<PAGE>
As Filed With the Securities and Exchange Commission on January 27, 2000.
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 (I.R.S. Employer
jurisdiction of Industrial Classification Identification No.)
incorporation or Code Number)
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 Mitchell L. Hollins
Gardner, Carton & Douglas Sonnenschein Nath & Rosenthal
321 North Clark Street, Suite 2900 8000 Sears Tower
Chicago, Illinois 60610 Chicago, Illinois 60606
(312) 644-3000 (312) 876-8000
---------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Title of Each Class Proposed Maximum Proposed Maximum
of Securities to be Amount to be Offering Price Aggregate Amount of
Registered Registered (1) Per Share (2) Offering Price (2) Registration Fee
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value
$0.01 per share........ 2,300,000 $46.3125 $106,518,750 $28,121
- --------------------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
(1) Includes a maximum of 300,000 shares that may be purchased by the
underwriters to cover over-allotments, if any.
(2) Average of the high and low prices on the Nasdaq National Market on
January 20, 2000. Estimated solely for purposes of determining the amount
of the registration fee in accordance with Rule 457(c).
---------------
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 January 27, 2000.
2,000,000 Shares
Allscripts, Inc.
[LOGO FOR ALLSCRIPTS]
Common Stock
----------
Allscripts, Inc. is offering 692,000 of the shares to be sold in the
offering. The selling stockholders identified in this prospectus are offering
an additional 1,308,000 shares. Allscripts will not receive any of the proceeds
from the sale of the shares being sold by the selling stockholders.
The common stock is quoted on the Nasdaq National Market under the symbol
"MDRX". The last reported sale price of the common stock on January 26, 2000
was $51.50 per share.
See "Risk Factors" beginning on page 6 to read about factors you should
consider before buying shares of the common stock.
----------
Neither the Securities and Exchange Commission nor any other regulatory body
has approved or disapproved of these securities or passed upon the accuracy or
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
----------
<TABLE>
<CAPTION>
Per Share Total
--------- ------------
<S> <C> <C>
Initial price to public............................. $ $
Underwriting discount............................... $ $
Proceeds, before expenses, to Allscripts............ $ $
Proceeds, before expenses, to the selling
stockholders....................................... $ $
</TABLE>
To the extent that the underwriters sell more than 2,000,000 shares of common
stock, the underwriters have the option to purchase up to an additional 300,000
shares from Allscripts at the initial price to public less the underwriting
discount.
----------
The underwriters expect to deliver the shares against payment in New York,
New York on , 2000.
Goldman, Sachs & Co.
Bear, Stearns & Co. Inc.
CIBC World Markets
Wit Capital Corporation
-----------
Prospectus dated , 2000.
<PAGE>
PROSPECTUS SUMMARY
This is a summary and does not contain all the information that may be
important to you. You should read the more detailed information included in
this prospectus. All information in this prospectus gives effect to a one-for-
six reverse split of our common stock effected on June 28, 1999. Except as
otherwise noted, the information contained in this prospectus assumes that the
underwriters will not exercise the over-allotment option, and no other person
will exercise any other outstanding option or warrant.
Allscripts, Inc.
We provide physicians with Internet and client/server medication management
solutions designed to improve the quality and cost effectiveness of
pharmaceutical healthcare. Our technology-based approach focuses on the point
of care, where prescriptions and many other healthcare transactions originate,
and creates an electronic dialogue between physicians and other participants in
the healthcare delivery process, including patients, pharmacies, managed care
organizations and pharmaceutical manufacturers.
We believe physicians find our solutions attractive because incorporating
these solutions into their office work flow can increase efficiency and
profitability, reduce medication errors and improve the quality of patient
care. We also believe that, in addition to medication management, there are
other aspects of the physician's daily work flow that can be effectively
addressed through technology-focused solutions. We intend to enhance our
current offerings by integrating new products and services that address these
needs.
The traditional process for prescribing and delivering medications is
inefficient, unnecessarily costly and error-prone. Our Internet and in-office
comprehensive solutions are designed to improve and streamline every step of
the pharmaceutical healthcare process in a way that can benefit each
participant. Our medication management solutions enable physicians to improve
their prescribing at the point of care by providing them with information about
potential adverse drug interactions, patient drug history and managed care
guidelines. This ready access to information during the prescribing process
reduces the time physicians spend clarifying and changing prescriptions,
enables them to better manage financial risk and can reduce medication errors.
Our products also enable physicians to increase practice revenue by dispensing
their most commonly prescribed medications to their patients at the point of
care. In addition, our solutions make it possible for patients to have their
prescriptions electronically routed to the pharmacy of their choice or to
benefit from the convenience, immediacy and confidentiality of receiving their
medications in the physician's office. Our solutions also benefit managed care
organizations by promoting higher physician compliance with their pharmacy
guidelines, while pharmacies benefit from improved communication with
physicians, which enhances efficiency and reduces the likelihood of errors. We
also believe that our medication management solutions as well as the new
products and services that we intend to offer in the future will benefit
additional participants in the healthcare delivery process.
We currently offer products in four categories: point-of-care medication
management, Internet products and services, including e-detailing, information
products and prepackaged medications. Our TouchScript software enables
electronic prescribing, routing of prescription information and capturing of
prescription data at the point of care. Our other e-commerce products and
services offer physicians and their patients medication-related education and
information services. We also sell prepackaged medications to physicians so
they can offer their patients the convenience of receiving prescription
medications in the physician's office.
We believe that our experience in the pharmaceutical healthcare delivery
process gives us a competitive advantage. Through our business relationships
with thousands of physicians, we have developed an understanding of their
office work flow and business practices. Versions of TouchScript are currently
installed and used in over 400 physician practice sites, and we have
facilitated relationships
3
<PAGE>
between many of the country's largest managed care payers and our physician
customers under which our customers can obtain reimbursement for prescription
medications dispensed in their offices. In addition, our experience in
providing medication management solutions has given us a thorough understanding
of the complex and dynamic healthcare regulatory environment. Finally, we
believe that our management team, which is experienced in managing rapidly
growing public companies that use technology to change business processes,
further enhances our competitive advantage.
Corporate Information
Allscripts was incorporated in Illinois in 1986 and was reincorporated in
Delaware in 1999. 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), Personal Prescriber(TM), e-detailing(TM) and Intelligent
Reminder(TM) are trademarks of Allscripts, Inc. All other trademarks, brand
marks, trade names and registered marks used in this prospectus are trademarks,
brand marks, trade names or registered marks of their respective owners.
The Offering
<TABLE>
<S> <C>
Shares offered by
Allscripts............. 692,000
Shares offered by the
selling stockholders... 1,308,000
Shares to be outstanding
after the offering
(1).................... 25,210,571
Nasdaq National Market
symbol................. MDRX
Use of proceeds......... Working capital and other general corporate purposes. See
"Use of Proceeds."
</TABLE>
- -------
(1) Based on shares outstanding as of January 26, 2000. It excludes an
aggregate of up to 3,315,115 shares comprised of:
. 63,799 shares issuable upon the exercise of warrants that were
outstanding as of December 31, 1999, at a weighted average exercise price
of $1.58 per share;
. 2,584,312 shares issuable upon the exercise of stock options that were
outstanding on December 31, 1999 with a weighted average exercise price
of $4.11 per share; and
. 667,004 shares available for future grant as of December 31, 1999 under
our Amended and Restated 1993 Stock Incentive Plan.
See "Shares Eligible for Future Sale."
4
<PAGE>
Summary Consolidated Financial Data
(In thousands, except per share data)
The following table summarizes our financial data and should be read
together with our consolidated financial statements, including the related
notes, and the other financial information in this prospectus. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
Nine Months
Ended
Year Ended December 31, September 30,
------------------------------------------- ----------------
1994 1995 1996 1997 1998 1998 1999
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Statements of Operations
Data:
Revenue................. $32,635 $33,310 $33,462 $30,593 $23,682 $18,167 $19,395
Gross profit............ 11,029 9,168 10,072 9,476 6,362 4,936 4,001
Loss from continuing
operations............. (3,019) (5,752) (4,430) (8,991) (7,694) (5,684) (10,462)
Gain from sale of
discontinued
operations............. -- -- -- -- -- -- 3,547
Net loss................ (2,662) (4,363) (2,941) (10,799) (7,514) (5,592) (6,273)
Net loss attributable to
common stockholders.... (2,988) (5,286) (3,864) (11,722) (9,929) (7,380) (8,471)
Basic and diluted net
loss from continuing
operations per share... $ (8.34) $ (3.84) $ (1.87) $ (3.35) $ (1.66) $ (1.35) $ (1.24)
Weighted average shares
used in computing per
share calculation...... 401 1,737 2,854 2,956 6,076 5,557 10,199
Pro forma basic and
diluted net loss from
continuing operations
per share (1).......... $ (1.15) $ (0.70) $ (0.82)
Shares used in computing
pro forma basic and
diluted net loss from
continuing operations
per share (1).......... 9,073 8,554 12,797
Other Operating Data:
Traditional revenue
(2).................... $32,635 $33,310 $33,462 $30,593 $22,338 $17,302 $13,807
E-commerce revenue (3).. -- -- -- -- 1,344 865 5,588
------- ------- ------- ------- ------- ------- -------
Revenue................. $32,635 $33,310 $33,462 $30,593 $23,682 $18,167 $19,395
======= ======= ======= ======= ======= ======= =======
</TABLE>
- -------
(1) Pro forma basic and diluted net loss from continuing operations per share
information reflects the impact of the conversion of all shares of
convertible preferred stock into common stock upon the closing of our
initial public offering as well as the issuance of 19,958 shares of common
stock upon the closing of our initial public offering pursuant to a
contingent payment obligation on basic and diluted net loss per share as of
the beginning of the year, or date of issuance, if later, using the if-
converted method. In addition, the unaudited pro forma net loss per share
information excludes accretion and accrued dividends on redeemable
preferred shares as redemption of these shares, which occurred upon the
closing of our initial public offering, is assumed to have occurred as of
the beginning of the year or, if later, the date of issuance.
(2) Traditional revenue is derived from the sale of prescription medications to
physicians through channels other than the Internet.
(3) E-commerce revenue is derived primarily from the sale of prescription
medications over the Internet to physicians and also includes revenue from
software license fees, computer hardware sales and leases, and related
services.
<TABLE>
<CAPTION>
September 30, 1999
-----------------------
Actual As Adjusted (1)
------- ---------------
<S> <C> <C>
Balance Sheet Data:
Cash and marketable securities.......................... $63,089 $96,356
Working capital......................................... 65,111 98,378
Total assets............................................ 78,947 112,214
Long-term debt, net of current portion.................. 59 59
Total stockholders' equity.............................. 71,856 105,123
</TABLE>
- -------
(1) The consolidated balance sheet data at September 30, 1999, as adjusted,
gives effect to the sale of 692,000 shares at an assumed initial price to
the public of $51.50 per share, after deducting the underwriting discount
and estimated offering expenses payable by us.
5
<PAGE>
RISK FACTORS
You should carefully consider the risks and uncertainties described below
and other information in this prospectus before deciding to invest in our
common stock. These are not the only risks and uncertainties that we face.
Additional risks and uncertainties that we do not currently know about or that
we currently believe are immaterial may also harm our business operations. If
any of these risks or uncertainties occurs, it could have a material adverse
effect on our business, the trading price of our common stock could decline and
you could lose all or part of your investment.
Risks Related to Our Company
If physicians do not accept our products and services, our growth will be
impaired.
Our business model depends on our ability to sell our TouchScript system to
physicians and other healthcare providers and to generate usage by a large
number of physicians. We have not achieved this goal with previous or currently
available versions of our software. Physician acceptance of our products and
services will require physicians to adopt different behavior patterns and new
methods of conducting business and exchanging information. We cannot assure you
that physicians will integrate our products and services into their office work
flow or that participants in the pharmaceutical healthcare market will accept
our products and services as a replacement for traditional methods of
conducting pharmaceutical healthcare transactions. Achieving market acceptance
for our products and services will require substantial marketing efforts and
the expenditure of significant financial and other resources to create
awareness and demand by participants in the pharmaceutical healthcare industry.
If we fail to achieve broad acceptance of our products and services by
physicians and other healthcare participants or to position our services as a
preferred method for pharmaceutical healthcare delivery, our prospects for
growth will be diminished.
Because our business model is new and unproven, our operating history is not
indicative of our future performance and our business is difficult to evaluate.
Because we have not yet successfully implemented our business model, we do
not have an operating history upon which you can evaluate our prospects, and
you should not rely upon our past performance to predict our future
performance. We sold our pharmacy benefit management business in March 1999.
Revenue from this discontinued operation was $42,225,000 in 1996, $44,719,000
in 1997 and $52,866,000 in 1998, which exceeded revenue from continuing
operations in each of those years. For the year ended December 31, 1998, we
generated 93.4% 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 and 81.5% for the nine months ended September 30, 1999. Accordingly, our
operating history is not indicative of our future performance under our new
business model. In attempting to implement our business model, we are
significantly changing our business operations, sales and implementation
practices, customer service and support operations and management focus. We are
also facing new risks and challenges, including a lack of meaningful historical
financial data upon which to plan future budgets, the need to develop strategic
relationships and other risks described below.
We have a substantial accumulated deficit because of our operating losses and
may never be profitable.
At September 30, 1999, we had an accumulated deficit of $57,038,000, and we
expect to continue to incur significant operating losses and that our operating
losses will continue to increase as we invest in the growth of our business and
the implementation of our business strategy. 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.
6
<PAGE>
If we are unable to maintain existing relationships and create new
relationships with managed care payers, our prospects for growth will suffer.
We rely on managed care organizations to reimburse our physician customers
for prescription medications dispensed in their offices. While many of the
leading managed care payers and pharmacy benefit managers currently reimburse
our physicians for in-office dispensing, none of these payers is under a long-
term obligation to do so. If we are unable to increase the number of managed
care payers that reimburse for in-office dispensing, or if some or all of the
payers who currently reimburse physicians decline to do so in the future,
utilization of our products and, therefore, our growth will be impaired.
If we are unable to successfully introduce new products, our business prospects
will be impaired.
The successful implementation of our business model depends on our ability
to introduce new products and to introduce these new products on schedule. See
"Business--Products and Services" and "--Product Development and Technology."
We cannot assure you that we will be able to introduce new products or our
products currently under development on schedule, or at all. In addition, early
releases of software often contain errors or defects. We cannot assure you
that, despite our extensive testing, errors will not be found in our new
product releases and services before or after commercial release, which would
result in product redevelopment costs and loss of, or delay in, market
acceptance. A failure by us to introduce planned products or other new products
or to introduce these products on schedule could have a material adverse effect
on our business prospects.
Our business will not be successful unless we establish and maintain strategic
relationships.
To be successful, we must establish and maintain strategic relationships
with leaders in a number of healthcare and Internet industry segments. This is
critical to our success because we believe that these relationships will enable
us to:
. extend the reach of our products and services to a larger number of
physicians and to other participants in the healthcare industry;
. develop and deploy new products;
. further enhance the Allscripts brand; and
. generate additional revenue.
Entering into strategic relationships is complicated because some of our
current and future strategic partners may decide to compete with us in some or
all of our markets. In addition, we may not be able to establish relationships
with key participants in the healthcare industry if we have relationships with
their competitors. Moreover, many potential strategic partners have resisted,
and may continue to resist, working with us until our products and services
have achieved widespread market acceptance.
Once we have established strategic relationships, we will depend on our
partners' ability to generate increased acceptance and use of our products and
services. To date, we have established only a limited number of strategic
relationships, and these relationships are in the early stages of development.
We have limited experience in establishing and maintaining strategic
relationships with healthcare and Internet industry participants. If we lose
any of these strategic relationships or fail to establish additional
relationships, or if our strategic relationships fail to benefit us as
expected, we may not be able to execute our business plan, and our business
will suffer.
If potential customers take a long time to evaluate the purchase of our
products and services, we could incur additional selling expenses and require
additional working capital.
The length of the selling cycle for our current TouchScript product depends
on a number of factors, including the nature and size of the potential customer
and the extent of the commitment being made by
7
<PAGE>
the potential customer, and is difficult to predict. Because we are focusing
our marketing efforts on large healthcare organizations, the sale and
implementation process has generally been lengthy due to these organizations'
complex decision-making processes. If potential customers take longer than we
expect to decide whether to purchase our solutions, our selling expenses could
increase, and we may need to raise additional capital sooner than we would
otherwise need to.
If we cannot keep pace with advances in technology, our business could be
harmed.
If we cannot adapt to changing technologies, our products and services may
become obsolete, and our business could suffer. Because the Internet and
healthcare information markets are characterized by rapid technological change,
we may be unable to anticipate changes in our current and potential customers'
requirements that could make our existing technology obsolete. Our success will
depend, in part, on our ability to continue to enhance our existing products
and services, develop new technology that addresses the increasingly
sophisticated and varied needs of our prospective customers, license leading
technologies and respond to technological advances and emerging industry
standards and practices on a timely and cost-effective basis. The development
of our proprietary technology entails significant technical and business risks.
We may not be successful in using new technologies effectively or adapting our
proprietary technology to evolving customer requirements or emerging industry
standards.
Our future success depends upon our ability to grow, and if we are unable to
manage our growth effectively, we may incur unexpected expenses and be unable
to meet our customers' requirements.
We will need to expand our operations if we successfully achieve market
acceptance for our products and services. We cannot be certain that our
systems, procedures, controls and existing space will be adequate to support
expansion of our operations. Our future operating results will depend on the
ability of our officers and key employees to manage changing business
conditions and to implement and improve our technical, administrative,
financial control and reporting systems. An unexpectedly large increase in the
volume or pace of traffic on our Web site or the number of orders placed by
customers may require us to expand and further upgrade our technology. We may
not be able to project the rate or timing of increases in the use of our Web
site accurately or to expand and upgrade our systems and infrastructure to
accommodate such increases. Difficulties in managing any future growth could
have a significant negative impact on our business because we may incur
unexpected expenses and be unable to meet our customers' requirements.
If we lose the services of our key personnel, we may be unable to replace them,
and our business could be negatively affected.
Our success depends in large part on the continued service of our
management and other key personnel and our ability to continue to attract,
motivate and retain highly qualified employees. In particular, the services of
Glen E. Tullman, our Chairman and Chief Executive Officer, and David B. Mullen,
our President and Chief Financial Officer, are integral to the execution of our
business strategy. If one or more of our key employees leaves Allscripts, we
will have to find a replacement with the combination of skills and attributes
necessary to execute our strategy. Because competition for skilled employees is
intense, and the process of finding qualified individuals can be lengthy and
expensive, we believe that the loss of the services of key personnel could
negatively affect our business, financial condition and results of operations.
If we are unable to implement our acquisition strategy successfully, our
ability to expand our product and service offerings and our customer base may
be limited.
We regularly evaluate acquisition opportunities. Acquisitions involve
numerous risks, including difficulties in the assimilation of the operations,
services, products and personnel of the acquired company,
8
<PAGE>
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 writeoff of software development costs and the
amortization of expenses related to goodwill and other intangible assets, all
of which could have a material adverse effect on our business, financial
condition, operating results and prospects. We have taken, and in the future
may take, charges against earnings in connection with acquisitions. The costs
and expenses incurred may exceed the estimates upon which we based these
charges.
Our business depends on our intellectual property rights, and if we are unable
to protect them, our competitive position will suffer.
Our business plan is predicated on our proprietary systems and technology,
including TouchScript. We protect our proprietary rights through a combination
of trademark, trade secret and copyright law, confidentiality agreements and
technical measures. We generally enter into non-disclosure agreements with our
employees and consultants and limit access to our trade secrets and technology.
We cannot assure you that the steps we have taken will prevent misappropriation
of technology. Misappropriation of our intellectual property would have a
material adverse effect on our competitive position. In addition, we may have
to engage in litigation in the future to enforce or protect our intellectual
property rights or to defend against claims of invalidity, and we may incur
substantial costs as a result.
If we are deemed to infringe on the proprietary rights of third parties, we
could incur unanticipated expense and be prevented from providing our products
and services.
We could be subject to intellectual property infringement claims as the
number of our competitors grows and the functionality of our applications
overlaps with competitive products. 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 infringement claims will not be asserted against us
or that those claims will be unsuccessful. We could incur substantial costs and
diversion of management resources defending any infringement claims.
Furthermore, a party making a claim against us could secure a judgment awarding
substantial damages, as well as injunctive or other equitable relief that could
effectively block our ability to provide products or services. In addition, we
cannot assure you that licenses for any intellectual property of third parties
that might be required for our products or services will be available on
commercially reasonable terms, or at all.
Factors beyond our control could cause interruptions in our operations, which
would adversely affect our reputation in the marketplace and our results of
operations.
To succeed, we must be able to operate our systems without interruption.
Certain of our communications and information services are provided through our
service providers. Our operations are
9
<PAGE>
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 damage our reputation in the marketplace
and have a negative impact on our results of operations.
We may be liable for use of data we provide.
We provide data for use by healthcare providers in treating patients.
Third-party contractors provide us with most of this data. Although no claims
have been brought against us alleging injuries related to the use of our data,
claims may be made in the future. While we maintain product liability insurance
coverage in an amount that we believe is sufficient for our business, we cannot
assure you that this coverage will prove to be adequate or will continue to be
available on acceptable terms, if at all. A claim brought against us that is
uninsured or under-insured could materially harm our financial condition.
If our security is breached, we could be subject to liability, and people could
be deterred from using our services.
The difficulty of securely transmitting confidential information over the
Internet has been a significant barrier to conducting e-commerce and engaging
in sensitive communications over the Internet. Our strategy relies on the use
of the Internet to transmit confidential information. We believe that any well-
publicized compromise of Internet security may deter people from using the
Internet for these purposes, and from using our system to conduct transactions
that involve transmitting confidential healthcare information.
It is also possible that third parties could penetrate our network security
or otherwise misappropriate patient information and other data. If this
happens, our operations could be interrupted, and we could be subject to
liability. We may have to devote significant financial and other resources to
protect against security breaches or to alleviate problems caused by breaches.
We could face financial loss, litigation and other liabilities to the extent
that our activities or the activities of third-party contractors involve the
storage and transmission of confidential information like patient records or
credit information. In addition, we could incur additional expenses if new
regulations regarding the use of personal information are introduced.
If we are unable to obtain additional financing for our future needs, our
growth prospects and our ability to respond to competitive pressures will be
impaired.
We expect the net proceeds to us 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.
10
<PAGE>
If our content and service providers fail to perform adequately, our reputation
in the marketplace and results of operations could be adversely affected.
We depend on independent content and service providers for many of the
benefits we provide through our TouchScript system, including the maintenance
of managed care pharmacy guidelines, drug interaction reviews and the routing
of transaction data to third-party payers. Any problems with our providers that
result in interruptions of our services or a failure of our services to
function as desired could damage our reputation in the marketplace and have a
material adverse effect on our results of operations. We may have no means of
replacing content or services on a timely basis or at all if they are
inadequate or in the event of a service interruption or failure.
We also expect to rely on independent content providers for the majority of
the clinical, educational and other healthcare information that we plan to
provide on our Web site. In addition, we will depend on our content providers
to deliver high quality content from reliable sources and to continually
upgrade their content in response to demand and evolving healthcare industry
trends. Any failure by these parties to develop and maintain high quality,
attractive content could impair the value of the Allscripts brand and our
results of operations.
If third-party payers force us to reduce our prices, our results of operations
could suffer.
We expect to derive a majority of our revenue from the sale, including over
the Internet, of prepackaged medications to physicians. We may be subject to
pricing pressures with respect to our future sales of prepackaged medications
arising from various sources, including practices of managed care organizations
and any governmental action requiring or allowing pharmaceutical reimbursement
under Medicare. If our pricing of prepackaged medications experiences
significant downward pressure, our business will be less profitable. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
If we incur costs exceeding our insurance coverage in lawsuits pending against
us or that are brought against us in the future, it could materially adversely
affect our financial condition.
We are a defendant in numerous multi-defendant lawsuits involving the
manufacture and sale of dexfenfluramine, fenfluramine and phentermine. The
plaintiffs in these cases claim injury as a result of ingesting a combination
of these weight-loss drugs. While we do not believe we have any significant
liability in these lawsuits, in the event we were found liable in these
lawsuits or in any other lawsuits filed against us in the future in connection
with these weight-loss drugs or otherwise, and if our insurance coverage were
inadequate to satisfy these liabilities, it could have a material adverse
effect on our financial condition. See "Business--Legal Proceedings."
If our principal supplier fails or is unable to perform its contract with us,
we may be unable to meet our commitments to our customers.
We currently purchase a majority of the medications that we repackage from
McKesson HBOC, Inc. We have an agreement with this supplier that expires in
September 2001. If we do not meet certain minimum purchasing requirements,
McKesson may increase the prices that we pay under this agreement, in which
case we would have the option to terminate the agreement. Although we believe
that there are a number of other sources of supply of medications, if McKesson
fails or is unable to perform under our agreement, particularly at certain
critical times during the year, we may be unable to meet our commitments to our
customers, and our relationships with our customers could suffer.
Year 2000 problems may adversely affect us.
We have not experienced any Year 2000-related problems with our medication
management products or with third-party software, hardware or services on which
we rely. It is possible, however, that
11
<PAGE>
Year 2000 compliance problems exist that we cannot yet identify. If problems
arise and we fail to address them on a timely basis, it could result in lost
revenue, increased operating costs, the loss of customers and other business
interruptions. As of December 31, 1999, we had incurred costs that we believe
are allocable to the Year 2000 problem of approximately $175,000. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Year 2000."
Because of anti-takeover provisions under Delaware law and in our Certificate
of Incorporation and By-laws, takeovers may be more difficult, possibly
preventing you from obtaining optimal share price.
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
provide for a classified Board of Directors and 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 are subject to the anti-takeover
provisions of Section 203 of the Delaware General Corporation Law, which could
have the effect of delaying or preventing a change in control of Allscripts.
See "Description of Capital Stock--Preferred Stock" and "--Certain Limited
Liability, Indemnification and Anti-takeover Provisions."
Risks Related to Our Industry
If the healthcare environment becomes more restrictive, or we do not comply
with healthcare regulations, our existing and future operations may be
curtailed, and we could be subject to liability.
As a participant in the healthcare industry, our operations and
relationships are regulated by a number of federal, state and local
governmental entities. Because our business relationships with physicians are
unique, and the healthcare electronic commerce industry as a whole is
relatively young, the application of many state and federal regulations to our
business operations is uncertain. It is possible that a review of our business
practices or those of our customers by courts or regulatory authorities could
result in a determination that could adversely affect us. In addition, the
healthcare regulatory environment may change in a way that restricts our
existing operations or our growth. See "Business--Governmental Regulation."
. Electronic Prescribing. The use of our TouchScript software by physicians
to perform electronic prescribing, electronic routing of prescriptions to
pharmacies and dispensing is governed by state and federal law. The
application of these laws to our business is uncertain because many
existing laws and regulations, when enacted, did not anticipate methods
of e-commerce now being developed. The laws of many jurisdictions neither
specifically permit nor specifically prohibit electronic transmission of
prescription orders. Future regulation of these areas may adversely
affect us.
. Licensure. As a repackager and distributor of drugs, we are subject to
regulation by and licensure with the United States Food and Drug
Administration, the United States Drug Enforcement Administration and
various state agencies that regulate wholesalers or distributors. Among
the regulations applicable to our repackaging operation are the FDA's
"good manufacturing practice" regulations. Because the FDA's good
manufacturing practice regulations were designed to govern the
manufacture, rather than the repackaging, of drugs, we face legal
uncertainty concerning the application of some aspects of these
regulations and of the standards that the FDA will enforce. Both the FDA
and the DEA have 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. Along
with many other drug repackagers, we have received an FDA warning letter
alleging violations of FDA regulations, including the good manufacturing
practice regulations.
12
<PAGE>
We have implemented procedures intended to address many of the concerns
raised by the FDA in that letter and believe that our compliance with FDA
regulations meets or exceeds the standard in the drug repackaging
industry. We also believe that we possess all licenses required to operate
our business. If, however, we do not maintain all necessary licenses, or
the FDA decides to substantially modify the manner in which it has
historically enforced its good manufacturing practice regulations against
drug repackagers or the FDA or DEA finds any violations during one of
their periodic inspections, we could be subject to liability, and our
operations could be shut down.
. Physician Dispensing. Physician dispensing of medications for profit is
allowed in all states except Massachusetts and Utah and is prohibited,
subject to extremely limited exceptions, in Montana and Texas. 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.
The American Medical Association, through certain of its constituent
bodies, has historically taken inconsistent positions on physician
dispensing, alternately discouraging and supporting it. While the AMA's
Council on Ethical and Judicial Affairs in 1986 discouraged physicians
from regularly dispensing prescription pharmaceuticals, in 1987 the AMA's
House of Delegates adopted the following resolution: "Resolved, that the
American Medical Association support the physician's right to dispense
drugs and devices when it is in the best interest of the patient and
consistent with the AMA's ethical guidelines." This position was
reaffirmed by the AMA House of Delegates in January 1997. The AMA's
ethical guidelines provide in relevant part that "[p]hysicians may
dispense drugs within their office practices provided there is no
resulting exploitation of patients." While two recent Reports of the
Council on Ethical and Judicial Affairs oppose the in-office sale of
health-related products by physicians, these reports specifically exclude
the sale of prescription items from their scope, although they do refer to
the Council's 1986 Report.
. Stark II. Congress enacted significant prohibitions against physician
self-referrals in the Omnibus Budget Reconciliation Act of 1993. This
law, commonly referred to as "Stark II," applies to physician dispensing
of outpatient prescription drugs that are reimbursable by Medicare or
Medicaid. We believe that the physicians who use our TouchScript system
or dispense drugs distributed by us are doing so in material compliance
with Stark II, either pursuant to an in-office ancillary services
exception or another applicable exception. While our physician customers
currently do not, to any significant degree, dispense drugs that are
reimbursable by Medicare or Medicaid, if they were to and if it were
determined that the physicians who use our system or dispense
pharmaceuticals purchased from us were not in compliance with Stark II,
it could have a material adverse effect on our business, results of
operations and prospects.
. Drug Distribution. As a distributor of prescription drugs to physicians,
we and our customers are also subject to the federal anti-kickback
statute, which applies to Medicare, Medicaid and other state and federal
programs. The statute prohibits the solicitation, offer, payment or
receipt of remuneration in return for referrals or the purchase of goods,
including drugs, covered by the programs. The anti-kickback law provides
a number of exceptions or "safe harbors" for particular types of
transactions. We believe that our arrangements with our customers are in
material compliance with the anti-kickback statute and relevant safe
harbors. Many states have similar fraud and abuse laws, and we believe
that we are in material compliance with those laws. If, however, it were
determined that we were not in compliance with those laws, we could be
subject to liability, and our operations could be curtailed.
. Claims Transmission. As part of our services provided to physicians, our
system will electronically transmit claims for prescription medications
dispensed by a physician to many patients' managed care organizations and
payers for immediate approval and reimbursement. Federal law provides
that it is both a civil and a criminal violation for any person to submit
a claim to any payer, including, for example, Medicare, Medicaid and all
private health plans or managed
13
<PAGE>
care plans seeking payment for any services or products that have not
been provided to the patient or overbilling for services or products
provided. We have in place policies and procedures that we believe assure
that all claims that are transmitted by our system are accurate and
complete, provided that the information given to us by our customer is
also accurate and complete. If, however, we do not follow those
procedures and policies, or they are not sufficient to prevent inaccurate
claims from being submitted, we could be subject to liability.
. Patient Information. Both existing and proposed federal and state laws
and regulations regulate the disclosure of confidential medical
information, including information regarding conditions like AIDS,
substance abuse and mental illness. As part of the operation of our
business, our customers may provide to us patient-specific information
related to the prescription drugs that our customers prescribe to their
patients. We have policies and procedures that we believe assure
compliance with all federal and state confidentiality requirements for
handling of confidential medical information we receive. If, however, we
do not follow those procedures and policies, or they are not sufficient
to prevent the unauthorized disclosure of confidential medical
information, we could be subject to liability, fines and lawsuits, or our
operations could be shut down.
In June 1999, President Clinton announced that he intended to propose broad
Medicare reform legislation that would make available to Medicare recipients a
subsidized prescription drug benefit. While no federal price controls are
included in the current version of the proposed legislation, any legislation
that reduces physician incentives to dispense medications in their offices
could adversely affect physician acceptance of our products. We cannot predict
whether or when future health care reform initiatives at the federal or state
level or other initiatives affecting our business will be proposed, enacted or
implemented or what impact such initiatives may have on our business, financial
condition or results of operations.
If the new and rapidly evolving Internet and electronic healthcare information
markets fail to develop as quickly as expected, our business prospects will be
impaired.
The Internet and electronic healthcare information markets are in the early
stages of development and are rapidly evolving. A number of market entrants
have introduced or developed products and services that are competitive with
one or more components of the solutions we offer. In addition, several
companies have recently introduced or announced their intention to introduce
electronic prescribing products. We expect that additional companies will
continue to enter these markets. In new and rapidly evolving industries, there
is significant uncertainty and risk as to the demand for, and market acceptance
of, recently introduced products and services. Because the markets for our
products and services are new and evolving, we are not able to predict the size
and growth rate of the markets with any certainty. We cannot assure you that
markets for our products and services will develop or that, if they do, they
will be strong and continue to grow at a sufficient pace. If markets fail to
develop, develop more slowly than expected or become saturated with
competitors, our business prospects will be impaired.
Consolidation in the healthcare industry could adversely affect our business.
Many healthcare industry participants are consolidating to create
integrated healthcare delivery systems with greater market power. As provider
networks and managed care organizations consolidate, competition to provide
products and services like ours will become more intense, and the importance of
establishing relationships with key industry participants will become greater.
These industry participants may try to use their market power to negotiate
price reductions for our products and services. If we were forced to reduce our
prices, our business would become less profitable unless we were able to
achieve corresponding reductions in our expenses.
14
<PAGE>
If the Internet infrastructure does not continue to improve, our ability to use
the Internet on a large scale could be compromised.
If the Internet continues to experience significant growth in the number of
users and the level of use, then the Internet infrastructure may not be able to
continue to support the demands placed on it. The Internet may not prove to be
a viable commercial medium because of inadequate development of the necessary
infrastructure, lack of timely development of complementary products like high
speed modems, delays in the development or adoption of new standards and
protocols required to handle increased levels of Internet activity or increased
government regulation. Because our business plan relies heavily on the
viability of the Internet, our business will suffer if growth of the Internet
does not meet our expectations.
Risks Related to This Offering and Our Stock
The public market for our common stock may be volatile.
The market price of our common stock is 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 an pharmaceutical markets; and
.general market conditions and other factors.
In addition, the stock markets, especially the Nasdaq National Market, have
experienced extreme price and volume fluctuations that have affected the market
prices of equity securities of many technology companies, and Internet-related
companies in particular. These fluctuations have often been unrelated or
disproportionate to operating performance. The trading prices of many
technology companies' stocks are at or near historical highs. We cannot assure
you that these high trading prices will be sustained. These broad market
factors may materially affect the trading price of our common stock. General
economic, political and market conditions like recessions and interest rate
fluctuations may also have an adverse effect on the market price of our common
stock. In the past, following periods of volatility in the market price for a
company's securities, stockholders have often initiated securities class action
litigation. Any securities class action litigation could result in substantial
costs and the diversion of management's attention and resources.
Our quarterly operating results may vary.
Our quarterly operating results have varied in the past, and we expect that
they will continue to vary in future periods depending on a number of factors,
including seasonal variances in demand for our products and services, the
sales, installation and implementation cycles for our TouchScript system and
other factors described in this "Risk Factors" section of the prospectus. For
example, all other factors aside, our sales of prepackaged medications have
historically been highest in the fall and winter months. We expect to increase
activities and spending in substantially all of our operational areas. We base
our expense levels in part upon our expectations concerning future revenue, and
these expense levels are relatively fixed in the short term. If we have lower
revenue, we may not be able to reduce our spending in the short term in
response. Any shortfall in revenue would have a direct impact on our results of
operations. For these and other reasons, we may not meet the earnings estimates
of securities analysts or investors, and our stock price could suffer.
15
<PAGE>
We may have substantial sales of our common stock after the offering that could
cause our stock price to fall.
Our common stock began trading on the Nasdaq National Market on July 23,
1999; however, to date there have been a limited number of shares trading in
the public market. This offering will result in additional shares of our common
stock being available on the open market. In addition, a substantial number of
shares will become eligible for public sale at various times thereafter. Sales
of a substantial number of shares of our common stock in this offering and
thereafter could cause our stock price to fall. See "Underwriting" and "Shares
Eligible for Future Sale."
Because our executive officers and directors have substantial control of our
voting stock, takeovers not supported by them will be more difficult, possibly
preventing you from obtaining optimal share price.
The control of a significant amount of our stock by insiders could
adversely affect the market price of our common stock. After this offering, our
executive officers and directors will beneficially own or control 10,384,579
shares or 40.8% of the outstanding common stock. If our executive officers and
directors choose to act or vote together, they will have the power to influence
significantly all matters requiring the approval of our stockholders, including
the election of directors and the approval of significant corporate
transactions. Without the consent of these stockholders, we could be prevented
from entering into transactions that could be beneficial to us. For more
information, see "Management," "Principal Stockholders" and "Description of
Capital Stock."
Investors will suffer immediate and substantial dilution.
The initial price to public will be substantially higher than the net
tangible book value per share of common stock. If we sell 692,000 shares in the
offering at an assumed initial price to public of $51.50 per share, our net
tangible book value per share will be $4.11, which is $47.39 below the per
share initial price to public. 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."
16
<PAGE>
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve risks and
uncertainties, including those discussed above and elsewhere in this
prospectus. We develop forward-looking statements by combining currently
available information with our beliefs and assumptions. These statements often
contain words like believe, expect, anticipate, intend, contemplate, seek,
plan, estimate or similar expressions. Forward-looking statements do not
guarantee future performance. Recognize these statements for what they are and
do not rely on them as facts.
USE OF PROCEEDS
Our net proceeds from the sale of the 692,000 shares offered by us are
estimated by us to be approximately $33,267,000, assuming an initial price to
public of $51.50 per share, after deducting the underwriting discount and
estimated offering expenses payable by us, or $47,906,000 if the underwriters
exercise the over-allotment option in full. We will not receive any of the
proceeds from the sale of shares by the selling stockholders. See "Principal
and Selling Stockholders."
We will use 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.
PRICE RANGE OF COMMON STOCK
Our common stock has been quoted on the Nasdaq National Market under the
symbol "MDRX" since July 23, 1999. Prior to that time, there was no public
market for the common stock. The following table sets forth, for the periods
indicated, the high and low closing prices per share of the common stock as
reported on the Nasdaq National Market.
<TABLE>
<CAPTION>
High Low
------ ------
<S> <C> <C>
Year Ended December 31, 1999
Third Quarter (since July 23, 1999)............................ $19.75 $12.38
Fourth Quarter................................................. 49.50 10.88
Year Ended December 31, 2000
First Quarter (through January 26, 2000)....................... 57.56 45.00
</TABLE>
On January 26, 2000, the last reported sale price of the common stock on
the Nasdaq National Market was $51.50. As of January 26, 2000 there were
approximately 242 stockholders of record.
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.
17
<PAGE>
CAPITALIZATION
The following table shows our capitalization as of September 30, 1999 on an
actual and as adjusted basis. The "actual" column reflects our capitalization
as of September 30, 1999 on an historical basis, without any adjustments to
reflect subsequent or anticipated events.
The "as adjusted" column reflects our capitalization as of September 30,
1999 with adjustments for the receipt of the estimated net proceeds from our
sale of the 692,000 shares offered by us at an assumed initial price to public
of $51.50 per share, after deducting the underwriting discount and estimated
offering expenses.
Neither of the columns shown below reflects the following:
.the 126,586 shares of common stock issuable upon exercise of outstanding
warrants as of September 30, 1999, all of which were exercisable as of
that date at a weighted average exercise price of $0.83 per share. See
"Description of Capital Stock--Warrants" and "Shares Eligible for Future
Sale;"
.the 3,517,304 shares reserved for issuance under our stock option plan, of
which 2,461,791 shares were subject to outstanding options as of
September 30, 1999. Of those 2,461,791 shares, 1,029,433 were exercisable
as of that date. See "Management--Employee Benefit Plans--Amended and
Restated 1993 Stock Incentive Plan."
The table below should be read in conjunction with our balance sheet as of
September 30, 1999 and the related notes, which are included elsewhere in this
prospectus:
<TABLE>
<CAPTION>
September 30, 1999
---------------------
Actual As Adjusted
-------- -----------
(In thousands)
<S> <C> <C>
Long-term debt, net of current portion................... $ 59 $ 59
-------- --------
Stockholders' equity:
Preferred stock, $1.00 par value; 1,000,000 shares
authorized, no shares issued and outstanding.......... -- --
Common stock: $0.01 par value, 75,000,000 shares
authorized, 24,033,596 and 24,725,596 shares issued,
actual and as adjusted................................ 240 247
Treasury stock at cost; 175,121 shares of common stock,
actual and as adjusted................................ (1,463) (1,463)
Unearned compensation.................................. (1,773) (1,773)
Additional paid-in capital............................. 131,890 165,150
Accumulated deficit.................................... (57,038) (57,038)
-------- --------
Total stockholders' equity .......................... 71,856 105,123
-------- --------
Total capitalization............................... $ 71,915 $105,182
======== ========
</TABLE>
18
<PAGE>
DILUTION
Our net tangible book value as of September 30, 1999 was approximately
$67.7 million or $2.84 per share of common stock. Net tangible book value per
share represents the amount of our total tangible assets reduced by the amount
of our total liabilities. 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 692,000 shares of common stock offered by us
at an assumed initial price to public of $51.50 per share, and after deducting
the underwriting discount and estimated offering expenses payable by us, our
net tangible book value at September 30, 1999 would have been approximately
$101.0 million or $4.11 per share of common stock. This represents an immediate
increase in net tangible book value of $1.27 per share to existing shareholders
and an immediate dilution of $47.39 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 price to public per share......................... $51.50
Net tangible book value per share before this offering.......... $2.84
Increase per share attributable to new investors................ 1.27
-----
Net tangible book value per share after this offering (as
adjusted)........................................................ 4.11
------
Dilution per share to new investors............................... $47.39
======
</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 September 30, 1999, there were
outstanding options to purchase 2,461,791 shares of common stock at a weighted
average exercise price of $2.50 per share. On that date, options to purchase
1,029,433 shares were exercisable. The above information also assumes no
exercise of outstanding warrants. As of September 30, 1999, there were
outstanding warrants to purchase 126,586 shares of common stock at a weighted
average exercise price of $0.83 per share, all of which were exercisable. Based
on the net tangible book value of $4.11 per share after this offering and the
assumed initial price to public of $51.50 per share, dilution to new investors
would be $47.55 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.
19
<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 September 30, 1999 and the statements of operations data for the nine-month
periods ended September 30, 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 in March 1999 as a
discontinued operation. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
<TABLE>
<CAPTION>
Nine Months
Ended
Year Ended December 31, September 30,
--------------------------------------------- ----------------
1994 1995 1996 1997 1998 1998 1999
------- ------- ------- -------- -------- ------- -------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Statements of Operations
Data:
Revenue................. $32,635 $33,310 $33,462 $ 30,593 $ 23,682 $18,167 $19,395
Cost of revenue......... 21,606 24,142 23,390 21,117 17,320 13,231 15,394
------- ------- ------- -------- -------- ------- -------
Gross profit............ 11,029 9,168 10,072 9,476 6,362 4,936 4,001
Operating expenses:
Selling, general and
administrative
expenses.............. 10,024 12,427 11,599 13,869 12,658 9,707 13,802
Amortization of
intangibles........... 506 495 529 409 372 279 745
Other operating
expenses.............. 1,210 1,318 1,034 2,568 430 112 319
------- ------- ------- -------- -------- ------- -------
Loss from operations.... (711) (5,072) (3,090) (7,370) (7,098) (5,162) (10,865)
Interest income
(expense), net......... (1,534) (1,005) (1,301) (1,621) (596) (522) 403
Other expense........... (774) 325 (39) -- -- -- --
------- ------- ------- -------- -------- ------- -------
Loss from continuing
operations............. (3,019) (5,752) (4,430) (8,991) (7,694) (5,684) (10,462)
Income (loss) from
discontinued
operations............. 357 1,389 1,489 (1,808) 970 882 642
Gain on sale of
discontinued
operations............. -- -- -- -- -- -- 3,547
------- ------- ------- -------- -------- ------- -------
Loss before
extraordinary items.... (2,662) (4,363) (2,941) (10,799) (6,724) (4,802) (6,273)
Extraordinary loss from
early extinguishment of
debt................... -- -- -- -- (790) (790) --
------- ------- ------- -------- -------- ------- -------
Net loss................ (2,662) (4,363) (2,941) (10,799) (7,514) (5,592) (6,273)
Accretion on mandatory
redeemable preferred
shares and accrued
dividends on preferred
shares................. (326) (923) (923) (923) (2,415) (1,788) (2,198)
------- ------- ------- -------- -------- ------- -------
Net loss attributable to
common stockholders.... $(2,988) $(5,286) $(3,864) $(11,722) $ (9,929) $(7,380) (8,471)
======= ======= ======= ======== ======== ======= =======
Basic and diluted net
loss from continuing
operations per share... $ (8.34) $ (3.84) $ (1.87) $ (3.35) $ (1.66) $ (1.35) $ (1.24)
======= ======= ======= ======== ======== ======= =======
Weighted average shares
used in computing per
share calculation ..... 401 1,737 2,854 2,956 6,076 5,557 10,199
======= ======= ======= ======== ======== ======= =======
Pro forma basic and
diluted net loss from
continuing operations
per share (1).......... $ (1.15) $ (0.70) $ (0.82)
======== ======= =======
Shares used in computing
pro forma basic and
diluted net loss from
continuing operations
per share (1).......... 9,073 8,554 12,797
======== ======= =======
Other Operating Data:
Traditional revenue
(2).................... $32,635 $33,310 $33,462 $ 30,593 $ 22,338 $17,302 $13,807
E-commerce revenue (3).. -- -- -- -- 1,344 865 5,588
------- ------- ------- -------- -------- ------- -------
Revenue................. $32,635 $33,310 $33,462 $ 30,593 $ 23,682 $18,167 $19,395
======= ======= ======= ======== ======== ======= =======
Balance Sheet Data (at
period end):
Cash and marketable
securities............. $ 1,118 $ 673 $ 665 $ 205 $ 718 $63,089
Working capital......... 504 (2,730) 5,443 (3,023) 271 65,111
Total assets............ 25,275 23,701 26,713 19,387 18,920 78,947
Long-term debt, net of
current portion........ 5,033 4,814 15,093 11,276 59 59
Redeemable preferred
shares................. 7,949 8,873 9,796 10,719 32,547 --
Total stockholders'
equity (deficit)....... 1,649 (2,859) (6,700) (18,356) (26,792) 71,856
</TABLE>
20
<PAGE>
- --------
(1) Pro forma basic and diluted net loss from continuing operations per share
information reflects the impact of the conversion of all shares of
convertible preferred stock into common stock upon the closing of our
initial public offering as well as the issuance of 19,958 shares of common
stock upon the closing of our initial public offering pursuant to a
contingent payment obligation on basic and diluted net loss per share as of
the beginning of the year, or date of issuance, if later, using the if-
converted method. In addition, the unaudited pro forma net loss per share
information excludes accretion and accrued dividends on redeemable
preferred shares as redemption of these shares, which occurred upon the
closing of our initial public offering, is assumed to have occurred as of
the beginning of the year or, if later, the date of issuance.
(2) Traditional revenue is derived from the sale of prescription medications to
physicians through channels other than the Internet.
(3) E-commerce revenue is derived primarily from the sale of prescription
medications over the Internet to physicians and also includes revenue from
software license fees, computer hardware sales and leases, and related
services.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
You should read the following discussion and analysis together with
"Selected Consolidated Financial Data" and our consolidated financial
statements and related notes included in this prospectus. This discussion
contains certain forward-looking statements that involve risks, uncertainties
and assumptions. You should read the cautionary statements made in this
prospectus as applying to related forward-looking statements wherever they
appear in this prospectus. Our actual results may be materially different from
the results we discuss in the forward-looking statements due to certain
factors, including those discussed in "Risk Factors" and other sections of this
prospectus.
Overview
We provide physicians with Internet and client/server medication management
solutions designed to improve the quality and cost effectiveness of
pharmaceutical healthcare.
From our inception in 1986 through 1996, we focused almost exclusively on
the sale of prepackaged medications to physicians, in particular those with a
high percentage of fee-for-service patients. The advent of managed prescription
benefit programs required providers to obtain reimbursement for medications
dispensed from managed care organizations rather than directly from their
patients. This new reimbursement methodology made it more difficult for our
physician customers to dispense medications to their patient base.
In 1997, under the direction of our new executive management team, we
focused our efforts on the information aspects of medication management,
including the development of technology tools necessary for electronic
prescribing, routing of prescription information and submission of medication
claims for managed care reimbursement. In January 1998, we introduced the first
version of TouchScript that fully incorporated these features. At the same
time, we redirected our sales and marketing efforts away from our traditional
fee-for-service customer base to physicians who have a large percentage of
managed care patients. We recognized that there is a larger market opportunity
among physicians whose patients are covered by managed care plans because the
portion of prescriptions covered by managed care plans is increasing relative
to the portion of fee-for-service prescriptions. Further, we believe that our
technology can give us a competitive advantage where more patients'
prescriptions are covered by managed care plans because our products streamline
the process by which physicians, managed care organizations and patients
interact. In addition, we believe that the managed care market provides us with
the opportunity to realize higher margins on our software products. To
implement our strategy fully, we expect to continue to increase the number of
our sales, sales support, product development and customer service personnel
significantly, and, accordingly, we expect our operating expenses to continue
to increase substantially.
As our strategic focus has shifted to medication management products and
solutions, the human resources needed to manage, implement and support our
strategy have been changing as well. Consequently, we have continually assessed
the skills and experience of our workforce to ensure an appropriate match with
our business objectives. This led to a significant turnover in staff since 1996
through reductions in force, employee terminations and employee attrition. The
costs associated with this reorganization consisted primarily of severance
costs related to the reductions in force and employee terminations and have
been recorded as other operating expenses. This reorganization has helped align
our staffing with our strategic focus and has reduced associated administrative
expenses.
We currently derive our revenue from the sale of prepackaged medications,
software licenses, computer hardware and related services. For the twelve
months ended December 31, 1998 and the nine months ended September 30, 1999,
sales of prepackaged medications represented 97.8% and 95.7%, respectively, of
total revenue.
22
<PAGE>
Our shift in focus to physicians who require technology-based services to
operate successfully in a managed care environment and away from physicians
with a high percentage of fee-for-service patients is reflected in the
composition of our revenue, as depicted in the following table:
<TABLE>
<CAPTION>
Quarter Ended
-----------------------------------------------------------
1998 1999
--------------------------------- -------------------------
March 31 June 30 Sept. 30 Dec. 31 March 31 June 30 Sept. 30
-------- ------- -------- ------- -------- ------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Traditional revenue..... $6,101 $5,807 $5,394 $5,036 $5,235 $4,537 $4,035
E-commerce revenue...... 250 249 366 479 793 1,855 2,940
------ ------ ------ ------ ------ ------ ------
Total revenue......... $6,351 $6,056 $5,760 $5,515 $6,028 $6,392 $6,975
====== ====== ====== ====== ====== ====== ======
</TABLE>
Traditional revenue is derived from the sale of prescription medications
and other medical products to physicians through non-Internet channels. We
expect traditional revenue to represent a decreasing percentage of total
revenue in the future. E-commerce revenue includes the sale of prescription
medications over the Internet as well as technology-related revenue for
software license fees, computer hardware sales and leases and related services.
For the nine months ended September 30, 1999, sales of prepackaged medications
represented 88.2% of e-commerce revenue. For the nine months ended September
30, 1999, approximately 14% of e-commerce revenue represented a shift of
traditional medication sales to Internet or TouchScript ordering. While we
expect a portion of future e-commerce revenue to continue to represent a
shifting of traditional revenue, we anticipate that most of the future growth
in e-commerce revenue will be generated by physician practice groups that are
not currently our customers. Factors that we expect will attract future
customers include an interest in physician dispensing, a desire to minimize
financial risk imposed by managed care payers with respect to medications that
they prescribe, and concern about the potential liability associated with
medication errors.
As of September 30, 1999, we operated in one segment--the sale of
medication management products, which currently consist principally of
TouchScript and prepackaged medications. Our two other product categories,
Internet products and services and information products, currently generate an
immaterial amount of revenue. Nevertheless, these product categories are
central to our operating strategy. We anticipate that if these product
categories grow, the way our business is organized will change to reflect the
increasing importance of each of these product categories. If this occurs, we
may determine that we operate in multiple segments and be required to make
additional disclosure about each.
We believe that managed care prescription programs will continue to cover
an increasing percentage of patients in the foreseeable future. This trend will
have the effect of reducing the dispensing opportunities of our traditional
dispensing customers because of their inability to submit claims electronically
for reimbursement by managed care payers. This reduction in dispensing
opportunities will reduce the revenue that we have historically recognized from
these customers. Additionally, managed care programs impose reduced
reimbursement rates for the medications dispensed to their plan participants,
thus providing us with a dollar margin per prescription dispensed that is lower
than we have historically experienced. Because TouchScript enables physicians
to submit claims electronically for reimbursement by managed care payers, a
large portion of the medications dispensed by our TouchScript customers are to
managed care patients. Accordingly, we expect that the fastest growing portion
of our business will provide margins with respect to the sale of prepackaged
medications that are lower than we have historically experienced.
The length of the selling cycle for our current TouchScript product
generally ranges from one to six months and depends on a number of factors,
including the nature and size of the potential customer and the extent of the
commitment being made by the potential customer. Our customers currently
consist of physician practices that range in size from a single physician in
one location to as many as 140 physicians practicing in multiple locations.
Because we are now focusing our marketing efforts on large healthcare
organizations, such as physician practice management organizations, hospital-
owned physician
23
<PAGE>
groups and independent practice associations, the sale and implementation
process has generally taken longer due to these organizations' more complex
decision-making processes. Typical TouchScript license agreements have a term
of three years and provide for up-front fees for installation services and
monthly subscription fees, which entitle the customer, at no additional charge,
to software upgrades, periodic on-site maintenance and telephone support to the
extent that these are made generally available. Some contracts include a 90-day
evaluation period.
Medications sold to physicians are billed upon shipment, generally with 30-
day payment terms. We collect, on behalf of TouchScript customers, amounts due
to them from managed care organizations for medications provided to patients in
the office. These payments are generally collected within 15 days after the
medications are dispensed and are offset against amounts owed to us by
physicians. We do not believe that this arrangement has a material impact on
our overall collection cycle or liquidity.
We recognize software fees ratably over the term of the license agreement,
typically 36 months, and revenue from the sale of computer hardware when the
hardware is delivered, but in each case no revenue is recognized where it is
refundable or subject to the performance of future obligations. We recognize
medication revenue upon shipment of the medications and revenue from the
provision of installation services when the services are performed.
We do not believe that inflation has had a material effect on our results
of operations.
In the twelve months ended December 31, 1998, we recorded total unearned
stock compensation of approximately $407,000 in connection with stock options
granted during the period. Such amount is being amortized to expense over the
vesting periods of the applicable options, resulting in approximately $176,000
of expense for the twelve months ended December 31, 1998, which is included in
selling, general and administrative expenses. These amounts represent the
difference between the exercise price of stock option grants and the deemed
fair market value of our common stock at the time of the grants.
In addition, during the nine months ended September 30, 1999, we recorded
approximately $1,850,000 of additional unearned compensation. Amortization of
unearned compensation expense for each of the next five fiscal years is
expected to be as follows:
<TABLE>
<CAPTION>
Amount
Year Ended (in thousands)
---------- --------------
<S> <C>
December 31, 1999.......................................... $449
December 31, 2000.......................................... 538
December 31, 2001.......................................... 493
December 31, 2002.......................................... 485
December 31, 2003.......................................... 116
</TABLE>
In March 1999, in order to focus all of management's attention and
resources on the physician medication management business and due to the
significant resources necessary to remain competitive and sustain profitability
in the pharmacy benefit management business, we sold substantially all of the
assets, excluding cash and accounts receivable, of the pharmacy benefit
management business. The total consideration was approximately $7,500,000 in
cash at closing and a contingent payment of up to $8,400,000 based upon
achieving certain milestones for the one-year period following the closing. We
expect to receive less than the maximum contingent payment. This business had
net sales of $52,866,000 and $44,719,000 for the twelve months ended December
31, 1998 and 1997, respectively, while recording an operating profit of
$970,000 for fiscal 1998 versus an operating loss of $1,808,000 for fiscal
1997. The operating loss of $1,808,000 for fiscal 1997 included a writedown of
acquisition intangibles in the amount of $3,300,000. The writedown was the
result of the loss of customers acquired in the acquisition of our
24
<PAGE>
mail order pharmacy business, reduced margin contributions from other acquired
customers and higher projected levels of customer attrition. Our financial
statements and the discussion in Management's Discussion and Analysis of
Financial Condition and Results of Operations reflect the pharmacy benefit
management business as a discontinued operation. In the nine months ended
September 30, 1999, we recognized a gain on the sale of this business of
$3,547,000, based upon the consideration received at closing. If we receive any
additional contingent payments, the gain, net of tax effects, will be increased
accordingly. See Note 17 of Notes to Consolidated Financial Statements.
In May 1999, we acquired all of the outstanding stock of TeleMed Corp.,
which operates as MedSmart, in exchange for 117,500 shares of our common stock
at closing and an additional 87,271 shares in September 1999. MedSmart sells e-
detailing products, which are Internet-based physician drug education programs
and medical books online and by telephone. These products are intended to
complement our existing line of medication management products. MedSmart
generated revenue of approximately $1,600,000 with a net loss of approximately
$330,000 for the fiscal year ended December 31, 1998. The MedSmart acquisition
will have the near-term effect of increasing cash used in operating activities.
In June 1999, we acquired substantially all of the assets of Shopping@Home,
Inc., a development-stage Internet retailer, in exchange for a promissory note
in the principal amount of $650,000, bearing interest at 6.0% per year, which
was repaid in August 1999. We expect the Internet software capabilities of
Shopping@Home to enhance the development of our Internet-based products.
Shopping@Home generated no revenue and had operating losses of approximately
$325,000 for the fiscal year ended December 31, 1998. The Shopping@Home
acquisition will have the near-term effect of increasing cash used in operating
activities. See "Certain Relationships and Related Party Transactions--
Shopping@Home Acquisition."
Results of Operations
The following table shows, for the periods indicated, our results of
operations expressed as a percentage of our revenue:
<TABLE>
<CAPTION>
Nine Months
Year Ended Ended
December 31, September 30,
--------------------- ---------------
1996 1997 1998 1998 1999
----- ----- ----- ------ ------
<S> <C> <C> <C> <C> <C>
Revenue............................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenue..................... 69.9 69.0 73.1 72.8 79.4
----- ----- ----- ------ ------
Gross profit........................ 30.1 31.0 26.9 27.2 20.6
Operating expenses:
Selling, general and
administrative expenses.......... 34.6 45.4 53.5 53.5 71.2
Amortization of intangibles....... 1.6 1.3 1.6 1.5 3.8
Other operating expenses.......... 3.1 8.4 1.8 0.6 1.6
----- ----- ----- ------ ------
Loss from operations................ (9.2) (24.1) (30.0) (28.4) (56.0)
Interest income (expense), net...... (3.9) (5.3) (2.5) (2.9) 2.1
Other expense....................... (0.1) -- -- -- --
----- ----- ----- ------ ------
Loss from continuing operations..... (13.2) (29.4) (32.5) (31.3) (53.9)
Income (loss) from discontinued
operations......................... 4.4 (5.9) 4.1 4.9 3.3
Gain from sale of discontinued
operations......................... -- -- -- -- 18.3
----- ----- ----- ------ ------
Loss before extraordinary items..... (8.8) (35.3) (28.4) (26.4) (32.3)
Extraordinary loss from early
extinguishment of debt............. -- -- (3.3) (4.4) --
----- ----- ----- ------ ------
Net loss............................ (8.8)% (35.3)% (31.7)% (30.8)% (32.3)%
===== ===== ===== ====== ======
</TABLE>
25
<PAGE>
Nine Months Ended September 30, 1999 Compared to Nine Months Ended September
30, 1998
Total revenue for the nine months ended September 30, 1999 increased by 7%
or $1,228,000 from $18,167,000 in 1998 to $19,395,000 in 1999. E-commerce
revenue increased by 546% or $4,723,000 from $865,000 for the nine months ended
September 30, 1998 to $5,588,000 for the same period in 1999. Traditional
revenue for the nine months ended September 30, 1999 decreased by 20% or
$3,495,000 from $17,302,000 in 1998 to $13,807,000 in 1999.
The increase in e-commerce revenue reflects a shifting of traditional
revenue as a result of traditional customers ordering products over the
Internet, as well as additional installations and increased use of TouchScript.
The decrease in traditional revenue reflects a shifting of traditional revenue
to e-commerce as outlined above and reduced levels of prepackaged medication
dispensing by our traditional customers due to the increased penetration of
managed care prescription programs, as well as the attrition of traditional
customers. This decrease was partially offset by general price inflation of
brand medications, an increase in the dispensing percentage of brand drugs,
which have a considerably higher average selling price than their generic
counterparts, and revenue generated by MedSmart.
Cost of revenue for the nine months ended September 30, 1999 increased by
16% or $2,163,000 from $13,231,000 in 1998 to $15,394,000 in 1999 due to a
greater percentage of revenue coming from sales of higher cost brand products,
increased operating costs at sites where we manage the dispensary on behalf of
the physician, increased costs of technical support and increased revenue. For
the nine months ended September 30, 1999, cost of revenue as a percentage of
total revenue increased to 79.4% from 72.8% in the prior year period,
principally due to a greater percentage of revenue coming from lower margin
brand products and increased operating costs at sites where we manage the
dispensary on behalf of the physician. This percentage increase was partially
offset by higher relative percentage margin contributions from software and
MedSmart revenues.
Selling, general and administrative expenses for the nine months ended
September 30, 1999 increased by 42% or $4,095,000 over the prior year period
due primarily to additional spending for sales support personnel and related
expenses needed to sell, implement and support TouchScript installations,
additional spending for TouchScript and Internet product development personnel
and related support expenses, expenses related to MedSmart operations,
increased legal costs and additional deferred stock compensation expense. In
1998 and the first quarter of 1999, we recorded unearned stock compensation of
approximately $2,250,000, representing the difference between the exercise
price of stock option grants and the deemed fair market value of our common
stock at the time of the grants. This amount will be amortized to expense over
the vesting periods of the applicable grants and is expected to be fully
amortized by 2003. As a result, selling, general and administrative expenses as
a percentage of total revenue increased to 71.2% for the nine months ended
September 30, 1999 from 53.5% of total revenue in the prior year period.
Amortization of intangibles for the nine months ended September 30, 1999
increased by 167% or $466,000 in 1999 from the prior year period. The increase
in amortization relates to the amortization of the goodwill recorded in the
MedSmart acquisition, which was completed in May 1999, and the Shopping@Home
acquisition, which was completed in June 1999.
Other operating expenses for the nine months ended September 30, 1999
increased by 185% or $207,000 over the prior year period. Other operating
expenses for the nine months ended September 30, 1999 of $319,000 reflect a
non-cash, non-recurring charge related to the issuance of common stock upon the
closing of our initial public offering in accordance with a contingent payment
obligation related to an acquisition we made in 1995. The 1998 expense
consisted entirely of severance costs related to the refocusing of our sales
efforts.
26
<PAGE>
Net interest income for the nine months ended September 30, 1999 was
$403,000 as compared to net interest expense of $522,000 for the prior year
period. This increase relates to interest earned on the investment of net
proceeds from our initial public offering, the exchange of subordinated
convertible debentures for redeemable preferred stock, the repayment of the
term loan we had with our commercial bank in April 1998 and the repayment of
borrowings on our revolving credit facility with our commercial bank in July
1999.
We have recorded no provision or benefit for income taxes during the nine
months ended September 30, 1999, because we currently anticipate that the
annual effective income tax rate will be minimal or zero and we have fully
reserved all of our deferred tax assets.
The operating results of our pharmacy benefit management business, which we
sold in March 1999, have been segregated from continuing operations and
reported as a separate line item on the Unaudited Condensed Consolidated
Statements of Operations under the caption "Income from discontinued
operations." Additionally, the gain we recognized from the sale of this
business has been reported as a separate line item under the caption "Gain from
sale of discontinued operations."
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Total revenue for 1998 decreased by 23% or $6,911,000 from $30,593,000 in
1997 to $23,682,000 in 1998. Traditional revenue decreased by 27% or $8,255,000
from $30,593,000 in 1997 to $22,338,000 in 1998. The overall decrease consists
primarily of approximately $6,600,000 due to attrition of customers and reduced
levels of medication dispensing by our traditional customers, principally as a
result of the increased market penetration of managed care prescription
programs. This decrease also reflects approximately $3,300,000 due to the
manufacturer withdrawal of two weight-loss products in October 1997 and
approximately $700,000 as a result of price reductions in response to
competitive pressures. This decrease was partially offset by increases in the
average selling price of brand products sold, which increased traditional
revenues by approximately $2,500,000 in 1998 over the prior year. In the first
quarter of 1998, we began to generate e-commerce revenue. We recognized
$1,344,000 of e-commerce revenue in 1998.
Cost of revenue in 1998 decreased by 18% or $3,797,000 from $21,117,000 in
1997 to $17,320,000 due to the decrease in traditional revenue outlined above.
As a percentage of total revenue, cost of revenue for 1998 increased to 73.1%
from 69.0% in the prior year. This percentage increase was principally due to
price reductions in response to competitive pressures, which increased the cost
of revenue as a percentage of revenue by approximately 5%, and increased costs
of production, warehousing and distribution, which increased cost of revenue as
a percentage of revenue by approximately 1%. These increases were partially
offset by a shift in product mix to higher percentage margin products, which
reduced cost of revenue as a percentage of revenue by approximately 2%.
Selling, general and administrative expenses decreased by 9% or $1,211,000
in 1998 compared to 1997, but increased as a percentage of total revenue from
45.4% in 1997 to 53.5% in 1998. The decrease consists primarily of $1,614,000
attributable to a reduction in sales personnel and related expenses as a result
of the reorganization of the sales and marketing efforts, and $446,000 related
to decreased expenses associated with general and administrative functions.
These decreases were partially offset by increased spending of $492,000 for
personnel needed to develop, sell, implement and support the TouchScript
product, an increase in bad debt expense of $263,000 and unearned compensation
expense of $176,000.
Amortization of intangibles decreased by 9% or $37,000 in 1998 from the
prior year. The decrease in the amortization is the result of a writedown in
1997 of acquisition intangibles to net realizable value.
27
<PAGE>
Other operating expenses decreased in 1998 by 83% or $2,138,000 over the
prior year period. The 1997 expense relates to a writedown of acquisition
intangibles in the amount of $2,328,000 and a severance charge of $240,000 for
a reduction in force of three sales and seven general and administrative staff
personnel. The expense in 1998 related to a reduction in force of nine sales
and ten general and administrative staff personnel.
Interest expense decreased in 1998 by 63% or $1,025,000 over the prior year
period due to the exchange of subordinated convertible debentures for
redeemable preferred stock and the repayment of the term loan in April 1998. In
addition, in 1998 we recognized an extraordinary loss of $790,000 from the
early extinguishment of debt relating to the exchange of the debentures for
redeemable preferred stock.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Revenue in 1997 decreased by 9% or $2,869,000 from $33,462,000 in 1996 to
$30,593,000 in 1997. The overall decrease consists primarily of $5,100,000 due
to attrition of customers and reduced levels of medication dispensing by our
traditional customers, principally as a result of the increased market
penetration of managed care prescription programs. This decrease also reflects
approximately $1,000,000 due to a shift in product mix to lower priced generic
products. These decreases were partially offset by $3,100,000 from increased
selling prices of branded and generic products as a result of inflation and
changes in customer and product mix.
Cost of revenue in 1997 decreased by 10% or $2,273,000 from $23,390,000 in
1996 to $21,117,000 due to the decrease in revenue outlined above. As a
percentage of total revenue, cost of revenue for 1997 decreased to 69.0% from
69.9% 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 20% or $2,270,000
in 1997 compared to 1996 and increased as a percentage of total revenue from
34.6% in 1996 to 45.4% in 1997. The increase consists primarily of $1,247,000
spent on the development of a sales support infrastructure needed to sell,
implement and support TouchScript installations, $470,000 for the addition of
new senior management personnel, $232,000 for moving costs and increased lease
costs associated with our new office and production facility, $160,000 for
increased information services staff, $408,000 for receivable realization
reserves primarily related to three weight-loss products that were withdrawn
from the market and $339,000 for general increases in general and
administrative expenses. These increases were partially offset by $715,000 in
sales personnel reductions as part of our reorganization of the sales process.
Amortization of intangibles decreased by 23% or $120,000 in 1997 from the
prior year period. The decrease is the result of certain intangibles becoming
fully amortized in 1996 and 1997.
Other operating expenses increased in 1997 by 148% or $1,534,000 over the
prior year period. The 1997 expense relates to a writedown of acquisition
intangibles and a reduction in force as part of the reorganization of our sales
process. The expense in 1996 related to the writeoff of software intangibles
related to a product rendered obsolete by TouchScript, in the amount of
$166,000, the recognition of a charge for severance costs related to four
individuals in the amount of $574,000 and $294,000 in costs related to the
shutdown of our Pennsylvania sales office.
Interest expense increased in 1997 by 25% 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.
28
<PAGE>
Selected Quarterly Operating Results
Our quarterly results of operations have generally been seasonal, with a
greater proportion of our revenue typically occurring in the first and fourth
quarters. This seasonality is primarily attributable to the fact that more
prescriptions are written in the winter months.
The following table shows our quarterly unaudited consolidated financial
information for the seven quarters ended September 30, 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 June 30 Sept. 30
-------- ------- -------- ------- -------- ------- --------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Statements of Operations Data:
Revenue................. $ 6,351 $ 6,056 $ 5,760 $ 5,515 $6,028 $ 6,392 $ 6,975
Cost of revenue......... 4,538 4,413 4,280 4,089 4,565 5,143 5,686
------- ------- ------- ------- ------ ------- -------
Gross profit............ 1,813 1,643 1,480 1,426 1,463 1,249 1,289
Operating expenses:
Selling, general and
administrative
expenses.............. 3,349 3,242 3,116 2,951 3,550 4,554 5,698
Amortization of
intangibles........... 93 93 93 93 93 175 477
Other operating
expenses.............. 112 -- -- 318 -- -- 319
------- ------- ------- ------- ------ ------- -------
Loss from operations.... (1,741) (1,692) (1,729) (1,936) (2,180) (3,480) (5,205)
Interest income
(expense), net......... (396) (81) (45) (74) (109) (91) 603
------- ------- ------- ------- ------ ------- -------
Loss from continuing
operations............. (2,137) (1,773) (1,774) (2,010) (2,289) (3,571) (4,602)
Income from discontinued
operations............. 387 294 201 88 26 -- 616
Gain from sale of
discontinued
operations............. -- -- -- -- 3,547 -- --
------- ------- ------- ------- ------ ------- -------
Income (loss) before
extraordinary items.... (1,750) (1,479) (1,573) (1,922) 1,284 (3,571) (3,986)
Extraordinary loss from
early extinguishment of
debt................... -- (790) -- -- -- -- --
------- ------- ------- ------- ------ ------- -------
Net (loss) income....... $(1,750) $(2,269) $(1,573) $(1,922) $1,284 $(3,571) $(3,986)
======= ======= ======= ======= ====== ======= =======
<CAPTION>
Quarter Ended
---------------------------------------------------------------------
1998 1999
--------------------------------------- ---------------------------
March 31 June 30 Sept. 30 Dec. 31 March 31 June 30 Sept. 30
-------- ------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
As a Percentage of Revenue:
Revenue................. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenue......... 71.5 72.9 74.3 74.1 75.7 80.5 81.5
------- ------- ------- ------- ------ ------- -------
Gross profit............ 28.5 27.1 25.7 25.9 24.3 19.5 18.5
Operating expenses:
Selling, general and
administrative
expenses.............. 52.7 53.5 54.1 53.6 58.9 71.3 81.6
Amortization of
intangibles........... 1.5 1.5 1.6 1.7 1.5 2.7 6.8
Other operating
expenses.............. 1.8 -- -- 5.8 -- -- 4.6
------- ------- ------- ------- ------ ------- -------
Loss from operations.... (27.5) (27.9) (30.0) (35.2) (36.1) (54.5) (74.5)
Interest income
(expense), net......... (6.2) (1.3) (0.8) (1.3) (1.8) (1.4) 8.6
------- ------- ------- ------- ------ ------- -------
Loss from continuing
operations............. (33.7) (29.2) (30.8) (36.5) (37.9) (55.9) (65.9)
Income from discontinued
operations............. 6.1 4.8 3.5 1.6 0.4 -- 8.8
Gain from sale of
discontinued
operations............. -- -- -- -- 58.8 -- --
------- ------- ------- ------- ------ ------- -------
Income (loss) before
extraordinary items.... (27.6) (24.4) (27.3) (34.9) 21.3 (55.9) (57.1)
Extraordinary loss from
early extinguishment of
debt................... -- (13.1) -- -- -- -- --
------- ------- ------- ------- ------ ------- -------
Net (loss) income....... (27.6)% (37.5)% (27.3)% (34.9)% 21.3% (55.9)% (57.1)%
======= ======= ======= ======= ====== ======= =======
</TABLE>
29
<PAGE>
Discontinued Operations
The operating results of the pharmacy benefit management segment have been
segregated from continuing operations and reported as a separate line item on
the Consolidated Statements of Operations under the caption "Income (loss) from
discontinued operations." Additionally, we have restated our prior financial
statements to present the operating results of the pharmacy benefit management
business as a discontinued operation.
Operating results from discontinued operations were as follows:
<TABLE>
<CAPTION>
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Revenue............................ $42,225,000 $44,719,000 $52,866,000
Cost of revenue.................... 39,001,000 41,413,000 49,313,000
----------- ----------- -----------
Gross profit................... 3,224,000 3,306,000 3,553,000
Selling, general and administrative
expenses.......................... 1,735,000 5,114,000 2,583,000
----------- ----------- -----------
Operating income (loss)............ 1,489,000 (1,808,000) 970,000
----------- ----------- -----------
Income (loss) from discontinued
operations........................ $ 1,489,000 $(1,808,000) $ 970,000
=========== =========== ===========
</TABLE>
Revenue from discontinued operations increased by 5.9% or $2,494,000 from
$42,225,000 in 1996 to $44,719,000 in 1997 while increasing 18.2% or $8,147,000
to $52,866,000 in 1998. The increase in revenue reflects our focus on and
success within the specialty medication market business, primarily HIV
medications. These increases were partially offset by the loss of customers and
the repricing of certain accounts as part of the competitive renewal bid
process.
While these specialty medication customers generated significant revenue,
their gross profit margin percentage was lower than our historical customer
base. As a result, cost of revenue in 1997 increased by 6.2% or $2,412,000 from
1996 and increased as a percentage of revenue from 92.4% to 92.6%. Cost of
revenue in 1998 increased by 19.1% or $7,900,000 from 1997 and increased as a
percentage of revenue from 92.6% to 93.3%.
Selling, general and administrative expenses of discontinued operations
remained relatively constant from 1996 to 1997, after consideration of a
$3,294,000 writedown of acquisition intangibles in 1997. Selling, general and
administrative expenses increased by $763,000 or 41.9% from $1,820,000 in 1997,
excluding the writedown of intangibles noted above, to $2,583,000 in 1998. This
increase relates to a $800,000 charge for uncollectible receivables, costs
associated with a major computer system conversion and increased administrative
and support costs to support higher revenue levels.
Liquidity and Capital Resources
At September 30, 1999, our principal sources of liquidity consisted of
$27,089,000 of cash and cash equivalents and $36,000,000 of marketable
securities. Historically, our principal sources of funds were bank borrowings,
the sale of subordinated debt, redeemable preferred stock and equity
securities, and operating cash flow generated by our pharmacy benefit
management business, which we sold in March 1999. We issued securities for cash
proceeds totaling approximately $10,000,000 in 1996, $8,930,000 in 1998 and
$112,000,000 in the nine months ended September 30, 1999. We have used these
capital resources to fund operating losses, working capital, capital
expenditures, acquisitions and retirement of debt. At September 30, 1999, we
had an accumulated deficit of $57,038,000.
30
<PAGE>
Net cash used in operating activities increased by $4,116,000 to $7,939,000
for the nine months ended September 30, 1999, compared to $3,823,000 for the
nine months ended September 30, 1998, due to an increase in operating losses.
Accounts receivable, net of allowances, decreased from $9,525,000 at December
31, 1998 to $4,810,000 at September 30, 1999, and accounts payable and rebates
payable decreased over the same period from $7,830,000 to $5,110,000. These
decreases resulted primarily from the collection of outstanding receivables and
the payment of outstanding payables related to our pharmacy benefit management
business, which we sold in March 1999. See "--Recent Developments." We maintain
allowances for uncollectible accounts to reflect our accounts receivable
balances at net realizable value. The adequacy of the allowance is determined
by periodic reviews of individual customer accounts. The allowances for
uncollectible accounts at December 31, 1998 and September 30, 1999, $4,523,000
and $3,691,000, respectively, include approximately $2,600,000 for several
receivable balances with respect to which we have initiated legal action. In
addition, net inventories increased $816,000 from December 31, 1998 to
September 30, 1999 as our inventories of computer equipment increased in
anticipation of increased sales and installations of our TouchScript software.
Net cash used in investing activities increased to $30,112,000 in the first
nine months of 1999 from $653,000 in the first nine months of 1998, primarily
as a result of the purchase of marketable securities of $36,000,000 offset by
cash received from the sale of the pharmacy benefit management business in
March 1999. Capital expenditures were $1,634,000 for the first nine months of
1999 and $653,000 for the first nine months of 1998. The increased level of
expenditures in 1999 relates to computer systems placed at sites where we
manage the dispensary on behalf of the physician and increases in capital
outlays to accommodate new employees. Currently, we have no material
commitments for capital expenditures, although we anticipate ongoing capital
expenditures in the ordinary course of business.
Net cash provided by financing activities increased to $64,422,000 for the
first nine months of 1999 compared to $4,328,000 for the nine months ended
September 30, 1998, primarily due to the receipt of net proceeds of
$103,026,000 from the initial public offering of our common stock and
$1,400,000 in additional borrowings under our revolving credit line, offset by
preferred stock redemptions of $34,745,000 and repayment of revolving credit
line borrowings of $5,400,000.
We have spent $296,000, $518,000, $771,000 and $1,008,000 on software
development costs in 1996, 1997, 1998 and in the nine months ended September
30, 1999, respectively. Upon the establishment of technological feasibility for
previous versions of TouchScript, we began capitalizing related software
development costs. However, these costs were written off because their
recoverability was uncertain since market acceptance of TouchScript had not
been achieved. Development costs incurred subsequent to the establishment of
technological feasibility but prior to general release of the current version
of TouchScript were not significant and, therefore, have not been capitalized.
On July 28, 1999, we completed an initial public offering of our common
stock. We issued 7,000,000 shares of common stock at an initial public offering
price of $16.00 per share. The initial public offering resulted in gross
proceeds of $112,000,000, $7,840,000 of which was applied to the underwriting
discount and approximately $1,134,000 of which was applied to related offering
expenses. In addition, we used $34,745,000 of the proceeds to redeem all
outstanding shares of our Series H, I and J Redeemable Preferred Stock, plus
accrued dividends thereon, $3,900,000 to repay advances under our revolving
line of credit with our commercial bank and $653,000 to repay a promissory
note, including accrued interest, issued as consideration for our acquisition
of Shopping@Home, Inc. The remaining net proceeds of approximately $64,000,000
were invested in short-term, interest-bearing, investment grade securities
pending their use for general corporate purposes and working capital.
At December 31, 1998, we had operating loss carryforwards available for
federal income tax reporting purposes of approximately $30,534,000 and have
continued to generate taxable losses in 1999. The operating loss carryforwards
expire in 2002 through 2013. Our ability to use these operating loss
31
<PAGE>
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 believe that current cash, cash equivalents and marketable securities
balances will be sufficient to meet the anticipated cash needs of our current
business during the fiscal year ending December 31, 2000. However, any
projections of future cash needs and cash flows are subject to substantial
uncertainty. We will, from time to time, consider the acquisition of, or
investment in, complementary businesses, products, services and technologies,
which might impact our liquidity requirements or cause us to issue additional
equity or debt securities. There can be no assurance that financing will be
available in the amounts or on terms acceptable to us, if at all. See "Risk
Factors--Risks Related to Our Company--We are uncertain of our ability to
obtain additional financing for our future needs."
Year 2000
We have not experienced any Year 2000-related problems with our medication
management products or with third-party software, hardware or services on which
we rely. It is possible, however, that Year 2000 compliance problems exist that
we cannot yet identify. If problems arise and we fail to address them on a
timely basis, it could result in lost revenue, increased operating costs, the
loss of customers and other business interruptions. As of September 30, 1999,
we had incurred costs that we believe are allocable to the Year 2000 problem of
approximately $175,000.
32
<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 prescriptions and many other healthcare transactions originate,
and creates an electronic dialogue between physicians and other participants in
the healthcare delivery process, including patients, pharmacies, managed care
organizations and pharmaceutical manufacturers. We believe physicians find our
solutions attractive because incorporating these solutions into their office
work flow can increase efficiency and profitability, reduce medication errors
and improve the quality of patient care.
Our products are designed to improve every step of the pharmaceutical
healthcare process. We currently offer products in four categories: point-of-
care medication management, Internet products and services, information
products and prepackaged medications. Our TouchScript software enables
electronic prescribing, routing of prescription information and capturing of
prescription data at the point of care. This software is currently available on
multiple platforms, including the Personal Prescriber, a wireless hand-held
device. Our other e-commerce products and services offer physicians and their
patients medication-related education and information services. We also sell
our prepackaged medications to physicians so they can offer their patients the
convenience of receiving prescription medications in the physician's office.
Background
According to the Health Care Financing Administration, healthcare
expenditures in the United States totaled approximately $1.0 trillion in 1996,
or 14% of the country's gross domestic product, making it the largest single
sector of the economy. One of the fastest growing components of healthcare
expenditures is pharmaceutical costs, which last year totaled approximately
$100 billion, according to IMS HEALTH, a leading provider of pharmaceutical
information. According to the Health Care Financing Administration,
pharmaceutical costs are expected to increase at an annual rate of
approximately 10% through 2007, driven by an aging population, the accelerating
introduction of new drugs, direct-to-consumer advertising by pharmaceutical
manufacturers and cost advantages over alternate forms of care, most notably
inpatient hospital care. This in turn has created pressure on managed care
organizations to control pharmacy costs and improve the process of managing
medication treatments.
Physicians have also been affected as healthcare has shifted from a fee-
for-service model to managed care forms of reimbursement, which in many cases
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 Business-to-Business E-commerce
The Internet is becoming an increasingly important medium in healthcare,
providing the opportunity for unprecedented communication and access to
information for all participants in the healthcare delivery process. We believe
that an increasing number of physicians regularly access the Internet,
indicating their willingness to adopt technology. Moreover, according to
Forrester Research, business-to-business e-commerce is expected to grow from
$109 billion in 1999 to $1.3 trillion in 2003, accounting for more than 90% of
the dollar value of e-commerce in the United States by 2003. We believe that
electronic prescribing as well as other business-to-business e-commerce
transactions are rapidly gaining acceptance in the healthcare community.
33
<PAGE>
The Opportunity
The traditional process for prescribing and delivering medications is
inefficient, unnecessarily costly and error-prone. The Institute of Medicine
has estimated that between 44,000 and 98,000 people die each year because of
medical mistakes. This has prompted President Clinton to sign an executive
memorandum creating a task force to focus on increasing the use of electronic
prescribing tools as one step to reducing medication errors. Physicians write
virtually all of the approximately 3 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 Internet and in-office comprehensive electronic solutions
that significantly streamline the process of prescribing and delivering
medications. Our TouchScript software enables physicians to improve their
prescribing at the point of care by providing ready access to information about
potential adverse drug interactions, patient drug history and managed care
preferences, including pharmacy guidelines and generic substitutes. Both before
and as the prescription is written, TouchScript reduces the possibility of
medication errors and the need for expensive and time-consuming retrospective
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. We offer Internet-based information services to physicians
to permit them to better care for their patients. We intend to offer to
patients ancillary information and electronic services focused on improving
care, including patient education and compliance. We believe that, in addition
to medication management, there are other aspects of the physician's daily work
flow that can be effectively addressed through technology-focused solutions. We
intend to enhance our current offerings by integrating new products and
services that address these needs.
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 their most commonly prescribed medications to their
patients at the point of care and can reduce medication errors. Patients
benefit from the convenience, immediacy and confidentiality of receiving
prescription medications in the physician's office. Patients also gain access
to valuable information that enables them to play a more active role in
managing their healthcare. Managed care organizations benefit from higher
physician compliance with their pharmacy guidelines, resulting in lower overall
costs. Pharmacies benefit from improved communication with physicians, which
enhances efficiency and reduces the likelihood of errors. We also believe that
the new products and services that we intend to offer in the future will
benefit additional participants in the healthcare delivery process.
34
<PAGE>
We believe that the best way to improve the medication management process
is by focusing where the prescription originates--with the physician--and
motivating physicians to write prescriptions electronically. By combining
electronic prescribing and dispensing, innovative product design, state-of-the-
art software and hardware, and the Internet, we believe we offer an attractive
opportunity for physicians. Key advantages of our solution include:
. Ease of Use. TouchScript is easy to use, enabling a physician to complete
a prescription in as little as 20 seconds.
. Accessibility. TouchScript enables physicians to prescribe electronically
from a variety of locations on several different platforms, including
wireless hand-held devices, the Internet and touch screen-enabled
personal computers.
. Information. TouchScript provides valuable, objective information prior
to and during the prescribing process, enabling physicians to improve the
quality of their prescriptions.
. Financial Opportunity. TouchScript offers physicians a significant
financial opportunity through better management of pharmacy risk and
additional practice revenue from dispensing medications.
Competitive Advantage
We believe that we have several advantages over our current and potential
competitors:
. Installed Base. Versions of TouchScript are currently installed and used
in over 400 physician practice sites.
. 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. Approximately 100 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.
. 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 and point of care tools designed to automate the physician's work
flow. Our strategy to achieve this objective includes the following:
. Accelerating sales of our medication management solutions through
expansion of marketing efforts, conversion of traditional dispensing-only
customers to TouchScript and development of strategic alliances with
physician practice management system vendors, physician-oriented Internet
portals and managed care organizations.
. Increasing customer utilization of our medication management products to
enhance the financial opportunity for physicians through a combination of
quality customer service and expansion of the number of managed care
organizations that reimburse physicians for prescription medications
dispensed in their offices.
. Enhancing our medication management product line by developing additional
Internet-based products for physicians and their patients.
.Providing additional physician work flow automation tools to our installed
base.
. Developing and marketing information products that use the data collected
during the electronic prescribing process.
35
<PAGE>
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 currently comprised of three major
product categories:
. point-of-care medication management,
. Internet products and services and
. information products.
Our traditional business consists of sales of prepackaged medications through
channels other than the Internet.
Current and Future E-Commerce Products and Services
<TABLE>
<CAPTION>
Product or Service Key Features
<S> <C>
Point-of-Care Medication Management
TouchScript Version 7 .Drug Utilization Review
.Formulary checking (800 plans)
.Generic substitution
.Automated Internet ordering
.SCRIPT standard prescription routing
.Online submission of pharmacy claims
.Inventory management
.ScriptGuard barcode scanning
.Touch screen-enabled
.3Touch Prescribing
.Hand-held enabled
TouchScript Outsourcing .On-site dispensary management
- -----------------------------------------------------------------------------
Internet Products and Services
Online Ordering (www.Allscripts.com) .Medications for in-office dispensing
.Medical education materials
Physician's Interactive/e-detailing .Internet and Interactive Voice
Response drug education
and detailing
TouchScript.net . Internet-enabled electronic
prescribing
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
</TABLE>
*Release date to be determined.
36
<PAGE>
Point-of-Care Medication Management
TouchScript is an Internet and client/server 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 managed care plans
offered by over 800 payers. 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, Internet
or mail order pharmacy, printing a legible hard copy or receiving the
medication in the physician's office. If the patient chooses to receive the
medication in the physician's office and is carrying a pharmacy benefit card,
the system can submit the pharmacy claim electronically for immediate approval
and reimbursement by the managed care organization.
Drug inventory management is fully automated, and all medication orders and
receipts are handled via the Internet using a proprietary program. TouchScript
employs an industry standard electronic data interchange format for sending
and receiving prescription information called SCRIPT standard, which was
developed by the National Council for Prescription Drug Programs. This enables
two-way communication between physicians and pharmacists in a more efficient
way than can be accomplished over the telephone. In addition, TouchScript's
underlying relational database enables users to generate a variety of
clinical, financial and operational reports.
We designed TouchScript to be faster and easier for a physician to use than
a prescription pad. We currently offer TouchScript featuring 3Touch
Prescribing on a variety of platforms, including wireless hand-held devices,
the Internet and touch screen-enabled personal computers. TouchScript learns
the physician's preferences dynamically, tailoring information on patients,
diagnoses, medications and instructions more precisely as usage increases.
For large physician practices, we offer an outsourcing option, under which
we provide employees to staff the practice's on-site dispensary.
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.
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/e-detailing. 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.
37
<PAGE>
TouchScript.net. This Internet version of TouchScript offers all of the
electronic prescribing and routing capabilities of Version 7.
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 compliance, we expect
to improve patient care and reduce unnecessary office visits, benefiting
patients, physicians and managed care organizations.
Patient Education. We intend to create a Web site that will provide
information to patients, enabling them to take a more active role in managing
and improving the quality and cost of their healthcare. Specific information
regarding health state, managed care and medications will be made available on
the Web site and via e-mail.
Information Products
Data Mining Products. As a by-product of electronic prescribing, we
accumulate data that correlates the medications prescribed with the related
diagnosis. This type of correlated data is not readily available on a broad
scale, and we believe that we can market it to pharmaceutical manufacturers and
managed care organizations.
Prepackaged Medications
We fulfill orders for prepackaged medications for our traditional and e-
commerce customers from our FDA-licensed repackaging facility in Libertyville,
Illinois. Enabling physicians to sell repackaged pharmaceuticals is an
important component of the financial opportunity we provide to physicians.
Sales and Marketing
We sell our products through an internal direct sales force and intend to
pursue strategic relationships with key suppliers of physician practice
management systems, physician-focused Internet portals and managed care
organizations to complement our internal efforts.
As of December 31, 1999, we employed 67 sales professionals who market
directly to large physician practices, clinics, integrated healthcare networks,
physician practice management organizations and pharmaceutical manufacturers.
We target sites with a large number of high-volume prescribing physicians in
states where in-office dispensing is well-established or where many physicians
bear financial risk for pharmaceutical costs.
We use a variety of tools to attract prospective customers, including
editorials, articles and advertisements in trade journals, as well as executive
seminars, exhibits at selected trade shows and other direct marketing
techniques.
Merck-Medco Strategic Relationship
Merck-Medco Managed Care is the country's largest pharmacy benefits
manager, covering over 60 million people. We have a non-exclusive pilot
agreement with Merck-Medco to evaluate the effectiveness
38
<PAGE>
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 December 31, 1999, our
TouchScript customer service and support team consisted of 125 Account
Executives, Regional Managers and Customer Support Representatives. We expect
our team to continue to grow substantially in 2000.
Implementation Services
Implementation involves site evaluation, work flow preparation, hardware
and software installation and training of physicians and their staff. Site
evaluation helps us understand how best to implement our solution within the
physician's office work flow. Physician training on the system can typically be
completed in 30 minutes or less. The physician's office staff is usually
trained in administrative and fulfillment functions in two to three hours. The
objective of the implementation process is to maximize the value added to the
physician's practice through electronic prescribing, routing to the appropriate
dispensing location and utilizing information.
Account Management and Customer Support
Once TouchScript is operational, our staff works to help the customer
realize the benefits of the system. Account Managers contact customers on a
regular basis, either in person, by telephone or online, monitor weekly
activity and help increase customer satisfaction. We provide toll-free
telephone and online support to our TouchScript customers 24 hours a day, seven
days a week. In addition, a separate group of Account Managers services more
than 2,500 physician practice locations across the country that purchase our
prepackaged medications.
Managed Care
Our Managed Care team is responsible for facilitating access to managed
care networks, acquiring and maintaining pharmacy guideline information for
over 800 payers and supporting ongoing relationships with payers and pharmacy
benefit managers.
Competition
Our industry is intensely competitive, rapidly evolving and subject to
rapid technological change. Many companies that offer products or services that
compete with one or more of our products or services have greater financial,
technical, product development, marketing and other resources than we have.
These organizations may be better known and may have more customers than we
have. We may be unable to compete successfully against these organizations. We
believe that we must gain significant market share with our products and
services before our competitors introduce alternative products and services
with features similar to ours.
We believe that there are no competitors in medication management that
offer a comprehensive solution with ease of use, accessibility, information
content and financial opportunity for physicians comparable to ours. However,
several organizations offer components that overlap with certain
39
<PAGE>
components of our solutions and may become increasingly competitive with us in
the future. In addition, several companies have recently introduced or
announced their intention to introduce electronic prescribing products.
We face competition from several types of organizations, including the
following:
. electronic prescribing product providers;
. physician practice management systems suppliers;
. electronic medical records providers;
. healthcare electronic data interchange providers;
. point-of-care dispensing providers; 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 and we intend to pursue
these opportunities selectively. In addition, we expect that major software
information systems companies and others specializing in the healthcare
industry may offer products or services that are competitive with components of
our solutions.
Product Development and Technology
As of December 31, 1999, our software development department consisted of
24 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.
TouchScript operates on Microsoft's NT and Windows operating systems. All
software products are developed using com-objects, Active Server Pages and C++
programming language. Our Internet applications are browser-independent and are
protected by a state-of-the-art firewall, which is a network interconnection
element that polices traffic flowing between the Allscripts internal network
and the Internet, and proxy servers that provide layered security defenses
against unauthorized access. We employ industry standard 128-bit encryption,
known as secure socket layers, to provide secure transfer of information over
the Internet.
Governmental Regulation
As a participant in the healthcare industry, our operations and
relationships are regulated by a number of federal, state and local
governmental entities.
The use of our TouchScript software by physicians to perform electronic
prescribing, electronic routing of prescriptions to pharmacies and dispensing
is governed by state and federal law. States have differing prescription format
requirements, which we have programmed into TouchScript. Many existing laws and
regulations, when enacted, did not anticipate methods of e-commerce now being
developed. Federal law and the laws of several states neither specifically
permit nor specifically prohibit electronic transmission of prescription
orders. Given the rapid growth of e-commerce in healthcare, and particularly
the growth of the Internet, we expect many states, as well as the federal
government, to directly address these areas with regulation in the near future.
Physician dispensing of medications for profit is allowed in all states
except Massachusetts and Utah and is prohibited, subject to extremely limited
exceptions, in Montana and Texas. Two states, New York and New Jersey, allow
physician dispensing of medications for profit, but limit the number of days'
supply that a physician can dispense. Many of the states allowing physician
dispensing for profit have regulations
40
<PAGE>
relating to licensure, storage, labeling, record keeping and the degree of
supervision required by the physician over support personnel who assist in the
non-judgmental tasks associated with physician dispensing, like retrieving
medication bottles and affixing labels. We regularly monitor these laws and
regulations, in consultation with the governing agencies, to assist our
customers in understanding them so that they can materially comply.
Congress enacted significant prohibitions against physician self-referrals
in the Omnibus Budget Reconciliation Act of 1993. This law, commonly referred
to as "Stark II," applies to physician dispensing of outpatient prescription
drugs that are reimbursable by Medicare or Medicaid. Stark II, however,
includes an exception for the provision of in-office ancillary services,
including a physician's dispensing of outpatient prescription drugs, provided
that the physician meets the requirements of the exception. We believe that the
physicians who use our TouchScript system or dispense drugs distributed by us
are doing so in material compliance with Stark II, either pursuant to the in-
office ancillary services exception or another applicable exception.
As a repackager and distributor of drugs, we are subject to regulation by
and licensure with the FDA, the DEA and various state agencies that regulate
wholesalers or distributors. Among the regulations applicable to our
repackaging operation are the FDA's "good manufacturing practices." We are
subject to periodic inspections by regulatory authorities of our facilities,
policies and procedures for compliance with applicable legal requirements.
Because the FDA's good manufacturing practices were designed to govern the
manufacture, rather than the repackaging, of drugs, we face legal uncertainty
concerning the application of some aspects of these regulations and of the
standards that the FDA will enforce. See "Risk Factors--Risks Related to Our
Industry--If the healthcare environment becomes more restrictive, or we do not
comply with healthcare regulations, our existing and future operations may be
curtailed, and we could be subject to liability."
As a distributor of prescription drugs to physicians, we and our customers
are also subject to the federal anti-kickback statute, which applies to
Medicare, Medicaid and other state and federal programs. The statute prohibits
the solicitation, offer, payment or receipt of remuneration in return for
referrals or the purchase of goods, including drugs, covered by the programs.
The anti-kickback law provides a number of exceptions or "safe harbors" for
particular types of transactions. We believe that our arrangements with our
customers are in material compliance with the anti-kickback statute and
relevant safe harbors. Many states have similar fraud and abuse laws, and we
believe that we are in material compliance with those laws.
As part of our services provided to physicians, our system will
electronically transmit claims for prescription medications dispensed by a
physician to many patients' payers for immediate approval and reimbursement.
Federal law provides that it is both a civil and a criminal violation for any
person to submit a claim to any payer, including, for example, Medicare,
Medicaid and all private health plans and managed care plans, seeking payment
for any services or products that overbills or bills for items that have not
been provided to the patient. We believe that we have in place policies and
procedures to assure that all claims that are transmitted by our system are
accurate and complete, provided that the information given to us by our
customers is also accurate and complete.
Both existing and proposed federal and state laws and regulations regulate
the disclosure of confidential medical information, including information
regarding conditions like AIDS, substance abuse and mental illness. As part of
the operation of our business, our customers may provide to us patient-specific
information related to the prescription drugs that our customers prescribe to
their patients. We believe that we have policies and procedures to assure that
any confidential medical information we receive is handled in a manner that
complies with all federal and state confidentiality requirements.
41
<PAGE>
History
Allscripts was initially organized to repackage and sell pharmaceuticals to
physicians for dispensing to their patients. When the current management team
arrived at Allscripts in late 1997, it recognized the need for a new set of
medication management solutions. The communication capabilities offered by the
Internet, paired with our existing relationships with managed care
organizations and with physicians, enabled us to create a new set of tools for
the physician with a first-to-market advantage. Management immediately
refocused Allscripts on information technology products rather than solely
dispensing repackaged pharmaceuticals. In recent years, we have invested
heavily in Internet and client/server software development to capture and
leverage the value of electronic information to all parties in the healthcare
equation: patients, physicians, managed care organizations, pharmacies and
pharmaceutical manufacturers.
Employees
As of December 31, 1999, we employed 301 persons on a full-time basis,
including 125 in customer service and support, 57 in general and
administrative, 67 in sales and marketing, 28 in production and warehousing and
24 in product development. None of our employees is a member of a labor union
or is covered by a collective bargaining agreement. We believe we have
excellent relations with our employees.
Facilities
Our executive offices and state-of-the-art repackaging facilities are
located in Libertyville, Illinois in approximately 80,000 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 $31,000,000 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 $16,000,000 per occurrence and $17,000,000
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.
Allscripts is a defendant in over 2,000 multi-defendant lawsuits brought by
over 3,000 claimants involving the manufacture and sale of dexfenfluramine,
fenfluramine and phentermine. The majority of these suits were filed in state
courts in Texas beginning in August 1999. The plaintiffs in these cases claim
injury as a result of ingesting a combination of these weight-loss drugs. 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. In addition, while Allscripts has not yet
conducted a review of all of the Texas suits, since physician dispensing is
generally prohibited in Texas and Allscripts has never distributed these drugs
in Texas, Allscripts believes that it is unlikely that it
42
<PAGE>
is responsible for the distribution of the drugs at issue in many of these
cases. 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 $16,000,000 per occurrence and $17,000,000 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.
43
<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 January 17, 2000:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Directors and Executive
Officers:
Glen E. Tullman....... 40 Chairman of the Board and Chief Executive Officer
David B. Mullen....... 49 President, Chief Financial Officer and Director
Joseph E. Carey....... 42 Chief Operating Officer
Steven M. Katz........ 49 Executive Vice President, Sales and Marketing
John G. Cull.......... 38 Senior Vice President, Finance, Treasurer and Secretary
Philip D. Green(1).... 49 Director
M. Fazle Husain(2).... 35 Director
Michael J. Kluger(2).. 43 Director
L. Ben Lytle(1)(2).... 53 Director
Gary M. Stein(1)...... 32 Director
Edward M. Philip...... 34 Director
Other Key Employees:
Donald J. Abramo...... 48 Vice President, Managed Care
Clifford E. Berman.... 40 General Counsel and Senior Vice President, Regulatory
and Legislative Affairs
Stanley A. Crane...... 50 Chief Technology Officer
Karl L. Greiter II.... 38 Vice President, Account Management
James R. Hewitt....... 33 Chief Information Officer
Philip J. Langley..... 33 Senior Vice President
Steven Lefar.......... 33 Senior Vice President, Corporate Development
Donald Q. Paullin..... 56 Vice President, Physician's Interactive Operations
</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.
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.
44
<PAGE>
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 healthcare
services, medical devices and healthcare information technology. He serves on
the Boards of Directors of IntegraMed America, Inc. and Cardiac Pathways
Corporation.
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 and CEO of Anthem, Inc., one of the largest healthcare management
companies in the United States. Before joining Anthem's predecessor company in
1976, he held positions with LTV Aerospace, Associates Corp. of North America
and American Fletcher National Bank. Mr. Lytle serves on the boards of IPALCO
Enterprises, Inc., an energy company; Central Newspapers, Inc., a media
company; CID Equity Partners, a venture capital firm; and Duke Realty
Investments, Inc., a real estate investment firm.
Gary M. Stein has been one of our directors since April 1998. Mr. Stein is
a Vice President of Morgan Stanley Dean Witter & Co., an investment banking
firm, where he has been employed since 1997 and a Vice President of Morgan
Stanley Venture Partners III, L.L.C. Prior to joining Morgan Stanley Dean
Witter in 1997, Mr. Stein was an Associate at Patricof & Co. Ventures, Inc.,
where he focused on private equity investments in the healthcare industry from
1992 to 1997. Prior to that time, Mr. Stein was a Financial Analyst at Morgan
Stanley & Co., Inc. and Morgan Stanley Australia, Ltd.
Edward M. Philip has been one of our directors since July 1999. Mr. Philip
is Chief Operating Officer of Lycos, Inc., which he has been since December
1996. He has been Chief Financial Officer and Secretary of Lycos, Inc. since
December 1995. From July 1991 to December 1995, Mr. Philip was employed by The
Walt Disney Company, where he served in various finance positions, most
recently as Vice President and Assistant Treasurer. Prior to joining The Walt
Disney Company, Mr. Philip was an investment banker at Salomon Brothers Inc.
45
<PAGE>
Donald J. Abramo has been our Vice President, Managed Care since February
1999. From January 1998 to January 1999, Mr. Abramo served as Regional Vice
President of Managed Care for Caremark International Inc., which has been a
wholly owned subsidiary of MedPartners Inc. since September 1996. From January
1997 to December 1997, Mr. Abramo served as Area Vice President for Caremark
International Inc., and from January 1994 to December 1996, he served as
Caremark's Director of Managed Care Sales. Prior to 1994, he was employed with
Baxter International and Blue Cross/Blue Shield.
Clifford E. Berman has been our General Counsel and Senior Vice President,
Regulatory and Legislative Affairs since July 1998. From September 1996 to July
1998, he served as Vice President of Legal Services for MedPartners, Inc. Prior
to that time, he held various positions at Caremark, Inc. Mr. Berman served on
the Illinois State Board of Pharmacy and was Chairman of its Legislative and
Regulatory Committee from 1994 to 1999. 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 Chief Technology Officer since January 2000
and was our Vice President, Internet Services from April 1999 until that time.
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.
James Hewitt has been our Chief Information Officer since January 2000.
From August 1995 to January 2000, he was Managing Director of Information
Technology for The Options Clearing Corporation. Prior to 1995 Mr. Hewitt held
the position of Vice President Software Development for Enterprise Systems,
Inc.
Karl L. Greiter has been our Vice President, Account Management 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 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.
Donald Q. Paullin has been our Vice President, Physician's Interactive
Operations since July 1999, when Allscripts acquired MedSmart, which Mr.
Paullin founded in 1995. Prior to founding MedSmart, Mr. Paullin was the
President of Medicode Marketing Corporation, a medical publishing company.
Election of Directors
Eight directors serve on our Board of Directors. The directors are divided
into three classes, with each class as nearly equal in number as possible. Upon
the expiration of the term of each class of directors, directors comprising
that class will be elected for a three-year term at the annual meeting of
stockholders in the year in which their term expires. Messrs. Green, Lytle and
Philip will serve in the class with a term that expires on the date of the
annual meeting of stockholders to be held in 2000. Messrs. Kluger, Mullen and
Stein will serve in the class with a term that expires on the date of the
annual meeting of stockholders to be held in 2001. Messrs. Husain and Tullman
will serve in the class with a term that
46
<PAGE>
expires on the date of the annual meeting of stockholders to be held in 2002.
All officers serve at the pleasure of the Board of Directors. There are no
family relationships among any of our directors or executive officers.
Committees of the Board of Directors
The Board of Directors has established two standing committees: the Audit
Committee and the Compensation Committee. The Audit Committee recommends the
appointment of auditors and oversees our accounting and audit functions. The
Compensation Committee determines executive officers' salaries, bonuses and
other compensation and administers the Amended and Restated 1993 Stock
Incentive Plan.
Director Compensation
Our independent directors receive a fee of $1,000 for each meeting of the
Board of Directors that they attend. We also reimburse them for their travel
expenses. Under our Amended and Restated 1993 Stock Incentive Plan, these
directors are eligible to receive stock option grants at the discretion of the
Board of Directors or the Compensation Committee. In 1999, Mr. Philip received
an option to purchase 40,000 shares of our common stock at a per share exercise
price of $12.6875. The option vests 33% per year and become fully vested in
2002.
Pharmacy Advisory Board
Because of the important role pharmacy plays in medication management, we
have assembled a Pharmacy Advisory Board to consult on a variety of topics. The
Advisory Board will provide guidance to Allscripts in a number of key areas,
including the design and development of products and services, trends in
pharmacy and pharmaceutical care, and the planning and conducting of
pharmacoeconomic and medical research on issues such as electronic prescribing,
compliance programs and drug education.
J. Lyle Bootman, Ph.D., is Dean and Professor of the University of Arizona
College of Pharmacy and is Founding and Executive Director of the University of
Arizona Center for Health Outcomes and PharmacoEconomic (HOPE) Research. Dr.
Bootman has authored over 200 research articles and has been an invited speaker
at more than 300 healthcare meetings. He has published several books, including
"Principles of Pharmacoeconomics." Dr. Bootman was recently named to the
Institute of Medicine and serves as the current President of the American
Pharmaceutical Association.
James T. Doluisio, Ph.D., is the Hoeschst Roussel Professor of Pharmacy at
the University of Texas at Austin, where he also served as the Dean of the
College of Pharmacy from 1973 through 1998. Dr. Doluisio has written more than
90 papers on bioequivalency, biopharmaceutics, pharmacokinetics and on various
other pharmacy topics for national and international journals and textbooks.
Dr. Doluisio also served as President of the American Pharmaceutical
Association in 1982 and President of the American Association of Pharmaceutical
Scientists in 1988. From 1990 to 1995, he chaired the Board of the United
States Pharmacopeial Convention and recently served as the Inaugural Chairman
of Pharmaceutical Care Management Association's Deans Advisory Council. He has
served as a consultant to the FDA, as a member of the U.S. Office of Technology
Assessment Drug Bioequivalence Study Panel and as a consultant in Pharmacy to
the Surgeon General of the U.S. Air Force.
Robert C. Johnson, Ph.D., is President of R.C. Johnson Associates, a
healthcare and association management consulting firm in Arizona, and he is
Professor of Pharmacy Administration and Executive Director of the Center for
the Advancement of Pharmacy Practice at Midwestern University's College of
Pharmacy. Mr. Johnson is a past Chairman and Chief Executive Officer of PCS
Health Systems, the nation's largest pharmacy benefit managers, and also served
as Corporate Vice President for Government Affairs for the McKesson Foundation.
He served as Chief Executive Officer of the California Pharmacists Association
for 20 years, and he is a past president of the American Pharmaceutical
Association.
Ronald P. Jordan, R.Ph., is a registered pharmacist, President of HCaliber
Consulting of East Greenwich, Rhode Island, an international healthcare
informatics firm, and Senior Vice President of Informatics at Hospice Pharmacia
L.L.C. of Philadelphia, Pennsylvania. Mr. Jordan is immediate past president of
the American Pharmaceutical Association and served as a member of its board of
trustees from 1994 through 1997. He served as a Trustee of the National Council
for Prescription Drug Programs,
47
<PAGE>
where he co-chaired the Standardization Committee for over five years. Most
recently, Mr. Jordan was appointed as one of eleven members of the Health Care
Financing Administration Medicare Coverage Advisory Commission, and he was
appointed to serve on the Rhode Island Governor's Advisory Council on Health.
Delbert D. Konnor, PharmMS, is President and Chief Executive Officer of the
Pharmaceutical Care Management Association, a trade association representing
the major companies in the managed care pharmacy industry. In addition, he is
Adjunct Professor of Pharmaceutical Administration at Duquesne University and
Ohio Northern University. Mr. Konnor previously served as Vice President of
Professional Services for AARP Pharmacy Service. His key government pharmacy
positions have included Manager of the Voluntary Compliance Program for the
Drug Enforcement Administration and the Director of the first White House
Conference on Prescription Drug Misuse, Abuse and Diversion.
Debi Reissman, Pharm.D. is President of Rxperts Managed Care Consulting, a
consulting firm in Santa Ana, California that specializes in pharmacy benefit
consulting to physicians and the managed care industry. She is also an
Assistant Clinical Professor at the University of Southern California School of
Pharmacy. Dr. Reissman consults in the area of pharmacy benefit design and
prescription utilization management and has more than 19 years of experience in
the managed healthcare industry. She has held a variety of pharmacy management
positions, including Chief Executive Officer of Prescription Solutions, the
pharmacy benefit subsidiary of PacifiCare Health Systems. In addition to her
work experience, Dr. Reissman has been actively involved in national pharmacy
organizations, including the Academy of Managed Care Pharmacy where she chaired
the finance committee and served as treasurer for four years.
Executive Compensation
This table summarizes the before-tax compensation for our named executive
officers for the fiscal years ended December 31, 1999 and 1998. Named executive
officers include the Chief Executive Officer and the other four executive
officers of Allscripts whose salary and bonus earned during 1999 exceeded
$100,000. Amounts disclosed as "all other compensation" consist of our matching
contributions under our 401(k) plan.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
--------------------- ------------
Securities
Name and Principal Salary Underlying All Other
Position Year ($) Bonus ($)(1) Options (#) Compensation ($)
------------------ ---- -------- ------------ ------------ ----------------
<S> <C> <C> <C> <C> <C>
Glen E. Tullman......... 1999 $225,000 -- -- $ 996
1998 225,000 548,083 498
Chairman and Chief --
Executive Officer
David B. Mullen......... 1999 225,000 -- -- 1,000
1998 225,000 548,083 1,000
President and Chief --
Financial Officer
Steven M. Katz ......... 1999 215,000 -- -- --
1998 215,000 382,841 --
Executive Vice --
President, Sales and
Marketing
John G. Cull ........... 1999 141,000 $20,000(2) 4,166 1,000
1998 140,000 19,164 1,000
Senior Vice President,
Finance, Treasurer --
and Secretary
Joseph E. Carey......... 1999 134,583 25,000(3) 69,166 --
1998 -- -- --
Chief Operating Officer --
</TABLE>
- --------
(1) Annual bonuses for 1999 are not calculable as of the date of this
prospectus.
(2) Supplemental bonus.
(3) Mr. Carey's employment with us began in April 1999 at which time he was
awarded a $25,000 signing bonus pursuant to the terms of his employment
agreement.
48
<PAGE>
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, 1999. 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 closing price of the common
stock on January 26, 2000 of $51.50 per share, the actual price appreciation
may be substantially greater than that assumed under these rules. We cannot
assure you that the actual stock price will appreciate over the 10-year option
term at the assumed levels or at any other defined level.
<TABLE>
<CAPTION>
Potential Realizable Value
at Assumed Annual Rates of
Stock Price Appreciation for
Individual Grants Option Term
--------------------------------------------------------- ----------------------------
Percent
of Total
Number of Options
Securities Granted
Underlying in Exercise Fair Market
Options Fiscal Price Value at Grant Expiration
Name Granted (#) 1999 (%) ($/Share) Date ($/Share) Date 0% 5% 10%
---- ----------- -------- --------- -------------- ---------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Glen E. Tullman......... -- -- -- -- -- -- -- --
David B. Mullen......... -- -- -- -- -- -- -- --
Steven M. Katz.......... -- -- -- -- -- -- -- --
John G. Cull............ 4,166(1) 0.4% $3.00 $9.00 3/31/09 $ 24,996 $ 51,321 $ 93,682
Joseph E. Carey......... 69,166(2) 6.7 3.00 9.00 3/31/09 414,996 852,035 1,555,287
</TABLE>
- --------
(1) The option vests 25% on each of the first through fourth anniversaries of
the grant date.
(2) The option vested 25% on October 11, 1999 and 25% on each of March 31,
2000, 2001 and 2002.
Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values
This table provides information regarding the exercise of options during
fiscal 1999 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 $44.00 (the last reported market price of Allscripts
common stock on December 31, 1999) multiplied by the number of shares
underlying the option. An option is in-the-money if the fair market value of
the common stock subject to the option is greater than the exercise price.
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised In-
Shares Options at Fiscal the-Money Options at
Acquired on Value Year End (#) Fiscal Year End ($)
Exercise Realized ------------------------- -------------------------
Name (#) ($) Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Glen E. Tullman......... -- -- 130,148 146,454 $5,718,703 $6,435,189
David B. Mullen......... 262,683 $2,348,386(1) 137,703 142,129 6,050,670 6,245,148
Steven M. Katz.......... 185,053 1,654,374(1) 94,160 100,794 4,137,390 4,428,888
John G. Cull............ 12,498 173,465 85,464 21,198 3,631,299 739,478
Joseph E. Carey......... -- -- 17,292 51,874 708,972 2,126,834
</TABLE>
- --------
(1) Based on the fair market value on the date of exercise, which has been
deemed to be $9.00 per share.
49
<PAGE>
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, with Steven M. Katz effective
September 2, 1997 and with Joseph E. Carey effective August 2, 1999. 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 Mr. Carey is paid an annual salary of $190,000
and was paid a signing bonus of $25,000. Messrs. Katz and Carey are each
entitled to an annual bonus, contingent upon the attainment of certain
objectives, as determined by the Chief Executive Officer in consultation with
the Board of Directors or the Compensation Committee. The agreements also
provide that each of Messrs. Mullen, Tullman, Katz and Carey will not compete
with us during the term of his employment and for one year thereafter. If we
terminate any of Messrs. Mullen, Tullman, Katz or Carey 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. In addition, we
have entered into a stock option agreement with Mr. Carey granting him options
to purchase 69,166 shares of common stock. Under this option agreement, in the
event of a Change in Control, as defined in the stock option agreement, vesting
of the options will accelerate so that the unvested portion of the options will
vest immediately.
Under an agreement entered into between us and John G. Cull, if Mr. Cull is
discharged for any reason other than for Cause, as defined in the agreement,
Mr. Cull will be entitled to monthly payments equal to his then in-effect
monthly salary together with a pro rata bonus amount and a continuation of
health insurance benefits, for a period of 12 months. If, within six months of
a Change in Control of Allscripts, as defined in the agreement, Mr. Cull is
discharged by Allscripts other than for Cause or voluntarily terminates his
employment following a change in his position that materially reduces his level
of responsibilities or a material reduction in his overall level of
compensation, Mr. Cull will be entitled to monthly payments equal to his then
in-effect monthly salary for a period of 12 months together with a pro rata
bonus amount and a continuation of health insurance benefits. In addition, the
agreement provides that all existing stock options owned by Mr. Cull will
immediately vest upon the occurrence of the same events that require us to make
severance payments to him following a Change in Control. In addition, Mr. Cull
has agreed not to compete with us for a period of 12 months following the
termination of his employment.
50
<PAGE>
Employee Benefit Plans
Amended and Restated 1993 Stock Incentive Plan
In May and June 1999, our Board of Directors and shareholders adopted and
approved our Amended and Restated 1993 Stock Incentive Plan, which, among other
things, increased the shares authorized for issuance under the plan by
1,300,000. The plan authorizes the grant of options to purchase up to an
aggregate of 4,393,489 shares. The plan provides that the number of shares of
common stock underlying stock incentives granted under the plan to any
individual in any twelve-month period may not exceed 3,000,000. The plan is
designed to grant stock incentives, including qualified and nonqualified
options to purchase common stock and stock appreciation rights, to key
individuals who perform services for us or on our behalf, such as employees,
officers, eligible directors, as defined in the plan, consultants and agents of
Allscripts. The purpose of the plan is to enable us to attract, retain and
motivate key individuals by providing them the opportunity to obtain an equity
interest in Allscripts. The Compensation Committee of our Board of Directors
administers the plan and determines the per share exercise price at the time
each stock incentive is granted; provided that in the case of qualified
incentive stock options, the exercise price is not less than fair market value
on the date of grant. The plan provides that if there is a change in our common
stock through a merger, consolidation, reorganization, recapitalization or
otherwise, or if there is a dividend on the common stock, payable in common
stock, or if there is a stock split, combination or other change in our issued
common stock, the common stock available under the plan and the common stock
subject to then-existing stock incentives shall be increased or decreased
proportionately. In 1998, we recorded unearned compensation of approximately
$407,000 in connection with grants under the plan, and during the nine months
ended September 30, 1999, we recorded approximately $1,850,000 of additional
unearned compensation.
As of December 31, 1999, there were options outstanding under the plan to
purchase an aggregate of 2,584,312 shares of common stock, 1,029,433 of which
were currently exercisable. The weighted average per share exercise price for
all of these options is $4.11.
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. None of these persons has ever been an
officer or employee of Allscripts or any of its subsidiaries. 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."
51
<PAGE>
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 June 1999, we acquired substantially all of the assets of Shopping@Home,
Inc. in exchange for a promissory note in the principal amount of $650,000.
This note was repaid in August 1999. Messrs. Tullman and Carey are principal
shareholders of Shopping@Home.
Series I and J Redeemable Preferred Stock Private Placement
In April 1998, we sold 1,199,770 shares of Series I redeemable preferred
stock and 4,118,324 shares of common stock for an aggregate purchase price of
$8,000,000 to Morgan Stanley Venture Partners III, L.P., Morgan Stanley Venture
Investors III, L.P. and The Morgan Stanley Venture Partners Entrepreneur Fund,
L.P. Messrs. Husain and Stein, two of our directors, are affiliates of each of
these Morgan Stanley funds. We also sold 37,493 shares of Series I preferred
stock and 128,697 shares of common stock to Mr. Tullman for a purchase price of
$250,000, 14,997 shares of Series I preferred stock and 51,479 shares of common
stock to Mr. Mullen for a purchase price of $100,000, 3,749 shares of Series I
preferred stock and 12,869 shares of common stock to Mr. Carey for a purchase
price of $25,000, 4,499 shares of Series I preferred stock and 15,443 shares of
common stock to James A. Rosenblum, a former executive officer of Allscripts,
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. John M. Goense, a former director of
Allscripts, was, at the time, a 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,
which has entered into an investment management contract with Liberty Capital
Partners Inc., of which Mr. Kluger is a managing director. We issued the shares
and warrants in exchange for debentures of Allscripts held by the State Board
of Administration of Florida in the principal amount of $1,691,352 plus accrued
interest of $65,892, which the State Board of Administration of Florida
purchased from us in April 1996 for $1,500,000, and debentures held by Liberty
Investment Partnership #6 in the principal amount of $11,276 plus accrued
interest of $439, as well as Liberty Partners Holdings 6, L.L.C.'s agreement to
modify the redemption and dividend provisions of the 680,892 shares of Series H
preferred stock held by it. In connection with this financing, we also entered
into a Right of First Offer and Co-Sale Agreement with Allstate, the Liberty
funds, the Morgan Stanley funds and Messrs. Tullman, Mullen and Cahr.
Redeemable Preferred Stock Redemptions
We used a portion of the net proceeds of our initial public offering to
redeem shares of preferred stock held by some of our affiliates according to
their redemption terms as follows, including accrued dividends:
. $10,468,581 to redeem 815,594 shares of Series H preferred stock and
439,883 shares of Series J preferred stock held by Liberty Partners
Holdings 6, L.L.C.;
52
<PAGE>
. $12,473,513 to redeem 217,459 shares of Series H preferred stock,
1,199,770 shares of Series I preferred stock and 268,204 shares of Series
J preferred stock held collectively by the Morgan Stanley Venture
Partners III, L.P., Morgan Stanley Venture Investors III, L.P. and The
Morgan Stanley Venture Partners Entrepreneur Fund, L.P.;
. $605,892 to redeem 18,929 shares of Series H preferred stock, 37,493
shares of Series I preferred stock and 23,345 shares of Series J
preferred stock held by Mr. Tullman;
. $245,780 to redeem 7,764 shares of Series H preferred stock, 14,997
shares of Series I preferred stock and 9,575 shares of Series J preferred
stock held by Mr. Mullen;
. $14,179 to redeem 796 shares of Series H preferred stock and 982 shares
of Series J preferred stock held by Mr. Cull;
. $189,992 to redeem 9,159 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;
. $46,430 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, a former executive officer of Allscripts; and
. $49,642 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 $55,000 in
1997, $36,000 in 1998 and $130,000 in 1999.
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."
53
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table provides information known to us with respect to the
beneficial ownership of our common stock as of December 31, 1999 and as
adjusted to reflect the sale of the shares offered by this prospectus 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. Percentage of
ownership is based on 24,187,072 shares outstanding as of December 31, 1999 and
24,879,072 shares outstanding after this offering. 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>
Shares
Shares Beneficially Owned
Beneficially Owned Number of After the Sale of
Prior to this Shares Shares Covered by
Offering Covered by this Prospectus
------------------ this ------------------
Number Percent Prospectus Number Percent
---------- ------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C>
Glen E. Tullman (1)........... 730,980 3.0% -- 730,980 2.9%
David B. Mullen (2)........... 531,425 2.2 -- 531,425 2.1
Steven M. Katz (3)............ 279,213 1.1 -- 279,213 1.1
John G. Cull (4).............. 106,148 * -- 106,148 *
Joseph E. Carey (5)........... 115,354 * -- 115,354 *
Philip D. Green (6)........... 110,893 * -- 110,893 *
M. Fazle Husain (7)........... 6,062,063 25.1 808,000 5,254,063 21.1
Michael J. Kluger (8)......... 3,748,170 15.5 500,000 3,248,170 13.1
L. Ben Lytle (9).............. 8,333 * -- 8,333 *
Edward M. Philip.............. 0 0.0 -- 0 0.0
Gary M. Stein (7)............. 6,062,063 25.1 808,000 5,254,063 21.1
Entities affiliated with
Morgan Stanley Dean Witter
Venture Partners (7)......... 6,062,063 25.1 808,000 5,254,063 21.1
Liberty Partners Holdings 6,
L.L.C. (8)................... 3,748,170 15.5 500,000 3,248,170 13.1
All directors and executive
officers as a group
(11 persons) (10)............ 11,692,579 47.3 1,308,000 10,384,579 40.8
</TABLE>
- --------
*Less than 1%.
(1) Includes 130,148 shares issuable upon exercise of options that will be
exercisable within 60 days.
(2) Includes 137,703 shares issuable upon exercise of options that will be
exercisable within 60 days, and 4,915 shares issuable upon exercise of
warrants that are currently exercisable.
(3) Includes 94,160 shares issuable upon exercise of options that will be
exercisable within 60 days.
(4) Includes 86,245 shares issuable upon exercise of options that will be
exercisable within 60 days.
(5) Includes 17,292 shares issuable upon exercise of options that will be
exercisable within 60 days.
(6) Includes 68,304 shares issuable upon exercise of options that will be
exercisable within 60 days, and 6,168 shares issuable upon exercise of
warrants that are currently exercisable.
54
<PAGE>
(7) Consists of: (a) 5,320,682 shares owned by Morgan Stanley Venture Partners
III, L.P.; (b) 511,028 shares owned by Morgan Stanley Venture Investors
III, L.P.; and (c) 230,353 shares 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.
(8) Mr. Kluger disclaims beneficial ownership of the shares held by Liberty
Partners Holdings 6, L.L.C., except to the extent of his proportionate
interest therein. The address for Mr. Kluger and Liberty Partners Holdings
6, L.L.C. is c/o Liberty Partners, L.P., 1177 Avenue of the Americas, New
York, New York 10036.
(9) Consists of 8,333 shares issuable upon exercise of options that will be
exercisable within 60 days.
(10) Includes the shares described in Notes 1 through 9.
55
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Our Certificate of Incorporation provides 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 January 26, 2000, there were
24,518,571 shares of common stock outstanding and no shares of preferred stock
outstanding. As of the date of this prospectus, there were 242 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, subject to the rights of holders
of any outstanding preferred stock, 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, subject to the rights of holders of any outstanding preferred stock.
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 are 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, is 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 December 31, 1999, we had warrants outstanding to purchase an
aggregate of 63,799 shares of common stock at an average weighted exercise
price of $1.58 per share.
Registration Rights
Liberty Partners Holdings 6, L.L.C., Morgan Stanley Venture Investors III,
L.P., Morgan Stanley Venture Partners III, L.P. and The Morgan Stanley Venture
Partners Entrepreneur Fund, L.P., which will collectively hold 8,502,233 shares
of common stock after this offering, are entitled to registration rights with
respect to these shares. Under our Registration Agreement, Liberty Partners
Holdings 6, L.L.C. and Morgan Stanley Venture Partners III, L.P., Morgan
Stanley Venture Investors III, L.P. and The Morgan Stanley Venture Partners
Entrepreneur Fund, L.P., collectively, are each entitled to require us to
register their shares of common stock three times, but not more than once in
any six-month period. In addition, if
56
<PAGE>
we propose or are required to register any of our common stock, either for our
own account or for the account of other of our stockholders, we are required to
notify the holders described above, and subject to certain limitations, to
include in such registration all of the common stock requested to be included
by those holders. We are obligated to bear the expenses, other than
underwriting commissions, of the first registration required by Liberty or the
Morgan Stanley parties, and of all incidental registrations. Any exercise of
these registration rights may hinder our efforts to arrange future financings
and have an adverse effect on the market price of our common stock.
Certain Limited Liability, Indemnification and Anti-takeover Provisions
Indemnification and Limitation of Liability
Our Certificate of Incorporation and By-laws provide that we shall, with
some limitations, indemnify our directors and officers against expenses,
including attorneys' fees, judgments, fines and certain settlements, actually
and reasonably incurred by them in connection with any suit or proceeding to
which they are a party so long as they acted in good faith and in a manner
reasonably believed to be in or not opposed to the best interests of
Allscripts. This indemnification also applies to a criminal action or
proceeding, so long as the director or officer had no reasonable cause to
believe their conduct to have been unlawful.
Section 102 of the Delaware General Corporation Law permits a Delaware
corporation to include in its certificate of incorporation a provision
eliminating or limiting a director's liability to a corporation or its
stockholders for monetary damages for breaches of fiduciary duty. Delaware
General Corporation Law Section 102 provides, however, that liability for
breaches of the duty of loyalty, acts or omissions not in good faith or
involving intentional misconduct, or knowing violation of the law, and the
unlawful purchase or redemption of stock or payment of unlawful dividends or
the receipt of improper personal benefits cannot be eliminated or limited in
this manner. Our Certificate of Incorporation will include a provision that
eliminates, to the fullest extent permitted, director liability for monetary
damages for breaches of fiduciary duty.
Section 203 of Delaware General Corporation Law
Section 203 of the Delaware General Corporation Law prohibits certain
transactions between a Delaware corporation and an "interested stockholder,"
which is defined as a person who, together with any affiliates or associates,
beneficially owns, directly or indirectly, 15% or more of the outstanding
voting shares of a Delaware corporation. This provision prohibits certain
business combinations between an interested stockholder and a corporation for a
period of three years after the date the interested stockholder becomes an
interested stockholder, unless:
. the business combination is approved by the corporation's board of
directors prior to the date the interested stockholder becomes an
interested stockholder;
. the interested stockholder acquired at least 85% of the voting stock of
the corporation (other than stock held by directors who are also officers
or by certain employee stock plans) in the transaction in which it
becomes an interested stockholder; or
. the business combination is approved by a majority of the board of
directors and by the affirmative vote of 66 2/3% of the outstanding
voting stock that is not owned by the interested stockholder.
For this purpose, business combinations include mergers, consolidations,
sales or other dispositions of assets having an aggregate value in excess of
10% of the consolidated assets of the corporation, and certain transactions
that would increase the interested stockholder's proportionate share ownership
in the corporation.
57
<PAGE>
Special Meetings of Stockholders; No Stockholder Action By Written Consent
Our Certificate of Incorporation provides 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
provides that 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 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 also specify requirements for a stockholder's notice to be
in proper written form.
Classified Board of Directors
The Certificate of Incorporation and By-Laws 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 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 provides 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.
Consideration of Constituencies with respect to Acquisitions
The Certificate of Incorporation provides that in determining whether an
acquisition proposal is in the best interests of Allscripts and its
stockholders, our Board of Directors may, to the extent permitted by law,
consider all factors it deems relevant, including the effects of the
acquisition upon employees, suppliers, customers and the communities in which
we are located.
Transfer Agent and Registrar
The transfer agent and registrar for the common stock is LaSalle Bank N.A.
58
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
We will have 25,210,571 shares of common stock outstanding after this
offering, 25,510,571 shares if the underwriters' over-allotment option is
exercised in full, assuming no exercise of options or warrants after January
26, 2000. All of the 2,000,000 shares sold in this offering, as well as the
7,000,000 shares sold in our initial public offering and 11,552,872 shares
released from lock-up agreements, which were entered into in connection with
our initial public offering, on or about January 20, 2000, will be freely
tradeable without restriction under the Securities Act by persons other than
our "affiliates" as that term is defined in Rule 144 under the Securities Act
(whose sales would be subject to certain limitations and restrictions described
below). The following table summarizes the shares of our common stock eligible
for future sale over various time periods:
<TABLE>
<CAPTION>
Shares
Relevant Dates Eligible for Sale Comment
-------------- ----------------- -------
<S> <C> <C>
July 23, 1999........... 8,365,329 Initial public offering.
October 21, 1999........ 667,467 Shares salable under Rule 144 or Rule 701
that were not subject to initial public
offering lock-up.
January 20, 2000........ 11,552,872 Initial public offering lock up released.
Upon effectiveness...... 2,000,000 Shares sold in this offering.
90 days after effective
date and thereafter.... Lock up released.
</TABLE>
All of our executive officers, directors, key employees and the selling
stockholders have agreed to a "lock up" at the request of the underwriters. In
the aggregate, this group holds shares of our common stock. Under
the lock up, they cannot sell or otherwise dispose of any of our common stock
in the public market for a period of 90 days after the date of this prospectus
without the written consent of Goldman, Sachs & Co. When the 90-day lock-up
period expires, approximately additional shares that are restricted
securities will be eligible for sale under Rule 144 or Rule 701. Shares
acquired in transactions exempt from registration under the Securities Act are
"restricted securities" as that term is defined in Rule 144. Restricted shares
may only be resold if they are registered under the Securities Act or are sold
under an exemption from registration, like the exemption contained in Rule 144.
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 (255,105 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.
We have filed 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. See "Management--Employee Benefit Plans." Shares issued
59
<PAGE>
after the effective date of the registration statement on Form S-8 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.
Shares that we issued prior to our initial public offering or that we may
issue upon the exercise of options that we granted to consultants and employees
prior to our initial public offering also may be eligible for sale in the
public market. 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.
In addition, certain stockholders will have registration rights with
respect to 8,502,233 shares of our common stock after this offering.
Registration of these securities subject to registration rights under the
Securities Act would result in the shares becoming freely tradeable 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, Inc. 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.
60
<PAGE>
UNDERWRITING
Allscripts, the selling stockholders and the underwriters for the offering
(the "Underwriters") named below have entered into an underwriting agreement
with respect to the shares being offered. Subject to certain conditions, each
Underwriter has severally agreed to purchase the number of shares indicated in
the following table. Goldman, Sachs & Co., Bear, Stearns & Co. Inc., CIBC World
Markets Corp. and Wit Capital Corporation are the representatives of the
Underwriters.
<TABLE>
<CAPTION>
Number of
Underwriters Shares
------------ ---------
<S> <C>
Goldman, Sachs & Co.............................................
Bear, Stearns & Co. Inc.........................................
CIBC World Markets Corp.........................................
Wit Capital Corporation.........................................
---------
Total....................................................... 2,000,000
=========
</TABLE>
If the Underwriters sell more shares than the total number set forth in the
table above, the Underwriters have an option to buy up to an additional 300,000
shares from Allscripts to cover such sales. They may exercise that option for
30 days. If any shares are purchased pursuant to this option, the Underwriters
will severally purchase shares in approximately the same proportion as set
forth in the table above.
The following table shows the per share and total underwriting discounts
and commissions to be paid to the Underwriters by Allscripts. Such amounts are
shown assuming both no exercise and full exercise of the Underwriters' option
to purchase additional shares.
<TABLE>
<CAPTION>
Paid by Allscripts No Exercise Full Exercise
------------------ ----------- -------------
<S> <C> <C>
Per Share....................................... $ $
Total........................................... $ $
</TABLE>
Shares sold by the Underwriters to the public will initially be offered at
the initial price to public 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 price to public. 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 price to public. If all the shares are not sold at the initial
price to public, the representatives may change the offering price and the
other selling terms.
All of Allscripts' executive officers, directors, key employees and the
selling stockholders 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 90 days after the date of this
prospectus, except with the prior written consent of the representatives. This
agreement does not apply to any existing employee benefit plans. See "Shares
Eligible for Future Sale" for a discussion of certain transfer restrictions.
A prospectus in electronic format is being made available on an Internet
Web site maintained by Wit Capital Corporation. In addition, all dealers
purchasing shares from Wit Capital in this offering have agreed to make a
prospectus in electronic format available on Web sites maintained by each of
these dealers. Purchases of shares from Wit Capital are to be made through an
account at Wit Capital in accordance with Wit Capital's procedures for opening
an account and transacting in securities.
61
<PAGE>
Wit Capital, a member of the National Association of Securities Dealers,
Inc., will participate in the offering as one of the underwriters. The National
Association of Securities Dealers, Inc. approved the membership of Wit Capital
on September 4, 1997. Except for its participation as a manager in this
offering and in Allscripts' initial public offering, Wit Capital has no
relationship with Allscripts, or any of its founders or significant
stockholders.
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 also may 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.
As permitted by Rule 103 under the Exchange Act, certain Underwriters and
selling group members that are market makers ("passive market makers") in the
common stock may make bids for or purchases of common stock in the Nasdaq
National Market until a stabilizing bid has been made. Rule 103 generally
provides that:
. a passive market maker's net daily purchases of the common stock may not
exceed 30% of its average daily trading volume in such securities for the
two full consecutive calendar months, or any 60 consecutive days ending
within the 10 days, immediately preceding the filing date of the
registration statement of which this prospectus forms a part,
. a passive market maker may not effect transactions or display bids for
common stock at a price that exceeds the highest independent bid for the
common stock by persons who are not passive market makers, and
.bids made by passive market makers must be identified as such.
Allscripts and the selling stockholders estimate that their shares of the
total expenses of the offering, excluding underwriting discounts and
commissions, will be approximately $ and $ , respectively.
Allscripts and the selling stockholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities under
the Securities Act.
62
<PAGE>
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.
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 documents that we file electronically, including registration
statements, quarterly and annual reports and proxy statements and other
information, from the SEC's Web site at: http://www.sec.gov.
63
<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 September 30, 1999............... F-25
Condensed Consolidated Statements of Operations for the nine months ended
September 30, 1998 and September 30, 1999............................... F-27
Condensed Consolidated Statements of Cash Flows for the nine months ended
September 30, 1998 and 1999............................................. F-28
Notes to Unaudited Condensed Consolidated Financial Statements........... F-29
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Allscripts, Inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations and stockholders' equity
(deficit) and of cash flows present fairly, in all material respects, the
financial position of Allscripts, Inc. (an Illinois corporation) and
Subsidiaries at December 31, 1997 and 1998, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1998 in conformity with generally accepted accounting principles. These
financial statements are the responsibility of Allscripts' management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Chicago, Illinois
May 12, 1999, except for the
information in Note 22, for which
the date is June 18, 1999
F-2
<PAGE>
ALLSCRIPTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
-----------------------
1997 1998
----------- ----------- ---
<S> <C> <C> <C>
ASSETS
Current assets:
Cash.............................................. $ 204,981 $ 718,008
Accounts receivable, net of allowances of
$3,431,947 in 1997 and $4,522,507 in 1998........ 9,580,418 9,525,084
Inventories, net.................................. 2,556,926 2,905,484
Prepaid and other assets.......................... 382,370 229,283
----------- ----------- ---
Total current assets............................ 12,724,695 13,377,859
Fixed assets, net.................................. 1,532,822 1,783,996
Intangible assets, net............................. 4,577,740 3,701,835
Debt issuance costs................................ 551,631 56,594
----------- ----------- ---
Total assets.................................... $19,386,888 $18,920,284
=========== =========== ===
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
ALLSCRIPTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, CONTINUED
<TABLE>
<CAPTION>
December 31,
--------------------------
1997 1998
------------ ------------ ---
<S> <C> <C> <C>
LIABILITIES
Current liabilities:
Note payable................................. $ 2,500,000 $ 4,000,000
Current portion of long-term debt............ 4,692,932 --
Accounts payable............................. 6,698,770 7,830,158
Accrued expenses............................. 1,856,019 1,276,849
------------ ------------ ---
Total current liabilities.................. 15,747,721 13,107,007
Long-term debt, net of current portion........ 11,275,680 58,774
------------ ------------ ---
Total liabilities.......................... 27,023,401 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
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
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
------------ ------------ ---
10,719,480 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............................. 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............................. 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 ............................ 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............................. 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................................ 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................................ 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................................ 34,252 83,587
Treasury stock at cost; 34,465 common shares.. (67,817) (67,817)
Unearned compensation......................... -- (230,417)
Additional paid-in capital.................... 16,208,465 15,467,430
Accumulated deficit........................... (43,249,661) (50,763,970)
------------ ------------ ---
Total shareholders' equity (deficit)....... (18,355,993) (26,792,419)
------------ ------------ ---
Total liabilities, redeemable preferred
shares and shareholders' equity
(deficit)................................. $ 19,386,888 $ 18,920,284
============ ============ ===
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
ALLSCRIPTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------------
1996 1997 1998
----------- ------------ -----------
<S> <C> <C> <C>
Revenue............................... $33,461,863 $ 30,593,032 $23,681,610
Cost of revenue....................... 23,390,145 21,116,642 17,319,678
----------- ------------ -----------
Gross profit...................... 10,071,718 9,476,390 6,361,932
Selling, general and administrative
expenses............................. 11,598,130 13,869,859 12,657,861
Amortization of intangibles........... 529,360 408,736 371,905
Other operating expenses.............. 1,034,169 2,567,652 430,345
----------- ------------ -----------
Loss from operations.............. (3,089,941) (7,369,857) (7,098,179)
Interest expense...................... (1,301,131) (1,621,214) (595,699)
Other expense......................... (38,956) -- --
----------- ------------ -----------
Loss from continuing operations....... (4,430,028) (8,991,071) (7,693,878)
Income (loss) from discontinued
operations........................... 1,489,000 (1,808,000) 970,000
----------- ------------ -----------
Loss before extraordinary item........ (2,941,028) (10,799,071) (6,723,878)
Extraordinary loss from early
extinguishment of debt............... -- -- (790,431)
----------- ------------ -----------
Net loss.............................. (2,941,028) (10,799,071) (7,514,309)
Accretion of mandatory redemption
value of preferred shares and accrued
dividends on preferred shares........ (923,400) (923,399) (2,415,143)
----------- ------------ -----------
Net loss attributable to common
shareholders......................... $(3,864,428) $(11,722,470) $(9,929,452)
=========== ============ ===========
Per share data--basic and diluted:
Loss from continuing operations...... $ (1.87) $ (3.35) $ (1.66)
Discontinued operations.............. 0.52 (0.61) 0.16
Extraordinary loss................... -- -- (0.13)
----------- ------------ -----------
Net loss............................. $ (1.35) $ (3.96) $ (1.63)
=========== ============ ===========
Per share data--pro forma basic and
diluted (unaudited):
Loss from continuing operations...... $ (1.15)
Discontinued operations.............. 0.11
Extraordinary loss................... (0.09)
-----------
Net loss............................. $ (1.13)
===========
Weighted average shares of common
stock outstanding used in computing
basic and diluted loss per share..... 2,853,960 2,955,982 6,075,803
=========== ============ ===========
Weighted average shares of common
stock outstanding used in computing
pro forma basic and diluted loss per
share (unaudited).................... 9,073,244
===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
ALLSCRIPTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Notes
Additional Receivable
Preferred Common Paid-In Unearned from Sale Treasury Accumulated
Shares Shares Capital Compensation of Shares Stock Deficit
-------------------- ----------------- ----------- ------------ ---------- ----------------- ------------
Shares Amount Shares Amount Shares Amount
--------- ---------- --------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31,
1995............. 8,718,768 $8,718,768 2,866,299 $28,663 $17,970,544 -- $(35,000) (13,342) $(32,020) $(29,509,562)
Issuance of
1,616 common
shares under
option
agreements...... 1,616 16 2,409
Exchange of note
receivable from
shareholder for
6,837 common
shares.......... 35,000 (6,837) (14,367)
Cumulative
dividends in
arrears on
Series H
redeemable
preferred
shares.......... (704,000)
Accretion of
mandatory
redemption value
of preferred
shares.......... (219,400)
Net loss for the
year ended
December 31,
1996............ (2,941,028)
--------- ---------- --------- ------- ----------- --------- -------- ------- -------- ------------
Balance at
December 31,
1996............. 8,718,768 8,718,768 2,867,915 28,679 17,049,553 -- (20,179) (46,387) (32,450,590)
Issuance of
37,807 common
shares under
option
agreements...... 37,807 378 56,333 (14,286) (21,430)
Issuance of
519,530 common
shares to HBO &
Co. for
TouchScript
software........ 519,330 5,195 25,978
Cumulative
dividends in
arrears on
Series H
redeemable
preferred
shares.......... (704,000)
Accretion of
mandatory
redemption value
of preferred
shares.......... (219,399)
Net loss for the
year ended
December 31,
1997............ (10,799,071)
--------- ---------- --------- ------- ----------- --------- -------- ------- -------- ------------
Balance at
December 31,
1997............. 8,718,768 8,718,768 3,425,052 34,252 16,208,465 -- (34,465) (67,817) (43,249,661)
Issuance of
4,597,070 common
shares in Series
I Unit
Offering........ 4,597,070 45,970 963,120
Issuance of
336,532 common
shares under
option
agreements...... 336,532 3,365 53,956
Issuance of
1,326,661
warrants in
connection with
exchange of
subordinated
convertible
debentures for
Series J
redeemable
preferred
shares.......... 238,800
Unearned
compensation in
connection with
issuance of
1,985,165
options......... 406,671 $(406,671)
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 $15,467,430 $(230,417) $ -- (34,465) $(67,817) $(50,763,970)
========= ========== ========= ======= =========== ========= ======== ======= ======== ============
</TABLE>
The accompanying notes are an integral part of these 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 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 these consolidated financial
statements.
F-7
<PAGE>
ALLSCRIPTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of Business
Allscripts, Inc. (an Illinois corporation) and its wholly owned
subsidiaries, Allscripts Pharmacy Centers, Inc., Prescription Management
Company, Inc., and Physician Dispensing Systems, Inc. (altogether referred to
as "Allscripts"), provide physicians with Internet and client/server medication
management solutions designed to improve the quality and cost effectiveness of
pharmaceutical healthcare. Allscripts grants uncollateralized credit to its
customers. Allscripts operates in one industry segment. As its product
offerings evolve, the manners in which its activities are internally reported
and its decisions are made could change. Allscripts will continually evaluate
its determination of operating segments. The company changed its name to
Allscripts, Inc. on October 20, 1997.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of Allscripts,
Inc. and its wholly owned subsidiaries. All significant intercompany
transactions have been eliminated.
Revenue Recognition
Through December 1998, Allscripts generated substantially all of its
revenue from the sale of medications for dispensing at the point of care.
Revenue is recognized upon shipment of the pharmaceutical products. Revenue for
software license fees is recognized ratably over the term of the license
beginning after the software has been installed, training has been completed
and the customer begins utilizing the software. Revenue from the sale of
hardware is recognized upon shipment of the product, however, no revenue is
recognized for license fees or the sale of hardware where it is refundable or
subject to the performance of future obligations. Revenue for services is
recognized when the related service is performed.
Manufacturer Rebates
Rebates from suppliers are recorded as a reduction of cost of revenue and
are recognized on an estimated basis upon shipment of the product to customers.
The difference between the amount estimated and the amount actually received is
reflected prospectively as a change of estimate. These revisions have not been
material.
Inventories
Inventories, which consist primarily of finished goods, are carried at the
lower of cost (specific identification) or market.
Fixed Assets
Fixed assets are stated at cost. Depreciation is computed on the straight-
line method over the estimated useful lives of the related assets, which range
from 2 to 7 years. Upon asset retirement or other disposition, cost and the
related allowance for depreciation are removed from the accounts, and gain or
loss is included in the consolidated statements of operations. Amounts expended
for repairs and maintenance are charged to operations as incurred.
Intangible Assets
Intangible assets, which are stated at cost, consist of software rights,
non-compete agreements, customer lists and goodwill. Allscripts' policy is to
amortize intangible assets using the straight-line method
F-8
<PAGE>
ALLSCRIPTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
over the remaining estimated economic life of those assets including the period
being reported on. Allscripts analyzes the value of its recorded intangible
assets on an ongoing basis to determine that the recorded amounts are
reasonable and are not impaired. The analysis includes a review of undiscounted
future cash flows for each group of acquired customers based on environmental
factors, customer retention, cash flow projections and other factors Allscripts
believes are relevant to determine if any impairment of the asset has occurred.
If impairment is noted, then future cash flows are discounted and the amount of
impairment is then measured and a writedown is recorded. If necessary, the
remaining amortization period is adjusted accordingly.
The average amortization periods for intangible assets for the years ended
December 31, 1996, 1997 and 1998 are as follows:
<TABLE>
<CAPTION>
1996 1997 1998
-------- ------- -------
<S> <C> <C> <C>
Capitalized software........................... 3 years 3 years 3 years
Non-compete agreements......................... 5 years 5 years 5 years
Customer lists................................. 5 years 2 years 2 years
Goodwill....................................... 15 years 5 years 5 years
</TABLE>
Debt Issuance Costs
Costs attributable to the issuance of significant debt are deferred and
amortized on a straight-line basis over the term of the related debt.
Use of Estimates
Generally accepted accounting principles require management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at year end
and the reported amounts of revenues and expenses during the year. Actual
results could differ from these estimates.
Concentration of Credit Risk
Financial instruments that potentially subject Allscripts to a
concentration of credit risk consist of cash and trade receivables.
Allscripts sells its products and services to healthcare providers and
employer funded benefit plans. Credit risk with respect to trade receivables is
generally diversified due to the large number of customers and their dispersion
across the entire United States. Trade receivables with employer funded benefit
plans are further diversified across many different industries. To reduce
credit risk, Allscripts performs ongoing credit evaluations of its customers
and their payment histories. In general, Allscripts does not require collateral
from its customers, but it does enter into advance deposit, security or
guarantee agreements if appropriate.
Allscripts maintains its cash balances with one major commercial bank.
Income Taxes
Deferred tax assets or liabilities are established for temporary
differences between financial and tax reporting bases and are subsequently
adjusted to reflect changes in tax rates expected to be in effect
F-9
<PAGE>
ALLSCRIPTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
when the temporary differences reverse. A valuation allowance is established
for any deferred tax asset for which realization is not likely.
Stock Based Compensation
Effective December 31, 1996, Allscripts adopted Statement of Financial
Accounting Standards No. 123, "Accounting for Stock Based Compensation." As
provided by SFAS 123, Allscripts has elected to continue to account for its
stock based compensation programs according to the provisions of Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees."
Accordingly, compensation expense has been recognized to the extent of employee
or director services rendered based on the intrinsic value of compensatory
options or shares granted under the plans. Allscripts has adopted the
disclosure provisions required by SFAS 123.
Fair Value of Financial Instruments
The carrying amounts reported in the balance sheets for cash, accounts
receivable and accounts payable approximate their fair values due to the short
term nature of these financial instruments. The fair values of the note payable
to bank and the long term debt are estimated based on current interest rates
available to Allscripts for debt instruments with similar terms, degrees of
risk and remaining maturities. The carrying values of the note payable to bank
and the long term debt approximates their fair values.
Comprehensive Income
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" (FAS 130). FAS 130 establishes
standards for the reporting and display of comprehensive income and its
components in a full set of general purpose financial statements and is
effective for fiscal years beginning after December 15, 1997. To date,
Allscripts has not had any transactions that are required to be reported as
comprehensive income.
Net Loss Per Share
Basic and diluted net loss per common share are presented in conformity
with Statement of Financial Accounting Standards No. 128, "Earnings Per Share"
(FAS 128), for all periods presented.
In accordance with FAS 128, basic and diluted net loss per share has been
computed using the weighted average number of shares of common stock
outstanding during the period. Allscripts has excluded all outstanding
convertible preferred stock, which is convertible into 2,977,483 shares of
common stock, all outstanding warrants to purchase 4,892,136 shares of common
stock and all outstanding options to purchase 2,697,123 shares of common stock
from the calculation of diluted loss per share because all such securities are
antidilutive for all periods presented.
Software and Development Costs
Allscripts capitalizes purchased software that is ready for service and
software development costs incurred from the time technological feasibility of
the software is established until the software is ready for use. Research and
development costs and other computer software maintenance costs related to
software development are expensed as incurred. While technological feasibility
for the current version of TouchScript has been achieved, and therefore
software development costs have been capitalized, these costs have been written
off because the recoverability of such costs is uncertain since market
acceptance is not expected to be achieved for the current version of
TouchScript, Version 6. Software development costs of $296,000, $518,000 and
$771,000 have been capitalized and written off in 1996, 1997 and 1998,
respectively. The costs of purchased software are amortized using the straight-
line method over three years.
F-10
<PAGE>
ALLSCRIPTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
The carrying value of a software and development asset is regularly
reviewed by Allscripts, and a loss is recognized when the net realizable value
falls below the unamortized cost.
3. Other Operating Expenses
Other operating expenses consist of the following for the years ended
December 31:
<TABLE>
<CAPTION>
1996 1997 1998
---------- ---------- --------
<S> <C> <C> <C>
Management reorganization and shutdown
costs.................................. $ 867,502 $ 239,652 $430,345
Writeoff of software intangible......... 166,667 -- --
Writedown of acquisition intangibles.... -- 2,328,000 --
---------- ---------- --------
$1,034,169 $2,567,652 $430,345
========== ========== ========
</TABLE>
The management reorganization and shutdown costs relate to severance costs
associated with reductions in force and other severance arrangements and, in
1996, include the costs associated with the shutdown of Allscripts'
Pennsylvania sales office. The portion of the charges outlined above that
relates to management reorganization equals $573,727 in fiscal 1996, $239,652
in fiscal 1997 and $430,345 in fiscal 1998. The number and nature of employees
affected in each year is as follows: 1996, three administrative and one sales,
1997, seven administrative and three sales and 1998, ten administrative and
nine sales. As of March 31, 1999, all payments provided for had been made.
A summary of management reorganization and shutdown costs and related
payments is as follows:
<TABLE>
<CAPTION>
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Beginning balance........................ $ 336,500 $ 285,515 $ 180,688
Expense.................................. 867,502 239,652 430,345
Payments................................. (918,487) (344,479) (337,967)
--------- --------- ---------
Ending balance......................... $ 285,515 $ 180,688 $ 273,066
========= ========= =========
</TABLE>
Allscripts determined that an impairment of customer lists and goodwill
acquired in certain point-of-care-dispensing acquisitions occurred in 1997.
The impairment was triggered by the loss of customers and the reduced level of
operating profit being generated by the acquired customers. The impairment
analysis included a review of undiscounted future cash flows for each group of
acquired customers to determine if any impairment of the asset had occurred.
As a result, Allscripts has made a provision in 1997 of $2,328,000,
representing the estimated excess of the carrying value of the intangible
assets over the discounted future cash flows. In addition, Allscripts reduced
the remaining amortization period to six and three years for goodwill and
customer lists, respectively, related to its mail order pharmacy business and
five and two years for goodwill and customer lists, respectively, related to
its point-of-care site dispensing business. The previous amortization periods
had been 20 and 10 years for intangibles arising from those acquisitions. In
testing for impairment, Allscripts used the held-for-use model under SFAS 121.
4. Other Expense
Other expense consists of the following for the years ended December 31:
<TABLE>
<CAPTION>
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Loss on note receivable from shareholder
exchanged for common shares................... $38,956 $ -- $ --
======= ======= =======
</TABLE>
F-11
<PAGE>
ALLSCRIPTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
5. Fixed Assets
Fixed assets as of December 31 consist of the following:
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Office furniture and equipment..................... $3,214,670 $3,845,120
Production and warehouse equipment................. 2,039,390 2,170,198
Leasehold improvements............................. 473,086 584,139
Construction in progress........................... 27,317 39,213
---------- ----------
5,754,463 6,638,670
Less accumulated depreciation...................... 4,221,641 4,854,674
---------- ----------
$1,532,822 $1,783,996
========== ==========
</TABLE>
Included in fixed assets are $2,540,856 and $3,273,553 as of December 31,
1997 and 1998, respectively, related to revenue producing assets that are fully
depreciated.
Depreciation expense from continuing operations was approximately $558,000
in 1996, $522,000 in 1997 and $563,000 in 1998.
6. Intangible Assets
Intangible assets as of December 31 consist of the following:
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Capitalized software............................. $ 81,145 $ 81,145
Non-compete agreements........................... 515,000 515,000
Customer lists................................... 4,263,282 4,263,282
Goodwill......................................... 15,984,192 15,984,192
----------- -----------
20,843,619 20,843,619
Less accumulated amortization.................... 16,265,879 17,141,784
----------- -----------
$ 4,577,740 $ 3,701,835
=========== ===========
</TABLE>
Accumulated amortization includes writedowns in excess of normal
amortization.
7. Accrued Expenses
Accrued expenses as of December 31 consist of the following:
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Accrued employee compensation benefits and
payroll taxes................................... $ 580,839 $ 201,060
Accrued vacation pay............................. 422,011 549,686
Accrued severance................................ 180,688 273,066
Accrued commissions.............................. 346,591 41,629
Accrued interest................................. 159,739 3,526
Accrued--other................................... 166,151 207,882
---------- ----------
$1,856,019 $1,276,849
========== ==========
</TABLE>
F-12
<PAGE>
ALLSCRIPTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
8. Lease Commitments
Allscripts conducts its operations from leased premises and with equipment
under several operating leases. Total rent expense from continuing operations
was approximately $494,000, $491,000 and $599,000 for the years ended December
31, 1996, 1997 and 1998, respectively.
Future minimum rental payments for the next five years are as follows:
<TABLE>
<CAPTION>
Year Ending
December
31,
-----------
<S> <C>
1999.......................................................... $ 569,275
2000.......................................................... 546,104
2001.......................................................... 551,250
2002.......................................................... 540,491
2003 and thereafter........................................... 804,714
----------
Total minimum lease payments.................................. $3,011,834
==========
</TABLE>
9. Notes Payable
Notes payable as of December 31 consist of the following:
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Borrowings under revolving credit facility with
commercial bank................................. $2,500,000 $4,000,000
========== ==========
</TABLE>
During 1997 and up to April 16, 1998, Allscripts maintained a credit
arrangement with a commercial bank consisting of two components, a revolving
credit facility and a term loan. The revolving credit facility permitted
borrowings up to $10,000,000, limited by certain eligible working capital
requirements. At December 31, 1997, approximately $3,400,000 of borrowing
capacity was available. Interest was at prime plus 0.5% (9.00% at December 31,
1997). Borrowings under the revolving credit facility were collateralized by
accounts receivable, inventory, equipment and other assets. Allscripts was
required to maintain a compensating balance of $350,000 under the revolving
credit facility.
On April 16, 1998, Allscripts signed a new revolving credit agreement with
its commercial bank. As amended, the revolving credit facility permits
borrowings up to $10,000,000, limited by certain eligible working capital
requirements. At December 31, 1998, approximately $4,000,000 of borrowing
capacity was 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.
F-13
<PAGE>
ALLSCRIPTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
10. Long-Term Obligations
On April 30, 1996, Allscripts completed a $10,000,000 financing in the form
of 8.0% convertible subordinated debentures due April 30, 2001. Interest on the
debentures is payable semiannually. The debentures can be converted into
2,683,152 common shares of Allscripts at a conversion price equal to $4.2024.
The debentures are convertible at the option of the holder. Under the terms of
the debenture agreements, Allscripts' ability to pay dividends is restricted
under certain circumstances.
In conjunction with the issuance of the Series I Preferred and common stock
(see Note 12), the majority of the outstanding subordinated convertible
debentures were exchanged for 1,803,838 shares of Series J Preferred (see Note
13). In connection with this exchange, Allscripts also issued to the Series J
Preferred shareholders 1,326,661 detachable warrants to purchase shares of
common stock of Allscripts for $0.06 per share. The warrants will expire five
years from the date of closing of the sale of Series I Preferred (see Note 12).
An extraordinary loss of $790,431 was recorded in the consolidated
statement of operations for the year ended December 31, 1998, consisting of the
writeoff of deferred financing costs related to Allscripts' convertible
subordinated debentures and the value of the warrants issued to the Series J
Preferred shareholders.
Long-term obligations as of December 31 consist of the following:
<TABLE>
<CAPTION>
1997 1998
----------- -------
<S> <C> <C>
Term loan, payable to a commercial bank, principal due
April 30, 1998; interest at prime; interest payable
monthly, collateralized by certificates of deposit or
letters of credit of a certain related party preferred
shareholder (Allstate Insurance Company).................. $ 4,692,932 $ --
Convertible subordinated debentures issued April 30, 1996
at par in the amount of $10,000,000; due April 30, 2001;
interest at 8.0% payable semiannually on April 30 and
October 31, potentially increasing 0.5% on each such
interest record date to a maximum of 1.5%; convertible
into 2,683,152 common shares at December 31, 1997 and
13,985 common shares at December 31, 1998 at $4.2024...... 11,275,680 58,774
----------- -------
15,968,612 58,774
Less current portion....................................... 4,692,932 --
----------- -------
$11,275,680 $58,774
=========== =======
</TABLE>
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>
F-14
<PAGE>
ALLSCRIPTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1998
-------------------------- --------------------------
Temporary Temporary
Difference Tax Effect Difference Tax Effect
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Provision for doubtful
accounts............... $ 3,432,000 $ 1,425,000 $ 4,522,507 $ 1,877,000
Acquisition costs....... 873,000 366,000 873,000 362,000
Vacation accrual........ 422,000 175,000 523,000 217,000
Bonus accrual........... 30,000 12,000 30,000 12,000
Severance reserve....... 77,000 32,000 -- --
Inventory reserve....... 235,000 98,000 154,000 64,000
Inventory
capitalization......... 24,000 10,000 56,000 23,000
Property, plant and
equipment.............. 675,000 280,000 138,000 57,000
Net operating loss...... 26,965,000 11,190,000 30,534,000 12,672,000
------------ ------------ ------------ ------------
Subtotal............ 32,733,000 13,588,000 36,830,507 15,284,000
Less: valuation
allowance.............. (32,733,000) (13,588,000) (36,830,507) (15,284,000)
------------ ------------ ------------ ------------
Total............... $ -- $ -- $ -- $ --
============ ============ ============ ============
</TABLE>
At December 31, 1997 and 1998, Allscripts has operating loss carryforwards
available for federal income tax reporting purposes of approximately
$26,965,000 and $30,534,000, respectively. The operating loss carryforwards
expire in 2002 through 2013. Allscripts' ability to utilize these operating
loss carryforwards to offset future taxable income is dependent on a variety of
factors, including possible limitations on usage pursuant to Internal Revenue
Code Section (IRC) 382. IRC 382 imposes an annual limitation on the future
utilization of operating loss carryforwards due to changes in ownership
resulting from the issuance of common shares, stock options, warrants and
convertible preferred shares.
No provision for income taxes has been made due to Allscripts' operating
losses.
12. Redeemable Preferred Shares and Shareholders' Equity
Redeemable Preferred Shares
The Series H Preferred shares are voting, nonparticipating and have a
liquidation preference upon dissolution of Allscripts of $6.462 per share plus
an amount equal to all unpaid dividends accrued thereon. 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
F-15
<PAGE>
ALLSCRIPTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
$8,800,000 plus all accrued dividends ($3,007,430 at December 31, 1998 or $2.21
per share) five years from the closing of the sale of Series I Preferred. In
consideration of the change in terms therein, Allscripts issued 916,657
warrants to purchase shares of common stock of Allscripts for $0.06 per share
to the holders of Series H Preferred. The warrants will expire five years from
the date of the closing of the sale of Series I Preferred.
On April 16, 1998, Allscripts effected the private placement of Series I
Preferred and common stock of Allscripts for $8,930,000. The common stock
component, 4,597,070 shares, represented 24.4% of Allscripts' common stock at
April 16, 1998, assuming exercise of all options and warrants and the
conversion of all convertible preferred stock into common stock. Based upon an
independent appraisal, $1,009,000 was allocated to the value of the common
stock issued in the Series I Unit Offering. The difference, $733,265, between
the amount initially recorded for the redeemable preferred stock and its
redemption value will be accreted over the life of the Series I Preferred
shares such that the Series I Preferred shares will be reflected at redemption
value at the date of redemption. The Series I Preferred shares are voting and
have a liquidation preference upon dissolution of Allscripts of $6.462 per
share plus an amount equal to all unpaid dividends accrued thereon. The Series
I Preferred shares are in parity with the Series J Preferred shares and senior
to Series A, Series B, Series C, Series D, Series F, Series G and Series H
Preferred shares with respect to liquidation preference.
A cumulative dividend on the Series I Preferred accrues at a rate of 8.5%
per annum. The Series I Preferred are to be redeemed at $8,654,175 plus any
accrued but unpaid dividends ($521,053 at December 31, 1998 or $0.39 per
share), upon a qualified initial public offering, but no later than five years
from the issuance date of the Series I Preferred. A qualified initial public
offering is defined as a firm commitment public offering with a per share price
of at least $4.80 and in which Allscripts receives at least $20,000,000 in net
proceeds.
Accrued dividends are payable only: (a) when declared by the Board, (b)
upon the liquidation, dissolution or winding up of Allscripts, (c) upon a
qualified initial public offering, or (d) upon a redemption event as defined
above.
As outlined above and in Note 10, the issuance of the Series I Preferred
securities required amendments to the terms of the Series H and an exchange of
the Subordinated Convertible debentures, among other things.
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
F-16
<PAGE>
ALLSCRIPTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
liquidation preference. The Series C, Series D and Series F Preferred shares
are senior to the Series A and Series B Preferred shares in respect to the
liquidation preference. These preferred shareholders have the option to convert
their shares into common shares at prescribed rates. Automatic conversion
occurs upon the closing of a qualified initial public offering, as defined. At
December 31, 1998, Allscripts had reserved 2,977,483 common shares for issuance
upon conversion of all outstanding convertible preferred shares.
Warrants
Simultaneous with the Series H Unit Offering, Allscripts issued warrants to
purchase 156,428 shares of Allscripts' common shares for $7.50 per share to a
shareholder in exchange for the continuing guaranty of a term loan with
Allscripts' principal bank. The warrants expire in September 1999. Because the
exercise price of the warrants exceeded the per share value implied by the
Series H Unit Offering, no value was ascribed to the warrants.
In conjunction with the 1996 convertible subordinated debenture offering,
the term loan guaranteed by a shareholder was amended to extend the maturity
date to April 30, 1998. In exchange for extending its guaranty of such term
debt, Allscripts issued warrants to purchase an aggregate of 279,181 common
shares with a strike price of $4.2024. The warrants expire April 30, 2001.
Because the exercise price of the warrants exceeded the per share value implied
by the convertible subordinated debenture offering, no value was ascribed to
the warrants.
As a condition to the Series I Unit Offering, Allscripts amended the
maturity date of the Series H Preferred shares and exchanged the subordinated
convertible debentures for shares of Series J Preferred. In exchange for these
concessions, Allscripts issued detachable warrants to the holders of Series H
Preferred shares and holders of Series J Preferred shares in the aggregate
amounts of 916,657 and 1,326,661 shares of common stock, respectively. Based
upon an independent appraisal, $165,000 was allocated to the warrants issued to
the Series H Preferred shareholders, and the net loss attributable to the
common shareholders in 1998 was increased by this amount. Based upon an
independent appraisal, $238,800 was assigned to the value of the warrants
issued to the Series J Preferred shareholders. The warrants carry a strike
price of $0.06 and expire in April 2003.
As part of the Series H Unit Offering, Allscripts issued warrants to
purchase 2,269,633 shares of the common stock of Allscripts for $0.06 per
share. These warrants are on substantially the same terms as the above warrant
issuances. The warrants expire in September 1999. Based upon an independent
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.
F-17
<PAGE>
ALLSCRIPTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Stock Option Plans
Allscripts has established several stock option plans under which officers,
employees, directors, consultants or agents are eligible to receive incentive
stock or nonqualified options to purchase shares of Allscripts' common shares.
In November 1993, Allscripts adopted the 1993 Stock Incentive Plan and
established the number of shares initially issuable under the plan at 150,000
shares. In addition, the several existing plans were amended to terminate
future grants under those plans and to provide for the transfer of shares
authorized for grant but not granted to the 1993 Stock Incentive Plan. The
exercise price for shares under these plans is determined by Allscripts' Board
of Directors at the date of grant. All options must be exercised within ten
years of the date of grant. The plans provide for exercise of options by
payment of cash, surrender of common shares or surrender of options. Options
vest on various schedules, primarily over three and four year periods from the
date of grant, and in certain circumstances upon a change in control. In
September 1994, the 1993 Stock Incentive Plan was amended to provide for
1,077,217 additional common shares to be issuable pursuant thereto. In December
1995, the 1993 Stock Incentive Plan was amended to provide for 578,331
additional common shares to be issued pursuant thereto. In July and September
1997, the 1993 Stock Incentive Plan was amended to provide for 684,151 and
500,000 additional common shares to be issued pursuant thereto. At December 31,
1998, options to purchase 2,905,258 common shares were authorized under those
plans, and options with respect to 1,434,122 shares were exercisable under
these plans.
In addition, in November 1993, Allscripts adopted the 1993 Amended and
Restated Eligible Directors Stock Option Plan and established the number of
shares issuable under the plan at 33,333 shares. The plan provides for
nonqualified option grants to eligible directors, as defined, of Allscripts
upon election to the Board of Directors or adoption of the plan and upon the
first and second anniversary of their directorship. The exercise price for
shares under these plans is determined by Allscripts' Board of Directors, at
the date of grant. The plans provide for exercise of options by payment of
cash, surrender of common shares or surrender of options. Options vest upon
grant. In February 1997, Allscripts adopted an amendment and restatement of the
1993 Stock Incentive Plan and terminated the Eligible Directors Stock Option
Plan. The amendment and restatement of the 1993 Stock Incentive Plan made
eligible directors (as defined in the Eligible Directors Stock Option Plan)
eligible for grants of stock incentives under the 1993 Stock Incentive Plan and
provided for the transfer to the 1993 Stock Incentive Plan of shares authorized
for grant but not granted under the Eligible Directors Stock Option Plan and of
shares underlying outstanding options under the Eligible Directors Stock Option
Plan that are terminated or canceled or that expire.
In addition, in 1990, Allscripts has issued options to purchase 7,760
shares of Allscripts' common stock outside of the plans under separate
agreement. These options were fully vested and exercisable at December 31,
1997.
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
F-18
<PAGE>
ALLSCRIPTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
expense to the extent of the calculated fair value of stock options granted in
1996, 1997 and 1998, reported net income and earnings per share would have been
reduced as follows:
<TABLE>
<CAPTION>
1996 1997 1998
---------- ----------- ----------
<S> <C> <C> <C>
Net loss, as reported................. $2,941,028 $10,799,071 $7,514,309
Pro forma net loss.................... 3,031,347 10,895,180 7,606,193
Pro forma net loss per share--basic
and diluted.......................... $ 1.06 $ 3.69 $ 1.25
</TABLE>
Under SFAS 123, compensation expense representing fair value of the option
grant is recognized over the vesting period. The initial impact on pro forma
net loss may not be representative of compensation expense in future years,
when the effect of amortization of multiple awards would be reflected in pro
forma earnings.
For purposes of the SFAS 123 pro forma net income and earnings per share
calculation, the fair value of each option grant is estimated as of the date of
grant using the Black-Scholes option pricing model. The weighted average
assumptions used in determining fair value as disclosed for SFAS 123 are shown
in the following table:
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Risk-free interest rate................................. 6.29% 5.99% 5.15%
Option life (years)..................................... 4 4 4
</TABLE>
Option activity for the years ended December 31, 1996, 1997 and 1998 is as
follows:
<TABLE>
<CAPTION>
Options Weighted Average Options
Outstanding Exercise Price Exercisable
----------- ---------------- -----------
<S> <C> <C> <C>
Balance at January 1, 1996............ 1,523,201 $2.10 745,255
Options granted..................... 195,850 1.50
Options exercised................... (1,616) 1.50
Options forfeited................... (339,423) 3.96
----------
Balance at December 31, 1996.......... 1,378,012 1.50 802,049
Options granted..................... 1,655,218 2.34
Options exercised................... (37,807) 1.50
Options forfeited................... (265,066) 1.56
----------
Balance at December 31, 1997.......... 2,730,357 2.04 1,100,948
Options granted..................... 1,985,165 0.06
Options exercised................... (336,522) 0.18
Options forfeited................... (198,301) 1.62
Options canceled.................... (1,483,576) 1.34
----------
Balance at December 31, 1998.......... 2,697,123 $0.68 1,434,122
==========
</TABLE>
F-19
<PAGE>
ALLSCRIPTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
For the years ended December 31, 1996, 1997 and 1998, the weighted average
fair value of options granted with an exercise price equal to market price was
$1.50, $2.34 and $0.06, respectively.
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- ---------------------------------------------------- --------------------------
Weighted
Average
Remaining Weighted Weighted
Number of Contractual Average Number of Average
Exercise Options Life Exercise Options Exercise
Prices Outstanding (in years) Price Exercisable Price
- -------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.06 1,660,897 10.23 $0.06 497,538 $ 0.06
1.50 899,453 6.26 1.50 856,214 1.50
2.16 10,350 7.63 2.16 5,820 2.16
2.34 110,330 8.00 2.34 58,457 2.34
3.00 8,333 6.04 3.00 8,333 3.00
10.24 7,760 1.13 10.24 7,760 10.24
--------- ---------
2,697,123 1,434,122
========= =========
</TABLE>
13. Contingencies
The pharmaceutical repackaging industry is subject to stringent federal and
state regulations. Allscripts' repackaging operations are regulated by the Food
and Drug Administration as if Allscripts were a manufacturer. Allscripts is
also subject to regulation by the Drug Enforcement Administration in connection
with the packaging and distribution of controlled substances.
Allscripts is a defendant in numerous multi-defendant lawsuits involving
the manufacture and sale of dexfenfluramine, fenfluramine and phentermine. The
plaintiffs in these cases claim injury as a result of ingesting a combination
of these weight-loss drugs. These suits have been filed in various
jurisdictions throughout the United States, and in each of these suits,
Allscripts is one of many defendants, including manufacturers and other
distributors of these drugs. Allscripts does not believe it has any significant
liability incident to the distribution or repackaging of these drugs and it has
tendered defense of these lawsuits to its insurance carrier for handling. The
lawsuits are in various stages of litigation and it is too early to determine
what, if any, liability Allscripts will have with respect to the claims made in
these lawsuits. If Allscripts' insurance coverage in the amount of $16,000,000
per occurrence and $17,000,000 per year in the aggregate is inadequate to
satisfy any resulting liability, Allscripts will have to defend these lawsuits
and be responsible for the damages, if any, that Allscripts suffers as a result
of these lawsuits. Allscripts does not believe that the outcome of these
lawsuits will have a material adverse effect on its financial condition,
results of operations or cash flows.
14. Employment Matters and Agreements
In June 1996, October 1997, December 1997, March 1998 and December 1998,
certain executives and employees terminated their responsibilities with
Allscripts. In connection with these terminations, Allscripts entered into
severance agreements with these executives and employees. Total costs of
$574,000, $204,000 and $430,000, including amounts payable in the future
related to these agreements, have been included as management restructuring and
shutdown costs under Other Operating Expenses in 1996, 1997 and 1998,
respectively.
15. Savings Plan
Effective January 1, 1993, employees of Allscripts who meet certain
eligibility requirements can participate in Allscripts' 401(k) Savings and
Investment Plan. Under the plan, Allscripts may, at its
F-20
<PAGE>
ALLSCRIPTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
discretion, match the employee contributions. Allscripts recorded expenses from
continuing operations related to its matching contributions for the years ended
December 31, 1996, 1997 and 1998 of $35,418, $44,781 and $36,725, respectively.
16. Enterprise Systems, Inc. Agreement
During 1996 and 1997, Allscripts established a relationship with Enterprise
Systems, Inc. to further develop Allscripts' automated dispensing product and
introduce touch technology to its product. Enterprise developed a product
called TouchScript. On March 13, 1997, Enterprise Systems, Inc. entered into a
Merger Agreement with HBO & Company and subsequently on June 26, 1997 completed
said merger. On July 17, 1997, Allscripts entered into an agreement with HBO &
Company whereby HBO & Company assigned and transferred to Allscripts all of its
rights, title and interest in the TouchScript system and all corresponding
documentation therefor, including all copyrights, copyright registrations,
trademark applications and trademark registrations. In exchange, Allscripts
issued 519,530 shares of common stock.
The shares were recorded at fair market value determined by Allscripts of
$0.06 per share, thus assigning a value of $31,173 to the TouchScript software.
The software is being amortized on a straight-line basis over a three-year
period.
17. Discontinued Operations
On March 18, 1999, Allscripts signed a definitive agreement to sell certain
assets of its pharmacy benefit management operation to Pharmacare Management
Services, Inc., Pharmacare Direct, Inc., and Procare Pharmacy, Inc. The sale
closed on March 31, 1999. The aggregate purchase price is $15,400,000, payable
in the form of an up front payment at closing of $7,000,000 and a contingent
payment of up to $8,400,000 payable within 10 business days after the first
anniversary of the closing date. Additionally, the buyers purchased the
inventory at Allscripts' net cost, approximately $500,000, while Allscripts
retained the remaining working capital. The contingent payment is based upon
the number of prescription fillings (including original fillings and subsequent
refills) for the one-year period following the closing. Allscripts will receive
$23.12 for each traditional mail order prescription filling up to a maximum of
$5,000,000, $11.67 for each specialty mail order prescription filling up to a
maximum of $700,000 and $4.48 for each retail pharmacy prescription filling up
to a maximum of $2,700,000, in each case for fillings only from customers that
have been retained as of the anniversary date. Under certain circumstances, a
portion of the contingent payment can be paid prior to the anniversary date.
Allscripts expects to receive less than the maximum contingent payment.
The operating results of the pharmacy benefit management segment have been
segregated from continuing operations and reported as a separate line item on
the Consolidated Statements of Operations under the caption "Income (loss) from
discontinued operations." Additionally, Allscripts has restated its prior
financial statements to present the operating results of the pharmacy benefit
management operations as a discontinued operation.
F-21
<PAGE>
ALLSCRIPTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Operating results from discontinued operations were as follows:
<TABLE>
<CAPTION>
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Revenue............................ $42,225,000 $44,719,000 $52,866,000
Cost of revenue.................... 39,001,000 41,413,000 49,313,000
----------- ----------- -----------
Gross profit................... 3,224,000 3,306,000 3,553,000
Selling, general and administrative
expenses.......................... 1,735,000 5,114,000 2,583,000
----------- ----------- -----------
Operating income (loss)............ 1,489,000 (1,808,000) 970,000
----------- ----------- -----------
Income (loss) from discontinued
operations........................ $ 1,489,000 $(1,808,000) $ 970,000
=========== =========== ===========
</TABLE>
Included in revenue is $1,580,000 in 1997 and $2,982,000 in 1998 from
Anthem, Inc., a related party (see Note 20). Included in selling, general and
administrative expenses in 1997 is approximately $3,300,000 pertaining to the
writedown of intangible assets.
The components of assets and liabilities of discontinued operations
included in Allscripts' consolidated balance sheets at December 31 are as
follows:
<TABLE>
<CAPTION>
1997 1998
---------- -----------
<S> <C> <C>
Assets:
Accounts receivable............................... $5,715,000 $7,015,000
Inventory......................................... 317,000 521,000
Other............................................. 3,611,000 2,936,000
---------- -----------
Total assets....................................... $9,643,000 $10,472,000
Liabilities........................................ 4,879,000 6,192,000
---------- -----------
Net............................................ $4,764,000 $ 4,280,000
========== ===========
</TABLE>
18. Supplemental Cashflow Information
<TABLE>
<CAPTION>
1996 1997 1998
-------- -------- -----------
<S> <C> <C> <C>
Interest paid.................................... $640,057 $509,292 $ 294,171
Noncash investing and financing activity:
Exchange of 6,837 shares of common stock held
by a former executive for a note receivable
held by Allscripts, totaling $35,000 plus
interest...................................... 35,000 -- --
In connection with the agreement with HBO &
Company, issuance of 519,530 common shares
valued at $0.06 per share, in exchange for
software valued at $31,173.................... -- 31,173 --
Accretion of mandatory redemption value of
preferred shares.............................. 219,400 219,399 323,278
In connection with the $10,000,000, 8.0%
convertible subordinated debentures issued
April 30, 1996, issuance of $400,000 and
$875,680 of additional debentures in
satisfaction of accrued interest thereon for
the years ended December 31, 1996 and 1997,
respectively.................................. 400,000 875,680 --
In connection with the Series I Unit Offering,
issuance of 1,803,838 shares of Series J
Redeemable Preferred shares and 1,326,661
warrants in exchange for Allscripts'
outstanding convertible subordinated
debentures (in the aggregate principal amount
of $11,219,303) plus accrued interest thereon
through April 15, 1998 ($437,085 in
aggregate).................................... -- -- 11,656,388
Cumulative dividends in arrears on redeemable
preferred shares.............................. 704,000 704,000 1,926,865
</TABLE>
F-22
<PAGE>
ALLSCRIPTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
19. Recently Issued Accounting Pronouncements
During 1997 the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information." In
February 1998 the FASB issued SFAS No. 132 "Employers' Disclosures about
Pensions and other Postretirement Benefits." SFAS No. 131 specifies revised
guidelines for determining an entity's operating segments and the type and
level of financial information to be disclosed. This standard requires that
management identify operating segments based on the way that management
desegregates the entity for making internal operating decisions. SFAS No. 132
standardizes the disclosure requirements for pension and other postretirement
benefits.
As a result of the March 1999 sale of the pharmacy benefit management
segment, Allscripts currently operates in one segment. Allscripts does not
offer the types of benefit programs that fall under the guidelines of Statement
of Financial Accounting Standards No. 132--Employers' Disclosures about
Pensions and other Postretirement Benefits.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards for derivative instruments and requires recognition of all
derivatives as assets or liabilities in the statement of financial position and
measurement of those instruments at fair value. The statement is effective for
fiscal years beginning after June 15, 1999. To date, Allscripts has not entered
into any derivative financial instruments or hedging activities.
In June 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use." This standard requires companies to
capitalize qualifying computer software costs that are incurred during the
application's development stage and amortize them over the software's estimated
useful life. SOP 98-1 is effective for fiscal years beginning after December
15, 1998. Such costs were not material for the three-year period ended December
31, 1998. Allscripts is currently evaluating the impact of SOP 98-1 on its
financial statements and related disclosures.
20. Related Party Transactions
Since June 1997, Allscripts has provided pharmacy benefit management
services for Anthem, Inc. One of Allscripts' directors is Chairman of the
Board, President and Chief Executive Officer of Anthem (see Note 17).
21. Subsequent Events--Acquisitions
In May 1999, Allscripts acquired all of the outstanding stock of TeleMed
Corp., which does business as MedSmart, in exchange for 117,500 shares of
common stock and additional shares of common stock under certain circumstances.
MedSmart has recently entered the business of informing, or "detailing,"
physicians about specific pharmaceuticals over the Internet and through
Interactive Voice Response. MedSmart also sells medical books and practice-
related software to physicians.
In May 1999, Allscripts agreed in principle to acquire substantially all of
the assets of Shopping@Home, Inc., a development stage Internet retailer, in
exchange for a promissory note in the principal amount of $650,000, bearing
interest at a rate of 6.0% per year, and payable upon the consummation of
Allscripts' initial public offering. Allscripts' Chief Executive Officer and
Chief Operating Officer are principal shareholders of Shopping@Home, Inc.
Allscripts intends to account for these business combinations as purchases.
F-23
<PAGE>
ALLSCRIPTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
22. Subsequent Events--Other
On May 2, 1999, Allscripts' Board of Directors authorized (1) the merger of
Allscripts into a subsidiary incorporated in Delaware upon the closing of
Allscripts' initial public offering and (2) a one-for-six reverse common stock
split.
The reverse stock split and the reincorporation merger in Delaware were
subject to shareholder approval. Shareholder approval was obtained on June 18,
1999. Consequently, all common share information in the accompanying financial
statements has been adjusted to reflect the reverse stock split.
F-24
<PAGE>
ALLSCRIPTS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET
September 30, 1999
<TABLE>
<CAPTION>
1999
-----------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents....................................... $27,089,533
Marketable securities........................................... 36,000,000
Accounts receivable, net of allowances of $3,691,273............ 4,810,201
Inventories..................................................... 3,720,507
Prepaid and other current assets................................ 523,500
-----------
Total current assets.......................................... 72,143,741
-----------
Fixed assets, net of accumulated depreciation of $5,103,299....... 2,564,755
Intangible assets, net of accumulated amortization of
$12,019,827...................................................... 4,170,880
Other assets...................................................... 67,451
-----------
Total assets.................................................. $78,946,827
===========
</TABLE>
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
F-25
<PAGE>
ALLSCRIPTS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET, CONTINUED
September 30, 1999
<TABLE>
<CAPTION>
1999
------------
<S> <C>
LIABILITIES
Current liabilities:
Accounts payable................................................ $ 5,108,961
Accrued vacation................................................ 717,643
Deferred revenue................................................ 436,858
Accrued compensation/withholding taxes.......................... 378,142
Other accrued expenses.......................................... 389,329
------------
Total current liabilities..................................... 7,030,933
Long-term debt.................................................... 58,774
------------
Total liabilities............................................. 7,089,707
------------
STOCKHOLDERS' EQUITY
Preferred stock:
$1.00 par value, 1,000,000 shares authorized, no shares issued
and outstanding................................................ --
Common stock:
$0.01 par value, 75,000,000 shares authorized, 24,033,596 shares
issued and 23,858,475 shares outstanding....................... 240,336
Treasury stock at cost; 175,121 shares............................ (1,462,740)
Unearned compensation............................................. (1,772,915)
Additional paid-in capital........................................ 131,890,313
Accumulated deficit............................................... (57,037,874)
------------
Total stockholders' equity.................................... 71,857,120
------------
Total liabilities and stockholders' equity.................... $ 78,946,827
============
</TABLE>
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
F-26
<PAGE>
ALLSCRIPTS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------------
1998 1999
----------- -----------
<S> <C> <C>
Revenue.............................................. $18,166,609 $19,395,659
Cost of revenue...................................... 13,230,639 15,394,394
----------- -----------
Gross profit..................................... 4,935,970 4,001,267
Selling, general and administrative expenses......... 9,708,330 13,801,914
Amortization of intangibles.......................... 280,327 746,417
Other operating expenses............................. 111,946 319,328
----------- -----------
Loss from operations............................. (5,164,633) (10,866,392)
Interest income...................................... 2,240 670,047
Interest expense..................................... (526,272) (266,791)
----------- -----------
Interest, net........................................ (524,032) 403,256
----------- -----------
Loss from continuing operations...................... (5,688,665) (10,463,136)
Income from discontinued operations.................. 881,988 642,071
Gain from sale of discontinued operations............ -- 3,547,161
----------- -----------
Net loss before extraordinary item................... (4,806,677) (6,273,904)
Extraordinary loss from early extinguishment of
debt................................................ (790,431) --
----------- -----------
Net loss............................................. (5,597,108) (6,273,904)
Accretion of mandatory redemption value of preferred
shares and accrued dividends on preferred shares.... (1,787,965) (2,198,165)
----------- -----------
Net loss attributable to common stockholders......... $(7,385,073) $(8,472,069)
=========== ===========
Per share data--basic and diluted:
Loss from continuing operations (including
accretion and accrued dividends on preferred
shares)........................................... $ (1.35) $ (1.24)
Income from discontinued operations................ 0.16 0.06
Gain from sale of discontinued operations.......... -- 0.35
Extraordinary loss................................. (0.14) --
----------- -----------
Net loss attributable to common stockholders....... $ (1.33) $ (0.83)
=========== ===========
Per share data--pro forma basic and diluted:
Loss from continuing operations (excluding
accretion and accrued dividends on preferred
shares--see Note 6)............................... $ (0.70) $ (0.82)
Income from discontinued operations................ 0.10 0.05
Gain from sale of discontinued operations.......... -- 0.28
Extraordinary loss................................. (0.09) --
----------- -----------
Net loss attributable to common stockholders....... $ (0.69) $ (0.49)
=========== ===========
Weighted average shares of common stock outstanding
used in computing basic and diluted loss per share.. 5,557,206 10,199,302
=========== ===========
Weighted average shares of common stock outstanding
used in computing pro forma basic and diluted loss
per share........................................... 8,554,647 12,797,084
=========== ===========
</TABLE>
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
F-27
<PAGE>
ALLSCRIPTS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------------
1998 1999
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss........................................... $(5,597,108) $(6,273,904)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation..................................... 460,233 637,269
Amortization..................................... 656,930 871,950
Provision for losses on accounts receivable...... 112,156 (350,271)
Gain on sale of discontinued operations.......... -- (3,547,161)
Extraordinary loss............................... 790,431 --
Non-cash compensation expense on common share
options......................................... 156,083 412,492
Non-cash expense from issuance of contingent
shares.......................................... -- 319,328
Exchange of debentures in satisfaction of accrued
interest........................................ 439,281 --
Changes in assets and liabilities:
(Increase) decrease in accounts receivable..... (324,294) 5,201,237
Increase in inventories........................ (420,944) (1,487,799)
Increase in prepaid expenses and other assets.. (98,778) (411,158)
(Decrease) increase in accounts payable........ 60,970 (3,239,452)
Decrease in accrued and other current
liabilities................................... (57,451) (70,496)
----------- -----------
Net cash used in operating activities........ (3,822,491) (7,937,965)
----------- -----------
Cash flows from investing activities:
Capital expenditures............................... (653,497) (1,633,860)
Purchases of marketable securities................. -- (36,000,000)
Proceeds from sale of discontinued operations...... -- 7,472,509
Cash received in acquisitions...................... -- 48,597
----------- -----------
Net cash used in investing activities........ (653,497) (30,112,754)
----------- -----------
Cash flows from financing activities:
Proceeds from exercise of common stock options..... 41,035 377,855
Proceeds from initial public offering--net......... -- 103,025,951
Payments for preferred stock redemptions........... -- (34,745,000)
Proceeds from Series I Unit Offering............... 8,930,000 --
Payment of note payable in connection with
acquisition....................................... -- (650,000)
Proceeds from exercise of common stock warrants.... -- 413,438
Borrowings under line of credit.................... 2,550,000 1,400,000
Payments under line of credit...................... (2,500,000) (5,400,000)
Payments on long-term debt......................... (4,692,932) --
----------- -----------
Net cash provided by financing activities.... 4,328,103 64,422,244
----------- -----------
Net increase (decrease) in cash and cash
equivalents......................................... (147,885) 26,371,525
Cash and cash equivalents, beginning of period....... 204,981 718,008
----------- -----------
Cash and cash equivalents, end of period............. $ 57,096 $27,089,533
=========== ===========
</TABLE>
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
F-28
<PAGE>
ALLSCRIPTS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The quarterly financial information presented herein should be read in
conjunction with Allscripts' audited financial statements and the accompanying
notes included elsewhere herein. The unaudited interim financial statements for
the nine months ended September 30, 1999, have been prepared on a basis
consistent with those financial statements and 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
consolidated financial statements include the accounts of Allscripts, Inc. and
its wholly owned subsidiaries (collectively referred to as "Allscripts"). All
significant intercompany accounts and transactions have been eliminated in
consolidation. The results for the interim periods are not necessarily
indicative of the results to be expected for the year.
2. Recently Issued Accounting Standards
In the first quarter of 1999, Allscripts adopted Statement of Position 98-
1, "Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." SOP 98-1 requires entities to capitalize certain internal-use
software costs once certain criteria are met. Prior to 1999, Allscripts'
practice was to expense the costs of obtaining or developing internal-use
software as incurred. Costs that are capitalizable under this pronouncement
include external direct costs of materials and services consumed in developing
or obtaining internal-use computer software, payroll and payroll-related costs
for employees who are directly associated with and who devote time to the
internal-use computer software project and interest costs incurred when
developing computer software for internal use. Costs incurred relating to
development of internal-use software have not been material.
3. Initial Public Offering
On July 28, 1999, Allscripts completed the initial public offering of its
common stock. Allscripts issued 7,000,000 shares of common stock at an initial
public offering price of $16.00 per share. The initial public offering resulted
in gross proceeds of $112,000,000, $7,840,000 of which was applied to the
underwriting discount and approximately $1,150,000 of which was applied to
related offering expenses. In addition, Allscripts used approximately
$34,745,000 of the proceeds to redeem all outstanding shares of its Series H, I
and J Redeemable Preferred Stock, plus accrued dividends thereon, $3,900,000 to
repay advances under its revolving line of credit with its commercial bank and
approximately $653,000 to repay a promissory note, including accrued interest,
issued as consideration for Allscripts' acquisition of Shopping@Home, Inc. (see
Note 4). The remaining net proceeds of approximately $64,000,000 were invested
in short-term, interest-bearing, investment grade securities.
4. Business Combinations
On May 10, 1999, Allscripts acquired TeleMed Corp., which operated as
MedSmart, a privately held company that sells Internet-based physician drug
education programs and medical books online and by telephone. In exchange for
all of the outstanding common shares of MedSmart, Allscripts issued 117,500
shares of its common stock at closing, and an additional 87,271 shares in
September 1999 pursuant to a contingent payment obligation. Allscripts assigned
a value of $11.00 per share to the shares issued at closing and $14.65 per
share to the shares issued in September. The business combination was accounted
for using the purchase method of accounting and MedSmart's results of
operations have been included in the consolidated financial statements
subsequent to the date of acquisition. The acquisition resulted in goodwill of
approximately $3,200,000, which represents the excess of the purchase price
over the fair value of the assets and which is being amortized on a straight-
line basis over two years.
F-29
<PAGE>
ALLSCRIPTS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
On June 30, 1999, Allscripts acquired substantially all of the assets of
Shopping@Home, Inc., a development-stage Internet retailer, in exchange for a
promissory note in the principal amount of $650,000, bearing interest at 6% per
year and payable upon the consummation of an initial public offering. The
business combination was accounted for using the purchase method of accounting,
and the results of operations of Shopping@Home have been included in the
consolidated financial statements subsequent to the date of acquisition. The
acquisition resulted in goodwill of approximately $640,000, which represents
the excess of the purchase price over the fair value of the assets and which is
being amortized on a straight-line basis over two years. The promissory note,
including accrued interest of $3,000, was repaid in August 1999.
The following unaudited pro forma consolidated results of operations for
the nine months ended September 30, 1998 and 1999 assume the MedSmart and
Shopping@Home, Inc. acquisitions occurred as of January 1 of each year. The pro
forma results are not indicative of the actual results that would have occurred
had the acquisitions been completed as of the beginning of each of the periods
presented, nor are they necessarily indicative of future consolidated results.
As a result, weighted average shares include 204,771 shares issued as
consideration for the TeleMed Corp. acquisition as if they had been issued as
of January 1 of each period presented.
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------------------
1998 1999
----------- ------------
(unaudited)
<S> <C> <C>
Revenue......................................... $19,322,000 $ 19,854,000
Loss from continuing operations................. $(5,956,000) $(10,915,000)
Income from discontinued operations............. 882,000 642,000
Gain from sale of discontinued operations....... -- 3,547,000
Extraordinary loss from early extinguishment of
debt........................................... (790,000) --
----------- ------------
Net loss.................................... $(5,864,000) $ (6,726,000)
=========== ============
Per share data--basic and diluted:
Loss from continuing operations (including
accretion and accrued dividends on preferred
shares)...................................... $ (1.34) $ (1.27)
Income from discontinued operations........... 0.15 0.06
Gain from sale of discontinued operations..... -- 0.35
Extraordinary loss from early extinguishment
of debt...................................... (0.14) --
----------- ------------
Net loss.................................... $ (1.33) $ (0.86)
=========== ============
Weighted average shares of common stock
outstanding used in computing basic and diluted
loss per share................................. 5,761,977 10,362,967
=========== ============
</TABLE>
5. Other Operating Expenses
Other operating expenses for the three and nine months ended September 30,
1999 of $319,000 reflect a non-cash, non-recurring charge related to the
issuance of common stock upon the closing of the initial public offering in
settlement of a contingent payment obligation related to an acquisition
Allscripts made in 1995.
6. Net Loss Per Share
Allscripts accounts for net loss per share in accordance with SFAS No. 128,
"Earnings per Share." SFAS No. 128 requires the presentation of "basic"
earnings per share and "diluted" earnings per share. Basic earnings per share
is computed by dividing the net loss attributable to common stockholders by the
F-30
<PAGE>
ALLSCRIPTS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
weighted average shares of outstanding common stock. For purposes of
calculating diluted earnings per share, the denominator includes both the
weighted average shares of common stock outstanding and dilutive potential
common stock.
In accordance with SFAS No. 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 the impact of all
outstanding warrants and options to purchase shares of common stock, all
outstanding convertible preferred shares on an if converted basis and
contingent share payment obligations from the calculation of diluted loss per
share because all such securities are antidilutive for all periods presented.
Antidilutive potential common stock from the exercise of outstanding warrants
and options to purchase shares of common stock excluded from the diluted
earnings per share computation for the nine months ended September 30, 1998 and
1999 includes 6,419,000 and 7,197,000 shares, respectively.
On July 28, 1999, Allscripts consummated an initial public offering of its
common stock. Upon the closing of the offering, all of the outstanding shares
of Allscripts' convertible preferred stock were automatically converted into
2,977,483 shares of common stock. Additionally, 19,958 shares of common stock
were issued upon the closing of the offering, pursuant to a contingent share
payment obligation (see Note 5). The unaudited pro forma diluted net loss per
share information included in the accompanying consolidated statement of
operations for the nine months ended September 30, 1998 and 1999 reflects the
impact of such conversion and such issuance on basic and diluted net loss per
share as of the beginning of the year, or date of issuance, if later, using the
if-converted method. In addition, the unaudited pro forma net loss per share
information excludes accretion and accrued dividends on redeemable preferred
shares as redemption of said shares is assumed to have occurred as of the
beginning of the year or, if later, date of issuance.
Below is a summary of the shares used in calculating unaudited diluted net
loss per share and unaudited pro forma diluted net loss per share for the
periods indicated.
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------
1998 1999
--------- ----------
<S> <C> <C>
Unaudited diluted weighted average shares outstanding:
Attributable to common stock outstanding............ 5,557,206 10,199,302
Attributable to common stock options and warrants... -- --
Attributable to convertible preferred stock......... -- --
Attributable to contingent share payment
obligation......................................... -- --
--------- ----------
5,557,206 10,199,302
========= ==========
Unaudited pro forma diluted weighted average shares
outstanding:
Attributable to common stock outstanding............ 5,557,206 10,199,302
Attributable to common stock options and warrants... -- --
Attributable to convertible preferred stock......... 2,977,483 2,580,485
Attributable to contingent share payment
obligation......................................... 19,958 17,297
--------- ----------
8,554,647 12,797,084
========= ==========
</TABLE>
F-31
<PAGE>
ALLSCRIPTS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
7. Exercise of Warrants
In the third quarter of 1999, 4,114,728 shares of common stock were issued
through the cashless exercise of warrants. Shares of common stock totaling
140,656 were surrendered to exercise the warrants, such shares being valued at
the excess of fair market value of a common share on the day of exercise over
the warrant exercise price. The net value surrendered was approximately
$1,395,000. These surrendered shares have been recorded as treasury stock in
the September 30, 1999 balance sheet.
8. Contingencies
The pharmaceutical repackaging industry is subject to stringent federal and
state regulations. Allscripts' repackaging operations are regulated by the FDA
as if Allscripts were a manufacturer. Allscripts is also subject to regulation
by the DEA in connection with the packaging and distribution of controlled
substances.
Allscripts is a defendant in over 2,000 multi-defendant lawsuits brought by
over 3,000 claimants involving the manufacture and sale of dexfenfluramine,
fenfluramine and phentermine. The majority of these suits were filed between
February 1998 and June 1999 and the remaining suits were filed in state courts
in Texas beginning in August 1999. The plaintiffs in these cases claim injury
as a result of ingesting a combination of these weight-loss drugs. 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. In addition, while Allscripts has not yet conducted a review of
all of the Texas suits, since physician dispensing is generally prohibited in
Texas and Allscripts has never distributed these drugs in Texas, Allscripts
believes that it is unlikely that it is responsible for the distribution of the
drugs at issue in many of the recently filed Texas suits. 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 $16,000,000 per
occurrence and $17,000,000 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.
9. Discontinued Operations
In March 1999, Allscripts sold substantially all of the assets, excluding
cash and accounts receivable, of its pharmacy benefit management business. The
operating results of the pharmacy benefit management business have been
segregated from continuing operations and reported as a separate line item on
the Unaudited Condensed Consolidated Statements of Operations under the caption
"Income from discontinued operations." Additionally, Allscripts has restated
its prior financial statements to present the operating results of the pharmacy
benefit management operation as a discontinued operation.
F-32
<PAGE>
ALLSCRIPTS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Operating results from discontinued operations were as follows:
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------------
1998 1999
----------- -----------
(unaudited)
<S> <C> <C>
Revenue.......................................... $38,517,000 $14,292,000
Cost of revenue.................................. 35,939,000 13,378,000
----------- -----------
Gross profit................................. 2,578,000 914,000
Selling, general and administrative expenses..... 1,321,000 146,000
Amortization of intangibles...................... 377,000 126,000
----------- -----------
Operating income................................. 880,000 642,000
Interest income.................................. 2,000 --
----------- -----------
Income from discontinued operations.............. $ 882,000 $ 642,000
=========== ===========
</TABLE>
Included in revenue is $2,550,000 in the first nine months of 1998 and
$375,000 in the first nine months of 1999 from Anthem, Inc., a related party.
In the first quarter of 1999, Allscripts recognized a gain on the sale of
this business of $3,547,000, which has also been reported as a separate line
item under the caption "Gain on sale of discontinued operations." 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.
In the third quarter of 1999, Allscripts reduced selling, general and
administrative expenses relating to discontinued operations resulting in income
from discontinued operations of $616,000 due to the collection of receivables
that had previously been fully reserved.
F-33
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
No dealer, salesperson or other person is authorized to give any
information or to represent anything not contained in this prospectus. You
must not rely on any unauthorized information or representations. This
prospectus is an offer to sell only the shares offered hereby, but only under
circumstances and in jurisdictions where it is lawful to do so. The
information contained in this prospectus is current only as of its date.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 6
Forward-Looking Statements............................................... 17
Use of Proceeds.......................................................... 17
Price Range of Common Stock.............................................. 17
Dividend Policy.......................................................... 17
Capitalization........................................................... 18
Dilution................................................................. 19
Selected Consolidated Financial Data..................................... 20
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 22
Business................................................................. 33
Management............................................................... 44
Certain Relationships and Related Party Transactions..................... 52
Principal and Selling Stockholders....................................... 54
Description of Capital Stock............................................. 56
Shares Eligible for Future Sale.......................................... 59
Legal Matters............................................................ 60
Experts.................................................................. 60
Underwriting............................................................. 61
Where to Find More Information........................................... 63
Index to Consolidated Financial Statements............................... F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
2,000,000 Shares
Allscripts, Inc.
Common Stock
---------------
---------------
Goldman, Sachs & Co.
Bear, Stearns & Co. Inc.
CIBC World Markets
Wit Capital Corporation
Representatives of the Underwriters
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
Information Not Required In Prospectus
Item 13. Other Expenses of Issuance and Distribution
We will bear the expenses relating to the registration of common stock.
Except for the Securities and Exchange Commission registration fee, the
National Association of Securities Dealers, Inc. filing fee and the Nasdaq
National Market listing fee, the following expenses are estimates:
<TABLE>
<S> <C> <C>
Securities and Exchange Commission registration fee......... $31,575
National Association of Securities Dealers, Inc. filing
fee........................................................ 30,500
Nasdaq National Market listing fee.......................... 9,920
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 July 17, 1997, we issued 519,530 common shares to HBO & Company in
exchange for all of HBO & Company's right, title and interest in and to the
TouchScript system. Exemption from registration is claimed pursuant to Section
4(2) of the Securities Act, no public sale having been involved.
On April 16, 1998, we issued warrants to purchase 916,657 common shares
with a per share exercise price of $0.06 and shares of Series H redeemable
preferred stock with modified redemption terms to the holders of Series H
preferred stock in exchange for their shares of Series H preferred stock.
Exemption from registration is claimed pursuant to Sections 3(a)(9) and 4(2) of
the Securities Act.
On April 16, 1998, we issued 1,339,241 shares of Series I redeemable
preferred stock and 4,597,070 common shares to a group of accredited investors
including members of management for an aggregate consideration of $8,930,000.
Exemption from registration is claimed pursuant to Section 4(2) of the
Securities Act, no public sale having been involved.
On April 16, 1998, we issued 1,803,838 shares of Series J redeemable
preferred stock and warrants to purchase 1,326,661 common shares with a per
share exercise price of $0.06 to the holders of the Debentures in exchange for
the Debentures and accrued interest thereon. Exemption from registration is
claimed pursuant to Sections 3(a)(9) and 4(2) of the Securities Act.
On March 31, 1999, we issued warrants to purchase 11,666 common shares with
a per share exercise price of $3.00 to certain non-employees.
In May and September 1999 we issued an aggregate 204,771 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.
On June 30, 1999, we issued a promissory note in the principal amount of
$650,000 to Shopping@Home, Inc. in exchange for substantially all of the assets
of Shopping@Home. Exemption from registration is claimed pursuant to Section
4(2) of the Securities Act, no public sale having been involved.
On July 28, 1999, upon the closing of our initial public offering,
Allscripts, Inc., an Illinois corporation, merged with and into its wholly
owned subsidiary, Allscripts, Inc., a Delaware corporation. In connection with
the merger, Allscripts, Inc.-Delaware issued 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.
In the three years preceding the filing of this registration statement, we
have issued an aggregate of unregistered 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.
In the three years preceding the filing of this registration statement, we
have issued an aggregate of shares of unregistered common stock upon
exercise of warrants for an aggregate exercise price of $ and shares
of common stock surrendered pursuant to cashless exercises. Exemption from
registration is claimed pursuant to sections 3(a)(9) and 4(2) 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 27th day of January, 2000.
Allscripts, Inc.
/s/ David B. Mullen
________________________________________
David B. Mullen
President and Chief Financial Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENT, that each of the undersigned hereby
constitutes and appoints, jointly and severally, David B. Mullen and John G.
Cull, 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 27th day of January, 2000.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<C> <S>
/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
</TABLE>
S-1
<PAGE>
<TABLE>
<C> <S>
/s/ Michael J. Kluger Director
___________________________________________
Michael J. Kluger
/s/ L. Ben Lytle Director
___________________________________________
L. Ben Lytle
/s/ Edward M. Philip Director
___________________________________________
Edward M. Philip
/s/ Gary M. Stein Director
___________________________________________
</TABLE> Gary M. Stein
S-2
<PAGE>
Report of Independent Accountants
on Financial Statement Schedule
To the Board of Directors
Allscripts, Inc.
Our audits of the consolidated financial statements referred to in our
report dated May 12, 1999, except for the information in Note 22, for which the
date is June 18, 1999, appearing in this Registration Statement also included
an audit of the financial statement schedule listed in Item 16(b) of this
Registration Statement. In our opinion, this financial statement schedule
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
/s/ PricewaterhouseCoopers LLP
Chicago, Illinois
May 12, 1999
FS-1
<PAGE>
Allscripts, Inc. and Subsidiaries
Valuation and Qualifying Accounts
Schedule II
<TABLE>
<CAPTION>
Beginning Charged to Deductions Ending
Balance Cost/expenses (Writeoffs) Balance
----------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
Allowance for accounts
receivable
Year ended December 31,
1996..................... $ 3,213,086 $ 30,524 $(102,121) $ 3,141,489
Year ended December 31,
1997..................... 3,141,489 666,829 (376,371) 3,431,947
Year ended December 31,
1998..................... 3,431,947 1,240,449 (149,889) 4,522,507
Valuation allowance for
deferred tax assets
Year ended December 31,
1996..................... $ 9,821,000 $1,222,000 $ -- $11,043,000
Year ended December 31,
1997..................... 11,043,000 2,545,000 -- 13,588,000
Year ended December 31,
1998..................... 13,588,000 1,696,000 -- 15,284,000
</TABLE>
FS-2
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description Reference
- ------- ----------- ---------
<S> <C> <C>
1.1 Form of Underwriting Agreement
2.1 Form of Plan of Merger between the Incorporated herein by reference from the
Registrant and Allscripts, Inc., an Registrant's Registration Statement on
Illinois corporation Form
S-1 as part of Amendment No. 4 filed on
July 20, 1999 (SEC file no. 333-78431)
3.1 Amended and Restated Certificate of Incorporated herein by reference from the
Incorporation Registrant's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1999
5.1* Opinion of Gardner, Carton & Douglas
3.2 By-laws Incorporated herein by reference from the
Registrant's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1999
10.1+ Amended and Restated 1993 Stock Incentive Incorporated herein by reference from the
Plan Registrant's Registration Statement on
Form
S-1 as part of Amendment No. 2 filed on
June 29, 1999 (SEC file no. 333-78431)
10.2 Asset Purchase Agreement, dated as of Incorporated herein by reference from the
March 19, 1999, by and among the Registrant's Registration Statement on
Registrant, PharmaCare Management Services, Form
Inc., PharmaCare Direct, Inc. and ProCare S-1 as part of Amendment No. 1 filed on
Pharmacy, Inc. June 7, 1999 (SEC file no. 333-78431)
10.3 Twelfth Restated Registration Agreement Incorporated herein by reference from the
dated as of June 18, 1999, by and among the Registrant's Registration Statement on
Registrant, those Holders of the Form
Registrant's Series A Preferred, Series B S-1 as part of Amendment No. 2 filed on
Preferred, Series C Preferred, Series D June 29, 1999 (SEC file no. 333-78431)
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, Incorporated herein by reference from the
1997 between G2 Limited Partnership and the Registrant's Registration Statement on
Registrant Form
S-1 filed on May 14, 1999 (SEC file no.
333-78431)
</TABLE>
E-1
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description Reference
- ------- ----------- ---------
<S> <C> <C>
10.5 Lease Agreement between American National
Bank and Trust Company of Chicago, as
Trustee, and the Registrant dated September
1996, as amended December 31, 1999
10.6+ Employment Agreement effective August 1, Incorporated herein by reference from the
1997 between the Registrant and Glen E. Registrant's Registration Statement on
Tullman Form S-1 filed on May 14, 1999 (SEC file
no. 333-78431)
10.7+ Employment Agreement effective August 1, Incorporated herein by reference from the
1997 between the Registrant and David B. Registrant's Registration Statement on
Mullen Form S-1 filed on May 14, 1999 (SEC file
no. 333-78431)
10.8+ Employment Agreement effective September 2, Incorporated herein by reference from the
1997 between the Registrant and Steven M. Registrant's Registration Statement on
Katz Form S-1 filed on May 14, 1999 (SEC file
no. 333-78431)
10.9+ Agreement dated May 1, 1995 between the Incorporated herein by reference from the
Registrant and John G. Cull Registrant's Registration Statement on
Form S-1 filed on May 14, 1999 (SEC file
no. 333-78431)
10.10 Form of TouchScript Master License Incorporated herein by reference from the
Agreement Registrant's Registration Statement on
Form S-1 filed on May 14, 1999 (SEC file
no. 333-78431)
10.11 Revolving Credit Agreement dated as of Incorporated herein by reference from the
April 16, 1998 and amended as of May 6, Registrant's Registration Statement on
1998 by and between the Registrant and Form S-1 as part of Amendment No. 2 filed
LaSalle National Bank on June 29, 1999 (SEC file no. 333-78431)
10.12 Supply Agreement dated August 27, 1998 Incorporated herein by reference from the
between McKesson U.S. Health Care and the Registrant's Registration Statement on
Registrant Form S-1 as part of Amendment No. 1 filed
on June 7, 1999 (SEC file no. 333-78431)
10.13 Form of Series H Warrant Incorporated herein by reference from the
Registrant's Registration Statement on
Form S-1 filed on May 14, 1999 (SEC file
no. 333-78431)
10.14 Form of Extension Guaranty Warrant Incorporated herein by reference from the
Registrant's Registration Statement on
Form S-1 filed on May 14, 1999 (SEC file
no. 333-78431)
10.15 Form of 1996 Extension Guaranty Warrant Incorporated herein by reference from the
Registrant's Registration Statement on
Form S-1 filed on May 14, 1999 (SEC file
no. 333-78431)
</TABLE>
E-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description Reference
- ------- ----------- ---------
<S> <C> <C>
10.16 Form of Debenture Warrant Incorporated herein by reference from the
Registrant's Registration Statement on
Form
S-1 filed on May 14, 1999 (SEC file no.
333-78431)
10.17 Form of Series H Extension Warrant Incorporated herein by reference from the
Registrant's Registration Statement on
Form
S-1 filed on May 14, 1999 (SEC file no.
333-78431)
10.18 Asset Purchase Agreement dated June 30, Incorporated herein by reference from the
1999 by and among the Registrant and Registrant's Registration Statement on
Shopping@Home, Inc., Glen Tullman, Lee Form
Shapiro, Stanley Crane and Joseph E. Carey S-1 as part of Amendment No. 4 filed on
July 20, 1999 (SEC file no. 333-78431)
10.19+ Employment Agreement, effective August 2, Incorporated herein by reference from the
1999, between the Registrant and Joseph E. Registrant's Quarterly Report on Form 10-Q
Carey for the quarter ended September 30, 1999
(filed as Exhibit 10.1 thereto)
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>
- --------
+Indicates compensatory plan.
*To be filed by amendment.
E-3
<PAGE>
Allscripts, Inc.
Common Stock
(par value $.01 per share)
----------------
Underwriting Agreement
----------------------
_________ __, 2000
Goldman, Sachs & Co.
Bear, Stearns & Co. Inc.
CIBC World Markets Corp.
Wit Capital Corporation
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., a Delaware corporation (the "Company"), proposes, subject
to the terms and conditions stated herein, to issue and sell to the Underwriters
named in Schedule I hereto (the "Underwriters") an aggregate of 692,000 shares
and, at the election of the Underwriters, up to 300,000 additional shares (the
"Optional Shares") of common stock, par value $.01 per share ("Stock") of the
Company and the stockholders of the Company named in Schedule II hereto (the
"Selling Stockholders") propose, subject to the terms and conditions stated
herein, to sell to the Underwriters 1,308,000 shares of Stock. The aggregate of
the 2,000,000 shares to be sold by the Company and the Selling Stockholders is
herein called the "Firm Shares" and the 300,000 additional shares to be sold by
the Company is herein called the "Optional Shares." The Firm Shares and the
Optional Shares that the Underwriters elect to purchase pursuant to Section 2
hereof are herein collectively called the "Shares."
1. (a) The Company represents and warrants to, and agrees with, each of
the Underwriters that:
(i) 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 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
<PAGE>
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");
(ii) 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; or by a Selling Stockholder
expressly for use in the preparation of the answers therein to Items 7 and
11(1) of Form S-1;
(iii) 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
or by a Selling Stockholder expressly for use in the preparation of the
answers therein to Items 7 and 11(1) of Form S-1;
(iv) 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 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;
(v) 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
-2-
<PAGE>
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;
(vi) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of Delaware 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;
(vii) 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;
(viii) 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;
(ix) 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 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;
-3-
<PAGE>
(x) 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;
(xi) 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 -- If
the healthcare environment becomes more restrictive, or we do not comply
with healthcare regulations, our existing and future operations may be
curtailed, and we could be subject to liability," 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;
(xii) 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;
(xiii) 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");
(xiv) 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;
(xv) 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
(xvi) 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 has
been or 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 has had or 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
has resulted or will 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,
-4-
<PAGE>
transmission, processing, manipulation, storage, retrieval, retransmission
or other utilization of data or in the operation of mechanical or
electrical systems of any kind is not functioning or will not function, in
the case of dates or time periods occurring after December 31, 1999, at
least as effectively as in the case of dates or time periods occurring
prior to January 1, 2000.
(xvii) 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.
(xviii) 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
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;
(xix) 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
-5-
<PAGE>
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.
(xx) 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 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.
(xxi) 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.
(xxii) 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.
(b) Each of the Selling Stockholders (with respect to clause (viii) of this
subsection (b), Liberty Partners Holdings 6, L.L.C. only) severally represents
and warrants to, and agrees with, each of the Underwriters and the Company that:
-6-
<PAGE>
(i) All consents, approvals, authorizations and orders necessary for
the execution and delivery by such Selling Stockholder of this Agreement
and the Power of Attorney and the Custody Agreement hereinafter referred
to, and for the sale and delivery of the Shares to be sold by such Selling
Stockholder hereunder, have been obtained; and such Selling Stockholder has
full right, power and authority to enter into this Agreement, the Power-of-
Attorney and the Custody Agreement and to sell, assign, transfer and
deliver the Shares to be sold by such Selling Stockholder hereunder;
(ii) The sale of the Shares to be sold by such Selling Stockholder
hereunder and the compliance by such Selling Stockholder with all of the
provisions of this Agreement, the Power of Attorney and the Custody
Agreement and the consummation of the transactions herein and therein
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
statute, indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument to which such Selling Stockholder is a party or by
which such Selling Stockholder is bound or to which any of the property or
assets of such Selling Stockholder is subject, nor will such action result
in any violation of the provisions of the Certificate of Incorporation or
By-laws of such Selling Stockholder if such Selling Stockholder is a
corporation, the Partnership Agreement of such Selling Stockholder if such
Selling Stockholder is a partnership or any statute or any order, rule or
regulation of any court or governmental agency or body having jurisdiction
over such Selling Stockholder or the property of such Selling Stockholder;
(iii) Such Selling Stockholder has, and immediately prior to the First
Time of Delivery (as defined in Section 4 hereof) such Selling Stockholder
will have, good and valid title to the Shares to be sold by such Selling
Stockholder hereunder, free and clear of all liens, encumbrances, equities
or claims; and, upon delivery of such Shares and payment therefor pursuant
hereto, good and valid title to such Shares, free and clear of all liens,
encumbrances, equities or claims, will pass to the several Underwriters;
(iv) During the period beginning from the date hereof and continuing
to and including the date 90 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 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), without your prior written consent;
(v) Such Selling Stockholder has not taken and will not take,
directly or indirectly, any action which is designed to or which has
constituted or which might reasonably be expected to cause or result in
stabilization or manipulation of the price of any security of the Company
to facilitate the sale or resale of the Shares;
(vi) To the extent that any statements or omissions made in the
Registration Statement, any Preliminary Prospectus, the Prospectus or any
amendment or supplement thereto are made in reliance upon and in conformity
with written information furnished to the Company by such Selling
Stockholder expressly for use therein, such Preliminary Prospectus and the
Registration Statement did, and the Prospectus and any further amendments
or supplements to the Registration Statement and the Prospectus, when they
become effective or are filed with the Commission, as
-7-
<PAGE>
the case may be, will conform in all material respects to the requirements
of the Act and the rules and regulations of the Commission thereunder and
will not contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading;
(vii) In order to document the Underwriters' compliance with the
reporting and withholding provisions of the Tax Equity and Fiscal
Responsibility Act of 1982 with respect to the transactions herein
contemplated, such Selling Stockholder will deliver to you prior to or at
the Time of Delivery (as hereinafter defined) a properly completed and
executed United States Treasury Department Form W-9 (or other applicable
form or statement specified by Treasury Department regulations in lieu
thereof);
(viii) Certificates in negotiable form representing all of the Shares
to be sold by such Selling Stockholder hereunder have been placed in
custody under a Custody Agreement, in the form heretofore furnished to you
(the "Custody Agreement"), duly executed and delivered by such Selling
Stockholder to [Name of Custodian], as custodian (the "Custodian"), and
such Selling Stockholder has duly executed and delivered a Power of
Attorney, in the form heretofore furnished to you (the "Power of
Attorney"), appointing the persons indicated in Schedule II hereto, and
each of them, as such Selling Stockholder's attorneys-in-fact (the
"Attorneys-in-Fact") with authority to execute and deliver this Agreement
on behalf of such Selling Stockholder, to determine the purchase price to
be paid by the Underwriters to the Selling Stockholders as provided in
Section 2 hereof, to authorize the delivery of the Shares to be sold by
such Selling Stockholder hereunder and otherwise to act on behalf of such
Selling Stockholder in connection with the transactions contemplated by
this Agreement and the Custody Agreement; and
(ix) The Shares represented by the certificates held in custody for
such Selling Stockholder under the Custody Agreement are subject to the
interests of the Underwriters hereunder; the arrangements made by such
Selling Stockholder for such custody, and the appointment by such Selling
Stockholder of the Attorneys-in-Fact by the Power of Attorney, are to that
extent irrevocable; the obligations of the Selling Stockholders hereunder
shall not be terminated by operation of law, whether by the death or
incapacity of any individual Selling Stockholder or, in the case of an
estate or trust, by the death or incapacity of any executor or trustee or
the termination of such estate or trust, or in the case of a partnership or
corporation, by the dissolution of such partnership or corporation, or by
the occurrence of any other event; if any individual Selling Stockholder or
any such executor or trustee should die or become incapacitated, or if any
such estate or trust should be terminated, or if any such partnership or
corporation should be dissolved, or if any other such event should occur,
before the delivery of the Shares hereunder, certificates representing the
Shares shall be delivered by or on behalf of the Selling Stockholders in
accordance with the terms and conditions of this Agreement and of the
Custody Agreements; and actions taken by the Attorneys-in-Fact pursuant to
the Powers of Attorney shall be as valid as if such death, incapacity,
termination, dissolution or other event had not occurred, regardless of
whether or not the Custodian, the Attorneys-in-Fact, or any of them, shall
have received notice of such death, incapacity, termination, dissolution or
other event.
2. Subject to the terms and conditions herein set forth, (a) the
Company and each of the Selling Stockholders agree, severally and not jointly,
to sell to each of the Underwriters, and each of the Underwriters agrees,
severally and not jointly, to purchase from the Company and each of the Selling
Stockholders, at a purchase price per share of $______, the number of Firm
Shares (to be adjusted by you so as to eliminate fractional shares) determined
by multiplying the aggregate number of Shares to be sold by the Company and each
of the Selling Stockholders as set forth opposite their respective names in
-8-
<PAGE>
Schedule II hereto by a fraction, the numerator of which is the aggregate number
of Firm Shares to be purchased by such Underwriter as set forth opposite the
name of such Underwriter in Schedule I hereto and the denominator of which is
the aggregate number of Firm Shares to be purchased by all of the Underwriters
from the Company and all of the Selling Stockholders hereunder 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 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 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 300,000 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 and
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 and the Selling Stockholders shall be delivered by or on
behalf of the Company and the Selling Stockholders 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 ____________, 2000 or such other time and date as Goldman, Sachs & Co.,
the Company and the Selling Stockholders 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 delivered at the offices
of Sonnenschein Nath & Rosenthal, 8000 Sears Tower, Chicago, Illinois 60606-6404
(the "Closing
-9-
<PAGE>
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 3:00
p.m., local 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 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;
-10-
<PAGE>
(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 90 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);
(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
National Association of Securities Dealers Automated Quotations National Market
System ("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) 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
-11-
<PAGE>
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.
6. The Company and each of the Selling Stockholders covenant and agree
with one another and with the several Underwriters that (a) the Company will pay
or cause to be paid: (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 the 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; and (viii) all other costs and
expenses incident to the performance of its obligations hereunder which are not
otherwise specifically provided for in this Section; and (b) such Selling
Stockholder will pay or cause to be paid all costs and expenses incident to the
performance of such Selling Stockholder's obligations hereunder which are not
otherwise specifically provided for in this Section, including (i) any fees and
expenses of counsel for such Selling Stockholder, (ii) such Selling
Stockholder's pro rata share (based on the number of shares to be sold by all of
the Selling Stockholders hereunder) of the fees and expenses of the Attorneys-
in-Fact and the Custodian, and (iii) all expenses and taxes incident to the sale
and delivery of the Shares to be sold by such Selling Stockholder to the
Underwriters hereunder. In connection with clause (b) of the preceding
sentence, Goldman, Sachs & Co. agrees to pay New York State stock transfer tax,
and each of the Selling Stockholders agrees to reimburse Goldman, Sachs & Co.
for associated carrying costs if such tax payment is not rebated on the day of
payment and for any portion of such tax payment not rebated. It is understood,
however, that the Company shall bear, and the Selling Stockholders shall not be
required to pay or to reimburse the Company for, the cost of any other matters
not directly relating to the sale and purchase of the Shares pursuant to this
Agreement, and 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 and the Selling Stockholders herein are, at and as of such Time of
Delivery, true and correct, the condition that the Company and the Selling
Stockholders shall have performed all of its and their 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
-12-
<PAGE>
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),
(vii), (xi) and (xv) of subsection (c) below as 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) 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
-13-
<PAGE>
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 believe that both you
and they are justified in relying upon such opinions, abstracts,
reports, policies and certificates);
(vi) 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;
(vii) This Agreement has been duly authorized, executed and
delivered by the Company;
(viii) 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;
(ix) 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;
(x) 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
-14-
<PAGE>
other agreement or instrument to which it is a party or by which it or
any of its properties may be bound;
(xi) 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;
(xii) The Company is not an "investment company", as such term
is defined in the Investment Company Act;
(xiii) 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;
(xiv) 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;
(xv) 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 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
-15-
<PAGE>
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 - Risks Related to Our Industry -- If the
healthcare environment becomes more restrictive, or we do not comply
with healthcare regulations, our existing and future operations may be
curtailed, and we could be subject to liability," and "Business --
Government Regulation," insofar as they purport to describe the
provisions of the laws and documents referred to therein, are
accurate, complete and not misleading, provided that no opinion need
be expressed regarding the portions of such statements which relate to
the laws and regulations enforced by the United States Food and Drug
Administration ("FDA") and the United States Drug Enforcement
Administration ("DEA") or certain state licensing laws and regulations
required to be promulgated by the individual states pursuant to the
Prescription Drug Marketing Act of 1987, as modified by the
Prescription Drug Amendments of 1992 (as so modified, "PDMA");
(ii) The conduct of the business of the Company and each of its
subsidiaries is in compliance in all respects with (a) all federal
laws which are applicable to the Company specifically because it does
business with physicians or physician groups (not including any
federal laws and regulations generally applicable to persons and
entities based on factors other than whether they do business with
physicians or physician groups), (b) the state anti-kickback and
referral prohibition laws included in the National Health Lawyers
Association compilation titled "State Illegal-Remuneration and Self-
Referral Laws" dated July 1996 (provided that such counsel has
conducted a Lexis search of such laws through ______ __, 2000), (c)
all federal laws related to the confidentiality of patient medical
records, and (d) the state laws and regulations cited in the June 1999
50-State Survey on Patient Health Care Record Confidentiality
published by the American Health Lawyers Association (excluding those
portions of such Survey concerning the laws applicable to hospitals,
HMOs/insurers/other payors, long term or personal care services or
facilities and other health care facilities, civil procedure or
evidentiary requirements, DNA analysis, emergency services, medical
research, public or governmental entities, patients' access to their
own medical records, fees for copying/reviewing medical records or
mental health records), except where the failure to be in compliance
would not, individually or in the aggregate, have a Material Adverse
Effect; and
(iii) No License from any Governmental Authority must be
obtained by the Company to legally conduct the businesses in which the
Company is engaged on the date
-16-
<PAGE>
of such opinion as such businesses are conducted and proposed in the
Prospectus to be conducted under the laws and regulations referred to
in opinion (ii) above.
(e) Arent Fox Kintner Plotkin & Kahn, PLLC, 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) Except as disclosed in the Prospectus, the conduct of the
business of the Company and each of its subsidiaries is in material
compliance with (a) the laws and regulations enforced by the FDA, and
(b) the laws and regulations enforced by the DEA;
(ii) The Company is in material compliance with state licensing
laws and regulations required to be promulgated by the individual
states pursuant to PDMA governing the wholesale distribution of
prescription drug products; and
(iii) The statements set forth in the Prospectus under the
headings "Risk Factors - Risks Related to Our Industry -- If the
healthcare environment becomes more restrictive, or we do not comply
with healthcare regulations, our existing and future operations may be
curtailed, and we could be subject to liability --- Licensure" and
"Business -- Government Regulation" to the extent that they relate to
laws and regulations enforced by the FDA and the DEA and state
licensing laws and regulations required to be promulgated by the
individual states pursuant to PDMA are accurate and fairly presented
in all material respects.
(f) The respective counsel for each of the Selling Stockholders, as
indicated in Schedule II hereto, each shall have furnished to you their
written opinion with respect to each of the Selling Stockholders for whom
they are acting as counsel (a draft of each such opinion is attached as
Annex II(c) hereto), dated the Time of Delivery, in form and substance
satisfactory to you, to the effect that:
(i) With respect only to Liberty Partners Holdings 6, L.L.C., a
Power-of-Attorney and a Custody Agreement have been duly executed and
delivered by such Selling Stockholder and constitute valid and binding
agreements of such Selling Stockholder in accordance with their terms;
(ii) This Agreement has been duly executed and delivered by or on
behalf of such Selling Stockholder; and the sale of the Shares to be
sold by such Selling Stockholder hereunder and the compliance by such
Selling Stockholder with all of the provisions of this Agreement, the
Power-of-Attorney and the Custody Agreement and the consummation of the
transactions herein and therein contemplated will not conflict with or
result in a breach or violation of any terms or provisions of, or
constitute a default under, any statute, indenture, mortgage, deed of
trust, loan agreement or other agreement or instrument known to such
counsel to which such Selling Stockholder is a party or by which such
Selling Stockholder is bound or to which any of the property or assets
of such Selling Stockholder is subject, nor will such action result in
any violation of the provisions of the Certificate of Incorporation or
By-laws of such Selling Stockholder if such Selling Stockholder is a
corporation, the Partnership Agreement of such Selling Stockholder if
such Selling Stockholder is a partnership or any order, rule or
regulation known to such counsel of any court or governmental agency or
body having jurisdiction over such Selling Stockholder or the property
of such Selling Stockholder;
-17-
<PAGE>
(iii) No consent, approval, authorization or order of any court or
governmental agency or body is required for the consummation of the
transactions contemplated by this Agreement in connection with the
Shares to be sold by such Selling Stockholder hereunder, except [Name
any such consent, approval, authorization or notice] which [have/has]
been duly obtained and [is/are] in full force and effect, such as have
been obtained under the Act and such as may be required under state
securities or Blue Sky laws in connection with the purchase and
distribution of such Shares by the Underwriters;
(iv) Immediately prior to the Time of Delivery, such Selling
Stockholder had good and valid title to the Shares to be sold at the
Time of Delivery by such Selling Stockholder under this Agreement, free
and clear of all liens, encumbrances, equities or claims, and full
right, power and authority to sell, assign, transfer and deliver the
Shares to be sold by such Selling Stockholder hereunder; and
(v) Good and valid title to such Shares, free and clear of all
liens, encumbrances, equities or claims, has been transferred to each of
the several Underwriters who have purchased such Shares in good faith
and without notice of any such lien, encumbrance, equity or claim or any
other adverse claim within the meaning of the Uniform Commercial Code.
In rendering the opinion in paragraph (iv), such counsel may rely upon a
certificate of such Selling Stockholder in respect of matters of fact as to
ownership of, and liens, encumbrances, equities or claims on, the Shares sold by
such Selling Stockholder, provided that such counsel shall state that they
believe that both you and they are justified in relying upon such certificate.
(g) 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);
(h) (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 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;
(i) 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
-18-
<PAGE>
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;
(j) 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;
(k) The Shares to be sold at such Time of Delivery shall have been
duly listed for quotation on Nasdaq; and
(l) The Company has obtained and delivered to the Underwriters
executed copies of agreements from all officers, directors and key
employees named in the Prospectus and certain other employees of the
Company who are securityholders, substantially to the effect set forth in
Subsection 5(e) hereof in form and substance satisfactory to you;
(m) 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;
(n) 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;
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.
-19-
<PAGE>
(b) Each of the Selling Stockholders 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 such Selling Stockholder 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 (a) by any Underwriter through Goldman, Sachs & Co.
expressly for use therein or (b) by another Selling Stockholder expressly for
use therein.
(c) Each Underwriter will indemnify and hold harmless the Company and each
Selling Stockholder against any losses, claims, damages or liabilities to which
the Company or such Selling Stockholder 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 and each Selling Stockholder for any legal or other
expenses reasonably incurred by the Company or such Selling Stockholder in
connection with investigating or defending any such action or claim as such
expenses are incurred.
(d) Promptly after receipt by an indemnified party under subsection (a),
(b) or (c) 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
-20-
<PAGE>
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.
(e) If the indemnification provided for in this Section 8 is unavailable to
or insufficient to hold harmless an indemnified party under subsection (a), (b)
or (c) 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 and the Selling Stockholders 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 (d) 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 and the Selling Stockholders 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 and the Selling Stockholders 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 and the Selling Stockholders 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 prevent such
statement or omission. The Company, each of the Selling Stockholders, and the
Underwriters agree that it would not be just and equitable if contributions
pursuant to this subsection (e) 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 (e). 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 (e) 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 (e), 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
(e) to contribute are several in proportion to their respective underwriting
obligations and not joint.
(f) The obligations of the Company and the Selling Stockholders under this
Section 8 shall be in addition to any liability which the Company and the
respective Selling Stockholders 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 or the Selling Stockholder within the meaning of the Act.
-21-
<PAGE>
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 and the Selling Stockholders 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 and
the Selling Stockholders that you they have so arranged for the purchase of such
Shares, or the Company and the Selling Stockholders notifies you that so
arranged for the purchase of such Shares, you, the Company or the Selling
Stockholders 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) 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 and the
Selling Stockholders 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, the Selling Stockholders 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 of the selling Stockholders or any officer
or director or controlling person of the Company or any controlling person of
any Selling Stockholder , and shall survive delivery of and payment for the
Shares.
11. If this Agreement shall be terminated pursuant to Section 9 hereof,
neither the Company nor the Selling Stockholders shall 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
-22-
<PAGE>
Company and the Selling Stockholders as provided herein, the Company and each of
the Selling Stockholders pro rata (based on the number of Shares to be sold by
the Company and such Selling Stockholder hereunder), 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 and the Selling Stockholders shall then
be under no further liability to any Underwriter in respect of the Shares not so
delivered 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, 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 the Selling Stockholders 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, any Selling Stockholder, 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.
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 the Company and
each of the Selling Stockholders. 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 and the Selling Stockholders for examination upon
request, but without warranty on your part as to the authority of the signers
thereof.
-23-
<PAGE>
Very truly yours,
ALLSCRIPTS, INC.
By: ___________________________________
Name:
Title:
LIBERTY PARTNERS HOLDINGS 6, L.L.C.
By: ___________________________________
Name:
Title:
As Attorney-in-Fact on behalf of each of the
Selling Stockholders named in Schedule II
to this Agreement.
MORGAN STANLEY VENTURE
INVESTORS III, L.P.
By: ___________________________________
Name:
Title:
MORGAN STANLEY VENTURE
PARTNERS III, L.P.
By: ___________________________________
Name:
Title:
MORGAN STANLEY VENTURE
PARTNERS ENTREPENEUR FUND, L.P.
By: ___________________________________
Name:
Title:
-24-
<PAGE>
Accepted as of the date hereof:
Goldman, Sachs & Co.
Bear, Stearns & Co. Inc.
CIBC World Markets Corp.
Wit Capital Corporation
By:_____________________________________
(Goldman, Sachs & Co.)
On behalf of each of the Underwriters
-25-
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
Number of Optional
Shares to be
Purchased if
Total Number of Maximum
Firm Shares Option
Underwriter To be Purchased Exercised
----------- ------------------------ ------------------------
<S> <C> <C>
Goldman, Sachs & Co....................................
Bear, Stearns & Co. Inc................................
CIBC World Markets Corp................................
Wit Capital Corporation................................
------------------------ ------------------------
Total............................................. 2,000,000 300,000
======================== ========================
</TABLE>
-26-
<PAGE>
SCHEDULE II
<TABLE>
<CAPTION>
Number of Optional
Shares to be
Purchased if
Total Number of Maximum
Firm Shares Option
to be Purchased Exercised
----------------------- -----------------------
<S> <C> <C>
The Company..................................................... 692,000 300,000
The Selling Stockholders:
Liberty Partners Holdings 6, L.L.C.......... 500,000
Morgan Stanley Venture Investors III, L.P... *
Morgan Stanley Venture Partners III, L.P.... *
Morgan Stanley Venture Partners *
Entrepeneur Fund, L.P...................
----------------------- -----------------------
Total................................................. 2,000,000 300,000
======================= =======================
</TABLE>
* The total to be sold by all three Morgan Stanley entities is 808,000
shares. The number of shares per seller will be inserted in the next draft.
-27-
<PAGE>
ANNEX I
Pursuant to Section 7(g) 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 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
-28-
<PAGE>
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 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
-29-
<PAGE>
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.
-30-
<PAGE>
Exhibit 10.5
CONCEPTS II BUILDING
--------------------
FIRST AMENDMENT
---------------
TO
--
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
---
ALLSCRIPTS, INC.
----------------
TENANT
------
<PAGE>
AMENDED LEASE SUMMARY SHEET
---------------------------
DATE OF FIRST AMENDMENT
TO LEASE: December 31st, 1999
DATE OF LEASE: October 15, 1996
TENANT: Allscripts, Inc.
BUILDING: Concepts II
2441 Commerce Drive
Libertyville, Illinois 60048
LEASED PREMISES ("Original"): Rentable Square Feet - 61,266 square feet
ADDITIONAL LEASED PREMISES: Rentable Square Feet - 18,449 square feet
LEASED PREMISES ("with Additional
Leased Premises") Rentable Square Feet - 79,715 square feet
COMMENCEMENT DATE: April 1, 1997
COMMENCEMENT DATE FOR ADDITIONAL
LEASED PREMISES: February 1, 2000
TERMINATION DATE FOR LEASED
PREMISES AND ADDITIONAL
PREMISES: June 30, 2004
FIXED RENT FOR LEASED PREMISES
("Original") 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
FIXED RENT FOR ADDITIONAL
LEASED PREMISES: For Entire Term: $1,117,278.58
51 Monthly Payments As Follows:
2/1/00 to 3/31/00 None
4/1/00 to 1/31/01 $20,755.13
2/1/01 to 1/31/02 $21,377.78
2/1/02 to 1/31/03 $22,019.11
2/1/03 to 1/31/04 $22,679.69
2/1/04 to 6/30/04 $23,360.08
<PAGE>
AMENDED LEASE SUMMARY SHEET
---------------------------
Page 2
COMBINED FIXED RENT FOR
LEASED PREMISES AND ADDITIONAL
LEASED PREMISES: For Entire Term: $4,745,857.76
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 1/31/01 $62,265.54
2/1/01 to 3/31/01 $62,888.19
4/1/01 to 1/31/02 $63,925.95
2/1/02 to 3/31/02 $64,567.28
4/1/02 to 1/31/03 $65,630.99
2/1/03 to 3/31/03 $66,291.56
4/1/03 to 1/31/04 $67,381.87
2/1/04 to 3/31/04 $68,062.26
4/1/04 to 6/30/04 $69,179.82
TAXES & OPERATING EXPENSES: Tenant shall pay on a prorata share
- 76.85% until March 31, 2000,
thereafter 100%
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: None
TENANT IMPROVEMENTS FOR
LEASED PREMISES: Landlord has provided an allowance of
$650,000
TENANT IMPROVEMENTS FOR ADDITIONAL
LEASED PREMISES: Landlord has provided an allowance of
$100,000
THE AMENDED 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
-----------------
<TABLE>
<CAPTION>
ARTICLE PAGE NUMBER
- ------- -----------
<S> <C> <C>
I Defined Terms 1
II Leasing Covenant - Additional Leased Premises 1
III Restated Fixed Rent 1
IV Acceptance of Additional Leased Premises 3
V Tenant's Prorata Share of Additional Rent 4
VI Amendment to Notice Article 4
VII Option to Renew 5
VIII Remaining Provisions of Lease 5
IX Trustee's Authority and Exculpatory 5
EXHIBITS
- --------
A. Site Plan
B. Restated Estoppel Certificate
</TABLE>
<PAGE>
Exhibit 10.5
FIRST AMENDMENT TO LEASE AGREEMENT
----------------------------------
THIS FIRST AMENDMENT TO LEASE AGREEMENT (the "Amendment"), is made and
entered into this 31st day of December 1999, 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 ("Landlord"), and ALLSCRIPTS,
INC., a Delaware corporation (formally ALLSCRIPTS PHARMACEUTICALS, INC., an
Illinois Corporation) ("Tenant"), and hereby amends a Lease Agreement entered
into between the parties on October 15, 1996 ("Lease").
WHEREAS, Landlord is the owner of a single story industrial building
totaling approximately 79,715 square feet (the "Building") as outlined in the
Site Plan attached hereto and identified as Exhibit A 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 60048, and is located in the
industrial park known as Lincoln Commerce Center;
WHEREAS, the Tenant has leased from the Landlord 61,266 Rentable Square
Feet of the Building (the Leased Premises) pursuant to the Lease; and
WHEREAS, the Tenant desires to lease the balance of the Building from the
Landlord, an additional 18,449 Rentable Square Feet (the "Additional Leased
Premises"), which is highlighted on Exhibit A.
NOW THEREFORE it is agreed to amend the Lease as follows:
ARTICLE I
DEFINED TERMS
-------------
The Lease provides for various special references and/or definitions of
certain terms or words. All such references and/or definitions are incorporated
in this Amendment, however with the exception that hereinafter the words "Leased
Premises" shall mean collectively the Leased Premises, as defined in the Lease,
and the Additional Leased Premises, as defined herein.
ARTICLE II
LEASING COVENANT - ADDITIONAL LEASED PREMISES
---------------------------------------------
Landlord does hereby lease and demise to the Tenant, and Tenant accepts
from Landlord, the certain premises referred to as Additional Leased Premises,
as highlighted on the Site Plan attached hereto as Exhibit A, containing 18,449
square feet, for the term of years and months commencing on February 1, 2000 and
terminating on the Termination Date (June 30, 2004).
ARTICLE III
RESTATED FIXED RENT
-------------------
Article II, FIXED RENT, of the Lease is hereby voided and held for naught
effective as of February 1, 2000, and the following Article III, RESTATED FIXED
RENT, substituted therefor:
"Subject to the terms and conditions of the Lease and in consideration
hereof, Tenant agrees to pay the Landlord a fixed rent of Four Million, Seven
Hundred Forty Five Thousand, Eight Hundred Fifty Seven and 76/100 Dollars
($4,745,857.76) ("Restated Fixed Rent"), in eighty seven (87) monthly
installments payable in advance on the first day of each month as follows:
1
<PAGE>
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) (payment of these
installments by the Tenant to the Landlord is hereby acknowledged);
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) (payment of these
installments by the Tenant to the Landlord is hereby acknowledged);
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) (payment of the
installments from April 1, 1999 to December 31, 1999 by the Tenant to the
Landlord is hereby acknowledged);
D. For the Ten (10) month period from April 1, 2000 to January 31, 2001
inclusive - Ten (10) monthly installments of Sixty Two Thousand, Two
Hundred and Sixty Five and 54/100 Dollars ($62,265.54);
E. For the Two (2) month period from February 1, 2001 to March 31, 2001
inclusive - Two (2) monthly installments of Sixty Two Thousand, Eight
Hundred and Eighty Eight and 19/100 Dollars ($62,888.19);
F. For the Ten (10) month period from April 1, 2001 to January 31, 2002
inclusive - Ten (10) monthly installments of Sixty Three Thousand, Nine
Hundred and Twenty Five and 95/100 Dollars ($63,925.95);
G. For the Two (2) month period from February 1, 2002 to March 31, 2002
inclusive - Two (2) monthly installments of Sixty Four Thousand, Five
Hundred and Sixty Seven and 28/100 Dollars ($64,567.28);
H. For the Ten (10) month period from April 1, 2002 to January 31, 2003
inclusive - Ten (10) monthly installments of Sixty Five Thousand, Six
Hundred and Thirty and 99/100 Dollars ($65,630.99);
I. For the Two (2) month period from February 1, 2003 to March 31, 2003
inclusive - Two (2) monthly installments of Sixty Six Thousand, Two Hundred
and Ninety One and 56/100 Dollars ($66,291.56);
J. For the Ten (10) month period from April 1, 2003 to January 31, 2004
inclusive - Ten (10) monthly installments of Sixty Seven Thousand, three
Hundred and Eighty One and 87/100 Dollars ($67,381.87);
K. For the Two (2) month period from February 1, 2004 to March 31, 2004
inclusive - Two (2) monthly installments of Sixty Eight Thousand, Sixty Two
and 26/100 Dollars ($68,062.26); and
L. For the Three (3) month period from April 1, 2004 to June 30, 2004
inclusive - Three (3) monthly installments of Sixty Nine Thousand, One
Hundred and Seventy Nine and 82/100 Dollars ($69,179.82).
2
<PAGE>
Restated Fixed Rent and Additional Rent and/or other payments reserved and
required under the Lease and the Amendment 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, 59 West Seegers Road, Arlington Heights,
Illinois 60005, 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 IV
ACCEPTANCE OF ADDITIONAL LEASED PREMISES
----------------------------------------
A. The Tenant accepts the Additional Leased Premises in its "as is"
"where is" condition with no agreement on the part of the Landlord to make any
Tenant Improvements or changes thereto. However the Landlord warrants that the
roof, the structure, and the parking lot of the Building, and the plumbing and
HVAC servicing the Additional Leased Premises are all in good working order as
of the date of the execution of this Amendment. The Tenant shall be entitled to
receive the benefit of existing manufacturers' and contractors' warranties, if
any, regarding the Additional Leased Premises.
B. Subject to Article IV, Section C below, the Tenant shall be
responsible and shall pay for the cost of any and all improvements installed to
the Additional Leased Premises it determines necessary (the "Tenant Work"). The
Tenant shall obtain and pay for the cost of all permits required from the
Village for the construction of the Tenant Work performed by the Tenant or the
Tenant's contractors. The Tenant shall be responsible for the performance of all
Tenant Work in accordance with and pursuant to the following:
(a) Prior to the commencement of the construction of the Tenant Work, the
Tenant shall submit to the Landlord the following: (i) the architectural
plans and specifications (the "Tenant Plans"); (ii) a sworn contractor's
statement listing all the contractors and/or subcontractors who will
perform the Tenant Work, their addresses, telephone numbers, and the amount
of their contracts; and (iii) copies of contracts with all contractors
and/or subcontractors; (iv) copies of all permits from the Village. The
Tenant Plans shall be subject to the prior written approval of the
Landlord, which approval or disapproval shall be given by the Landlord
within five (5) business days after receipt by the Landlord of the Tenant
Plans. If approval or disapproval is not given by the Landlord within the
said five (5) day period, it shall be conclusively presumed that the Tenant
Plans have been approved by the Landlord. The Tenant may not commence the
Tenant Work until this approval has been obtained from the Landlord.
(b) All Tenant Work shall be constructed and/or installed in a good and
workmanlike manner and in accordance with all applicable federal, state,
municipal and local laws and building codes, fire regulations and
requirements of the Fire Insurance Rating Bureau.
(c) Tenant agrees at its expense, to obtain and maintain fire and extended
coverage insurance, public liability insurance and Workman's Compensation
insurance from insurance companies reasonably acceptable to Landlord
adequate to fully protect Landlord from and against all liability for death
or injury to person or damage to property caused in or about the Building
by reason of the construction of the Tenant Work. The required public
liability insurance shall insure Landlord and Tenant from all claims,
demands or actions for injury to or death arising out of any one accident
to the limit of Five Million Dollars ($5,000,000), and for damage to
property in an amount of not less than One Million Dollars ($1,000,000).
The Landlord shall be named as an additional insured on said policies.
3
<PAGE>
(d) All roof penetrations required by the Tenant, if any, shall be by the
Landlord's roofing contractor at the Tenant's expense; provided however the
Tenant shall have the right to review and approve all of the Landlord's
contractor's charges, which charges shall be competitive in the
marketplace. No attachment to or drilling or welding to or of the
Building's structural systems or exterior walls is allowed without the
express written permission of the Landlord, which shall not be unreasonably
withheld or delayed.
(e) Any equipment and/or fixtures to be hung from the ceiling shall be
attached to the structural members only, and not from any duct work,
conduit, decking, ceiling grid and/or acoustical tiles.
(f) Tenant shall cause, at its expense, the daily removal of all trash,
rubbish and surplus material from the Building and the Additional Leased
Premises.
(g) Upon approval of the Tenant Plans by the Landlord, the Tenant shall
cause the construction of the Tenant Work to promptly commence and will use
every reasonable effort to cause the Tenant Work to be completed as soon as
possible.
C. As an inducement to enter into this Amendment, the Landlord agrees to
pay to the Tenant the sum of One Hundred Thousand Dollars ($100,000) (the
"Tenant Inducement"), payable as follows:
(a) Within fifteen (15) days of the receipt by the Landlord of invoices
and acceptable lien waivers from the Tenant's contractor(s) for the Tenant
Work, the Landlord shall pay to the Tenant the amount of said invoices, not
to exceed the amount of the Tenant Inducement, provided the Tenant has not
committed an uncured Event of Default at the time of the payment; and
(b) The unpaid balance of the Tenant Inducement, if any, shall be paid to
the Tenant within fifteen (15) days of the receipt by the Landlord of
acceptable final lien waivers from all Tenant contractor(s) provided the
Tenant has not committed an uncured Event of Default at the time of the
payment. Tenant shall provide a copy of the occupancy permit upon receipt
from Village.
The Landlord does not require the Tenant to expend the entire amount of the
Tenant Inducement on the cost of the Tenant Work, and should the cost of the
Tenant Work be less than the Tenant Inducement, the unexpended portion of the
Tenant Inducement will be paid to the Tenant upon compliance of its obligations
under Subsection C (b) above.
ARTICLE V
TENANT'S PRORATA SHARE OF ADDITIONAL RENT
-----------------------------------------
Effective as of April 1, 2000, the Tenant's Prorata Share of Additional
Rent (as defined in Article III of the Lease) is increased to One Hundred
Percent (100%).
ARTICLE VI
AMENDMENT TO NOTICE ARTICLE
---------------------------
The address for Notices to the Landlord as provided in Article XVII of the
Lease is changed to:
4
<PAGE>
Lincoln Atrium Management Company
59 West Seegers Road
Arlington Heights, IL 60005
Fax Number - 847-364-7772
ARTICLE VII
OPTION TO RENEW
---------------
Section A of Article XXII - OPTION TO RENEW of the Lease is hereby voided
and held for naught and the following substituted therefor:
"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) Seventy Thousand Nine Hundred and Nine and 32/100 Dollars
($70,909.32); or
(b) The sum of the following two calculations:
(i) 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 June 2004 times Thirty-Eight Thousand Five Hundred and
Forty Six and 53/100 Dollars ($38,546.53); and
(ii) Twenty Thousand, Seven Hundred and Fifty Five and 13/100
Dollars ($20,755.13), plus that sum determined by multiplying the
percentage increase of the PRICE INDEX between the months of
February 2000 and June 2004 times Twenty Thousand, Seven Hundred
and Fifty Five and 13/100 Dollars ($20,755.13)."
ARTICLE VIII
REMAINING PROVISIONS OF LEASE
-----------------------------
The Estoppel Certificate (Exhibit F of the Lease) is hereby restated as set
forth in Exhibit B. All other provisions, terms and conditions of the Lease, not
in conflict with the provisions, terms and conditions of this Amendment, shall
remain in full force and effect.
ARTICLE IX
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 Amendment
pursuant to 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 only that portion of the
trust
5
<PAGE>
property specifically leased hereunder; that this Amendment 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 Amendment and/or the Lease on account of any
representations, covenants, undertakings or agreements of the Landlord in this
Amendment and/or the Lease contained 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.
IN WITNESS WHEREOF, we have set our hands and seal to this First Amendment
to Lease, of six (6) pages, this page included, the day and year first above
written.
LANDLORD:
AMERICAN NATIONAL BANK AND TRUST COMPANY OF
CHICAGO as trustee as aforesaid
__________________________________________________
_____________ President
TENANT:
ALLSCRIPTS, INC., a Delaware Corporation
/s/ John Cull /s/ David B. Mullen
- ------------------ --------------------------------------------------
Secretary President
6
<PAGE>
LANDLORD'S ACKNOWLEDGMENT
-------------------------
STATE OF ILLINOIS
COUNTY OF COOK
I, _____________________________, a Notary Public in and for said
County, in the State aforesaid, DO HEREBY CERTIFY THAT
_________________________________________________ personally known to me to be
the _______ President of AMERICAN NATIONAL BANK AND TRUST COMPANY OF CHICAGO and
personally known to me to be the same person whose name is subscribed to the
foregoing instrument, appeared before me this day in person and acknowledged
that he signed and delivered the said instrument as said President 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 31st day of December,
____________________ Notary Public
My commission expires __________________________________.
TENANT'S ACKNOWLEDGMENT
-----------------------
STATE OF ILLINOIS
COUNTY OF COOK
I, Connie S. Scharfhausen, a Notary Public in and for said County, in
the State aforesaid, DO HEREBY CERTIFY THAT David B. Mullen personally known to
me to be the President of ALLSCRIPTS, INC., a Delaware Corporation, and John
Cull, personally known to me to be the Secretary of said corporation 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 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 31st day of December 1999.
/s/ Connie S. Scharfhausen
------------------------------------------------
Notary Public
My Commission expires: May 29, 2002.
<PAGE>
[LINCOLN COMMERCE CENTER -
CONCEPTS II SITE PLAN]
EXHIBIT A
<PAGE>
RESTATED ESTOPPEL CERTIFICATE
The undersigned, ALLSCRIPTS, INC., a Delaware Corporation, hereby
certifies that it is the Tenant under a certain Lease Agreement dated October
15, 1996, and amended December 31st, 1999, (collectively the "Lease") 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 leases to Tenant, 79,715 square feet of office/warehouse
space ("Leased Premises") at the Concepts II Building, Libertyville, Illinois
("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 ("Original Leased
Premises"- 61,266 square feet) had been accepted by the Tenant on April 1, 1997,
and the Additional Leased Premises ("Additional Leased Premises" - 18,449 square
feet) on February 1, 2000;
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 79,715;
5. That the Fixed Rent payable by Tenant for the entire Term is
$4,745,857.76, 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 1/31/01 $62,265.54
2/1/01 to 3/31/01 $62,888.19
4/1/01 to 1/31/02 $63,925.95
2/1/02 to 3/31/02 $64,567.28
4/1/02 to 1/31/03 $65,630.99
2/1/03 to 3/31/03 $66,291.56
4/1/03 to 1/31/04 $67,381.87
2/1/04 to 3/31/04 $68,062.26
4/1/04 to 6/30/04 $69,179.82
6. That the Tenant is obligated to pay 100.00% 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;
1
<PAGE>
10. That the Lease, the Leased Premises or any portion thereof, have
not been assigned or sublet, by operation of law or otherwise;
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 the Lease, dated October 15, 1996, 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
and the First Amendment to Lease, dated December ____, 1999, consists of 6 pages
and the following Exhibits:
Exhibit A - Site Plan
Exhibit B - Restated Estoppel Certificate;
14. That there are no agreements between the Landlord and the Tenant
other than as stated and provided in the above described Lease, Lease Amendment
and their respective 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 31st day of December, 1999.
TENANT:
ALLSCRIPTS, INC., a Delaware Corporation
/s/ John Cull /s/ David B. Mullen
- -------------------- -----------------------------------------------
Secretary President
EXHIBIT B
2
<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>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of our
reports dated May 12, 1999, except for the information in Note 22, for which the
date is June 18, 1999, relating to the financial statements and financial
statement schedules 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
January 27, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated financial statements of Allscripts, Inc. as of and for ther year
ended December 31, 1998 and from the condensed consolidated financial statements
of Allscripts, Inc. as of and for the nine months ended September 30, 1999 and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 SEP-30-1999
<CASH> 718 27,089
<SECURITIES> 0 36,000
<RECEIVABLES> 14,048 8,501
<ALLOWANCES> 4,523 3,691
<INVENTORY> 2,905 3,721
<CURRENT-ASSETS> 13,378 72,143
<PP&E> 6,639 7,668
<DEPRECIATION> 4,855 5,103
<TOTAL-ASSETS> 18,920 78,947
<CURRENT-LIABILITIES> 13,107 7,032
<BONDS> 59 59
32,547 0
8,719 0
<COMMON> 83 240
<OTHER-SE> (35,594) 71,616
<TOTAL-LIABILITY-AND-EQUITY> 18,920 78,947
<SALES> 23,682 19,395
<TOTAL-REVENUES> 23,682 19,395
<CGS> 17,320 15,394
<TOTAL-COSTS> 17,320 15,394
<OTHER-EXPENSES> 13,460 14,866
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 596 (403)
<INCOME-PRETAX> (7,694) (10,462)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (7,694) (10,462)
<DISCONTINUED> 970 4,189
<EXTRAORDINARY> (790) 0
<CHANGES> 0 0
<NET-INCOME> (7,514) (6,273)
<EPS-BASIC> (1.63) (0.83)
<EPS-DILUTED> (1.63) (0.83)
</TABLE>
