of Common outstanding immediately prior to such dividend, stock split
or distribution.
(ii) Liquidating Dividends, etc. Make a distribution of its
---------------------------
assets to the Holders of its Common as a dividend in liquidation or
partial liquidation or by way of
-3-
<PAGE>
return of capital or other than as a dividend payable out of funds
legally available for dividends under the laws of the State of
Illinois, the Holder of the Warrant shall, upon exercise, be entitled
to receive, in addition to the number of shares of Common receivable
thereupon, and without payment of any consideration therefor, a sum
equal to the value of such assets as would have been distributable to
them as owners of that number of shares of Common of the Corporation
receivable by exercise of this Warrant, had such Holder been the
Holder of record of such Common on the record date for such
distribution; and all appropriate provisions therefor shall be made a
part of any such distribution, including, without limitation, the
placement by the Corporation of such sum into escrow.
(d) Issuance of Additional Shares of Common.
---------------------------------------
Prior to the completion of a Qualified Initial Public Offering, if at
any time the Corporation issues any Additional Shares of Common (excluding
issuances pursuant to transactions described in paragraphs (a), (b) or (c)
of Section 4 of the Warrant) at a time when this Warrant is outstanding and
not expired for a consideration per share of Common issued at less than the
Dilution Price in effect immediately prior to such issuance of Common,
then, upon each such issuance, the number of shares of Common purchasable
upon exercise of this Warrant shall be increased so that the number of
shares of Common purchasable upon exercise of this Warrant shall equal the
product of the Base Warrant Shares and a fraction (rounded to the nearest
thousandth), the numerator of which is the Initial Dilution Price and the
denominator of which is the Dilution Price in effect immediately after such
issuance.
The provisions of this subsection 4(d) shall not apply under any of
the circumstances for which an adjustment is provided in subsections 4(a),
(b) or (c) hereof. No adjustment of the number of shares of Common
purchasable upon exercise of this Warrant shall be made under this
subsection 4(d) upon the issuance of any Additional Shares of Common which
are issued pursuant to any Common Stock Equivalent if, upon the issuance or
amendment of any such Common Stock Equivalent (i) any such adjustment shall
previously have been made pursuant to subsection 4(e) hereof or (ii) no
adjustment was required pursuant to subsection 4(e) hereof.
(e) Issuance of Common Stock Equivalents. Prior to the completion of
------------------------------------
a Qualified Initial Public Offering, if the Corporation, at any time while
this Warrant is outstanding, shall issue any Common Stock Equivalent and
the price per share for which Additional Shares of Common may be issuable
thereafter pursuant to such Common Stock Equivalent shall be less than the
Dilution Price then in effect, or if, after any such issuance, the price
per share for which Additional Shares of Common may be issuable thereafter
is amended, and such price, as so amended, shall be less than the Dilution
Price at the time of such amendment, then the number of shares of Common
purchasable upon exercise of this Warrant shall be increased upon each such
issuance or amendment as provided in subsection (d) of this Section 4 on
the basis that (1) the Additional Shares of Common issuable pursuant to
such Common Stock Equivalents shall be deemed to have been issued as of the
earlier of (A) the date on which the Corporation shall enter into a
contract for the issuance of such Common Stock Equivalent, or (B) the date
of actual issuance of such Common Stock Equivalent, and (2) the
consideration for such Additional Shares of Common shall be deemed to be
the minimum consideration received and receivable by the Corporation for
the issuance of such Additional Shares of Common pursuant to such Common
Stock Equivalent. No adjustment in the number of shares of Common
purchasable upon exercise of this Warrant shall be made under this
subsection (e) upon the issuance of any
-4-
<PAGE>
Convertible Security which is issued pursuant to the exercise of any
warrants or other subscription or purchase rights therefor, if any
adjustment in the number of shares of Common purchasable upon exercise of
this Warrant shall previously have been made upon the issuance of such
warrants or other rights pursuant to this subsection (e).
(f) [Intentionally Omitted]
(g) Other Provisions Applicable to Adjustments Under This Section 4.
---------------------------------------------------------------
The following provisions shall be applicable to the making of adjustments
in the number of Common Shares purchasable upon exercise of this Warrant
hereinbefore provided in this Section 4:
(i) Computation of Consideration. The consideration received by
----------------------------
the Corporation shall be deemed to be the following: to the extent
that any Additional Shares of Common or any Common Stock Equivalents
shall be issued for a cash consideration, the consideration received
by the Corporation therefor, or, if such Additional Shares of Common
or Common Stock Equivalents are offered by the Corporation for
subscription, the subscription price, or if such Additional Shares of
Common or Common Stock Equivalents are sold to underwriters or dealers
for public offering without a subscription offering, the initial
public offering price, in each such case excluding any amounts paid or
receivable for accrued interest or accrued dividends and without
deduction of any compensation, discounts, commissions, or expenses
paid or incurred by the Corporation for and in the underwriting of, or
otherwise in connection with, the issue thereof; to the extent that
such issuance shall be for a consideration other than cash, then,
except as herein otherwise expressly provided, the consideration
received by the Corporation shall be the fair market value of such
consideration at the time of such issuance as determined in good faith
by the Board. The consideration for any Additional Shares of Common
issuable pursuant to any Common Stock Equivalent shall be the
consideration received by the Corporation for issuing such Common
Stock Equivalents, plus the additional consideration payable to the
Corporation upon the exercise, conversion or exchange of such Common
Stock Equivalents. In case of the issuance at any time of any
Additional Shares of Common or Common Stock Equivalents in payment or
satisfaction of any dividend upon any class of Stock other than
Common, the Corporation shall be deemed to have received for such
Additional Shares of Common or Common Stock Equivalents a
consideration equal to the amount of such dividend so paid or
satisfied. In any case in which the consideration to be received or
paid shall be other than cash, the Board shall notify the Holder of
this Warrant of its determination of the fair market value of such
consideration prior to payment or accepting receipt thereof. If,
within ten days after receipt of said notice, the Holders of Warrants
exercisable for at least a majority of Warrant Stock then unissued
shall notify the Board in writing of their objection to such
determination, a determination of fair market value of such
consideration shall be made by arbitration in accordance with the
Rules of the American Arbitration Association, by an arbitrator in the
City of Chicago, Illinois.
(ii) Readjustment of Warrant. Upon the expiration of the right
-----------------------
to convert, exchange or exercise any Common Stock Equivalents the
issuance of which effected an adjustment in the number of shares of
Common purchasable upon exercise of this Warrant under subsection (d)
or (e) of this Section 4, if none of such Common Stock Equivalents
shall have been converted, exercised or exchanged, the Dilution Price
(and
-5-
<PAGE>
therefore the number of shares of Common purchasable upon
exercise of this Warrant) shall forthwith be readjusted and thereafter
be the price which it would have been (but reflecting any other
adjustments in the number of shares of Common purchasable upon
exercise of this Warrant made pursuant to the provisions of this
Section 4 after the issuance of such Common Stock Equivalents) had an
adjustment of the Dilution Price not been effected as a result of the
issuance of such Common Stock Equivalents.
(h) Certain Events. If after the date hereof any event occurs of the
--------------
type contemplated by the provisions of this Section 4 but not expressly
provided for by such provisions (including, without limitation, the
granting of stock appreciation rights, phantom stock rights or other rights
with equity features), then the Board shall make an appropriate adjustment
in the number of shares of Common purchasable upon exercise of this Warrant
(and in the Dilution Price) so as to protect the rights of the Holder of
this Warrant; provided that no such adjustment shall decrease the number of
shares of Common purchasable upon exercise of this Warrant (or increase the
Dilution Price) as otherwise determined pursuant to this Section 4.
(i) Adjustment of Warrant Price. Upon each adjustment in the number
---------------------------
of shares of Common purchasable hereunder pursuant to any provision of this
Section 4, the Warrant Price shall be adjusted, to the nearest one
hundredth of a cent, to the product obtained by multiplying the Warrant
Price immediately prior to such adjustment in the number of shares of
Common purchasable hereunder by a fraction, the numerator of which shall be
the number of shares of Common purchasable hereunder immediately prior to
such adjustment and the denominator of which shall be the number of shares
of Common purchasable hereunder immediately thereafter, provided, however,
-------- -------
that the product of the Warrant Price at any time and the number of shares
of Common purchasable hereunder at such time shall never exceed the product
of $.01 and the Base Warrant Shares.
(j) Default by Corporation. If the Corporation shall be in default
----------------------
under the agreement contained in the last sentence of Section 3 hereof so
that applicable law prevents the issuance of shares at the Warrant Price
adjusted in accordance with this Section 4, the Holder of this Warrant
shall be entitled to purchase shares at the lowest price at which this
Warrant may then be exercised. Such exercise shall not constitute a waiver
of any claim arising against the Corporation by reason of its default under
the agreement contained in the last sentence of Section 3 of this Warrant.
5. Notice of Adjustments. Whenever the number of shares of Common
---------------------
purchasable upon exercise of this Warrant shall be adjusted pursuant to Section
4 hereof, the Corporation shall make a certificate signed by its President or a
Vice President and by its Treasurer, Assistant Treasurer, Secretary or Assistant
Secretary setting forth, in reasonable detail, the event requiring the
adjustment, the amount of the adjustment, the method by which such adjustment
was calculated (including a description of the basis on which the Board made any
determination hereunder), and the number of shares of Common purchasable upon
exercise of this Warrant after giving effect to such adjustment, and shall cause
copies of such certificate to be mailed (by first class mail, postage prepaid)
to the Holder of this Warrant promptly after each adjustment.
6. Fractional Shares and Rounding. No fractional shares of Common shall
------------------------------
be issued in connection with any exercise hereof, but in lieu of such fractional
shares, the Corporation shall make a cash payment therefor equal in amount to
the product of the applicable fraction multiplied by the
-6-
<PAGE>
Dilution Price then in effect. All computations in connection with the
adjustment of the Dilution Price shall be rounded to the fourth decimal place.
7. Liquidation Dividends. If the Corporation declares or pays a dividend
---------------------
upon the Common payable otherwise than in cash out of earnings or earned surplus
(determined in accordance with generally accepted accounting principles,
consistently applied) except for a stock dividend payable in shares of Common (a
"Liquidating Dividend"), then the Corporation shall pay to the Holder of this
Warrant at the time of payment thereof the Liquidating Dividend which would have
been paid to such Holder on the number of shares of Common purchasable upon
exercise of this Warrant had this Warrant been fully exercised immediately prior
to the date on which a record is taken for such Liquidating Dividend, or, if no
record is taken, the date as of which the record holders of Common entitled to
such dividends are to be determined.
8. Definitions. For the purposes of this Warrant, the following terms
-----------
have the following meanings:
"Additional Shares of Common" shall at any time have the meaning given to
that term in the Agreement, as the Agreement may be amended at such time of
determination.
"Affiliates" shall mean any entity controlling, controlled by or under
common control with a designated Person. For the purposes of this definition,
"control" shall have the meaning specified for that word in Rule 405 promulgated
by the Securities and Exchange Commission under the Securities Act.
"Agreement" shall mean the Exchange Agreement, entered into in April, 1998,
between the Corporation and those Persons listed on Schedule I thereto
pertaining to the issuance of Series J Preferred and Warrants, as, from time to
time, such Agreement may be amended.
"Base Warrant Shares" shall be that number of shares of Common set forth in
the first paragraph of this Warrant.
"Common" shall mean the Corporation's Common Stock, par value $.01 per
share, and any Stock into which such Common Stock may hereafter be changed.
"Common Stock Equivalent" shall mean any Convertible Security or warrant,
option or other right to subscribe for or purchase any Additional Shares of
Common or any Convertible Security.
"Convertible Securities" shall mean evidences of indebtedness, shares of
Stock or other Securities which are or may be at any time convertible into or
exchangeable for Additional Shares of Common. The term "Convertible Security"
shall mean one of the Convertible Securities.
"Corporation" shall mean Allscripts, Inc., an Illinois corporation, and all
successor corporations thereof.
"Dilution Price" shall mean the Initial Dilution Price until there has been
an adjustment in the number of shares of Common purchasable upon exercise of
this Warrant pursuant to Section 4 hereof and thereafter the Dilution Price will
be increased or decreased as follows: (i) in the case of an adjustment pursuant
to subsection 4(c) or 4(d) hereof, it shall be decreased by the full amount by
which the Dilution Price in effect immediately prior to each such adjustment
exceeds the issue price per share
-7-
<PAGE>
of Common issued or deemed to have been issued giving rise to each such
adjustment, (ii) in the case of an adjustment pursuant to subsection 4(b)
hereof, it shall be increased or decreased proportionately to give effect to the
combination or subdivision of shares giving rise to such adjustment and (iii) in
the case of an adjustment pursuant to subsection 4(c)(i) hereof, it shall be
decreased to that price determined by multiplying the Dilution Price in effect
immediately prior to the dividend, stock split-up or other distribution giving
rise to such adjustment by a fraction (1) the numerator of which shall be the
total number of shares of Common outstanding immediately prior to such dividend,
stock split or distribution (plus in the event that the Corporation paid cash
for fractional shares, the number of additional shares which would have been
outstanding had the Corporation issued fractional shares in connection with said
dividend, stock split or distribution), and (2) the denominator of which shall
be the total number of shares of Common outstanding immediately after such
dividend, stock split or distribution. Dilution Price shall additionally be
subject to the computation considerations and the adjustments that are
applicable to determining the number of shares of Common purchasable upon
exercise of this Warrant and Dilution Price as set forth in Sections 4(g) and
4(h) hereof.
"Fair Market Value" shall mean (i) in the case of Common, (A) if the
Corporation's Common is traded on an established market which reports last sale
information, the price of the Common that may be purchased upon the exercise of
a Warrant surrendered in full or partial payment of the Warrant Price payable
upon the exercise of this Warrant as of the close on the date such Warrant is so
surrendered (or if no sales occurred that day the most recent day sales occurred
preceding such surrender); (B) if the Corporation's Common is quoted on The
Nasdaq Stock Market (but not of a nature for which last sale information is
available) ("Nasdaq"), the highest independent bid on the date such Warrant is
surrendered; (C) if the Corporation's Common is publicly held but not traded on
an established market which reports last sale information or quoted in Nasdaq,
the fair market value of such Common as determined by the Board of Directors in
good faith and in their sole discretion; (D) if the Common is not publicly held,
Fair Market Value shall mean that value that the Board of Directors shall have
determined as the fair market value in connection with the most recent grant of
options within the last six months preceding the date of exercise, or, in the
event that no such determination shall have been made within the last six months
preceding the date of exercise, Fair Market Value shall be determined by the
Board of Directors in good faith and in its sole discretion; and (ii) in the
case of any other Security, Fair Market Value shall be determined by the Board
of Directors in good faith and in its sole discretion. In the case of (i)(C),
(i)(D) or (ii) above, if the Holder of this Warrant shall notify the Board in
writing of the Holder's objection to the Board's determination, a determination
of Fair Market Value shall be made by arbitration in accordance with the Rules
of the American Arbitration Association, by an arbitrator in the City of
Chicago, Illinois.
"Holders" shall mean the Persons who shall from time to time, own of record
any Security. The term "Holder" shall mean one of the Holders.
"Initial Dilution Price" shall mean $0.01.
"Person" shall mean an individual, corporation, partnership, trust,
unincorporated organization or government organization or an agency or political
subdivision thereof.
"Preferred Resolutions" shall mean the board resolutions of the Corporation
fixing and determining the terms of the Series A Convertible Preferred Stock,
$1.00 par value, Series B Convertible Preferred Stock, $1.00 par value, Series C
Senior Convertible Preferred Stock, $1.00 par value, Series D Senior Convertible
Preferred Stock, $1.00 par value, Series F Senior Convertible Preferred Stock,
$1.00 par value, Series G Super Senior Convertible Preferred Stock, $1.00 par
value, Series H Superior Senior
-8-
<PAGE>
Redeemable Preferred Stock, $1.00 par value, Series I Super Superior Senior
Redeemable Preferred Stock, $1.00 par value, and Series J Super Superior Senior
Redeemable Preferred Stock, $1.00 par value.
"Property" shall mean any interest in any kind of property or asset,
whether real, personal or mixed, or tangible or intangible.
"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 Corporation receives proceeds net
of all costs, expenses and underwriting discounts and commissions of not less
than $20,000,000 (including proceeds received by the Corporation 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 Agreement" shall mean the Eleventh Restated Registration
Agreement, entered into in April, 1998, between the Corporation and those
investors listed on the Schedules thereto, as such agreement may be amended,
amended and restated and/or redesignated from time to time.
"Securities" shall mean any debt or equity securities of the Corporation,
whether now or hereafter authorized, and any instrument convertible into or
exchangeable for Securities or a Security. "Security" shall mean one of the
Securities.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Series J Preferred" shall mean the Corporation's Series J 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 participations in corporate stock.
"Subsidiary" shall mean any corporation more than 50% of whose outstanding
Voting Stock shall at the time be owned directly or indirectly by the
Corporation or by one or more Subsidiaries or by the Corporation and one or more
Subsidiaries.
"Voting Stock," as applied to the Stock of any corporation, shall mean
Stock of any class or classes (however designated) having ordinary voting power
for the election of a majority of the members of the Board of Directors (or
other governing body) of such corporation, other than Stock having such power
only by reason of the happening of a contingency.
"Warrant" shall mean this Warrant.
"Warrants" shall mean the Warrants issued and sold pursuant to the
Agreement.
"Warrant Price" shall mean the price specified in the first paragraph of
this Warrant and such other prices as shall result from the adjustments
specified in Section 4 hereof.
-9-
<PAGE>
"Warrant Stock" shall mean Common issued upon exercise of any Warrant or
Warrants.
Dated: April 16, 1998 ALLSCRIPTS, INC.
By________________________
President
ATTEST:
_____________________________
Secretary
This Warrant has not been registered under the Securities Act of 1933.
Thus, notwithstanding any other provisions contained herein, no transfer,
hypothecation or other disposition of this Warrant or of the Common issuable
upon exercise of this Warrant, or of any interest in either thereof, including
any exercise of this Warrant in favor of any Person other than the Holder
hereof, shall be valid or effective unless registered under the Securities Act
of 1933 or unless an exemption from such registration is available, and until
the conditions specified in the Agreement have been fulfilled. A copy of the
Agreement is on file and may be inspected at the principal office of the
Corporation. Under certain circumstances specified in the Agreement, the
Corporation has agreed to deliver to the Holder hereof a new Warrant, not
bearing this legend, registered in the name of such Holder.
-10-
<PAGE>
SUBSCRIPTION
ALLSCRIPTS, INC.
The undersigned __________, pursuant to the provisions of the within
Warrant, hereby elects to purchase ________ shares of Common of ALLSCRIPTS, INC.
covered by the within Warrant.
Dated: ___________ Signature__________________________
Address __________________________
ASSIGNMENT
FOR VALUE RECEIVED ____________ hereby sells, assigns and transfers unto
_____________ the within Warrant and all rights evidenced thereby and does
irrevocably constitute and appoint _________, attorney, to transfer the said
Warrant on the books of the within named Corporation.
____________________________________
Dated: __________
PARTIAL ASSIGNMENT
FOR VALUE RECEIVED _________ hereby sells, assigns and transfers unto
_____________ the right to purchase _________ shares of Warrant Stock evidenced
by the within Warrant with all rights therein, and does irrevocably constitute
and appoint _________, attorney, to transfer that part of the said Warrant on
the books of the within named Corporation.
______________________________________
Dated: ____________
FOR USE BY THE CORPORATION ONLY:
This Warrant No. W-_____ cancelled (or transferred or exchanged) this ____ day
of _____, 19__, _______ shares of Common issued therefor in the name of _______
Warrant No. W-_______ issued for ________ shares of Common in the name of
________.
<PAGE>
GEORGE E. COLE(R) No. 1201 REC
LEGAL FORMS February 1996
INDUSTRIAL BUILDING LEASE
CAUTION: Consult a lawyer before using or
acting under this form. Neither the
publisher nor the seller of this form makes
any warranty with respect thereto, including
any warranty of merchantability or fitness
for a particular purpose.
- ----------------------------------------
TERM OF LEASE
BEGINNING ENDING Above Space for Recorder's use only
- ----------------------------------------
7/l/97 6/30/02
- -------------------------------------------------------------------------------
MONTHLY RENT DATE OF LEASE LOCATION OF PREMISES
- -------------------------------------------------------------------------------
$3,213.00 4/30/97 #410, #415, 888 E. Belvidere Rd.,
Grayslake, IL 60030
- -------------------------------------------------------------------------------
SECURITY DEPOSIT: $3,213.00 PURPOSE
- -------------------------------------------------------------------------------
OFFICE/WAREHOUSE
- -------------------------------------------------------------------------------
LESSEE LESSOR
NAME . Allscrips, Inc. NAME . G2 Limited Partnership
ADDRESS . 2401 Commerce Drive ADDRESS . 888 E. Belvidere Road, #302
CITY . Libertyville, IL 60048 CITY . Grayslake, IL 60030
Michael Cahr, Pres. & CEO
(B) 680-3515
Night -Fred Flude: 548-2724
Contacts -Andreas Schmalz: 548-7443
In consideration of the mutual covenants and agreements herein stated, Lessor
hereby leases to Lessee and Lessee hereby leases from Lessor solely for the
above purpose the premises designated above (the "Premises"), together with the
appurtenances thereto, for the above Term.
LEASE COVENANTS AND AGREEMENTS
1. RENT. Lessee shall pay Lessor or Lessor's agent as rent for the Premises the
sum stated above, monthly in advance, until termination of this lease, at
Lessor's address stated above or such other address as Lessor may designate in
writing.
2. CONDITION AND UPKEEP OF PREMISES. Lessee has examined and knows the condition
of the Premises and has received the same in good order and repair, and
acknowledges that no representations as to the condition and repair thereof have
been made by Lessor, or his agent, prior to or at the execution of this lease
that are not herein expressed; Lessee will keep the Premises including all
appurtenances, in good repair, replacing all broken glass with glass of the same
size and quality as that broken, and will replace all damaged plumbing fixtures
with others of equal quality, and will keep the Premises, including adjoining
alleys, in a clean and healthful condition according to the applicable municipal
ordinances and the direction of the proper public officers during the term of
this Lease at Lessee's expense, and will without injury to the roof, remove all
snow and ice from the same
<PAGE>
when necessary, and will remove the snow and ice from the sidewalk abutting the
Premises; and upon the termination of this lease, in any way, will yield up
the Premises to Lessor, in good condition and repair, loss by fire and ordinary
wear excepted, and will deliver the keys therefor at the place of payment of
said rent.
3. LESSEE NOT TO MISUSE; SUBLET; ASSIGNMENT. Lessee will not allow Premises to
be used for any purpose that will increase the rate of insurance thereon, nor
for any purpose other than that hereinbefore specified, and will not load floors
with machinery or goods beyond the floor load rating prescribed by applicable
municipal ordinances, and will not allow the Premises to be occupied in whole,
or in part, by any other person, and will not sublet the same, or any part
thereof, nor assign this lease without in each case the written consent of the
Lessor first had, and Lessee will not permit any transfer by operation of law of
the interest in Premises acquired through this lease, and will not permit
Premises to be used for any unlawful purpose, or for any purpose that will
injure the reputation of the building or increase the fire hazard of the
building, or disturb the tenants or the neighborhood, and will not permit the
same to remain vacant or unoccupied for more than ten consecutive days; and will
not allow any signs, cards or placards to be posted, or placed thereon, nor
permit any alteration of or addition to any of the Premises, except by written
consent of Lessor; all alterations and additions to the Premises shall remain
for the benefit of Lessor unless otherwise provided in the consent aforesaid.
4. MECHANIC'S LIEN. Lessee will not permit any mechanic's lien or liens to be
placed upon the Premises or any building or improvement thereon during the term
hereof, and in case of the filing of such lien Lessee will promptly pay same. If
default in payment thereof shall continue for thirty (30) days after written
notice thereof from Lessor to the Lessee, the Lessor shall have the right and
privilege at Lessor's option of paying the same or an portion thereof without
inquiry as to the validity thereof, and any amounts so paid, including expenses
and interest, shall be so much additional indebtedness hereunder due from Lessee
to Lessor and shall be repaid to Lessor immediately on rendition of bill
therefor.
5. INDEMNITY FOR ACCIDENTS. Lessee covenants and agrees that he will protect and
save and keep the Lessor forever harmless and indemnified against and from any
penalty or damages or charges imposed for any violation of any laws or
ordinances, whether occasioned by the neglect of Lessee or those holding under
Lessee, and that Lessee will at all times protect, indemnify and save and keep
harmless the Lessor against and from any and all loss, cost, damage or expense,
arising out of or from any accident or other occurrence on or about the
Premises, causing injury to any person or property whomsoever or whatsoever and
will protect, indemnify and save and keep harmless the Lessor against and from
any and all claims and against and from any and all loss, cost, damage or
expense arising out of any failure of Lessee in any respect to comply with and
perform all the requirements and provision hereof.
6. NON-LIABILITY OF LESSOR. Except as provided by Illinois stature, Lessor shall
not be liable for any damage occasioned by failure to keep the Premises in
repair, nor for any damage done or occasioned by or from plumbing, gas, water,
sprinkler, steam or other pipes or sewerage or the bursting, leaking or running
of any pipes, tank or plumbing fixtures, in, above, upon or about Premises or
any building or improvement thereon nor for any damage occasioned by water, snow
or ice being upon or coming through the roof, skylights, trap door or otherwise,
nor for any damages arising from acts or neglect of any owners or occupants of
adjacent or contiguous property.
7. WATER, GAS AND ELECTRIC CHARGES. Lessee will pay, in addition to the rent
above specified, all water rents, gas and electric light and power bills taxed,
levied or charged on the Premises, for and during the time for which this lease
is granted, and in case said water rents and bills for gas, electric light and
power shall not be paid when due, Lessor shall have the right to pay the same,
which amounts so paid, together with any sums paid by Lessor to keep the
Premises in a clean and healthy condition, as above specified, are declared to
be so much additional rent and payable with the installment of rent next due
thereafter.
8. KEEP PREMISES IN REPAIR. Lessor shall not be obliged to incur any expense for
repairing any improvements upon said demised premises or connected therewith,
and the Lessee at his own expense will keep all improvements in good repair
(injury by fire, or other causes beyond Lessee's control excepted) as well as in
a good tenantable and wholesome condition, and will comply with all local or
general regulations, laws and ordinances applicable thereto, as well as lawful
requirements of all competent authorities in that behalf. Lessee will, as far as
possible, keep said improvements from deterioration due to ordinary wear and
from failing temporarily out of repair. If Lessee does not make repairs as
required hereunder promptly and adequately, Lessor may but need not make
such repairs and pay the costs thereof, and such costs shall be so much
additional rent immediately due from and payable by Lessee to Lessor.
9. ACCESS TO PREMISES. Lessee will allow Lessor free access to the Premises for
the purpose of examining or exhibiting the same, or to make any repairs, or
alterations thereof which Lessor may see fit to make and will allow to have
placed upon the Premises at all times notice of "For Sale" and To Rent", and
will not interfere with the same.
Page 2
<PAGE>
10. ABANDONMENT AND RELETTING. If Lessee shall abandon or vacate the Premises,
or if Lessee's fight to occupy the Premises be terminated by Lessor by reason of
Lessee's breach of any of the covenants herein, the same may be re-let by Lessor
for such rent and upon such terms as Lessor may deem fit, subject to Illinois
statute; and if a sufficient sum shall not thus be realized monthly, after
paying the expenses of such re-letting and collecting to satisfy the rent hereby
reserved, Lessee agrees to satisfy and pay all deficiency monthly during the
remaining period of this lease.
11. HOLDING OVER. Lessee will, at the termination of this lease by lapse of time
or otherwise, yield up immediate possession to Lessor, and failing so to do,
will pay as liquidated damages, for the whole time such possession is withheld,
the sum of ONE HUNDRED SEVENTY FIVE Dollars ($175.00) per day; but the
provisions of this clause shall not be held as a waiver by Lessor of any right
of re-entry as hereinafter set forth; nor shall the receipt of said rent or any
part thereof, or any other act in apparent affirmance of tenancy, operate as a
waiver of the right to forfeit this lease and the term hereby granted for the
period still unexpired, for a breach of any of the covenants herein.
12. EXTRA FIRE HAZARD. There shall not be allowed, kept, or used on the Premises
any inflammable or explosive liquids or materials save such as may be necessary
for use in the business of the Lessee, and in such case, any such substances
shall be delivered and stored in amount, and used, in accordance with the rules
of the applicable Board of Underwriters and statutes and ordinances now or
hereafter in force.
13. DEFAULT BY LESSEE. If default be made in the payment of the above rent, or
any part thereof, or in any of the covenants herein contained to be kept by the
Lessee, Lessor may at any time thereafter at his election declare said term
ended and reenter the Premises or any part thereof, with or (to the extent
permitted by law) without notice or process of law, and remove Lessee or any
persons occupying the same, without prejudice to any remedies which might
otherwise be used for arrears of rent, and Lessor shall have at all times the
right to distrain for rent due, and shall have a valid and first lien upon all
personal property which Lessee now owns, or may hereafter acquire or have an
interest in, which is by law subject to such distraint, as security for payment
of the rent herein reserved.
14. NO RENT DEDUCTION OR SET OFF. Lessee's covenant to pay rent is and shall be
independent of each and every other covenant of this lease. Lessee agrees that
any claim by Lessee against Lessor shall not be deducted from rent nor set off
against any claim for rent in any action.
15. RENT AFTER NOTICE OR SUIT. It is further agreed, by the parties hereto, that
after the service of notice or the commencement of a suit or after final
judgment for possession of the Premises, Lessor may receive and collect any rent
due, and the payment of said rent shall not waive or affect said notice, said
suit, or said judgment.
16. PAYMENT OF COSTS. Lessee will pay and discharge all reasonable costs,
attorney's fees and expenses that shall be made and incurred by Lessor in
enforcing the covenants and agreements of this lease.
17. RIGHTS CUMULATIVE. The rights and remedies of Lessor under this lease are
cumulative. The exercise or use of any one or more thereof shall not bar Lessor
from exercise or use of any other right or remedy provided herein or otherwise
provided by law, nor shall exercise nor use of any right or remedy by Lessor
waive any other right or remedy.
18. FIRE AND CASUALTY. In case the Premises shall be rendered untenantable
during the term of this lease by fire or other casualty, Lessor at his option
may terminate the lease or repair the Premises within 60 days thereafter. If
Lessor elects to repair, this lease shall remain in effect provided such repairs
are completed within said time. If Lessor shall not have repaired the Premises
within said time, then at the end of such time the term hereby created shall
terminate. If this lease is terminated by reason of fire or casualty as herein
specified, rent shall be apportioned and paid to the day of such fire or
casualty.
19. SUBORDINATION. This lease is subordinate to all mortgages which may now or
hereafter affect the Premises.
20. PLURALS; SUCCESSORS. The words "Lessor" and "Lessee" wherever herein
occurring and used shall be construed to mean "Lessors" and "Lessees" in case
more than one person constitutes either party to this lease; and all the
covenants and agreements contained shall be binding upon, and inure to, their
respective successors, heirs, executors, administrators and assigns and may be
exercised by his or their attorney or agent.
21. SEVERABILITY. Wherever possible each provision of this lease shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this lease shall be prohibited by or invalid under
applicable law, such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this lease.
Page 3 No. 1201-REC
<PAGE>
If this instrument is executed by a corporation, such execution has been
authorized by a duly adopted resolution of the Board of Directors of such
corporation.
This lease consists of 3 pages numbered 1 to 3, including a rider consisting
of 3 pages, identified by Lessor and Lessee.
IN WITNESS WHEREOF, the parties hereto have executed this instrument this day
and year first above written.
LESSEE LESSOR
------ ------
/s/ Michael Cahr /s/ Jack Anderson (SEAL)
---------------------------------- ------------------------------------
FOR: Allscrips, Inc FOR: G2 Limited Partnership
Michael Cahr, President & CEO OOB Corp. (SEAL)
---------------------------------- ------------------------------------
General Partner
Please print or type name(s) Jack Anderson, President (SEAL)
below signature(s). ------------------------------------
------------------------------(SEAL)
ASSIGNMENT BY LESSOR
On this ______________________, 19 ___________, for value received, Lessor
hereby transfers, assigns and sets over to __________________, all right, title
and interest in and to the above Lease and the rent thereby reserved, except
rent due and payable prior to ___________________________________________,
19 __________.
------------------------------(SEAL)
------------------------------(SEAL)
GUARANTEE
On this ______________________, 19 ___________, in consideration of Ten
Dollars ($10.00) and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the undersigned Guarantor hereby
guarantees the payment of rent and performance by Lessee, Lessee's heirs,
executors, administrators, successors or assigns of all covenants and agreements
of the above Lease.
------------------------------(SEAL)
------------------------------(SEAL)
State of Illinois, County of ___________________________ ss.
I, the undersigned, a Notary Public in and for said County, in the State
aforesaid, DO HEREBY CERTIFY that
--------------------------------------------------------
IMPRESS personally known to me to be the same person __ whose name
_______________________ subscribed to the foregoing
SEAL instrument, appeared before me this day in person, and
acknowledged that __ he __ signed, sealed and delivered the
HERE said instrument as ______________ free and voluntary act,
for the uses and purposes therein set forth, including the
release and waiver of right of homestead.
GIVEN under my hand and official seal this _________________
day of _______________________, 19 _____________.
Commission expires ________________________, 19 _________.
Page 4 No. 1201-REC
<PAGE>
This document was prepared by PLATFORD CORPORATION
--------------------------------------------------
(Name and Address)
Mail to: 888 E. BELVIDERE ROAD, #302
-----------------------------------------------------------------------
(Name and Address)
GRAYSLAKE, ILLINOIS 60030
-----------------------------------------------------------------------
(City) (State) (Zip Code)
Or Recorder's Office Box No.
----------------------------------------------------
Legal Description:
Permanent Real Estate Index Number(s)
-------------------------------------------
Address(es) of Real Estate:
----------------------------------------------------
Page 5 No. 1201-REC
<PAGE>
This rider is attached and made part of this lease between Allscrips, Inc.
hereinafter referred to as Lessee) and G2 Limited Partnership (hereinafter
referred to as Lessor) dated July 1, 1997.
GENERAL RIDER PROVISIONS
1) Lessee agrees that upon request of the Lessor in writing, it will
subordinate this lease to the lien of any first mortgage upon the premises to
any lender.
2) There will be a real estate tax stop of $1.00 per square foot. The Lessor
will pay the first $1.00 per square foot, any amount over the tax stop will be
billed to the Lessee and paid by the Lessee in the month following billing as
additional rent.
3) The term of this lease is five (5) years from the beginning date of this
lease, or May 1, 1997 (which shall consider the anniversary date of this lease).
During the term of this lease the monthly rent will escalate as follows:
On July 1, 1999 to a new monthly rate of $3,270.00
On July 1, 2000 to a new monthly rate of $3,329.00
On July 1, 2001 to a new monthly rate of $3,390.00
4) It is the Lessor's understanding that Lessee's business operates within the
bounds of a "Standard Insurance Rating" with regard to Lessor's building risk.
If at any time Lessor's building insurance risk policy becomes rated above
standard insurance risk because of Lessee's operation, Lessee agrees to pay the
above difference as additional rent.
5) LIABILITY INSURANCE: Lessee shall maintain General Public Liability
Insurance in an amount not less than $1,000,000/$2,000,000 naming Lessor and
Owner as insured in addition to Lessee. Lessee shall furnish evidence of such
insurance to Lessor within 30 days of execution of this lease.
6) Lessee understands that he will be responsible for maintaining the space
and conforming to the laws, rules, and regulations of government bodies,
agencies and the Condominium Association with regards to space use and light
industrial zoning. Lessee will be responsible for any expenses necessary to
conform to said rules, regulations, and laws due to any violation as a result of
his business operations. Lessor has provided Lessee a complete set of Rules and
Regulations, which Lessee hereby agrees to comply with.
7) Lessee understands that they have no right to participate in any
condemnation proceeds or awards.
8) Lessee shall be responsible for providing his own scavenger service. Lessee
agrees that whatever container or containers used to this end must remain inside
Lessee's building. Lessee also agrees not to store any materials or equipment of
any kind outside the building. If Lessee leaves his dumpsters or any other
materials or debris outside he will be warned in writing for the first
violation. Thereafter, Lessee will be subject to a $25/per day assessment for
violation of this clause. This amount shall be deemed to be an additional rent
due and payable with the following month's rent after receipt of said
assessment.
-1-
<PAGE>
9) A security deposit will not be required during the term of this lease.
10) All rental payments to be received by G2 Limited Partnership, 888 E.
Belvidere Road, #302, Grayslake, Illinois 60030, by the tenth of each month. A
late charge of $10.00 per day per missing payment will be charged to the Lessee
for rental payments received after the due date.
11) There will be a $30.00 charge to the Lessee for any rental payments
returned to Lessor for any reason.
12) Lessee must notify all utility company's of tenant change invoicing
information prior to taking possession of above premises. Lessee will be
responsible for all utility charges (Gas, Water, Electric) during the period of
occupancy.
13) Lessee accepts the space on an "as is" condition and shall be responsible
for all maintenance, repairs in accordance with Paragraph 2 of the standard
industrial building lease and janitorial on the interior of the demised
premises. The Lessor shall be responsible for all structural repairs including
any repairs to the roof unless said repairs to the structure or roof are caused
by Lessee's business operation or negligence. Tenant shall make all repairs to
the Leased Premises which are not the obligation of the Landlord set forth
above. Particularly, Tenant shall keep and maintain the entire interior of the
Leased Premises in clean and sanitary and in good condition and repair,
including, without limitation, necessary interior painting (colors to be
approved by Landlord). Tenant shall also keep in good condition and repair the
exterior covering of the floor. Tenant's responsibility for those walls dividing
the Leased Premises from other tenant's quarters shall be shared, jointly with
such other tenants. Tenant shall also keep in good order and repair all utility
and mechanical equipment located on the Leased Premises, including electric,
lighting, gas, water and plumbing equipment except under- ground or covered
pipes or conduits embedded in the concrete floor or Exterior Wall. Tenant's
repair obligations hereunder shall include replacements. Tenant shall fully
comply with all health and police regulations in force and shall conform with
the rules and regulations of fire underwriters or their fire protection
engineers. All repairs, replacements and restorations shall be of a quality at
least equal to the original construction, and Landlord shall be sole judge of
whether this standard of quality is met.
14) All of Lessee's proposed window coverings treatments, and signage are
subject to Lessor's written approval prior to installation by Lessee.
15) ALTERATIONS. Tenant shall not create any openings in the roof or any wall,
Tenant shall not make any alterations or additions to the Leased Premises
without the prior written consent of Landlord which will not be unreasonably
withheld. Tenant shall, after notice to Landlord and compliance with Point #14
of Rider hereof, make all additions, improvements, alterations and repairs on
the Leased Premises and on and to the equipment thereof, required by any
governmental authority or which may be made necessary by the act or neglect of
any person, firm or corporation (public or private).
-2-
<PAGE>
Upon completion of any work or on behalf of Tenant, Tenant shall provide
Landlord with such documents as Landlord may require (including, without
limitation, sworn contractor's statements and supporting lein waivers)
evidencing payment in full for such work.
16) The Lessor agrees to build out the subject units as depicted in Exhibits A
& B hereby made a part of this agreement, all build out to be completed prior to
the beginning date of this lease. The Lessor and Lessee acknowledge that at the
execution of this lease, the Lessor received from Lessee $20,989.00 in addition
to the security deposit and first month's rent, said monies to be applied toward
the build out of units #410 & #415. The parties further agree that the balance
of construction costs ($83,956.00) have been amortized into this lease and it's
corresponding monthly payment schedule.
LESSEE LESSOR
Allscrips, Inc. G2 Limited Partnership
2401 Commerce Drive 888 E. Belvidere Road, Unit #302
Libertyville, Illinois 60048 Grayslake, Illinois 60030
/s/ Michael E. Cahr /s/ Jack Anderson
- ---------------------------------- ---------------------------------
FOR: Allscrips, Inc. For: G2 Limited Partnership
Michael Cahr, President & CEO OOB Corp.
General Partner
Jack Anderson, President
<PAGE>
CONCEPTS II BUILDING
LEASE AGREEMENT
between
AMERICAN NATIONAL BANK AND TRUST COMPANY OF CHICAGO
as Trustee under Trust Agreement dated May 15, 1994,
and known as Trust Number MP-012430
LANDLORD
and
ALLSCRIPS PHARMACEUTICALS, INC.
TENANT
<PAGE>
LEASE SUMMARY SHEET
DATE OF LEASE: October 15, 1996
TENANT: Allscrips Pharmaceuticals, Inc.
LEASED PREMISES: Concepts II
2441 Commerce Drive
Libertyville, Illinois 60061
Rentable Square Feet - 61,266
square feet
COMMENCEMENT DATE: April 1, 1997
TERMINATION DATE: June 30, 2004
FIXED RENT: For Entire Term: $3,628,587.18
87 Monthly Payments As Follows:
4/1/97 to 3/31/98 $38,546.53
4/1/98 to 3/31/99 $39,510.20
4/1/99 to 3/31/00 $40,497.96
4/1/00 to 3/31/01 $41,510.41
4/1/01 to 3/31/02 $42,548.17
4/1/02 to 3/31/03 $43,611.88
4/1/03 to 3/31/04 $44,702.18
4/1/04 to 6/30/04 $45,819.74
TAXES & OPERATING EXPENSES: Tenant shall pay on a prorata share -
76.85%
ELECTRICITY AND GAS FOR
HVAC: Separately Metered to Tenant
ELECTRICITY FOR LIGHTING AND
OUTLETS: Separately Metered to Tenant
PERMITTED USES: Warehousing, Industrial and Office Uses
SECURITY DEPOSIT: Letter of Credit in the amount of $500,000,
reducing $100,000 per year, or
eliminated under certain
circumstances.
TENANT IMPROVEMENTS: Landlord will provide an allowance of
$650,000
THE LEASE SUMMARY IS FOR INFORMATIONAL PURPOSES ONLY. IN THE EVENT ANY
INFORMATION ON THE LEASE SUMMARY IS IN CONFLICT WITH ANY PROVISION IN THE LEASE
AGREEMENT, THE LEASE AGREEMENT SHALL PREVAIL.
<PAGE>
TABLE OF ARTICLES
-----------------
ARTICLE PAGE NUMBER
------- -----------
I Leasing Covenant and Term 1
II Fixed Rent 1
III Additional Rent 2
IV Construction and Acceptance of
Leased Premises 5
V Use of Leased Premises 9
VI Services 10
VII Signs 11
VIII Tenant Covenants 12
IX Landlord Indemnification 16
X Landlord's Mortgage 16
XI Rights Reserved to Landlord 17
XII Damage by Fire or Other Casualty 18
XIII Eminent Domain 19
XIV Assignment and Subletting 19
XV Remedies 20
XVI Surrender of Possession 23
XVII Notices 23
XVIII Americans with Disabilities Act 24
XIX General 25
XX Dispute Resolution 26
XXI Right of First Refusal 27
XXII Option to Renew 28
XXIII Security Letter of Credit 29
XXIV Trustee's Authority and Exculpatory 30
<PAGE>
TABLE OF ATTACHED EXHIBITS
--------------------------
Exhibit A - Legal Description
Exhibit B - Site Plan
Exhibit C - Tenant Plans
Exhibit D - Contract Prices and Estimates
Exhibit E - Protective Covenants
Exhibit F - Estoppel Certificate
<PAGE>
LEASE AGREEMENT
---------------
THIS LEASE AGREEMENT, referred to hereinafter as LEASE, is made and entered into
this 15th day of October 1996, by and between AMERICAN NATIONAL BANK AND TRUST
COMPANY OF CHICAGO, as Trustee under Trust Agreement dated May 15, 1994, and
known as Trust Number MP-012430, hereinafter called LANDLORD, and ALLSCRIPS
PHARMACEUTICALS, INC., an Illinois Corporation, hereinafter called TENANT.
WHEREAS, Landlord is the owner of a certain tract of land, hereinafter referred
to as the SITE, and legally described in Exhibit A which is made a part hereof.
The Site is currently improved with a single story industrial building totaling
approximately 79,715 square feet (referred to hereinafter as the BUILDING) as
outlined in the Site Plan attached hereto and identified as Exhibit B which is
made a part hereof. The Building is commonly known as Concepts II, and has a
common address of 2401 Commerce Drive, Libertyville, Illinois 60061, and is
located in the industrial park known as Lincoln Commerce Center.
ARTICLE I
LEASING COVENANT AND TERM
-------------------------
Landlord does hereby lease and demise to Tenant, and Tenant accepts from
Landlord, the premises, hereinafter referred to as LEASED PREMISES, as
highlighted on the Site Plan (Exhibit B), in the Building, said Leased Premises
containing 61,266 square feet, hereinafter referred to as RENTABLE SQUARE FEET,
for a term of eighty-seven (87) months commencing on April 1, 1997, hereinafter
referred to as the COMMENCEMENT DATE, and unless sooner terminated as
hereinafter provided, shall end on June 30, 2004, hereinafter referred to as the
TERMINATION DATE. The eighty seven (87) month period of occupancy of the Leased
Premises by the Tenant is hereinafter referred to as the TERM.
ARTICLE II
FIXED RENT
----------
Subject to the terms and conditions of the Lease and in consideration hereof,
Tenant agrees to pay the Landlord a fixed rent of Three Million, Six Hundred
Twenty Eight Thousand, Five Hundred Eighty Seven and 18/100 Dollars
($3,628,587.18), hereinafter referred to as FIXED RENT, in eighty seven (87)
monthly installments payable in advance on the first day of each month as
follows:
A. For the Twelve (12) month period from April 1, 1997 to March 31,
1998 inclusive - Twelve (12) monthly installments of Thirty-Eight
Thousand Five Hundred and Forty Six and 53/100 Dollars ($38,546.53)
($7.55 per square foot);
B. For the Twelve (12) month period from April 1, 1998 to March 31,
1999 inclusive - Twelve (12) monthly installments of Thirty-Nine
Thousand Five Hundred and Ten and 20/100 Dollars ($39,510.20) ($7.739
per square foot);
C. For the Twelve (12) month period from April 1, 1999 to March 31,
2000 inclusive - Twelve (12) monthly installments of Forty Thousand
Four Hundred and Ninety-Seven and 96/100 Dollars ($40,497.96) ($7.932
per square foot);
D. For the Twelve (12) month period from April 1, 2000 to March 31,
2001 inclusive - Twelve (12) monthly installments of Forty One Thousand
Five Hundred and Ten and 41/100 Dollars ($41,510.41) ($8.13 per square
foot);
1
<PAGE>
E. For the Twelve (12) month period from April 1, 2001 to March 31,
2002 inclusive - Twelve (12) monthly installments of Forty-Two Thousand
Five Hundred and Forty-Eight and 17/100 Dollars ($42,548.17) ($8.334
per square foot);
F. For the Twelve (12) month period from April 1, 2002 to March 31,
2003 inclusive - Twelve (12) monthly installments of Forty-Three
Thousand Six Hundred and Eleven and 88/100 Dollars ($43,611.88) ($8.542
per square foot);
G. For the Twelve (12) month period from April 1, 2003 to March 31,
2004 inclusive - Twelve (12) monthly installments of Forty-Four
Thousand Seven Hundred and Two and 18/100 Dollars ($44,702.18) ($8.756
per square foot); and
H. For the Three (3) month period from April 1, 2004 to June 30, 2004
inclusive - Three (3) monthly installments of Forty-Five Thousand
Eight Hundred and Nineteen and 74/100 Dollars ($45,819.74) ($8.975 per
square foot).
Fixed Rent and Additional Rent (as hereinafter defined) and/or other payments
reserved and required under the Lease are collectively referred to as the
RENTAL. Unless as otherwise specifically provided or hereafter otherwise
designated, all monthly installments of Rental shall be paid in advance on the
first day of each and every calendar month of the Term to Landlord's agent,
Lincoln Atrium Management Company, 135 E. Algonquin Road, Arlington Heights,
Illinois 60005 (hereinafter referred to as LAMCO), or to such other agent or at
such other place as Landlord may from time to time hereafter designate in
writing. All Rental shall be paid by Tenant to Landlord without notice or
demand, and without abatement, deduction, counterclaim or set off of any kind.
ARTICLE III
ADDITIONAL RENT
---------------
It is mutually understood that the Fixed Rent does not include therein a
provision for the payment of taxes (as hereinafter defined and referred to as
TAXES) on the Building, nor does it include therein a provision for the payment
of materials, costs, expenses, and services incurred in the operation and
maintenance of the Building (as hereinafter defined and referred to as OPERATING
EXPENSES). Starting on the Commencement Date, Tenant agrees to pay to Landlord
seventy-six point eighty-five percent (76.85%), (which percentage is hereinafter
referred to as the TENANT'S PRORATA SHARE and is calculated by dividing the
Rentable Square Feet by 79,715, the total square feet of the Building) of the
total Taxes and Operating Expenses (hereinafter collectively referred to as
ADDITIONAL RENT) of the Building in addition to the Fixed Rent, as more fully
provided for hereinafter:
A. Taxes are defined as those taxes levied or assessed against the
Building by any lawful authority for each calendar year of the Term,
regardless of whether or not the amount assessed or levied is payable
in that year or in a subsequent year. Specifically, Taxes shall mean
all taxes and assessments, of every kind and nature, special or
otherwise, including without limitation, general real property taxes,
personal property taxes imposed upon fixtures, machinery, apparatus
systems and appurtenances in, upon, or used in connection with the
Building or the operation thereof, sewer rents, water rents, special
assessments, transit taxes, any tax or excise on Rental, or any other
tax (however described) on account of Rental received for use and
occupancy of any or all of the Building, whether such Taxes are imposed
by the United States, the State of Illinois, the County of Lake, the
Village of Libertyville (hereinafter referred to as the VILLAGE), or
any other governmental authority or agency or political subdivision.
There shall also be included in Taxes
2
<PAGE>
all fees and costs including, without limitation, attorney's fees paid
or incurred by Landlord in seeking to obtain a reduction of or a limit
on an increase in Taxes, and objecting to or defending against the levy
of same. If at any time during the Term the method of taxation then
prevailing shall be altered so that any tax, assessment, levy,
imposition, or charge or any part thereof, shall be imposed upon
Landlord (or upon the beneficiaries of Landlord) in place, or partly in
place, of any such Taxes or increase therein heretofore described in
this subparagraph and/or the same shall be measured by or be based in
whole or in part upon the Building or the Rental or other income
therefrom, then all such taxes, assessments, impositions, levies, or
charges or part thereof shall be included in Taxes, to the extent that
such items would be payable if the building were the only property
and/or income of Landlord (or the only property and/or income of the
beneficiaries of Landlord) subject thereto. Taxes shall not include any
Federal, State or local municipal income taxes, capital stock taxes, or
estate or inheritance taxes, other than as specifically provided for
above, or penalties or interest on the late payment of installments of
Taxes. From time to time, the Landlord, in its reasonable discretion,
shall take all reasonable and proper steps and procedures to minimize
Taxes, including, but not limited to, the contesting of or objecting to
increases of the determination of the fair market value of the Building
by the Lake County Assessor for real estate tax purposes and the
objecting to the tax rate imposed by the taxing authorities. The
Landlord does not warrant that any such steps or procedures will result
in the reduction or minimization of Taxes.
B. Operating Expenses are defined as all expenses and costs incurred by
or paid on behalf of the Landlord and which, in accordance with
generally accepted accounting practice as applied to the operation,
repair, management, and maintenance of an office/industrial/warehouse
building in the Lake County, Illinois area, are properly charged,
expensed or amortized to such ownership, operation, management, and
maintenance of the Building, including without limitation, the cost of
window washing, repairs and maintenance, parking lot and common area
cleaning, insurance, landscaping, snow removal, janitorial services,
common area lighting, parking lot lighting, heating and air
conditioning of common areas, security services, pest control,
management fees, office expenses, service and/or lease contracts on
equipment used in common in the Building, and professional fees.
Operating Expenses shall not include: (a) interest and principal
payments on mortgages and other debt service and ground lease payments;
(b) franchise or income taxes imposed upon Landlord or Taxes charged to
the Building as provided in subparagraph A above; (c) the cost or fees
for any lease, work, or service performed in any instance for an
individual tenant and not for all tenants in common; (d) capital
improvements and replacements; (e) leasing commissions and costs
incident thereto; (f) attorneys fees and costs connected with ownership
and organization of the Landlord and not strictly related to the
operation of the Building; (g) costs for services sold to tenants and
for which Landlord is entitled or would ordinarily be entitled to be
reimbursed directly by tenants and not chargeable to all tenants as
Operating Expenses; (h) depreciation and amortization, except as
allowed pursuant to above or on equipment and installations charged to
tenants as Operating Expenses; (i) fees or other compensation paid to
affiliates of Landlord for services to the Building, to the extent that
the costs of such services exceed competitive costs of services of
equal quality and quantity were they not so rendered by an affiliate;
(j) advertising and promotion expenses; (k) wages, salaries, or other
compensation paid to any executive employees above the grade of
Building Manager; (l) expenses directly caused by the intentional
violation by Landlord of any lease pertaining to the Building; (m)
legal fees in enforcing leases of other tenants; and (n) costs
occasioned by fire, windstorm, or other casualty or for any other
reason, which costs are reimbursed to
3
<PAGE>
Landlord by insurers, other parties, or by governmental authorities in
eminent domain.
C. Operating Expenses and Taxes, provided for herein, shall be payable
by Tenant to Landlord in monthly installments of 1/12th of the total
amount due or estimated to be due from the Tenant in any one calendar
year. Starting on the Commencement Date, the Landlord estimates the
Tenant's obligation for Operating Costs and Taxes will be Seven
Thousand Six Hundred and Eighty-Five and 08/100 Dollars ($7685.08) per
month.
D. On the commencement of each subsequent calendar year of the Term,
the Tenant shall continue to pay the monthly installment of Taxes and
Operating Costs paid in the previous year, until the Landlord delivers
to the Tenant a written statement, certified to be true and correct by
the Landlord, hereinafter referred to as the ANNUAL STATEMENT,
indicating, among other items, in reasonable detail the previous
calendar year's total Taxes and Operating Costs. The Landlord will
endeavor to supply the Annual Statement to the Tenant by July 1st of
each calendar year. Based upon the Annual Statement, the Tenant may be
required to pay an additional sum, if the total of the monthly deposits
for Taxes and Operating Costs received from the Tenant by the Landlord
in the previous calendar year was less than the actual Taxes and
Operating Costs attributable to the Tenant as set forth in the Annual
Statement. Said additional sum (considered within the definition of
Additional Rent) shall be due from the Tenant within thirty (30) days
after the mailing of the Annual Statement to the Tenant. In the event
the monthly deposits paid by the Tenant in the previous calendar year
for Taxes and Operating Costs were more than Tenant's actual
obligation, as set forth in the Annual Statement, Tenant shall be
entitled to a refund, which shall be applied to the succeeding month's
Rental to the extent of said overpayment, or if the Lease has expired,
then the amount of said refund shall be paid by the Landlord to the
Tenant within ten (10) days of the mailing of the Annual Statement,
assuming there are no sums due from the Tenant to the Landlord, or if
there are any sums due from the Tenant to the Landlord, then such
amount shall be applied to the payment of such sums.
E. The Annual Statement may further provide for an increase or decrease
of the amount of the monthly installment due from the Tenant to the
Landlord for Taxes and Operating Costs, should the Taxes and Operating
Costs of the previous calendar year have either increased or decreased.
In the event the Landlord increases the monthly installment, the Tenant
shall further pay to the Landlord, within thirty (30) days of the
mailing of the Annual Statement, a lump sum equal to the amount of the
monthly increase multiplied by the number of months then elapsed
between January 1 of the then current calendar year and the month in
which the Annual Statement is delivered to the Tenant. In the event the
Landlord decreases the monthly installment of Taxes and Operating
Costs, the Tenant shall be entitled to a refund equal to the amount of
the monthly decreased multiplied by the number of months then elapsed
between January 1 of the then current calendar year and the month in
which the Annual Statement is delivered to the Tenant, which sum shall
be applied to the succeeding month's Rental, or if the Lease has
expired, then such amount shall be paid by the Landlord to the Tenant
within ten (10) days of the mailing of the Annual Statement, assuming
there are no sums due from the Tenant to the Landlord, or if there are
any sums due from the Tenant to the Landlord, then such amount shall be
applied to the payment of such sums.
F. The Tenant, or its representative, shall have the right to examine
and audit the Landlord's books and records with respect only to the
items relating to Additional Rent in the Annual Statement, after
providing the Landlord with a prior written
4
<PAGE>
Notice (as Notice is defined hereinafter) requesting such examination
(hereinafter referred to as FIRST EXCEPTION NOTICE), within thirty (30)
days following the date of the mailing of the Annual Statement to the
Tenant. Such examination or audit shall be made at the Landlord's place
of business during normal business hours. Within thirty (30) days after
the completion of the audit, which must take place within ninety (90)
days of the First Exception Notice, the Tenant must deliver to the
Landlord a written exception of any items or calculations specified in
the Annual Statement, stating in particularity the grounds for said
exception (hereinafter referred to as SECOND EXCEPTION NOTICE). Failure
on the part of the Tenant to serve on the Landlord the First Exception
Notice and/or the Second Exception Notice, as provided for
hereinabove, all within the time periods specified, shall result in the
binding and conclusive presumption of the approval by the Tenant of the
computations and charges set forth in the Annual Statement and such
Additional Rent charges shall be considered as final and accepted and
binding upon and by the Tenant and may not be contested at any time
thereafter; the Tenant thereafter forever waiving its right to contest
such Additional Rent charges set forth in the particular Annual
Statement. In the event the Tenant properly serves a Second Exception
Notice upon the Landlord and the Landlord and Tenant cannot resolve the
controversy within sixty (60) days after the date of the Second
Exception Notice, then the Tenant shall have the right, within said
sixty (60) day period, to submit to the Landlord a Notice electing to
resolve the dispute in accordance with the procedure set forth in
Article XX herein. If submitted to arbitration in accordance with
Article XX, and the decision of the arbitrators is in favor of the
Landlord, or if an overstatement of an amount chargeable to the Tenant
as provided in the Annual Statement, as determined by the arbitration,
is less than 5% of the total amount due from the Tenant for Additional
Rent for the year in question, the cost of the arbitration, including,
but not limited to, the reasonable attorneys' and accounts' fees
incurred by the Landlord, shall be paid by the Tenant; otherwise the
reasonable cost thereof, including, but not limited to, the reasonable
attorneys' and accountants' fees incurred by the Tenant, will be paid
by the Landlord. Any overstatement shall be applied to the succeeding
month's Rental, or if the Lease has expired, then such amount shall be
paid by the Landlord to the Tenant within ten (10) days of the
arbitrators' written decision, assuming there are no sums due from the
Tenant to the Landlord, or if there are any sums due from the Tenant to
the Landlord, then such amount shall be applied to the payment of such
sums. Failure on the part of the Tenant to submit the controversy to
dispute resolution in accordance with Article XX within the time
periods specified herein shall result in a conclusive and final waiver
of the Tenant's right to contest the charges set forth in the Annual
Statement or in the Second Exception Notice, and such Additional Rent
charges shall be considered as final and accepted and binding upon and
by the Tenant. Regardless of the provisions set forth in this
subparagraph and whether or not the tenant properly contests any
Additional Rent charges in any Annual Statement, the Tenant must pay,
when due, all contested Additional Rent charges, subject to its right
to secure a refund or credit therefor should the Tenant prevail
successfully in any of the procedures set forth herein.
G. The provisions of this Article III shall survive the termination of
this Lease.
ARTICLE IV
CONSTRUCTION AND ACCEPTANCE OF LEASED PREMISES
----------------------------------------------
A. Pursuant to the direction of the Tenant, an architectural firm
affiliated with one of the beneficiaries of the Landlord, Tsolinas/Moreno &
Associates, Inc. 135 East Algonquin Road, Arlington Heights, Illinois 60005,
hereinafter referred to as the
5
<PAGE>
ARCHITECT, will prepare complete, finished, detailed architectural, engineering,
fire protection, electrical, and mechanical working drawing plans or contract
documents, for all the improvements to the Leased Premises and the Building
requested by the Tenant, including but not limited to all special improvements
or additions required by the Tenant and particular to the Tenant's business, all
such plans hereinafter collectively referred to as the TENANT PLANS, for all
work to be performed in constructing the improvements to the Leased Premises,
said improvements hereinafter referred to as TENANT IMPROVEMENTS. The Tenant
Plans shall be of a form and content as required by the Village for building
permit purposes, and also in a form and content sufficient for construction and
bidding purposes. Provided the Tenant reasonably cooperates with the Landlord
and the Architect to expedite the preparation of the Tenant Plans, the Landlord
agrees to direct the Architect to use its best efforts to complete the Tenant
Plans within forty-five (45) days after the execution of this Lease. The Tenant
agrees to approve or disapprove the Tenant Plans within seven (7) business days
after receipt thereof. Should the Tenant disapprove the Tenant Plans, or any
part thereof, said disapproval shall be in writing and state with specificity
the reasons therefor and include, if practical, suggestions to remedy the
disapprovals. When the Tenant Plans have been fully approved by the Tenant, they
will be attached to this Lease, labeled Exhibit C, and made a part hereof as if
they were part of this Lease at the time of the execution hereof.
B. The Landlord agrees to cause the construction of the Tenant
Improvements and any Additional Tenant Improvements (as defined hereinafter), in
accordance with the Tenant Plans, provided the cost and expense of constructing
same does not exceed the sum of Six Hundred Fifty Thousand and 00/100 Dollars
($650,000.00), hereinafter referred to as the LANDLORD'S CONTRIBUTION. The
Tenant shall not be obligated to repay to the Landlord any portion of the
Landlord's Contribution, provided it does not commit an Event of Default (as
defined hereinafter) during the Term of this Lease. However if the Tenant
commits an Event of Default and the cure period (if any) expires without
appropriate remedial actions by the Tenant, and as a result thereof, the
Landlord elected to either terminate the Lease or terminate the Tenant's right
to possession of the Leased Premises without terminating the Lease (pursuant to
Article XV B), then the Tenant shall be obligated to repay to the Landlord the
following portions of the Landlord's Contribution, hereinafter referred to as
REPAYMENTS:
(a) If the Event of Default occurred in the period from April 1, 1997
to March 31, 1998, the sum of Five Hundred Thousand Dollars ($500,000);
(b) If the Event of Default occurred in the period from April 1, 1998
to March 31, 1999, the sum of Four Hundred Thousand Dollars ($400,000);
(c) If the Event of Default occurred in the period from April 1, 1999
to March 31, 2000, the sum of Three Hundred Thousand Dollars
($300,000);
(d) If the Event of Default occurred in the period from April 1, 2000
to March 31, 2001, the sum of Two Hundred Thousand Dollars ($200,000);
and
(e) If the Event of Default occurred in the period from April 1, 2001
to March 31, 2002, the sum of One Hundred Thousand Dollars ($100,000).
The Repayments shall be considered as Additional Rent. If the Event of Default
occurs subsequent to March 31, 2002, the Tenant shall not be obligated to repay
to the Landlord any portion of the Landlord's Contribution.
C. The fees and charges of the Architect shall be considered as part of
the cost of
6
<PAGE>
the Tenant Improvements. The fees of the Architect shall be limited to Five
Percent (5%) of the total cost of the Tenant Improvements and Additional Tenant
Improvements.
D. A general contracting firm affiliated with one of the beneficiaries
of the Landlord, CFM Construction Company, 135 East Algonquin Road, Arlington
Heights, Illinois 60005, hereinafter referred to as the GENERAL CONTRACTOR, will
be the general contractor selected to construct the Tenant Improvements. The
fees, overhead and profit, of the General Contractor shall be limited to Eight
Percent (8%) of the total aggregate cost of constructing the Tenant Improvements
and any Additional Tenant Improvements, excluding the Architect fees. The
category of general conditions or administration, an element of the total
aggregate costs of the Tenant Improvements or Additional Tenant Improvements,
shall be limited to Four Percent (4%) of the total aggregate cost of
constructing the Tenant Improvements and any Additional Improvements, excluding
the Architect fees and the General Contractor's fees.
E. The General Contractor shall use its best efforts to solicit at
least three (3) competitive bids for each of the major trades or subcontractors
required to construct the Tenant Improvements. The Tenant may submit a list of
subcontractors, who shall be added to those subcontractors from whom the General
Contractor will request bids. The General Contractor shall have the right to bid
on any or all of the work. The Landlord and the Tenant shall jointly decide on
which bids and/or which subcontractors to accept, which may not necessarily be
the lowest bidders. When the Landlord and Tenant have agreed to accept all the
bids from the trades, a schedule of the contract prices and estimates shall be
attached to this Lease, labeled as Exhibit D, and made a part hereof as if it
was a part of this Lease at the time of the execution hereof.
F. Any additional work or changes requested by the Tenant and not a
part of the originally approved Tenant Plans, shall be set forth in written
orders, herein referred to as CHANGE ORDERS, detailing the additional work or
changes and the cost and expense (and/or credits, if any) thereof. All approved
additional work and changes shall be referred to herein as ADDITIONAL TENANT
IMPROVEMENTS. All Change Orders must be signed and approved by both the Tenant
and Landlord. Architect and general contractor's fees, in the amounts set forth
above, shall be added to the costs of Additional Tenant Improvements.
G. In the event the total aggregate amount of the costs of the Tenant
Improvements and any Additional Tenant Improvements (including the fees and
charges of the Architect and the General Contractor) are in excess of the
Landlord's Contribution, said excess shall hereinafter be referred to as
TENANT'S CONTRIBUTION, and shall be paid to the Landlord by the Tenant on or
before the Commencement Date.
H. In the event the cost of the Tenant Improvements and any Additional
Tenant Improvements does not exceed the Landlord's Contribution, the savings
(hereinafter referred to as REMAINING LANDLORD'S CONTRIBUTION) will be applied
to the payment of Tenant's Rental, as it becomes due.
I. The Landlord agrees to Substantially Complete (as hereinafter
defined) the construction of the Tenant Improvements and Additional Tenant
Improvements on or before April 1, 1997, excluding the installation or
construction of certain portions or parts of the Tenant Improvements or
Additional Tenant Improvements, if any, which Landlord and Tenant have agreed,
in writing, when they agreed to approve the Tenant Plans, or executed a Change
Order, would not be completed on or before April 1, 1997, those certain portions
or parts of the Tenant Improvements hereinafter referred to as LONG LEAD ITEMS.
SUBSTANTIALLY COMPLETE is generally defined as the Leased Premises being in a
condition
7
<PAGE>
whereby the Tenant can occupy same and reasonably being able to conduct its
business therein; and more specifically means that the following have been
substantially completed, installed and in working order:
(a) Interior partitions, walls and doors;
(b) Ceiling and light fixtures;
(c) Heating, air conditioning and temperature controls;
(d) Floor coverings;
(e) Electrical outlets, wiring and switches;
(f) Painting; and
(g) Common areas, plumbing and bathrooms.
The Leased Premises shall be considered Substantially Complete
regardless of the following:
(a) Long Lead Items agreed to in writing by the Landlord and
Tenant;
(b) Furniture and fixtures purchased and installed by Tenant;
(c) Telephone, telecommunication and computer installations and
connections;
(d) Equipment and machinery purchased and installed by Tenant; and
(e) Punch List items as defined hereinafter.
However, in no event shall the Leased Premises be considered as Substantially
Complete unless the Village issues an Occupancy Permit allowing the occupancy of
the Leased Premises by the Tenant.
J. In the event there is a disagreement as to whether or not the Leased
Premises is Substantially Complete, either the Landlord or the Tenant shall have
the right to submit the dispute to resolution in accordance with the provisions
of Article XX. Unless the Leased Premises is totally unusable for the Tenant's
intended use in which event all Rental shall abate until it is usable, the
Tenant shall accept possession of the Leased Premises and pay all Rental due,
subject to the dispute resolution process.
K. The Landlord shall not be responsible for delays in Substantially
Completing the Leased Premises, and any costs occasioned thereof, resulting from
the following:
(a) If the Tenant unreasonably delays the approval of the Tenant Plans;
(b) Change Orders requested by the Tenant after the Tenant Plans are
approved by the Tenant; or
(c) Any other delay solely caused by the fault, act or omission of the
Tenant or its employees or agents.
The above events are hereinafter referred to as TENANT DELAYS.
8
<PAGE>
L. When the Tenant Improvements and/or Additional Tenant Improvements
are Substantially Complete, the Landlord shall so notify the Tenant in writing.
Not later than five (5) business days thereafter, the Tenant agrees to inspect
the Leased Premises with the Landlord. Should the inspection reveal that certain
items of Tenant Improvements or Additional Tenant Improvements have not been
completed or are not in compliance with the Tenant Plans or Change Orders, a
written statement will jointly be prepared, and agreed to by both Landlord and
Tenant, setting forth such items, which statement is hereinafter referred to as
the PUNCH LIST. If the parties disagree as to the items to be included in the
Punch List, the disagreement shall be resolved by the dispute resolution
procedure set forth in Article XX. The Landlord agrees to promptly complete and
remedy the Punch List items. By occupying the Leased Premises, the Tenant
formally accepts and acknowledges that the Leased Premises are in a condition
complying with all of Landlord's covenants hereunder, with the exception of
those items, if any, on the Punch List and any latent defects.
M. Landlord shall permit the Tenant and the Tenant's employees and
agents to enter the Leased Premises prior to the Commencement Date so that
Tenant may do such other work as may be required to make the Leased Premises
ready for the Tenant's use and occupancy. The Landlord permission for such entry
is upon the condition that Tenant's employees, agents and contractors will work
in harmony with Landlord, and its employees, agents and contractors will not
interfere with the performance of the construction of the Tenant Improvements,
any work being performed for any other tenants, and/or in the operation of the
Building. If at any time such entry and work by the Tenant and/or its employees,
agents and contractors causes or threatens to cause such disharmony or
interference, Landlord shall have the right to withdraw such permission upon
twenty four (24) hours written Notice to Tenant. Tenant agrees that any such
entry and activity in the Leased Premises will be governed by all the applicable
provisions of this Lease. The Landlord shall not be liable in any way for
injury, loss or damage which may occur to any of installations and improvements
in and to the Leased Premises, or to any personal property belonging to the
Tenant or its employees, agents or contractors and placed in the Leased
Premises, unless such injury, loss or damage was caused by the Landlord's
negligence.
N. The Landlord warrants that its contractors have not nor will it use
asbestos or Hazardous Materials (as defined hereinafter) in the construction of
the Building or the Tenant Improvements.
O. The Landlord warrants that the Tenant Improvements constructed and
installed by it will be in good working order for a one year period from the
Commencement Date.
ARTICLE V
USE OF LEASED PREMISES
----------------------
A. The Leased Premises may be used and occupied only for office,
warehouse and pharmaceutical processing purposes and for no other purpose or
purposes without the written consent of Landlord, which consent shall not be
unreasonably withheld. Tenant agrees to conduct its business at all times in
good faith, in a high-grade and reputable manner. During the entire Term, the
Tenant shall promptly comply with the pertaining provisions of the Declaration
of Protective Covenants For Lincoln Commerce Center (attached hereto as Exhibit
E and hereinafter referred to as PROTECTIVE COVENANTS) and all laws, ordinances,
and regulations affecting the Building and the Leased Premises and promulgated
by duly constituted governmental authorities.
B. The Leased Premises shall be used only for business, commercial, or
9
<PAGE>
manufacturing purposes. Tenant shall not display, sell, or offer for sale any
alcoholic liquors in the Leased Premises. In addition, the Tenant or its
employees, agents, contractors, or servants shall not:
(a) Use the Leased Premises for any purpose which increases the rate of
premium cost or invalidates any policy of insurance covering or carried
on the Building in which the Leased Premises are located or the
operation thereof or any part or appurtenances thereof;
(b) Obstruct the sidewalks or parking lots or use the same for business
or display purposes;
(c) Abuse walls, ceilings, partitions, floors, and/or any other portion
of the Leased Premises;
(d) Use plumbing for any purpose other than that for which constructed;
(e) Make or permit excessive noise or noxious odors, objectionable to
the public, to other occupants of the Building, or to Landlord;
(f) Create, maintain, or permit a nuisance in the Leased Premises;
(g) Place or permit any radio, television or data antenna, loud speaker
or sound amplifier, satellite dish, or other devices similar to any of
the foregoing on the roof or outside of the Building, or at any place
where the same may be seen or heard outside of the Building; and/or
(h) Solicit business in the parking lot or other common areas,
distribute any handbills or other advertising matter on automobiles
parked in the parking lot or in other common areas.
C. Tenant will keep the Leased Premises clean and free from rubbish and
dirt at all times, and shall store trash and garbage within the Leased Premises
and will make the same available for regular pick-up and cartage of such trash
at the Tenant's expense.
ARTICLE VI
SERVICES
--------
A. Landlord shall provide the following services to the Tenant, which
shall be considered as Operating Expenses:
(a) A total of two hundred sixty-three (263) parking spaces will be
provided for the use of all the tenants of the Building. All spaces,
excluding those reserved for other tenants, shall be available on a
first-come, first-serve basis;
(b) Landscaping of the exterior plantings and grass areas;
(c) Lighting of the parking lot during appropriate hours depending upon
seasons of the year;
(d) Repair, replacement and maintenance of those portions of the
Building and equipment therein, excluding the Leased Premises, which
are under the exclusive control of the Landlord;
10
<PAGE>
(e) Snow removal of snow accumulation in excess of two (2") inches in
the parking lot and walkways; and
(f) Cleaning, maintenance, repair and replacement of the parking lot
and walkways as reasonably required.
B. Tenant agrees that Landlord shall not be liable in damages by
abatement or set-off of Rental, or otherwise, for the failure or delay in
furnishing any service pursuant to this Article, when such failure or delay is
occasioned, in whole or in part, by repairs or improvements (provided the
repairs or replacements are diligently and promptly performed by the Landlord),
or by any strike, lockout, or other labor trouble, or by the inability to secure
electricity, gas, fuel, or water to and at the Building, or by accident or
casualty whatsoever unless resulting from the Landlord's negligence, or by any
law, order, ordinance, or regulation of any governmental authority, or by any
other cause beyond the reasonable control of the Landlord, nor shall any such
discontinuance or such failure or delay be deemed to give rise to an eviction,
constructive or actual, of Tenant, or give rise to any right on the part of the
Tenant to terminate this Lease, or give the Tenant any right to stop the payment
of Rental provided for herein.
C. The Tenant shall be responsible for and shall pay the following:
(a) All utility costs, including, but not limited to, gas, electric,
and other charges incurred in connection with heating, air
conditioning, ventilating, lighting, telephone and data, machinery and
equipment, office machines and equipment, and all other devices used by
Tenant in the operation of the Leased Premises and the business of the
Tenant;
(b) Repair and replacement of all glass windows and doors;
(c) Maintaining and repairing and keeping in good order all the Tenant
Improvements installed in the Leased Premises, including but not
limited to, the plumbing fixtures and systems, the interior walls, the
heating and air conditioning equipment, the electrical and lighting
fixtures, the electrical wiring, outlets and switches, the floors, the
carpeting, the ceiling, and the windows and doors to any glass therein,
and/or replacement of burnt out fluorescent and incandescent lighting
tubes and bulbs;
(d) Providing of security services to the Leased Premises; and
(e) The Tenant shall pay for and maintain in force an agreement with an
air conditioning and heating contractor (to be selected by the Tenant,
subject to the Landlord's reasonable approval) to periodically inspect,
repair, and maintain the air conditioning and heating equipment.
D. In the event the Tenant fails to provide for the services as
specified in Article VI C, and pay for the charges and costs resulting
therefrom, the Landlord may, at its option, contract for same, after giving the
Tenant fifteen (15) days written Notice, and the actual cost thereof, plus ten
percent (10%) thereof, shall be charged to the Tenant as Additional Rent.
ARTICLE VII
SIGNS
-----
The Tenant shall be allowed to place a sign on the south side of the
Building at the
11
<PAGE>
primary entrance into the Leased Premises facing Winchester Drive which shall
contain the Tenant's logo. The Tenant shall also have the right to construct a
free standing monument sign at the entrance into the parking lot for the Leased
Premises facing Commerce Drive, which sign shall contain the Tenant's logo and
the address of the Leased Premises. All such signage, including any interior
signage which is visible to the outside of any portion of the Leases Premises,
shall be in accordance with standards determined by the Landlord in its sole,
but reasonable, discretion; and further subject to the applicable provisions of
the Protective Covenants and ordinances of the Village.
ARTICLE VIII
TENANT COVENANTS
----------------
A. Other than specifically provided for hereinabove, Tenant shall not
erect or install any other exterior signs or interior window or door signs,
advertising media, or window or door lettering or placards without Landlord's
prior written consent. Tenant shall not install any exterior lighting, shades,
or awnings or make any exterior decoration or painting, without Landlord's prior
written consent, which shall not be unreasonably withheld or delayed. Use of
roof is reserved to Landlord.
B. Tenant will not commit any act which will cause a mechanic's lien to
be filed against the Leased Premises or against the Building. After the initial
construction of the Tenant's Improvements, the Tenant shall not make any
repairs, remodeling, decorating, alterations or additions to the Leased Premises
(hereinafter referred to as TENANT ALTERATIONS) without first procuring
Landlord's written consent (which shall not be unreasonably withheld or
delayed). The Tenant shall deliver to Landlord plans and specifications of the
Tenant Alterations and copies of the proposed contracts and necessary permits
before the Landlord will consider approval or disapproval. In the event the
Landlord approves the proposed Tenant Improvements, the Tenant shall then
furnish indemnification against liens, costs, damages, and expenses as may be
reasonably required by Landlord. At the termination of this Lease, all Tenant
Alterations, which in any manner are attached to the floors, walls, or ceilings,
shall remain upon and be surrendered with the Leased Premises as part thereof,
furthermore any floor covering which may be cemented or otherwise affixed to the
floor shall likewise become the property of Landlord, all without compensation
or credit to Tenant. Provided the Tenant notifies the Landlord, in writing, at
the time of the installation or construction of the Tenant Alterations, that it
intends to remove same at the end of the Term, it may do so provided it restores
the Leased Premises to its condition as existed prior to the installation or
construction of the Tenant Alterations, and further, such removal shall not
cause material damage to the Leased Premises.
C. Tenant agrees to indemnify and save Landlord harmless against any
and all claims, demands, damages, costs, and expenses, arising from the conduct
or management of the business conducted by Tenant in the Leased Premises, or
from the construction of Tenant Alterations to the Leased Premises, or from any
breach or default on the part of Tenant in the performance of any covenant or
agreement on the part of Tenant to be performed pursuant to the terms of this
Lease, or from any act or negligence of Tenant, its agents, contractors,
servants, employees, subleasees, concessionaires, or licensees, in or about the
Leased Premises and the Building. In case of any action or proceeding brought
against Landlord by reason of any such claim, upon Notice from Landlord, Tenant
covenants to defend such action and the Landlord's interest by competent counsel
(competent in the Landlord's reasonable judgement only). To the extent not
expressly prohibited by law. Tenant releases Landlord, its agents, servants, and
employees from, and waives all claims to damages to person or property,
sustained by the Tenant or by any
12
<PAGE>
other occupant of the Leased Premises, the Building, or by any other person,
resulting directly or indirectly from fire or other casualty, because of
existing or future conditions, defects, matters, or things in the Leased
Premises or any part thereof; or from any equipment or appurtenances therein or
from any accident in or about the Building, EXCEPT in the event the damages are
caused by the negligence or wrongful intentional acts of the Landlord or its
employees, agents, or servants. All personal property belonging to the Tenant or
any occupant of the Leased Premises shall be there at the risk of the Tenant or
other person only, and the Landlord shall not be liable for damages thereto or
theft or misappropriation thereof.
D. Tenant shall not carry any stock of goods or do anything in or about
the Leased Premises which will in any way tend to increase insurance rates on
said Leased Premises or the Building in which the same are located. If Landlord
shall consent to such use, Tenant agrees to pay any reasonable increase in
premiums for insurance against loss by fire or extended coverage risks resulting
from the business carried on in the Leased Premises by Tenant. After the Tenant
Improvements have been constructed and completed and the Tenant thereafter
installs any additional electrical equipment that overloads the power lines to
the Building. Tenant shall at its own expense make whatever changes are
necessary to comply with the requirements of insurance underwriters and
insurance rating bureaus and governmental authorities having jurisdiction.
E. Tenant agrees to procure and maintain a policy or policies of
insurance at its own cost and expense, insuring Landlord and Tenant from all
claims, demands, or actions for injury to or death arising out of any one
accident to the limit of $5,000,000, and for damage to property in an amount of
not less than $1,000,000, made by or on behalf of any person or persons, firm or
corporation arising from, related to, or connected with the conduct and
operation of the Leased Premises in the Building. All said policies shall name
the Landlord as an additional insured party. Said insurance shall not be subject
to cancellation except after at least ten (10) days prior written Notice to
Landlord. A duly executed certificate for the same shall be deposited with
Landlord on or before the Commencement Date and within thirty (30) days after
the expiration of the term of such coverage upon renewal of same. If tenant
fails to comply with such requirement, Landlord may obtain such insurance and
keep same in effect, and Tenant shall pay the Landlord the premium cost thereof,
plus ten percent (10%), within thirty (30) days after billing of same by the
Landlord, said sum to be considered as Additional Rent; and/or Landlord may
elect to regard such non compliance as an Event of Default (as defined
hereinafter).
F. Tenant represents, warrants, and covenants to Landlord that Tenant
shall at no time (a) use or permit the use of the Leased Premises, the Building
and/or the Site for the generation, manufacture, production, storage, release,
discharge, or disposal of Hazardous Materials (as hereinafter defined) except in
accordance with Environmental Regulations (as hereinafter defined); or (b) to
transport Hazardous Materials to or from the Leased Premises, except in
accordance with Environmental Regulations; or (c) perform any act or action
whatsoever which violates any Environmental Regulations; and/or (d) allow or
permit any other person or entity to do any of the above:
(a) The term HAZARDOUS MATERIALS is defined as and includes, without
limitation, any flammable explosives, radioactive materials, asbestos
and asbestos containing materials, hazardous wastes, hazardous or toxic
substances, or related materials defined in the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as
amended (42 U.S.C. Sections 9601, et seq.), the Hazardous Materials
Transportation Act, as amended (49 U.S.C. Sections 1801, et seq.), the
Resource Conservation and Recovery Act of 1976, as amended (42 U.S.C.
Sections 6901, et seq.),
13
<PAGE>
and in the regulations adopted and publications promulgated pursuant
thereto, or any other federal, state, or local environmental laws,
ordinances, rules, or regulations dealing with hazardous materials.
(b) The term ENVIRONMENTAL REGULATIONS is defined as all federal,
state, and local laws, including all zoning laws or ordinances, and all
regulations, codes, requirements, public and private land use
restrictions, rules and orders which relate to or govern Hazardous
Materials, and/or the environmental conditions in, on, under, or about
the Leased Premises, the Building or the Site, in force at the time of
the execution of the Lease and at any time during the Term.
(c) Tenant shall assume sole and full responsibility for, and shall
remedy at its sole cost and expense, all such violations of any
Environmental Regulations caused by it or by introducing Hazardous
Materials into the Leased Premises or the Building or Site, or on any
adjacent property. Tenant shall at no time use, generate, release,
store, treat, dispose of, or otherwise deposit in or about the Leased
Premises any Hazardous Materials except in accordance with
Environmental Regulations; or permit or allow any third party to do so,
without Landlord's express, prior, written consent. Tenant's compliance
with the terms of the Article and with all Environmental Regulations
shall be at Tenant's sole cost and expense.
(d) Tenant shall provide Landlord with written notification,
immediately upon the discovery or notice or upon having reasonable
grounds to suspect, by Tenant, its successors, assigns, licensees,
invitees, employees, and/or agents, that any provision of this Article
has not been strictly complied with; and including, but not by
exclusion of other circumstances requiring notice, Tenant shall give
prompt written Notice to Landlord of (a) any proceeding or inquiry by
any governmental authority with respect to the Leased Premises, the
Building or the Site of any Hazardous Substance on the Leased Premises,
the Building or the Site or the migration thereof from or to other
property; (b) all claims made or threatened by any third party against
Tenant, Landlord, or the Leased Premises relating to any loss or injury
resulting from any Hazardous Substance; and (c) Tenant's discovery of
any occurrence or condition on any property adjoining or in the
vicinity of the Leased Premises, the Building or the Site that
threatens to cause the Leased Premises, the Building or the Site or any
part thereof to be subject to or in violation of any Environmental
Regulations.
(e) It shall be an Event of Default (as defined herein) under this
Lease, entitling Landlord to exercise any of its rights and remedies
under this Lease, if any provision of this Article is not strictly
complied with at all times. Landlord's election to conduct inspections
of the Leased Premises shall not be construed as approval of Tenant's
use of the Leased Premises or any activities conducted thereon, and
shall in no way constitute an assumption by Landlord of any
responsibility whatsoever regarding Tenant's use of any Hazardous
Materials.
(f) In the event the Tenant violates its representations, covenants,
warranties, and obligations set forth in this Article, the Tenant shall
defend, indemnify, and hold harmless Landlord, the Landlord's
mortgagee(s), and the Landlord's Beneficiaries, employees, and agents
from and against any claims, demands, penalties, fines, liabilities,
settlements, damages, costs or expenses of whatever kind or nature,
known or unknown, contingent or otherwise, arising out of or in any way
related to the acts and omissions of Tenant, Tenant's officers,
directors, employees, agents, contractors, subcontractors, subtenants
and invitees with respect to (a) the generation, manufacture,
operations involving, transport, treatment, storage,
14
<PAGE>
handling, production, processing, disposal, release or threatened
release of any Hazardous Materials in violation of Environmental
Regulations, which are on, from, or affecting the Leased Premises, the
Building or the Site, (b) any personal injury (including wrongful
death) or property damage (real or personal) arising out of or related
to such Hazardous Materials; (c) any lawsuit brought or threatened,
settlement reached, or governmental order relating to such Hazardous
Materials or violation of Environmental Regulations; and (d) any
violations of laws, orders, regulations, requirements, or demands of
government authorities, or any reasonable policies or requirements of
Landlord, which are based upon or in any way related to such Hazardous
Materials or violations of Environmental Regulations, including,
without limitation, reasonable attorneys and consultant fees,
investigation and laboratory fees, court costs, and litigation
expenses. This indemnification shall survive the termination,
cancellation, and surrender of this Lease however effectuated.
(g) In the event this Lease is terminated, cancelled, or surrendered
for any reason whatsoever, Tenant shall deliver the Leased Premises to
Landlord free of any and all Hazardous Materials so that the condition
of the Leased Premises shall conform with all Environmental Regulations
affecting the Leased Premises, subject to any conditions existing prior
to the Commencement Date.
(h) In the event that as a result of the Tenant use of the Leased
Premises, any investigation, site monitoring, containment, cleanup,
removal, restoration, or other remedial work of any kind or nature,
hereinafter referred to as the REMEDIAL WORK, is required under
Environmental Regulations and/or any applicable local, state or federal
law or regulation, or any judicial order, or by any governmental entity
because of, or in connection with, the current or future presence,
release of a Hazardous Substance in or into the air, soil, ground
water, surface water, or soil vapor at, on, about, under, or within the
Leased Premises (or any portion thereof), the Building and/or the Site,
Tenant shall within thirty (30) days after written demand for
performance thereof by Landlord (or such shorter period of time as may
be required under any Environmental Regulations or any applicable law,
regulation, order or agreement), commence and thereafter diligently
prosecute to completion, all such Remedial Work. All Remedial Work
shall be performed by qualified contractors. All costs and expenses of
such Remedial Work shall be paid by Tenant, including, without
limitation, Landlord's reasonable attorneys' fees and costs incurred in
connection with monitoring or review of such Remedial Work. In the
event Tenant shall fail to timely prosecute to completion such Remedial
Work, Landlord may, but shall not be required to, cause such Remedial
Work to be performed and all costs and expenses thereof, or incurred in
connection therewith, shall become due from the Tenant within ten (10)
days after Notice thereof, and shall be considered as Additional Rent.
G. The Tenant agrees it will not make any structural changes to the
Leased Premises without the written approval of the Landlord, which shall not be
unreasonably withheld or delayed.
H. The Tenant agrees it will not place fixtures, equipment, or material
of any kind in the Leased Premises, the weight of which may exceed the floor
load capacity as specified in the Tenant Plans.
I. Tenant shall at no time permit any asbestos containing material to
be used on, under, or about the Leased Premises.
15
<PAGE>
ARTICLE IX
LANDLORD INDEMNIFICATION
------------------------
A. Except as otherwise provided for herein, Landlord agrees to
indemnify and save harmless Tenant, Tenant's successors and assigns, and
Tenant's present and future officers, directors, employees, and agents
(collectively TENANT INDEMNITEES) against any and all claims, demands, damages,
costs, and expenses, arising from the operations of the Landlord in the
Building, or from the construction of improvements to any other portion of the
Building, or from any breach or default on the part of Landlord in the
performance of any covenant or agreement on the part of Landlord to be performed
pursuant to the terms of this Lease, or from any act of negligence of Landlord,
its agents, contractors, servants, and employees in or about the Leased Premises
and the Building. In case of any action or proceeding brought against Tenant
Indemnities by reason of any such claim, upon Notice from Tenant, Landlord
covenants to defend such action or proceeding by counsel, competent in the
Tenant's reasonable judgement. To the extent not expressly prohibited by law,
Landlord releases Tenant Indemnitees, from, and waives all claims to damages to
person or property, sustained by the Landlord and/or the Building resulting
directly or indirectly from fire or other casualty, because of existing or
future conditions, defects, matters or things in the Leased Premises or any part
thereof; or from any equipment or appurtenances therein or from any accident in
or about the Leased Premises or from any act by any of Tenant's employees,
agents or servants, EXCEPT in the event the damages are caused by the negligence
or wrongful intentional acts of the Tenant Indemnitees.
B. Landlord agrees to indemnify and save harmless Tenant Indemnitees
from and against any and all liabilities, penalties, fines, forfeitures,
demands, damages, losses, claims, causes of action, suits, judgements, and costs
and expenses incidental thereto (including cost of defense, settlement,
reasonable attorneys' fees, reasonable consultant fees, and reasonable expert
fees), which Tenant Indemnities may hereafter suffer or incur, be responsible
for or disburse as a result of any liabilities directly or indirectly caused by
or arising out of any Hazardous Materials existing on or about the Leased
Premises, the Building and/or the Site, but only to the extent that any such
existence is caused by Landlord's activities on the Leased Premises, the
Building and/or the Site. This provision shall survive termination of the Lease.
ARTICLE X
LANDLORD'S MORTGAGE
-------------------
From time to time before or after the execution of this Lease, and before the
termination of the Term thereof, the Landlord may execute a mortgage or trust
deed in the nature of a mortgage of Landlord's interest in the Building. In such
event:
A. This Lease and all rights of Tenant are subject and subordinate to
any mortgage or mortgages, blanket or otherwise, which do now or may
hereafter affect the Building, and to any and all renewals,
modifications, consolidations, replacements, and extensions thereto. It
is the intention of the parties that this provision be self-operative
and that no further instrument shall be required to effect such
subordination of this Lease. Tenant shall, however, upon demand at any
time or times, execute, acknowledge, and deliver to Landlord, within
ten (10) days after written request by Landlord, without expense to
Landlord, any and all instruments that may be necessary or proper to
subordinate this Lease, and all rights of Tenant hereunder to any such
mortgage or to confirm or evidence such subordination; provided,
however, the mortgagee shall agree to enter into a non-disturbance
agreement with the Tenant, which agreement shall state that provided
the Tenant is in
16
<PAGE>
full compliance with the terms and provisions of this Lease and has not
committed an Event of Default (as defined hereinafter), the Lease shall
remain in full force and effect and the possession of the Leased
Premises by the Tenant shall not be disturbed.
B. Landlord agrees promptly to notify Tenant of the placing of any
mortgage or trust deed against the Site or the Building, and Tenant
agrees in the event of any act or omission by Landlord which would give
Tenant the right to terminate this Lease, or to claim a partial or
total eviction, Tenant shall not exercise any such right until it has
notified in writing the holder of any mortgage which at the time shall
be a lien on the Building, of such act or omission, and such holder is
provided with a reasonable time not exceeding thirty (30) days to cure
any such default.
C. Tenant covenants and agrees, in the event any proceedings are
brought for the foreclosure of any such mortgage, to attorn to the
purchaser upon any such foreclosure sale, if so requested to do so by
such purchaser, and to recognize such purchaser as the Landlord under
this Lease, provided Tenant is furnished with a non disturbance
agreement, within thirty (30) days of the said purchase. Tenant agrees
to execute and deliver, at any time and from time to time, upon the
request of Landlord or any holder of such mortgage or such purchaser,
any instrument which, in the reasonable judgment of such requesting
party, may be necessary or appropriate in any such foreclosure
proceeding or otherwise to evidence such attornment. In the event of
such foreclosure, the Tenant's right to possession and quiet enjoyment
shall not be disturbed provided it is in full compliance with all the
material terms and conditions of this Lease.
D. Any reference herein to the words "foreclosure, foreclosure sale,
and/or foreclosure proceeding" shall be interpreted to include a
conveyance by deed in lieu of foreclosure.
ARTICLE XI
RIGHTS RESERVED TO LANDLORD
---------------------------
Landlord shall have the following rights exercisable after Notice to Tenant
(except in the event of an emergency, when prior Notice will not be required)
and without liability to Tenant for damage or injury to the property, person, or
business (all claims for damage being hereby released) and without effecting an
eviction (constructive or otherwise) or disturbance of Tenant's use or
possession or giving rise to any claim for set-offs or abatement of Rental:
A. To change the name of the Building upon three (3) month's prior
written Notice;
B. To install and maintain signs on the exterior and interior of the
Building;
C. To have passkeys to the Leased Premises;
D. To enter the Leased Premises at reasonable business hours, after
reasonable Notice, to make inspections, to exhibit the Leased Premises
to purchasers, mortgagees or others, or for other reasonable purposes,
and in the last six (6) months of the Term, to exhibit the Leased
Premises to prospective tenants;
E. At any reasonable time or times and during business hours, to
decorate and to make, at its own expense, repairs, alterations,
additions, and improvements, structural or otherwise, in and to the
Building, and to perform any acts related to
17
<PAGE>
The safety, protection, or preservation thereof, and during such
operations to take into and through the Leased Premises, or any part of
the Building, all materials and equipment required and to close or
temporarily suspend operation of entrances, doors, corridors, or other
facilities, provided such work does not substantially interfere with
the Tenant's ability to conduct its business, or make the Leased
Premises any less desirable; and
F. To enter upon the Leased Premises at reasonable times, after
reasonable Notice, for any reasonable purposes contemplated herein.
ARTICLE XII
DAMAGE BY FIRE OR OTHER CASUALTY
--------------------------------
A. If the Leased Premises or the Building shall be damaged by fire or
other cause and if it appears in the reasonable opinion of the Landlord's
architect that the Leased Premises and/or the Building may be repaired or
restored within one hundred fifty (150) days after such damage, and should the
mortgagee of the Building elect to make sufficient insurance proceeds available
for the costs of the repair and restoration, then Landlord shall commence to
restore the Leased Premises and the Building as soon as reasonably possible and
complete such repair or restoration with reasonable promptness. Based upon the
architect's opinion and the mortgagee's decision to make the insurance proceeds
available, Landlord shall make an election to restore or not to restore within
forty five (45) days after the date of the casualty, and shall so notify the
Tenant in writing. If the Landlord elects not to restore, this Lease shall
forthwith terminate upon the date of said damage. Should no Notice be received
from the Landlord within the forty five (45) day period, it shall conclusively
be presumed that the Landlord has elected to restore the Leased Premises and the
Building.
B. Notwithstanding anything to the contrary herein contained, Landlord
shall have no duty pursuant to this Article XII to repair or restore any Tenant
Alterations to the Leased Premises made after the Commencement Date; unless the
Tenant has notified the Landlord in writing, prior to the fire or other
casualty, that it desires the Landlord to add certain specified Tenant
Alterations to the fire and extended coverage insurance policies of the Landlord
and the Tenant has paid to the Landlord the actual cost of any additional
insurance premiums resulting therefrom. If, at the time of the casualty, Tenant
wants any other or additional repairs, restorations, additions, or alterations,
and if Landlord consents thereto, which consent shall not be unreasonably
withheld, the same shall be done by Landlord at the Tenant's expense.
C. Rental shall abate beginning with the date of the damage causing the
Leased Premises to be untenantable and ending with the date when the Leased
Premises are again rendered tenantable, however, such abatement shall be limited
to the ratio the untenantable portion of the Leased Premises bears to the entire
Leased Premises, should only a portion of the Leased Premises be untenantable;
provided, however, if the damage had been caused by the intentional act or
neglect of the Tenant which results in one or more of the insurance companies
providing the fire and extended coverage on the claim asserting a defense to the
payment of all or a material part of the claim resulting from the casualty,
then, in such event, Rental shall not abate and the Tenant shall be obligated to
continue the payment of Rental during the period the Leased Premises or any part
thereof is untenantable.
D. Notwithstanding any provisions herein to the contrary, in the event
the Leased Premises or the Building are not restored or rendered tenantable
within one hundred fifty (150) days after the casualty, the Tenant shall have
the right to cancel and terminate this Lease upon a prior thirty (30) day
written Notice of the Landlord.
18
<PAGE>
ARTICLE XIII
EMINENT DOMAIN
--------------
A. If the entire Building shall be taken by any public authority under
the power of eminent domain, then the Term of this Lease shall cease as of the
day possession shall be taken by such public authority, and the Rental shall be
paid up to that date with a proportionate refund by Landlord of such Rental as
shall have been paid in advance. The Landlord shall provide the Tenant with
Notice of a taking within thirty (30) days after it receives formal notice from
the said public authority.
B. If a material portion of the floor area of the Leased Premises shall
be taken under the power of eminent domain, Landlord and the Tenant shall each
have the right to terminate this Lease, by Notice in writing to the other on or
before the day of surrendering possession to the public authority, and Rental
shall be paid or refunded as of the date of termination. In the event this Lease
remains in effect, all of the terms herein provided shall continue in effect
except that the Rental shall be equitably abated, and Landlord shall make all
necessary repairs or alterations to the Leased Premises and the Building so as
to constitute the remaining premises a complete architectural unit.
C. All damages awarded for such taking under the power of eminent
domain, whether for the whole or a part of the Leased Premises, shall be the
property of Landlord, whether such damages shall be awarded as compensation for
diminution in value of the leasehold or to the fee of the Building. However, the
Tenant shall be entitled to seek separate damages for any such taking so long as
the same does not diminish or reduce the Landlord's award.
ARTICLE XIV
ASSIGNMENT AND SUBLETTING
-------------------------
A. Tenant shall not assign nor in any other way transfer this Lease or
any interest therein, nor sublet the Leased Premises or any part or parts
thereof, nor permit occupancy by anyone with, through, or under it, without the
previous written consent of the Landlord, which consent shall not be
unreasonably withheld or delayed. Consent by the Landlord to one or more
assignments or subletting of this Lease or the Leased Premises shall not operate
as a waiver of Tenant's rights as to any subsequent assignments or subletting.
The Tenant specifically understands and agrees that any assignment or sublease
shall in no way release (unless by written agreement) the Tenant of any of its
obligations and covenants under this Lease, nor should said assignment or
sublease be construed or taken as a waiver of any of the Landlord's rights or
remedies hereunder against or as relating to the Tenant. It is the specific
understanding and intention of the parties that in the event the Tenant's
interest herein is assigned or sublet either through the provisions of this
Article, by operation of law or otherwise, the Tenant shall not monetarily
benefit from an increase in the Rental or other considerations paid by the
assignee or subtenant over and above the Rental provided for in this Lease. In
the event the terms of the assignment or sublease provide for an increase in
Rental over and above the rental provided for herein, or in the event the Tenant
receives, or is entitled to receive, a bonus or consideration from the assignee
or subtenant in consideration of said assignment or sublease, such increased
Rental, bonus, or consideration shall be paid directly to the Landlord by either
the Tenant and/or the assignee or sublessee, as the case may be; however, Tenant
shall have the right, prior to the payment to the Landlord of the increased
Rental, bonus, or consideration to deduct therefrom any and all costs incurred
by Tenant in acquiring such assignee or sublessee, including but not limited to
leasing commissions, advertising costs, and changes or
19
<PAGE>
Improvements to the Leased Premises.
B. Notwithstanding the above, the Tenant has the right to assign or
sublease to a corporation which is the parent or subsidiary of or is controlled
by Tenant, or to a corporation resulting from any reorganization or merger to
which Tenant or its parent or any of its subsidiaries or any corporation
controlled by it is a party; provided further, however, in the event of any
assignment or sublease by Tenant, Tenant shall remain primarily liable and
responsible for the faithful performance of this Lease, the use of the Leased
Premises shall be substantially the same, and the Tenant gives the Landlord
written Notice of all particulars of the assignment or sublease.
ARTICLE XV
REMEDIES
--------
A. Any one (1) or more of the following events shall be considered an
event of default, hereinafter referred to as EVENT OF DEFAULT:
(a) Tenant shall be adjudged an involuntary bankrupt, or a decree or
order approving, as properly filed, a petition or answer filed against
Tenant asking reorganization of Tenant under the Federal bankruptcy
laws as now or hereafter amended, or under the laws of any State, shall
be entered, and any such decree or judgment or order shall not have
been vacated or stayed or set aside within sixty (60) days from the
date of the entry or granting thereof; or
(b) Tenant shall file or admit the jurisdiction of the court and the
material allegations contained in any petition in bankruptcy laws as
now or hereafter amended, or Tenant shall institute any proceedings or
shall give its consent to the institution of any proceedings for any
relief of Tenant under any bankruptcy or insolvency laws or any laws
relating to the relief of debtors, readjustment of indebtedness,
reorganization, arrangements, composition or extension; or
(c) Tenant shall make any assignment for the benefit of creditors or
shall apply for or consent to the appointment of a receiver for Tenant
or any of the property of Tenant; or
(d) The Leased Premises are levied upon by any revenue officer or
similar officer, and such levy shall not have been vacated or stayed or
set aside within twenty (20) days from the date of the entry or
granting thereof; or
(e) A decree or order appointing a receiver of the property of Tenant
shall be made and such decree or order shall not have been vacated,
stayed, or set aside within thirty (30) days from the date of entry or
granting thereof; or
(f) Tenant shall fail to pay any installment of Rental, Additional Rent
or other sums required to be paid by Tenant hereunder when due as
herein provided, and such default shall continue for five (5) days
after Notice thereof in writing to Tenant; or
(g) Tenant shall fail to contest the validity of any lien filed or
claimed against the Building or the Leased Premises related to Tenant
Alterations or any other improvement to the Leased Premises or Building
performed or made by the Tenant or on behalf of the Tenant, and/or
further, the Tenant shall fail to give to the Landlord security or
indemnity, adequate in Landlord's reasonable discretion, to Landlord to
ensure payment of release thereof, all within fifteen (15) days after
the date of the
20
<PAGE>
filing or notice of lien to Landlord; and if the Tenant has commenced
to contest the same after having given such security or indemnity,
shall fail to prosecute such contest with diligence, or shall fail to
have the same released and satisfy any judgment rendered thereon, and
such failure continues for ten (10) days after Notice thereof in
writing to Tenant; or
(h) Tenant shall fail to keep, observe, or perform any of the other
covenants and agreements herein contained to be kept, observed, and
performed by Tenant, and such failure shall continue for thirty (30)
days after Notice thereof in writing to Tenant, provided, however,
should remedial activity on the part of the Tenant reasonably require a
period in excess of the said thirty (30) days, the Tenant shall not be
considered to have committed an Event of Default provided it diligently
pursues said remedial activity for a reasonable period of time as may
be required, but in no event more than sixty (60) days.
B. Upon the occurrence of any one (1) or more of the above Events of
Default or any other Event of Default specified elsewhere in this Lease, and
after the expiration of the cure period provided, if any, then upon written
Notice from Landlord to Tenant, the Landlord may elect to either (a) terminate
the Lease, or (b) terminate the rights of the Tenant to possession of the Leased
Premises only without terminating the Lease. Upon termination of the Lease, or
upon any termination of the Tenant's right to possession without termination of
the Lease, Tenant shall surrender possession and vacate the Leased Premises
immediately, and deliver possession thereof to Landlord, and Tenant hereby
grants to Landlord the full and free right, without further demand or Notice of
any kind to Tenant (except as herein expressly provided), to enter into and upon
the Leased Premises in such event, with due process of law, and to repossess the
Leased Premises as Landlord's former estate and to expel or remove Tenant and
any others who may be occupying or within the Leased Premises, and remove
Tenant's personal property, signs, and other evidences of tenancy, without being
deemed in any manner guilty of trespass, eviction, or forcible entry or
detainer, without incurring any liability for any damage resulting therefrom,
and without relinquishing Landlord's rights to Rental for the entire balance of
the Term, or from any other obligations under this Lease, or any other right
given to Landlord by operation of law.
C. Upon termination of the Lease, Landlord shall be entitled to receive
as damages all Rental (including Repayments) and other sums due and payable by
Tenant on the date of the termination, plus (a) the present value of the Rental
and other sums provided herein to be paid by Tenant for the rest of the Term
less the fair rental value of the Leased Premises, each based upon a discount
rate of nine percent (9%), plus (b) the cost of performing any other covenants
to be performed by Tenant, and (c) the cost of attorneys' fees and court costs
incurred by the Landlord, if any, in enforcing the rights of the Landlord, less
any Repayments received by Landlord.
D. If Landlord elects to terminate the Tenant's right to possession
only without terminating the Lease, Landlord shall be entitled to receive as
damages (a) all Rental and other sums due and payable by Tenant on the date of
the termination (including Repayments), plus (b) all Rental and other sums as
such become due and payable thereafter for the rest of the Term, plus (c) the
cost of performing any other covenants to be performed by Tenant under the terms
and provisions of this Lease, plus (d) the cost of reasonable attorneys' fees
and court costs incurred by the Landlord, if any, in enforcing the rights of the
Landlord, less any Repayments received by Landlord.
E. Upon termination of the Lease, or if in the event the Landlord
elects to terminate the Tenant's right to possession and not terminate the
Lease, the Landlord
21
<PAGE>
shall have the obligation to use reasonable efforts to relet the Leased
Premises, however, Landlord shall not be deemed to have failed to use such
reasonable efforts by reason of the fact that Landlord has leased or sought to
lease other vacant premises owned by Landlord (or Landlord's Beneficiaries), in
preference to reletting the Leased Premises. Landlord may relet all or any part
of the Leased Premises for such reasonable rental and upon such terms as shall
be reasonably satisfactory to Landlord (including the right to relet the Leased
Premises for a term greater or lesser than that remaining on the Term of this
Lease, and the right to relet the Leased Premises as a part of a larger area or
a smaller area, and the right to change the character or use made of the Leased
Premises). For the purpose of such reletting, Landlord may decorate or make any
repairs, changes, cleaning, painting, alterations, or additions in or to the
Leased Premises, and may further pay for customary leasing brokers' commissions,
reasonable market rent concessions to a new tenant or tenants, and reasonable
attorneys' fees that may be necessary to induce or procure the replacement
tenant. If the Leased Premises are relet and a sufficient sum shall not be
realized from the collection of the rental of such reletting, after paying all
the expenses of such reletting as referred to hereinabove, to satisfy the
remaining Rental and other charges due from the Tenant for the remainder of the
Term, Tenant shall pay to the Landlord on demand any such deficiency, within
twenty (20) days after demand.
F. In the event of any uncured Event of Default hereunder by Tenant,
including but not limited to, Tenant's failure to obtain insurance, make
repairs, or satisfy lien claims, Landlord may, but is not obligated to, with
Notice to the Tenant, cure the Event of Default for the account of and at the
expense of Tenant. Any such sum of money paid by Landlord, plus ten percent
(10%), shall be due and payable by the Tenant to the Landlord, as Additional
Rent, and shall be assessed annual interest thereon at the rate of three percent
(3%) in excess of the then current prime rate of interest from time to time
charged by the First National Bank of Chicago, or twelve percent (12%) per
annum, whichever is greater, from the date of payment by the Landlord.
G. If the Landlord or the Tenant are compelled to incur any expense in
instituting or prosecuting any action or proceeding in law or in equity to
enforce any of the rights and obligations hereunder or to defend any action
brought by the Tenant or the Landlord, the losing party in such actions shall
pay to the prevailing party, the expenses incurred, including but not limited to
reasonable attorneys' fees and court costs, with interest thereon at the rate of
three percent (3%) in excess of the then current prime rate of interest from
time to time charged by the First National Bank of Chicago per annum, or twelve
(12%) per annum, whichever is greater, commencing on the date of decision by the
trial court. Any sums hereunder due from the Tenant to the Landlord shall be
considered as Additional Rent. In the event of any such actions or proceedings
arising out of this Lease, both parties agreed to waive right of trial by jury.
H. No remedy herein or otherwise conferred upon or reserved to Landlord
shall be considered to exclude or suspend any other remedy, but the same shall
be cumulative and shall be in addition to every other remedy given hereunder now
or hereafter existing at law or in equity or by statute, and every power and
remedy given by this Lease to Landlord may be exercised from time to time and as
often as occasion may arise or as may be deemed expedient. No delay or omission
of Landlord to exercise any right or power arising from any breach of the Lease
by the other shall impair any such right or power or shall be construed to be a
waiver of any such breach or any acquiescence therein.
I. The monthly installments of Rental are due on the 1st day of each
month. Any other charges are due within thirty (30) days of written Notice
thereof. All Rental and/or other sums due from Tenant to Landlord which are then
unpaid when due, shall be
22
<PAGE>
assessed interest thereon at the rate of three percent (3%) in excess of the
then current prime rate of interest from time to time charged by the First
National Bank of Chicago per annum, or twelve percent (12%) per annum, whichever
is greater, and said sum shall be payable by Tenant as Additional Rent.
J. The provisions of this Article shall survive the termination of this
Lease.
ARTICLE XVI
SURRENDER OF POSSESSION
-----------------------
A. At the expiration of the Term, whether by lapse of time or
otherwise, Tenant shall surrender the Leased Premises in good condition and
repair, reasonable wear and tear and loss by fire or other unavoidable casualty
excepted.
B. In the event Tenant remains in possession of the Leased Premises
after the expiration of the Term, without the execution of a new lease or the
exercise of the provisions of Article XXII, it shall be deemed to be occupying
the Leased Premises as a tenant at sufferance from month to month, at Two
Hundred Percent (200%) of the Rental and other charges due from Tenant paid or
payable during the last month of the Term, subject to all the other conditions,
provisions, and obligations of this Lease insofar as the same are applicable to
a month to month tenancy unless otherwise agreed to in writing by the parties.
Tenant shall also pay to the Landlord all consequential damages sustained by
Landlord on account of such holdover including, but not limited to, loss of
rental from prospective tenants for the Leased Premises. The provisions of this
Article XVI B shall not operate as a waiver by Landlord of any right of
re-entry, or other remedies available to Landlord hereinabove provided or by
operation of law.
C. Upon the expiration of the Term, whether by the lapse of time or
otherwise, if Landlord so requests in writing, Tenant shall promptly remove all
personal property and those Tenant Alterations not affixed to the realty, and
repair any damage occasioned by such removals at Tenant's expense; and if in
default thereof, Landlord may effect such removals and repairs, and Tenant shall
pay Landlord the cost of such removals and repairs, plus ten percent (10%), with
interest at the rate of three percent (3%) in excess of the then current prime
rate of interest from time to time charged by the First National Bank of Chicago
per annum, or twelve percent (12%) per annum, whichever is greater, commencing
on the date of payment thereof, and same shall be due and payable by the Tenant
within ten (10) days after Notice.
ARTICLE XVII
NOTICES
-------
A. Whenever under this Lease a provision is made for notice of any kind
(hereinafter referred to as NOTICE), the Notice shall be in writing, and signed
by or on behalf of the party giving or making the Notice, and shall be given to
the Party at its address and/or fax number set forth below or such other address
and/or fax number as the party may later specify for that purpose by Notice to
the other party. Each Notice shall, for all purposes, be deemed given and
received:
(a) If given by fax, when the fax is transmitted to the party's fax
number specified below and confirmation of complete receipt is received
by that transmitting party during normal business hours or on the next
business day if not confirmed during normal business hours;
(b) If hand delivered to a party, when the copy of the Notice is
receipted;
23
<PAGE>
(c) If given by a nationally recognized and reputable overnight
delivery service, the day on which the Notice is actually received by
the party;
(d) If given by certified mail, return receipt requested, postage
prepaid, two (2) business days after it is posted with the United
States Postal Service, to the address of the party specified below.
B. If any Notice is sent by fax, the transmitting party shall send a
duplicate copy of the Notice to the other party by regular mail. In all events,
however, any Notice sent by fax transmission shall govern all matters dealing
with delivery of the Notice, including the date on which the Notice is deemed to
have been received by the other party.
C. The provisions above governing the date on which a Notice is deemed
to have been received by a party to this Lease shall mean and refer to the date
on which a party to this Lease, and not its counsel or other recipient to which
a copy of the Notice may be sent, is deemed to have received the Notice.
D. If Notice is tendered under the provisions of this Lease and is
refused by the intended recipient of the Notice, the Notice shall nonetheless be
considered to have been given and shall be effective as of the date of the
refusal. The contrary notwithstanding, any Notice given to a party in a manner
other than that provided in this Lease, that is actually received by that party,
shall be effective with respect to said party on receipt of the Notice.
E. Notices shall be sent to the following addresses and/or fax numbers:
To the Landlord:
Lincoln Atrium Management Company
135 East Algonquin Road
Arlington Heights, Illinois 60005
Fax Number: 847-364-7772
To the Tenant:
Allscrips Pharmaceuticals, Inc.
2401 Commerce Drive
Libertyville, Illinois 60061
Telecopy Number: 800-548-5160
F. Prior to the Commencement Date the address of the Tenant shall be:
Allscrips Pharmaceuticals, Inc.
1033 Butterfield Road
Vernon Hills, Illinois 60061-1360
Telecopy Number: 800-548-5160
ARTICLE XVIII
AMERICANS WITH DISABILITIES ACT
-------------------------------
Notwithstanding anything to the contrary contained in this Lease,
Landlord is and shall be solely responsible for ensuring that at the time of the
Commencement Date, the Leased Premises and the Building are in full compliance
with Title III of the Americans With Disabilities Act (42 U.S.C. SS. 12101 et
seq. - hereinafter referred to as ADA), and
24
<PAGE>
all regulations pursuant thereto (the REGULATIONS). Landlord hereby indemnifies,
saves, and holds harmless Tenant from and against any and all claims, demands,
causes of action, suits, losses, costs, and expenses (including, without
limitation, attorneys' fees and litigation costs), damages, penalties and fines
asserted against, suffered or incurred by, Tenant in any way relating to or
arising from, in whole or in part, an actual or asserted claim that the Leased
Premises or the Building (or any portion thereof), were in violation of the ADA
or the Regulations as of the Commencement Date. In the event ADA and/or the
regulations are amended in the future which may result in the Leased Premises
and/or the Building becoming out of compliance, the Landlord shall be solely
responsible for the cost of any major structure changes which may be required to
place the Building in full compliance with said amended ADA or Regulations;
however, the Tenant shall be solely responsible for the cost of any other
required modifications or changes to the Leased Premises.
ARTICLE XIX
GENERAL
-------
A. Nothing contained herein shall be deemed or construed by the parties
hereto, nor by any third party, as creating the relationship of principal and
agent or of partnership or of joint venture between the parties hereto, it being
understood and agreed that neither the method of computation of Rental nor any
other provision contained herein, nor any acts of the parties hereto shall be
deemed to create any relationship between the parties hereto other than the
relationship of the landlord and tenant. Whenever herein the singular number is
used, the same shall include the plural, and the masculine gender shall include
the feminine and neuter genders.
B. The various rights and remedies herein contained and reserved to
each of the parties shall not be considered as exclusive of any other right or
remedy of such party, but shall be construed as cumulative and shall be in
addition to every other remedy now or hereafter existing at law, in equity, or
by statute. No delay or omission of the right to exercise any power by either
party shall impair any such right or power, or shall be construed as a waiver of
any Event of Default or as acquiescence therein. One or more waivers of any
covenant, term, or condition of this Lease by either party shall not be
construed by the other party as a waiver of a subsequent breach of the same
covenant, term, or condition. The consent or approval by either party to or of
any act by the other party of a nature requiring consent or approval shall not
be deemed to waive or render unnecessary consent to or approval of any
subsequent similar act, and specifically the acceptance of a late payment of
Rental by the Landlord, shall not constitute a waiver of the obligation of the
Tenant to make all future payments in a timely manner as provided for herein.
C. The laws of the State of Illinois shall govern the validity,
performance, and enforcement of this Lease. The invalidity or unenforceability
of any provision of this Lease shall not affect or impair any other provisions.
D. The headings of the several articles contained herein are for
convenience only and do not define, limit, or construe the contents of such
articles.
E. The covenants, agreements, and obligations herein contained shall
extend to, bind and inure to the benefit not only of the parties hereto but
their successors and assigns, with the exceptions as stated herein.
F. Whenever a period of time is herein provided for Landlord or Tenant
to do or perform any act or thing, neither shall be liable or responsible for
any delays due to
25
<PAGE>
strikes, riots, acts of God, shortages of labor or materials, national
emergency, acts of a public enemy, governmental restrictions, laws or
regulations, or any other cause or causes whether similar or dissimilar to those
enumerated, beyond its reasonable control.
G. No payment by Tenant or receipt by Landlord of a lesser amount than
the Rental herein stipulated or other charges shall be deemed to be other than
on account of the earliest stipulated amount, nor shall any endorsement or
statement on any check or any letter accompanying any check or payment as Rental
be deemed an accord and satisfaction, and Landlord may accept such check or
payment without prejudice to Landlord's right to recover the balance of such
Rental or other charges or pursue any other remedy in this Lease provided.
H. This Lease and the Exhibits, attached hereto and forming a part
hereof, set forth all the covenants, promises, agreements, conditions, and
understandings between Landlord and Tenant concerning the Leased Premises, and
there are no covenants, promises, agreements, conditions, or understandings,
either oral or written, between them other than as are herein set forth. Except
as herein otherwise provided, no subsequent alteration, amendment, change, or
addition to this Lease shall be binding upon Landlord or Tenant unless reduced
to writing and signed by them. This Lease consists of the following:
Lease of 31 Pages
Exhibit A - Legal Description
Exhibit B - Site Plan
Exhibit C - Tenant Plans
Exhibit D - Contract Prices and Estimates
Exhibit E - Protective Covenants
Exhibit F - Estoppel Certificate
I. Each of the parties represents and warrants that there are no claims
for brokerage commissions or finder's fees in connection with the execution of
this Lease, except for CB Commercial and Stein & Company, which Landlord agrees
to pay; and each of the parties agree to indemnify and hold harmless the other
against all liabilities arising from any such claim other than from CB
Commercial and Stein & Company, including, without limitation, the cost of
counsel fees and costs in connection therewith.
J. So long as the Tenant shall observe and perform the covenants and
agreements binding on it hereunder, Tenant shall at all times during the Term
hereof, peacefully and quietly have and enjoy the possession of the Leased
Premises, and the Landlord shall and will warrant and defend the Leased Premises
on behalf of the Tenant against any and every person claiming the whole or part
thereof.
K. Tenant shall from time to time, within ten (10) days after written
request by Landlord, execute, acknowledge, and deliver to Landlord an Estoppel
Certificate in the form and content set forth in Exhibit F, attached hereto and
made a part hereof.
L. Whenever or wherever the consent of the Landlord or Tenant shall be
required hereunder, the same shall not be unreasonably withheld or delayed.
ARTICLE XX
DISPUTE RESOLUTION
------------------
A. The parties shall attempt in good faith to resolve all disputes
promptly by negotiation. Any party may give the other party written Notice of
any dispute not
26
<PAGE>
resolved in the normal course of business. Senior executives of both parties
shall meet at a mutually acceptable time and place within ten (10) days after
delivery of such Notice, and thereafter as often as they reasonably deem
necessary, to exchange relevant information and to attempt to resolve the
dispute. If the matter has not been resolved within thirty (30) days from the
referral of the dispute to senior executives, or if no meting of senior
executives has taken place within fifteen (15) days after such referral, either
party may initiate mediation as provided hereinafter. All negotiations pursuant
to this clause are confidential and shall be treated as compromise and
settlement negotiations for purposes of the Federal Rules of Evidence and State
rules of evidence.
B. In the event that any dispute arising out of or relating to this
Lease is not resolved in accordance with the procedures provided in Section A
above, the dispute shall be submitted to mediation with American Arbitration
Association (AAA), in Chicago, Illinois. If the mediation process has not
resolved the dispute within thirty (30) days of the submission of the matter to
mediation, or such longer period as the parties may agree, then the dispute
shall be decided by arbitration as set forth below.
C. All claims, disputes, and other matters in question not resolved by
mediation, including whether either of the parties are responsible for the
payment of fees, costs and attorneys fees (hereinafter collectively referred to
as the CONTROVERSY) shall be decided by binding arbitration by the AAA in
accordance with the Arbitration Rules of the AAA then in effect. This agreement
to submit to binding arbitrate shall be specifically enforceable under the
prevailing arbitration law of any court of competent jurisdiction. Notice of
demand for arbitration must be filed in writing with the other party to this
Lease and with the AAA. The demand must be made within a reasonable time after
the Controversy has arisen. In no event may a demand for arbitration be made if
the Controversy would be barred by the applicable statute of limitations.
ARTICLE XXI
RIGHT OF FIRST REFUSAL
----------------------
A. Providing the Tenant has not committed an uncured Event of Default,
the Landlord hereby grants to the Tenant a right of first refusal to lease any
remaining space in the Building. When the Landlord has received a bona fide
written proposal signed by a third party to lease any space in the Building
acceptable to the Landlord, the Landlord shall first send a Notice to the Tenant
including a copy of the proposal, which shall include but not limited to, the
location in the Building of the offered space (herein FIRST REFUSAL PREMISES),
its rentable square feet, the rental, the term, tenant improvement allowances
and rent allowances if any, the commencement and termination dates, rights to
expansion space, renewal options, and any other special terms or conditions the
Landlord deems pertinent. This Notice and copy of the proposal shall hereinafter
be referred to as FIRST REFUSAL NOTICE. The Tenant shall have fifteen (15) days
thereafter to elect, in writing, to agree to lease the First Refusal Premises
upon the provisions set forth in the First Refusal Notice. In the event the
Tenant fails to exercise its rights hereunder by notifying the Landlord in
writing within the fifteen (15) day period the Landlord shall have the right to
enter into a lease with the said thirty party described in the First Refusal
Notice but only upon substantially the same economic terms set forth therein. If
the Landlord substantially and materially changes or alters the economic terms
of the lease to the third party, the Landlord shall give the Tenant a new First
Refusal Notice, and the Tenant shall again have the same rights as provided for
above.
B. In the event the Tenant exercises its right of the first refusal
provided in this Article XXI, the Landlord shall thereupon prepare a lease
amendment to this Lease based upon the terms of said First Refusal Notice. If
the Landlord and the Tenant, both
27
<PAGE>
acting reasonably and fairly, cannot agree upon the terminology of the said
amendment within thirty (30) days after the delivery to the Tenant of the
initial draft of the amendment, then the Landlord may elect, upon written Notice
to the Tenant, to terminate this right of first refusal as to that particular
First Refusal Premises and lease the First Refusal Premises to the third party
upon the same economic terms and provisions as in the First Refusal Notice.
C. The Tenant's refusal or failure to exercise its rights under this
Article XXI as to a particular set of terms for a particular First Refusal
Premises, or the inability of the Tenant to agree on the terminology of a lease
agreement, shall not terminate this right of first refusal as to any other
spaces or the same space being offered for lease thereafter.
D. After the exercise of the rights provided in this Article XXI, and
the entry by both parties into a lease agreement for the lease of the First
Refusal Premises, the term Leased Premises, as applied in this Lease, shall also
apply to the First Refusal Premises.
E. This Right of First Refusal shall not apply to any space in the
Building being leased by Motorola, Inc. and/or any of its subsidiaries or
affiliates.
ARTICLE XXII
OPTION TO REVIEW
----------------
Provided the Tenant has not committed an uncured Event of Default, the
Tenant shall have the right to renew this Lease and lease the Leased Premises
for one (1) five (5) year period, hereinafter referred to as the EXTENDED TERM,
upon the same terms and conditions set forth herein with the following
exceptions:
A. The monthly Fixed Rent to be paid by the Tenant during the first
year of the Extended Term shall be the greater of the following:
(a) Forty Six Thousand Nine Hundred and Sixty Five and 23/100
Dollars ($46,965.23); or
(b) Thirty-Eight Thousand Five Hundred and Forty Six and
53/100 Dollars ($38,546.53), plus that sum determined by
multiplying the percentage increase of the PRICE INDEX between
the month of April 1997 and April 2004 times Thirty-Eight
Thousand Five Hundred and Forty Six and 53/100 Dollars
($38,546.53).
B. The Fixed Rent during the second (2nd) year of the Extended Term,
and in each year thereafter, shall be increased by two and one-half
Percent (2.5%) of the preceding year's Fixed Rent.
C. The word "year" as used in this Article shall mean the period from
July 1 to June 30.
D. The Price index means the consumer price index published by the
Bureau of Labor Statistics of the United States Department of Labor,
U.S. City Average, All Items and Major Group Figures for Urban Wage
Earners and Clerical Workers (1982-84=100). If a substantial change is
made in the manner of computing the Price Index, then the Price Index
will be adjusted to the figures that would have been used had the
manner of computing the Price Index be the same as that in effect as of
the Commencement Date.
28
<PAGE>
If the Price Index is not available, a reliable governmental or other
nonpartisan publication evaluating the information used in determining
the consumer price index shall be applied for the purposes of this
Article XXII.
E. To exercise this renewal option, the Tenant must give the Landlord
written Notice, on or before July 1, 2003.
F. Upon the exercise of this renewal option, the word Term as defined
in this Lease shall also apply to the Extended Term, and the term
Termination Date shall be defined as the last date of the Extended
Term.
G. All other terms and conditions of this Lease shall be in full force
and effect during the Extended Term, including the obligation to pay
Additional Rent.
H. This renewal option shall be exercised only as to all the Leased
Premises leased by the Tenant at the time of the Notice.
ARTICLE XXIII
SECURITY LETTER OF CREDIT
-------------------------
A. Tenant, contemporaneously with the exception of this Lease, shall
deposit with Landlord, an unconditional and irrevocable letter of credit in
favor of the Landlord in the amount of Five Hundred Thousand Dollars ($500,000),
hereinafter referred to as the L/C DEPOSIT. The L/C Deposit shall be held by
Landlord as security for the faithful performance by Tenant of all of the terms,
covenants, and conditions of this Lease by said Tenant to be kept and performed.
B. The form, provisions and terms of the L/C Deposit shall be as
follows:
(a) The L/C Deposit shall be drawn on a bank approved by the Landlord
(hereinafter referred to as the L/C BANK), which approval will not be
unreasonably withheld or delayed.
(b) The expiration date of the L/C Deposit shall be April 1, 2002. If
the expiration date of the L/C Deposit is prior to April 1, 2002, the
Tenant must supply a new L/C Deposit, extending the expiration date for
a period of at least one (1) year, thirty (30) days prior to the
expiration date. Failure on the part of the Tenant to supply such new
L/C Deposit on a timely basis, shall be considered as an Event of
Default of this Lease.
(c) The amount of the L/C Letter shall decrease One Hundred Thousand
Dollars ($100,000) annually on the anniversary date of the Commencement
Date, as follows:
(1) April 1, 1998 - $400,000
(2) April 1, 1999 - $300,000
(3) April 1, 2000 - $200,000
(4) April 1, 2001 - $100,000
(5) April 1, 2002 - 00
(d) The Landlord shall have the right to draw on the L/C Letter if the
Tenant has committed an Event of Default, and the cure period (if any)
expired without appropriate remedial actions by the Tenant, and as a
result thereof, the Landlord elected to either terminate the Lease or
terminate the Tenant's right to possession of the Leased Premises
without terminating the Lease (pursuant to Article XV B). The
29
<PAGE>
L/C Bank shall pay to the Landlord the amount of the L/C Letter when it
is personally served with a letter from LAMCO, or from such other agent
as Landlord may from time to time hereafter designate in writing to the
L/C Bank, which shall contain the following wording:
"Allscrips Pharmaceuticals, Inc. ("Allscrips") has committed
an Event of Default, pursuant to the provisions of a Lease
agreement dated October __, 1996, and any cure period as
provided in the Lease Agreement has expired without Allscrips
remedying the Default, and the Landlord has terminated the
Lease Agreement or terminated Allscrips' right to possession
of the Leased Premises."
(e) The form and the remainder of the working of the L/C Letter shall
be subject to the approval of the Landlord, which approval will not be
unreasonably withheld or delayed.
C. At any time during the Term, should either one of the two events
occur, the Landlord shall return the L/C Letter to the Tenant and no further
security shall be required of the Tenant:
(a) An initial public offering of the stock of the Tenant which results
in net proceeds, after commissions and expenses, of Twenty Five Million
Dollars ($25,000,000) or more being added to the working capital of the
Tenant; or
(b) The merger of the Tenant into a company which, prior to the merger,
has a net worth of Twenty Million Dollars ($20,000,000) or more.
ARTICLE XXIV
TRUSTEE'S AUTHORITY AND EXCULPATORY
-----------------------------------
AMERICAN NATIONAL BANK AND TRUST COMPANY OF CHICAGO hereby represents and
warrants that it is fully empowered and authorized to execute this Lease on the
terms and conditions contained herein pursuant to the Trust Agreement dated May
15, 1994, and known as Trust Number MP - 012430, and that such terms and
conditions do not violate the provisions of such Trust. It is expressly
understood and agreed by and between the parties hereto, anything herein to the
contrary notwithstanding, that each and all of the representations, covenants,
undertakings, and agreements herein made on the part of the Landlord while in
form purporting (except as herein otherwise expressed) to be the
representations, covenants, undertakings, and agreements of the Landlord are
nevertheless each and every one of them, made and intended not as personal
representations, covenants, undertakings, and agreements by the Landlord or for
the purpose or with the intention of binding the Landlord personally, but are
made and/or intended for the purpose of binding the Site and the Building; that
this Lease is executed and delivered by said Landlord not in its own right, but
solely in the exercise of the powers conferred upon it as such trustee; that no
duty shall rest upon Landlord to sequester the trust estate or the rents,
issues, and profits arising therefrom, or the proceeds arising from any sale or
other disposition thereof; and that no personal liability or personal
responsibility is assumed by nor shall at any time be asserted or enforceable
against AMERICAN NATIONAL BANK AND TRUST COMPANY OF CHICAGO, or any of the
beneficiaries under said Trust Agreement, on account of this Lease or on account
of any representations, covenants, undertakings, or agreements of the Landlord
in this Lease contained herein either expressed or implied; all such personal
liability, if any, being expressly waived and released by the Tenant herein and
by all persons claiming by, through, or under said Tenant.
30
<PAGE>
IN WITNESS WHEREOF, we have set our hands and seal to this Lease the
day and year first above written.
LANDLORD:
AMERICAN NATIONAL BANK AND TRUST COMPANY OF
CHICAGO, as trustee as aforesaid
Attestation not required by
American National Bank and
Trust Company of Chicago
By-Laws
/s/ Dennis John Carrara
- ---------------------------- -------------------------------------------
Secretary _____ President SECOND VICE PRESIDENT
TENANT:
ALLSCRIPS PHARMACEUTICALS, INC., an Illinois
Corporation
/s/ John Cull /s/ Michael E. Cahr
- ---------------------------- --------------------------------------------
Secretary President
31
<PAGE>
LANDLORD'S ACKNOWLEDGMENT
-------------------------
STATE OF ILLINOIS
COUNTY OF COOK
I, Margaret O'Donnell, a Notary Public in and for said County, in the
State aforesaid, DO HEREBY CERTIFY THAT Dennis John Carrara, SECOND VICE
PRESIDENT personally known to me to be the _____ President and
_________________________ personally known to me to be the _____ Secretary of
the AMERICAN NATIONAL BANK AND TRUST COMPANY OF CHICAGO and personally known to
me to be the same persons whose names are subscribed to the foregoing
instrument, appeared before me this day in person and severally acknowledged
that they signed and delivered the said instrument as said President and said
Secretary of said corporation, and caused the corporate seal of said corporation
to be affixed thereto, pursuant to authority given by the Trust Agreement, dated
May 15, 1994, and known as Trust No. MP-012430, and by the direction of the
beneficiaries thereof, for the uses and purposes therein set forth.
Given under my hand and notarial seal this 24 day of October, 1996.
/s/ Margaret O'Donnell
------------------------
Notary Public
My commission expires 5-10-97.
--------
[SEAL]
TENANT'S ACKNOWLEDGMENT
-----------------------
STATE OF ILLINOIS
COUNTY OF COOK
I, Sheryl Kemble, a Notary Public in and for said County, in the State
aforesaid, DO HEREBY CERTIFY THAT Michael E. Cahr personally known to me to be
the President of ALLSCRIPS PHARMACEUTICALS, INC., an Illinois Corporation, duly
licensed to transact business in the State of Illinois, and John G. Cull,
personally known to me to be the _____ Secretary of said corporation and
personally known to me to be the same persons who names are subscribed to the
foregoing instrument, appeared before me this day in person and severally
acknowledged that they signed and delivered the said instrument as President and
Secretary of said corporation, and caused the corporate seal to be affixed
thereto, pursuant to authority given by the Board of Directors of said
corporation, as their free and voluntary act and as the free and voluntary act
and deed of said corporation, for the uses and purposes therein set forth.
Given under my hand and notarial seal this 15 day of October, 1996.
/s/ Sheryl Kemble
--------------------
Notary Public
My Commission expires: 1-24-98.
--------
[SEAL]
<PAGE>
CONCEPTS II BUILDING
--------------------
Legal Description
-----------------
Lots 8 & 9 of Block 2 of Lincoln Commerce Center, a subdivision of parts of the
Southwest 1/4 and the Southeast 1/4 of Section 12, and the Northeast 1/4 of
Section 13, all in Township 44 North, Range 10, East of the Third Principal
Meridian, in Lake County, Illinois.
EXHIBIT A
<PAGE>
[Floorplan appears here]
EXHIBIT B
<PAGE>
TENANT PLANS
TO BE ATTACHED
EXHIBIT C
<PAGE>
CONTRACT PRICES AND ESTIMATES
TO BE ATTACHED
EXHIBIT D
<PAGE>
DECLARATION OF PROTECTIVE COVENANTS
FOR LINCOLN COMMERCE CENTER
LIBERTYVILLE, ILLINOIS
This Declaration of Protective Covenants (hereinafter "Declaration") is
made effective the 8th day of September 1989, by LaSalle National Bank, not
personally but as Trustee under Trust No. 113790 dated November 1, 1988, and by
LaSalle National Bank, not personally but as Trustee under Trust No. 113097
dated March 15, 1988, (hereinafter collectively referred to as the
"Declarants"), as the owners of real property located in the Village of
Libertyville, which properties are commonly known as "Lincoln Commerce Center"
and which properties are legally described in Exhibit "A" of this Declaration,
which Exhibit is attached hereto and incorporated herein as if fully stated, and
which properties are hereinafter referred to as the "Property".
WITNESSETH:
-----------
WHEREAS, the Lincoln Commerce Center is being developed as an office
and industrial complex by the Declarants, and Declarants desire to provide for
the preservation of the values and amenities thereof for the benefit of the
Property, to create certain easements appurtenant to all or a part of the
Property, and to provide for the use, maintenance, and repair thereof for any
and all subsequent Owners (as defined hereinafter), all of which shall inure to
the benefit of and pass with the Property and shall apply to and bind successors
in interest and any subsequent owners thereof.
NOW, THEREFORE, the Declarants hereby declare that any interest in the
Property is and shall be held, conveyed, and occupied subject to the covenants,
easements, charges, liens, and restrictions hereinafter set forth (hereinafter
the "Protective Covenants").
I. THE PROPERTY.
The Property affected hereby and subject to this Declaration is
commonly known as Lincoln Commerce Center, a planned development located within
the Village of Libertyville, Lake County, State of Illinois.
II. DEFINITIONS.
The following words, when used in this Declaration or any Supplemental
or Amended Declaration (unless the context shall specifically provide
otherwise), shall have the following meanings, interpretations and effects:
A. "Association" - A to be formed not-for-profit Illinois corporation
to be known as "Lincoln Commerce Center Association" (or by such other name as
may be available at the time of its incorporation) for the purpose of owning
and/or maintaining the Common Areas (as hereinafter defined) and for such other
purposes as may hereinafter be set forth to effectuate the intent of this
Declaration. For the purposes of this
1
Exhibit E (30 pages)
<PAGE>
Declaration, references to the Association or its Board shall mean the
Declarants until such time as the Association is formed. Similarly, references
to the Declarants shall mean the Association from and after the referenced
rights or duties are assigned to or devolves to the Association in accordance
with the terms hereof.
B. "Building Site" - Any lot within the Property upon which a building
or buildings and appurtenant structures may be erected, including, without
limitation, any lot appearing on any recorded subdivision plat or plan
pertaining to the Property.
C. "Common Area" - Those areas designated "Common Area", "Private Water
Detention Easement", "Wetlands and Stormwater Management Facilities", or "Out
Lots" on the Plat of Subdivision of the Lincoln Commerce Center, recorded in the
Office of the Recorder of Deeds of Lake County on November 13, 1989, as Document
No. 2850008 (the "Plat of Subdivision") and/or on any amendments or corrections
thereto, any facilities appurtenant thereto, berms, entryway signs or monuments
and landscaping located in the rights-of-way adjacent to or on the Property, any
reservoir or pumping station located on the Property and serving the Property
(unless conveyed to the County of Lake or to the Village) and any other areas,
improvements or facilities within the Property intended for the common use or
benefit of the Owners and which areas, improvements or facilities have not been
dedicated to and accepted by the Village or other governmental bodies, which are
so designated in this Declaration or by Declarants in a duly recorded
instrument.
D. "Default Interest Rate" - A per annum interest rate equal to four
percent (4%) above the rate then being charged from time to time by the First
National Bank of Chicago to its largest customers of the highest credit standing
for short term unsecured loans
E. "Improvements" - All structures or other changes to the Property,
Building Site, or a parcel or lot of any kind, whether above or below grade,
including, but not limited to, buildings, fences, equipment, utility
installations, sending or receiving antennae, storage, loading, and parking
facilities, walkways, driveways, landscaping, signs, site lighting, site
grading, earth movement and any exterior additions, changes, or alterations
thereto.
F. "Owner" - The Party holding legal or equitable title to a Building
Site and the Improvements thereon, excluding the Declarants.
G. "Owners" - Collectively the parties holding legal or equitable title
to all Building Sites and the Improvements thereon, excluding the Declarants.
H. "Party" - An individual, corporation, partnership, or legal entity,
public or private.
I. "Storm Water Facilities" - The storm water system serving the
Property, in whole or in part, including areas designated Private Water
Dentention Easement or Wetlands and Stormwater Management Facilities on the Plat
of Subdivision, conduits, inlet and outlet storm sewers and structures, wells
(including electrical service and discharge pipes)
2
<PAGE>
designed to replenish retention ponds, catch basins, inlets, inlet leads, catch
basin leads, wet lands, detention basins, retention ponds, the immediate
adjacent table land to such basins and ponds, and irrigation systems servicing
the Property or the Common Area. There shall be excluded from Storm Water
Facilities (1) storm water collecting facilities dedicated to and accepted by or
owned by governmental bodies or which governmental bodies have agreed to
maintain and (2) storm water collecting sewers and facilities within a Building
Site, the principal purpose of which is to serve such Building Site.
J. "Village" - The Village of Libertyville, an Illinois municipal
corporation, and its successors.
III. PURPOSE.
The purpose of this Declaration is to seek to ensure the proper
development and use of each Building Site; to protect the Owners, tenants or
occupants, present or future, of all Building Sites against the improper
development and use of each Building Site, against the improper development and
use of other Building Sites as will depreciate the value of his Building Site;
to prevent the erection in the Lincoln Commerce Center of Improvements of
unsuitable design, or those built using improper or unsuitable materials, or
which otherwise violate the terms of this Declaration; to prevent haphazard and
inharmonious Improvements; to secure and maintain sufficient setbacks from
streets and adequate free spaces between structures; and, in general, to
establish and maintain the values and amenities of an attractive setting for
business and industry with ample open area and high quality structures and
landscaping. This Declaration is further intended to complement applicable
governmental and municipal regulations, and where conflicts occur, the most
restrictive requirements shall be applied.
IV. IMPROVEMENT COVENANTS.
No Improvements may be constructed by Owners on any portion of the
Property unless they comply with the provisions of this Section IV.
A. ZONING. The zoning of Lincoln Commerce Center is M-3 Planned
Industrial District, in accordance with Chapter 33.16.4 of the Libertyville
Municipal Code, hereinafter referred to as "Zoning Code." All Improvements shall
conform to the Zoning Code. Any application to change the zoning of any Building
Site requires the prior written approval of the Declarants, or of the
Association in the event the rights of Declarants have been transferred or
assigned to the Association. Notwithstanding anything herein to the contrary,
Declarants reserve the right to change the use and zoning of any Building Site
Declarants own, subject only to approval by the Village.
B. CONSTRUCTION.
1. MATERIALS. All Improvements shall be constructed with high
quality permanent materials and shall be designed to be durable and easily
maintained. All Improvements and other structures within the Lincoln
3
<PAGE>
Commerce Center shall have exterior walls constructed of attractive materials
which have been approved by Declarants. Subject to the Declarants' review and
approval of color, design and application, all exterior materials shall be face
brick, stone, glass, exposed aggregate panels, textured concrete, steel,
aluminum or wood. Equivalent or better materials and any combination of the
above materials may be used in well conceived and creative applications as
approved by Declarants. Common brick, concrete block, cinder block, and split
face block are specifically prohibited on any exterior wall. Accessory buildings
and enclosures and any structures that are appurtenant to any building shall be
approved by Declarants and shall be of similar or compatible materials, design
and construction.
2. EXTERIOR EQUIPMENT. Exterior mechanical and electrical
equipment, including without limitation air conditioning and heating equipment,
air handling equipment, transformers, transclosures, pump houses, communication
towers, microwave or communications satellite dishes, vents and fans, whether
mounted on the roof or walls of any building or on the ground, shall be placed
or screened so that the predominant design lines of the building or structure
continue without visual distraction or interruption. If any such equipment is
not screened from the view of anyone within any street right-of-way by the
building exterior walls, such equipment shall be separately screened either by
approved building materials or otherwise. The height of any such screening shall
be at least equal to the height of the equipment to be screened.
3. UTILITIES. All plans and specifications shall provide for
the underground installation of all utilities from Building Site lot lines to
Improvements and shall provide for appropriate safety measures or other
controls, whether of a temporary or permanent nature, as may be prudent under
the circumstances and as set forth by local, state, or federal governmental
agencies. Any connection of underground utility involving crossing a public
roadway shall be accomplished only by auguring and casing the carrier pipe.
Wherever feasible, utility connections made above ground level shall be located
within buildings. If utility connections are above ground and not within a
building, such as exposed utility boxes, where feasible they shall be screened
using landscaping or other suitable designs and materials.
C. OBJECTIONABLE USES. Any use which is deemed by the Declarants to be
incompatible or objectionable, including without limitation any use which, in
the Declarants' opinion, might product offensive or unusual odors, fumes, dust,
smoke, noise or pollution, or which might produce an unusual danger of fire,
explosion or other casualty, shall not be permitted in Lincoln Commerce Center.
All business, production, servicing and processing shall take place within
completely enclosed structures unless expressly approved by the Declarants.
D. PARKING.
1. PARKING AREAS. Each Building Site shall contain all
required parking facilities entirely within the site. Parking on street
rights-of-way is expressly prohibited. No parking areas or driveways, except
access driveways, shall be constructed within the required front
4
<PAGE>
setbacks of any Building Site.
2. TRAILER PARKING. No storage or overnight parking of trucks
or truck trailers shall be permitted except in off-street loading areas or as
expressly approved by the Declarants.
3. REQUIRED SPACES. The number and location of the required
parking spaces shall be subject to the then applicable zoning and building code
ordinances and regulations of the Village. Prior to an Owner applying to the
village for a variance or change of the applicable zoning and building parking
standards, the written approval of the Declarants must be obtained.
E. OFF-STREET LOADING AREAS. Provisions for handling all truck service
shall be totally within each Building Site. No off-street loading areas or
loading docks shall be located within forty feet (40') of the closest point of
intersection of two (2) or more public or private rights-of-way. Loading space
adjacent to any street must be totally enclosed within a building. Open
off-street loading spaces, not adjacent to streets, shall be adequately screened
from adjacent streets and abutting Building Sites by a fence, wall, door,
landscaping or combination thereof.
F. OUTSIDE STORAGE AND DISPLAYS. The outside display of materials or
merchandise for advertising or merchandising purposes is prohibited. Outdoor
storage of any kind shall be permitted only upon prior approval of the
Declarants, and then generally only behind a principal building or within the
rear half of the Building Site, if screened from the view of anyone within any
street right-of-way and abutting Building Sites by screening walls, earth berms
or plant material at least equal in height to the material being stored. All
equipment and facilities for the bulk storage of liquids, petroleum products,
fuels, refuse, water and similar materials shall be deemed to be outside
storage. Any trash in garbage, storage, pickup areas, receptacles or dumpsters
shall be located within an enclosed building or an area (open to the sky)
enclosed by screening walls, earth berms or plant materials at least equal in
height to the material being stored. Such storage areas or structures shall not
be located within required front, side or rear yard areas.
G. LANDSCAPING.
1. GENERALLY. All open areas on each Building Site not
occupied by buildings, structures, outside storage areas, parking areas, street
right-of-way paved areas, driveways, walkways and off-street loading areas shall
be suitably graded and drained and shall be landscaped with lawns, trees, and
shrubs. Lawns shall be seeded or sodded with bluegrass predominant mixtures. A
landscape plan must be submitted to Declarants in accordance with Section V for
review and approval. All completed landscaping may not be subsequently altered
without the approval of Declarants.
2. PRESERVATION OF TREES. All reasonable efforts shall be made
to preserve the existing trees on each Building Site. Removal of any existing
trees shall be subject to the approval of the Declarants.
5
<PAGE>
3. PARKING AREAS. Parking areas adjacent to a street shall be
screened from the street(s) by landscaped berms, hedges, or plantings. There
shall be landscaped buffer strip between every parking area and adjacent
Building Sites at least eight feet (8') wide as measured from the Building Site
lot line. Said buffer strip shall contain at least one shade tree, at least
three inches (3") in diameter, for every forty (40) lineal feet of parking area.
4. MINIMUM PLANTING REQUIRED. Each Building Site shall be
planted with the trees, bushes and other plantings as may be from time to time
required by the Village. It is recommended that trees be grouped in clusters and
oriented to harmonize with adjacent landscaping in place or proposed
landscaping.
5. LANDSCAPE MAINTENANCE. All landscaping on each Building
Site and on the landscaped portions and curbs of any abutting street
right-of-way shall be properly maintained by the Owner or tenant of the Building
Site, which maintenance shall include removal of all trash and debris and all
necessary cutting, watering, fertilizing, aerating, spraying, pruning and
required replacements.
6. TIME. All landscaping on each Building Site shall be
completed within sixty (60) days after occupancy of, or completion of the major
or primary building thereon, whichever event first occurs. The time for
completion may be extended by Declarants if there are delays caused by adverse
weather conditions or by other causes beyond reasonable control. If any Owner
fails to undertake and complete its landscaping within the time limit set forth
above, Declarants may, at their option, after giving such Owner ten (10) days'
prior written notice (unless within said ten (10) day period the Owner of said
Building Site shall proceed and thereafter pursue with diligence the completion
of such landscaping), undertake and complete the landscaping of such Building
Site in accordance with the approved landscaping plan therefor. If Declarants
undertakes and completes such landscaping because of the failure of Owner to
complete the same, the costs of such landscaping together with interest thereon
at the Default Interest Rate shall be assessed against the Owner and if said
assessment and interest is not paid within thirty (30) days after written notice
of such assessment from Declarants, said assessment and interest will constitute
a lien against the Building Site and may be enforced as set forth in Section
VIII.A.7. hereof.
7. LETTER OF CREDIT. In addition to the foregoing, each Owner
shall deliver to Declarants no later than ten (10) days subsequent to approval
of the landscaping plans by Declarants, an irrevocable unconditional letter of
credit in form satisfactory to Declarants, issued by a commercial bank or
savings and loan association approved by Declarants, in the amount of the
estimated cost of the landscaping for its Building Site. Said letter of credit
may be drawn upon by Declarants to pay the costs of completion of the
landscaping in the event that the landscaping is not completed within the time
set forth in this Section IV.G. hereof and Declarants elects to undertake and
complete the same. Upon completion of the landscaping by Owner in accordance
with the approved plans, the letter of credit shall be promptly returned by
Declarants to Owner. Notwithstanding the foregoing, an Owner may furnish other
security satisfactory to Declarants to ensure completion of the
6
<PAGE>
landscaping in accordance with the plans approved therefor.
H. FENCING. Fencing shall be permitted only to secure outside storage
or in connection with design screening. All fencing must be approved by
Declarants and be constructed with materials compatible with those used in the
major building in the Building Site. All metal fencing shall be screened by
landscaping.
I. EXTERIOR LIGHTING.
1. PLAN. Each Building Site shall have adequate exterior
lighting for its intended use minimizing glare and without creating lighting
which would be annoying to other Building Sites. An exterior lighting plan must
be submitted to Declarants in accordance with Section V for review and approval.
2. COLOR, TYPE. All exterior lighting shall be of the high
pressure sodium vapor type and/or color. No neon lights and no traveling,
flashing or intermittent lighting of any kind shall be permitted.
3. POLE HEIGHT. All pole mounted exterior lighting fixtures
shall be on poles no higher than twenty feet (20').
4. HOURS OF OPERATION. All exterior lighting shall be
continuously operated each night from dusk until midnight unless the operations
of the Building Site require twenty four (24) hour lighting, in which case the
exterior lighting shall be operated all during the nighttime hours.
5. UNDERGROUND WIRING. All wiring for exterior lighting shall
be installed underground.
J. SIGNS AND GRAPHICS. All signs, visible from the exterior of any
building, must be submitted to the Declarants in accordance with Section V for
review and approval prior to their installation, and shall be maintained in a
safe and presentable condition at all times, including replacement of defective
parts, painting, repainting, cleaning and any other necessary maintenance acts.
The Declarants shall maintain and replace as necessary any signs identifying
"Lincoln Commerce Center," the location and design of which shall be determined
by Declarants as approved by the Village. All signs must conform with the
standards set forth hereinafter, which standards may be subject to change and
amendment by the Declarants from time to time:
1. One (1) free-standing ground sign shall be allowed per
Building Site.
2. Signs may be illuminated (internally or by direct ground
mounted illumination) or non-illuminated.
3. The size, shape and color of the sign shall be in aesthetic
balance with itself, the size of the Building Site, the amount of street
frontage, the size and nature of the Improvements, and the surrounding
properties, as may be determined solely by the Declarants in a uniform and
consistent manner.
7
<PAGE>
4. The height of the sign should be predetermined so that the
center line of the main panel is always at the optimum viewing height for a
person seated in an automobile. In no event should the height of a free-standing
sign exceed ten (10) feet measured from curb elevation.
5. A sign cannot be located in street right-of-ways, but can
be located in any front or side yard area that does not obstruct the sight lines
at a street or driveway intersection, as determined by the Village. Sign
location should also not block or detract from adjacent property.
6. The base of the sign must be landscaped.
7. Only a corporate name, type of business, street address,
logo, or corporate graphics may appear on the sign.
8. Flashing, animated, moving, inappropriately colored, roof,
canopy or marquee signs are prohibited.
9. No off-premises signs are permitted.
10. Signs shall comply with all standards established by the
Village.
11. Messages or symbols to inform, direct or control shall
appear on informational/directional signs, which shall be uniform as to
material, color and shape and harmonious with surroundings. Advertising shall be
prohibited on these signs. All lettering should be Helvetica Medium upper case
or lower case. These signs shall be low to the ground, small in size and of a
number which are reasonably necessary for the purpose intended (as the
Declarants may be determine).
12. Multi-tenant buildings occupied by two or more tenants
shall meet the same standards for corporate identification signage and
informational/directional signage as outlined hereinabove and below, with the
following exceptions:
a) An owner of a multi-tenant building may establish, subject
to the approval of the Declarants, a Uniform Signage
Package which would be compatible and harmonious with the
architectural scheme of the Property and the Building Site,
and also be in general compliance with the intent of these
signage guidelines, but would also allow some minor
variances to meet the unique needs of a multi-tenant
facility.
b) All signage in a multi-tenant property should be uniform as
to color of sign frame system, if any, shape, size and
placement. The main panel of the property identity sign may
be of uniform color and have standardized lettering, or may
allow for individualized colors and corporate logos and
graphics.
13. A simple, single line sign with uniform lettering not to
exceed 5" in height may be affixed or placed on the exterior of a loading
8
<PAGE>
dock door or service area designating the name of the Party being serviced.
14. All construction signs used for information purposes,
signs for sale, lease and development, and subdivision signs shall be submitted
for approval to the Declarants. All signs indicating the name of the general
contractor, subcontractors, architects, engineers, financiers, or other
individuals or corporations involved in the construction on a Building Site
shall be prohibited unless such signage is on or attached to the construction
trailer located on the site during the period of construction. For the purpose
of identifying a specific construction site or project within Lincoln Commerce
Center, the developer, owner, or occupant may erect one (1) 4' x 8' single face,
non-illuminated sign setting forth only the following: "Future facility for
(name of Company)", and the Lincoln Commerce Center address. The Lincoln
Commerce Center logo, if any, may also be incorporated in this sign.
Construction signage shall be removed immediately following building completion.
Lease and development signage shall be removed once all building(s) have been
completed and are 90% occupied as determined by square footage.
15. All signs shall be maintained by the Owner or the tenant
in a safe and presentable condition at all times, including replacement of
defective parts, painting, repainting, cleaning and any other necessary
maintenance acts.
16. The Declarants shall have the right to enter onto any
Building Site to remove any sign erected without prior written approval, and the
Owner and/or tenant shall assume all costs and damages occasioned by such
removal.
K. VILLAGE APPROVALS.
The compliance by an Owner with any or all of the provisions of this
Section IV herein, or of any other Section of this Declaration, shall not excuse
the Owner from complying with all the ordinances, zoning, statutes, rules,
regulations and requirements of the Village, County of Lake, State of Illinois,
United States, or any other governmental bodies having jurisdiction over the
Property.
L. COMMONWEALTH EDISON NORTHERN DIVISON HEADQUARTERS.
Prior to the execution and recording of this Declaration, construction
had commended on a portion of the Property for the Northern Division
Headquarters buildings of Commonwealth Edison Company. The building plans, site
and layout of buildings, landscaping plans, fencing, parking lots, outdoor
storage, off-street loading areas, engineering and all other aspects of the
construction thereof is considered approved by the Declarants. In the event such
approved plans are at variance with the construction standards and requirements
or other procedures set forth herein, such variances are acknowledged and
approved by the Declarants, and such approval shall be binding upon the
Association and other successors in interest to the Declarant.
9
<PAGE>
V. SUBMITTAL PROCEDURES.
A. REQUIRED PROCEDURES. Prior to application to the Village to obtain
the various approvals as may be required from time to time, Owners or their
designated representative must present their development proposals to
Declarants. Only after approval by the Declarants as provided for herein, may an
Owner commence the approval and permit process with the Village.
B. SUBMISSION DOCUMENTS. Owners or their designated representatives
shall submit detailed information in writing regarding the proposed use of the
Building Site, copies of all permits and any accompanying correspondence,
erosion and sedimentation control plans and other plans submitted for
governmental approval, and three (3) full sets of construction plans, drawings,
and specifications showing or stating all aspects of the exterior of the
Improvement, site layout, landscaping and engineering of the proposed
Improvement, including without limitation, the following, all hereinafter
referred to as "Plans and Specifications":
1. Location of all structures, easements, street
rights-of-way, and setback lines;
2. Location of all walks, driveways and curb lines;
3. Layout and location of all parking areas, including
location and dimensions of all spaces, circulation aisles, islands, curbs and
bumpers;
4. Layout and location of all off-street loading areas;
5. Layout and location of all outside storage areas, including
identification and size of the material to be stored and location and dimensions
of all fencing and screening;
6. All landscaping, including location, heights, spread, type
and number of trees and shrubs and location and type of all ground cover and
lawn material;
7. Location, height, intensity and fixture type of all
exterior lighting;
8. Location, size and type of all pipes, lines, conduits and
appurtenant equipment and facilities for the transmission of sanitary sewage,
storm water, water, electricity, gas, telephone, steam and other utility
services;
9. Location, size and type of all fencing;
10. Architectural floor plans showing building elevations (all
faces of the Improvements), and all other exterior details of each building;
11. Building exterior material and color information,
including samples;
10
<PAGE>
12. Temporary construction sign design;
13. Permanent sign and informational/directional signs designs
(showing location, size, type and material and color information);
14. Site coverage data and calculations, including finished
contour lines and spot elevations;
15. Parking data and calculations, including base data for
projected needs;
16. Site drainage data and calculations, including finished
contour lines and spot elevations; and
17. Description of proposed use.
C. SCALE AND DETAIL. All architectural plans and construction drawings
submitted shall be to a scale of not less than one inch (1") equal to sixteen
feet (16'). All site plans submitted shall be to a scale of not less than one
inch (1") equal to fifty feet (50').
D. NO USE PRIOR TO APPROVAL. No Improvement, building, structure, sign
or improvement of any kind shall be commenced, installed, erected, placed,
assembled, altered, moved onto or permitted to remain on any Building Site, nor
shall any use be commenced of any Building Site, unless and until the Plans and
Specifications have been submitted to, reviewed and approved in writing by
Declarants in accordance with this Section V. No Building Site Owner shall apply
to any public authority for any construction or building permits for any project
before written approval of the Plans and Specifications have been given by the
Declarants.
E. CHANGES. No construction or use that is inconsistent with, in
addition to or materially different from any previously approved Plans and
Specifications shall be commenced or permitted until final construction drawings
and specifications reflecting such change or addition has been approved in
accordance with this Section V.
F. APPROVAL AND DISAPPROVAL.
1. STANDARDS. Declarants shall have the right to disapprove
any Plans and Specifications because they are not in accordance with the
purposes set forth in Section III and the requirements of Section IV hereof, or
because they fail to comply with any requirement of this Declaration or the
Lincoln Commerce Center signage standards or because they fail to include any
information which is required by this Declaration or which reasonably may have
been requested by Declarants. The approval or disapproval of Declarants pursuant
to the general provisions of this Declaration shall not be deemed to be limited
by reason of any specific illustrations or requirements set forth herein.
2. TIME FOR APPROVAL. Declarants shall approve, disapprove, or
request any additions or supplemental information relating to any Plans and
Specifications within fifteen (15) days after all Plans and Specifications (in
the form and substance acceptable to Declarants and in accordance with this
Declaration) are submitted, unless during said
11
<PAGE>
fifteen (15) day period, Declarants determines that, as a result of the nature
of the submittal or the issues raised thereby, an additional period of time is
necessary, in which case Declarants shall notify Owner than an additional thirty
(30) day period is required.
G. DECLARANTS' FEES.
Declarants shall be entitled to a reasonable fee not to exceed Five
Hundred Dollars ($500.00) per acre, in connection with the approvals required
under Article IV hereof, which fee shall be payable at the time of submission of
the Plans and Specifications for approval to Declarants. The per acre fee shall
be subject to review and change by the Declarants from time to time. Declarants
shall not be required to approve any Plans and Specifications until they receive
the appropriate fee under this Section. Any fees that remain unpaid shall be
collectible hereunder in the same manner as a lien for charges under this
Declaration. Neither Declarants, nor their agents, employees, successors or
assigns shall be liable in damages to any Owner or to any other Party submitting
Plans and Specifications to any one or more of them for approval by reason of a
mistake in judgment, negligence or nonfeasance arising out of or in connection
with the approval or disapproval or failure to approve any Plans and
Specifications. Every Party who submits Plans and Specifications to Declarants,
for approval as herein provided, agrees by submission of such Plans and
Specifications, and every Owner or Party claiming by or through an Owner agrees
by acquiring title to any part of the Property of any interest in the Property,
that it will not bring any action or suit against Declarants or its agents,
employees, successors or assigns to recover any such damages.
H. GRADING AND ENGINEERING PLANS.
It is understood and agreed that all grading and engineering plans
submitted to the Declarants for approval shall be prepared by a licensed
engineer approved by Declarants (which approval shall not be unreasonably
withheld) in order that said grading and engineering plans will conform with the
overall grading and engineering plans for the Lincoln Commerce Center.
I. TRANSFER OF REVIEW RIGHTS TO ASSOCIATION. Declarants' right to
approve or disapprove Plans and Specifications may, at Declarants' election, be
transferred to the Association in accordance with the provisions of Sections
VIII and/or XIII, or delegated to an agent in accordance with Section XVII.
J. DECLARANTS' WAIVER DISCRETION. The Declarants may, in their sole
discretion, waive any of the provisions of Section IV or V as it may pertain to
a particular Owner or Building Site, and each Owner of occupant of any portion
of the Property hereby waives any claim or right for damages or liabilities from
the Declarants or the Association which may result from such determination or
waiver.
VI. OWNER'S MAINTENANCE OBLIGATIONS.
A. OWNER'S MAINTENANCE. Each Owner shall at all times maintain,
12
<PAGE>
repair, replace and renew or cause to be maintained, repaired, replaced or
renewed all Improvements on its Building Site, so as to keep same in a clean,
sightly, safe and first-class condition consistent with its original intended
appearance ("Owner's Maintenance"). Owner's Maintenance shall include, but not
be limited to: the maintenance of all visible exterior surfaces of all buildings
and other improvements; the prompt removal of all paper, debris and refuse from
all areas of its Building Site and all snow and ice from paved areas; the
operation, maintenance, repair, replacement and removal of all storm water
drainage facilities located on its Building Site; the repair, replacement,
cleaning and revamping of all signs and lighting fixtures; and the mowing,
watering, fertilizing, weeding, replanting and replacing of all landscaping. All
construction of Improvements shall be promptly commenced and diligently pursed.
The Owner of any Building Site under construction shall, at all times, keep
public and private streets used by such Owner or its contractors, agents or
employees in connection with construction, and the Building Site, free from any
dirt, mud, garbage, trash or other debris which might be occasioned by such
construction.
B. DAMAGE TO IMPROVEMENTS. If any Improvement is damaged or destroyed,
the Owner shall promptly (but in no event more than Twelve (12) months after the
date of the casualty) restore such Improvement to the condition existing prior
to such damage or destruction or, in the alternative, raze and remove such
Improvement and landscape the Building Site pursuant to a landscaping plan
approved as provided in Section V hereof.
C. LANDSCAPE VACANT BUILDING SITE. If the Owner does not commence
construction of Improvements upon the Building Site within six (6) months of the
date of recording a Deed to an Owner, the Owner shall landscape the Building
Site with no less than an appropriate ground cover, such as field grass or sod,
and thereafter maintain such ground cover in a clean, neat and safe condition,
keeping it mowed at a height not to exceed four (4) inches until the
commencement of construction of Improvements. The aforesaid six (6) month period
may be extended with the written approval of Declarants.
D. RIGHT TO PERFORM OWNER'S MAINTENANCE. If an Owner shall fail to
perform Owner's Maintenance as aforesaid or the landscaping work in accordance
with the provisions hereof, Declarants may give written notice to the Owner
specifying the manner in which the Owner has failed to so perform. If such
failure has not been corrected within ten (10) days after such notice, or if
such work, if it cannot be completed within such ten (10) day period, has not
been commenced within such period and thereafter diligently completed,
Declarants may enter upon the Building Site and perform such work. Declarants by
reason of their performing such work shall not be liable or responsible to the
Owner for any losses or damage thereby sustained by the Owner or anyone claiming
by or under the Owner except for gross negligence or wanton or willful acts. The
Owner shall be liable for the cost of such work and shall promptly reimburse
Declarants for such cost, together with interest calculated from the date of
expenditure until repayment, at the Default Interest Rate. If the Owner shall
fail to reimburse Declarants within thirty (30) days after receipt of a
statement for such work from Declarants then said indebtedness shall be a debt
of the Owner, and shall constitute a lien
13
<PAGE>
against that Building Site on which said work was performed. Such lien shall
have the same attributes as the lien for changes set forth in Section VIII.A.7.
hereof, and Declarants shall have identical powers and rights in all respects,
including but not limited to, the right of foreclosure.
E. MAINTENANCE EASEMENT. Declarants hereby reserves, for themselves and
for their designees or employees, and for the Association, the free and
unrestricted right, license and privilege to have free and unrestricted access
upon and across Lincoln Commerce Center and each Building Site, and, upon
reasonable notice, any Improvements thereon, for the purpose of performing any
work the Declarants shall have the right to perform pursuant to the provisions
of this Declaration, including but not limited to the performance of Owner's
Maintenance which an Owner fails to perform. Each Owner, mortgagee, tenant or
occupant of any Building Site, by accepting title thereto or an estate therein,
shall be deemed to have consented to the foregoing reservations and to have
granted the foregoing rights. The Declarants and the Association shall use all
reasonable efforts to avoid interfering with the normal business operations of
anyone occupying such Building Sites.
VII. STORM WATER FACILITIES.
A. EASEMENTS. Easements for the retention and/or detention of water for
the benefit of the Lincoln Commerce Center and the individual Building Sites are
hereby declared upon those portions of the Property which are designated herein
for such purpose or on the Plat of Subdivision as Private Water Detention
Easements and/or Wetlands and Stormwater Management Facilities. It is understood
that any such retention and/or detention areas may, in the future, be reshaped,
altered, or relocated within the aforementioned easements to meet required
governmental standards or engineering requirements, but no such reshaping,
alteration, or relocation shall be made without the prior written approval of
the Village.
B. MAINTENANCE. It is recognized and understood that the Private Water
Detention Easements and the Wetlands and Stormwater Management Facilities (the
Storm Water Facilities) serve both important functional and aesthetic purposes
and that their repair and maintenance are of vital concern to all parties having
an interest in Lincoln Commerce Center. In order to ensure that these areas are
in full and good working order, are sightly and well kept, and comply with
applicable governmental regulations, they are to be considered Common Area and
the responsibility for their maintenance and repair, including the cost thereof,
shall be that of the Declarants. The Storm Water Facilities on any Building Site
shall include any area designated Private Water Detention Easement on the Plat
of Subdivision. Where necessary or advisable, said delineation may be adjusted
in order to accommodate specific topographical conditions and/or the location of
Improvements and, where feasible and practical, a physical demarcation should be
utilized in order to facilitate recognition of the respective maintenance areas.
Notwithstanding anything herein to the contrary: (i) the Owners of each Building
Site shall be responsible for the maintenance, including the cost thereof, of
plantings located adjacent to any pond on the Owner's Building Site; and (ii)
areas
14
<PAGE>
designated Wetlands and Stormwater Management Facilities and Private Water
Drainage Easements on the Lincoln Commerce Center Plat of Subdivision and
located on a Building Site shall be maintained by the Owner thereof (said
maintenance shall include, but not be limited to, keeping Storm Water Facilities
clear of debris and other accumulations, insuring that the flow of storm water
is not blocked or hindered, and maintaining the Storm Water Facilities in
accordance with the landscaped plan for the Building Site).
C. IMPAIRMENT. It is understood that no Owner, by either act or
omission, shall do or refrain from doing any act the effect of which will impair
the function and/or aesthetics of the Storm Water Facilities or any
appurtenances utilized in connection therewith. Where as a result of the act or
omission of an Owner, its agents, invitees, contractors, subcontractors,
employees, etc., an extraordinary expense is incurred by the Association with
regard to the repair or maintenance of the Storm Water Facilities, such expense
shall be due and payable by the party so charged upon demand therefor, the
unpaid portion of which shall accrue interest at the Default Interest Rate, and
shall be a lien in the same manner as provided hereinafter in Section VIII.A.7.
VIII. ADMINISTRATION.
A. AUTHORITY.
1. INITIAL CONTROL. The Association's rights, duties and
obligations under this Declaration shall be administered by Declarants so long
as Fifty Percent (50%) or more of the Lincoln Commerce Center is owned by
Declarants. At such time as Declarants no longer owns Fifty Percent (50%) or
more of the Lincoln Commerce Center, or sooner if Declarants so elects,
Declarants shall cause to be established in accordance with the provisions of
this Section VIII the Association with a five (5) member Board of Directors. At
the time of the establishment of the Association, the Association shall take
over the control of and assume all the duties and the obligations of the
Declarants, all as provided for herein.
2. ESTABLISHMENT. At such time as the Association is
established, Declarants shall designate the initial five (5) directors. Three
(3) of the initial directors shall serve for a two (2) year period and two (2)
remaining initial directors shall serve for a three (3) year period. At the end
of the term of the initial directors, all directors shall thereafter serve for
two (2) year terms and they shall be elected by a majority vote of the Owners
(as provided in subsection 6 below).
3. ASSOCIATION AS OWNER OF LAND. The Association shall have
the right to accept and convey title in fee simple to the Common Areas or other
real property located within the Lincoln Commerce Center or contiguous,
adjoining or adjacent to the Lincoln Commerce Center.
4. OBLIGATIONS AND POWERS. The Declarants and/or the
Association shall (a) provide for the enforcement of this Declaration; (b)
establish policies and procedures for the review and approval of plans and
specifications as required by this Declaration; (c) have the right to provide
for any improvements or for the maintenance of any improvements
15
<PAGE>
which it reasonably deems necessary or desirable in accordance with this
Declaration; (d) have the right to make whatever arrangements which it
reasonably deems necessary or desirable for the security of the people and
businesses in Lincoln Commerce Center; (e) otherwise establish such policies and
procedures which it reasonably deems necessary or desirable in accordance with
this Declaration; (f) pay for and carry liability insurance and other forms of
insurance on the Common Areas, and (g) have the power (provided said power is
exercised in a reasonable manner) to own personal property, formulate additional
regulations and to make or grant such variances and exceptions from the
provisions of this Declaration which it deems consistent with the basic
objectives of the Lincoln Commerce Center. The Association will hold title to,
pay real estate taxes and other taxes on the Common Areas, and maintain those
areas of the Lincoln Commerce Center which are established for the common
benefit of all Owners of land within the Lincoln Commerce Center, including,
without limitation, all Common Areas, all entrances to the Lincoln Commerce
Center and other landscape features not maintained by the Village or the Owners,
all of which are hereby specifically authorized. In addition to the foregoing,
the Association and/or the Declarants shall, prior to the acceptance of
dedication from time to time by the appropriate governmental body or public
authority or utility of all or any part or parts of the public street
rights-of-way within the Lincoln Commerce Center, street lighting, water and
sanitary sewer lines, and other utility facilities in the Lincoln Commerce
Center, be responsible for the maintenance and repair of said improvements,
including the maintenance of all landscaping and the removal of snow, from the
improved nondedicated public street rights-of-way within the Lincoln Commerce
Center. The Declarants and/or the Association shall also have the express power
to dedicate the aforesaid improvements and facilities to any governmental
authority.
5. MEMBERSHIP. Upon formation of the Association, each Owner
of a Building Site shall be a member of the Association and each purchaser of a
Building Site by acceptance of conveyance thereof, covenants and agrees to
become a member of the Association. Membership in the Association shall
automatically terminate upon the sale, transfer, or other disposition of a
member's title ownership in a Building Site, at which time the new Owner of such
title interest shall automatically become a member of the Association. No member
shall have any right or power to disclaim, terminate, or withdraw from his
membership in the Association or from any of its obligations as a member by
non-use of the Common Areas or otherwise.
6. VOTING RIGHTS. The Association shall have two (2) classes
of voting membership:
a) CLASS A. Class A members shall be all those who own
Building sites within Lincoln Commerce Center except
the Declarants. Each Class A member shall be
entitled to one (1) vote for each forty thousand
(40,000) square feet of the Property (land area) that
said member owns within Lincoln Commerce Center.
Fractional votes shall be determined by rounding the
remainders to the nearest ten thousand (10,000)
square feet and dividing the rounded number by forty
thousand (40,000) (thus, votes shall be cast only in
fractions divisible by .25). Where more than one
party
16
<PAGE>
holds the particular interest or interests, the vote
for such square footage shall be exercised as said
Owners determine among themselves, but in no event
shall more than one (1) vote be cast with respect to
any forty thousand (40,000) square feet or part
thereof as aforesaid.
b) CLASS B. The Class B voting members shall be the
Declarants. The Class B voting members shall be
entitled to three (3) votes for each forty thousand
(40,000) square feet of Property (Land Area) that
the Declarants own within Lincoln Commerce Center.
Fractional votes for the Class B voting member shall
be computed in the same manner as provided
hereinabove for the Class A members.
Notwithstanding anything to the contrary in this Declaration, amendments to this
Section VIII A. 6. Shall only be effective upon the unanimous written consent of
all Class A voting members and all Class B voting members.
7. LEVYING OF ASSESSMENTS.
a) AUTHORITY. The Declarants and/or the Association shall have
the power to levy general and special assessments and charges
upon and against the Owners of the Building Sites, the
Property or any portion thereof in Lincoln Commerce Center for
the purpose of carrying out the obligations, duties and powers
herein set forth, including any legal and other costs incurred
in enforcing this Declaration in accordance with the terms
hereof. Specifically, such funds received from such
assessments or charges shall be expended by the Declarants or
the Association for (i) the providing for, the maintaining and
operating the Common Areas, including, without limitation:
entrances, street rights-of-way, pathways, recreational
facilities, directional and informational signs, signs
identifying Lincoln Commerce Center, public area lighting,
park area, wet lands, storm sewers, detention and retention
areas, street medians, drainage, and any other improvements
relating to the enhancement of the overall quality of Lincoln
Commerce Center; (ii) the payment of real estate taxes on the
Common Areas; (iii) providing for the administration and
enforcement of this Declaration, including reasonable
administrative staff requirements and expenses; and (iv) to
fulfill any of the obligations of the Association and
Declarants hereunder. Each Owner of a Building Site by the
acceptance of the Deed for said Building Site, whether or not
such obligation be so expressed in any such deed or other
conveyance, for each Building Site owned by each Owner,
together with Declarants, hereby covenants and agrees and
shall be deemed to have covenanted and agreed to pay to the
Association and/or the Declarants, as the case may be, all
assessments and charges as are levied pursuant to the
provisions of this Declaration. All assessments and charges,
together with interest thereon at the Default Interest Rate if
not paid when due, and the costs of collection, if any,
including attorneys' fees, as herein provided, shall be
charged as a continuing lien upon the Building Site against
which each such charge is made. Each such assessment or charge
as aforesaid, together with interest and
17
<PAGE>
costs thereon, shall, in addition, be the personal obligation
of the Owner of such Building Site at the time the assessment
or charge was levied by the Declarants or the Association.
Declarants, to the extent that they own any part of the
Property, shall be deemed subject to the provisions of this
Section.
b) PROCEDURES. Commencing with the first fiscal year and for
each year thereafter, the Association or the Declarants shall
estimate in writing its costs of operation for the coming year
and same shall be assessed and paid no more frequently than
quarterly in advance by each Owner or as Declarants or the
Association shall otherwise direct. Such assessment shall take
into consideration the cost of or reserves for any
contemplated repair, replacement, or renewal of a specified
improvement upon the Common Areas or the personal property and
facilities maintained by the Declarants or the Associations.
If the assessment proves inadequate for any reason (including
non-payment of any Owner's assessment) or proves to exceed
funds reasonably needed, then the Declarants or the
Association may increase or decrease the assessments payable
hereunder by giving written notice thereof (together with a
revised estimate) to each Owner not less than ten (10) days
prior to the effective due date for the payment of the revised
assessment. At least once each year, the Declarants or the
Association shall deliver to each Owner a statement of actual
costs for the prior year along with a reconciliation of
estimated assessments with actual costs and reserves. The
Association shall have the power to levy additional
assessments as provided in the By-Laws of the Association.
Each Owner shall be assessed for a prorata share of all
assessments, such share to be determined by a fraction, the
numerator of which is the number of square fee of the Property
owned by the Owner, and the denominator of which is the number
of total square feet of land contained in the entire Property
less any portion of the Property which is dedicated to a
governmental body (included but not limited to the Village),
public or private streets owned by the Declarants or the
Association and/or any Common Areas. Any Owner shall have the
right to examine the Declarants' or the Association's records
relative to any assessment, provided that reasonable notice is
first given and provided that said Owner bears all costs of
said examination. All assessments shall be prorated as of the
date title transfers to a new Owner.
c) NOTICE OF ASSESSMENT. Notice of each assessment shall be
given by sending a written notice by postage prepaid United
States mail addressed to the last known or usual post office
address of the Owner of any Building Site or by posting a
brief notice of the assessment upon the Building Site itself.
d) NONPAYMENT OF ASSESSMENT. Any assessments or charges which
are not paid within thirty (30) days after due date shall be
delinquent. All delinquent assessments shall bear interest at
the Default Interest Rate.
e) LIEN. To evidence a lien on a Building Site which is
18
<PAGE>
delinquent in the payment of an assessment or a charge,
Declarants shall prepare a written notice of assessment lien
setting forth the amount of the unpaid indebtedness, the name
of the Owner of such Building Site subject to such lien and a
legal description of such Building Site ("Notice"). The Notice
shall be signed by one of the officers of the Declarants or
the Association and shall be recorded in the Office of the
Recorder of Deeds of Lake County, Illinois. Such lien for
payment of charges shall attach to the affect Building Site
after recording the Notice and may be enforced by all
available legal methods of collection including, but not
limited to, the foreclosure of such lien by Declarants in like
manner as a mortgage on real property, or Declarants or the
Association may institute suit against the Owner obligated to
pay the assessment and/or for the foreclosure of the aforesaid
lien judicially. In any foreclosure proceeding, whether
judicial or not judicial, the Owner shall be required to pay
the costs, expenses and reasonable attorneys' fees incurred in
connection therewith. Declarants or the Association shall have
the power to bid on such Building Site at foreclosure or other
legal sale and to acquire, hold, lease, mortgage, convey or
otherwise deal with the same. Upon the written request of any
mortgagee holding a prior lien on any part of the Building
Site, Declarants or the Association shall report to said
mortgagee any unpaid charges or assessments remaining unpaid
for longer than sixty (60) days after the same are due.
f) SUBORDINATION OF LIEN TO PRIOR ENCUMBRANCES. The recorded
Notice evidencing the lien for any charge or assessment
provided in this Declaration shall be superior to all other
liens, encumbrances and charges against the Building Site,
except only as against previously recorded, or for liens
securing payment of taxes, special assessments and special
taxes heretofore or hereafter levied by any political
subdivision or municipal corporation or any state or federal
taxes which by law are a lien against the interest of any such
Owner prior to pre-existing recorded encumbrances; and
provided further, that said recorded Notice evidencing such
assessment lien shall be subordinate to the lien of a prior
recorded bona fide security device, including a mortgage,
trust deed or sale and leaseback encumbering said Building
Site, except for such amounts which become due and payable
from and after the date on which the holder of such security
device either (i) takes possession of said Building Site, or
(ii) accepts a conveyance of any interest therein other than
as security, or (iii) files suit to foreclose its security
device. Declarants or the Association shall have the power to
subordinate the aforesaid lien to any other lien. Such power
shall be entirely discretionary with Declarants or the
Association. A transfer of title shall not relieve the
Building Site from the lien for any charges thereafter
becoming due nor from the lien of any subsequent charges.
h) EXEMPT PROPERTY. All parts of the Lincoln Commerce Center
dedicated to and accepted by the Village or any other public
authority, or owned by the Association as Common Areas, shall
be exempt from assessments, charges, and liens created under
this Declaration.
19
<PAGE>
i) BY-LAWS. Upon incorporation of the Association, the
Directors shall establish appropriate By-Laws for the
Association through which the Association can carry out the
purposes of this Declaration.
B. ENFORCEMENT. This Declaration shall operate as a covenant running
with the land, and all provisions hereof shall be enforceable by Declarants, the
Association, Village, and every Owner by proper proceedings, either in equity or
at law. Further, Declarants, and the Association shall have the right to sue for
and obtain an injunction, prohibitive or mandatory, to prevent the breach of or
to enforce the observance of the covenants, conditions, restrictions,
reservations and easements herein set forth, but the failure of the Declarants
or the Association to enforce any of the covenants, conditions, restrictions,
reservations or easements herein set forth, at the time of any violation, shall
not be deemed to be a waiver of the rights of the Declarants or the Association
to do so as to any subsequent violation. This Declaration may also be enforced
by (i) suit to recover damages, (ii) suit to enforce a lien against the Owner's
Building Site, or (iii) any other available remedy at law or equity. Further,
Declarants and the Association are each empowered to take all immediate action
it deems necessary, at the cost and expense of any Building Site Owner, to
correct any violation of this Declaration relating to such Building Site,
including without limitation the power to exercise the right, license, and
permission to enter upon any Building Site with men, equipment, materials and
other necessary articles, all without being guilty of trespass and without being
subject to any liability or damages, to complete any work necessary to correct
any violation of this Declaration. Reasonable care will be used in the
performance of such work. In the event that Declarants or the Association deem
it necessary to secure the service of an attorney to enforce any provision of
this Declaration, the fee of such attorney and all other costs connected with
the contemplated or actual legal proceedings shall be paid by the Owner of the
Building Site which is the subject of the proceedings. Written notice of such
costs shall be given to the Building Site Owner and such costs shall be
reimbursed by the Building Site Owner within ten (10) days after the date of
such notice. If such costs remain unpaid, they shall be considered delinquent
and shall constitute a lien upon the Building Site.
IX. COMMON AREAS AND DRAINAGE FACILITIES.
Upon the establishment of the Association, the Declarants shall convey
to the Association all of its right, title and interest to the Common Areas and
assign to the Association any or all of its obligations for the performance of
maintenance of the Common Areas and drainage facilities.
X. RIGHT TO RE-SUBDIVIDE.
Once a Building Site has been purchased from Declarants, its successors
or assigns, such Building Site shall be considered as a single unit and further
subdivision of a portion of the Building Site is prohibited unless written
approval is given by Declarants or the
20
<PAGE>
Association, which approval shall not be unreasonably withheld.
XI. ADDITIONAL LAND.
Declarants, from time to time and at any time before and after it has
conveyed all of the Lincoln Commerce Center, shall have the right to render
other land that is adjoining to the Lincoln Commerce Center or to any other
property then subject and subservient to this Declaration in all respects by
executing and recording a supplement to this Declaration containing: A legal
description of the land to be added; a statement that Declarants is the record
owner in fee simple of such land, or in lieu thereof; a statement that all other
persons, firms or corporations having an interest in such land have joined in
such supplement; a statement of the additional restrictions or burdens to which
such land shall be subjected, if any; and a statement of the restrictions,
burdens or provisions of this Declaration which shall be applicable to such land
in modified form, if any. Following the execution, delivery and recording of
such supplement, but subject to its terms, such land and the then and future
owners, tenants, mortgagees and other occupants of all or any part thereof shall
in all respects be fully subject to this Declaration and all rights, privileges,
obligations, duties, liabilities, responsibilities, burdens and restrictions
contained herein, including but not limited to, the obligation for payment of
assessments, as though such land had originally been included in and subject to
this Declaration.
XII. DURATION OF RESTRICTIONS.
Each of the conditions, covenants, restrictions, reservations and
easements herein contained shall continue and be binding upon Declarants and
upon its successors and assigns and upon each of them, and all parties and
persons claiming under Declarations for a term of fifty (50) years from the date
this Declaration is recorded, after which time it shall automatically extend for
successive periods of five (5) years unless an instrument has been recorded
signed by all the then Owners of all of the Building Sites, agreeing to
terminate this Declaration.
XIII. APPOINTMENT OF SUCCESSOR TO DECLARANTS.
If Declarants transfers or leases all or substantially all of their
then interest in and to the Property in a single transaction (which transfer
shall be deemed to include a transfer resulting from foreclosure or deed in lieu
of foreclosure), all of Declarants' rights under this Declaration may be
assigned to and assumed by such transferee or lessee. The Declarants may, at any
time, transfer all of their rights, duties and obligations under this
Declaration to the Association. Such transfer shall be effective and binding
upon the Association as of the day it is notified of such transfer. The
foregoing transfers and assignments shall be evidenced by signed and
acknowledged written declarations recorded in the Office of the Recorder of
Deeds for Lake County, Illinois. In the event Declarants or their duly
designated successors shall no longer possess a fee simple interest in the
Property, the rights and obligations
21
<PAGE>
of Declarants shall devolve to the Association.
XIV. RESERVATION OF EASEMENTS FOR UTILITIES.
Non-exclusive Easements for the benefit of Declarants are hereby
declared in the designated set back areas between the building lines (designated
on the Flat of Subdivision or in Village ordinances) and the boundaries of
individual Building Sites as may be necessary or convenient for the purpose of
erecting, constructing, maintaining, and operating utility services over,
across, under and through the Property (including but not limited to public
service wiring, conduits or lighting, power and telephone lines, gas lines,
sanitary sewer, storm sewer and water). Said easement, at Declarants' election,
may be assigned to the Village, the Association and/or appropriate public
agencies and utilities. No Buildings may be located upon said easement but,
subject to the limitations of Village ordinances and this Declaration,
landscaping, parking and access drives may be located thereon.
XV. CERTIFICATE OF COMPLIANCE.
Upon payment of a reasonable fee and upon written request of any Owner,
mortgagee, tenant or occupant, either current or prospective, of a Building
Site, Declarants shall issue an acknowledged certificate in recordable form
setting forth the amount of any unpaid charges, if any, and setting forth
generally whether or not said Owner is, to the best knowledge of Declarants, in
violation of any of the terms and conditions of this Declaration. Such statement
shall be furnished by Declarants within a reasonable time, but not to exceed
twenty (20) days from the receipt of a written request for such written
statement. If Declarants fails to furnish such statement within said twenty (20)
days, it shall be conclusively presumed that there are no unpaid charges
relating to the Building Site as to which the request was made, and that said
Building Site is in conformance with all of the terms and conditions of this
Declaration.
XVI. RULE AGAINST PERPETUITIES.
If and to the extent that any of the covenants herein would otherwise
be unlawful or void for violation of (a) the rule against perpetuities, (b) the
rule restricting restraints on alienation, or (c) any other applicable statute
or common law rule analogous thereto or otherwise imposing limitations upon the
time for which such covenants may be valid, then the provision concerned shall
continue and endure only until the expiration of a period of twenty-one (21)
years after the death of the last to survive of the class of persons consisting
of all of the lawful descendants of President George Bush, living at the date of
this Declaration.
XVII. DECLARANTS' AGENT.
The Declarants may appoint an agent to act in their stead for any or
22
<PAGE>
all purposes provided for herein, including but not limited to the granting of
all approvals and consents of the Declarants as required herein, the assessing,
billing and collection of all charges and assessments including the imposition
of liens, and the acceptance of service and notices provided for herein. The
Declarants' appointment of said agent or any change, modification, limitation or
termination thereof shall be made by a written notice to all the Owners, sent by
U.S. Mails, by certified mail, return receipt requested.
XVIII. MISCELLANEOUS.
A. PARTIAL INVALIDITY. Invalidation of any portion of this Declaration
by judgment or court order shall in no way affect any of the other portions, all
of which shall remain in full force and effect.
B. INTERPRETATION. This Declaration shall be interpreted for the mutual
benefit and protection of the Owners and tenants of the Lincoln Commerce Center
and in furtherance of the basic goals of this Declaration. Any discrepancy,
conflict or ambiguity which may be found herein shall be resolved and determined
by Declarants and, in the absence of an adjudication by a court of competent
jurisdiction to the contrary, such resolution and determination shall be final.
C. CAPTIONS. The captions and organizational numbers and letters
appearing in this Declaration are inserted only as a matter of convenience and
neither in any way define, limit, construe or describe the scope or intent of
this Declaration nor in any way modify or affect this Declaration.
D. GOVERNING LAW. This Declaration and the rights of the Owners of the
Lincoln Commerce Center hereunder shall be governed by the laws of the State of
Illinois.
E. LIMITATION OF LIABILITY. Neither Declarants nor their agents or
employees nor any disclosed or undisclosed principals of Declarants shall have
any liability hereunder after they cease to hold title to all or substantially
all of the Property, except for obligations as the owner of one or more Building
Sites. Neither Declarants or the Association nor their agents or employees nor
any disclosed or undisclosed principals of Declarants shall have any personal
liability with respect to any of the provisions of this Declaration or the
Property, or shall they be liable in damages or otherwise to anyone submitting
Plans and Specifications for approval or making any other request of Declarants,
or to any Owner, tenant or subtenant of Property in the Lincoln Commerce Center,
by reason of any mistake in judgment, or any negligence or nonfeasance arising
out of or in connection with (i) the approval or disapproval, or failure to
approve or disapprove, any Plans and Specifications or other request; (ii) the
enforcement or failure to enforce the terms of this Declaration; and (iii) the
administration of this Declaration; and anyone who submits Plans and
Specifications or any request to Declarants for approval, by the submission of
such Plans and Specifications or request, and the Owner, tenant, mortgagee or
subtenant, by acquiring title to or an interest in any Building Site or interest
whatsoever in the Property or any part thereof, agrees, to the extent permitted
by law, not to bring any action
23
<PAGE>
or suit to recover from any such damages against Declarants. Further, if
Declarants is in breach or default with respect to Declarants' obligations under
this Declaration or otherwise, any interested party shall look solely to the
equity of Declarants in the Property for the satisfaction of any obligation of
liability.
F. AMENDMENTS. The Declarants and/or the Association shall have and
they are hereby granted the power to amend, modify, or otherwise alter this
Declaration and each and all of the terms and provisions hereof and each and all
of the rules, covenants, easements, agreements, and restrictions herein
contained, at any time and from time to time; provided however if the
Association has been established, then such action must be recommended by the
Board of Directors and approved by the affirmative vote of 75% of the votes of
the Owners (as provided by Section VIII A. 6.), subject to the limitation that
such action shall not cause the Common Areas, or any part thereof, to be in
noncompliance with any zoning ordinance or other applicable law or governmental
regulation. The Declarants and/or the Association hereby reserves the right to
amend this Declaration at any time for the purpose of correcting clerical errors
or clarification of the terms of the Declaration without the consent or approval
of the Board of Directors, the Owners or any other party, provided said
amendments do not constitute a material and substantial change to the
Declaration. Anything herein to the contrary notwithstanding, no changes or
amendments to this Declaration which would affect the rights reserved herein to
the Village shall be effective without the prior written approval of the
Corporate authorities.
G. RECAPTURE AND VILLAGE CHARGES. Nothing contained in this Declaration
shall in any manner limit the right of the Declarants to enter into and enforce
Recapture Agreements with the Village or any other governmental authorities
having jurisdiction over the subject matter of such Agreements.
H. NOTICES. Any notice required or desired to be given under this
Declaration shall be in writing and shall be deemed to have been properly served
when delivered in person and receipted for or after deposit in the United States
Mail, certified mail, return receipt requested, postage prepaid, addressed to an
Owner, at its last known address as shown on the records of the Declarants or
the Association, at the address to which assessments are mailed. All notices to
the Declarants shall be sent in the manner as aforesaid to:
TMA Group Development Corporation
145 E. Algonquin Road
Arlington Height, Illinois 60005
or at such other place or party as the Declarants may indicate by an amendment
to this Declaration properly recorded with the Recorder of Deed of Lake County.
I. DELAY IN PERFORMANCE - FORCE MAJEURE. If the performance of any act
or obligation under this Declaration is prevented or delayed by an act of God,
fire, earthquake, flood, explosion, action of the elements, war, invasion,
insurrection, mob violence, sabotage, malicious mischief, inability to procure
or general shortage of labor, equipment or
24
<PAGE>
facilities, materials or supplies in the open market, failure of transportation,
strike, lockout, action or labor union, condemnation, threatened condemnation,
requisitions, laws, orders of government or civil or military or naval
authorities or any other cause whether similar or dissimilar to the foregoing
not within the reasonable control of the person required to perform such act or
obligation, then such person shall be excused from the performance of such act
or obligation for so long as such person is so prevented or delayed by reason
thereof. This force majeure provision shall apply to Declarants, the Association
and each Owner's obligations hereunder except those that require the payment of
money.
J. BINDING EFFECT OF DECLARATION. All the rights, covenants,
agreements, reservations, restrictions and conditions herein contained shall run
with the land and shall inure to the benefit of and be binding upon Declarants
and each subsequent holder of any interest in any portion of the Property and
their grantees, heirs, successors, personal representatives and assigns with the
same full force and effect for all purposes as though set forth at length in
each and every conveyance of the Property or any part thereof. Reference in the
respective deeds of conveyance, or in any mortgage or trust deed or other
evidence of obligation, to the easements and covenants herein described shall be
sufficient to create and reserve such easements and covenants to the respective
grantees, mortgagees or trustees of such parcels as fully and completely as
though said easements and covenants were fully recited and set forth in their
entirety in such documents.
K. CONFLICTS. If Declarants obtain a zoning variance with regard to any
portion of the Property in which Declarants hold record title and such zoning
variance provides for less restrictive standards than the standards set forth in
this Declaration, then the provisions of such zoning variance shall apply to
that portion of the Property so affected and the provisions of this Declaration
as to such standards shall be unenforceable by any other Owner with regard to
such portion of the Property.
L. RIGHTS OF THE VILLAGE. In addition to any rights, powers or
easements granted to the Village elsewhere in this Declaration, the Village
shall have the rights, powers and easements set forth in this Section.
1. ENTRY UNTO THE PROPERTY. The Village has the right to enter
upon, on, and over areas utilized for Storm Water Facilities, Wetlands and
Stormwater Management Facilities, Private Water Detention Easements, Common
Areas, driveways, entrances and other property used for ingress and egress to
the Property and/or to a Building Site to determine whether any of the said
areas are in violation or not in conformity with applicable restrictions,
regulations and covenants of this Declaration.
2. NOTICE BY VILLAGE. If the Village reasonably determine that
any of the above areas are in violation or not in conformity with this
Declaration, the Village may give the Association, the Declarants and/or an
Owner written notice of such determination. The notice which the Village shall
give shall be in writing and shall permit the Association, the Declarants, or
the Owner, as the case may be, not less than thirty (30) days to cure the
violation. Provided, however that if an
25
<PAGE>
emergency exists requiring immediate intervention by the Village, the Village
shall have the right to make emergency repairs or take emergency action without
providing written notice, but may, if time permits, give oral notice.
3. FAILURE TO CORRECT. If the Association, the Declarant, or
an Owner fails to perform any required act or to desist from taking a prohibited
act within the time permitted under this Declaration, or in the absence of such
specific time, within thirty (30) days after receiving above described notice of
the determination, the Village shall have the right to perform or cause to be
performed such maintenance or other action or operations necessary to correct
the violation, to abate the prohibited act, to fulfill the conditions of this
Declaration or to bring the Property into compliance with such restrictions,
regulations and covenants as are being ignored or violated.
4. RIGHT OF REIMBURSEMENT. If the Village performs such
services or has such services performed, it shall be entitled to complete
reimbursement by the Association, the Declarants, or an Owner, as the case may
be, and, if not paid within thirty (30) days after an invoice therefor is given,
may place a lien upon the Property or the Building Site affected, in an amount
equal to the sum owed. Further, the Village shall have the right to enforce
compliance with the provisions of this Section by injunction or other legal
proceedings and to recover damages and costs of reasonable attorneys' fees which
may arise thereby.
5. GENERAL. The rights of the Village to enforce the
provisions of this Declaration, as set forth in this Section, may not be amended
by the Declarants, Association or the Owners without the written permission of
the Village. The Village shall not be obligated to enforce the provisions of
this Declaration, but may do so at its sole discretion.
XIX. TRUSTEE'S EXCULPATION.
A. Trust No. 113790. Anything herein to the contrary notwithstanding,
each and all of the representations, covenants, undertakings and agreements
herein made on the part of Declarant Trust No. 113790, while in form purporting
to be the representations, covenants, undertakings and agreements of said
Declarant, are nevertheless each and every one of them made and intended not as
personal representations, covenants, undertakings and agreements by Declarant or
for any other purpose or intention other than the limited purpose of binding
only that portion of the trust property specifically described herein, and this
instrument is executed and delivered by LaSalle National Bank, not in its own
right, but solely in the exercise of the powers conferred upon it as Trustee of
Trust No. 113790, and that no personal liability or personal responsibility is
assumed by nor shall at any time be asserted or enforceable against Declarant or
LaSalle National Bank on account of this instrument or on the account of any
representation, covenant, undertaking, or agreement of said Declarant in this
instrument contained, either expressed or implied, all such personal liability,
if any, being expressly waived and released.
26
<PAGE>
B. Trust No. 113097. Anything herein to the contrary notwithstanding,
each and all of the representations, covenants, undertakings and agreements
herein made on the part of Declarant Trust No.113097, while in form purporting
to be the representations, covenants, undertakings and agreements of said
Declarant, are nevertheless each and every one of them made and intended not as
personal representations, covenants, undertakings and agreements by Declarant or
for any other purpose or intention other than the limited purpose of binding
only that portion of the trust property specifically described herein, and this
instrument is executed and delivered by LaSalle National Bank, not in its own
right, but solely in the exercise of the powers conferred upon it as Trustee of
Trust No. 113097, and that no personal liability or personal responsibility is
assumed by nor shall at any time be asserted or enforceable against Declarant or
LaSalle National Bank on account of this instrument or on the account of any
representation, covenant, undertaking, or agreement of said Declarant in this
instrument contained, either expressed or implied, all such personal liability,
if any, being expressly waived and released.
IN WITNESS WHEREOF, the undersigned have caused these presents
to be duly executed under seal this 8th day of September 1989.
DECLARANTS:
LA SALLE NATIONAL BANK, not
personally but as Trustee
under Trust Agreement dated
November 1, 1988 and known
as Trust No. 113790
ATTEST:
/s/ Rosemary Collins By /s/ Corrine Bek
- ------------------------------- --------------------------------
Assistant Secretary Its Assistant Vice President
----------------------------
[SEAL]
LA SALLE NATIONAL BANK, not
personally but as Trustee
under Trust Agreement dated
March 15, 1988 and known as
ATTEST: No. 113097
/s/ Rosemary Collins By /s/ Corrine Bek
- ------------------------------- --------------------------------
Assistant Secretary Its Assistant Vice President
----------------------------
[SEAL]
27
<PAGE>
STATE OF ILLINOIS )
)SS
COUNTY OF COOK )
I, the undersigned, a Notary Public, in and for the County and State
aforesaid, do hereby certify that Corinne Bek, Assistant Vice President of
LaSalle National Bank, a national banking association, and Rosemary Collins,
Assistant Secretary of said national banking association, personally known to me
to be the same persons whose names are subscribed to the foregoing instrument as
such Asst Vice President and Asst Secretary, respectively, appeared before me
this day in person and acknowledged that they signed and delivered the said
instrument as their own free and voluntary acts, and as the free and voluntary
act of said national banking association, as the Trustee for Trust #113790, for
the uses and purposes therein set forth; and the said Asst Secretary did also
then and there acknowledge that she, as custodian of the corporate seal of said
national banking association, did affix the said corporate seal of said national
banking association to said instrument as her own free and voluntary act, and as
the free and voluntary act of said national banking association, as Trustee, for
the uses and purposes therein set forth, pursuant to the authority granted them
under the said Trust Agreement.
Given under my hand and official seal this 8th day of September 1989.
/s/ Harriet Deniszwicz
--------------------------------------
Notary Public
My commission expires:
----------------------------------------
[SEAL]
The Common Address of this Property is:
Peterson Road on the North, the Wisconsin Central Railroad Right of Way
on the East, Winchester Road on the South and proposed Harris Road on the West.
28
<PAGE>
STATE OF ILLINOIS )
)SS
COUNTY OF COOK )
I, the undersigned, a Notary Public, in and for the County and State
aforesaid, do hereby certify that Corinne Bek, Assistant Vice President of
LaSalle National Bank, a national banking association, and Rosemary Collins,
Asst Secretary of said national banking association, personally known to me
to be the same persons whose names are subscribed to the foregoing instrument as
such Asst Vice President and Asst Secretary, respectively, appeared before me
this day in person and acknowledged that they signed and delivered the said
instrument as their own free and voluntary acts, and as the free and voluntary
act of said national banking association, as the Trustee for Trust #113097, for
the uses and purposes therein set forth; and the said Asst Secretary did also
then and there acknowledge that she, as custodian of the corporate seal of said
national banking association, did affix the said corporate seal of said national
banking association to said instrument as her own free and voluntary act, and as
the free and voluntary act of said national banking association, as Trustee, for
the uses and purposes therein set forth, pursuant to the authority granted them
under the said Trust Agreement.
Given under my hand and official seal this 8th day of September, 1989.
/s/ Harriet Deniszwicz
--------------------------------------
Notary Public
My commission expires:
----------------------------------------
[SEAL]
This Document has been prepared by:
Harvey X. Koloms
Attorney at Law
145 East Algonquin Road
Arlington Heights, Illinois 60005
The Permanent Real Estate Tax Index Numbers affecting this Property are as
follows:
10-12-400-003-0021
10-12-400-011-0021
10-13-200-040-0010
10-13-200-040-0011
10-12-400-012-0021
10-12-400-006-0021
10-12-300-004-0021
10-13-200-039-0021
29
<PAGE>
Exhibit A
---------
Legal Description
Owned by La Salle National Bank, as Trustee under Trust Agreement dated March
15, 1988 and known as Trust No. 113097:
Lot 1 of Block 1 of Lincoln Commerce Center, being a subdivision of
parts of the Southwest 1/4 and the Southeast 1/4 of Section 12, and of
the Northeast 1/4 of Section 13, all in Township 44 North, Range 10,
East of the Third Principal Meridian, in Lake County, Illinois.
Owned by La Salle National Bank, as Trustee under Trust Agreement dated November
1, 1988 and known as Trust No. 113790:
Lot 2 and 3 of Block 1, Block 2 and Outlot A and B of Lincoln Commerce
Center, being a subdivision of parts of the Southwest 1/4 and the
Southeast 1/4 of Section 12, and of the Northeast 1/4 of Section 13,
all in Township 44 North, Range 10, East of the Third Principal
Meridian, in Lake County, Illinois.
<PAGE>
ESTOPPEL CERTIFICATE
The undersigned, ALLSCRIPS PHARMACEUTICALS, INC., an Illinois
Corporation, hereby certifies that it is the Tenant under a certain Lease
Agreement dated the _________ day of October 1996 with AMERICAN NATIONAL BANK
AND TRUST COMPANY OF CHICAGO, as Trustee under Trust Agreement dated May 15,
1994, and known as Trust Number MP-012430, as the Landlord, which Lease
Agreement leases to Tenant, 61,266 square feet of office/warehouse space
(hereinafter referred to as Leased Premises) at Concepts II Building,
Libertyville, Illinois (hereinafter referred to as Building).
The Tenant hereby further certifies as to the following:
1. That the Lease is in full force and effect and has not been
modified, altered, or amended;
2. That possession of the Leased Premises has been accepted by
the Tenant on April 1, 1997;
3. That the Term of the Lease commenced on April 1, 1997, and
ends on June 30, 2004;
4. That the Rentable Square Feet of the Leased Premises are
61,266;
5. That the Fixed Rent payable by Tenant for the entire Term is
$3,628,587.18 payable in 87 Monthly Payments As Follows:
4/1/97 to 3/31/98 $38,546.53
4/1/98 to 3/31/99 $39,510.20
4/1/99 to 3/31/00 $40,497.96
4/1/00 to 3/31/01 $41,510.41
4/1/01 to 3/31/02 $42,548.17
4/1/02 to 3/31/03 $43,611.88
4/1/03 to 3/31/04 $44,702.18
4/1/04 to 6/30/04 $45,819.74;
6. That the Tenant is obligated to pay 76.85% of the Taxes and
Operating Expenses of the Building, as Additional Rent;
7. That the Tenant has accepted, and is in possession of, the
Leased Premises; that any Tenant Improvements to the Leased Premises, required
by the terms of the Lease to be made by the Landlord, have been completed to the
satisfaction of the Tenant;
8. That there are no payments, credits, or concessions required
to be made or granted by Landlord to Tenant in connection with the Lease which
have not been paid or fulfilled, so that the Landlord has no obligations or
liabilities with respect thereto;
9. That no Rental or any other charges due under the Lease have
been paid more than thirty (30) days in advance of the date hereof, other than a
security deposit in the amount of $500,000, in the form of a letter of credit,
reducing or eliminated under certain circumstances;
10. That the Lease, the Leased Premises or any portion thereof,
have not been assigned or sublet, by operation of law or otherwise;
-1-
<PAGE>
11. That there has been no Event of Default or breach under the
Lease, by either the Tenant or the Landlord, and that no event has occurred
which, with the giving of Notices, or the passage of time, or both, could result
in an Event of Default or breach under the Lease;
12. That the Tenant, as of the date hereof, does not have any
right, charge, claim, lien, or right of set-off, under the Lease and/or against
the Landlord, other than as stated in the Lease;
13. That this Lease consists of 31 Pages and the following
Exhibits:
Exhibit A - Legal Description
Exhibit B - Site Plan
Exhibit C - Tenant Plans
Exhibit D - Contract Prices and Estimates
Exhibit E - Protective Covenants
Exhibit F - Estoppel Certificate;
14. That there are no agreements between the Landlord and the
Tenant other than as stated and provided in the Lease and its Exhibits;
15. That exceptions to the above statements 1 to 14 are set forth
hereinafter (if none, state none):
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
and;
16. That this certificate is being made to:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
and said party may rely on the truthfulness of the statements set forth herein.
This Estoppel Certificate is dated this _____ day of ___________ ____.
TENANT:
ALLSCRIPS PHARMACEUTICALS, INC., an
Illinois Corporation
- ------------------------- -----------------------------------------
Secretary President
-2-
EXHIBIT F
<PAGE>
EMPLOYMENT AGREEMENT
THIS AGREEMENT (the "Agreement") is made as of this 7th day of July
1997, by and between Allscrips Pharmaceuticals, Inc., a corporation organized
and existing under the laws of the State of Illinois, with its principal place
of business at 2401 Commerce Drive, Libertyville, Illinois 60048 ("Company") and
GLEN TULLMAN ("Executive").
RECITALS
WHEREAS, the Company desires to employ Executive as its Chief
Executive Officer;
WHEREAS, Executive desires to be employed by Company in the aforesaid
capacity;
NOW, THEREFORE, in consideration of the foregoing premises, of the
mutual agreements and covenants contained herein and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties agree as follows:
AGREEMENT
I. Employment
The Company hereby agrees to employ Executive, and Executive hereby accepts
employment as Chief Executive Officer of the Company, pursuant to the terms
of this Agreement. Executive shall report only to the Board of Directors of
the Company ("Board") and if so directed by the Board to the Chairman of
the Board. Executive shall have the duties and responsibilities of Chief
Executive Officer, and such other duties and responsibilities not
inconsistent with the performance of his duties as Chief Executive Officer
as are reasonably assigned by the Board from time to time.
During the term of this Agreement, Executive shall carry out his
responsibilities hereunder to the best of his ability on a full-time basis,
provided however Executive shall be entitled to devote time to outside
boards of directors, personal investments, and professional activities,
such as Young Presidents Organization, to the extent such activities do
not unduly interfere with his duties hereunder.
II. Effective Date and Term
The initial term of Executive's employment by the Company under this
Agreement shall commence as of August 1, 1997 and shall continue until
December 31, 2000. On December 31, 2000, and on each December 31,
thereafter, this Agreement shall automatically renew for a one (1) year
term unless the Company or Executive elects not to renew this Agreement in
a written notice to the other party given at least thirty (30) days
preceding such December 31. The Executive's employment period hereunder
<PAGE>
("Employment Period") shall begin on August 1, 1997 and end on the December
31 on which its term expires by reason of an election not to renew by the
Company or the Executive ("Expiration Date") except that if Executive's
employment is terminated pursuant to Section IV hereof the Employment
Period shall terminate on the Effective Termination Date (as defined in
Section IV).
III. Compensation and Benefits
In consideration for the services Executive shall render under this
Agreement, the Company shall provide or cause to be provided to Executive
the following compensation and benefits:
A. Base Salary
During the Employment Period, the Company shall pay or cause to be
paid to Executive an annual base salary at a rate of $225,000 for each
twelve month period ending July 31 ("Base Salary"), subject to all
appropriate federal and state withholding taxes and payable in
accordance with the Company's normal payroll procedures. Such sum
shall be reviewed prior to each July 31 during the Employment Period
by the Board or its Compensation Committee for the purposes of
determining appropriate merit increases based on Executive's
performance. The results of such review shall be reported to Executive
prior to each such July 31.
B. Benefits
During the Employment Period and as otherwise provided hereunder, the
Company shall provide or cause to be provided to Executive the
following:
1. Twenty (20) business days per year of paid vacation, such
vacation time not to be cumulative (i.e., vacation time not taken
in one year shall not be carried forward and used in any
subsequent year).
2. Health and/or dental insurance, including immediate coverage for
Executive and his eligible dependents as provided by the Company
in accordance with its group health insurance plan coverage
applicable to senior executive employees; and
3. To the extent that they do not duplicate benefits and perquisites
provided in this Agreement, such other benefits and perquisites
as are provided in accordance with the Company's plans,
practices, policies and programs for senior executive employees
of the Company.
2
<PAGE>
C. Performance Bonus
Executive shall be entitled to a cash bonus ("Performance Bonus") (i)
of $50,000 for the five-month period ending December 31, 1997, (ii) an
annual bonus for each whole calendar year falling within the
Employment Period, and (iii) to the extent provided in Section IV, for
the portion of the last calendar year falling within the Employment
Period if the Employment Period terminates on the Effective
Termination Date. The Performance Bonus for periods beginning on and
after January 1, 1998 shall be contingent upon the attainment of such
Company objectives and shall be in such amounts as are determined
annually by the Board or its Compensation Committee prior to January
1, 1998 and prior to each January 1 thereafter falling within the
Employment Period. The Performance Bonus, if any, shall be payable on
or before March 31 of the year immediately succeeding the calendar
year for which such Performance Bonus was earned, provided, however,
that if the applicable Company objectives are based on the Company's
annual audited financial statements and if on such March 31 such
financial statements have not yet been issued, the Performance Bonus,
if any, shall be payable promptly upon the issuance of such financial
statements.
D. Stock Options
The Company shall, effective August 1, 1997, grant Executive stock
options to purchase an aggregate number of the Company's Common Shares
.01 per value, as equals 2.5% of the fully-diluted common equity of
the Company, subject to mutually agreed adjustments in respect of
"out-of-the-money" convertible securities of the Company. Such options
shall be divided into four series: Series A, Series B, Series C and
Series D. Each series shall consist of one-quarter of the total
options. All of the options in Series A and 60% of the options in
Series B, Series C and Series D shall be substantially in the form
attached as Exhibit A-1. Forty percent of the options in Series B,
Series C and Series D shall substantially be in the form of Exhibit
A-2.
E. Expenses
The Company shall reimburse Executive for proper and necessary
expenses incurred by him in the performance of his duties under this
Agreement from time to time upon Executive's submission to the Company
of invoices for such expenses in reasonable detail.
3
<PAGE>
IV. Termination Prior to Expiration Date and Consequences Thereof
This Section IV sets forth the circumstances in which the Employment Period
shall terminate on a date ("Effective Termination Date") prior to the
Expiration Date (as defined in Section II hereof).
A. Death or Disability. The Employment Period shall terminate upon the
Executive's date of death or the date the Executive is given written
notice that he has been determined to be disabled by the Company. For
purposes of this Agreement, the Executive shall be deemed to be
"disabled" if the Executive, as a result of illness or incapacity, (1)
shall be unable to perform substantially his required duties for a
period of three (3) consecutive months or for any aggregate period of
three (3) months in any six (6) month period. In the event of a
dispute as to whether Executive is disabled, the Employer may refer
Executive to a licensed practicing physician of the Company's choice,
and Executive agrees to submit to such tests and examination as such
physician shall deem appropriate.
B. Termination by Company For Cause. The Employment Period shall
terminate on the date the Company provides the Executive with written
notice that he is being terminated for cause.
For the purposes of this Agreement, the term "Cause" shall mean:
(i) the willful or grossly negligent failure by Executive to
perform his duties and obligations hereunder in any material respect,
other than any such failure resulting from his disability;
(ii) Executive's conviction of a felony involving moral
turpitude; or
(iii) Executive's violation of the law in connection with his
employment which is materially injurious to the Company, monetarily or
otherwise.
Notwithstanding the foregoing, Cause shall not exist under clause (i)
above until notice of such failure has been given to Executive by the
Company and one week has lapsed following such notice without
Executive curing such failure; provided, however, that such notice and
lapse of time shall not be required with respect to any event or
circumstance which is the same or substantially the same as an event
or circumstance with respect to which notice and opportunity to cure
has been given within the previous six months.
C. Termination by Company Without Cause. The Employment Period shall
terminate on the date the Company provides the Executive with written
notice that the Company is exercising its rights under this section
IV(C) to terminate
4
<PAGE>
the Employment Period without Cause. If the Company elects not to
renew this Agreement for any renewal period pursuant to Section II
hereof, such election shall not constitute a termination of the
Employment Period without Cause.
D. Termination by Executive for Good Reason. The Employment Period shall
terminate thirty days following the date the Executive provides the
Company with written notice that the Executive is exercising his right
under this Section IV (D) to terminate the Employment Period for good
reason. For purpose of this Agreement "good reason" shall mean:
(i) an intentional, willful and material failure of the Company to
meet its obligations in any material respect under this
Agreement which remains uncured after the Executive has
provided written notice of such failure and one week has
elapsed following such notice without the Company curing such
failure; provided, however, that such notice and lapse of time
shall not be required with respect to any event or circumstance
which is the same or substantially the same as an event or
circumstance with respect to which notice and an opportunity to
cure has been given within the previous six months;
(ii) a substantial adverse alteration in the nature or status of the
Executive's responsibilities with the Company; or
(iii) a request of the Executive to relocate his residence greater
than 100 miles from his then current residence without his
consent; and an exercise by him of his right under this Section
IV(D) within sixty (60) days after such request;
E. Termination by Executive Without Good Reason. The Employment Period
shall end thirty (30) days following the date the Executive provides
the Company with written notice that Executive is exercising his right
under this Section IV(E) to terminate the Employment Period without
good reason. If the Executive elects not to renew this Agreement for
any renewal period pursuant to Section II hereof, such election shall
not constitute a termination of the Employment Period without good
reason.
F. Consequence of Termination Under This Section IV.
The table at the end of this Section IV (F) sets out the consequences
of a termination of the Employment Period on the Effective Termination
Date, i.e., a date other than the Expiration Date as defined in
Section II. Such consequences are as follows:
(i) Termination Without Cause or for Good Reason. If the Company
exercises its right to terminate the Employment Period without
Cause or if Executive
5
<PAGE>
exercises his right to terminate the Employment Period for good
reason, the Company shall be obligated to pay Executive (a) any
salary that was accrued but not yet paid as of the Effective
Termination Date; (b) as severance pay, an amount, payable in twelve
equal monthly installments commencing on the Effective Termination
Date, equal to Executive's annual Base Salary in effect immediately
prior to the Effective Termination Date (such amount to be payable
regardless of whether (x) Executive obtains other employment and is
compensated therefor, (y) the Effective Termination Date is less than
twelve months prior to the Expiration Date or (z) Executive dies
prior to the first anniversary of the Effective Termination Date, but
only for so long as Executive is not in violation of Section V
hereof); (c) the unpaid Performance Bonus, if any, with respect to
the calendar year preceding the Effective Termination Date (such
Performance Bonus, if any, to be determined in the manner it would
have been determined and payable at the time it would have been
payable under Section III C had there been no termination of the
Employment Period); and (d) any Performance Bonus for the calendar
year in which the Effective Termination Date occurs that would have
been payable under Section III.C. had there been no termination of
the Employment Period (such Performance Bonus, if any, to be
determined in the manner it would have been determined and payable at
the time it would have been payable under Section III.C. had there
been no termination of the Employment Period).
(ii) Termination With Cause or Without Good Reason. If the Company
exercises its right to terminate the Employment Period with Cause or
if Executive exercises his right to terminate the Employment Period
without good reason, the Company shall be obligated to pay Executive
(a) any salary that was accrued but not yet paid as of the Effective
Termination Date; and (b) the unpaid Performance Bonus, if any, with
respect to the calendar year preceding the Effective Termination Date
(such Performance Bonus, if any, to be determined in the manner it
would have been determined and payable at the time it would have been
payable under Section III C had there been no termination of the
Employment Period).
(iii) Termination Upon Death or Disability. If the Employment Period is
terminated because of the death or disability of Executive, the
Company shall be obligated to pay Executive or, if applicable,
Executive's estate (a) any salary that was accrued but not yet paid
as of the Effective Termination Date; (b) the unpaid Performance
Bonus, if any, with respect to the calendar year preceding the
Effective Termination Date (such Performance Bonus, if any, to be
determined in the manner it would have been determined and payable at
the time it would have been payable under Section III C had there
been no termination of the Employment Period); and (c) a Pro Rata
Share of any Performance Bonus for the calendar year in which the
Effective Termination Date occurs that would
6
<PAGE>
have been payable under Section III.C. had there been no termination
of the Employment Period (such Performance Bonus, if any, to be
determined in the manner it would have been determined and payable at
the time it would have been payable under Section III.C. had there
been no termination of the Employment Period). "Pro Rata Share" means
a fraction the numerator of which is the number of days prior to the
Effective Termination Date in the calendar year in which the Effective
Termination Date occurs and the denominator of which is 365.
Table Setting Out Consequences of a Termination of Employment
-------------------------------------------------------------
Period on the Effective Termination Date
----------------------------------------
<TABLE>
<CAPTION>
Paragraph Salary Severance Cobra
Reference Ceases? Bonus? Paid? Continuances?
--------- ------ ----- ---- ------------
<S> <C> <C> <C> <C>
(A) Death or Yes Prorated No No on death
Disability Bonus Yes on disability
(B) Company Yes No No Yes
terminates for Bonus
cause
(C) Company Yes Full Yes Yes
terminates no Bonus
cause
(D) Executive Yes Full Yes Yes
terminates for Bonus
good reason
(E) Executive Yes No No Yes
terminates Bonus
without good
reason
</TABLE>
V. Noncompetition and Confidentiality
1. For purposes of this Agreement, the term "Direct Competitor" shall
mean any person or entity engaged in the business of marketing or
providing within the
7
<PAGE>
continental United States prescription products or services or
pharmacy benefit management products or services, including, without
limitation, prepackaged prescription products or services, point of
care pharmacy dispensing systems, mail service pharmacy products or
services, or pharmaceuticals or pharmaceutical delivery systems.
2. During the Employment Period and for a period of one year after the
termination, for any reason, of the Employment Period, Executive shall
not, (i) directly or indirectly act in concert or conspire with any
person employed by the Company in order to engage in or prepare to
engage in or to have a financial or other interest in any business
which is a Direct Competitor; or (ii) serve as an employee, agent,
partner, shareholder, director or consultant for, or in any other
capacity participate, engage or have a financial or other interest in
any business which is a Direct Competitor (provided, however that
notwithstanding anything to the contrary contained in this Agreement,
Executive may own up to 2% of the outstanding shares of the capital
stock of a company whose securities are registered under Section 12 of
the Securities Exchange Act of 1934).
3. The Company has advised Executive and Executive acknowledges that it
is the policy of the Company to maintain as secret and confidential
all Protected Information (as defined below), and that Protected
Information has been and will be developed at substantial cost and
effort to the Company. Executive shall not at any time, directly or
indirectly, divulge, furnish or make accessible to any person, firm,
corporation, association or other entity (otherwise than as may be
required in the regular course of Executive's employment), nor use
in any manner, either during the Employment Period or after the
termination, for any reason, of the Employment Period, any Protected
Information, or cause any such information of the Company to enter the
public domain. "Protected Information" means trade secrets,
confidential and proprietary business information of the Company, and
any other information of the Company, including but not limited to,
customer lists (including potential customers), sources of supply,
processes, plans, materials, pricing information, internal memoranda,
marketing plans, internal policies, and products and services which
may be developed from time to time by the Company and its agents or
employees, including Executive; provided, however, that information
that is in the public domain (other than as a result of a breach of
this Agreement), approved for release by the Company or lawfully
obtained from third parties who are not bound by a confidentiality
agreement with the Company, is not Protected Information.
4. Executive acknowledges and agrees that the restrictions imposed upon
him by this Section V and the purpose for such restrictions are
reasonable and are designed to protect the trade secrets, confidential
and proprietary business information and the continued success of the
Company without unduly
8
<PAGE>
restricting Executive's future employment by others. Furthermore,
Executive acknowledges that in view of the confidential information of
the Company which he has or will acquire or has or will have access
to and the necessity of the restrictions contained in this Section V,
any violation of the provisions of this Section V would cause
irreparable injury to the Company and its successors in interest with
respect to the resulting disruption in their operations. By reason of
the foregoing, Executive consents and agrees that if he violates any
of the provisions of this Section V, the Company and its successors in
interest as the case may be, shall be entitled, in addition to any
other remedies that they may have, including monetary damages, to an
injunction to be issued by a court of competent jurisdiction,
restraining Executive from committing or continuing any violation of
this Section V.
VI Miscellaneous
A. Valid Obligation
This Agreement has been duly authorized, executed and delivered by the
Company and has been duly executed and delivered by Executive and is a
legal, valid and binding obligation of the Company and of Executive,
enforceable in accordance with its terms.
B. No Conflicts
Executive represents and warrants that the performance by him of his
duties hereunder will not violate, conflict with or result in a breach
of any provision of, any agreement to which he is a party.
C. Applicable Law
This Agreement shall be construed in accordance with the laws of the
State of Illinois, without reference to Illinois' choice of law
statutes or decisions.
D. Severability
The provisions of this Agreement shall be deemed severable, and the
invalidity or unenforceability of any one or more of the provisions
hereof shall not affect the validity or enforceability of any other
provision. In the event any clause of this Agreement is deemed to be
invalid, the parties shall endeavor to modify that clause in a manner
which carries out the intent of the parties in executing this
Agreement.
9
<PAGE>
E. No Waiver
The waiver of a breach of any provision of this Agreement by any party
shall not be deemed or held to be a continuing waiver of such breach
or a waiver of any subsequent breach of any provision of this
Agreement or as nullifying the effectiveness of such provision, unless
agreed to in writing by the parties.
F. Notices
All notices hereunder shall be in writing and shall be sent by hand
delivery, overnight courier, or by certified mail, return receipt
requested, to the parties at the addresses set forth below:
To the Company: Allscrips Pharmaceuticals, Inc.
2401 Commerce Drive
Libertyville, Illinois 60048
Attention: Chairman of the Board
with a copy to: Gardner, Carton & Douglas
321 North Clark Street
Chicago, Illinois 60610
Attention: Joseph H. Greenberg
to Executive: Glen Tullman
1226 Colgate
Wilmette, IL 60091
with a copy to: Chadbourne & Parke
30 Rockefeller Plaza
New York, NY 10112
Attention: Donald Schapiro
F. Assignment of Agreement
This Agreement shall inure to the benefit of Executive and Company,
their respective successors and assignees and Executive's heirs and
personal representatives. Neither party may assign any rights or
obligations hereunder to any person or entity without the prior
written consent of the other party. This Agreement shall be personal
to Executive for all purposes.
10
<PAGE>
G. Entire Agreement
Except as otherwise provided herein, this Agreement contains the entire
understanding between the parties, and there are no other agreements or
understandings between the parties with respect to Executive's
employment by the Company and his obligations. Executive acknowledges
that he is not relying upon any representations or warranties
concerning his employment by the Company except as expressly set forth
herein. No alteration or modification hereof shall be valid except by a
subsequent written instrument executed by the parties hereto.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
and year first above written.
ALLSCRIPS PHARMACEUTICALS, INC.
By: /s/ Michael E. Cahr
---------------------------------
Name: Michael E. Cahr
Title: President
/s/ Glen Tullman
---------------------------------
Glen Tullman
11
<PAGE>
EMPLOYMENT AGREEMENT
THIS AGREEMENT (the "Agreement") is made as of this 15th day of July
1997, by and between Allscrips Pharmaceuticals, Inc., a corporation organized
and existing under the laws of the State of Illinois, with its principal place
of business at 2401 Commerce Drive, Libertyville, Illinois 60048 ("Company") and
DAVID B. MULLEN ("Executive").
RECITALS
WHEREAS, the Company desires to employ Executive as its President and
Chief Financial Officer;
WHEREAS, Executive desires to be employed by Company in the aforesaid
capacities;
NOW, THEREFORE, in consideration of the foregoing premises, of the
mutual agreements and covenants contained herein and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties agree as follows:
AGREEMENT
I. Employment
The Company hereby agrees to employ Executive, and Executive hereby accepts
employment as President and Chief Financial Officer of the Company,
pursuant to the terms of this Agreement. Executive shall report only to the
Company's Chief Executive Officer. Executive shall have the duties and
responsibilities of President and Chief Financial Officer, and such other
duties and responsibilities not inconsistent with the performance of his
duties as President and Chief Financial Officer as are reasonably assigned
by the Chief Executive Officer from time to time.
During the term of this Agreement, Executive shall carry out his
responsibilities hereunder to the best of his ability on a full-time basis,
provided however Executive shall be entitled to devote time to outside
boards of directors, personal investments, and professional activities,
such as Young Presidents Organization, to the extent such activities do not
unduly interfere with his duties hereunder.
II. Effective Date and Term
The initial term of Executive's employment by the Company under this
Agreement shall commence as of August 1, 1997 and shall continue until
December 31, 2000. On December 31, 2000, and on each December 31,
thereafter, this Agreement shall automatically renew for a one (1) year
term unless the Company or Executive elects not to renew this Agreement in
a written notice to the other party given at least thirty (30) days
preceding such December 31. The Executive's employment period hereunder
<PAGE>
("Employment Period") shall begin on August 1, 1997 and end on the December
31 on which its term expires by reason of an election not to renew by the
Company or the Executive ("Expiration Date") except that if Executive's
employment is terminated pursuant to Section IV hereof the Employment
Period shall terminate on the Effective Termination Date (as defined in
Section IV).
III. Compensation and Benefits
In consideration for the services Executive shall render under this
Agreement, the Company shall provide or cause to be provided to Executive
the following compensation and benefits:
A. Base Salary
During the Employment Period, the Company shall pay or cause to be
paid to Executive an annual base salary at a rate of $225,000 for each
twelve month period ending July 31 ("Base Salary"), subject to all
appropriate federal and state withholding taxes and payable in
accordance with the Company's normal payroll procedures. Such sum
shall be reviewed prior to each July 31 during the Employment Period
by the Company's Board of Directors ("Board") or its Compensation
Committee for the purposes of determining appropriate merit increases
based on Executive's performance. The results of such review shall be
reported to Executive prior to each such July 31.
B. Benefits
During the Employment Period and as otherwise provided hereunder, the
Company shall provide or cause to be provided to Executive the
following:
1. Twenty (20) business days per year of paid vacation, such
vacation time not to be cumulative (i.e., vacation time not taken
in one year shall not be carried forward and used in any
subsequent year).
2. Health and/or dental insurance, including immediate coverage for
Executive and his eligible dependents as provided by the Company
in accordance with its group health insurance plan coverage
applicable to senior executive employees; and
3. To the extent that they do not duplicate benefits and perquisites
provided in this Agreement, such other benefits and perquisites
as are provided in accordance with the Company's plans,
practices, policies and programs for senior executive employees
of the Company.
2
<PAGE>
C. Performance Bonus
Executive shall be entitled to a cash bonus ("Performance Bonus") (i)
of $50,000 for the five-month period ending December 31, 1997, (ii) an
annual bonus for each whole calendar year falling within the
Employment Period, and (iii) to the extent provided in Section IV,
for the portion of the last calendar year falling within the
Employment Period if the Employment Period terminates on the Effective
Termination Date. The Performance Bonus for periods beginning on and
after January 1, 1998 shall be contingent upon the attainment of such
Company objectives and shall be in such amounts as are determined
annually by the Board or its Compensation Committee prior to January
1, 1998 and prior to each January 1 thereafter falling within the
Employment Period. The Performance Bonus, if any, shall be payable on
or before March 31 of the year immediately succeeding the calendar
year for which such Performance Bonus was earned, provided, however,
that if the applicable Company objectives are based on the Company's
annual audited financial statements and if on such March 31 such
financial statements have not yet been issued, the Performance Bonus,
if any, shall be payable promptly upon the issuance of such financial
statements.
D. Stock Options
The Company shall, effective August 1, 1997, grant Executive stock
options to purchase an aggregate number of the Company's Common Shares
.01 per value, as equals 2.5% of the fully-diluted common equity of
the Company, subject to mutually agreed adjustments in respect of
"out-of-the-money" convertible securities of the Company. Such options
shall be divided into four series: Series A, Series B, Series C and
Series D. Each series shall consist of one-quarter of the total
options. All of the options in Series A and 60% of the options in
Series B, Series C and Series D shall be substantially in the form
attached as Exhibit A-1. Forty per cent of the options in Series B,
Series C and Series D shall substantially be in the form of Exhibit
A-2.
E. Expenses
The Company shall reimburse Executive for proper and necessary
expenses incurred by him in the performance of his duties under this
Agreement from time to time upon Executive's submission to the Company
of invoices for such expenses in reasonable detail.
3
<PAGE>
IV. Termination Prior to Expiration Date and Consequences Thereof
This Section IV sets forth the circumstances in which the Employment Period
shall terminate on a date ("Effective Termination Date") prior to the
Expiration Date (as defined in Section II hereof).
A. Death or Disability. The Employment Period shall terminate upon the
Executive's date of death or the date the Executive is given written
notice that he has been determined to be disabled by the Company. For
purposes of this Agreement, the Executive shall be deemed to be
"disabled" if the Executive, as a result of illness or incapacity, (1)
shall be unable to perform substantially his required duties for a
period of three (3) consecutive months or for any aggregate period of
three (3) months in any six (6) month period. In the event of a
dispute as to whether Executive is disabled, the Employer may refer
Executive to a licensed practicing physician of the Company's choice,
and Executive agrees to submit to such tests and examination as such
physician shall deem appropriate.
B. Termination by Company For Cause. The Employment Period shall
terminate on the date the Company provides the Executive with written
notice that he is being terminated for cause.
For the purposes of this Agreement, the term "Cause" shall mean:
(i) the willful or grossly negligent failure by Executive to
perform his duties and obligations hereunder in any material respect,
other than any such failure resulting from his disability;
(ii) Executive's conviction of a felony involving moral
turpitude; or
(iii) Executive's violation of the law in connection with his
employment which is materially injurious to the Company, monetarily or
otherwise.
Notwithstanding the foregoing, Cause shall not exist under clause (i)
above until notice of such failure has been given to Executive by the
Company and one week has lapsed following such notice without
Executive curing such failure; provided, however, that such notice and
lapse of time shall not be required with respect to any event or
circumstance which is the same or substantially the same as an event
or circumstance with respect to which notice and opportunity to cure
has been given within the previous six months.
C. Termination by Company Without Cause. The Employment Period shall
terminate on the date the Company provides the Executive with written
notice that the Company is exercising its rights under this section
IV(C) to terminate
4
<PAGE>
the Employment Period without Cause. If the Company elects not to
renew this Agreement for any renewal period pursuant to Section II
hereof, such election shall not constitute a termination of the
Employment Period without Cause.
D. Termination by Executive for Good Reason. The Employment Period shall
terminate thirty days following the date the Executive provides the
Company with written notice that the Executive is exercising his right
under this Section IV (D) to terminate the Employment Period for good
reason. For purpose of this Agreement "good reason" shall mean:
(i) an intentional, willful and material failure of the Company to
meet its obligations in any material respect under this
Agreement which remains uncured after the Executive has
provided written notice of such failure and one week has
elapsed following such notice without the Company curing such
failure; provided, however, that such notice and lapse of time
shall not be required with respect to any event or circumstance
which is the same or substantially the same as an event or
circumstance with respect to which notice and an opportunity to
cure has been given within the previous six months;
(ii) a substantial adverse alteration in the nature or status of the
Executive's responsibilities with the Company; or
(iii) a request of the Executive to relocate his residence greater
than 100 miles from his then current residence without his
consent; and an exercise by him of his right under this Section
IV(D) within sixty (60) days after such request;
E. Termination by Executive Without Good Reason. The Employment Period
shall end thirty (30) days following the date the Executive provides
the Company with written notice that Executive is exercising his right
under this Section IV(E) to terminate the Employment Period without
good reason. If the Executive elects not to renew this Agreement for
any renewal period pursuant to Section II hereof, such election shall
not constitute a termination of the Employment Period without good
reason.
F. Consequence of Termination Under This Section IV.
The table at the end of this Section IV (F) sets out the consequences
of a termination of the Employment Period on the Effective Termination
Date, i.e., a date other than the Expiration Date as defined in
Section II. Such consequences are as follows:
(i) Termination Without Cause or for Good Reason. If the Company
exercises its right to terminate the Employment Period without
Cause or if Executive
5
<PAGE>
exercises his right to terminate the Employment Period for good
reason, the Company shall be obligated to pay Executive (a) any
salary that was accrued but not yet paid as of the Effective
Termination Date; (b) as severance pay, an amount, payable in
twelve equal monthly installments commencing on the Effective
Termination Date, equal to Executive's annual Base Salary in
effect immediately prior to the Effective Termination Date
(such amount to be payable regardless of whether (x) Executive
obtains other employment and is compensated therefor, (y) the
Effective Termination Date is less than twelve months prior to
the Expiration Date or (z) Executive dies prior to the first
anniversary of the Effective Termination Date, but only for so
long as Executive is not in violation of Section V hereof); (c)
the unpaid Performance Bonus, if any, with respect to the
calendar year preceding the Effective Termination Date (such
Performance Bonus, if any, to be determined in the manner it
would have been determined and payable at the time it would
have been payable under Section III C had there been no
termination of the Employment Period); and (d) any Performance
Bonus for the calendar year in which the Effective Termination
Date occurs that would have been payable under Section III.C.
had there been no termination of the Employment Period (such
Performance Bonus, if any, to be determined in the manner it
would have been determined and payable at the time it would
have been payable under Section III.C. had there been no
termination of the Employment Period).
(ii) Termination With Cause or Without Good Reason. If the Company
exercises its right to terminate the Employment Period with
Cause or if Executive exercises his right to terminate the
Employment Period without good reason, the Company shall be
obligated to pay Executive (a) any salary that was accrued but
not yet paid as of the Effective Termination Date; and (b) the
unpaid Performance Bonus, if any, with respect to the calendar
year preceding the Effective Termination Date (such Performance
Bonus, if any, to be determined in the manner it would have
been determined and payable at the time it would have been
payable under Section III C had there been no termination of
the Employment Period).
(iii) Termination Upon Death or Disability. If the Employment Period
is terminated because of the death or disability of Executive,
the Company shall be obligated to pay Executive or, if
applicable, Executive's estate (a) any salary that was accrued
but not yet paid as of the Effective Termination Date; (b) the
unpaid Performance Bonus, if any, with respect to the calendar
year preceding the Effective Termination Date (such Performance
Bonus, if any, to be determined in the manner it would have
been determined and payable at the time it would have been
payable under Section III C had there been no termination of
the Employment Period); and (c) a Pro Rata Share of any
Performance Bonus for the calendar year in which the Effective
Termination Date occurs that would
6
<PAGE>
have been payable under Section III.C. had there been no
termination of the Employment Period (such Performance Bonus,
if any, to be determined in the manner it would have been
determined and payable at the time it would have been payable
under Section III.C. had there been no termination of the
Employment Period). "Pro Rata Share" means a fraction the
numerator of which is the number of days prior to the Effective
Termination Date in the calendar year in which the Effective
Termination Date occurs and the denominator of which is 365.
Table Setting Out Consequences of a Termination of Employment
-------------------------------------------------------------
Period on the Effective Termination Date
----------------------------------------
<TABLE>
<CAPTION>
Paragraph Salary Severance Cobra
Reference Ceases? Bonus? Paid ? Continuances?
--------- ------- ------ --------- -------------
<S> <C> <C> <C> <C> <C>
(A) Death or Yes Prorated No No on death
Disability Bonus Yes on disability
(B) Company Yes No No Yes
terminates for Bonus
cause
(C) Company Yes Full Yes Yes
terminates no Bonus
cause
(D) Executive Yes Full Yes Yes
terminates for Bonus
good reason
(E) Executive Yes No No Yes
terminates Bonus
without good
reason
</TABLE>
V. Noncompetition and Confidentiality
1. For purposes of this Agreement, the term "Direct Competitor" shall
mean any person or entity engaged in the business of marketing or
providing within the
7
<PAGE>
continental United States prescription products or services or
pharmacy benefit management products or services, including, without
limitation, prepackaged prescription products or services, point of
care pharmacy dispensing systems, mail service pharmacy products or
services, or pharmaceuticals or pharmaceutical delivery systems.
2. During the Employment Period and for a period of one year after the
termination, for any reason, of the Employment Period, Executive
shall not, (i) directly or indirectly act in concert or conspire with
any person employed by the Company in order to engage in or prepare to
engage in or to have a financial or other interest in any business
which is a Direct Competitor; or (ii) serve as an employee, agent,
partner, shareholder, director or consultant for, or in any other
capacity participate, engage or have a financial or other interest in
any business which is a Direct Competitor (provided, however that
notwithstanding anything to the contrary contained in this Agreement,
Executive may own up to 2% of the outstanding shares of the capital
stock of a company whose securities are registered under Section 12 of
the Securities Exchange Act of 1934).
3. The Company has advised Executive and Executive acknowledges that it
is the policy of the Company to maintain as secret and confidential
all Protected Information (as defined below), and that Protected
Information has been and will be developed at substantial cost and
effort to the Company. Executive shall not at any time, directly or
indirectly, divulge, furnish or make accessible to any person, firm,
corporation, association or other entity (otherwise than as may be
required in the regular course of Executive's employment), nor use in
any manner, either during the Employment Period or after the
termination, for any reason, of the Employment Period, any Protected
Information, or cause any such information of the Company to enter the
public domain. "Protected Information" means trade secrets,
confidential and proprietary business information of the Company, and
any other information of the Company, including but not limited to,
customer lists (including potential customers), sources of supply,
processes, plans, materials, pricing information, internal memoranda,
marketing plans, internal policies, and products and services which
may be developed from time to time by the Company and its agents or
employees, including Executive; provided, however, that information
that is in the public domain (other than as a result of a breach of
this Agreement), approved for release by the Company or lawfully
obtained from third parties who are not bound by a confidentiality
agreement with the Company, is not Protected Information.
4. Executive acknowledges and agrees that the restrictions imposed upon
him by this Section V and the purpose for such restrictions are
reasonable and are designed to protect the trade secrets, confidential
and proprietary business information and the continued success of the
Company without unduly
8
<PAGE>
restricting Executive's future employment by others. Furthermore,
Executive acknowledges that in view of the confidential information of
the Company which he has or will acquire or has or will have access to
and the necessity of the restrictions contained in this Section V, any
violation of the provisions of this Section V would cause irreparable
injury to the Company and its successors in interest with respect to
the resulting disruption in their operations. By reason of the
foregoing, Executive consents and agrees that if he violates any of
the provisions of this Section V, the Company and its successors in
interest as the case may be, shall be entitled, in addition to any
other remedies that they may have, including monetary damages, to an
injunction to be issued by a court of competent jurisdiction,
restraining Executive from committing or continuing any violation of
this Section V.
V1 Miscellaneous
A. Valid Obligation
This Agreement has been duly authorized, executed and delivered by the
Company and has been duly executed and delivered by Executive and is a
legal, valid and binding obligation of the Company and of Executive,
enforceable in accordance with its terms.
B. No Conflicts
Executive represents and warrants that the performance by him of his
duties hereunder will not violate, conflict with or result in a breach
of any provision of, any agreement to which he is a party.
C. Applicable Law
This Agreement shall be construed in accordance with the laws of the
State of Illinois, without reference to Illinois' choice of law
statutes or decisions.
D. Severability
The provisions of this Agreement shall be deemed severable, and the
invalidity or unenforceability of any one or more of the provisions
hereof shall not affect the validity or enforceability of any other
provision. In the event any clause of this Agreement is deemed to be
invalid, the parties shall endeavor to modify that clause in a manner
which carries out the intent of the parties in executing this
Agreement.
9
<PAGE>
E. No Waiver
The waiver of a breach of any provision of this Agreement by any party
shall not be deemed or held to be a continuing waiver of such breach
or a waiver of any subsequent breach of any provision of this
Agreement or as nullifying the effectiveness of such provision, unless
agreed to in writing by the parties.
F. Notices
All notices hereunder shall be in writing and shall be sent by hand
delivery, overnight courier, or by certified mail, return receipt
requested, to the parties at the addresses set forth below:
To the Company: Allscrips Pharmaceuticals, Inc.
2401 Commerce Drive
Libertyville, Illinois 60048
Attention: Chairman of the Board
with a copy to: Gardner, Carton & Douglas
321 North Clark Street
Chicago, Illinois 60610
Attention: Joseph H. Greenberg
to Executive: David B. Mullen
470 Buena Road
Lake Forest, IL 60045
with a copy to: Chadbourne & Parke
30 Rockefeller Plaza
New York, NY 10112
Attention: Donald Schapiro
F. Assignment of Agreement
This Agreement shall inure to the benefit of Executive and Company,
their respective successors and assignees and Executive's heirs and
personal representatives. Neither party may assign any rights or
obligations hereunder to any person or entity without the prior
written consent of the other party. This Agreement shall be personal
to Executive for all purposes.
10
<PAGE>
G. Entire Agreement
Except as otherwise provided herein, this Agreement contains the
entire understanding between the parties, and there are no other
agreements or understandings between the parties with respect to
Executive's employment by the Company and his obligations. Executive
acknowledges that he is not relying upon any representations or
warranties concerning his employment by the Company except as
expressly set forth herein. No alteration or modification hereof shall
be valid except by a subsequent written instrument executed by the
parties hereto.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
and year first above written.
ALLSCRIPS PHARMACEUTICALS, INC.
By: /s/ Michael E. Cahr
---------------------------------
Name: Michael E. Cahr
Title: President
/s/ David B. Mullen
--------------------------------
David B. Mullen
11
<PAGE>
EMPLOYMENT AGREEMENT
THIS AGREEMENT (the "Agreement") is made as of this 3rd day of September,
1997, by and between Allscrips Pharmaceuticals, Inc., a corporation organized
and existing under the laws of the State of Illinois, with its principal place
of business at 2401 Commerce Drive, Libertyville, Illinois 60048 ("Company") and
Steve Katz ("Executive").
RECITALS
WHEREAS, the Company desires to employ Executive as its Executive Vice
President responsible for Sales and Marketing;
WHEREAS, Executive desires to be employed by Company in the aforesaid
capacity;
NOW THEREFORE, in consideration of the foregoing premises, of the mutual
agreements and covenants contained herein and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties agree as follows:
AGREEMENT
I. Employment
The Company hereby agrees to employ Executive, and Executive hereby
accepts employment as Executive Vice President, Sales and Marketing of the
Company, pursuant to the terms of this Agreement. Executive shall report
directly to the Chief Executive Officer. Executive shall have the duties and
responsibilities of Sales and Marketing, and such other duties and
responsibilities not inconsistent with the performance of his duties as
Executive Vice President, Sales and Marketing as are reasonably assigned.
During the term of this Agreement, Executive shall carry out his
responsibilities hereunder to the best of his ability on a full-time basis.
II. Effective Date and Term
The initial term of Executive's employment by the Company under this
Agreement shall commence as of September 2, 1997 and shall continue until
December 31, 2000. On December 31, 2000, and on each December 31 thereafter,
this Agreement shall automatically renew for a one (1) year term unless the
Company or Executive elects not to renew this Agreement in a written notice to
the other party given at least thirty (30) days preceding such December 31. The
Executive's employment period hereunder ("Employment Period") shall begin on
September 2, 1997 and end on the December 31 on which its term expires by reason
of an election not to renew by the Company or the Executive ("Expiration Date")
except that if Executive's employment is terminated pursuant to Section IV
hereof the Employment Period shall terminate on the Effective Termination Date
(as defined in Section IV).
<PAGE>
III. Compensation and Benefits
In consideration for the services Executive shall render under this
Agreement, the Company shall provide or cause to be provided to Executive the
following compensation and benefits:
A. Base Salary
During the Employment Period, the Company shall pay or cause to be
paid to Executive an annual base salary at a rate of $215,000 for each
twelve month period ending July 31 ("Base Salary"), subject to all
appropriate federal and state withholding taxes and payable in accordance
with the Company's normal payroll procedures. Such sum shall be reviewed
prior to each July 31 during the Employment Period by the Board or its
Compensation Committee for the purposes of determining appropriate merit
increases based on Executive's performance. The results of such review
shall be reported to Executive prior to each such July 31.
B. Benefits
During the Employment Period and as otherwise provided hereunder, the
Company shall provide or cause to be provided to Executive the following:
1. Twenty (20) business days per year of paid vacation, such vacation
time not to be cumulative (i.e., vacation time not taken in one year
shall not be carried forward and used in any subsequent year).
2. Health and/or dental insurance, including immediate coverage for
Executive and his eligible dependents as provided by the Company in
accordance with its group health insurance plan coverage applicable to
senior executive employees; and
3. To the extent that they do not duplicate benefits and perquisites
provided in this Agreement, such other benefits and perquisites as are
provided in accordance with the Company's plans, practices, policies
and programs for senior executive employees of the Company.
C. Performance Bonus
Executive shall be entitled to a cash bonus ("Performance Bonus") (i)
of $25,000 for the period ending December 31, 1997, (ii) an annual bonus
for each whole calendar year falling within the Employment Period, and
(iii) to the extent provided in Section IV, for the portion of the last
calendar year falling within the Employment Period if the Employment Period
terminates on the Effective Termination Date. The Performance Bonus for
periods beginning on and after January 1, 1998 shall be contingent upon the
attainment of such Company objectives and shall be in such amounts as are
determined annually by the Chief Executive Officer in consultation with the
Board or its Compensation Committee prior to January 1, 1998 and prior to
each January 1 thereafter falling within the Employment Period. The
Performance Bonus, if any, shall be payable on or before March 31 of the
year immediately succeeding the calendar year for which such Performance
Bonus was earned, provided, however, that if the applicable Company
objectives are based on the Company's annual audited financial statements
and if on such March 31 such financial statements have not yet been issued,
the Performance Bonus, if any, shall be payable promptly upon the issuance
of such financial statements.
2
<PAGE>
D. Stock Options
The Company shall, effective September 2, 1997, grant Executive stock
options to purchase an aggregate number of the Company's Common Shares .01
par value, as equals 1.85% of the fully-diluted common equity of the
Company, subject to mutually agreed adjustments in respect of "out-of-the-
money" convertible securities of the Company. Such options shall be divided
into four series: Series A, Series B, Series C and Series D. Each series
shall consist of one-quarter of the total options. All of the options in
Series A and 60% of the options in Series B, Series C and Series D shall be
substantially in the form attached as Exhibit A-1. Forty percent of the
options in Series B, Series C and Series D shall substantially be in the
form of Exhibit A-2.
E. Expenses
The Company shall reimburse Executive for proper and necessary
expenses incurred by him in the performance of his duties under this
Agreement from time to time upon Executive's submission to the Company of
invoices for such expenses in reasonable detail.
IV. Termination Prior to Expiration Date and Consequences Thereof
This Section IV sets forth the circumstances in which the Employment Period
shall terminate on a date ("Effective Termination Date") prior to the Expiration
Date (as defined in Section II hereof).
A. Death or Disability
The Employment Period shall terminate upon the Executive's date of
death or the date the Executive is given written notice that he has been
determined to be disabled by the Company. For purposes of this Agreement,
the Executive shall be deemed to be "disabled" if the Executive, as a
result of illness or incapacity, (1) shall be unable to perform
substantially his required duties for a period of three (3) consecutive
months or for any aggregate period of three (3) months in any six (6) month
period. In the event of a dispute as to whether Executive is disabled, the
Company may refer Executive to a licensed practicing physician of the
Company's choice, and Executive agrees to submit to such tests and
examination as such physician shall deem appropriate.
B. Termination by Company For Cause
The Employment Period shall terminate on the date the Company provides
the Executive with written notice that he is being terminated for cause.
For the purposes of this Agreement, the term "Cause" shall mean:
(i) the willful or grossly negligent failure by Executive to
perform his duties and obligations hereunder in any material respect,
other than any such failure resulting from his disability;
(ii) Executive's conviction of a felony involving moral
turpitude; or
3
<PAGE>
(iii) Executive's violation of the law in connection with his
employment which is materially injurious to the Company, monetarily or
otherwise.
Notwithstanding the foregoing, Cause shall not exist under clause (i)
above until notice of such failure has been given to Executive by the
Company and one week has lapsed following such notice without Executive
curing such failure; provided, however, that such notice and lapse of time
shall not be required with respect to any event or circumstance which is
the same or substantially the same as an event or circumstance with respect
to which notice and opportunity to cure has been given within the previous
six months.
C. Termination by Company Without Cause
The Employment Period shall terminate on the date the Company provides
the Executive with written notice that the Company is exercising its rights
under this Section IV(C) to terminate the Employment Period without Cause.
If the Company elects not to renew this Agreement for any renewal period
pursuant to Section II hereof, such election shall not constitute a
termination of the Employment Period without Cause.
D. Termination by Executive for Good Reason
The Employment Period shall terminate thirty days following the date
the Executive provides the Company with written notice that the Executive
is exercising his right under this Section IV(D) to terminate the
Employment Period for good reason. For purpose of this Agreement "good
reason" shall mean:
(i) an intentional, willful and material failure of the
Company to meet its obligations in any material respect under this
Agreement which remains uncured after the Executive has provided
written notice of such failure and one week has elapsed following such
notice without the Company curing such failure; provided, however,
that such notice and lapse of time shall not be required with respect
to any event or circumstance which is the same or substantially the
same as an event or circumstance with respect to which notice and an
opportunity to cure has been given within the previous six months;
(ii) a substantial adverse alteration in the nature or status
of the Executive's responsibilities with the Company; or
(iii) a request of the Executive to relocate his residence
greater than 100 miles from his then current residence without his
consent; and an exercise by him of his right under this Section IV(D)
within sixty (60) days after such request.
E. Termination by Executive Without Good Reason
The Employment Period shall end thirty (30) days following the date
the Executive provides the Company with written notice that Executive is
exercising his right under this Section IV(E) to terminate the Employment
Period without good reason. If the Executive elects
4
<PAGE>
not to renew this Agreement for any renewal period pursuant to Section II
hereof, such election shall not constitute a termination of the Employment
Period without good reason.
F. Consequence of Termination Under this Section IV
The table at the end of this Section IV(F) sets out the consequences
of a termination of the Employment Period on the Effective Termination
Date, i.e., a date other than the Expiration Date as defined in Section II.
Such consequences are as follows:
(i) Termination Without Cause or for Good Reason. If the
Company exercises its right to terminate the Employment Period without
Cause or if Executive exercises his right to terminate the Employment
Period for good reason, the Company shall be obligated to pay
Executive (a) any salary that was accrued but not yet paid as of the
Effective Termination Date; (b) as severance pay, an amount, payable
in twelve equal monthly installments commencing on the Effective
Termination Date, equal to Executive's annual Base Salary in effect
immediately prior to the Effective Termination Date (such amount to be
payable regardless of whether (x) Executive obtains other employment
and is compensated therefor, (y) the Effective Termination Date is
less than twelve months prior to the Expiration Date or (z) Executive
dies prior to the first anniversary of the Effective Termination Date,
but only for so long as Executive is not in violation of Section V
hereof); (c) the unpaid Performance Bonus, if any, with respect to the
calendar year preceding the Effective Termination Date (such
Performance Bonus, if any, to be determined in the manner it would
have been determined and payable at the time it would have been
payable under Section III(C) had there been no termination of the
Employment Period); and (d) any Performance Bonus for the calendar
year in which the Effective Termination Date occurs that would have
been payable under Section III(C) had there been no termination of the
Employment Period (such Performance Bonus, if any, to be determined in
the manner it would have been determined and payable at the time it
would have been payable under Section III(C) had there been no
termination of the Employment Period).
(ii) Termination With Cause or Without Good Reason. If the
Company exercises its right to terminate the Employment Period with
Cause or if Executive exercises his right to terminate the Employment
Period without good reason, the Company shall be obligated to pay
Executive (a) any salary that was accrued but not yet paid as of the
Effective Termination Date; and (b) the unpaid Performance Bonus, if
any, with respect to the calendar year preceding the Effective
Termination Date (such Performance Bonus, if any, to be determined in
the manner it would have been determined and payable at the time it
would have been payable under Section III(C) had there been no
termination of the Employment Period).
(iii) Termination Upon Death or Disability. If the Employment
Period is terminated because of the death or disability of Executive,
the Company shall be obligated to pay Executive or, if applicable,
Executive's estate (a) any salary that was accrued but not yet paid as
of the Effective Termination Date; (b) the unpaid Performance Bonus,
if any, with respect to the calendar year
5
<PAGE>
preceding the Effective Termination Date (such Performance Bonus, if
any, to be determined in the manner it would have been determined and
payable at the time it would have been payable under Section III(C)
had there been no termination of the Employment Period); and (c) a Pro
Rata Share of any Performance Bonus for the calendar year in which the
Effective Termination Date occurs that would have been payable under
Section III(C) had there been no termination of the Employment Period
(such Performance Bonus, if any, to be determined in the manner it
would have been determined and payable at the time it would have been
payable under Section III(C) had there been no termination of the
Employment Period). "Pro Rata Share" means a fraction the numerator of
which is the number of days prior to the Effective Termination Date in
the calendar year in which the Effective Termination Date occurs and
the denominator of which is 365.
Table Setting Out Consequences of a Termination of Employment
-------------------------------------------------------------
Period on the Effective Termination Date
----------------------------------------
<TABLE>
<CAPTION>
Paragraph Salary Severance Cobra
Reference Ceases? Bonus? Paid? Continues?
--------- ------- ------ ----- ----------
<S> <C> <C> <C> <C>
(A) Death or Disability Yes Prorated Bonus No No on death
Yes on
disability
(B) Company terminates Yes No Bonus No Yes
for cause
(C) Company terminates Yes Full Bonus Yes Yes
no cause
(D) Executive terminates Yes Full Bonus Yes Yes
for good reason
(E) Executive terminates Yes No Bonus No Yes
without good reason
</TABLE>
V. Noncompetition and Confidentiality
1. For purposes of this Agreement, the term "Direct Competitor" shall
mean any person or entity engaged in the business of marketing or
providing within the continental United States prescription products
or services or pharmacy benefit management products or services,
including, without limitation, prepackaged prescription products or
services, point of care pharmacy dispensing systems, mail service
pharmacy products or services, or pharmaceuticals or pharmaceutical
delivery systems.
2. During the Employment Period and for a period of one year after the
termination, for any reason, of the Employment Period, Executive shall
not, (i) directly or indirectly act in
6
<PAGE>
concert or conspire with any person employed by the Company in order
to engage in or prepare to engage in or to have a financial or other
interest in any business which is a Direct Competitor; or (ii) serve
as an employee, agent, partner, shareholder, director or consultant
for, or in any other capacity participate, engage or have a financial
or other interest in any business which is a Direct Competitor
(provided, however that notwithstanding anything to the contrary
contained in this Agreement, Executive may own up to 2% of the
outstanding shares of the capital stock of a company whose securities
are registered under Section 12 of the Securities Exchange Act of
1934).
3. The Company has advised Executive and Executive acknowledges that it
is the policy of the Company to maintain as secret and confidential
all Protected Information (as defined below), and that Protected
Information has been and will be developed at substantial cost and
effort to the Company. Executive shall not at any time, directly or
indirectly, divulge, furnish or make accessible to any person, firm,
corporation, association or other entity (otherwise than as may be
required in the regular course of Executive's employment), nor use in
any manner, either during the Employment Period or after the
termination, for any reason, of the Employment Period, any Protected
Information, or cause any such information of the Company to enter the
public domain. "Protected Information" means trade secrets,
confidential and proprietary business information of the Company, and
any other information of the Company, including but not limited to,
customer lists (including potential customers), sources of supply,
processes, plans, materials, pricing information, internal memoranda,
marketing plans, internal policies, and products and services which
may be developed from time to time by the Company and its agents or
employees, including Executive; provided, however, that information
that is in the public domain (other than as a result of a breach of
this Agreement), approved for release by the Company or lawfully
obtained from third parties who are not bound by a confidentiality
agreement with the Company, is not Protected Information.
4. Executive acknowledges and agrees that the restrictions imposed upon
him by this Section V and the purpose for such restrictions are
reasonable and are designed to protect the trade secrets, confidential
and proprietary business information and the continued success of the
Company without unduly restricting Executive's future employment by
others. Furthermore, Executive acknowledges that in view of the
confidential information of the Company which he has or will acquire
or has or will have access to and the necessity of the restrictions
contained in this Section V, any violation of the provisions of this
Section V would cause irreparable injury to the Company and its
successors in interest with respect to the resulting disruption in
their operations. By reason of the foregoing, Executive consents and
agrees that if he violates any of the provisions of this Section V,
the Company and its successors in interest as the case may be, shall
be entitled, in addition to any other remedies that they may have,
including monetary damages, to an injunction to be issued by a court
of competent jurisdiction, restraining Executive from committing or
continuing any violation of this Section V.
7
<PAGE>
VI. Miscellaneous
A. Valid Obligation
This Agreement has been duly authorized, executed and delivered by the
Company and has been duly executed and delivered by Executive and is a
legal, valid and binding obligation of the Company and of Executive,
enforceable in accordance with its terms.
B. No Conflicts
Executive represents and warrants that the performance by him of his
duties hereunder will not violate, conflict with or result in a breach of
any provision of, any agreement to which he is a party.
C. Applicable Law
This Agreement shall be construed in accordance with the laws of the
State of Illinois, without reference to Illinois' choice of law statutes or
decisions.
D. Severability
The provisions of this Agreement shall be deemed severable, and the
invalidity or unenforceability of any one or more of the provisions hereof
shall not affect the validity or enforceability of any other provision. In
the event any clause of this Agreement is deemed to be invalid, the parties
shall endeavor to modify that clause in a manner which carries out the
intent of the parties in executing this Agreement.
E. No Waiver
The waiver of a breach of any provision of this Agreement by any party
shall not be deemed or held to be a continuing waiver of such breach or a
waiver of any subsequent breach of any provision of this Agreement or as
nullifying the effectiveness of such provision, unless agreed to in writing
by the parties.
F. Notices
All notices hereunder shall be in writing and shall be sent by hand
delivery, overnight courier, or by certified mail, return receipt
requested, to the parties at the addresses set forth below:
To the Company: Allscrips Pharmaceuticals, Inc.
2401 Commerce Drive
Libertyville, Illinois 60048
Attention: Chief Executive Officer
with a copy to: Gardner, Carton & Douglas
321 North Clark Street
Chicago, Illinois 60610
Attention: Joseph H Greenberg
8
<PAGE>
to Executive: Steve Katz
2940 Crabtree Lane
Northbrook, Illinois 60062
with a copy to: ____________________________
____________________________
____________________________
Attention:__________________
G. Assignment of Agreement
This Agreement shall inure to the benefit of Executive and the
Company, their respective successors and assignees and Executive's heirs
and personal representatives. Neither party may assign any rights or
obligations hereunder to any person or entity without the prior written
consent of the other party. This Agreement shall be personal to Executive
for all purposes.
H. Entire Agreement
Except as otherwise provided herein, this Agreement contains the
entire understanding between the parties, and there are no other agreements
or understandings between the parties with respect to Executive's
employment by the Company and his obligations. Executive acknowledges that
he is not relying upon any representations or warranties concerning his
employment by the Company except as expressly set forth herein. No
alteration or modification hereof shall be valid except by a subsequent
written instrument executed by the parties hereto.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
and year first above written.
ALLSCRIPS PHARMACEUTICALS, INC.
By: /s/ Glen Tullman
----------------------------
Name: Glen Tullman
--------------------------
Title: CEO
-------------------------
/s/ ???????????????????
-------------------------------
[Name of Executive]
9
<PAGE>
[Allscrips Pharmaceuticals, Inc. Letterhead]
May 1, 1995
Mr. John G. Cull
1252 Arbor Lane
Palatine, Illinois 60067
Dear John:
In consideration for your agreement to the terms of the non-competition
agreement described below, Allscrips Pharmaceuticals, Inc. (the "Company") has
agreed to establish your severance arrangements following a change in control
and upon discharge or dismissal other than for cause.
Non-Competition Agreement
- -------------------------
For a period of twelve (12) months following the termination of your
employment for any reason, including voluntary termination by you, you shall not
(i) directly or indirectly act in concert or conspire with any persons then
employed by the Company in order to engage in or have a financial or other
interest in any business which is a Direct Competitor; or (ii) serve as an
employee, agent, partner, shareholder or consultant for, or in any other
capacity participate, engage or have a financial or other interest in, any
business which is a Direct Competitor; provided, however, that you shall not be
prohibited from owning up to 2% of the outstanding shares of capital stock of a
company whose equity securities are registered under Section 12 of the
Securities Exchange Act of 1934. Direct Competitor shall mean any person or
entity engaged in the business of marketing or providing within the United
States prescription products or services or pharmacy benefit management products
or services that are at the time of determination competitive with the products
or services offered or planned to be offered by the Company, within twelve (12)
months following termination of your employment, including, without limitation,
prepackaged prescription products or services, point of care pharmacy dispensing
systems, mail service pharmacy products or services, prescription card services
or pharmaceutical delivery systems.
Severance
- ---------
Should you be discharged by the Company at any time after the date hereof
(other than at any time after a Change in Control) for any reason other than a
Dismissal or Discharge for Cause, you will receive for a period of twelve (12)
months, a monthly payment equal to the sum of (i) your then in-effect monthly
salary and (ii) one-twelfth (1/12) of the pro rata portion of any bonus paid or
payable for the prior year (with the pro rated portion being the product of (x)
the full bonus amount earned by you in the prior year and (y) the fraction the
numerator of which is
<PAGE>
Mr. John G. Cull
May 1, 1995
Page 2
the number of full calendar months of the current year preceding the date of
termination of your employment and denominator of which is twelve (12)) (the
aggregate amount referred to in clause (ii) is referred to herein as the "Pro
Rata Bonus Amount") and health insurance coverage which is at least as favorable
to you as the health insurance coverage provided to senior executive employees
of the Company for such period. You shall be entitled to such payments whether
or not you obtain other employment and are compensated therefor, unless such
other employment constituted a violation of your agreement not to compete set
forth above. Dismissal or Discharge for Cause shall mean dismissal or discharge
for (i) the willful or grossly negligent failure by you to perform your duties
and obligations hereunder in any material respect (other than any such failure
resulting from your disability), (ii) conviction of a felony involving moral
turpitude which is injurious to the Company, (iii) violation of the law in
connection with your employment which is materially injurious to the Company,
monetarily or otherwise, or (iv) blatant and willful disregard by you of lawful
written directions from your superiors.
Should you be discharged by the Company within six (6) months of a Change
in Control, you will receive for a period of twelve (12) months, monthly
payments equal to the sum of (i) your then in-effect monthly salary and (ii)
one-twelfth (1/12) of the Pro Rata Bonus Amount and health insurance coverage
which is at least as favorable to you as the health insurance coverage provided
to senior executive employees of the Company for such period. You shall be
entitled to such payments whether or not you obtain other employment and are
compensated therefor, unless such other employment constituted a violation of
your agreement not to compete set forth above. Discharge by the Company for
purposes of the first sentence of this paragraph shall mean (i) termination of
your employment involuntarily (other than a Dismissal or Discharge for Cause) or
(ii) your voluntary termination following (A) a change in your position with the
Company which materially reduces your level of responsibilities or (B) a
material reduction in your overall level of compensation, provided and only if
such change or reduction is effected without your written consent. Change in
Control shall mean and be determined to have occurred upon any one of the
following events: (i) any person or entity becoming the owner, directly or
indirectly, of securities representing 35% or more of the combined voting power
of the then outstanding voting securities of the Company entitled to vote
generally in the election of directors other than a person or entity which as of
October 1, 1994, owned, directly or indirectly, such amount or more; provided,
however, that no Change in Control shall be deemed to have occurred if
immediately subsequent to an acquisition of securities, at least a majority of
the combined voting power of the then outstanding voting securities of the
Company entitled to vote generally in the election of directors are owned,
directly or indirectly, by the persons who, immediately prior to such
acquisition, were the owners, directly or indirectly, of at least a majority of
the combined voting power of the then outstanding voting securities of the
Company entitled to vote generally in the election of directors, in
substantially the same proportion; or (ii) (A) the Company shall be a party to a
merger or consolidation in which persons who were the owners, directly or
indirectly, of at least a majority of the combined voting power of the
outstanding voting securities of the Company entitled to vote generally in the
election of the directors immediately prior thereto do not own, directly or
indirectly, at least a majority of the combined voting power of the outstanding
voting securities of the Company entitled to vote generally in the election of
<PAGE>
Mr. John G. Cull
May 1, 1995
Page 3
directors immediately subsequent thereto or (B) the Company shall sell all or
substantially all of its assets.
Accelerated Vesting
- -------------------
All options granted to you by the Company will provide for accelerated
vesting upon the occurrence of the same events that require the Company to make
severance payments to you following a Change in Control. All such options will
be exerciseable for at least 90 days following your termination of employment
with respect to that portion of the option that was vested on the date of
termination of your employment.
Confirmation of Employee Non-Solicitation and Non-Disclosure Agreement
- ----------------------------------------------------------------------
Attached as Exhibit A hereto is a copy of the Employee Non-Solicitation and
Non-Disclosure Agreement entered into between you and the Company simultaneously
with, and in consideration of, this Agreement (the "Non-Disclosure Agreement").
The Company and you acknowledge and confirm the agreements contained herein are
in addition to the agreements in the Non-Disclosure Agreement and that the Non-
Disclosure Agreement supersedes any previous agreements between you and the
Company relating to the subject matter thereof.
Your countersignature of this letter agreement will signify your agreement
to its terms.
Very truly yours,
/s/ Michael E. Cahr
---------------------------------------
Michael E. Cahr
President-Chief Executive Officer
Allscrips Pharmaceuticals, Inc.
Accepted and Agreed to:
/s/ John G. Cull
- --------------------------------
John G. Cull
Dated: 7/19/95
------------------
<PAGE>
ALLSCRIPTS, INCALLSCRIPTS, INC.
TOUCHSCRIPT MASTER LICENSE AGREEMENT
THIS TOUCHSCRIPT MASTER LICENSE AGREEMENT (the "AGREEMENT"), which includes
all Schedules and Exhibits attached hereto, is made as of the Effective Date set
forth below (the "EFFECTIVE DATE") by and between Allscripts, Inc., an Illinois
corporation ("ALLSCRIPTS"), and the customer identified on the signature page
hereof ("CUSTOMER").
1. SOFTWARE LICENSE.
----------------
1.1 ALLSCRIPTS hereby grants, and CUSTOMER hereby accepts, on the
terms and conditions contained herein, a non-transferable, non-
exclusive and periodically renewable site license to use: 1)
TouchScript Software, together with all upgrades and enhancements
thereof supplied by ALLSCRIPTS, 2) associated databases and software
products supplied by ALLSCRIPTS, except the Microsoft products
licensed separately from Microsoft to CUSTOMER as discussed in Section
1.2 and 3) all related materials supplied by ALLSCRIPTS (hereinafter
collectively, the "PRODUCTS"). The rights granted in this Section 1.1
are referred to herein as the "SOFTWARE LICENSE". The Products, and
all modifications, supplements, translations, updated works and
compilations thereof, are trade secrets and the proprietary
copyrighted property of ALLSCRIPTS or, in the case of the Microsoft
products and certain databases, of either Microsoft or another third
party, respectively, and title to the Products shall remain at all
times with ALLSCRIPTS, Microsoft or the other third party as
applicable. CUSTOMER shall not advertise nor use any names, symbols or
trademarks of ALLSCRIPTS in any advertising in any manner without the
prior written consent of ALLSCRIPTS. Upon termination of this
Agreement, for any reason, CUSTOMER shall immediately discontinue the
use and advertising of any name, symbol or trademark of ALLSCRIPTS.
CUSTOMER SHALL NOT MODIFY, CHANGE, REVERSE ENGINEER, COPY
ELECTRONICALLY OR IN ANY OTHER FORM, AND/OR TAMPER WITH THE PRODUCTS
WITHOUT THE EXPRESS WRITTEN CONSENT OF ALLSCRIPTS.
1.2 The Microsoft products contained or referenced in the
accompanying Microsoft software packages or Microsoft license
agreements have been integrated or pre-installed as part of the
Allscripts solution. Each Microsoft product is subject to its
respective Microsoft End User License Agreement contained in the
accompanying software packages or license agreements with the
exception that the Microsoft product functionality as integrated in
the Allscripts solution may differ from a non-integrated Microsoft
product and any issues concerning the functionality or performance of
the Allscripts solution and the Microsoft products should be directed
to Allscripts and not to Microsoft. If the accompanying Microsoft
product software package is in the form of a "Microsoft License Pak,"
"Microsoft Multiple License Pak" or a "Microsoft Open License" (as
opposed to a full packaged product), the right to make additional
copies of the Microsoft product has already been exercised by
Allscripts in integrating or pre-installing the Microsoft product in
this solution. CUSTOMER, therefore, may not make additional copies of
the product pursuant to the Microsoft License Pak, Microsoft Multiple
License Pak or Microsoft Open License notwithstanding any license
terms in such document.
2. EQUIPMENT. CUSTOMER agrees to use the Products only on the equipment
---------
and at the location address(es) identified in the attached Schedule 1 (SCHEDULE
1) or on such other equipment as ALLSCRIPTS may agree to in writing (the
"EQUIPMENT"). CUSTOMER hereby enters into the arrangement for Equipment
identified by CUSTOMER in Section B of the attached Schedule 1. On or before the
date on which ALLSCRIPTS is obligated to install the Products, CUSTOMER shall
have installed (or made available) electrical power at the installation site
sufficient to operate the Products. CUSTOMER also shall have obtained access to
a telephone line at the site dedicated to the exclusive use of the modem for the
Equipment. If the Products are to operate on a computer network, CUSTOMER is
responsible for the cabling, hub and other equipment necessary to connect the
computers. The cost of computer supplies (e.g., labels, paper and printer
cartridges) and the installation of the electrical power, the dedicated
telephone line and, if necessary, network cabling, hub and other necessary
networking equipment will be borne solely by CUSTOMER.
3. SOFTWARE LICENSE FEES. For the fees specified in Section A of the
---------------------
attached Schedule 1, CUSTOMER is entitled to receive new versions or updates of
Products as ALLSCRIPTS makes them generally available. ALLSCRIPTS shall not be
required to provide maintenance services for any Products that are not
maintained by CUSTOMER to the latest version, or the version prior to the latest
version. In addition, the fees specified in Section A of the attached Schedule
1 cover Allscripts services such as toll-free telephone support, periodic on-
site support visits, database updates, automated inventory management, online
pharmacy claims adjudication and ALLSCRIPTS purchase order processing as
ALLSCRIPTS makes them generally available, but do not cover transaction-based
charges, if any, levied by third parties in connection with CUSTOMER's use of
the Products, which shall be the responsibility of CUSTOMER.
4. IMPLEMENTATION. For the fees specified in Section C of the attached
--------------
Schedule 1, CUSTOMER is entitled to receive payer contracting, prescribing
studies by physician, formulary recommendations, retail pricing studies and
process flow analysis as ALLSCRIPTS makes them generally available. ALLSCRIPTS
will load the TouchScript Software on the equipment and will set up all database
information supplied by CUSTOMER necessary to operate the Products. In
addition, ALLSCRIPTS will provide of initial training on the use of the Products
to personnel designated by CUSTOMER. At CUSTOMER'S request, ALLSCRIPTS will
provide subsequent training or onsite support at its then current rates, plus
expenses.
5. FEES AND PAYMENTS. CUSTOMER shall pay to ALLSCRIPTS the fees
-----------------
specified in the attached Schedule 1, due and payable 30 days from receipt of
the applicable invoice. Invoices not paid on a timely basis shall be subject to
a late charge of one and one-half percent (1 1/2%) per month or the maximum
lawful rate, whichever is lower. CUSTOMER'S obligation to pay all fees due
hereunder shall not be subject to any abatement, reduction, set-off, defense or
counterclaim whatsoever. The fees specified in the attached Schedule 1 are
exclusive of any federal, state or local excise, sales, use and similar taxes
assessed or now or hereafter imposed with respect to the Products licensed,
leased and sublicensed hereunder and the other services contemplated by this
Agreement, and CUSTOMER agrees to pay to ALLSCRIPTS when due all such
assessments and taxes.
6. PURCHASE OF PHARMACEUTICALS. Nothing herein requires CUSTOMER to
---------------------------
purchase pharmaceutical products from ALLSCRIPTS or prohibits CUSTOMER from
purchasing pharmaceutical products from any other source. CUSTOMER acknowledges,
however, that various functionalities of the Products, including, but not
limited to, the dispensing, labeling and inventory management functions, will
not perform properly if used with any pharmaceutical products other than those
repackaged and sold by ALLSCRIPTS.
<PAGE>
7. CUSTOMER REPRESENTATIONS AND WARRANTIES. CUSTOMER represents and
---------------------------------------
warrants that he/she has full right, power and authority to enter into this
Agreement, and that he/she has the authority to bind, and will take all steps
necessary to bind, all physicians employed by or providing services to the
practice/clinic named herein to the terms of this Agreement.
8. INSURANCE. CUSTOMER agrees to maintain general and professional
---------
liability coverage in such forms and amounts as required by applicable state or
federal law. If requested, CUSTOMER agrees to provide ALLSCRIPTS with a copy of
all professional liability insurance policies.
9. LIMITED WARRANTY.
----------------
9.1. ALLSCRIPTS warrants that the TouchScript Software will conform,
as to all substantial operational features, to ALLSCRIPTS' current
published specifications when installed. The foregoing warranty made
by ALLSCRIPTS will extend and be in effect only for the period that
CUSTOMER is entitled to use the TouchScript Software and for which
CUSTOMER shall have paid the fees specified in the attached Schedule
1.
9.2. If CUSTOMER elects to purchase or lease the Equipment from
ALLSCRIPTS, ALLSCRIPTS warrants that it has good title to the
Equipment and, to the extent allowable, ALLSCRIPTS hereby assigns to
CUSTOMER all of the Equipment manufacturer's warranties to ALLSCRIPTS
with respect to the Equipment.
9.3. The CUSTOMER must notify ALLSCRIPTS in writing within thirty
(30) days of the discovery of any defect in the TouchScript Software.
If the TouchScript Software is found defective by ALLSCRIPTS,
ALLSCRIPTS' sole obligation under the warranty contained herein is to
use best efforts, consistent with industry standards, to remedy such
defect or, at the option of ALLSCRIPTS, to terminate this Agreement
and refund to CUSTOMER a pro-rata portion of the fees paid for the
then current Term.
9.4. THE ABOVE IS A LIMITED WARRANTY AND IT IS THE ONLY WARRANTY
MADE BY ALLSCRIPTS WITH RESPECT TO THE PRODUCTS. ALLSCRIPTS DOES NOT
MAKE, NOR DOES THE CUSTOMER RECEIVE, ANY OTHER WARRANTY, WHETHER
EXPRESS OR IMPLIED, AND ALL WARRANTIES OF MERCHANTABILITY, OF FITNESS
FOR A PARTICULAR PURPOSE, AND OF COMPATIBILITY OF THE DATABASES
SUPPLIED HEREUNDER WITH CUSTOMER'S COMPUTER HARDWARE AND/OR SOFTWARE
SYSTEM ARE EXPRESSLY EXCLUDED. ALLSCRIPTS SHALL HAVE NO LIABILITY WITH
RESPECT TO ALLSCRIPTS' OBLIGATIONS UNDER THIS AGREEMENT FOR
CONSEQUENTIAL, EXEMPLARY, OR INCIDENTAL DAMAGES, EVEN IF ALLSCRIPTS
HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, INCLUDING,
WITHOUT LIMITATION, DAMAGES FOR LOSS OF GOODWILL, WORK STOPPAGE,
COMPUTER FAILURE OR MALFUNCTION OR ANY AND ALL OTHER COMMERCIAL
DAMAGES OR LOSSES. THIS EXPRESS WARRANTY IS IN LIEU OF ALL LIABILITIES
OR OBLIGATIONS OF ALLSCRIPTS FOR DAMAGES ARISING OUT OF OR IN
CONNECTION WITH THE DELIVERY, USE, OR PERFORMANCE OF THE PRODUCTS,
INCLUDING THE TOUCHSCRIPT SOFTWARE, OR THE DATABASES.
9.5. CUSTOMER agrees that its sole remedy for a breach of any
warranty granted hereunder shall be as provided in this Section 9, and
that in no event shall ALLSCRIPTS' liability hereunder, whether
arising out of contract, negligence, strict liability, in tort or
warranty, exceed any fees paid by the CUSTOMER for the then current
Term.
10. NON-DISCLOSURE OF INFORMATION. CUSTOMER agrees (i) that the
-----------------------------
TouchScript Software and the other Products are proprietary developments and
constitute a valuable work product in the form of trade secrets, know-how and
confidential information which is the exclusive property of ALLSCRIPTS or in the
case of Microsoft Products and certain databases, either Microsoft or another
third party, respectively. CUSTOMER agrees to keep strictly confidential the
contents of the Products and to prevent its agents, employees and
representatives from disclosing or giving access to the contents thereof to any
parties other than other agents, employees and representatives of CUSTOMER whose
access to such information is necessary for CUSTOMER to use the Products and
who, prior to such disclosure or access, have been notified of the
confidentiality obligations with respect thereto. CUSTOMER shall not sell,
transfer, publish, disclose, display or otherwise make available the TouchScript
Software or any other Product or copies thereof to third parties other than
authorized agents, employees and representatives. Without limiting the
foregoing, the TouchScript Software and the other Products shall at all times be
given protection no less than the CUSTOMER gives its own confidential
information. CUSTOMER further agrees not to reproduce, copy or duplicate any
part of or all of the TouchScript Software or other Products, except for backup
or archival purposes, without the prior written consent of ALLSCRIPTS. CUSTOMER
agrees not to copy, modify, sublicense, assign, transfer or resell the Microsoft
products or databases supplied by ALLSCRIPTS, in whole or in part. CUSTOMER
further agrees not to download/upload such Microsoft products or databases, in
whole or in part, or to establish a network or service bureau utilizing such
Microsoft products or databases. Such Microsoft products and databases shall
only be accessed by one person at one location on one microcomputer unless
licensed for additional users listed on the attached Schedule 1. Should any
portion of the TouchScript Software or other Products be disclosed, CUSTOMER
shall immediately notify ALLSCRIPTS of the circumstances surrounding such
disclosure. CUSTOMER shall assist ALLSCRIPTS in the prosecution of any parties
who are using the TouchScript Software or the other Products, as the case may
be, in violation of this Agreement. CUSTOMER hereby agrees that, due to the
unique nature of the TouchScript Software and the other Products, if CUSTOMER
refuses or fails fully to honor its obligations hereunder ALLSCRIPTS. Microsoft
or the other third party, as applicable, shall suffer irreparable harm, and
shall have, in addition to any other rights available to it, the right to obtain
temporary or permanent injunctive relief, including but not limited to, specific
performance of the confidentiality obligations agreed to herein, without any
showing of actual damage or inadequacy of legal remedy. Allscripts shall have
access to and use of all information maintained by the TouchScript Software,
provided that, except as required by law, as authorized by the patient, or to
carry out the purposes of this Agreement, it will not make any patient-
identifiable information available to others.
11. INDEMNIFICATION.
---------------
11.1. INDEMNIFICATION BY CUSTOMER. CUSTOMER shall indemnify, save and
---------------------------
hold ALLSCRIPTS harmless from any liability, damages, loss or expense
(including reasonable attorneys' fees) (collectively, "Losses") that
ALLSCRIPTS may incur or suffer based on, or arising in any way out of,
CUSTOMER'S actual or alleged malpractice, negligence or
<PAGE>
intentional misconduct, or failure to comply with applicable laws or
regulations or breach of any provision of this Agreement.
11.2. INDEMNIFICATION BY ALLSCRIPTS. ALLSCRIPTS shall indemnify, save
-----------------------------
and hold CUSTOMER harmless from any Losses (other than Losses arising
as a result of any action by CUSTOMER not contemplated herein) arising
from the violation of any third party's trade secrets, proprietary
information, trademark, copyright or patent rights in connection with
the licensing of the TouchScript Software to CUSTOMER hereunder.
ALLSCRIPTS may, at its option, conduct and control the defense and all
related settlement negotiations in any such third party action arising
as described herein and CUSTOMER promises to fully cooperate with such
defense. This indemnification is expressly limited to the TouchScript
Software delivered to CUSTOMER or as modified by ALLSCRIPTS, and does
not cover third party claims arising from other Products or from
modifications not made by ALLSCRIPTS. CUSTOMER shall notify ALLSCRIPTS
in writing of any infringement or claim of infringement of any patent,
trademark, copyright or other proprietary rights of a third party
within five (5) business days of the date on which the CUSTOMER first
knows or has reason to know of the infringement or claim of
infringement. If such a third party claim causes CUSTOMER'S quiet
enjoyment and use of the TouchScript Software to be materially
disrupted, ALLSCRIPTS shall at its sole option, and as CUSTOMER'S sole
remedy therefore, (i) replace the TouchScript Software, without
additional charge, with a compatible, functionally equivalent and non-
infringing product; (ii) modify the TouchScript Software to avoid the
infringement; (iii) obtain a license for CUSTOMER to continue use of
the TouchScript Software for the term of this Agreement and pay any
fees required to be paid in connection with such license; or (iv)
terminate the Software License granted hereunder and return the pro
rata portion of the fees paid by CUSTOMER for the TouchScript Software
for the then current Term.
12. TERM AND TERMINATION.
--------------------
12.1. TERM. All terms and conditions of this Agreement are effective
----
and binding from the Effective Date set forth on the signature page
hereof and, except as otherwise provided in this Agreement, shall
remain in effect until terminated as provided in this Section. The
Software License granted hereunder shall remain in effect for the
initial period (the "TERM") set forth in the attached Schedule 1 and
shall be automatically renewed for successive renewal Terms of
equivalent duration unless terminated by the CUSTOMER or by ALLSCRIPTS
as provided herein.
12.2. EVENTS OF TERMINATION. This Agreement and the Software License
---------------------
granted hereunder shall terminate as follows:
12.2.1. Termination by CUSTOMER for ALLSCRIPTS Breach. If
---------------------------------------------
ALLSCRIPTS fails to perform any of the terms, conditions,
agreements or covenants in this Agreement on its part to be
performed and such default is not curable, or if such default
is curable but continues uncured for a period of thirty (30)
calendar days after notice thereof has been given to
ALLSCRIPTS, CUSTOMER, in its discretion, may terminate this
Agreement, and the Software License granted hereunder, by
written notice to ALLSCRIPTS;
12.2.2. Termination by ALLSCRIPTS for CUSTOMER Breach. If
---------------------------------------------
CUSTOMER fails to perform any of the terms, conditions,
agreements, or covenants in this Agreement on its part to be
performed and such default is not curable, or if such default
is curable but continues uncured for a period of thirty (30)
calendar days after notice thereof has been given to CUSTOMER,
ALLSCRIPTS, in its discretion, may terminate this Agreement,
and the Software License granted hereunder, by written notice
to CUSTOMER;
12.2.3. Termination on Bankruptcy Events. If either CUSTOMER or
--------------------------------
ALLSCRIPTS (i) becomes subject to an order for relief under any
bankruptcy law or any law for the relief of debtors; (ii)
obtains or becomes subject to an order or decree of insolvency
under any reorganization liquidation or insolvency law; (iii)
makes an assignment for the benefit of creditors; (iv) consents
to or suffers the appointment of a receiver or trustee to any
substantial part of its assets that is not vacated within
thirty (30) calendar days; (v) consents to or suffers an
attachment or execution on any substantial part of its assets
that is not released within thirty (30) calendar days; or (vi)
consents to or suffers a charging order against any of its
assets that is not released or satisfied within thirty (30)
calendar days; then this Agreement, and the Software License
granted hereunder, shall, at the option of the other party,
terminate;
12.2.4. Termination at End of Term. Either ALLSCRIPTS or
--------------------------
CUSTOMER may terminate this Agreement, and the Software License
granted hereunder, as of the end of the then-current Term by
giving the other party thirty (30) days written notice prior to
the end of such Term, provided that CUSTOMER may not terminate
this Agreement if CUSTOMER is then in violation of any
provision of this Agreement. If ALLSCRIPTS does not receive a
written notice of termination from the CUSTOMER prior to the
end of a Term, CUSTOMER shall be deemed to have renewed this
Agreement, for one (1) additional Term.
12.3. EFFECT OF TERMINATION. Upon termination of this Agreement:
---------------------
12.3.1. All amounts which are payable to ALLSCRIPTS in
accordance with this Agreement shall be paid promptly by
CUSTOMER, and if this Agreement is terminated by ALLSCRIPTS
pursuant to Section 12.2.2 or 12.2.3, all fees and other sums
to become due hereunder for the balance of the then-current
Term shall become immediately due and payable.
<PAGE>
12.3.2. Any Equipment purchased by CUSTOMER from ALLSCRIPTS
shall remain the property of CUSTOMER and amounts owed to
ALLSCRIPTS for such Equipment shall become immediately due and
payable.
12.3.3. CUSTOMER, at its own risk and expense, will
immediately return the Products to ALLSCRIPTS, including the
TouchScript Software and all copies (including backup and
archival) of the TouchScript Software and the Microsoft
products and databases supplied by ALLSCRIPTS hereunder, in the
same condition as when delivered, ordinary wear and tear
excepted, at such location as ALLSCRIPTS shall designate.
Continued use of the Microsoft products and/or databases
supplied by ALLSCRIPTS hereunder, the TouchScript Software or
any information contained therein or supplied under this
Agreement after expiration or termination is expressly
prohibited.
12.3.4. Termination of this Agreement shall not affect either
party's rights under Section 11 hereof.
13. THIRD PARTY PAYERS.
------------------
If CUSTOMER wishes to accept prescription cards issued by third party
payers or other intermediaries and participate as a provider to
participants in health care plans covered by such cards, CUSTOMER shall
execute and deliver the Third Party Payer Addendum to this Agreement set
forth as Exhibit A.
---------
14. MISCELLANEOUS.
-------------
14.1. Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the internal laws of the State of
Illinois.
14.2. Amendment and Waivers. Any term or provision of this Agreement
---------------------
may be amended or waived only by a writing signed by the party to be
bound thereby. The failure of either party at any time to require
performance by the other party of any provision of this Agreement
shall in no way affect the right of such party to require performance
of that provision. Any waiver by either party of any breach of any
provision of this Agreement shall not be construed as a waiver of any
continuing or succeeding breach of such provision, or waiver of the
provision itself, or a waiver of any right under this Agreement, and
shall not create an expectation of non-enforcement of that or any
other right.
14.3. Binding Upon Successors and Assigns. Subject to, and unless
-----------------------------------
otherwise provided in this Agreement, each and all of the covenants,
terms, provisions and agreements contained herein shall be binding
upon, and inure to the benefit of, the successors and permitted
assigns of the parties hereto; provided, however, that this Agreement
shall not be assigned, delegated, or otherwise transferred without the
prior written consent of the other party, which consent shall not be
unreasonably withheld; except that ALLSCRIPTS may, without the consent
of CUSTOMER, transfer this Agreement in connection with the assignment
or transfer of substantially all of its software products and
intellectual property rights to another entity.
14.4. Severability. If any one or more of the provisions of this
------------
Agreement should be ruled wholly or partly invalid or unenforceable by
a court or other government body of competent jurisdiction, then: (i)
the validity and enforceability of all provisions of this Agreement
not ruled to be invalid or unenforceable shall be unaffected; (ii) the
effect of the ruling shall be limited to the jurisdiction of the court
or other government body making the ruling; (iii) the provision(s)
held wholly or partly invalid or unenforceable shall be deemed
amended, and the court or other government body is authorized to
reform the provision(s), to the minimum extent necessary to render
them valid and enforceable in conformity with the parties' intent as
manifested herein; and (iv) if the ruling and/or the controlling
principle of law or equity leading to the ruling, is subsequently
overruled, modified or amended by legislative, judicial or
administrative action, then the provision(s) in question as originally
set forth in this Agreement shall be deemed valid and enforceable to
the maximum extent permitted by the new controlling principle of law
or equity.
14.5. Other Remedies. Except as otherwise provided herein, any and
--------------
all remedies herein expressly conferred upon a party shall be deemed
cumulative with and not exclusive of any other remedy conferred hereby
or by law on such party, and the exercise of any one remedy shall not
preclude the exercise of any other.
14.6. Notice and Communications. All notices, requests, demands and
-------------------------
other communications provided for hereunder shall be in writing and
shall be deemed to have been duly given if (i) delivered in person;
(ii) given by facsimile or other instantaneous electronic transmission
device; (iii) sent by Federal Express or other nationally-recognized
overnight delivery service, charges paid by the sender, or (iv)
deposited in the United States mail, first class, registered or
certified, return receipt requested, with proper postage prepaid, as
follows:
If to CUSTOMER, to: The address set forth on Schedule 1
----------
If to ALLSCRIPTS, to: Allscripts, Inc.
Attn.: Chief Financial Officer
2401 Commerce Drive
Libertyville, Illinois 60048
<PAGE>
Any party may change its address for such communications by giving
notice thereof to the other party in conformity with this Section.
14.7. Relationship Between Parties. CUSTOMER and all physicians
----------------------------
employed by CUSTOMER or providing services to the practice/clinic
named herein shall perform all professional and other services under
this Agreement as independent contractors, and shall be free to
exercise their own judgment on all questions of professional practice.
CUSTOMER acknowledges that pharmaceutical recommendations made by the
TouchScript Software are suggestions only and not designed to replace
sound medical judgment.
14.8. Pronouns. All pronouns and any variations thereof shall be
--------
deemed to refer to them as masculine, feminine or neuter, singular or
plural, as the identity of the person, persons, entity or entities may
require.
14.9. Further Assurances. Each party agrees to cooperate fully with
------------------
the other party and to execute such further instruments, documents and
agreements, and to give such further written assurances as may be
reasonably requested by any other party, to better evidence and
reflect the transactions described herein and contemplated hereby, and
to carry into effect the intents and purposes of this Agreement.
14.10. Force Majeure. Neither ALLSCRIPTS nor CUSTOMER shall be
-------------
deemed to be in default if performance of the obligations required by
this Agreement is delayed or becomes impossible because of any Act of
God, war, earthquake, fire, strike, catastrophic accident, civil
commotion, epidemic, act of government, its agencies or officers or
any other legitimate cause beyond the reasonable control of the
parties.
14.11. Counterparts. This Agreement may be executed in separate
------------
counterparts, each of which so executed and delivered shall constitute
an original, but all such counterparts shall together constitute one
and the same instrument. Any such counterpart may comprise one or
more duplicates or duplicate signature pages, any of which may be
executed by less than all of the parties, provided that each party
executes at least one such duplicate or duplicate signature page. The
parties stipulate that a photocopy of an executed original shall be
admissible in evidence for all purposes in any proceeding or between
the parties.
14.12. Entire Agreement. This Agreement and the Schedules and
----------------
Exhibits hereto, constitute the entire understanding and agreement of
the parties hereto with respect to the subject matter hereof and
thereof and supersede all prior and contemporaneous agreements or
understandings, inducements or conditions, express or implied, written
or oral, between the parties with respect hereto and thereto. The
express terms hereof control and supersede any course of performance
or usage of the trade inconsistent with any of the terms hereof. IN
PARTICULAR, AND WITHOUT LIMITING THE FOREGOING, ALLSCRIPTS SHALL NOT
BE BOUND BY ADDITIONAL PROVISIONS OR PROVISIONS AT VARIANCE HEREWITH
THAT MAY APPEAR IN THE CUSTOMER'S ACKNOWLEDGEMENT, PURCHASE ORDER, OR
IN ANY OTHER COMMUNICATION FROM CUSTOMER TO ALLSCRIPTS.
INTENDING TO BE LEGALLY BOUND, the parties hereto have executed this
Agreement as of the Effective Date as set forth below.
ALLSCRIPTS, INC. CUSTOMER
Name of Customer:_______________________
By:__________________________ By:_____________________________________
Print Name:__________________ Print Name:_____________________________
Title:_______________________ Title:__________________________________
Effective Date:_________________________
<PAGE>
ALLSCRIPTS, INC.
TouchScript Master License Agreement
SCHEDULE 1 - SALES ORDER
This Schedule 1 is an addendum to, and subject to, the Master License Agreement
between Customer and Allscripts.
CUSTOMER:
_______________________________________________________________________________
Name
________________________________________________________________________________
Address
_______________________________________________________________________________
City, State, Zip Phone Fax
_______________________________________________________________________________
Name
_______________________________________________________________________________
Address
_______________________________________________________________________________
City, State, Zip Phone Fax
A. SOFTWARE LICENSE: TERM _____________ MONTHS(12 MONTHS MINIMUM) BEGINS AT
THE TIME OF INSTALLATION
The fee listed below is payable in advance at the beginning of each month.
_______________________________________________________________________________
PRODUCT PRODUCT DESCRIPTION SINGLE/MULTI USER # OF WORK MONTHLY FEE*
NUMBER STATION
_______________________________________________________________________________
TOUCHSCRIPT LICENSE FEE
_______________________________________________________________________________
* Plus $.65 for each script entered per month above ________, payable in
arrears at the end of each month.
B. HARDWARE/EQUIPMENT(Check One):
________ PURCHASE (payable 1/2 at the signing of this agreement and
1/2 delivery)
________ THIRD PARTY LEASE
_______________________________________________________________________________
QUANTITY PRODUCT NUMBER PRODUCT DESCRIPTION PURCHASE PRICE MONTHLY FEE
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
C. IMPLEMENTATION (Check One):
________ PURCHASE (payable 1/2 at the signing of this agreement and
1/2 on delivery)
________ THIRD PARTY LEASE
_______________________________________________________________________________
QUANTITY PRODUCT NUMBER PRODUCT DESCRIPTION PURCHASE PRICE MONTHLY FEE
_______________________________________________________________________________
IMPLEMENTATION
_______________________________________________________________________________
DATA CAPTURE
_______________________________________________________________________________
D. OTHER
_______________________________________________________________________________
QUANTITY PRODUCT NUMBER PRODUCT DESCRIPTION PURCHASE PRICE MONTHLY FEE
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
ALLSCRIPTS, INC. CUSTOMER
_____________________________ _____________________________________
SIGNATURE SIGNATURE
_____________________________ _____________________________________
PRINT NAME PRINT NAME
_____________________________ _____________________________________
TITLE DATE TITLE DATE
<PAGE>
[LOGO] LEASE PRESCRIPTION
Practice Name:___________________________________ Business Phone:______________
Address:__________________________ City:_______________ St:________ Zip:_______
Speciality:________________ Time in Practice:________ Corp.[_] Prop.[_] Part [_]
Non Profit[_]
Doctors full legal name: (List full legal name, title and current address)
Name:_____________________________ Title:______________ SS#______. _____. _____.
Address:_______________________ City:__________________ St:_________ Zip:_______
Name:____________________________ Title:_______________ SS#______. _____. _____.
Address:_______________________ City:__________________ St:_________ Zip:______
BANK REFERENCE:
Bank:__________________________ Telephone#:_______________ Contact:____________
Checking Acct.#:_______________ Loan#:__________________ EQ Coat:______________
Equipment:______________________________________________ Terms/Program:________
I hereby authorize Roackford Industries, Inc., to make a complete credit check
on our company and principals of the same as individuals and to relate this
information to others as necessary to acquire credit approval. I also authorize
this above banks and references to release any information that may be requested
by_______ Rockford Industries, Inc. I certify this statement is true and
correct. Rockford Industries, Inc. 1851 East First Street, Bath Floor, Santa
Ana, Ca, 92705. 1(800) 876-7788 - Fax (714) 547-3889...
Signature______________________ Title_______________________________ Date______
<PAGE>
ALLSCRIPTS, INC.
THIRD PARTY PAYER ADDENDUM
EXHIBIT A - REQUIRED TO ACCEPT INSURANCE CARDS
This Exhibit A is an addendum to, and subject to, the Master License Agreement
between Customer and Allscripts.
R E C I T A L S:
---------------
1. Allscripts has developed a national network of physicians who are able
to dispense pharmaceuticals from their offices to their patients, and Customer
is part of this network. Allscripts has entered, and intends to enter into,
agreements with Third Party Payers (as defined herein) who adjudicate
pharmaceutical claims on behalf of Plan Sponsors (as defined herein) for persons
who are participants in the Health Benefit Plans (as defined herein) of such
Plan Sponsors (an "Eligible Person").
2. Agreements between Allscripts and Third Party Payers ("Payer
Contracts") contemplate that Allscripts will enter into this Addendum with
providers who wish to provide Pharmacy Services (as defined herein) to Eligible
Persons pursuant to the terms and conditions that are established by each Third
Party Payer.
3. Customer wishes to provide Pharmacy Services to Eligible Persons
pursuant to the terms and conditions of this Addendum.
4. This Addendum is a part of the Master License Agreement and together
with the Master License Agreement embodies the rights and obligations of
Allscripts and Customer.
NOW, THEREFORE, in consideration of the mutual premises contained herein
and other valuable consideration, receipt of which is hereby acknowledged,
Allscripts and Customer agree as follows:
1. Definitions.
-----------
"Accepted Third Party Payer" shall mean a Third Party Payer who has issued
--------------------------
Prescription Cards to Eligible Persons to whom Customer agrees to provide
Pharmacy Services in accordance with this Addendum.
"Allscripts Manual" shall mean the Allscripts Prescription Card Policy and
-----------------
Procedure Manual as published by Allscripts and as modified, supplemented or
amended from time to time.
"Co-Pay" shall mean the amount an Eligible Person must pay at the time
------
Pharmacy Services are provided. This amount is determined by the terms of the
Health Benefit Plan in which the Eligible Person is a participant and may be a
dollar or percentage amount or a combination of the two, and may include a
front-end deductible amount.
"Dispensed Product" shall have the meaning given to it in Section 3 hereof.
-----------------
"Eligible Person" shall have the meaning given to it in Recital Number 1
---------------
above.
"Health Benefit Plan" shall mean the plan or health insurance maintained by
-------------------
a Plan Sponsor that provides for reimbursement to an Eligible Person for
Pharmacy Services.
"Payer Contracts" shall have the meaning given to it in Recital Number 2
---------------
above.
"Pharmacy Services" shall mean the dispensing of any pharmaceutical
-----------------
products or medications to an Eligible Person pursuant to a prescription or
otherwise in accordance with law, except for those pharmaceutical products or
medications that may be limited or excluded for a particular Eligible Person by
Third Party Payers.
"Plan Sponsor" shall include but not be limited to insurance companies,
------------
health maintenance organizations, employers, employer groups, preferred provider
organizations and other payers of Pharmacy Services under Health Benefit Plans.
"Provider Agreement" shall mean the standard pharmacy or provider agreement
------------------
that each Third Party Payer requires a pharmacy or other pharmaceutical provider
to enter into with the Third Party Payer to establish the terms and conditions
that such pharmacy or provider must follow in order to provide Pharmacy Services
to Eligible Persons who participate in Health Benefit Plans administered by such
Third Party Payer and shall include all enrollment forms, manuals and other
schedules or exhibits prepared by the Third Party Payer which set forth certain
standards and requirements that must be met and fulfilled by each pharmacy or
provider in connection with providing Pharmacy Services to Eligible Persons.
"Provider Number" shall mean the medical practice identifier assigned by
---------------
the National Council for Prescription Drug Programs ("NCPDP") to Customer.
"Service Level" shall mean, with respect to each Third Party Payer, the
-------------
networks, reimbursement levels, programs or other levels of service offered by
such Third Party Payer in which Allscripts has agreed to participate.
"Third Party Payments" shall have the meaning given to it in Section 3
--------------------
hereof.
"Third Party Payer" shall mean a pharmacy benefit manager, Plan Sponsor or
-----------------
other person or entity that has agreed to pay, or process the payment, for
claims made under Health Benefit Plans for Pharmacy Services rendered to
Eligible Persons and with whom Allscripts has entered into a Payer Contract.
<PAGE>
2. Services
--------
2.1 Service Level. Allscripts shall enter into a Payer Contract
-------------
with each Third Party Payer pursuant to which Allscripts will, among
other things, select the Service Levels in which it agrees to
participate and make available to Customer. Allscripts shall furnish
Customer with a form of the Provider Agreement furnished by each
Accepted Third Party Payer and provide Customer with all
modifications, supplements and other amendments to each such Provider
Agreement, as such modifications, supplements and amendments are
furnished to Allscripts by such Accepted Third Party Payer.
Allscripts shall advise Customer of the dispensing fee applicable to
each Service Level selected by Allscripts and Customer shall
participate in each Service Level selected by Allscripts unless
Customer notifies Allscripts in writing that it elects not to
participate in any one or more of such Service Levels. Customer
agrees to provide Pharmacy Services to all Eligible Persons
participating in the Service Levels Customer has accepted. Customer
agrees that Allscripts may change the Service Levels in which it
agrees to participate with regard to each Third Party Payer and that
Allscripts retains the right, in its sole discretion, to terminate
Customer's participation in any Service Level agreed to by Customer.
2.2 Terms of Service. Customer agrees to provide Pharmacy
----------------
Services to Eligible Persons in accordance with the terms and
conditions of the Allscripts Manual and the terms and conditions of
the applicable Provider Agreement, as each may be modified,
supplemented or amended from time to time. If the terms of the
Allscripts Manual and the terms of the applicable Provider Agreement
are in conflict, Customer agrees to advise Allscripts of such
conflict, but, except as provided in the next sentence, the terms of
the applicable Provider Agreement shall control. Notwithstanding the
foregoing, Customer agrees to the payment terms in Section 3 hereof.
3. Payment. Customer hereby appoints and constitutes Allscripts to
-------
receive all payments from Third Party Payers for Pharmacy Services rendered
pursuant to this Addendum (the "Third Party Payments"). Customer shall accept
the terms and dispensing fee set forth in each Payer Contract. Allscripts shall
reimburse Customer in the amounts and manner set forth on Annex 1 of this
Addendum, which Annex 1 can be modified upon thirty (30) days prior notice to
Customer. Customer agrees that it is not entitled to receive any payment or
credit set forth on Annex 1 (and if received, that Allscripts may reverse the
payment or credit) with respect to each pharmaceutical or product dispensed (a
"Dispensed Product") (a) in a manner that failed to comply with, or was
prohibited or limited by, the Allscripts Manual or applicable Provider Agreement
and (b) as a result of such noncompliance, Allscripts does not receive the Third
Party Payment (or with respect to which the Third Party Payer successfully
claims a repayment obligation from Allscripts) and, in such event, Customer
shall not be relieved of its obligation to pay Allscripts the amounts owing
under the invoice relating to such Dispensed Product(s). Customer agrees that
it will not receive any payment or credit as a result of a Third Party Payment
received by Allscripts relating to a Dispensed Product that was not purchased
from Allscripts.
Customer further agrees that in no event, including but not limited to
Allscripts' failure to receive the Third Party Payment, will Customer charge,
collect a deposit from, seek compensation, remuneration or reimbursement from,
or have any recourse against, any Eligible Person with respect to Dispensed
Products other than the collection of the applicable Co-Pay amount relating to
such Dispensed Product(s).
Allscripts cannot and does not warrant or represent that Dispenser will
have any particular level of profit from providing Prescription Dispensing
Services to any Eligible Person under the terms of this Agreement.
4. Disqualified Claims. Under the Payer Contract, Allscripts has agreed
-------------------
that Third Party Payers may seek recovery against Allscripts or may deduct from
future payment obligations to Allscripts, amounts that represent improper claims
where Customer provided Pharmacy Services contrary to the terms of the
Allscripts Manual or the applicable Provider Agreement. Customer acknowledges
that in such event Third Party Payers may have rights to proceed directly
against Customer to recover amounts claimed by the Third Party Payer.
5. Service Statement. Customer shall transmit claims to the Third Party
-----------------
Payer in accordance with the provisions of the Allscripts Manual and the
Provider Agreement for the applicable Third Party Payer for each product
dispensed to Eligible Persons. Claims shall be submitted not later than
fourteen (14) days from the date of said service. Prior to the last to occur of
(i) thirty (30) days of receipt by Allscripts of said claim or (ii) receipt of
the Third Party Payment with respect to such claim, Allscripts shall issue a
credit to Customer, in accordance with Section 3 hereof, for each valid claim.
6. Prescription Cardholder Identification. Eligible Persons entitled to
--------------------------------------
prescription benefits will be furnished a Prescription Card. Customer agrees to
require each Eligible Person requesting Pharmacy Services to present a
Prescription Card and agrees to comply with the eligibility verification
procedures as outlined in the Allscripts Manual and the applicable Provider
Agreement.
7. Pharmacy Service. Customer shall lawfully render or cause to be
----------------
rendered to Eligible Persons such Pharmacy Services to which such Eligible
Person is entitled under the terms of the Eligible Person's Health Benefit Plan
and which the Customer routinely makes available to its fee-for-service
patients. All pharmaceuticals shall be dispensed in compliance with all
federal, state and local laws, and in compliance with the Allscripts Manual and
the applicable Provider Agreement.
8. Collection of Deductible. If required by the Third Party Payer,
------------------------
Customer shall collect from Eligible Persons the amount of the applicable Co-Pay
designated by the Third Party Payer prior to providing to Eligible Persons any
of the Pharmacy Services to which such Eligible Person is or may be entitled.
9. Credentialing. Customer agrees to provide Allscripts with the
-------------
necessary information required to complete any credentialing process required to
be completed by Allscripts under the terms of any Payer Contract or by NCPDP.
10. Records. Customer shall maintain for a minimum of three (3) years (or
-------
longer as required by state or federal law or if required by an applicable
Provider Agreement) after the respective record is created, all claims, invoices
and other records as described in the Allscripts Manual and in the applicable
Provider Agreement with respect to Pharmacy Services rendered to Eligible
Persons pursuant to this Addendum. Allscripts shall have the right at
reasonable times to inspect all such records of Customer, but Allscripts shall
not assume any liabilities as a result of such inspection. Customer
acknowledges that each Accepted Third Party Payer shall have a right to inspect
such records relating to Pharmacy Services provided to Eligible Persons
participating in the Health Benefit Plan of, or administered by, such Third
Party Payer.
<PAGE>
11. Non-Liability. Customer shall indemnify, save and hold Allscripts and
-------------
each Accepted Third Party Payer harmless from any liability, damages, loss or
expense (including reasonable attorney fees) as a result of the Customer's
actual or alleged malpractice, negligence or intentional misconduct, or failure
to comply with any applicable laws or regulations, or with policies and
procedures included in the Allscripts Manual or the Provider Agreement of such
Accepted Third Party Payer. Customer shall indemnify, save and hold each
Accepted Third Party Payer harmless from any liability as a result of the
failure to receive payment or credit from Allscripts for any Pharmacy Services
provided to Eligible Persons pursuant to this Addendum.
12. Third Party Beneficiary. Each Accepted Third Party Payer is expressly
-----------------------
intended to be a third party beneficiary of this Addendum to the extent
necessary to exercise the rights of Third Party Payers contemplated by Section
3, 10 and 11 hereof.
13. Termination. Unless otherwise provided in the applicable Provider
-----------
Agreement, Provider may elect to terminate its participation with any one or
more Third Party Payers by giving Allscripts 75 days prior written notice. This
Addendum shall terminate upon termination of the Master License Agreement.
Allscripts may terminate this Addendum on thirty days prior notice to Customer.
IN WITNESS WHEREOF, each party has executed and delivered this Addendum the
day and year set forth below its signature.
ALLSCRIPTS, INC. CUSTOMER
Name of Customer:_______________________
By:__________________________ By:_____________________________________
Print Name:__________________ Print Name:___________________________
Title:_______________________ Title:________________________________
Date:________________________ Date:_________________________________
<PAGE>
ALLSCRIPTS, INC.
THIRD PARTY PAYER ADDENDUM
ANNEX 1 - PROVIDER REIMBURSEMENT
This Annex 1 is an annex to, and subject to, the THIRD PARTY PAYER ADDENDUM
between Customer and Allscripts.
Allscripts will establish both an "Invoice Price" and a "Managed Care Price" for
each pharmaceutical or other product supplied to the Dispenser. Allscripts will
bill the "Invoice Price" to the Dispenser when the product is shipped and will
be paid by the Dispenser in accordance with Allscripts standard payment terms.
If Dispenser provides to an Eligible Person a pharmaceutical or other product
that is adjudicated through the TouchScript system and is to be paid for by a
Health Benefit Plan, Allscripts will credit the Dispenser for (1) the full
reimbursement paid to Allscripts by the Third Party Payer, plus (2) an amount
equal to the difference between the then current "Invoice Price" and the then
current "Managed Care Price" for the pharmaceutical or other product dispensed.
ALLSCRIPTS, INC. CUSTOMER
Name of Customer:_______________________
By:__________________________ By:___________________________________
Print Name:__________________ Print Name:___________________________
Title:_______________________ Title:________________________________
Date:________________________ Date:_________________________________
<PAGE>
ALLSCRIPTS, INC.
PHARMACEUTICAL SUPPLY AGREEMENT
SUMMARY TERMS AND CONDITIONS
TERMS
. With pre-approved credit, application regular invoice terms are net 30 days.
Unpaid balances after 30 days from the date of shipment shall bear interest at
the rate of 1 1/2% (one and one-half percent) per month (18% per annum) until
paid.
CREDIT
. Acceptance of any order is subject to final approval of Allscripts' Credit
Department and no order will be binding on Allscripts until so approved. In
case of doubt arising at any time as to purchaser's financial responsibility,
shipments may be suspended until satisfactory assurances are received.
SHIPPING
. The cost of shipping will be borne by the Customer.
. Minimum opening order must be in excess of $100.
. A handling charge of $5.00 will be added to orders of less than 20
prescriptions, which do not exceed a total cost of $100.00.
RETURNS
. Allscripts will accept and pay freight on items shipped in error and items,
which are defective or damaged in transit. Claims must be authorized by
Customer Service within ten (10) days of receipt. Damaged, defective or
missing products will be replaced without charge.
. Products will be accepted for return within sixty (60) days after shipment,
provided such products are unopened, in clean salable condition and have
remaining minimum shelf life of six (6) months, and have been stored at all
times by Customer in accordance with the manufacturer's label instructions. A
Customer Service representative must authorize all returns, and the freight
will be charged to the Customer. All returns are subject to inspection for
proper prior authorization and for damage to the label, container and tamper-
evident seal; all returns, except those resulting from a mutual decision by
Customer and Allscripts to replace a formulary medication with a different
Allscripts product, are subject to a twenty-five percent (25%) inspection and
restocking charge, plus freight.
. All cabinets, supplies, made to order or special-purchase products are not
returnable, except as claimed above as defective or damaged in transit.
. No credit will be issued for any unauthorized returns.
. Allscripts is not responsible for products damaged by improper storage and
handling or damage due to fire, flood or other catastrophe. In addition,
credit will not be issued on products which have been involved in bankruptcy
or which have been discontinued by Allscripts.
HOW TO PROCESS RETURNS
. Contact one of Allscripts' Customer Service Representatives via the 800
number. They will ask for a signed certificate attesting to the fact that all
products being returned were stored at all times in accordance with the
manufacturer's label instructions, and on receipt of same will authorize the
return and issue a Return Goods Authorization (RGA) number, which must
accompany returned goods. Your account will be credited following inspection
of returned goods. Allscripts' Receiving Department will refuse any
unauthorized returns. No credit will be issued for any unauthorized return.
INDEMNIFICATION
. Indemnification by Customer. Customer shall indemnify, save and hold
---------------------------
Allscripts harmless from any liability, damages, loss or expense (including
reasonable attorneys' fees) (collectively, "Losses") that Allscripts may incur
or suffer based on, or arising in any way out of, Customer's actual or alleged
malpractice, negligence or intentional misconduct, or failure to comply with
applicable laws or regulations or violation of any provision of this
Agreement.
. Indemnification by Allscripts. Allscripts shall indemnify, save and hold
-----------------------------
Customer harmless from any Losses arising from any claim, demand, action or
proceeding initiated by any third party based upon any loss resulting from or
occasioned by the improper repackaging or relabeling of any pharmaceutical by
Allscripts.
. Allscripts shall not be liable for any consequential, exemplary or incidental
damages suffered by the Customer for Allscripts' failure or delay in
performance, including but not limited to such failure or delay caused by
government regulations, inability to maintain or obtain proper licensing,
delays in transportation, material shortages, accidents or other problems.
TAXES
. Customer shall reimburse Allscripts for all taxes, excises or other charges
that may be established or levied by any federal, state, county, municipal or
other government authority to which this sale may be subject.
DEFAULT IN PAYMENT
. In the event Customer fails to make payment for products delivered by
Allscripts, Customer agrees to pay Allscripts' collection agency/attorney fees
in any collection proceeding. Customer agrees that it is subject to the
jurisdiction of the Circuit Court of the 19/th/ Judicial District, Lake
County, Illinois, in any litigation arising out of its business relationship
with Allscripts.
ALLSCRIPTS, INC. CUSTOMER
Name of Customer:_______________________
By:__________________________ By:_____________________________________
Print Name:__________________ Print Name:_____________________________
Title:_______________________ Title:__________________________________
Date:________________________ Date:___________________________________
<PAGE>
LIMITED POWER OF ATTORNEY
-------------------------
The undersigned, _________________________, hereby appoints Allscripts,
Inc. as attorney-in-fact of the undersigned to act for it and in its name solely
to do all or any of the following:
1. To sign, seal, execute, deliver and/or acknowledge, and to bind the
undersigned pursuant to, all contracts, agreements and other documents and
instruments (collectively, the "Agreements") with pharmacy benefit managers and
other third party payors (collectively, "Payors") as are required by any Payor
for such Payor to accept pharmaceutical claims from the undersigned, and which
Agreements may include an agreement on the part of the undersigned to accept
such Payor's reimbursement rate with respect to such pharmaceutical claims; and
2. To execute all necessary instruments to carry out and perform any of
the powers stated above, and to do any other acts requisite to carrying out such
powers.
Any party to whom this Power of Attorney is presented is hereby authorized
to honor, receive and give effect to all instruments signed pursuant to the
foregoing authority and the undersigned will indemnify and save each such party
harmless from any loss suffered, or liability incurred by it in acting in good
faith in accordance with this Power of Attorney, prior to its receipt of written
notice of any termination of this Power of Attorney, whether such termination is
by operation of law or otherwise.
Neither Allscripts, Inc. nor any attorney-in-fact substituted under this
power shall incur any liability to the undersigned for acting or refraining from
acting under this power, except for such attorney's own willful misconduct or
gross negligence.
Any reproduced copy of this signed original shall be deemed to be an
original counterpart of this Power of Attorney.
This Power of Attorney is governed by Illinois law.
This Power of Attorney shall terminate upon receipt by Allscripts, Inc.
from the undersigned of a written notice of revocation of this Power of
Attorney. The undersigned shall have the right to revoke this Power of Attorney
at any time.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this _____ day of __________, 199__.
_________________________________________
[Name of Provider]
<PAGE>
[X] New [_] Change ASEP Provider Number _____________________ Date __________
Contact/Name __________________________________________________________________
ASEP FEES: $50.00 NEW PROVIDER SITE . ANNUAL RENEWAL FEE OF $50.00, INVOICED
(60) DAYS PRIOR TO YOUR RENEWAL DATE. NOTE: NON-PAYMENT OF THIS RENEWAL INVOICE
WILL RESULT IN THE TERMINATION OF YOUR ASEP PROVIDER NUMBER.
==============================================================================
PROVIDER NAME/LOCATION: (attach copy DEA License, State Medical License and
State Disp. Permit #)
Primary Physician Name
Location Name (DBA)
Address
Address ________________________________
City State ZIP Code
Phone FAX
DEA License # State Dispensing Permit #
State License # Federal Tax ID #
===============================================================================
INSURANCE CARRIER: (attach copy)
Carrier Name
Policy Type Policy Amount $
===============================================================================
PHARMACEUTICAL VENDOR:
Vendor Name ALLSCRIPTS, INC.
Vendor Insurance HARTFORD POLICY # 10CCSSS8720
===============================================================================
SOFTWARE VENDOR:
Vendor Name ALLSCRIPTS, INC.
Software Application TOUCHSCRIPT
===============================================================================
STATEMENT:
The applicant agrees to notify in writing, all companies regarding the ASEP
provider number, of any changes in address, licensing, or software vendor
registration immediately and no later than five (5) working days after the
changes have been made.
Signature _________________________________ Date _________________________
Print Name ________________________________ Title ________________________
===============================================================================
INTERNAL USE ONLY:
Entered by _______________________________ Date _________________________
Approved by _______________________________ ASEP Provider number__________
<PAGE>
SERIES H WARRANT
----------------
No. W-WarrantNo Warrant to Purchase Shares
of Common Stock (subject to
adjustment)
ALLSCRIPTS, PHARMACEUTICALS, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF ILLINOIS
THIS CERTIFIES THAT, for value received, Name or its assigns is entitled to
subscribe for and purchase during the period specified in this Warrant, NoShares
(subject to adjustment as hereinafter provided) fully paid and non-assessable
Common Shares, par value $.01 per share (the "Common"), of ALLSCRIPTS,
PHARMACEUTICALS, INC., an Illinois corporation (the "Corporation"), at the price
of $.01 per share, subject, however, to the provisions and upon the terms and
conditions hereinafter set forth.
1. Duration. The right to subscribe for and purchase shares of Common of
--------
the Corporation represented hereby shall expire at 5:00 P.M., Central Standard
Time, on April 15, 2003. The Corporation shall give 30 days' written notice to
the Holder of this Warrant to the effect that such right will expire on April
15, 2003. If, on such expiration date, the Corporation is then required,
pursuant to an effective request therefor, to effect, or is in the process of
effecting, a registration under the Securities Act for an underwritten public
offering in which shares of Warrant Stock are, pursuant to the Registration
Agreement, entitled to be included, or if the Corporation is in default of any
obligation created by Sections 2 and 3 of the Registration Agreement or of any
of its obligations under the Agreement regarding the transfer of this Warrant or
of any Warrant Stock or the registration of any Warrant Stock, or is in default
of any obligation created by (i) Sections 6.1, 6.5(i), 6.10, 6.11, 6.12 or 6.16
of the Agreement, (ii) Sections 6.5(b) or (c) of the Agreement, if the Holder of
this Warrant gives written notice to the Corporation that the Corporation is in
default under such provisions, or (iii) Sections 6.2, 6.3 or 6.4 of the
Agreement if such default has a material adverse effect on the business or
financial condition of the Company, said right to subscribe for and purchase
shares of Common shall expire at 5:00 P.M., Central Standard Time on the later
of (i) the 30th day following the date on which such registration shall have
become effective (but in no event longer than 180 days beyond the date this
Warrant would have expired) or (ii) on the 30th day following the date all of
such breaches have been cured, as the case may be.
2. Method of Exercise; Payment; Issuance of New Warrant; Transfer and
------------------------------------------------------------------
Exchange. The purchase right represented by this Warrant may be exercised at
- --------
any time prior to expiration.
The Holder hereof may exercise this Warrant, in whole or in part, by the
surrender of this Warrant (with the subscription form attached hereto duly
executed) at the principal office of the
<PAGE>
Corporation, and by the payment to the Corporation of the then applicable
Warrant Price for the shares being purchased upon such exercise by certified or
official bank check or by surrender to the Corporation of additional Warrants or
other Securities. Any Warrant so surrendered shall be valued at an amount equal
to (i) the excess of the Fair Market Value per share of Common over the Warrant
Price, multiplied by (ii) the number of shares of Common purchasable upon
exercise of such Warrant, in each case determined as of the date of surrender.
Any other Security so surrendered shall be valued at its Fair Market Value as of
the date of surrender. In the event of any exercise of the rights represented by
this Warrant, (i) stock certificates for the shares of Common so purchased shall
be delivered to the Holder hereof forthwith, and unless this Warrant has
expired, a new Warrant representing the number of shares, if any, with respect
to which this Warrant shall not then have been exercised or surrendered as
consideration or partial consideration for the exercise of this Warrant shall
also be delivered to the Holder hereof forthwith, and (ii) stock certificates
for the shares of Common so purchased shall be dated the date of exercise of
this Warrant, and the Holder exercising this Warrant shall be deemed for all
purposes to be the Holder of the shares of Common so purchased as of the date of
such exercise. This Warrant may not be transferred, in whole or in part, except
by means of (i) a transfer made in accordance with Section 7.2 of the Agreement,
or (ii) a transfer exempt from registration under the Securities Act permitted
under and made in conformance with Section 7.4 of the Agreement or (iii) a
transfer to an underwriter made in accordance with Section 9 of the Registration
Agreement. This Warrant, if so permitted to be transferred, may be transferred
on the books of the Corporation by the Holder hereof in person or by duly
authorized attorney, upon surrender of this Warrant at the principal office of
the Corporation, properly endorsed and upon payment of any necessary transfer
tax or other governmental charge imposed upon such transfer.
The issuance of stock certificates for shares of Common so purchased upon
exercise of this Warrant shall be made without charge to the Holder hereof for
any issuance tax in respect thereof or other cost incurred by the Corporation in
connection with such exercise and the related issuance of shares of Common. The
Corporation shall assist and cooperate with any Holder required to make any
governmental filings or obtain any governmental approvals prior to or in
connection with any exercise of this Warrant (including, without limitation,
making any filings required to be made by the Corporation). Notwithstanding
any other provision hereof, if an exercise of any portion of this Warrant is to
be made in connection with a registered public offering or sale of the
Corporation, the exercise of any portion of this Warrant may, at the election of
the Holder hereof, be conditioned upon the consummation of the public offering
or sale of the Corporation in which case such exercise shall not be deemed to be
effective until the consummation of such transaction.
This Warrant is exchangeable at the aforesaid principal office of the
Corporation for Warrants for the purchase of the same aggregate number of shares
of Common, each new Warrant to represent the right to purchase such number of
shares of Common as the Holder hereof shall designate at the time of such
exchange. All Warrants issued on transfers or exchanges shall be dated the date
hereof and shall be identical with this Warrant except as to the number of
shares of Common issuable pursuant hereto.
-2-
<PAGE>
3. Stock Fully Paid; Reservation of Shares. The Corporation covenants and
---------------------------------------
agrees that all shares of Common which may be issued upon the exercise of the
rights represented by this Warrant shall, upon issuance, be fully paid and non-
assessable and free from all taxes, liens and charges with respect to issuance.
The Corporation further covenants and agrees that during the period within which
the rights represented by this Warrant may be exercised, the Corporation shall
at all times have authorized and reserved for the purpose of the issue upon
exercise of the subscription rights evidenced by this Warrant a sufficient
number of shares of Common to provide for the exercise of the rights represented
by this Warrant. If the Warrant Price is at any time less than the par value of
the Common or if the Warrant at any time is exercisable by its delivery alone
and without payment of any additional consideration, the Corporation also
covenants and agrees to cause to be taken such action (whether by lowering the
par value of the Common, the conversion of the Common from par value to no par
value, or otherwise) as will permit the exercise of this Warrant, without any
additional payment by the Holder hereof (other than payment of the Warrant
Price, if any, and applicable transfer taxes, if any), and the issuance of the
Common, which Common, upon issuance, will be fully paid and non-assessable.
4. Adjustment of Number of Shares. The number of shares of Common
------------------------------
purchasable upon the exercise of this Warrant shall be subject to adjustment
from time to time upon the happening of certain events as follows:
(a) Reclassification, Consolidation or Merger. In case of any
-----------------------------------------
reclassification or change of outstanding Common issuable upon exercise of
the conversion right of this Warrant, or in case of any consolidation or
merger of the Corporation with or into another corporation which does not
constitute a liquidation under the Preferred Resolutions, this Warrant
shall, without payment of additional consideration therefor, be deemed
modified so as to provide that upon the exercise hereof, the Holder of this
Warrant shall procure, in lieu of each share of Common theretofore issuable
upon such exercise, the kind and amount of shares of Stock, other
securities, money and property receivable upon such reclassification,
change, consolidation or merger by the Holder of one share of Common
issuable upon exercise of the Warrant had such exercise occurred
immediately prior to such reclassification, change, consolidation or
merger. Such new Warrant shall be deemed to provide for adjustments which
shall be as nearly equivalent as may be practicable to the adjustments
provided for in this Section 4. The provisions of this subsection (a) shall
similarly apply to successive reclassifications, changes, cons
consolidations and mergers.
(b) Subdivision or Combination of Shares. If the Corporation, at any
------------------------------------
time while this Warrant is outstanding, shall subdivide or combine its
Common, the number of shares of Common purchasable upon exercise of this
Warrant shall be proportionately increased, in case of subdivision of
shares, as of the effective date of such subdivision, or if the Corporation
shall take a record of Holders of its Common for the purpose of a
subdividing, as of such record date, whichever is earlier, or shall be
proportionately decreased, in the case of combination of shares, as at the
effective date of such combination or, if the Corporation shall take a
record of Holders of its Common for the purpose of so combining, as of such
record date, whichever is earlier.
-3-
<PAGE>
(c) Certain Dividends and Distributions. If the Corporation, at any
-----------------------------------
time while this Warrant is outstanding, shall:
(i) Stock Dividends. Pay a dividend payable in, effect a split-up
---------------
of, or make any other distribution of, Common, the number of shares of
Common purchasable upon exercise of this Warrant shall be increased,
as of the date the Corporation shall take a record of the Holders of
its Common, for the purpose of receiving such dividend, stock split-up
or other distribution (or if no such record is taken, as of the date
of such payment, stock split or other distribution), to that number of
shares determined by multiplying the number of shares of Common
purchasable upon exercise of this Warrant as determined immediately
prior to such record date (or if no such record is taken, then
immediately prior to such payment or other distribution), by a
fraction (1) the numerator of which shall be the total number of
shares of Common outstanding immediately after such dividend, stock
split or distribution (plus in the event that the Corporation paid
cash for fractional shares, the number of additional shares which
would have been outstanding had the Corporation issued fractional
shares in connection with said dividend, stock split or distribution),
and (2) the denominator of which shall be the total number of shares
of Common outstanding immediately prior to such dividend, stock split
or distribution.
(ii) Liquidating Dividends, etc. Make a distribution of its assets
---------------------
to the Holders of its Common as a dividend in liquidation or partial
liquidation or by way of return of capital or other than as a dividend
payable out of funds legally available for dividends under the laws of
the State of Illinois, the Holder of the Warrant shall, upon exercise,
be entitled to receive, in addition to the number of shares of Common
receivable thereupon, and without payment of any consideration
therefor, a sum equal to the value of such assets as would have been
distributable to them as owners of that number of shares of Common of
the Corporation receivable by exercise of this Warrant, had such
Holder been the Holder of record of such Common on the record date for
such distribution; and all appropriate provisions therefor shall be
made a part of any such distribution, including, without limitation,
the placement by the Corporation of such sum into escrow.
(d) Issuance of Additional Shares of Common.
---------------------------------------
Prior to the completion of a Qualified Initial Public Offering, if at any
time the Corporation issues any Additional Shares of Common (excluding
issuances pursuant to transactions described in paragraphs (a), (b) or (c)
of Section 4 of the Warrant) at a time when this Warrant is outstanding and
not expired for a consideration per share of Common issued at less than the
Dilution Price in effect immediately prior to such issuance of Common,
then, upon each such issuance, the number of shares of Common purchasable
upon exercise of this Warrant shall be increased so that the number of
shares of Common purchasable upon
-4-
<PAGE>
exercise of this Warrant shall equal the product of the Base Warrant Shares
and a fraction (rounded to the nearest thousandth), the numerator of which
is the Initial Dilution Price and the denominator of which is the Dilution
Price in effect immediately after such issuance.
The provisions of this subsection 4(d) shall not apply under any of
the circumstances for which an adjustment is provided in subsections 4(a),
(b) or (c) hereof. No adjustment of the number of shares of Common
purchasable upon exercise of this Warrant shall be made under this
subsection 4(d) upon the issuance of any Additional Shares of Common which
are issued pursuant to any Common Stock Equivalent if, upon the issuance or
amendment of any such Common Stock Equivalent (i) any such adjustment shall
previously have been made pursuant to subsection 4(e) hereof or (ii) no
adjustment was required pursuant to subsection 4(e) hereof.
(e) Issuance of Common Stock Equivalents. Prior to the completion of
------------------------------------
a Qualified Initial Public Offering, if the Corporation, at any time while
this Warrant is outstanding, shall issue any Common Stock Equivalent and
the price per share for which Additional Shares of Common may be issuable
thereafter pursuant to such Common Stock Equivalent shall be less than the
Dilution Price then in effect, or if, after any such issuance, the price
per share for which Additional Shares of Common may be issuable thereafter
is amended, and such price, as so amended, shall be less than the Dilution
Price at the time of such amendment, then the number of shares of Common
purchasable upon exercise of this Warrant shall be increased upon each such
issuance or amendment as provided in subsection (d) of this Section 4 on
the basis that (1) the Additional Shares of Common issuable pursuant to
such Common Stock Equivalents shall be deemed to have been issued as of the
earlier of (A) the date on which the Corporation shall enter into a
contract for the issuance of such Common Stock Equivalent, or (B) the date
of actual issuance of such Common Stock Equivalent, and (2) the
consideration for such Additional Shares of Common shall be deemed to be
the minimum consideration received and receivable by the Corporation for
the issuance of such Additional Shares of Common pursuant to such Common
Stock Equivalent. No adjustment in the number of shares of Common
purchasable upon exercise of this Warrant shall be made under this
subsection (e) upon the issuance of any Convertible Security which is
issued pursuant to the exercise of any warrants or other subscription or
purchase rights therefor, if any adjustment in the number of shares of
Common purchasable upon exercise of this Warrant shall previously have been
made upon the issuance of such warrants or other rights pursuant to this
subsection (e).
(f) [Intentionally Omitted]
(g) Other Provisions Applicable to Adjustments Under This Section 4.
---------------------------------------------------------------
The following provisions shall be applicable to the making of adjustments
in the number of Common Shares purchasable upon exercise of this Warrant
hereinbefore provided in this Section 4:
-5-
<PAGE>
(i) Computation of Consideration. The consideration received by
----------------------------
the Corporation shall be deemed to be the following: to the extent
that any Additional Shares of Common or any Common Stock Equivalents
shall be issued for a cash consideration, the consideration received
by the Corporation therefor, or, if such Additional Shares of Common
or Common Stock Equivalents are offered by the Corporation for
subscription, the subscription price, or if such Additional Shares of
Common or Common Stock Equivalents are sold to underwriters or dealers
for public offering without a subscription offering, the initial
public offering price, in each such case excluding any amounts paid or
receivable for accrued interest or accrued dividends and without
deduction of any compensation, discounts, commissions, or expenses
paid or incurred by the Corporation for and in the underwriting of, or
otherwise in connection with, the issue thereof; to the extent that
such issuance shall be for a consideration other than cash, then,
except as herein otherwise expressly provided, the consideration
received by the Corporation shall be the fair market value of such
consideration at the time of such issuance as determined in good faith
by the Board. The consideration for any Additional Shares of Common
issuable pursuant to any Common Stock Equivalent shall be the
consideration received by the Corporation for issuing such Common
Stock Equivalents, plus the additional consideration payable to the
Corporation upon the exercise, conversion or exchange of such Common
Stock Equivalents. In case of the issuance at any time of any
Additional Shares of Common or Common Stock Equivalents in payment or
satisfaction of any dividend upon any class of Stock other than
Common, the Corporation shall be deemed to have received for such
Additional Shares of Common or Common Stock Equivalents a
consideration equal to the amount of such dividend so paid or
satisfied. In any case in which the consideration to be received or
paid shall be other than cash, the Board shall notify the Holder of
this Warrant of its determination of the fair market value of such
consideration prior to payment or accepting receipt thereof. If,
within ten days after receipt of said notice, the Holders of Warrants
exercisable for at least a majority of Warrant Stock then unissued
shall notify the Board in writing of their objection to such
determination, a determination of fair market value of such
consideration shall be made by arbitration in accordance with the
Rules of the American Arbitration Association, by an arbitrator in the
City of Chicago, Illinois.
(ii) Readjustment of Warrant. Upon the expiration of the right to
-----------------------
convert, exchange or exercise any Common Stock Equivalents the
issuance of which effected an adjustment in the number of shares of
Common purchasable upon exercise of this Warrant under subsection (d)
or (e) of this Section 4, if none of such Common Stock Equivalents
shall have been converted, exercised or exchanged, the Dilution Price
(and therefore the number of shares of Common purchasable upon
exercise of this Warrant) shall forthwith be readjusted and thereafter
be the price which it would have been (but reflecting any other
adjustments in the number of shares of Common purchasable upon
exercise of this Warrant made pursuant to the provisions of this
Section 4 after the issuance
-6-
<PAGE>
of such Common Stock Equivalents) had an adjustment of the Dilution
Price not been effected as a result of the issuance of such Common
Stock Equivalents.
(h) Certain Events. If after the date hereof any event occurs of the
--------------
type contemplated by the provisions of this Section 4 but not expressly
provided for by such provisions (including, without limitation, the
granting of stock appreciation rights, phantom stock rights or other rights
with equity features), then the Board shall make an appropriate adjustment
in the number of shares of Common purchasable upon exercise of this Warrant
(and in the Dilution Price) so as to protect the rights of the Holder of
this Warrant; provided that no such adjustment shall decrease the number of
shares of Common purchasable upon exercise of this Warrant (or increase the
Dilution Price) as otherwise determined pursuant to this Section 4.
(i) Adjustment of Warrant Price. Upon each adjustment in the number
---------------------------
of shares of Common purchasable hereunder pursuant to any provision of this
Section 4, the Warrant Price shall be adjusted, to the nearest one
hundredth of a cent, to the product obtained by multiplying the Warrant
Price immediately prior to such adjustment in the number of shares of
Common purchasable hereunder by a fraction, the numerator of which shall be
the number of shares of Common purchasable hereunder immediately prior to
such adjustment and the denominator of which shall be the number of shares
of Common purchasable hereunder immediately thereafter, provided, however,
-------- -------
that the product of the Warrant Price at any time and the number of shares
of Common purchasable hereunder at such time shall never exceed the product
of $.01 and the Base Warrant Shares.
(j) Default by Corporation. If the Corporation shall be in default
----------------------
under the agreement contained in the last sentence of Section 3 hereof so
that applicable law prevents the issuance of shares at the Warrant Price
adjusted in accordance with this Section 4, the Holder of this Warrant
shall be entitled to purchase shares at the lowest price at which this
Warrant may then be exercised. Such exercise shall not constitute a waiver
of any claim arising against the Corporation by reason of its default under
the agreement contained in the last sentence of Section 3 of this Warrant.
5. Notice of Adjustments. Whenever the number of shares of Common
---------------------
purchasable upon exercise of this Warrant shall be adjusted pursuant to Section
4 hereof, the Corporation shall make a certificate signed by its President or a
Vice President and by its Treasurer, Assistant Treasurer, Secretary or Assistant
Secretary setting forth, in reasonable detail, the event requiring the
adjustment, the amount of the adjustment, the method by which such adjustment
was calculated (including a description of the basis on which the Board made any
determination hereunder), and the number of shares of Common purchasable upon
exercise of this Warrant after giving effect to such adjustment, and shall cause
copies of such certificate to be mailed (by first class mail, postage prepaid)
to the Holder of this Warrant promptly after each adjustment.
6. Fractional Shares and Rounding. No fractional shares of Common shall
------------------------------
be issued in connection with any exercise hereof, but in lieu of such fractional
shares, the Corporation shall
-7-
<PAGE>
make a cash payment therefor equal in amount to the product of the applicable
fraction multiplied by the Dilution Price then in effect. All computations in
connection with the adjustment of the Dilution Price shall be rounded to the
fourth decimal place.
7. Liquidation Dividends. If the Corporation declares or pays a dividend
---------------------
upon the Common payable otherwise than in cash out of earnings or earned surplus
(determined in accordance with generally accepted accounting principles,
consistently applied) except for a stock dividend payable in shares of Common (a
"Liquidating Dividend"), then the Corporation shall pay to the Holder of this
Warrant at the time of payment thereof the Liquidating Dividend which would have
been paid to such Holder on the number of shares of Common purchasable upon
exercise of this Warrant had this Warrant been fully exercised immediately prior
to the date on which a record is taken for such Liquidating Dividend, or, if no
record is taken, the date as of which the record holders of Common entitled to
such dividends are to be determined.
8. Definitions. For the purposes of this Warrant, the following terms
-----------
have the following meanings:
"Additional Shares of Common" shall at any time have the meaning given
---------------------------
to that term in the Agreement, as the Agreement may be amended at such time
of determination.
"Affiliates" shall mean any entity controlling, controlled by or under
----------
common control with a designated Person. For the purposes of this
definition, "control" shall have the meaning specified for that word in
Rule 405 promulgated by the Securities and Exchange Commission under the
Securities Act.
"Agreement" shall mean the Purchase Agreements, dated as of September
---------
22, 1994, between the Corporation and those purchasers listed on Exhibit A
thereto, respectively, pertaining to the issuance and sale of Series H
Preferred, Common and Warrants, as, from time to time, such Agreements may
be amended, including as such Agreements have been amended as of the date
hereof.
"Base Warrant Shares" shall be that number of shares of Common set
-------------------
forth in the first paragraph of this Warrant.
"Common" shall mean the Corporation's Common Stock, par value $.01 per
------
share, and any Stock into which such Common Stock may hereafter be changed.
"Common Stock Equivalent" shall mean any Convertible Security or
-----------------------
warrant, option or other right to subscribe for or purchase any Additional
Shares of Common or any Convertible Security.
"Convertible Securities" shall mean evidences of indebtedness, shares
----------------------
of Stock or other Securities which are or may be at any time convertible
into or exchangeable for Additional Shares of Common. The term "Convertible
Security" shall mean one of the Convertible Securities.
-8-
<PAGE>
"Corporation" shall mean Allscripts, Inc., an Illinois corporation, and all
-----------
successor corporations thereof.
"Dilution Price" shall mean the Initial Dilution Price until there has been
--------------
an adjustment in the number of shares of Common purchasable upon exercise of
this Warrant pursuant to Section 4 hereof and thereafter the Dilution Price will
be increased or decreased as follows: (i) in the case of an adjustment pursuant
to subsection 4(c) or 4(d) hereof, it shall be decreased by the full amount by
which the Dilution Price in effect immediately prior to each such adjustment
exceeds the issue price per share of Common issued or deemed to have been issued
giving rise to each such adjustment, (ii) in the case of an adjustment pursuant
to subsection 4(b) hereof, it shall be increased or decreased proportionately to
give effect to the combination or subdivision of shares giving rise to such
adjustment and (iii) in the case of an adjustment pursuant to subsection 4(c)(i)
hereof, it shall be decreased to that price determined by multiplying the
Dilution Price in effect immediately prior to the dividend, stock split-up or
other distribution giving rise to such adjustment by a fraction (1) the
numerator of which shall be the total number of shares of Common outstanding
immediately prior to such dividend, stock split or distribution (plus in the
event that the Corporation paid cash for fractional shares, the number of
additional shares which would have been outstanding had the Corporation issued
fractional shares in connection with said dividend, stock split or
distribution), and (2) the denominator of which shall be the total number of
shares of Common outstanding immediately after such dividend, stock split or
distribution. Dilution Price shall additionally be subject to the computation
considerations and the adjustments that are applicable to determining the number
of shares of Common purchasable upon exercise of this Warrant and Dilution Price
as set forth in Sections 4(g) and 4(h) hereof.
"Fair Market Value" shall mean (i) in the case of Common, (A) if the
-----------------
Corporation's Common is traded on an established market which reports last sale
information, the price of the Common that may be purchased upon the exercise of
a Warrant surrendered in full or partial payment of the Warrant Price payable
upon the exercise of this Warrant as of the close on the date such Warrant is so
surrendered (or if no sales occurred that day the most recent day sales occurred
preceding such surrender); (B) if the Corporation's Common is quoted on The
Nasdaq Stock Market (but not of a nature for which last sale information is
available) ("Nasdaq"), the highest independent bid on the date such Warrant is
surrendered; (C) if the Corporation's Common is publicly held but not traded on
an established market which reports last sale information or quoted in Nasdaq,
the fair market value of such Common as determined by the Board of Directors in
good faith and in their sole discretion; (D) if the Common is not publicly held,
Fair Market Value shall mean that value that the Board of Directors shall have
determined as the fair market value in connection with the most recent grant of
options within the last six months preceding the date of exercise, or, in the
event that no such determination shall have been made within the last six months
preceding the date of exercise, Fair Market Value shall be determined by the
Board of Directors in good faith and in its sole discretion; and (ii) in the
case of any other Security, Fair Market Value shall be determined by the Board
of
-9-
<PAGE>
Directors in good faith and in its sole discretion. In the case of (i)(C),
(i)(D) or (ii) above, if the Holder of this Warrant shall notify the Board in
writing of the Holder's objection to the Board's determination, a determination
of Fair Market Value shall be made by arbitration in accordance with the Rules
of the American Arbitration Association, by an arbitrator in the City of
Chicago, Illinois.
"Holders" shall mean the Persons who shall from time to time, own of record
-------
any Security. The term "Holder" shall mean one of the Holders.
"Initial Dilution Price" shall mean $0.01.
----------------------
"Person" shall mean an individual, corporation, partnership, trust,
------
unincorporated organization or government organization or an agency or political
subdivision thereof.
"Preferred Resolutions" shall mean the board resolutions of the Corporation
---------------------
fixing and determining the terms of the Series A Convertible Preferred Stock,
$1.00 par value, Series B Convertible Preferred Stock, $1.00 par value, Series C
Senior Convertible Preferred Stock, $1.00 par value, Series D Senior Convertible
Preferred Stock, $1.00 par value, Series F Senior Convertible Preferred Stock,
$1.00 par value, Series G Super Senior Convertible Preferred Stock, $1.00 par
value, Series H Superior Senior Redeemable Preferred Stock, $1.00 par value,
Series I Super Superior Senior Redeemable Preferred Stock, $1.00 par value, and
Series J Super Superior Senior Redeemable Preferred Stock, $1.00 par value.
"Property" shall mean any interest in any kind of property or asset,
--------
whether real, personal or mixed, or tangible or intangible.
"Registration Agreement" shall mean the Eleventh Restated Registration
----------------------
Agreement, entered into in April, 1998, between the Corporation and those
investors listed on the Schedules thereto, as such agreement may be amended,
amended and restated and/or redesignated from time to time.
"Securities" shall mean any debt or equity securities of the Corporation,
----------
whether now or hereafter authorized, and any instrument convertible into or
exchangeable for Securities or a Security. "Security" shall mean one of the
Securities.
"Securities Act" shall mean the Securities Act of 1933, as amended.
--------------
"Series H Preferred" shall mean the Corporation's Series H Superior Senior
------------------
Redeemable Preferred Stock, $1.00 par value, and any Stock into which such Stock
may hereafter be changed.
-10-
<PAGE>
"Shareholders' Agreement" shall mean the Sixth Amended Shareholders'
-----------------------
Agreement in the form of Exhibit I attached to the Agreement.
"Stock" shall include any and all shares, interests or other equivalents
-----
(however designated) of, or participations in corporate stock.
"Stock Restriction Agreement" shall mean (1) any agreement approved by at
---------------------------
least 75% of the members of the Board entered into after the date hereof,
between the Corporation and an employee, consultant, director, officer or agent
or former employee, consultant, director, officer or agent of the Corporation or
a Subsidiary, (ii) those certain agreements between the Corporation and Direct
Pharmaceutical Corporation, the Corporation and Mailscripts, Inc., the
Corporation and ISP Pharmaceuticals, Inc., and (iii) those certain stock
restriction agreements between the Corporation and each of the Persons listed on
Exhibit L attached to the Agreement, under the terms of each of which the
Corporation is permitted or obligated to purchase Securities from such Person in
connection with his offering the Securities to another Person or the termination
of his relationship with the Corporation or a Subsidiary.
"Subsidiary" shall mean any corporation more than 50% of whose outstanding
----------
Voting Stock shall at the time be owned directly or indirectly by the
Corporation or by one or more Subsidiaries or by the Corporation and one or more
Subsidiaries.
"Voting Stock," as applied to the Stock of any corporation, shall mean
------------
Stock of any class or classes (however designated) having ordinary voting power
for the election of a majority of the members of the Board of Directors (or
other governing body) of such corporation, other than Stock having such power
only by reason of the happening of a contingency.
"Warrant" shall mean this Warrant.
-------
"Warrants" shall mean the Warrants issued and sold pursuant to the
--------
Agreement.
"Warrant Price" shall mean the price specified in the first paragraph of
-------------
this Warrant and such other prices as shall result from the adjustments
specified in Section 4 hereof.
-11-
<PAGE>
"Warrant Stock" shall mean Common issued upon exercise of any Warrant or
-------------
Warrants.
Dated: September----,1994 ALLSCRIPTS, PHARMACEUTICALS, INC.
By ________________________________
President
ATTEST:
___________________________
Secretary
This Warrant has not been registered under the Securities Act of 1933.
Thus, notwithstanding any other provisions contained herein, no transfer,
hypothecation or other disposition of this Warrant or of the Common issuable
upon exercise of this Warrant, or of any interest in either thereof, including
any exercise of this Warrant in favor of any Person other than the Holder
hereof, shall be valid or effective unless registered under the Securities Act
of 1933 or unless an exemption from such registration is available, and until
the conditions specified in the Agreement have been fulfilled. A copy of the
Agreement is on file and may be inspected at the principal office of the
Corporation. Under certain circumstances specified in the Agreement, the
Corporation has agreed to deliver to the Holder hereof a new Warrant, not
bearing this legend, registered in the name of such Holder.
-12-
<PAGE>
SUBSCRIPTION
ALLSCRIPTS, PHARMACEUTICALS, INC.
The undersigned __________, pursuant to the provisions of the within
Warrant, hereby elects to purchase ________ shares of Common of ALLSCRIPTS, INC.
covered by the within Warrant.
Dated: ____________ Signature __________________
Address __________________
ASSIGNMENT
FOR VALUE RECEIVED ____________ hereby sells, assigns and transfers
unto _____________ the within Warrant and all rights evidenced thereby and does
irrevocably constitute and appoint _________, attorney, to transfer the said
Warrant on the books of the within named Corporation.
_____________________________
Dated: ___________
PARTIAL ASSIGNMENT
FOR VALUE RECEIVED _________ hereby sells, assigns and transfers unto
_____________ the right to purchase _________ shares of Warrant Stock evidenced
by the within Warrant with all rights therein, and does irrevocably constitute
and appoint _________, attorney, to transfer that part of the said Warrant on
the books of the within named Corporation.
_____________________________
Dated: ______________
FOR USE BY THE CORPORATION ONLY:
This Warrant No. W-_____ cancelled (or transferred or exchanged) this ____ day
of _____, 19__, _______ shares of Common issued therefor in the name of _______
Warrant No. W-_______ issued for ________ shares of Common in the name of
________.
-13-
<PAGE>
EXTENSION GUARANTY WARRANT
--------------------------
No. W-_____ Warrant to Purchase Shares
of Common Stock (subject
to adjustment)
ALLSCRIPS PHARMACEUTICALS, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF ILLINOIS
THIS CERTIFIES THAT, for value received, ____________________ or its
assigns is entitled to subscribe for and purchase during the period specified in
this Warrant, _____ (subject to adjustment as hereinafter provided) fully paid
and non-assessable Common Shares, par value $.01 per share (the "Common"), of
ALLSCRIPS PHARMACEUTICALS, INC., an Illinois corporation (the "Corporation"), at
the price of $1.25 per share, subject, however, to the provisions and upon the
terms and conditions hereinafter set forth.
1. Duration. The right to subscribe for and purchase shares of Common of
--------
the Corporation represented hereby shall expire at 5:00 P.M., Central Standard
Time, on September 30, 1999. The Corporation shall give 30 days' written notice
to the Holder of this Warrant to the effect that such right will expire on
September 30, 1999. If, on such expiration date, the Corporation is then
required, pursuant to an effective request therefor, to effect, or is in the
process of effecting, a registration under the Securities Act for an
underwritten public offering in which shares of Warrant Stock are, pursuant to
the Registration Agreement, entitled to be included, or if the Corporation is in
default of any obligation created by Sections 2 and 3 of the Registration
Agreement or of any of its obligations under the Agreement regarding the
transfer of this Warrant or of any Warrant Stock or the registration of any
Warrant Stock, or is in default of any obligation created by (i) Sections 5.1.1,
5.1.4(i), 5.1.8 or 5.1.9 of the Agreement, (ii) Sections 5.1.4(b) or (c) of the
Agreement, if the Holder of this Warrant gives written notice to the Corporation
that the Corporation is in default under such provisions, or (iii) Sections
5.1.2 or 5.1.3 of the Agreement if such default has a material adverse effect on
the business or financial condition of the Company, said right to subscribe for
and purchase shares of Common shall expire at 5:00 P.M., Central Standard Time
on the later of (i) the 30th day following the date on which such registration
shall have become effective (but in no event longer than 180 days beyond the
date this Warrant would have expired) or (ii) on the 30th day following the date
all of such breaches have been cured, as the case may be.
2. Method of Exercise; Payment; Issuance of New Warrant; Transfer and
------------------------------------------------------------------
Exchange. The purchase right represented by this Warrant may be exercised at
- --------
any time prior to expiration.
The Holder hereof may exercise this Warrant, in whole or in part, by the
surrender of this Warrant (with the subscription form attached hereto duly
executed) at the principal office of the Corporation, and by the payment to the
Corporation of the then applicable Warrant Price for the
<PAGE>
shares being purchased upon such exercise by certified or official bank check or
by surrender to the Corporation of additional Warrants. Any Warrant so
surrendered shall be valued at an amount equal to the excess of the Fair Market
Value thereof over the Warrant Price, in each case determined as of the date of
surrender. In the event of any exercise of the rights represented by this
Warrant, (i) stock certificates for the shares of Common so purchased shall be
delivered to the Holder hereof forthwith, and unless this Warrant has expired, a
new Warrant representing the number of shares, if any, with respect to which
this Warrant shall not then have been exercised or surrendered as consideration
or partial consideration for the exercise of this Warrant shall also be
delivered to the Holder hereof forthwith, and (ii) stock certificates for the
shares of Common so purchased shall be dated the date of exercise of this
Warrant, and the Holder exercising this Warrant shall be deemed for all purposes
to be the Holder of the shares of Common so purchased as of the date of such
exercise. This Warrant may not be transferred, in whole or in part, except by
means of (i) a transfer made in accordance with Section 6.2 of the Agreement, or
(ii) a transfer exempt from registration under the Securities Act permitted
under and made in conformance with Section 6.4 of the Agreement or (iii) a
transfer to an underwriter made in accordance with Section 9 of the Registration
Agreement. This Warrant, if so permitted to be transferred, may be transferred
on the books of the Corporation by the Holder hereof in person or by duly
authorized attorney, upon surrender of this Warrant at the principal office of
the Corporation, properly endorsed and upon payment of any necessary transfer
tax or other governmental charge imposed upon such transfer.
This Warrant is exchangeable at the aforesaid principal office of the
Corporation for Warrants for the purchase of the same aggregate number of shares
of Common, each new Warrant to represent the right to purchase such number of
shares of Common as the Holder hereof shall designate at the time of such
exchange. All Warrants issued on transfers or exchanges shall be dated the date
hereof and shall be identical with this Warrant except as to the number of
shares of Common issuable pursuant hereto.
3. Stock Fully Paid; Reservation of Shares. The Corporation covenants
---------------------------------------
and agrees that all shares of Common which may be issued upon the exercise of
the rights represented by this Warrant shall, upon issuance, be fully paid and
non-assessable and free from all taxes, liens and charges with respect to
issuance. The Corporation further covenants and agrees that during the period
within which the rights represented by this Warrant may be exercised, the
Corporation shall at all times have authorized and reserved for the purpose of
the issue upon exercise of the subscription rights evidenced by this Warrant a
sufficient number of shares of Common to provide for the exercise of the rights
represented by this Warrant. If the Warrant Price is at any time less than the
par value of the Common or if the Warrant at any time is exercisable by its
delivery alone and without payment of any additional consideration, the
Corporation also covenants and agrees to cause to be taken such action (whether
by lowering the par value of the Common, the conversion of the Common from par
value to no par value, or otherwise) as will permit the exercise of this
Warrant, without any additional payment by the Holder hereof (other than payment
of the Warrant Price, if any, and applicable transfer taxes, if any), and the
issuance of the Common, which Common, upon issuance, will be fully paid and non-
assessable.
-2-
<PAGE>
4. Adjustment of Purchase Price and Number of Shares. The number of
-------------------------------------------------
shares of Common purchasable upon the exercise of this Warrant and the payment
of the Warrant Price shall be subject to adjustment from time to time upon the
happening of certain events after the date hereof as follows:
(a) Reclassification, Consolidation or Merger. In case of any
-----------------------------------------
reclassification or change of outstanding Common issuable upon exercise of
this Warrant, or in case of any consolidation or merger of the Corporation
with or into another corporation which does not constitute a liquidation
under the Preferred Resolutions, this Warrant shall, without payment of
additional consideration therefor, be deemed modified so as to provide that
upon the exercise hereof, the Holder of this Warrant shall procure, in lieu
of each share of Common theretofore issuable upon such exercise, the kind
and amount of shares of Stock, other securities, money and property
receivable upon such reclassification, change, consolidation or merger by
the Holder of one share of Common issuable upon exercise of the Warrant had
such exercise occurred immediately prior to such reclassification, change,
consolidation or merger. Such new Warrant shall be deemed to provide for
adjustments which shall be as nearly equivalent as may be practicable to
the adjustments provided for in this Section 4. The provisions of this
subsection (a) shall similarly apply to successive reclassifications,
changes, consolidations and mergers.
(b) Subdivision or Combination of Shares. If the Corporation, at any
------------------------------------
time while this Warrant is outstanding, shall subdivide or combine its
Common, the Warrant Price (and the Dilution Price) shall be proportionately
reduced, in case of subdivision of shares, as of the effective date of such
subdivision, or if the Corporation shall take a record of Holders of its
Common for the purpose of a subdividing, as of such record date, whichever
is earlier, or shall be proportionately increased, in the case of
combination of shares, as at the effective date of such combination or, if
the Corporation shall take a record of Holders of its Common for the
purpose of so combining, as of such record date, whichever is earlier.
(c) Certain Dividends and Distributions. If the Corporation, at any
-----------------------------------
time while this Warrant is outstanding, shall:
(i) Stock Dividends. Pay a dividend payable in, effect a split-
---------------
up of, or make any other distribution of, Common, the Warrant Price
(and the Dilution Price) shall be adjusted, as of the date the
Corporation shall take a record of the Holders of its Common, for the
purpose of receiving such dividend, stock split-up or other
distribution (or if no such record is taken, as of the date of such
payment, stock split or other distribution), to that price determined
by multiplying the Warrant Price (and the Dilution Price) in effect
immediately prior to such record date (or if no such record is taken,
then immediately prior to such payment or other distribution), by a
fraction (1) the numerator of which shall be the total number of
shares of Common outstanding immediately prior to such dividend, stock
split or distribution, and (2) the denominator of which shall be the
total
-3-
<PAGE>
number of shares of Common outstanding immediately after such
dividend, stock split or distribution (plus in the event that the
Corporation paid cash for fractional shares, the number of additional
shares which would have been outstanding had the Corporation issued
fractional shares in connection with said dividend, stock split or
distribution).
(ii) Liquidating Dividends, etc. Make a distribution of its
---------------------------
assets to the Holders of its Common as a dividend in liquidation or
partial liquidation or by way of return of capital or other than as a
dividend payable out of funds legally available for dividends under
the laws of the State of Illinois, the Holder of the Warrant shall,
upon exercise, be entitled to receive, in addition to the number of
shares of Common receivable thereupon, and without payment of any
consideration therefor, a sum equal to the value of such assets as
would have been distributable to them as owners of that number of
shares of Common of the Corporation receivable by exercise of this
Warrant, had such Holder been the Holder of record of such Common on
the record date for such distribution; and any appropriate provision
therefor shall be made a part of any such distribution.
(d) Issuance of Additional Shares of Common. Prior to the completion
---------------------------------------
of an Initial Public Offering, if the Corporation, at any time while this
Warrant is outstanding, issues any Additional Shares of Common for a
consideration per share of Common of less than the Dilution Price in effect
immediately prior to the issuance, then, upon each such issuance, the
Warrant Price shall be reduced by the product of (i) the Warrant Price then
in effect and (ii) a fraction, the numerator of which is the amount by
which the Dilution Price in effect immediately prior to the issuance
exceeds the Dilution Price in effect immediately after the issuance and the
denominator or which is the Dilution Price in effect immediately prior to
the issuance; provided, however, that the Warrant Price shall not be
reduced below $.01.
The provisions of this subsection 4(d) shall not apply under any of
the circumstances for which an adjustment is provided in subsections 4(a),
(b) or (c) hereof. No adjustment of the Warrant Price shall be made under
this subsection 4(d) upon the issuance of any Additional Shares of Common
which are issued pursuant to any Common Stock Equivalent if, upon the
issuance or amendment of any such Common Stock Equivalent (i) any such
adjustment shall previously have been made pursuant to subsection 4(e)
hereof or (ii) no adjustment was required pursuant to subsection 4(e)
hereof.
(e) Issuance of Common Stock Equivalents. Prior to an Initial Public
------------------------------------
Offering, if the Corporation, at any time while this Warrant is
outstanding, shall issue any Common Stock Equivalent and the price per
share for which Additional Shares of Common may be issuable thereafter
pursuant to such Common Stock Equivalent shall be less than the Dilution
Price then in effect, or if, after any such issuance, the price per share
for which Additional Shares of Common may be issuable thereafter is
amended, and such price, as so amended, shall be less than the Dilution
Price at the time of such
-4-
<PAGE>
amendment, then the Warrant Price upon each such issuance or amendment
shall be adjusted as provided in subsection (d) of this Section 4, on the
basis that (1) the Additional Shares of Common issuable pursuant to such
Common Stock Equivalents shall be deemed to have been issued as of the
earlier of (A) the date on which the Corporation shall enter into a firm
contract for the issuance of such Common Stock Equivalent, or (B) the date
of actual issuance of such Common Stock Equivalent, and (2) the
consideration for such Additional Shares of Common shall be deemed to be
the minimum consideration received and receivable by the Corporation for
the issuance of such Additional Shares of Common pursuant to such Common
Stock Equivalent. No adjustment of the Warrant Price shall be made under
this subsection (e) upon the issuance of any Convertible Security which is
issued pursuant to the exercise of any warrants or other subscription or
purchase rights therefor, if any adjustment shall previously have been made
in the Warrant Price then in effect upon the issuance of such warrants or
other rights pursuant to this subsection (e).
(f) [Intentionally Omitted]
(g) Other Provisions Applicable to Adjustments Under This Section 4.
---------------------------------------------------------------
The following provisions shall be applicable to the making of adjustments
in the Warrant Price (and the Dilution Price) hereinbefore provided in this
Section 4:
(i) Computation of Consideration. The consideration received by
----------------------------
the Corporation shall be deemed to be the following: to the extent
that any Additional Shares of Common or any Common Stock Equivalents
shall be issued for a cash consideration, the consideration received
by the Corporation therefor, or, if such Additional Shares of Common
or Common Stock Equivalents are offered by the Corporation for
subscription, the subscription price, or if such Additional Shares of
Common or Common Stock Equivalents are sold to underwriters or dealers
for public offering without a subscription offering, the initial
public offering price, in each such case excluding any amounts paid or
receivable for accrued interest or accrued dividends and without
deduction of any compensation, discounts, commissions, or expenses
paid or incurred by the Corporation for and in the underwriting of, or
otherwise in connection with, the issue thereof; to the extent that
such issuance shall be for a consideration other than cash, then,
except as herein otherwise expressly provided, the consideration
received by the Corporation shall be the fair market value of such
consideration at the time of such issuance as determined in good faith
by the Board. The consideration for any Additional Shares of Common
issuable pursuant to any Common Stock Equivalent shall be the
consideration received by the Corporation for issuing such Common
Stock Equivalents, plus the additional consideration payable to the
Corporation upon the exercise, conversion or exchange of such Common
Stock Equivalents. In case of the issuance at any time of any
Additional Shares of Common or Common Stock Equivalents in payment or
satisfaction of any dividend upon any class of Stock other than
Common, the Corporation shall be deemed to have received for such
Additional Shares of Common or Common
-5-
<PAGE>
Stock Equivalents a consideration equal to the amount of such dividend
so paid or satisfied. In any case in which the consideration to be
received or paid shall be other than cash, the Board shall notify the
Holder of this Warrant of its determination of the fair market value
of such consideration prior to payment or accepting receipt thereof.
If, within ten days after receipt of said notice, the Holders of
Warrants exercisable for at least a majority of Warrant Stock then
unissued shall notify the Board in writing of their objection to such
determination, a determination of fair market value of such
consideration shall be made by arbitration in accordance with the
Rules of the American Arbitration Association, by an arbitrator in the
City of Chicago, Illinois.
(ii) Readjustment of Warrant Price. Upon the expiration of the
-----------------------------
right to convert, exchange or exercise any Common Stock Equivalents
the issuance of which effected an adjustment in the Warrant Price, if
none of such Common Stock Equivalents shall have been converted,
exercised or exchanged the Warrant Price (and the Dilution Price)
shall forthwith be readjusted and thereafter be the price which it
would have been (but reflecting any other adjustments in the Warrant
Price (and the Dilution Price) made pursuant to the provisions of this
Section 4 after the issuance of such Common Stock Equivalent) had an
adjustment of the Warrant Price (and the Dilution Price) not been
effected as a result of the issuance of such Common Stock Equivalents.
(h) Certain Events. If, after the date hereof, any event occurs of
--------------
the type contemplated by this Section 4 but not expressly provided for by
such provisions (including, without limitation, the granting of stock
appreciation rights, phantom stock rights or other rights with equity
features), then the Board shall make an appropriate adjustment in the
Warrant Price (and the Dilution Price) so as to protect the rights of the
Holder of this Warrant; provided that no such adjustment shall increase the
Warrant Price (or the Dilution Price) as otherwise determined pursuant to
this Section 4.
(i) Adjustment of Number of Shares. Upon each adjustment in the
------------------------------
Warrant Price pursuant to any provision of this Section 4, the number of
shares of Common purchasable hereunder shall be adjusted, to the nearest
one hundredth of a whole share, to the product obtained by multiplying such
number of shares purchasable immediately prior to such adjustment in the
Warrant Price by a fraction, the numerator of which shall be the Warrant
Price immediately prior to such adjustment and the denominator of which
shall be the Warrant Price immediately thereafter. If the Corporation
shall be in default under the agreement contained in the last sentence of
Section 3 hereof so that applicable law prevents the issuance of shares at
the Warrant Price adjusted in accordance with this Section 4, the
adjustment of shares provided in the foregoing sentence shall nonetheless
be made and the Holder of this Warrant shall be entitled to purchase such
greater number of shares at the lowest price at which this Warrant may then
be exercised. Such exercise shall not constitute a waiver of any claim
arising against the Corporation by reason of its default under the
agreement contained in the last sentence of Section 3 of this Warrant.
-6-
<PAGE>
5. Notice of Adjustments. Whenever the Warrant Price shall be adjusted
---------------------
pursuant to Section 4 hereof, the Corporation shall make a certificate signed by
its President or a Vice President and by its Treasurer, Assistant Treasurer,
Secretary or Assistant Secretary setting forth, in reasonable detail, the event
requiring the adjustment, the amount of the adjustment, the method by which such
adjustment was calculated (including a description of the basis on which the
Board made any determination hereunder), and the Warrant Price after giving
effect to such adjustment, and shall cause copies of such certificate to be
mailed (by first class mail, postage prepaid) to the Holder of this Warrant
promptly after each adjustment.
6. Fractional Shares and Rounding. No fractional shares of Common shall
------------------------------
be issued in connection with any exercise hereof, but in lieu of such fractional
shares, the Corporation shall make a cash payment therefor equal in amount to
the product of the applicable fraction multiplied by the amount by which the
Fair Market Value of a share of Common exceeds the Warrant Price then in effect.
All computations in connection with the calculation of the Dilution Price and
the adjustment of the Warrant Price shall be rounded to the fourth decimal
place.
7. Definitions. For the purposes of this Warrant, the following terms
-----------
have the following meanings:
"Additional Shares of Common" shall have the meaning given such term
---------------------------
in the Series G Resolution, as such Resolution may hereafter be amended
and/or amended and restated.
"Agreement" shall mean the Warrant Purchase Agreement dated as of
---------
September __, 1994 between the Corporation and Allstate Insurance Company.
"Common" shall mean the Corporation's Common Stock, par value $.01 per
------
share, and any Stock into which such Common Stock may hereafter be changed.
"Common Stock Equivalent" shall mean any Convertible Security or
-----------------------
warrant, option or other right to subscribe for or purchase any Additional
Shares of Common or any Convertible Security.
"Convertible Securities" shall mean evidences of indebtedness, shares
----------------------
of Stock or other Securities which are or may be at any time convertible
into or exchangeable for Additional Shares of Common. The term
"Convertible Security" shall mean one of the Convertible Securities.
"Corporation" shall mean Allscrips Pharmaceuticals, Inc., an Illinois
-----------
corporation, and all successor corporations thereof.
"Dilution Price" shall mean (A) initially $0.4907, (B) after each
--------------
issuance after the date hereof by the Corporation of Additional Shares of
Common or Common Stock Equivalents (other than subdivisions of shares,
dividends, stock split-ups and other distributions, provision for all of
which is made in (C) below) at a price (or deemed price)
-7-
<PAGE>
lower than the Dilution Price then in effect, the Dilution Price prior to
such issuance, reduced by the full amount by which the Dilution Price then
in effect exceeds the issue price per share of Common issued or deemed to
be issued, provided, however, that no adjustment of the Dilution Price
-------- -------
shall be made upon the issuance of any Additional Shares of Common issued
pursuant to a Common Stock Equivalent, the issuance of which previously
caused an adjustment of the Dilution Price, and (C) after each adjustment
after the date hereof to Warrant Price pursuant to Section 4(b) or 4(c)(i)
hereof, the adjusted Dilution Price as provided in such Sections, subject
additionally to the computation considerations and the adjustments that are
applicable to determining Warrant Price and Dilution Price as set forth in
Sections 4(g) and 4(h) hereof.
"Fair Market Value" shall mean if the Corporation's Common is traded
-----------------
on an established market which reports last sale information, the price of
the Common that may be purchased upon the exercise of a Warrant surrendered
in full or partial payment of the Warrant Price payable upon the exercise
of this Warrant as of the close on the date such Warrant is so surrendered
(or if no sales occurred that day the most recent day sales occurred
preceding such surrender); if the Corporation's Common is quoted in the
National Association of Securities Dealers Automated Quotation System (but
not of a nature for which last sale information is available) ("NASDAQ"),
the highest independent bid on the date such Warrant is surrendered; or if
the Corporation's Common is publicly held but not traded on an established
market which reports last sale information or quoted in NASDAQ, the fair
market value of such Common as determined by the Board of Directors in good
faith and in their sole discretion. If the Common is not publicly held,
Fair Market Value shall mean that value that the Board of Directors shall
have determined as the fair market value in connection with the most recent
grant of options within the last six months preceding the date of exercise.
In the event that no such determination shall have been made within the
last six months preceding the date of exercise, Fair Market Value shall be
determined by the Board of Directors in good faith and in its sole
discretion.
"Holders" shall mean the Persons who shall from time to time, own of
-------
record any Security. The term "Holder" shall mean one of the Holders.
"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 $5.00 and (ii) in which the
Corporation receives proceeds net of all costs, expenses and underwriting
discounts and commissions of not less than $6,000,000 (including proceeds
received by the Corporation 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.
"Person" shall mean an individual, corporation, partnership, trust,
------
unincorporated organization or government organization or an agency or
political subdivision thereof.
-8-
<PAGE>
"Preferred Resolutions" shall mean the board resolutions of the
---------------------
Corporation fixing and determining the terms of the Series A Preferred,
Series B Preferred, Series C Preferred, Series D Preferred, Series F
Preferred, Series G Preferred and Series H Preferred.
"Property" shall mean any interest in any kind of property or asset,
--------
whether real, personal or mixed, or tangible or intangible.
"Registration Agreement" shall mean the Tenth Restated Registration
----------------------
Agreement, dated as of September __, 1994, between the Corporation and
those shareholders listed on the Schedules thereto, as such agreement may
be amended, amended and restated and/or redesignated from time to time.
"Securities" shall mean any debt or equity securities of the
----------
Corporation, whether now or hereafter authorized, and any instrument
convertible into or exchangeable for Securities or a Security. "Security"
shall mean one of the Securities.
"Securities Act" shall mean the Securities Act of 1933, as amended.
--------------
"Series A Preferred" shall mean the Corporation's Series A Convertible
------------------
Preferred Stock, $1.00 par value, and any Stock into which such Stock may
hereafter be changed, other than by exercise of the conversion right of
such Stock.
"Series B Preferred" shall mean the Corporation's Series B Convertible
------------------
Preferred Stock, $1.00 par value, and any Stock into which such Stock may
hereafter be changed, other than by exercise of the conversion right of
such Stock.
"Series C Preferred" shall mean the Corporation's Series C Senior
------------------
Convertible Preferred Stock, $1.00 par value, and any Stock into which such
Stock may hereafter be changed other than by exercise of the conversion
right of such Stock.
"Series D Preferred" shall mean the Corporation's Series D Senior
------------------
Convertible Preferred, $1.00 par value, and any Stock into which such Stock
may hereafter be changed other than by exercise of the conversion right of
such Stock.
"Series F Preferred" shall mean the Corporation'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 Corporation's 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.
-9-
<PAGE>
"Series G Resolution" shall mean the Resolution Fixing and Determining
-------------------
the Terms of the Series G Super Senior Convertible Preferred Stock of
Allscrips Pharmaceuticals, Inc.
"Series H Preferred" shall mean the Corporation's Superior Senior
------------------
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 participations, in corporate stock.
"Stock Restriction Agreements" shall mean (i) any agreement in
----------------------------
existence on the date hereof (or entered into after the date hereof, if
approved by the Board) between the Corporation and an employee, consultant,
director, officer or agent or former employee, consultant, director,
officer or agent of the Corporation or a Subsidiary or (ii) those certain
agreements between the Corporation and Direct Pharmaceuticals Corporation,
the Corporation and Mailscripts, Inc., the Corporation and ISP
Pharmaceuticals, Inc. and any transferee or subsequent holder of such
shares, under the terms of each of which the Corporation is permitted or
obligated to purchase Securities from such Person in connection with his
offering the Securities to another Person or the termination of his
relationship with the Corporation or a Subsidiary.
"Subsidiary" shall mean any corporation more than 50% of whose
----------
outstanding Voting Stock shall at the time be owned directly or indirectly
by the Corporation or by one or more Subsidiaries or by the Corporation and
one or more Subsidiaries.
"Voting Stock," as applied to the Stock of any corporation, shall mean
------------
Stock of any class or classes (however designated) having ordinary voting
power for the election of a majority of the members of the Board of
Directors (or other governing body) of such corporation, other than Stock
having such power only by reason of the happening of a contingency.
"Warrant" shall mean this Warrant.
-------
"Warrants" shall mean the Warrants issued pursuant to the Agreement.
--------
"Warrant Price" shall mean the price specified in the first paragraph
-------------
of this Warrant and such other prices as shall result from the adjustments
specified in Section 4 hereof.
-10-
<PAGE>
"Warrant Stock" shall mean Common issued upon exercise of any Warrant
-------------
or Warrants.
Dated: September __, 1994 ALLSCRIPS PHARMACEUTICALS, INC.
By ________________________________
President
ATTEST:
_______________________________
Secretary
This Warrant has not been registered under the Securities Act of 1933.
Thus, notwithstanding any other provisions contained herein, no transfer,
hypothecation or other disposition of this Warrant or of the Common issuable
upon exercise of this Warrant, or of any interest in either thereof, including
any exercise of this Warrant in favor of any Person other than the Holder
hereof, shall be valid or effective unless registered under the Securities Act
of 1933 or unless an exemption from such registration is available, and until
the conditions specified in the Agreement have been fulfilled. A copy of the
Agreement is on file and may be inspected at the principal office of the
Corporation. Under certain circumstances specified in the Agreement, the
Corporation has agreed to deliver to the Holder hereof a new Warrant, not
bearing this legend, registered in the name of such Holder.
-11-
<PAGE>
SUBSCRIPTION
ALLSCRIPS PHARMACEUTICALS, INC.
The undersigned ____________, pursuant to the provisions of the within
Warrant, hereby elects to purchase ____________ shares of Common of ALLSCRIPS
PHARMACEUTICALS, INC. covered by the within Warrant.
Dated:___________________ Signature ____________________________
Address ____________________________
ASSIGNMENT
FOR VALUE RECEIVED _____________ hereby sells, assigns and transfers unto
__________________ the within Warrant and all rights evidenced thereby and does
irrevocably constitute and appoint _____________, attorney, to transfer the said
Warrant on the books of the within named Corporation.
_____________________________________
Dated: ___________________
PARTIAL ASSIGNMENT
FOR VALUE RECEIVED _____________ hereby sells, assigns and transfers unto
_______________ the right to purchase _________ shares of Warrant Stock
evidenced by the within Warrant with all rights therein, and does irrevocably
constitute and appoint ____________, attorney, to transfer that part of the said
Warrant on the books of the within named Corporation.
_____________________________________
Dated: __________________
FOR USE BY THE CORPORATION ONLY:
This Warrant No. W-______ cancelled (or transferred or exchanged) this ____ day
of ________, 19__, ________ shares of Common issued therefor in the name of
__________ No. W-_______ issued for ________ shares of Common in the name of
_________.
-12-
<PAGE>
1996 EXTENSION GUARANTY WARRANT
-------------------------------
No. W-_____ Warrant to Purchase Shares
of Common Stock (subject
to adjustment)
ALLSCRIPS PHARMACEUTICALS, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF ILLINOIS
THIS CERTIFIES THAT, for value received, ____________________ or its
assigns is entitled to subscribe for and purchase during the period specified in
this Warrant, _____ (subject to adjustment as hereinafter provided) fully paid
and non-assessable Common Shares, par value $.01 per share (the "Common"), of
ALLSCRIPS PHARMACEUTICALS, INC., an Illinois corporation (the "Corporation"), at
the price of $.7004 per share, subject, however, to the provisions and upon the
terms and conditions hereinafter set forth.
1. Duration. The right to subscribe for and purchase shares of Common of
--------
the Corporation represented hereby shall expire at 5:00 P.M., Central Standard
Time, on April 30, 2001. The Corporation shall give 30 days' written notice to
the Holder of this Warrant to the effect that such right will expire on April
30, 2001. If, on such expiration date, the Corporation is then required,
pursuant to an effective request therefor, to effect, or is in the process of
effecting, a registration under the Securities Act for an underwritten public
offering in which shares of Warrant Stock are, pursuant to the Registration
Agreement, entitled to be included, or if the Corporation is in default of any
obligation created by Sections 2 and 3 of the Registration Agreement or of any
of its obligations under the Agreement regarding the transfer of this Warrant or
of any Warrant Stock or the registration of any Warrant Stock, or is in default
of any obligation created by (i) Sections 5.1.1, 5.1.4(i), 5.1.8 or 5.1.9 of the
Agreement, (ii) Sections 5.1.4(b) or (c) of the Agreement, if the Holder of this
Warrant gives written notice to the Corporation that the Corporation is in
default under such provisions, or (iii) Sections 5.1.2 or 5.1.3 of the Agreement
if such default has a material adverse effect on the business or financial
condition of the Company, said right to subscribe for and purchase shares of
Common shall expire at 5:00 P.M., Central Standard Time on the later of (i) the
30th day following the date on which such registration shall have become
effective (but in no event longer than 180 days beyond the date this Warrant
would have expired) or (ii) on the 30th day following the date all of such
breaches have been cured, as the case may be.
2. Method of Exercise; Payment; Issuance of New Warrant; Transfer and
------------------------------------------------------------------
Exchange. The purchase right represented by this Warrant may be exercised at
- --------
any time prior to expiration.
The Holder hereof may exercise this Warrant, in whole or in part, by the
surrender of this Warrant (with the subscription form attached hereto duly
executed) at the principal office of the Corporation, and by the payment to the
Corporation of the then applicable Warrant Price for the
<PAGE>
shares being purchased upon such exercise by certified or official bank check or
by surrender to the Corporation of additional Warrants. Any Warrant so
surrendered shall be valued at an amount equal to the excess of the Fair Market
Value thereof over the Warrant Price, in each case determined as of the date of
surrender. In the event of any exercise of the rights represented by this
Warrant, (i) stock certificates for the shares of Common so purchased shall be
delivered to the Holder hereof forthwith, and unless this Warrant has expired, a
new Warrant representing the number of shares, if any, with respect to which
this Warrant shall not then have been exercised or surrendered as consideration
or partial consideration for the exercise of this Warrant shall also be
delivered to the Holder hereof forthwith, and (ii) stock certificates for the
shares of Common so purchased shall be dated the date of exercise of this
Warrant, and the Holder exercising this Warrant shall be deemed for all purposes
to be the Holder of the shares of Common so purchased as of the date of such
exercise. This Warrant may not be transferred, in whole or in part, except by
means of (i) a transfer made in accordance with Section 6.2 of the Agreement, or
(ii) a transfer exempt from registration under the Securities Act permitted
under and made in conformance with Section 6.4 of the Agreement or (iii) a
transfer to an underwriter made in accordance with Section 9 of the Registration
Agreement. This Warrant, if so permitted to be transferred, may be transferred
on the books of the Corporation by the Holder hereof in person or by duly
authorized attorney, upon surrender of this Warrant at the principal office of
the Corporation, properly endorsed and upon payment of any necessary transfer
tax or other governmental charge imposed upon such transfer.
This Warrant is exchangeable at the aforesaid principal office of the
Corporation for Warrants for the purchase of the same aggregate number of shares
of Common, each new Warrant to represent the right to purchase such number of
shares of Common as the Holder hereof shall designate at the time of such
exchange. All Warrants issued on transfers or exchanges shall be dated the date
hereof and shall be identical with this Warrant except as to the number of
shares of Common issuable pursuant hereto.
3. Stock Fully Paid; Reservation of Shares. The Corporation covenants
---------------------------------------
and agrees that all shares of Common which may be issued upon the exercise of
the rights represented by this Warrant shall, upon issuance, be fully paid and
non-assessable and free from all taxes, liens and charges with respect to
issuance. The Corporation further covenants and agrees that during the period
within which the rights represented by this Warrant may be exercised, the
Corporation shall at all times have authorized and reserved for the purpose of
the issue upon exercise of the subscription rights evidenced by this Warrant a
sufficient number of shares of Common to provide for the exercise of the rights
represented by this Warrant. If the Warrant Price is at any time less than the
par value of the Common or if the Warrant at any time is exercisable by its
delivery alone and without payment of any additional consideration, the
Corporation also covenants and agrees to cause to be taken such action (whether
by lowering the par value of the Common, the conversion of the Common from par
value to no par value, or otherwise) as will permit the exercise of this
Warrant, without any additional payment by the Holder hereof (other than payment
of the Warrant Price, if any, and applicable transfer taxes, if any), and the
issuance of the Common, which Common, upon issuance, will be fully paid and non-
assessable.
-2-
<PAGE>
4. Adjustment of Purchase Price and Number of Shares. The number of
-------------------------------------------------
shares of Common purchasable upon the exercise of this Warrant and the payment
of the Warrant Price shall be subject to adjustment from time to time upon the
happening of certain events after the date hereof as follows:
(a) Reclassification, Consolidation or Merger. In case of any
-----------------------------------------
reclassification or change of outstanding Common issuable upon exercise of
this Warrant, or in case of any consolidation or merger of the Corporation
with or into another corporation which does not constitute a liquidation
under the Preferred Resolutions, this Warrant shall, without payment of
additional consideration therefor, be deemed modified so as to provide that
upon the exercise hereof, the Holder of this Warrant shall procure, in lieu
of each share of Common theretofore issuable upon such exercise, the kind
and amount of shares of Stock, other securities, money and property
receivable upon such reclassification, change, consolidation or merger by
the Holder of one share of Common issuable upon exercise of the Warrant had
such exercise occurred immediately prior to such reclassification, change,
consolidation or merger. Such new Warrant shall be deemed to provide for
adjustments which shall be as nearly equivalent as may be practicable to
the adjustments provided for in this Section 4. The provisions of this
subsection (a) shall similarly apply to successive reclassifications,
changes, consolidations and mergers.
(b) Subdivision or Combination of Shares. If the Corporation, at
------------------------------------
any time while this Warrant is outstanding, shall subdivide or combine its
Common, the Warrant Price (and the Dilution Price) shall be proportionately
reduced, in case of subdivision of shares, as of the effective date of such
subdivision, or if the Corporation shall take a record of Holders of its
Common for the purpose of a subdividing, as of such record date, whichever
is earlier, or shall be proportionately increased, in the case of
combination of shares, as at the effective date of such combination or, if
the Corporation shall take a record of Holders of its Common for the
purpose of so combining, as of such record date, whichever is earlier.
(c) Certain Dividends and Distributions. If the Corporation, at any
-----------------------------------
time while this Warrant is outstanding, shall:
(i) Stock Dividends. Pay a dividend payable in, effect a split-
---------------
up of, or make any other distribution of, Common, the Warrant Price
(and the Dilution Price) shall be adjusted, as of the date the
Corporation shall take a record of the Holders of its Common, for the
purpose of receiving such dividend, stock split-up or other
distribution (or if no such record is taken, as of the date of such
payment, stock split or other distribution), to that price determined
by multiplying the Warrant Price (and the Dilution Price) in effect
immediately prior to such record date (or if no such record is taken,
then immediately prior to such payment or other distribution), by a
fraction (1) the numerator of which shall be the total number of
shares of Common outstanding immediately prior to such dividend, stock
split or distribution, and (2) the denominator of which shall be the
total
-3-
<PAGE>
number of shares of Common outstanding immediately after such
dividend, stock split or distribution (plus in the event that the
Corporation paid cash for fractional shares, the number of additional
shares which would have been outstanding had the Corporation issued
fractional shares in connection with said dividend, stock split or
distribution).
(ii) Liquidating Dividends, etc. Make a distribution of its
---------------------------
assets to the Holders of its Common as a dividend in liquidation or
partial liquidation or by way of return of capital or other than as a
dividend payable out of funds legally available for dividends under
the laws of the State of Illinois, the Holder of the Warrant shall,
upon exercise, be entitled to receive, in addition to the number of
shares of Common receivable thereupon, and without payment of any
consideration therefor, a sum equal to the value of such assets as
would have been distributable to them as owners of that number of
shares of Common of the Corporation receivable by exercise of this
Warrant, had such Holder been the Holder of record of such Common on
the record date for such distribution; and any appropriate provision
therefor shall be made a part of any such distribution.
(d) Issuance of Additional Shares of Common. Prior to the
---------------------------------------
completion of an Initial Public Offering, if the Corporation, at any time while
this Warrant is outstanding, issues any Additional Shares of Common for a
consideration per share of Common of less than the Dilution Price in effect
immediately prior to the issuance, then, upon each such issuance, the Warrant
Price shall be reduced by the product of (i) the Warrant Price then in effect
and (ii) a fraction, the numerator of which is the amount by which the Dilution
Price in effect immediately prior to the issuance exceeds the Dilution Price in
effect immediately after the issuance and the denominator or which is the
Dilution Price in effect immediately prior to the issuance; provided, however,
that the Warrant Price shall not be reduced below $.01.
The provisions of this subsection 4(d) shall not apply under any of
the circumstances for which an adjustment is provided in subsections 4(a), (b)
or (c) hereof. No adjustment of the Warrant Price shall be made under this
subsection 4(d) upon the issuance of any Additional Shares of Common which are
issued pursuant to any Common Stock Equivalent if, upon the issuance or
amendment of any such Common Stock Equivalent (i) any such adjustment shall
previously have been made pursuant to subsection 4(e) hereof or (ii) no
adjustment was required pursuant to subsection 4(e) hereof.
(e) Issuance of Common Stock Equivalents. Prior to an Initial
------------------------------------
Public Offering, if the Corporation, at any time while this Warrant is
outstanding, shall issue any Common Stock Equivalent and the price per share for
which Additional Shares of Common may be issuable thereafter pursuant to such
Common Stock Equivalent shall be less than the Dilution Price then in effect, or
if, after any such issuance, the price per share for which Additional Shares of
Common may be issuable thereafter is amended, and such price, as so amended,
shall be less than the Dilution Price at the time of such
-4-
<PAGE>
amendment, then the Warrant Price upon each such issuance or amendment shall be
adjusted as provided in subsection (d) of this Section 4, on the basis that (1)
the Additional Shares of Common issuable pursuant to such Common Stock
Equivalents shall be deemed to have been issued as of the earlier of (A) the
date on which the Corporation shall enter into a firm contract for the issuance
of such Common Stock Equivalent, or (B) the date of actual issuance of such
Common Stock Equivalent, and (2) the consideration for such Additional Shares of
Common shall be deemed to be the minimum consideration received and receivable
by the Corporation for the issuance of such Additional Shares of Common pursuant
to such Common Stock Equivalent. No adjustment of the Warrant Price shall be
made under this subsection (e) upon the issuance of any Convertible Security
which is issued pursuant to the exercise of any warrants or other subscription
or purchase rights therefor, if any adjustment shall previously have been made
in the Warrant Price then in effect upon the issuance of such warrants or other
rights pursuant to this subsection (e).
(f) [Intentionally Omitted]
(g) Other Provisions Applicable to Adjustments Under This Section
-------------------------------------------------------------
4. The following provisions shall be applicable to the making of adjustments in
- -
the Warrant Price (and the Dilution Price) hereinbefore provided in this Section
4:
(i) Computation of Consideration. The consideration received by
----------------------------
the Corporation shall be deemed to be the following: to the extent
that any Additional Shares of Common or any Common Stock Equivalents
shall be issued for a cash consideration, the consideration received
by the Corporation therefor, or, if such Additional Shares of Common
or Common Stock Equivalents are offered by the Corporation for
subscription, the subscription price, or if such Additional Shares of
Common or Common Stock Equivalents are sold to underwriters or dealers
for public offering without a subscription offering, the initial
public offering price, in each such case excluding any amounts paid or
receivable for accrued interest or accrued dividends and without
deduction of any compensation, discounts, commissions, or expenses
paid or incurred by the Corporation for and in the underwriting of, or
otherwise in connection with, the issue thereof; to the extent that
such issuance shall be for a consideration other than cash, then,
except as herein otherwise expressly provided, the consideration
received by the Corporation shall be the fair market value of such
consideration at the time of such issuance as determined in good faith
by the Board. The consideration for any Additional Shares of Common
issuable pursuant to any Common Stock Equivalent shall be the
consideration received by the Corporation for issuing such Common
Stock Equivalents, plus the additional consideration payable to the
Corporation upon the exercise, conversion or exchange of such Common
Stock Equivalents. In case of the issuance at any time of any
Additional Shares of Common or Common Stock Equivalents in payment or
satisfaction of any dividend upon any class of Stock other than
Common, the Corporation shall be deemed to have received for such
Additional Shares of Common or Common
-5-
<PAGE>
Stock Equivalents a consideration equal to the amount of such dividend
so paid or satisfied. In any case in which the consideration to be
received or paid shall be other than cash, the Board shall notify the
Holder of this Warrant of its determination of the fair market value
of such consideration prior to payment or accepting receipt thereof.
If, within ten days after receipt of said notice, the Holders of
Warrants exercisable for at least a majority of Warrant Stock then
unissued shall notify the Board in writing of their objection to such
determination, a determination of fair market value of such
consideration shall be made by arbitration in accordance with the
Rules of the American Arbitration Association, by an arbitrator in the
City of Chicago, Illinois.
(ii) Readjustment of Warrant Price. Upon the expiration of the
-----------------------------
right to convert, exchange or exercise any Common Stock Equivalents
the issuance of which effected an adjustment in the Warrant Price, if
none of such Common Stock Equivalents shall have been converted,
exercised or exchanged the Warrant Price (and the Dilution Price)
shall forthwith be readjusted and thereafter be the price which it
would have been (but reflecting any other adjustments in the Warrant
Price (and the Dilution Price) made pursuant to the provisions of this
Section 4 after the issuance of such Common Stock Equivalent) had an
adjustment of the Warrant Price (and the Dilution Price) not been
effected as a result of the issuance of such Common Stock Equivalents.
(h) Certain Events. If, after the date hereof, any event occurs of
--------------
the type contemplated by this Section 4 but not expressly provided for by
such provisions (including, without limitation, the granting of stock
appreciation rights, phantom stock rights or other rights with equity
features), then the Board shall make an appropriate adjustment in the
Warrant Price (and the Dilution Price) so as to protect the rights of the
Holder of this Warrant; provided that no such adjustment shall increase the
Warrant Price (or the Dilution Price) as otherwise determined pursuant to
this Section 4.
(i) Adjustment of Number of Shares. Upon each adjustment in the
------------------------------
Warrant Price pursuant to any provision of this Section 4, the number of
shares of Common purchasable hereunder shall be adjusted, to the nearest
one hundredth of a whole share, to the product obtained by multiplying such
number of shares purchasable immediately prior to such adjustment in the
Warrant Price by a fraction, the numerator of which shall be the Warrant
Price immediately prior to such adjustment and the denominator of which
shall be the Warrant Price immediately thereafter. If the Corporation
shall be in default under the agreement contained in the last sentence of
Section 3 hereof so that applicable law prevents the issuance of shares at
the Warrant Price adjusted in accordance with this Section 4, the
adjustment of shares provided in the foregoing sentence shall nonetheless
be made and the Holder of this Warrant shall be entitled to purchase such
greater number of shares at the lowest price at which this Warrant may then
be exercised. Such exercise shall not constitute a waiver of any claim
arising against the Corporation by reason of its default under the
agreement contained in the last sentence of Section 3 of this Warrant.
-6-
<PAGE>
5. Notice of Adjustments. Whenever the Warrant Price shall be adjusted
---------------------
pursuant to Section 4 hereof, the Corporation shall make a certificate signed by
its President or a Vice President and by its Treasurer, Assistant Treasurer,
Secretary or Assistant Secretary setting forth, in reasonable detail, the event
requiring the adjustment, the amount of the adjustment, the method by which such
adjustment was calculated (including a description of the basis on which the
Board made any determination hereunder), and the Warrant Price after giving
effect to such adjustment, and shall cause copies of such certificate to be
mailed (by first class mail, postage prepaid) to the Holder of this Warrant
promptly after each adjustment.
6. Fractional Shares and Rounding. No fractional shares of Common shall
------------------------------
be issued in connection with any exercise hereof, but in lieu of such fractional
shares, the Corporation shall make a cash payment therefor equal in amount to
the product of the applicable fraction multiplied by the amount by which the
Fair Market Value of a share of Common exceeds the Warrant Price then in effect.
All computations in connection with the calculation of the Dilution Price and
the adjustment of the Warrant Price shall be rounded to the fourth decimal
place.
7. Definitions. For the purposes of this Warrant, the following terms
-----------
have the following meanings:
"Additional Shares of Common" shall have the meaning given such term
---------------------------
in the Series G Resolution, as such Resolution may hereafter be amended
and/or amended and restated.
"Agreement" shall mean the Warrant Purchase Agreement dated as of
---------
September 22, 1994 between the Corporation and Allstate Insurance Company,
as amended by Amendment No. 1 dated as of April 30, 1996.
"Common" shall mean the Corporation's Common Stock, par value $.01 per
------
share, and any Stock into which such Common Stock may hereafter be changed.
"Common Stock Equivalent" shall mean any Convertible Security or
-----------------------
warrant, option or other right to subscribe for or purchase any Additional
Shares of Common or any Convertible Security.
"Convertible Securities" shall mean evidences of indebtedness, shares
----------------------
of Stock or other Securities which are or may be at any time convertible
into or exchangeable for Additional Shares of Common. The term
"Convertible Security" shall mean one of the Convertible Securities.
"Corporation" shall mean Allscrips Pharmaceuticals, Inc., an Illinois
-----------
corporation, and all successor corporations thereof.
"Dilution Price" shall mean (A) initially $0.4907, (B) after each
--------------
issuance after the date hereof by the Corporation of Additional Shares of
Common or Common Stock Equivalents (other than subdivisions of shares,
dividends, stock split-ups and other
-7-
<PAGE>
distributions, provision for all of which is made in (C) below) at a price
(or deemed price) lower than the Dilution Price then in effect, the
Dilution Price prior to such issuance, reduced by the full amount by which
the Dilution Price then in effect exceeds the issue price per share of
Common issued or deemed to be issued, provided, however, that no adjustment
-------- -------
of the Dilution Price shall be made upon the issuance of any Additional
Shares of Common issued pursuant to a Common Stock Equivalent, the issuance
of which previously caused an adjustment of the Dilution Price, and (C)
after each adjustment after the date hereof to Warrant Price pursuant to
Section 4(b) or 4(c)(i) hereof, the adjusted Dilution Price as provided in
such Sections, subject additionally to the computation considerations and
the adjustments that are applicable to determining Warrant Price and
Dilution Price as set forth in Sections 4(g) and 4(h) hereof.
"Fair Market Value" shall mean if the Corporation's Common is traded
-----------------
on an established market which reports last sale information, the price of
the Common that may be purchased upon the exercise of a Warrant surrendered
in full or partial payment of the Warrant Price payable upon the exercise
of this Warrant as of the close on the date such Warrant is so surrendered
(or if no sales occurred that day the most recent day sales occurred
preceding such surrender); if the Corporation's Common is quoted in the
National Association of Securities Dealers Automated Quotation System (but
not of a nature for which last sale information is available) ("NASDAQ"),
the highest independent bid on the date such Warrant is surrendered; or if
the Corporation's Common is publicly held but not traded on an established
market which reports last sale information or quoted in NASDAQ, the fair
market value of such Common as determined by the Board of Directors in good
faith and in their sole discretion. If the Common is not publicly held,
Fair Market Value shall mean that value that the Board of Directors shall
have determined as the fair market value in connection with the most recent
grant of options within the last six months preceding the date of exercise.
In the event that no such determination shall have been made within the
last six months preceding the date of exercise, Fair Market Value shall be
determined by the Board of Directors in good faith and in its sole
discretion.
"Holders" shall mean the Persons who shall from time to time, own of
-------
record any Security. The term "Holder" shall mean one of the Holders.
"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 $5.00 and (ii) in which the
Corporation receives proceeds net of all costs, expenses and underwriting
discounts and commissions of not less than $6,000,000 (including proceeds
received by the Corporation 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.
"Person" shall mean an individual, corporation, partnership, trust,
------
unincorporated organization or government organization or an agency or
political subdivision thereof.
-8-
<PAGE>
"Preferred Resolutions" shall mean the board resolutions of the
---------------------
Corporation fixing and determining the terms of the Series A Preferred,
Series B Preferred, Series C Preferred, Series D Preferred, Series F
Preferred, Series G Preferred and Series H Preferred.
"Property" shall mean any interest in any kind of property or asset,
--------
whether real, personal or mixed, or tangible or intangible.
"Registration Agreement" shall mean the Tenth Restated Registration
----------------------
Agreement, dated as of September 22, 1994, between the Corporation and
those shareholders listed on the Schedules thereto, as such agreement may
be amended, amended and restated and/or redesignated from time to time.
"Securities" shall mean any debt or equity securities of the
----------
Corporation, whether now or hereafter authorized, and any instrument
convertible into or exchangeable for Securities or a Security. "Security"
shall mean one of the Securities.
"Securities Act" shall mean the Securities Act of 1933, as amended.
--------------
"Series A Preferred" shall mean the Corporation's Series A Convertible
------------------
Preferred Stock, $1.00 par value, and any Stock into which such Stock may
hereafter be changed, other than by exercise of the conversion right of
such Stock.
"Series B Preferred" shall mean the Corporation's Series B Convertible
------------------
Preferred Stock, $1.00 par value, and any Stock into which such Stock may
hereafter be changed, other than by exercise of the conversion right of
such Stock.
"Series C Preferred" shall mean the Corporation's Series C Senior
------------------
Convertible Preferred Stock, $1.00 par value, and any Stock into which such
Stock may hereafter be changed other than by exercise of the conversion
right of such Stock.
"Series D Preferred" shall mean the Corporation's Series D Senior
------------------
Convertible Preferred, $1.00 par value, and any Stock into which such Stock
may hereafter be changed other than by exercise of the conversion right of
such Stock.
"Series F Preferred" shall mean the Corporation'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 Corporation's 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.
-9-
<PAGE>
"Series G Resolution" shall mean the Resolution Fixing and Determining
-------------------
the Terms of the Series G Super Senior Convertible Preferred Stock of
Allscrips Pharmaceuticals, Inc.
"Series H Preferred" shall mean the Corporation's Superior Senior
------------------
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 participations, in corporate stock.
"Stock Restriction Agreements" shall mean (i) any agreement in
----------------------------
existence on the date hereof (or entered into after the date hereof, if
approved by the Board) between the Corporation and an employee, consultant,
director, officer or agent or former employee, consultant, director,
officer or agent of the Corporation or a Subsidiary or (ii) those certain
agreements between the Corporation and Direct Pharmaceuticals Corporation,
the Corporation and Mailscripts, Inc., the Corporation and ISP
Pharmaceuticals, Inc. and any transferee or subsequent holder of such
shares, under the terms of each of which the Corporation is permitted or
obligated to purchase Securities from such Person in connection with his
offering the Securities to another Person or the termination of his
relationship with the Corporation or a Subsidiary.
"Subsidiary" shall mean any corporation more than 50% of whose
----------
outstanding Voting Stock shall at the time be owned directly or indirectly
by the Corporation or by one or more Subsidiaries or by the Corporation and
one or more Subsidiaries.
"Voting Stock," as applied to the Stock of any corporation, shall mean
------------
Stock of any class or classes (however designated) having ordinary voting
power for the election of a majority of the members of the Board of
Directors (or other governing body) of such corporation, other than Stock
having such power only by reason of the happening of a contingency.
"Warrant" shall mean this Warrant.
-------
"Warrants" shall mean the Warrants issued pursuant to the Agreement.
--------
"Warrant Price" shall mean the price specified in the first paragraph
-------------
of this Warrant and such other prices as shall result from the adjustments
specified in Section 4 hereof.
-10-
<PAGE>
"Warrant Stock" shall mean Common issued upon exercise of any Warrant
-------------
or Warrants.
Dated: April 30, 1996 ALLSCRIPS PHARMACEUTICALS, INC.
By ____________________________________
President
ATTEST:
_____________________________
Secretary
This Warrant has not been registered under the Securities Act of 1933.
Thus, notwithstanding any other provisions contained herein, no transfer,
hypothecation or other disposition of this Warrant or of the Common issuable
upon exercise of this Warrant, or of any interest in either thereof, including
any exercise of this Warrant in favor of any Person other than the Holder
hereof, shall be valid or effective unless registered under the Securities Act
of 1933 or unless an exemption from such registration is available, and until
the conditions specified in the Agreement have been fulfilled. A copy of the
Agreement is on file and may be inspected at the principal office of the
Corporation. Under certain circumstances specified in the Agreement, the
Corporation has agreed to deliver to the Holder hereof a new Warrant, not
bearing this legend, registered in the name of such Holder.
-11-
<PAGE>
SUBSCRIPTION
ALLSCRIPS PHARMACEUTICALS, INC.
The undersigned ____________, pursuant to the provisions of the within
Warrant, hereby elects to purchase ____________ shares of Common of ALLSCRIPS
PHARMACEUTICALS, INC. covered by the within Warrant.
Dated:____________________ Signature ________________________
Address ________________________
ASSIGNMENT
FOR VALUE RECEIVED _____________ hereby sells, assigns and transfers unto
__________________ the within Warrant and all rights evidenced thereby and does
irrevocably constitute and appoint _____________, attorney, to transfer the said
Warrant on the books of the within named Corporation.
___________________________________
Dated: __________________
PARTIAL ASSIGNMENT
FOR VALUE RECEIVED _____________ hereby sells, assigns and transfers unto
_______________ the right to purchase _________ shares of Warrant Stock
evidenced by the within Warrant with all rights therein, and does irrevocably
constitute and appoint ____________, attorney, to transfer that part of the said
Warrant on the books of the within named Corporation.
___________________________________
Dated: __________________
FOR USE BY THE CORPORATION ONLY:
This Warrant No. W-______ cancelled (or transferred or exchanged) this ____ day
of ________, 19__, ________ shares of Common issued therefor in the name of
__________ No. W-_______ issued for ________ shares of Common in the name of
_________.
-12-
<PAGE>
DEBENTURE WARRANT
-----------------
No. W- WarrantNo Warrant to Purchase Shares of
Common Stock (subject to
adjustment)
ALLSCRIPTS, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF ILLINOIS
THIS CERTIFIES THAT, for value received, Name or its assigns is entitled
to subscribe for and purchase during the period specified in this Warrant,
NoShares (subject to adjustment as hereinafter provided) fully paid and non-
assessable Common Shares, par value $.01 per share (the "Common"), of
ALLSCRIPTS, INC., an Illinois corporation (the "Corporation"), at the price of
$.01 per share, subject, however, to the provisions and upon the terms and
conditions hereinafter set forth.
1. Duration. The right to subscribe for and purchase shares of Common of
--------
the Corporation represented hereby shall expire at 5:00 P.M., Central Standard
Time, on April 15, 2003. The Corporation shall give 30 days' written notice to
the Holder of this Warrant to the effect that such right will expire on April
15, 2003. If, on such expiration date, the Corporation is then required,
pursuant to an effective request therefor, to effect, or is in the process of
effecting, a registration under the Securities Act for an underwritten public
offering in which shares of Warrant Stock are, pursuant to the Registration
Agreement, entitled to be included, or if the Corporation is in default of any
obligation created by Sections 2 and 3 of the Registration Agreement or of any
of its obligations under the Agreement regarding the transfer of this Warrant or
of any Warrant Stock or the registration of any Warrant Stock, or is in default
of any obligation created by (i) Sections 6.2 or 6.3 of the Agreement or (ii)
Sections 6.1(a) or (b) of the Agreement, if the Holder of this Warrant gives
written notice to the Corporation that the Corporation is in default under such
provisions, said right to subscribe for and purchase shares of Common shall
expire at 5:00 P.M., Central Standard Time on the later of (i) the 30th day
following the date on which such registration shall have become effective (but
in no event longer than 180 days beyond the date this Warrant would have
expired) or (ii) on the 30th day following the date all of such breaches have
been cured, as the case may be.
2. Method of Exercise; Payment; Issuance of New Warrant; Transfer and
------------------------------------------------------------------
Exchange. The purchase right represented by this Warrant may be exercised at
- --------
any time prior to expiration.
The Holder hereof may exercise this Warrant, in whole or in part, by the
surrender of this Warrant (with the subscription form attached hereto duly
executed) at the principal office of the Corporation, and by the payment to the
Corporation of the then applicable Warrant Price for the shares being purchased
upon such exercise by certified or official bank check or by surrender to the
Corporation of additional Warrants or other Securities. Any Warrant so
surrendered shall be valued at an amount equal to (i) the excess of the Fair
Market Value per share of Common over the Warrant Price, multiplied by (ii) the
number of shares of Common purchasable upon exercise of such Warrant, in each
case determined as of the date of surrender. Any other Security so surrendered
shall be valued at its Fair Market Value as of the date of surrender. In the
event of any exercise of the rights represented by this Warrant, (i) stock
certificates for the shares of Common so purchased shall be delivered to the
Holder
<PAGE>
hereof forthwith, and unless this Warrant has expired, a new Warrant
representing the number of shares, if any, with respect to which this Warrant
shall not then have been exercised or surrendered as consideration or partial
consideration for the exercise of this Warrant shall also be delivered to the
Holder hereof forthwith, and (ii) stock certificates for the shares of Common so
purchased shall be dated the date of exercise of this Warrant, and the Holder
exercising this Warrant shall be deemed for all purposes to be the Holder of the
shares of Common so purchased as of the date of such exercise. This Warrant may
not be transferred, in whole or in part, except by means of (i) a transfer made
in accordance with Section 7.2 of the Agreement, or (ii) a transfer exempt from
registration under the Securities Act permitted under and made in conformance
with Section 7.4 of the Agreement or (iii) a transfer to an underwriter made in
accordance with Section 9 of the Registration Agreement. This Warrant, if so
permitted to be transferred, may be transferred on the books of the Corporation
by the Holder hereof in person or by duly authorized attorney, upon surrender of
this Warrant at the principal office of the Corporation, properly endorsed and
upon payment of any necessary transfer tax or other governmental charge imposed
upon such transfer.
The issuance of stock certificates for shares of Common so purchased upon
exercise of this Warrant shall be made without charge to the Holder hereof for
any issuance tax in respect thereof or other cost incurred by the Corporation in
connection with such exercise and the related issuance of shares of Common. The
Corporation shall assist and cooperate with any Holder required to make any
governmental filings or obtain any governmental approvals prior to or in
connection with any exercise of this Warrant (including, without limitation,
making any filings required to be made by the Corporation). Notwithstanding
any other provision hereof, if an exercise of any portion of this Warrant is to
be made in connection with a registered public offering or sale of the
Corporation, the exercise of any portion of this Warrant may, at the election of
the Holder hereof, be conditioned upon the consummation of the public offering
or sale of the Corporation in which case such exercise shall not be deemed to be
effective until the consummation of such transaction.
This Warrant is exchangeable at the aforesaid principal office of the
Corporation for Warrants for the purchase of the same aggregate number of shares
of Common, each new Warrant to represent the right to purchase such number of
shares of Common as the Holder hereof shall designate at the time of such
exchange. All Warrants issued on transfers or exchanges shall be dated the date
hereof and shall be identical with this Warrant except as to the number of
shares of Common issuable pursuant hereto.
3. Stock Fully Paid; Reservation of Shares. The Corporation covenants and
---------------------------------------
agrees that all shares of Common which may be issued upon the exercise of the
rights represented by this Warrant shall, upon issuance, be fully paid and non-
assessable and free from all taxes, liens and charges with respect to issuance.
The Corporation further covenants and agrees that during the period within which
the rights represented by this Warrant may be exercised, the Corporation shall
at all times have authorized and reserved for the purpose of the issue upon
exercise of the subscription rights evidenced by this Warrant a sufficient
number of shares of Common to provide for the exercise of the rights represented
by this Warrant. If the Warrant Price is at any time less than the par value of
the Common or if the Warrant at any time is exercisable by its delivery alone
and without payment of any additional consideration, the Corporation also
covenants and agrees to cause to be taken such action (whether by lowering the
par value of the Common, the conversion of the Common from par value to no par
value, or otherwise) as will permit the exercise of this Warrant, without any
additional payment by the Holder hereof (other than payment of the Warrant
Price, if any, and applicable transfer taxes, if any), and the issuance of the
Common, which Common, upon issuance, will be fully paid and non-assessable.
-2-
<PAGE>
4. Adjustment of Number of Shares. The number of shares of Common
------------------------------
purchasable upon the exercise of this Warrant shall be subject to adjustment
from time to time upon the happening of certain events as follows:
(a) Reclassification, Consolidation or Merger. In case of any
-----------------------------------------
reclassification or change of outstanding Common issuable upon exercise of
the conversion right of this Warrant, or in case of any consolidation or
merger of the Corporation with or into another corporation which does not
constitute a liquidation under the Preferred Resolutions, this Warrant
shall, without payment of additional consideration therefor, be deemed
modified so as to provide that upon the exercise hereof, the Holder of this
Warrant shall procure, in lieu of each share of Common theretofore issuable
upon such exercise, the kind and amount of shares of Stock, other
securities, money and property receivable upon such reclassification,
change, consolidation or merger by the Holder of one share of Common
issuable upon exercise of the Warrant had such exercise occurred
immediately prior to such reclassification, change, consolidation or
merger. Such new Warrant shall be deemed to provide for adjustments which
shall be as nearly equivalent as may be practicable to the adjustments
provided for in this Section 4. The provisions of this subsection (a)
shall similarly apply to successive reclassifications, changes,
consolidations and mergers.
(b) Subdivision or Combination of Shares. If the Corporation, at any
------------------------------------
time while this Warrant is outstanding, shall subdivide or combine its
Common, the number of shares of Common purchasable upon exercise of this
Warrant shall be proportionately increased, in case of subdivision of
shares, as of the effective date of such subdivision, or if the Corporation
shall take a record of Holders of its Common for the purpose of a
subdividing, as of such record date, whichever is earlier, or shall be
proportionately decreased, in the case of combination of shares, as at the
effective date of such combination or, if the Corporation shall take a
record of Holders of its Common for the purpose of so combining, as of such
record date, whichever is earlier.
(c) Certain Dividends and Distributions. If the Corporation, at any
-----------------------------------
time while this Warrant is outstanding, shall:
(i) Stock Dividends. Pay a dividend payable in, effect a split-
---------------
up of, or make any other distribution of, Common, the number of shares
of Common purchasable upon exercise of this Warrant shall be
increased, as of the date the Corporation shall take a record of the
Holders of its Common, for the purpose of receiving such dividend,
stock split-up or other distribution (or if no such record is taken,
as of the date of such payment, stock split or other distribution), to
that number of shares determined by multiplying the number of shares
of Common purchasable upon exercise of this Warrant as determined
immediately prior to such record date (or if no such record is taken,
then immediately prior to such payment or other distribution), by a
fraction (1) the numerator of which shall be the total number of
shares of Common outstanding immediately after such dividend, stock
split or distribution (plus in the event that the Corporation paid
cash for fractional shares, the number of additional shares which
would have been outstanding had the Corporation issued fractional
shares in connection with said dividend, stock split or distribution),
and (2) the denominator of which shall be the total number of shares
of Common outstanding immediately prior to such dividend, stock split
or distribution.
(ii) Liquidating Dividends, etc. Make a distribution of its
---------------------------
assets to the Holders of its Common as a dividend in liquidation or
partial liquidation or by way of
-3-
<PAGE>
return of capital or other than as a dividend payable out of funds
legally available for dividends under the laws of the State of
Illinois, the Holder of the Warrant shall, upon exercise, be entitled
to receive, in addition to the number of shares of Common receivable
thereupon, and without payment of any consideration therefor, a sum
equal to the value of such assets as would have been distributable to
them as owners of that number of shares of Common of the Corporation
receivable by exercise of this Warrant, had such Holder been the
Holder of record of such Common on the record date for such
distribution; and all appropriate provisions therefor shall be made a
part of any such distribution, including, without limitation, the
placement by the Corporation of such sum into escrow.
(d) Issuance of Additional Shares of Common.
---------------------------------------
Prior to the completion of a Qualified Initial Public Offering, if at
any time the Corporation issues any Additional Shares of Common (excluding
issuances pursuant to transactions described in paragraphs (a), (b) or (c)
of Section 4 of the Warrant) at a time when this Warrant is outstanding and
not expired for a consideration per share of Common issued at less than the
Dilution Price in effect immediately prior to such issuance of Common,
then, upon each such issuance, the number of shares of Common purchasable
upon exercise of this Warrant shall be increased so that the number of
shares of Common purchasable upon exercise of this Warrant shall equal the
product of the Base Warrant Shares and a fraction (rounded to the nearest
thousandth), the numerator of which is the Initial Dilution Price and the
denominator of which is the Dilution Price in effect immediately after such
issuance.
The provisions of this subsection 4(d) shall not apply under any of
the circumstances for which an adjustment is provided in subsections 4(a),
(b) or (c) hereof. No adjustment of the number of shares of Common
purchasable upon exercise of this Warrant shall be made under this
subsection 4(d) upon the issuance of any Additional Shares of Common which
are issued pursuant to any Common Stock Equivalent if, upon the issuance or
amendment of any such Common Stock Equivalent (i) any such adjustment shall
previously have been made pursuant to subsection 4(e) hereof or (ii) no
adjustment was required pursuant to subsection 4(e) hereof.
(e) Issuance of Common Stock Equivalents. Prior to the completion of
------------------------------------
a Qualified Initial Public Offering, if the Corporation, at any time while
this Warrant is outstanding, shall issue any Common Stock Equivalent and
the price per share for which Additional Shares of Common may be issuable
thereafter pursuant to such Common Stock Equivalent shall be less than the
Dilution Price then in effect, or if, after any such issuance, the price
per share for which Additional Shares of Common may be issuable thereafter
is amended, and such price, as so amended, shall be less than the Dilution
Price at the time of such amendment, then the number of shares of Common
purchasable upon exercise of this Warrant shall be increased upon each such
issuance or amendment as provided in subsection (d) of this Section 4 on
the basis that (1) the Additional Shares of Common issuable pursuant to
such Common Stock Equivalents shall be deemed to have been issued as of the
earlier of (A) the date on which the Corporation shall enter into a
contract for the issuance of such Common Stock Equivalent, or (B) the date
of actual issuance of such Common Stock Equivalent, and (2) the
consideration for such Additional Shares of Common shall be deemed to be
the minimum consideration received and receivable by the Corporation for
the issuance of such Additional Shares of Common pursuant to such Common
Stock Equivalent. No adjustment in the number of shares of Common
purchasable upon exercise of this Warrant shall be made under this
subsection (e) upon the issuance of any
-4-
<PAGE>
Convertible Security which is issued pursuant to the exercise of any
warrants or other subscription or purchase rights therefor, if any
adjustment in the number of shares of Common purchasable upon exercise of
this Warrant shall previously have been made upon the issuance of such
warrants or other rights pursuant to this subsection (e).
(f) [Intentionally Omitted]
(g) Other Provisions Applicable to Adjustments Under This Section 4.
---------------------------------------------------------------
The following provisions shall be applicable to the making of adjustments
in the number of Common Shares purchasable upon exercise of this Warrant
hereinbefore provided in this Section 4:
(i) Computation of Consideration. The consideration received by
----------------------------
the Corporation shall be deemed to be the following: to the extent
that any Additional Shares of Common or any Common Stock Equivalents
shall be issued for a cash consideration, the consideration received
by the Corporation therefor, or, if such Additional Shares of Common
or Common Stock Equivalents are offered by the Corporation for
subscription, the subscription price, or if such Additional Shares of
Common or Common Stock Equivalents are sold to underwriters or dealers
for public offering without a subscription offering, the initial
public offering price, in each such case excluding any amounts paid or
receivable for accrued interest or accrued dividends and without
deduction of any compensation, discounts, commissions, or expenses
paid or incurred by the Corporation for and in the underwriting of, or
otherwise in connection with, the issue thereof; to the extent that
such issuance shall be for a consideration other than cash, then,
except as herein otherwise expressly provided, the consideration
received by the Corporation shall be the fair market value of such
consideration at the time of such issuance as determined in good faith
by the Board. The consideration for any Additional Shares of Common
issuable pursuant to any Common Stock Equivalent shall be the
consideration received by the Corporation for issuing such Common
Stock Equivalents, plus the additional consideration payable to the
Corporation upon the exercise, conversion or exchange of such Common
Stock Equivalents. In case of the issuance at any time of any
Additional Shares of Common or Common Stock Equivalents in payment or
satisfaction of any dividend upon any class of Stock other than
Common, the Corporation shall be deemed to have received for such
Additional Shares of Common or Common Stock Equivalents a
consideration equal to the amount of such dividend so paid or
satisfied. In any case in which the consideration to be received or
paid shall be other than cash, the Board shall notify the Holder of
this Warrant of its determination of the fair market value of such
consideration prior to payment or accepting receipt thereof. If,
within ten days after receipt of said notice, the Holders of Warrants
exercisable for at least a majority of Warrant Stock then unissued
shall notify the Board in writing of their objection to such
determination, a determination of fair market value of such
consideration shall be made by arbitration in accordance with the
Rules of the American Arbitration Association, by an arbitrator in the
City of Chicago, Illinois.
(ii) Readjustment of Warrant. Upon the expiration of the right
-----------------------
to convert, exchange or exercise any Common Stock Equivalents the
issuance of which effected an adjustment in the number of shares of
Common purchasable upon exercise of this Warrant under subsection (d)
or (e) of this Section 4, if none of such Common Stock Equivalents
shall have been converted, exercised or exchanged, the Dilution Price
(and
-5-
<PAGE>
therefore the number of shares of Common purshable upon exercise of
this Warrant) shall forthwith be readjusted and therefore be the price
which it would have been (but reflecting any other adjustments in the
number of shares of Common purchasable upon exercise of this Warrant
made pursuant to the provisions of this Section 4 after the issuance
of such Common Stock Equivalents) had an adjustment of the Dilution
Price not been effected as a result of the issuance of such Common
Stock Equivalents.
(h) Certain Events. If after the date hereof any event occurs of the
--------------
type contemplated by the provisions of this Section 4 but not expressly
provided for by such provisions (including, without limitation, the
granting of stock appreciation rights, phantom stock rights or other rights
with equity features), then the Board shall make an appropriate adjustment
in the number of shares of Common purchasable upon exercise of this Warrant
(and in the Dilution Price) so as to protect the rights of the Holder of
this Warrant; provided that no such adjustment shall decrease the number of
shares of Common purchasable upon exercise of this Warrant (or increase the
Dilution Price) as otherwise determined pursuant to this Section 4.
(i) Adjustment of Warrant Price. Upon each adjustment in the number
---------------------------
of shares of Common purchasable hereunder pursuant to any provision of this
Section 4, the Warrant Price shall be adjusted, to the nearest one
hundredth of a cent, to the product obtained by multiplying the Warrant
Price immediately prior to such adjustment in the number of shares of
Common purchasable hereunder by a fraction, the numerator of which shall be
the number of shares of Common purchasable hereunder immediately prior to
such adjustment and the denominator of which shall be the number of shares
of Common purchasable hereunder immediately thereafter, provided, however,
-------- -------
that the product of the Warrant Price at any time and the number of shares
of Common purchasable hereunder at such time shall never exceed the product
of $.01 and the Base Warrant Shares.
(j) Default by Corporation. If the Corporation shall be in default
----------------------
under the agreement contained in the last sentence of Section 3 hereof so
that applicable law prevents the issuance of shares at the Warrant Price
adjusted in accordance with this Section 4, the Holder of this Warrant
shall be entitled to purchase shares at the lowest price at which this
Warrant may then be exercised. Such exercise shall not constitute a waiver
of any claim arising against the Corporation by reason of its default under
the agreement contained in the last sentence of Section 3 of this Warrant.
5. Notice of Adjustments. Whenever the number of shares of Common
---------------------
purchasable upon exercise of this Warrant shall be adjusted pursuant to Section
4 hereof, the Corporation shall make a certificate signed by its President or a
Vice President and by its Treasurer, Assistant Treasurer, Secretary or Assistant
Secretary setting forth, in reasonable detail, the event requiring the
adjustment, the amount of the adjustment, the method by which such adjustment
was calculated (including a description of the basis on which the Board made any
determination hereunder), and the number of shares of Common purchasable upon
exercise of this Warrant after giving effect to such adjustment, and shall cause
copies of such certificate to be mailed (by first class mail, postage prepaid)
to the Holder of this Warrant promptly after each adjustment.
6. Fractional Shares and Rounding. No fractional shares of Common shall
------------------------------
be issued in connection with any exercise hereof, but in lieu of such fractional
shares, the Corporation shall make a cash payment therefor equal in amount to
the product of the applicable fraction multiplied by the
-6-
<PAGE>
Dilution Price then in effect. All computations in connection with the
adjustment of the Dilution Price shall be rounded to the fourth decimal place.
7. Liquidation Dividends. If the Corporation declares or pays a dividend
---------------------
upon the Common payable otherwise than in cash out of earnings or earned surplus
(determined in accordance with generally accepted accounting principles,
consistently applied) except for a stock dividend payable in shares of Common (a
"Liquidating Dividend"), then the Corporation shall pay to the Holder of this
Warrant at the time of payment thereof the Liquidating Dividend which would have
been paid to such Holder on the number of shares of Common purchasable upon
exercise of this Warrant had this Warrant been fully exercised immediately prior
to the date on which a record is taken for such Liquidating Dividend, or, if no
record is taken, the date as of which the record holders of Common entitled to
such dividends are to be determined.
8. Definitions. For the purposes of this Warrant, the following terms
-----------
have the following meanings:
"Additional Shares of Common" shall at any time have the meaning given to
that term in the Agreement, as the Agreement may be amended at such time of
determination.
"Affiliates" shall mean any entity controlling, controlled by or under
common control with a designated Person. For the purposes of this definition,
"control" shall have the meaning specified for that word in Rule 405 promulgated
by the Securities and Exchange Commission under the Securities Act.
"Agreement" shall mean the Exchange Agreement, entered into in April, 1998,
between the Corporation and those Persons listed on Schedule I thereto
pertaining to the issuance of Series J Preferred and Warrants, as, from time to
time, such Agreement may be amended.
"Base Warrant Shares" shall be that number of shares of Common set forth in
the first paragraph of this Warrant.
"Common" shall mean the Corporation's Common Stock, par value $.01 per
share, and any Stock into which such Common Stock may hereafter be changed.
"Common Stock Equivalent" shall mean any Convertible Security or warrant,
option or other right to subscribe for or purchase any Additional Shares of
Common or any Convertible Security.
"Convertible Securities" shall mean evidences of indebtedness, shares of
Stock or other Securities which are or may be at any time convertible into or
exchangeable for Additional Shares of Common. The term "Convertible Security"
shall mean one of the Convertible Securities.
"Corporation" shall mean Allscripts, Inc., an Illinois corporation, and all
successor corporations thereof.
"Dilution Price" shall mean the Initial Dilution Price until there has been
an adjustment in the number of shares of Common purchasable upon exercise of
this Warrant pursuant to Section 4 hereof and thereafter the Dilution Price will
be increased or decreased as follows: (i) in the case of an adjustment pursuant
to subsection 4(c) or 4(d) hereof, it shall be decreased by the full amount by
which the Dilution Price in effect immediately prior to each such adjustment
exceeds the issue price per share
-7-
<PAGE>
of Common issued or deemed to have been issued giving rise to each such
adjustment, (ii) in the case of an adjustment pursuant to subsection 4(b)
hereof, it shall be increased or decreased proportionately to give effect to the
combination or subdivision of shares giving rise to such adjustment and (iii) in
the case of an adjustment pursuant to subsection 4(c)(i) hereof, it shall be
decreased to that price determined by multiplying the Dilution Price in effect
immediately prior to the dividend, stock split-up or other distribution giving
rise to such adjustment by a fraction (1) the numerator of which shall be the
total number of shares of Common outstanding immediately prior to such dividend,
stock split or distribution (plus in the event that the Corporation paid cash
for fractional shares, the number of additional shares which would have been
outstanding had the Corporation issued fractional shares in connection with said
dividend, stock split or distribution), and (2) the denominator of which shall
be the total number of shares of Common outstanding immediately after such
dividend, stock split or distribution. Dilution Price shall additionally be
subject to the computation considerations and the adjustments that are
applicable to determining the number of shares of Common purchasable upon
exercise of this Warrant and Dilution Price as set forth in Sections 4(g) and
4(h) hereof.
"Fair Market Value" shall mean (i) in the case of Common, (A) if the
Corporation's Common is traded on an established market which reports last sale
information, the price of the Common that may be purchased upon the exercise of
a Warrant surrendered in full or partial payment of the Warrant Price payable
upon the exercise of this Warrant as of the close on the date such Warrant is so
surrendered (or if no sales occurred that day the most recent day sales occurred
preceding such surrender); (B) if the Corporation's Common is quoted on The
Nasdaq Stock Market (but not of a nature for which last sale information is
available) ("Nasdaq"), the highest independent bid on the date such Warrant is
surrendered; (C) if the Corporation's Common is publicly held but not traded on
an established market which reports last sale information or quoted in Nasdaq,
the fair market value of such Common as determined by the Board of Directors in
good faith and in their sole discretion; (D) if the Common is not publicly held,
Fair Market Value shall mean that value that the Board of Directors shall have
determined as the fair market value in connection with the most recent grant of
options within the last six months preceding the date of exercise, or, in the
event that no such determination shall have been made within the last six months
preceding the date of exercise, Fair Market Value shall be determined by the
Board of Directors in good faith and in its sole discretion; and (ii) in the
case of any other Security, Fair Market Value shall be determined by the Board
of Directors in good faith and in its sole discretion. In the case of (i)(C),
(i)(D) or (ii) above, if the Holder of this Warrant shall notify the Board in
writing of the Holder's objection to the Board's determination, a determination
of Fair Market Value shall be made by arbitration in accordance with the Rules
of the American Arbitration Association, by an arbitrator in the City of
Chicago, Illinois.
"Holders" shall mean the Persons who shall from time to time, own of record
any Security. The term "Holder" shall mean one of the Holders.
"Initial Dilution Price" shall mean $0.01.
"Person" shall mean an individual, corporation, partnership, trust,
unincorporated organization or government organization or an agency or political
subdivision thereof.
"Preferred Resolutions" shall mean the board resolutions of the Corporation
fixing and determining the terms of the Series A Convertible Preferred Stock,
$1.00 par value, Series B Convertible Preferred Stock, $1.00 par value, Series C
Senior Convertible Preferred Stock, $1.00 par value, Series D Senior Convertible
Preferred Stock, $1.00 par value, Series F Senior Convertible Preferred Stock,
$1.00 par value, Series G Super Senior Convertible Preferred Stock, $1.00 par
value, Series H Superior Senior Redeemable Preferred Stock, $1.00 par value,
Series I Super Superior Senior
-8-
<PAGE>
Redeemable Preferred Stock, $1.00 par value, and Series J Super Superior Senior
Redeemable Preferred Stock, $1.00 par value.
"Property" shall mean any interest in any kind of property or asset,
whether real, personal or mixed, or tangible or intangible.
"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 Corporation receives proceeds net
of all costs, expenses and underwriting discounts and commissions of not less
than $20,000,000 (including proceeds received by the Corporation 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 Agreement" shall mean the Eleventh Restated Registration
Agreement, entered into in April, 1998, between the Corporation and those
investors listed on the Schedules thereto, as such agreement may be amended,
amended and restated and/or redesignated from time to time.
"Securities" shall mean any debt or equity securities of the Corporation,
whether now or hereafter authorized, and any instrument convertible into or
exchangeable for Securities or a Security. "Security" shall mean one of the
Securities.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Series J Preferred" shall mean the Corporation's Series J 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 participations in corporate stock.
"Subsidiary" shall mean any corporation more than 50% of whose outstanding
Voting Stock shall at the time be owned directly or indirectly by the
Corporation or by one or more Subsidiaries or by the Corporation and one or more
Subsidiaries.
"Voting Stock," as applied to the Stock of any corporation, shall mean
Stock of any class or classes (however designated) having ordinary voting power
for the election of a majority of the members of the Board of Directors (or
other governing body) of such corporation, other than Stock having such power
only by reason of the happening of a contingency.
"Warrant" shall mean this Warrant.
"Warrants" shall mean the Warrants issued and sold pursuant to the
Agreement.
"Warrant Price" shall mean the price specified in the first paragraph of
this Warrant and such other prices as shall result from the adjustments
specified in Section 4 hereof.
-9-
<PAGE>
"Warrant Stock" shall mean Common issued upon exercise of any Warrant or
Warrants.
Dated: April 16, 1998 ALLSCRIPTS, INC.
By _________________________
President
ATTEST:
________________________________
Secretary
This Warrant has not been registered under the Securities Act of 1933.
Thus, notwithstanding any other provisions contained herein, no transfer,
hypothecation or other disposition of this Warrant or of the Common issuable
upon exercise of this Warrant, or of any interest in either thereof, including
any exercise of this Warrant in favor of any Person other than the Holder
hereof, shall be valid or effective unless registered under the Securities Act
of 1933 or unless an exemption from such registration is available, and until
the conditions specified in the Agreement have been fulfilled. A copy of the
Agreement is on file and may be inspected at the principal office of the
Corporation. Under certain circumstances specified in the Agreement, the
Corporation has agreed to deliver to the Holder hereof a new Warrant, not
bearing this legend, registered in the name of such Holder.
-10-
<PAGE>
SUBSCRIPTION
ALLSCRIPTS, INC.
The undersigned __________, pursuant to the provisions of the within
Warrant, hereby elects to purchase ________ shares of Common of ALLSCRIPTS, INC.
covered by the within Warrant.
Dated: _______________ Signature __________________
Address __________________
ASSIGNMENT
FOR VALUE RECEIVED ____________ hereby sells, assigns and transfers unto
_____________ the within Warrant and all rights evidenced thereby and does
irrevocably constitute and appoint _________, attorney, to transfer the said
Warrant on the books of the within named Corporation.
_____________________________
Dated: _______________
PARTIAL ASSIGNMENT
FOR VALUE RECEIVED _________ hereby sells, assigns and transfers unto
_____________ the right to purchase _________ shares of Warrant Stock evidenced
by the within Warrant with all rights therein, and does irrevocably constitute
and appoint _________, attorney, to transfer that part of the said Warrant on
the books of the within named Corporation.
____________________________
Dated: _______________
FOR USE BY THE CORPORATION ONLY:
This Warrant No. W-_____ cancelled (or transferred or exchanged) this ____ day
of _____, 19__, _______ shares of Common issued therefor in the name of _______
Warrant No. W-_______ issued for ________ shares of Common in the name of
________.
-11-
<PAGE>
EXTENSION
SERIES H WARRANT
----------------
No. W-((WarrantNo)) Warrant to Purchase Shares of
Common Stock (subject to
adjustment)
ALLSCRIPTS, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF ILLINOIS
THIS CERTIFIES THAT, for value received, ((Name)) or its assigns is
entitled to subscribe for and purchase during the period specified in this
Warrant, ((NoShares)) (subject to adjustment as hereinafter provided) fully paid
and non-assessable Common Shares, par value $.01 per share (the "Common"), of
ALLSCRIPTS, INC., an Illinois corporation (the "Corporation"), at the price of
$.01 per share, subject, however, to the provisions and upon the terms and
conditions hereinafter set forth.
1. Duration. The right to subscribe for and purchase shares of Common of
--------
the Corporation represented hereby shall expire at 5:00 P.M., Central Standard
Time, on April 15, 2003. The Corporation shall give 30 days' written notice to
the Holder of this Warrant to the effect that such right will expire on April
15, 2003. If, on such expiration date, the Corporation is then required,
pursuant to an effective request therefor, to effect, or is in the process of
effecting, a registration under the Securities Act for an underwritten public
offering in which shares of Warrant Stock are, pursuant to the Registration
Agreement, entitled to be included, or if the Corporation is in default of any
obligation created by Sections 2 and 3 of the Registration Agreement or of any
of its obligations under the Agreement regarding the transfer of this Warrant or
of any Warrant Stock or the registration of any Warrant Stock, or is in default
of any obligation created by (i) Sections 6.1, 6.5(i), 6.10, 6.11, 6.12 or 6.16
of the Agreement, (ii) Sections 6.5(b) or (c) of the Agreement, if the Holder of
this Warrant gives written notice to the Corporation that the Corporation is in
default under such provisions, or (iii) Sections 6.2, 6.3 or 6.4 of the
Agreement if such default has a material adverse effect on the business or
financial condition of the Company, said right to subscribe for and purchase
shares of Common shall expire at 5:00 P.M., Central Standard Time on the later
of (i) the 30th day following the date on which such registration shall have
become effective (but in no event longer than 180 days beyond the date this
Warrant would have expired) or (ii) on the 30th day following the date all of
such breaches have been cured, as the case may be.
2. Method of Exercise; Payment; Issuance of New Warrant; Transfer and
------------------------------------------------------------------
Exchange. The purchase right represented by this Warrant may be exercised at
- --------
any time prior to expiration.
The Holder hereof may exercise this Warrant, in whole or in part, by the
surrender of this Warrant (with the subscription form attached hereto duly
executed) at the principal office of the Corporation, and by the payment to the
Corporation of the then applicable Warrant Price for the shares being purchased
upon such exercise by certified or official bank check or by surrender to the
Corporation of additional Warrants or other Securities. Any Warrant so
surrendered shall be valued at an amount equal to (i) the excess of the Fair
Market Value per share of Common over the Warrant Price, multiplied by (ii) the
number of shares of Common purchasable upon exercise of such Warrant, in each
case
<PAGE>
determined as of the date of surrender. Any other Security so surrendered shall
be valued at its Fair Market Value as of the date of surrender. In the event of
any exercise of the rights represented by this Warrant, (i) stock certificates
for the shares of Common so purchased shall be delivered to the Holder hereof
forthwith, and unless this Warrant has expired, a new Warrant representing the
number of shares, if any, with respect to which this Warrant shall not then have
been exercised or surrendered as consideration or partial consideration for the
exercise of this Warrant shall also be delivered to the Holder hereof forthwith,
and (ii) stock certificates for the shares of Common so purchased shall be dated
the date of exercise of this Warrant, and the Holder exercising this Warrant
shall be deemed for all purposes to be the Holder of the shares of Common so
purchased as of the date of such exercise. This Warrant may not be transferred,
in whole or in part, except by means of (i) a transfer made in accordance with
Section 7.2 of the Agreement, or (ii) a transfer exempt from registration under
the Securities Act permitted under and made in conformance with Section 7.4 of
the Agreement or (iii) a transfer to an underwriter made in accordance with
Section 9 of the Registration Agreement. This Warrant, if so permitted to be
transferred, may be transferred on the books of the Corporation by the Holder
hereof in person or by duly authorized attorney, upon surrender of this Warrant
at the principal office of the Corporation, properly endorsed and upon payment
of any necessary transfer tax or other governmental charge imposed upon such
transfer.
The issuance of stock certificates for shares of Common so purchased upon
exercise of this Warrant shall be made without charge to the Holder hereof for
any issuance tax in respect thereof or other cost incurred by the Corporation in
connection with such exercise and the related issuance of shares of Common. The
Corporation shall assist and cooperate with any Holder required to make any
governmental filings or obtain any governmental approvals prior to or in
connection with any exercise of this Warrant (including, without limitation,
making any filings required to be made by the Corporation). Notwithstanding
any other provision hereof, if an exercise of any portion of this Warrant is to
be made in connection with a registered public offering or sale of the
Corporation, the exercise of any portion of this Warrant may, at the election of
the Holder hereof, be conditioned upon the consummation of the public offering
or sale of the Corporation in which case such exercise shall not be deemed to be
effective until the consummation of such transaction.
This Warrant is exchangeable at the aforesaid principal office of the
Corporation for Warrants for the purchase of the same aggregate number of shares
of Common, each new Warrant to represent the right to purchase such number of
shares of Common as the Holder hereof shall designate at the time of such
exchange. All Warrants issued on transfers or exchanges shall be dated the date
hereof and shall be identical with this Warrant except as to the number of
shares of Common issuable pursuant hereto.
3. Stock Fully Paid; Reservation of Shares. The Corporation covenants
---------------------------------------
and agrees that all shares of Common which may be issued upon the exercise of
the rights represented by this Warrant shall, upon issuance, be fully paid and
non-assessable and free from all taxes, liens and charges with respect to
issuance. The Corporation further covenants and agrees that during the period
within which the rights represented by this Warrant may be exercised, the
Corporation shall at all times have authorized and reserved for the purpose of
the issue upon exercise of the subscription rights evidenced by this Warrant a
sufficient number of shares of Common to provide for the exercise of the rights
represented by this Warrant. If the Warrant Price is at any time less than the
par value of the Common or if the Warrant at any time is exercisable by its
delivery alone and without payment of any additional consideration, the
Corporation also covenants and agrees to cause to be taken such action (whether
by lowering the par value of the Common, the conversion of the Common from par
value to no par value, or otherwise) as will permit the exercise of this
Warrant, without any additional payment by the Holder hereof (other than
-2-
<PAGE>
payment of the Warrant Price, if any, and applicable transfer taxes, if any),
and the issuance of the Common, which Common, upon issuance, will be fully paid
and non-assessable.
4. Adjustment of Number of Shares. The number of shares of Common
------------------------------
purchasable upon the exercise of this Warrant shall be subject to adjustment
from time to time upon the happening of certain events as follows:
(a) Reclassification, Consolidation or Merger. In case of any
-----------------------------------------
reclassification or change of outstanding Common issuable upon exercise of
the conversion right of this Warrant, or in case of any consolidation or
merger of the Corporation with or into another corporation which does not
constitute a liquidation under the Preferred Resolutions, this Warrant
shall, without payment of additional consideration therefor, be deemed
modified so as to provide that upon the exercise hereof, the Holder of this
Warrant shall procure, in lieu of each share of Common theretofore issuable
upon such exercise, the kind and amount of shares of Stock, other
securities, money and property receivable upon such reclassification,
change, consolidation or merger by the Holder of one share of Common
issuable upon exercise of the Warrant had such exercise occurred
immediately prior to such reclassification, change, consolidation or
merger. Such new Warrant shall be deemed to provide for adjustments which
shall be as nearly equivalent as may be practicable to the adjustments
provided for in this Section 4. The provisions of this subsection (a)
shall similarly apply to successive reclassifications, changes,
consolidations and mergers.
(b) Subdivision or Combination of Shares. If the Corporation, at any
------------------------------------
time while this Warrant is outstanding, shall subdivide or combine its
Common, the number of shares of Common purchasable upon exercise of this
Warrant shall be proportionately increased, in case of subdivision of
shares, as of the effective date of such subdivision, or if the Corporation
shall take a record of Holders of its Common for the purpose of a
subdividing, as of such record date, whichever is earlier, or shall be
proportionately decreased, in the case of combination of shares, as at the
effective date of such combination or, if the Corporation shall take a
record of Holders of its Common for the purpose of so combining, as of such
record date, whichever is earlier.
(c) Certain Dividends and Distributions. If the Corporation, at any
-----------------------------------
time while this Warrant is outstanding, shall:
(i) Stock Dividends. Pay a dividend payable in, effect a split-
---------------
up of, or make any other distribution of, Common, the number of shares
of Common purchasable upon exercise of this Warrant shall be
increased, as of the date the Corporation shall take a record of the
Holders of its Common, for the purpose of receiving such dividend,
stock split-up or other distribution (or if no such record is taken,
as of the date of such payment, stock split or other distribution), to
that number of shares determined by multiplying the number of shares
of Common purchasable upon exercise of this Warrant as determined
immediately prior to such record date (or if no such record is taken,
then immediately prior to such payment or other distribution), by a
fraction (1) the numerator of which shall be the total number of
shares of Common outstanding immediately after such dividend, stock
split or distribution (plus in the event that the Corporation paid
cash for fractional shares, the number of additional shares which
would have been outstanding had the Corporation issued fractional
shares in connection with said dividend, stock split or distribution),
and (2) the denominator of which shall be the total number of shares
of Common outstanding immediately prior to such dividend, stock split
or distribution.
-3-
<PAGE>
(ii) Liquidating Dividends, etc. Make a distribution of its
---------------------------
assets to the Holders of its Common as a dividend in liquidation or
partial liquidation or by way of return of capital or other than as a
dividend payable out of funds legally available for dividends under
the laws of the State of Illinois, the Holder of the Warrant shall,
upon exercise, be entitled to receive, in addition to the number of
shares of Common receivable thereupon, and without payment of any
consideration therefor, a sum equal to the value of such assets as
would have been distributable to them as owners of that number of
shares of Common of the Corporation receivable by exercise of this
Warrant, had such Holder been the Holder of record of such Common on
the record date for such distribution; and all appropriate provisions
therefor shall be made a part of any such distribution, including,
without limitation, the placement by the Corporation of such sum into
escrow.
(d) Issuance of Additional Shares of Common.
---------------------------------------
Prior to the completion of a Qualified Initial Public Offering, if at
any time the Corporation issues any Additional Shares of Common (excluding
issuances pursuant to transactions described in paragraphs (a), (b) or (c)
of Section 4 of the Warrant) at a time when this Warrant is outstanding and
not expired for a consideration per share of Common issued at less than the
Dilution Price in effect immediately prior to such issuance of Common,
then, upon each such issuance, the number of shares of Common purchasable
upon exercise of this Warrant shall be increased so that the number of
shares of Common purchasable upon exercise of this Warrant shall equal the
product of the Base Warrant Shares and a fraction (rounded to the nearest
thousandth), the numerator of which is the Initial Dilution Price and the
denominator of which is the Dilution Price in effect immediately after such
issuance.
The provisions of this subsection 4(d) shall not apply under any of
the circumstances for which an adjustment is provided in subsections 4(a),
(b) or (c) hereof. No adjustment of the number of shares of Common
purchasable upon exercise of this Warrant shall be made under this
subsection 4(d) upon the issuance of any Additional Shares of Common which
are issued pursuant to any Common Stock Equivalent if, upon the issuance or
amendment of any such Common Stock Equivalent (i) any such adjustment shall
previously have been made pursuant to subsection 4(e) hereof or (ii) no
adjustment was required pursuant to subsection 4(e) hereof.
(e) Issuance of Common Stock Equivalents. Prior to the completion of
------------------------------------
a Qualified Initial Public Offering, if the Corporation, at any time while
this Warrant is outstanding, shall issue any Common Stock Equivalent and
the price per share for which Additional Shares of Common may be issuable
thereafter pursuant to such Common Stock Equivalent shall be less than the
Dilution Price then in effect, or if, after any such issuance, the price
per share for which Additional Shares of Common may be issuable thereafter
is amended, and such price, as so amended, shall be less than the Dilution
Price at the time of such amendment, then the number of shares of Common
purchasable upon exercise of this Warrant shall be increased upon each such
issuance or amendment as provided in subsection (d) of this Section 4 on
the basis that (1) the Additional Shares of Common issuable pursuant to
such Common Stock Equivalents shall be deemed to have been issued as of the
earlier of (A) the date on which the Corporation shall enter into a
contract for the issuance of such Common Stock Equivalent, or (B) the date
of actual issuance of such Common Stock Equivalent, and (2) the
consideration for such Additional Shares of Common shall be deemed to be
the minimum consideration received and receivable by
-4-
<PAGE>
the Corporation for the issuance of such Additional Shares of Common
pursuant to such Common Stock Equivalent. No adjustment in the number of
shares of Common purchasable upon exercise of this Warrant shall be made
under this subsection (e) upon the issuance of any Convertible Security
which is issued pursuant to the exercise of any warrants or other
subscription or purchase rights therefor, if any adjustment in the number
of shares of Common purchasable upon exercise of this Warrant shall
previously have been made upon the issuance of such warrants or other
rights pursuant to this subsection (e).
(f) [Intentionally Omitted]
(g) Other Provisions Applicable to Adjustments Under This Section 4.
---------------------------------------------------------------
The following provisions shall be applicable to the making of adjustments
in the number of Common Shares purchasable upon exercise of this Warrant
hereinbefore provided in this Section 4:
(i) Computation of Consideration. The consideration received by
----------------------------
the Corporation shall be deemed to be the following: to the extent
that any Additional Shares of Common or any Common Stock Equivalents
shall be issued for a cash consideration, the consideration received
by the Corporation therefor, or, if such Additional Shares of Common
or Common Stock Equivalents are offered by the Corporation for
subscription, the subscription price, or if such Additional Shares of
Common or Common Stock Equivalents are sold to underwriters or dealers
for public offering without a subscription offering, the initial
public offering price, in each such case excluding any amounts paid or
receivable for accrued interest or accrued dividends and without
deduction of any compensation, discounts, commissions, or expenses
paid or incurred by the Corporation for and in the underwriting of, or
otherwise in connection with, the issue thereof; to the extent that
such issuance shall be for a consideration other than cash, then,
except as herein otherwise expressly provided, the consideration
received by the Corporation shall be the fair market value of such
consideration at the time of such issuance as determined in good faith
by the Board. The consideration for any Additional Shares of Common
issuable pursuant to any Common Stock Equivalent shall be the
consideration received by the Corporation for issuing such Common
Stock Equivalents, plus the additional consideration payable to the
Corporation upon the exercise, conversion or exchange of such Common
Stock Equivalents. In case of the issuance at any time of any
Additional Shares of Common or Common Stock Equivalents in payment or
satisfaction of any dividend upon any class of Stock other than
Common, the Corporation shall be deemed to have received for such
Additional Shares of Common or Common Stock Equivalents a
consideration equal to the amount of such dividend so paid or
satisfied. In any case in which the consideration to be received or
paid shall be other than cash, the Board shall notify the Holder of
this Warrant of its determination of the fair market value of such
consideration prior to payment or accepting receipt thereof. If,
within ten days after receipt of said notice, the Holders of Warrants
exercisable for at least a majority of Warrant Stock then unissued
shall notify the Board in writing of their objection to such
determination, a determination of fair market value of such
consideration shall be made by arbitration in accordance with the
Rules of the American Arbitration Association, by an arbitrator in the
City of Chicago, Illinois.
(ii) Readjustment of Warrant. Upon the expiration of the right
-----------------------
to convert, exchange or exercise any Common Stock Equivalents the
issuance of which effected
-5-
<PAGE>
an adjustment in the number of shares of Common purchasable upon
exercise of this Warrant under subsection (d) or (e) of this Section
4, if none of such Common Stock Equivalents shall have been converted,
exercised or exchanged, the Dilution Price (and therefore the number
of shares of Common purchasable upon exercise of this Warrant) shall
forthwith be readjusted and thereafter be the price which it would
have been (but reflecting any other adjustments in the number of
shares of Common purchasable upon exercise of this Warrant made
pursuant to the provisions of this Section 4 after the issuance of
such Common Stock Equivalents) had an adjustment of the Dilution Price
not been effected as a result of the issuance of such Common Stock
Equivalents.
(h) Certain Events. If after the date hereof any event occurs of the
--------------
type contemplated by the provisions of this Section 4 but not expressly
provided for by such provisions (including, without limitation, the
granting of stock appreciation rights, phantom stock rights or other rights
with equity features), then the Board shall make an appropriate adjustment
in the number of shares of Common purchasable upon exercise of this Warrant
(and in the Dilution Price) so as to protect the rights of the Holder of
this Warrant; provided that no such adjustment shall decrease the number of
shares of Common purchasable upon exercise of this Warrant (or increase the
Dilution Price) as otherwise determined pursuant to this Section 4.
(i) Adjustment of Warrant Price. Upon each adjustment in the number
---------------------------
of shares of Common purchasable hereunder pursuant to any provision of this
Section 4, the Warrant Price shall be adjusted, to the nearest one
hundredth of a cent, to the product obtained by multiplying the Warrant
Price immediately prior to such adjustment in the number of shares of
Common purchasable hereunder by a fraction, the numerator of which shall be
the number of shares of Common purchasable hereunder immediately prior to
such adjustment and the denominator of which shall be the number of shares
of Common purchasable hereunder immediately thereafter, provided, however,
-------- -------
that the product of the Warrant Price at any time and the number of shares
of Common purchasable hereunder at such time shall never exceed the product
of $.01 and the Base Warrant Shares.
(j) Default by Corporation. If the Corporation shall be in default
----------------------
under the agreement contained in the last sentence of Section 3 hereof so
that applicable law prevents the issuance of shares at the Warrant Price
adjusted in accordance with this Section 4, the Holder of this Warrant
shall be entitled to purchase shares at the lowest price at which this
Warrant may then be exercised. Such exercise shall not constitute a waiver
of any claim arising against the Corporation by reason of its default under
the agreement contained in the last sentence of Section 3 of this Warrant.
5. Notice of Adjustments. Whenever the number of shares of Common
---------------------
purchasable upon exercise of this Warrant shall be adjusted pursuant to Section
4 hereof, the Corporation shall make a certificate signed by its President or a
Vice President and by its Treasurer, Assistant Treasurer, Secretary or Assistant
Secretary setting forth, in reasonable detail, the event requiring the
adjustment, the amount of the adjustment, the method by which such adjustment
was calculated (including a description of the basis on which the Board made any
determination hereunder), and the number of shares of Common purchasable upon
exercise of this Warrant after giving effect to such adjustment, and shall cause
copies of such certificate to be mailed (by first class mail, postage prepaid)
to the Holder of this Warrant promptly after each adjustment.
-6-
<PAGE>
6. Fractional Shares and Rounding. No fractional shares of Common shall
------------------------------
be issued in connection with any exercise hereof, but in lieu of such fractional
shares, the Corporation shall make a cash payment therefor equal in amount to
the product of the applicable fraction multiplied by the Dilution Price then in
effect. All computations in connection with the adjustment of the Dilution Price
shall be rounded to the fourth decimal place.
7. Liquidation Dividends. If the Corporation declares or pays a dividend
---------------------
upon the Common payable otherwise than in cash out of earnings or earned surplus
(determined in accordance with generally accepted accounting principles,
consistently applied) except for a stock dividend payable in shares of Common (a
"Liquidating Dividend"), then the Corporation shall pay to the Holder of this
Warrant at the time of payment thereof the Liquidating Dividend which would have
been paid to such Holder on the number of shares of Common purchasable upon
exercise of this Warrant had this Warrant been fully exercised immediately prior
to the date on which a record is taken for such Liquidating Dividend, or, if no
record is taken, the date as of which the record holders of Common entitled to
such dividends are to be determined.
8. Definitions. For the purposes of this Warrant, the following terms
-----------
have the following meanings:
"Additional Shares of Common" shall at any time have the meaning given to
that term in the Agreement, as the Agreement may be amended at such time of
determination.
"Affiliates" shall mean any entity controlling, controlled by or under
common control with a designated Person. For the purposes of this definition,
"control" shall have the meaning specified for that word in Rule 405 promulgated
by the Securities and Exchange Commission under the Securities Act.
"Agreement" shall mean the Purchase Agreements, dated as of September 22,
1994, between the Corporation and those purchasers listed on Exhibit A thereto,
respectively, pertaining to the issuance and sale of Series H Preferred, Common
and Warrants, as, from time to time, such Agreements may be amended, including
as such Agreements have been amended as of the date hereof.
"Base Warrant Shares" shall be that number of shares of Common set forth in
the first paragraph of this Warrant.
"Common" shall mean the Corporation's Common Stock, par value $.01 per
share, and any Stock into which such Common Stock may hereafter be changed.
"Common Stock Equivalent" shall mean any Convertible Security or warrant,
option or other right to subscribe for or purchase any Additional Shares of
Common or any Convertible Security.
"Convertible Securities" shall mean evidences of indebtedness, shares of
Stock or other Securities which are or may be at any time convertible into or
exchangeable for Additional Shares of Common. The term "Convertible Security"
shall mean one of the Convertible Securities.
"Corporation" shall mean Allscripts, Inc., an Illinois corporation, and all
successor corporations thereof.
-7-
<PAGE>
"Dilution Price" shall mean the Initial Dilution Price until there has been
an adjustment in the number of shares of Common purchasable upon exercise of
this Warrant pursuant to Section 4 hereof and thereafter the Dilution Price will
be increased or decreased as follows: (i) in the case of an adjustment pursuant
to subsection 4(c) or 4(d) hereof, it shall be decreased by the full amount by
which the Dilution Price in effect immediately prior to each such adjustment
exceeds the issue price per share of Common issued or deemed to have been issued
giving rise to each such adjustment, (ii) in the case of an adjustment pursuant
to subsection 4(b) hereof, it shall be increased or decreased proportionately to
give effect to the combination or subdivision of shares giving rise to such
adjustment and (iii) in the case of an adjustment pursuant to subsection 4(c)(i)
hereof, it shall be decreased to that price determined by multiplying the
Dilution Price in effect immediately prior to the dividend, stock split-up or
other distribution giving rise to such adjustment by a fraction (1) the
numerator of which shall be the total number of shares of Common outstanding
immediately prior to such dividend, stock split or distribution (plus in the
event that the Corporation paid cash for fractional shares, the number of
additional shares which would have been outstanding had the Corporation issued
fractional shares in connection with said dividend, stock split or
distribution), and (2) the denominator of which shall be the total number of
shares of Common outstanding immediately after such dividend, stock split or
distribution. Dilution Price shall additionally be subject to the computation
considerations and the adjustments that are applicable to determining the number
of shares of Common purchasable upon exercise of this Warrant and Dilution Price
as set forth in Sections 4(g) and 4(h) hereof.
"Fair Market Value" shall mean (i) in the case of Common, (A) if the
Corporation's Common is traded on an established market which reports last sale
information, the price of the Common that may be purchased upon the exercise of
a Warrant surrendered in full or partial payment of the Warrant Price payable
upon the exercise of this Warrant as of the close on the date such Warrant is so
surrendered (or if no sales occurred that day the most recent day sales occurred
preceding such surrender); (B) if the Corporation's Common is quoted on The
Nasdaq Stock Market (but not of a nature for which last sale information is
available) ("Nasdaq"), the highest independent bid on the date such Warrant is
surrendered; (C) if the Corporation's Common is publicly held but not traded on
an established market which reports last sale information or quoted in Nasdaq,
the fair market value of such Common as determined by the Board of Directors in
good faith and in their sole discretion; (D) if the Common is not publicly held,
Fair Market Value shall mean that value that the Board of Directors shall have
determined as the fair market value in connection with the most recent grant of
options within the last six months preceding the date of exercise, or, in the
event that no such determination shall have been made within the last six months
preceding the date of exercise, Fair Market Value shall be determined by the
Board of Directors in good faith and in its sole discretion; and (ii) in the
case of any other Security, Fair Market Value shall be determined by the Board
of Directors in good faith and in its sole discretion. In the case of (i)(C),
(i)(D) or (ii) above, if the Holder of this Warrant shall notify the Board in
writing of the Holder's objection to the Board's determination, a determination
of Fair Market Value shall be made by arbitration in accordance with the Rules
of the American Arbitration Association, by an arbitrator in the City of
Chicago, Illinois.
"Holders" shall mean the Persons who shall from time to time, own of record
any Security. The term "Holder" shall mean one of the Holders.
"Initial Dilution Price" shall mean $0.01.
"Person" shall mean an individual, corporation, partnership, trust,
unincorporated organization or government organization or an agency or political
subdivision thereof.
-8-
<PAGE>
"Preferred Resolutions" shall mean the board resolutions of the Corporation
fixing and determining the terms of the Series A Convertible Preferred Stock,
$1.00 par value, Series B Convertible Preferred Stock, $1.00 par value, Series C
Senior Convertible Preferred Stock, $1.00 par value, Series D Senior Convertible
Preferred Stock, $1.00 par value, Series F Senior Convertible Preferred Stock,
$1.00 par value, Series G Super Senior Convertible Preferred Stock, $1.00 par
value, Series H Superior Senior Redeemable Preferred Stock, $1.00 par value,
Series I Super Superior Senior Redeemable Preferred Stock, $1.00 par value, and
Series J Super Superior Senior Redeemable Preferred Stock, $1.00 par value.
"Property" shall mean any interest in any kind of property or asset,
whether real, personal or mixed, or tangible or intangible.
"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 Corporation receives proceeds net
of all costs, expenses and underwriting discounts and commissions of not less
than $20,000,000 (including proceeds received by the Corporation 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 Agreement" shall mean the Eleventh Restated Registration
Agreement, entered into in April, 1998, between the Corporation and those
investors listed on the Schedules thereto, as such agreement may be amended,
amended and restated and/or redesignated from time to time.
"Securities" shall mean any debt or equity securities of the Corporation,
whether now or hereafter authorized, and any instrument convertible into or
exchangeable for Securities or a Security. "Security" shall mean one of the
Securities.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Series H Preferred" shall mean the Corporation's Series H 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 participations in corporate stock.
"Subsidiary" shall mean any corporation more than 50% of whose outstanding
Voting Stock shall at the time be owned directly or indirectly by the
Corporation or by one or more Subsidiaries or by the Corporation and one or more
Subsidiaries.
"Voting Stock," as applied to the Stock of any corporation, shall mean
Stock of any class or classes (however designated) having ordinary voting power
for the election of a majority of the members of the Board of Directors (or
other governing body) of such corporation, other than Stock having such power
only by reason of the happening of a contingency.
"Warrant" shall mean this Warrant.
"Warrants" shall mean the Warrants issued and sold pursuant to the
Agreement.
-9-
<PAGE>
"Warrant Price" shall mean the price specified in the first paragraph of
this Warrant and such other prices as shall result from the adjustments
specified in Section 4 hereof.
"Warrant Stock" shall mean Common issued upon exercise of any Warrant or
Warrants.
Dated: April 16, 1998 ALLSCRIPTS, INC.
By _____________________________________
President
ATTEST:
__________________________________
Secretary
This Warrant has not been registered under the Securities Act of 1933.
Thus, notwithstanding any other provisions contained herein, no transfer,
hypothecation or other disposition of this Warrant or of the Common issuable
upon exercise of this Warrant, or of any interest in either thereof, including
any exercise of this Warrant in favor of any Person other than the Holder
hereof, shall be valid or effective unless registered under the Securities Act
of 1933 or unless an exemption from such registration is available, and until
the conditions specified in the Agreement have been fulfilled. A copy of the
Agreement is on file and may be inspected at the principal office of the
Corporation. Under certain circumstances specified in the Agreement, the
Corporation has agreed to deliver to the Holder hereof a new Warrant, not
bearing this legend, registered in the name of such Holder.
-10-
<PAGE>
SUBSCRIPTION
ALLSCRIPTS, INC.
The undersigned __________, pursuant to the provisions of the within
Warrant, hereby elects to purchase ________ shares of Common of ALLSCRIPTS, INC.
covered by the within Warrant.
Dated: _____________________ Signature ______________________________
Address ________________________________
ASSIGNMENT
FOR VALUE RECEIVED ____________ hereby sells, assigns and transfers unto
_____________ the within Warrant and all rights evidenced thereby and does
irrevocably constitute and appoint _________, attorney, to transfer the said
Warrant on the books of the within named Corporation.
________________________________________
Dated: _____________________
PARTIAL ASSIGNMENT
FOR VALUE RECEIVED _________ hereby sells, assigns and transfers unto
_____________ the right to purchase _________ shares of Warrant Stock evidenced
by the within Warrant with all rights therein, and does irrevocably constitute
and appoint _________, attorney, to transfer that part of the said Warrant on
the books of the within named Corporation.
________________________________________
Dated: _____________________
FOR USE BY THE CORPORATION ONLY:
This Warrant No. W-_____ cancelled (or transferred or exchanged) this ____ day
of _____, 19__, _______ shares of Common issued therefor in the name of _______
Warrant No. W-_______ issued for _______ shares of Common in the name of ______.
-11-
<PAGE>
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 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
May 14, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from the
consolidated financial statements of Allscripts, Inc. as of December 31, 1998
and for the year ended December 31, 1998 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 718
<SECURITIES> 0
<RECEIVABLES> 14,048
<ALLOWANCES> 4,523
<INVENTORY> 2,905
<CURRENT-ASSETS> 13,378
<PP&E> 6,639
<DEPRECIATION> 4,855
<TOTAL-ASSETS> 18,920
<CURRENT-LIABILITIES> 13,107
<BONDS> 59
32,547
8,719
<COMMON> 83
<OTHER-SE> (35,594)
<TOTAL-LIABILITY-AND-EQUITY> 18,920
<SALES> 23,681
<TOTAL-REVENUES> 23,681
<CGS> 17,146
<TOTAL-COSTS> 17,146
<OTHER-EXPENSES> 13,634
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 596
<INCOME-PRETAX> (7,694)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,694)
<DISCONTINUED> 970
<EXTRAORDINARY> (790)
<CHANGES> 0
<NET-INCOME> (7,514)
<EPS-PRIMARY> (1.63)
<EPS-DILUTED> (1.63)
</TABLE>
