AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 17, 1998
REGISTRATION NO. 333-55977
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------------
MEDE AMERICA CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7374 11-3270245
State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification No.)
incorporation or organization) Classification Code Number)
</TABLE>
90 MERRICK AVENUE, SUITE 501
EAST MEADOW, NEW YORK 11554
(516) 542-4500
(Address, including zip code, and telephone number, including area
code, of registrant's principal executive offices)
-----------------
DAVID M. GOLDWIN, ESQ.
GENERAL COUNSEL
MEDE AMERICA CORPORATION
90 MERRICK AVENUE, SUITE 501
EAST MEADOW, NEW YORK 11554
(516) 542-4500
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
-----------------
COPIES TO:
<TABLE>
<S> <C>
MARK J. TANNENBAUM, ESQ. FREDERICK W. KANNER, ESQ.
REBOUL, MACMURRAY, HEWITT, DEWEY BALLANTINE LLP
MAYNARD & KRISTOL 1301 AVENUE OF THE AMERICAS
45 ROCKEFELLER PLAZA NEW YORK, NY 10019
NEW YORK, NY 10111 (212) 259-8000
(212) 841-5700
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act 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, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If 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. [ ]
-----------------
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 SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
================================================================================
<PAGE>
SUBJECT TO COMPLETION, DATED JULY 17, 1998
PROSPECTUS
3,600,000 SHARES
[LOGO]
MEDE AMERICA CORPORATION
COMMON STOCK
------------------
All of the shares of Common Stock offered hereby (the "Offering") are being
sold by MEDE AMERICA Corporation ("MEDE AMERICA" or the "Company"). Prior to the
Offering, there has been no public market for the Common Stock of the Company.
It is currently estimated that the initial public offering price will be between
$13.00 and $15.00 per share. See "Underwriting" for information relating to the
factors to be considered in determining the initial public offering price. The
Company intends to apply to have the Company's Common Stock approved for
quotation on the Nasdaq National Market under the symbol "MEDE."
------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS
OF THE COMMON STOCK OFFERED HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECUR-
ITIES AND EXCHANGE COMMISSION OR ANY OTHER STATE SECURITIES COMMIS-
SION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
================================================================================
<TABLE>
<CAPTION>
PRICE UNDERWRITING PROCEEDS
TO DISCOUNTS AND TO
PUBLIC COMMISSIONS(1) COMPANY(2)
<S> <C> <C> <C>
Per Share ......... $ $ $
Total(3) .......... $ $ $
</TABLE>
================================================================================
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses estimated at $950,000, payable by the Company.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 540,000 additional shares of Common Stock on the same terms as set forth
above solely to cover over-allotments, if any. If such option is exercised
in full, the total Price to Public, Underwriting Discounts and Commissions
and the Proceeds to Company will be $ , $ and $ , respectively. See
"Underwriting."
------------------
The shares of Common Stock are being offered by the several Underwriters
named herein, subject to prior sale, when, as and if delivered and accepted by
them, and subject to their right to reject orders in whole or in part. It is
expected that certificates for such shares of Common Stock will be made
available for delivery at the offices of Smith Barney Inc., 333 West 34th
Street, New York, New York 10001, on or about , 1998.
------------------
SALOMON SMITH BARNEY
WILLIAM BLAIR & COMPANY
VOLPE BROWN WHELAN & COMPANY
, 1998
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING BY OVER-ALLOTMENT, STABILIZING BIDS, EFFECTING SYNDICATE COVERING
TRANSACTIONS OR IMPOSING OF PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
MEDE AMERICA is a trademark of the Company. All other trade names,
trademarks or service marks appearing in this Prospectus are the property of
their respective owners and are not the property of the Company.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and the financial statements,
including the notes thereto, appearing elsewhere in this Prospectus.
THE COMPANY
MEDE AMERICA is a leading provider of electronic data interchange ("EDI")
products and services to a broad range of providers and payors in the healthcare
industry. The Company offers an integrated suite of EDI solutions that allows
hospitals, pharmacies, physicians, dentists and other healthcare providers and
provider groups to electronically edit, process and transmit claims, eligibility
and enrollment data, track claims submissions throughout the claims payment
process and obtain faster reimbursement for their services. In addition to
offering greater processing speed, the Company's EDI products reduce processing
costs, increase collection rates and result in more accurate data interchange.
The Company maintains over 540 direct connections with insurance companies,
Medicare and Medicaid agencies, Blue Cross and Blue Shield systems and other
third party payors, as well as over 500 indirect connections with additional
payors through claims clearinghouses. Currently, the Company processes over
900,000 transactions per day for over 65,000 providers located in all 50 states.
Since its formation in March 1995, the Company has expanded both through
internal growth and the acquisition of five healthcare EDI processing
businesses. As part of its strategy of providing an integrated suite of EDI
solutions to a broad range of healthcare providers, the Company has focused on
acquisitions that provided entry into new markets or expanded the Company's
product suite. The Company has actively pursued the integration of its
acquisitions and, in the process, has either divested, closed or restructured
various operations of the acquired entities in order to eliminate non-core or
redundant operations and achieve cost savings and operating efficiencies.
Innovations over the past decade in computer and telecommunications
technologies have resulted in the development of EDI systems to electronically
process and transmit information among the various participants in the
healthcare industry. These systems were designed to replace the paper-based
recording and transmission of information, enabling greater processing speed,
reduced processing costs and more accurate data interchange. According to Health
Data Directory, in 1997 over 4.1 billion electronic and paper claims were paid
in all sectors of the healthcare services market. From 1993 to 1997, the
proportion of total healthcare claims that were electronically processed
increased from 41% to approximately 60%, at an average rate of 16% per year. The
Company expects the electronic processing of healthcare claims to continue to
increase as a result of increased reliance on electronic commerce and increased
emphasis on cost containment in the healthcare industry.
The penetration of electronic processing varies significantly among the
different markets within the healthcare industry. According to Health Data
Directory, in 1997 electronic processing accounted for approximately 13% of
total dental claims, 38% of total physician medical claims, 83% of total
hospital medical claims and 86% of total pharmacy claims. The Company believes
that there is significant market potential for EDI processing in the non-claim
area, including eligibility verification, remittance transactions and other data
exchange transactions such as claims tracking, referrals and physician
scripting. The Company believes that EDI penetration in these non-claim
transaction categories is low, and as a result, the EDI transaction growth in
these areas will exceed that of the EDI claims processing market.
The Company believes that it has several competitive strengths which will
enable it to capitalize on the significant growth opportunities in the
healthcare EDI marketplace.
COMPREHENSIVE SUITE OF EDI PRODUCTS AND SERVICES. The Company has followed
a strategy of developing or acquiring EDI products and services that may be
offered to a broad range of healthcare providers. The Company's products
incorporate open architecture designs and "best of
3
<PAGE>
breed" technology and may be purchased as modular additions to the client's
existing data storage and retrieval system, or as part of a comprehensive EDI
processing system. The Company believes it is well positioned to take advantage
of the expected growth of EDI in areas such as eligibility, managed care
transactions and physician scripting.
BROAD AND DIVERSIFIED CLIENT BASE. The Company's client base is highly
diversified, consisting of approximately 42,000 pharmacies, 8,000 dental
offices, 1,000 hospitals and clinics and 14,000 physicians. The Company's broad
and diversified client base provides it with transaction-based revenues that
tend to be recurring and positions it to capitalize on the rapid consolidation
taking place within the healthcare industry.
DIRECT RELATIONSHIPS WITH PROVIDERS AND PAYORS. The range of MEDE AMERICA's
services and the extent of its connectivity with payors provides the opportunity
to achieve deeper penetration of its provider base, while at the same time
offering more complete solutions to new clients. MEDE AMERICA believes that it
is strongly positioned to offer reliable, one-stop shopping to providers for all
their EDI needs.
FOCUS ON CLIENT SERVICE. The Company has focused on implementing a wide
range of client service and support functions including the use of automated
client service tracking software, expanded client help desk and account
executive support functions and extensive client feedback mechanisms. The
Company believes that its high quality client service enhances the satisfaction
of its clients and generates new revenue opportunities in the form of expanded
transaction volume and sales of new products and services.
LEADING TECHNOLOGY AND PRODUCT PLATFORMS. Over the past two years, MEDE
AMERICA has invested significant capital in new hardware and software systems to
increase its transaction processing capacity. As a result of such technology
investments, MEDE AMERICA believes it is able to provide high quality service to
its clients in the form of high network availability, batch transaction
reliability and high rates of payor claims acceptance. MEDE AMERICA also
believes that its technology platform, which is operating at approximately
one-third of its total capacity, provides the Company with substantial operating
leverage.
EXPERIENCED MANAGEMENT TEAM. Each member of the Company's senior management
team has over 15 years of experience in the information technology and
transaction processing industries and has extensive background in working with
emerging companies in the information processing industry. The Company believes
that the range and depth of its senior management team position it to address
the evolving requirements of its clients and to manage the growth required to
meet its strategic goals.
The Company's mission is to be the leading provider of integrated
healthcare transaction processing technology, networks and databases, enabling
its clients to improve the quality and efficiency of their services. To achieve
this objective, the Company is pursuing a growth strategy comprised of the
following elements: provide a comprehensive suite of EDI solutions; further
penetrate its existing client base through cross-selling of emerging products
and services; develop new EDI solutions to meet the evolving electronic
transaction processing needs of its clients; continue to utilize strategic
alliances with key players in the healthcare industry; and pursue strategic
acquisitions in order to expand the Company's product offerings, enter new
markets and capitalize on the Company's operating leverage.
The Company's executive offices are located at 90 Merrick Avenue, Suite
501, East Meadow, New York 11554, and its telephone number is (516) 542-4500.
4
<PAGE>
THE OFFERING
COMMON STOCK OFFERED BY THE COMPANY.. 3,600,000 shares
COMMON STOCK TO BE OUTSTANDING AFTER
THE OFFERING........................ 11,581,204 shares (1)(2)
USE OF PROCEEDS.................... To retire all outstanding bank and
subordinated indebtedness and accrued
interest thereon, and for other general
corporate purposes, including working
capital.
PROPOSED NASDAQ NATIONAL MARKET
SYMBOL............................ MEDE
- -----------
(1) Reflects the proposed recapitalization of the Company's capital stock (the
"Recapitalization"). The Recapitalization involves the conversion of all
outstanding Preferred Stock, including accrued but unpaid dividends, into
Common Stock and the exercise of all outstanding warrants, however, cash
realized by the Company upon any exercise of the Underwriters' overallotment
option would be applied to the payment of accrued dividends in lieu of
having such dividends convert into Common Stock.
(2) Excludes 483,041 shares of Common Stock issuable upon the exercise of stock
options outstanding as of June 30, 1998 under the MEDE AMERICA Corporation
and Its Subsidiaries Stock Option and Restricted Stock Purchase Plan (the
"Stock Plan"), of which 212,758 are exercisable. The weighted average
exercise price of all outstanding stock options is $4.84 per share. See
"Management -- Employee Benefit Plans."
RECENT DEVELOPMENTS
The Company is currently in the process of compiling preliminary financial
results for the three months ended June 30, 1998 and expects to report the
following financial information:
Revenues for the three months ended June 30, 1998 were $12.1 million
compared to $10.3 million in the corresponding period of fiscal 1997,
representing an increase of 18%. Net loss for the three months ended June 30,
1998 was $(738,000) compared to $(3.6 million) in the corresponding period of
fiscal 1997, representing a decrease of 80%. The Company processed 63.8 million
transactions in the three months ended June 30, 1998, compared to 49.3 million
transactions processed in the corresponding period of fiscal 1997, representing
an increase of 29%.
RISK FACTORS
Prospective purchasers should consider all of the information contained in
this Prospectus before making an investment in shares of Common Stock. In
particular, prospective purchasers should consider the factors set forth herein
under "Risk Factors."
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------------------------------------
ACTUAL PRO FORMA(1)
---------------------------------------------------- --------------
1995 1996 1997 1997
---------------- ---------------- ------------------ --------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues(3) ................................ $ 16,246 $ 31,768 $ 35,279 $ 41,824
Operating expenses:
Operations ................................ 9,753 19,174 16,817 18,601
Sales, marketing and client services ...... 3,615 7,064 8,769 10,450
Research and development .................. 2,051 2,132 3,278 3,513
General and administrative ................ 3,119 6,059 5,263 5,516
Depreciation and amortization ............. 2,995 5,176 5,293 7,062
Write-down of intangible assets ........... 8,191 (4) 9,965 (5) -- --
Acquired in-process research and
development(6) ........................... -- -- 4,354 4,354
Other charges(7) .......................... 2,864 538 2,301 3,581
--------- --------- --------- ---------
Total operating expenses ................... 32,588 50,108 46,075 53,077
--------- --------- --------- ---------
Loss from operations ....................... (16,342) (18,340) (10,796) (11,253)
Other (income) expense ..................... -- 313 (893) (893)
Interest expense (income), net ............. 189 584 1,504 356
--------- --------- --------- ---------
Loss before provision for income taxes ..... (16,531) (19,237) (11,407) (10,716)
Provision for income taxes ................. 70 93 57 57
--------- --------- --------- ---------
Net loss ................................... (16,601) (19,330) (11,464) (10,773)
Preferred stock dividends .................. (27) (2,400) (2,400) --
--------- --------- --------- ---------
Net loss applicable to common
stockholders............................... $(16,628) $(21,730) $ (13,864) $ (10,773)
========= ========= ========= =========
Basic net loss per common share ............ $ (3.17) $ (4.14) $ (2.56)(8) $ (1.18)
Weighted average common shares
outstanding - Basic ....................... 5,238 5,245 5,425 9,131
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS
ENDED MARCH 31,
---------------------------------------------
ACTUAL PRO FORMA(2)
------------------------------- -------------
1997 1998 1998
------------ ------------------ -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues(3) ................................ $ 24,964 $ 30,189 $31,835
Operating expenses:
Operations ................................ 12,104 12,485 12,730
Sales, marketing and client services ...... 6,143 7,769 8,067
Research and development .................. 2,455 2,886 2,929
General and administrative ................ 3,340 3,307 3,468
Depreciation and amortization ............. 3,502 4,846 5,156
Write-down of intangible assets ........... -- -- --
Acquired in-process research and
development(6) ........................... 4,354 -- --
Other charges(7) .......................... 990 -- --
-------- --------- -------
Total operating expenses ................... 32,888 31,293 32,350
-------- --------- -------
Loss from operations ....................... (7,924) (1,104) (515)
Other (income) expense ..................... (885) 13 13
Interest expense (income), net ............. 779 2,470 (134)
-------- --------- -------
Loss before provision for income taxes ..... (7,818) (3,587) (394)
Provision for income taxes ................. 43 37 37
-------- --------- -------
Net loss ................................... (7,861) (3,624) (431)
Preferred stock dividends .................. (1,800) (1,800) --
-------- --------- -------
Net loss applicable to common
stockholders............................... $ (9,661) $ (5,424) $ (431)
======== ========= =======
Basic net loss per common share ............ $ (1.81) $ (0.96)(8) $ (0.05)
Weighted average common shares
outstanding - Basic ....................... 5,345 5,677 9,277
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1998
---------------------------
ACTUAL AS ADJUSTED
------------ ------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital ................................... $ 3,276 $ 7,889
Total assets ...................................... 54,179 58,363
Long-term debt, including current portion ......... 40,499 1,324
Redeemable cumulative preferred stock ............. 30,623 --
Stockholders' equity (deficit) .................... (25,337) 49,362
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------------------------
ACTUAL PRO FORMA(1)
---------------------------------------- --------------
1995 1996 1997 1997
------------- ------------- ------------ --------------
(IN THOUSANDS, EXCEPT PER TRANSACTION DATA)
<S> <C> <C> <C> <C>
OTHER DATA:
EBITDA(9) .................................. $ (13,347) $ (13,164) $ (5,503) $ (4,191)
Adjusted EBITDA(9) ......................... (2,292) (2,052) 2,211 4,803
Cash flows from operating activities ....... (3,561) (1,653) (4,020) --
Cash flows from investing activities ....... (22,074) (4,919) (12,221) --
Cash flows from financing activities ....... 33,434 657 15,521 --
Transactions processed(10)
Pharmacy .................................. -- 107,032 126,201 145,903
Medical ................................... -- 16,030 23,085 27,814
Dental .................................... -- 6,021 12,188 12,188
--------- --------- --------- --------
Total transactions processed ............. -- 129,083 161,474 185,905
Transactions per FTE(10)(11) ............... -- 322 415 478
Revenue per FTE(11) ........................ $ 48 $ 79 $ 91 $ 108
Operating expenses per transaction(10) ..... -- 0.39 0.29 0.29
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS
ENDED MARCH 31,
---------------------------------------
ACTUAL PRO FORMA(2)
------------------------- -------------
1997 1998 1998
------------ ------------ -------------
(IN THOUSANDS, EXCEPT PER TRANSACTION DATA)
<S> <C> <C> <C>
OTHER DATA:
EBITDA(9) .................................. $ (4,422) $ 3,742 $ 4,641
Adjusted EBITDA(9) ......................... 922 3,742 4,641
Cash flows from operating activities ....... (2,991) (3,842) --
Cash flows from investing activities ....... (11,630) (11,630) --
Cash flows from financing activities ....... 15,818 15,008 --
Transactions processed(10)
Pharmacy .................................. 88,463 136,685 140,234
Medical ................................... 14,921 23,514 23,514
Dental .................................... 8,759 10,767 10,767
--------- ---------- ---------
Total transactions processed ............. 112,143 170,966 174,515
Transactions per FTE(10)(11) ............... 293 478 487
Revenue per FTE(11) ........................ $ 65 $ 84 $ 89
Operating expenses per transaction(10) ..... 0.29 0.18 0.19
</TABLE>
(Footnotes on following page)
6
<PAGE>
(1) Gives effect to (i) the acquisition of Time-Share Computer Systems, Inc.
("TCS") in February 1997, (ii) the acquisition of The Stockton Group, Inc.
("Stockton") in November 1997, (iii) the Recapitalization and (iv) the
Offering, as if they had occurred on July 1, 1996.
(2) Gives effect to (i) the acquisition of Stockton in November 1997, (ii) the
Recapitalization and (iii) the Offering, as if they had occurred on July 1,
1996.
(3) During the periods presented, the Company made a series of acquisitions and
divested certain non-core or unprofitable operations. Revenues attributable
to these divested operations, which are included in the statement of
operations data, were $1,595,000, $3,517,000, $2,252,000, $1,941,000 and
$241,000 in the fiscal years ended June 30, 1995, 1996 and 1997 and the nine
months ended March 31, 1997 and 1998, respectively.
(4) Reflects the write-off of goodwill related to the acquisitions of Medical
Processing Center, Inc. ("MPC") and Wellmark, Inc. ("Wellmark").
(5) Reflects the write-down of costs relating to client lists and related
allocable goodwill obtained in the acquisition of General Computer
Corporation, subsequently renamed MEDE AMERICA Corporation of Ohio ("MEDE
OHIO").
(6) Reflects the write-off of acquired in-process research and development costs
upon the consummation of the TCS acquisition.
(7) Reflects (i) expenses recorded relating to contingent consideration paid to
former owners of acquired businesses of $538,000, $2,301,000 and $990,000 in
the fiscal years ended June 30, 1996 and 1997 and the nine months ended
March 31, 1997, respectively, (ii) expenses of $2,864,000 relating to the
spin-off of the Company by Card Establishment Services, Inc. ("CES") in the
fiscal year ended June 30, 1995 and (iii) non-cash stock compensation of
$1,280,000 relating to Stockton in the pro forma fiscal year ended June 30,
1997.
(8) Supplemental net loss per share, giving effect to the Recapitalization,
would be $(1.55) and $(0.47) for the fiscal year ended June 30, 1997 and the
nine months ended March 31, 1998, respectively.
(9) EBITDA represents net income (loss) plus provision for income taxes, net
interest expense, other (income) expense and depreciation and amortization.
EBITDA is not a measurement in accordance with generally accepted accounting
principles ("GAAP") and should not be considered an alternative to, or more
meaningful than, earnings (loss) from operations, net earnings (loss) or
cash flow from operations as defined by GAAP or as a measure of the
Company's profitability or liquidity. Not all companies calculate EBITDA in
the same manner and, accordingly, EBITDA shown herein may not be comparable
to EBITDA shown by other companies. The Company has included information
concerning EBITDA herein because management believes EBITDA provides useful
information. Adjusted EBITDA represents EBITDA plus certain other charges as
described below. The following table summarizes EBITDA and adjusted EBITDA
for all periods presented:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------------------------------
ACTUAL PRO FORMA
------------------------------------------ -----------
1995 1996 1997 1997
-------------- -------------- ------------ -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
EBITDA .................................. $ (13,347) $ (13,164) $ (5,503) $ (4,191)
Contingent consideration paid to
former owners of acquired busi-
nesses ................................ -- 538 2,301 2,301
Write-down of intangible assets ......... 8,191 9,965 -- --
Acquired in-process research and
development ........................... -- -- 4,354 4,354
Expenses related to the CES spin-
off ................................... 2,864 -- -- --
Non-cash stock compensation ............. -- -- -- 1,280
Contract and legal settlement provi-
sions ................................. -- 609 1,059 1,059
---------- ---------- -------- --------
Adjusted EBITDA ......................... $ (2,292) $ (2,052) $ 2,211 $ 4,803
========== ========== ======== ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
----------------------------------
ACTUAL PRO FORMA
----------------------- ----------
1997 1998 1998
------------ ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
EBITDA .................................. $ (4,422) $ 3,742 $ 4,641
Contingent consideration paid to
former owners of acquired busi-
nesses ................................ 990 -- --
Write-down of intangible assets ......... -- -- --
Acquired in-process research and
development ........................... 4,354 -- --
Expenses related to the CES spin-
off ................................... -- -- --
Non-cash stock compensation ............. -- -- --
Contract and legal settlement provi-
sions ................................. -- -- --
-------- ------- -------
Adjusted EBITDA ......................... $ 922 $ 3,742 $ 4,641
======== ======= =======
</TABLE>
- -----------
(10) Transaction volumes are not available for the fiscal year ended June 30,
1995.
(11) Full-time equivalents ("FTE") represents the number of full-time employees
and part-time equivalents of full-time employees as of the end of the
period shown.
7
<PAGE>
QUARTERLY FINANCIAL INFORMATION
The following table summarizes certain quarterly financial information for
all periods presented:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------------------------------
9/30/96 12/31/96 3/31/97 6/30/97 9/30/97 12/31/97 3/31/98
----------- ---------- ----------- ----------- ----------- ---------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues ............................... $ 8,179 $ 7,831 $ 8,954 $ 10,315 $ 9,241 $ 9,849 $ 11,099
Income (loss) from operations .......... (1,301) (1,108) (5,515) (2,872) (850) (264) 10
Net loss ............................... (1,465) (1,324) (5,072) (3,603) (1,517) (1,191) (916)
OTHER DATA:
EBITDA (1) ............................. $ (199) $ (64) $ (4,159) $ (1,081) $ 704 $ 1,309 $ 1,729
Contingent consideration paid to former
owners of acquired businesses ........ 330 330 330 1,311 -- -- --
Acquired in-process research and devel-
opment ............................... -- -- 4,354 -- -- -- --
Contract and legal settlement provisions -- -- -- 1,059 -- -- --
-------- -------- -------- -------- -------- -------- --------
Adjusted EBITDA(1) ..................... $ 131 $ 266 $ 525 $ 1,289 $ 704 $ 1,309 $ 1,729
======== ======== ======== ======== ======== ======== ========
</TABLE>
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Quarterly Operating Results."
- -----------
(1) EBITDA represents net income (loss) plus provision for income taxes, net
interest expense, other (income) expense and depreciation and amortization.
EBITDA is not a measurement in accordance with GAAP and should not be
considered an alternative to, or more meaningful than, earnings (loss) from
operations, net earnings (loss) or cash flow from operations as defined by
GAAP or as a measure of the Company's profitability or liquidity. Not all
companies calculate EBITDA in the same manner and, accordingly, EBITDA shown
herein may not be comparable to EBITDA shown by other companies. The Company
has included information concerning EBITDA herein because management
believes EBITDA provides useful information. Adjusted EBITDA represents
EBITDA plus certain other charges as described above.
- -----------
Except as otherwise noted herein, all information in this Prospectus (i)
assumes no exercise of the Underwriters' over-allotment option and (ii) has been
adjusted to give effect to a one-for-4.5823 reverse stock split of all
outstanding Common Stock (the "Reverse Stock Split"). The Company's Preferred
Stock, $.01 par value ("Preferred Stock"), provides for conversion of the
aggregate liquidation value of the Preferred Stock, including accrued but unpaid
dividends, into Common Stock at the initial public offering price per share.
However, cash realized by the Company upon any exercise of the Underwriters'
overallotment option would be applied to the payment of accrued dividends in
lieu of having such dividends convert into Common Stock. Except as otherwise
noted herein, each reference in this Prospectus to Common Stock issuable upon
conversion of all of the Preferred Stock assumes a conversion price of $14.00.
Based on an aggregate liquidation preference of the Preferred Stock of
$31,220,578 (including $7,224,978 of accrued dividends) as of June 30, 1998,
2,229,982 shares of Common Stock would be so issuable as of such date. In
addition, concurrently with the consummation of the Offering, an additional
66,375 shares of Common Stock will be issued upon the exercise of all
outstanding Common Stock purchase warrants. Such conversion of the Preferred
Stock, and exercise of warrants, are referred to herein as the
"Recapitalization". See "Capitalization," "Description of Common Stock,"
"Principal Stockholders" and "Underwriting."
8
<PAGE>
RISK FACTORS
In addition to other information contained in this Prospectus, prospective
investors should carefully consider the following risk factors before purchasing
the shares of Common Stock offered hereby. This Prospectus contains
forward-looking statements relating to future events or the future financial
performance of the Company. Prospective investors are cautioned that such
forward-looking statements are not guarantees of future performance and involve
risks and uncertainties. Actual events or results may differ materially from
those discussed in the forward-looking statements as a result of various factors
and the matters set forth in this Prospectus generally.
HISTORY OF OPERATING LOSSES; LIMITED OPERATING HISTORY
The Company has experienced substantial net losses, including net losses of
$16.6 million, $19.3 million, $11.5 million and $3.6 million for the fiscal
years ended June 30, 1995, 1996 and 1997, respectively, and the nine months
ended March 31, 1998. The Company had an accumulated deficit of approximately
$51.5 million as of March 31, 1998. In connection with its acquisitions
completed to date, the Company has incurred significant acquisition-related
charges and will record significant amortization expense related to goodwill and
other intangible assets in future periods. There can be no assurance that the
Company will be able to achieve or sustain revenue growth or profitability on a
quarterly or annual basis. See "Selected Consolidated Financial Data" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
The Company's operating history is limited. The Company's prospects must be
considered in light of the risks, expenses and difficulties frequently
encountered by companies with limited operating histories, particularly
companies in new and rapidly evolving markets such as EDI and transaction
processing. Such risks include, but are not limited to, an evolving and
unpredictable business model and the difficulties inherent in the management of
growth. To address these risks, the Company must, among other things, maintain
and increase its client base, implement and successfully execute its business
and marketing strategies, continue to develop and upgrade its technology and
transaction-processing systems, provide superior client service, respond to
competitive developments, and attract, retain and motivate qualified personnel.
There can be no assurance that the Company will be successful in addressing such
risks or in achieving profitability, and the failure to do so could have a
material adverse effect on the Company's business, financial condition and
results of operations.
ACQUISITION STRATEGY; NEED FOR ADDITIONAL CAPITAL
The Company's strategy includes acquisitions of healthcare EDI businesses
that complement or supplement the Company's business. The success of such a
strategy will depend on many factors, including the Company's ability to
identify suitable acquisition candidates, the purchase price and the
availability and terms of financing. Significant competition for acquisition
opportunities exists in the healthcare EDI industry, which may significantly
increase the costs of and decrease the opportunities for acquisitions. Although
the Company is actively pursuing possible acquisitions, there can be no
assurance that any acquisition will be consummated. No assurances can be given
that the Company will be able to operate any acquired businesses profitably or
otherwise successfully implement its expansion strategy. The Company may finance
future acquisitions through borrowings or the issuance of debt or equity
securities. There can be no assurance that future lenders will extend credit on
favorable terms, if at all. Further, any borrowings would increase the Company's
interest expense and any issuance of equity securities could have a dilutive
effect on the holders of Common Stock. The Company will not be able to account
for acquisitions under the "pooling of interests" method for at least two years
following the Offering. Accordingly, such future acquisitions may result in
significant goodwill and a corresponding increase in the amount of amortization
expense and could also result in write-downs of purchased assets, all of which
could adversely affect the Company's operating results in future periods.
INTEGRATION OF ACQUIRED BUSINESSES
The success of the Company's acquisition strategy also depends to a large
degree on the Company's ability to effectively integrate the acquired products
and services, facilities, technologies, personnel and operations into the
Company. The process of integration often requires substantial management atten-
9
<PAGE>
tion and other corporate resources, and the Company may not be able to
accurately predict the resources that will be needed to integrate acquired
operations. There can be no assurance that the Company will be able to
effectively integrate any or all acquired companies or operations. Any failure
to do so could result in operating inefficiencies, redundancies, management
distraction or technological difficulties (among other possible adverse
consequences), any of which could have a material adverse effect on the
Company's business, financial condition and results of operations.
EVOLVING INDUSTRY STANDARDS AND RAPID TECHNOLOGICAL CHANGES
The market for the Company's products and services is characterized by
rapidly changing technology, evolving industry standards and the frequent
introduction of new and enhanced services. The Company's success will depend
upon its ability to enhance its existing services, to introduce new products and
services on a timely and cost-effective basis to meet evolving client
requirements, to achieve market acceptance for new products or services and to
respond to emerging industry standards and other technological changes. There
can be no assurance that the Company will be able to respond effectively to
technological changes or new industry standards. Moreover, there can be no
assurance that other companies will not develop competitive products or
services, or that any such competitive products or services will not have an
adverse effect on the Company's business, financial condition and results of
operations.
DEPENDENCE ON CONNECTIONS TO PAYORS
The Company's business is enhanced by the substantial number of payors
(such as insurance companies, Medicare and Medicaid agencies and Blue Cross/Blue
Shield organizations) to which the Company has electronic connections. These
connections may either be made directly or through a clearinghouse or other
intermediary. The Company has attempted to enter into suitable contractual
relationships to ensure long term payor connectivity; however, there can be no
assurance that the Company will be able to maintain its links with all payors
with whom it currently has connections. In addition, there can be no assurance
that the Company will be able to develop new connections (either directly or
through clearinghouses) on satisfactory terms, if at all. Lastly, certain
third-party payors provide EDI systems directly to healthcare providers,
bypassing third-party processors such as the Company. The failure to maintain
its existing connections with payors and clearinghouses or to develop new
connections as circumstances warrant, or an increase in the utilization of
direct links between providers and payors, could have a material adverse effect
on the Company's business, financial condition and results of operations.
DEVELOPMENT OF EDI PROCESSING IN THE HEALTHCARE INDUSTRY
The Company's strategy anticipates that electronic processing of healthcare
transactions, including transactions involving clinical as well as financial
information, will become more widespread and that providers and third-party
payors increasingly will use EDI processing networks for the processing and
transmission of data. Electronic transmission of healthcare transactions is
still developing, and complexities in the nature and types of transactions which
must be processed have hindered, to some degree, the development and acceptance
of EDI processing in this market. There can be no assurance that continued
conversion from paper-based transaction processing to EDI processing in the
healthcare industry will occur or that, to the extent it does occur, healthcare
providers and payors will use independent processors such as the Company.
Furthermore, if EDI processing extensively penetrates the healthcare market or
becomes highly standardized, it is possible that competition among transaction
processors will focus increasingly on pricing. If competition causes the Company
to reduce its pricing in order to retain market share, the Company may suffer a
material adverse change in its business, financial condition and results of
operations.
POTENTIAL VARIABILITY IN QUARTERLY OPERATING RESULTS
The Company's quarterly operating results have varied significantly in the
past and are likely to vary from quarter to quarter in the future. Quarterly
revenues and operating results may fluctuate as a result of a variety of
factors, including: integration of acquired businesses; seasonal variability of
demand
10
<PAGE>
for healthcare services generally; the number, timing and significance of
announcements and releases of product enhancements and new products by the
Company and its competitors; the timing and significance of announcements
concerning the Company's present or prospective strategic alliances; the loss of
clients due to consolidation in the healthcare industry; legislation or changes
in government policies or regulations relating to healthcare EDI processing;
delays in product installation requested by clients; the length of the sales
cycle or the timing of sales; client budgeting cycles and changes in client
budgets; marketing and sales promotional activities; software defects and other
quality factors; and general economic conditions.
The Company's operating expense levels, which will increase with the
addition of acquired businesses, are relatively fixed. If revenues are below
expectations, net income is likely to be disproportionately adversely affected.
Further, in some future quarters the Company's revenues or operating results may
be below the expectations of securities analysts and investors. In such event,
the trading price of the Company's Common Stock would likely be materially
adversely affected. See "Summary -- Quarterly Financial Information" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Quarterly Operating Results."
PROPOSED HEALTHCARE DATA CONFIDENTIALITY LEGISLATION
Legislation that imposes restrictions on third-party processors' ability to
analyze certain patient data without specific patient consent has been
introduced in the U.S. Congress. Although the Company does not currently access
or analyze individually identifiable patient information, such legislation, if
adopted, could adversely affect the ability of third-party processors to
transmit information such as treatment and clinical data, and could adversely
affect the Company's ability to expand into related areas of the EDI healthcare
market. In addition, the Health Insurance Portability and Accountability Act,
passed in 1997, mandates the establishment of federal standards for the
confidentiality, format and transmission of patient data, as well as
recordkeeping and data security obligations. It is possible that the standards
so developed will necessitate changes to the Company's operations, which could
have a material adverse effect on the Company's business, financial condition
and results of operations.
COMPETITION
The Company faces significant competition from healthcare and
non-healthcare EDI processing companies. The Company also faces potential
competition from other companies, such as vendors of provider information
management systems, which have added or may add their own proprietary EDI
processing systems to existing or future products and services. Competition may
be experienced in the form of pressure to reduce per transaction prices or
eliminate per transaction pricing altogether. If EDI processing becomes the
standard for claims and information processing, a number of larger and better
capitalized entities may elect to enter the industry and further increase
competitive pricing pressures. Many of the Company's existing and potential
competitors are larger and have significantly greater financial, marketing,
technological and other resources than the Company. There can be no assurance
that increased competition will not have a material adverse effect on the
Company's business, financial condition and results of operations. See "Business
- -- Competition."
RISK OF INTERRUPTION OF DATA PROCESSING
The Company currently processes its data through its facilities in
Twinsburg, Ohio, Mitchel Field, New York, and Atlanta, Georgia. The Twinsburg
and Mitchel Field sites are designed to be redundant. Additionally, the Company
transmits data through a number of different telecommunications networks, using
a variety of different technologies. However, the occurrence of an event that
overcomes the data processing and transmission redundancies then in place could
lead to service interruptions and could have a material adverse effect on the
Company's business, financial condition and results of operations.
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are coded
to accept only two digit entries in the date code field. These date code fields
will need to accept four digit entries to distinguish 21st century dates from
20th century dates. As a result, prior to January 1, 2000, computer systems
11
<PAGE>
and/or software used by many companies (including the Company) will need to be
upgraded to comply with such "Year 2000" requirements. Significant uncertainty
exists in the software industry concerning the potential consequences of the
Year 2000 phenomenon. Although the Company currently offers software products
that are designed or have been modified to comply with the Year 2000
requirements, there can be no assurance that the Company's current software
contains all necessary date code changes. The Company believes that certain
installations of its products and certain products currently used by its clients
in conjunction with third-party vendors' products are not Year 2000 compliant.
Certain of the Company's physician benefit management clients are being migrated
from the Company's PBM system in Ohio to its PBM system acquired from Stockton.
The total revenue from such clients is expected to be $6,351,000 in fiscal 1999.
A testing and migration timetable for all such clients has been developed, with
migration activities scheduled for completion in mid-1999.
While the Company has plans to address the problems related to its own
products within the coming year, there can be no assurance that the costs of
bringing these systems into compliance will not be significantly greater than
expected or that compliance will be achieved in a timely manner. In addition,
there can be no assurance that the Company's current products do not contain
undetected errors or defects associated with Year 2000 date functions that may
result in material costs to the Company. Moreover, even if the Company's
products and services satisfy such requirements, the products and services
provided to the Company's clients by other software vendors, and the systems
used by certain payors, may not be Year 2000 compliant, thereby disrupting the
ability of the Company's clients to use the Company's software or to obtain
reimbursement in a timely manner. An adverse impact on such clients due to the
Year 2000 issue could also have a material adverse effect on the Company's
business, financial condition and results of operations. See "Business -- Year
2000 Compliance."
DEPENDENCE ON KEY PERSONNEL
The Company's performance depends in significant part on the continued
service of its executive officers, its product managers and key sales, marketing
and development personnel. The Company considers its key management personnel to
be Thomas P. Staudt, President and Chief Executive Officer, William M. McManus
and Roger L. Primeau, in charge of the pharmacy/medical and dental operations,
respectively, James T. Stinton, the Company's Chief Information Officer, and
Richard Bankosky, the Company's Chief Financial Officer. No single individual is
considered by the Company to be critical to the Company's success. The Company
does not maintain employment agreements with these officers or other employees
(with limited exceptions) and the failure to retain the services of such persons
could have a material adverse effect on the Company's business, financial
condition and results of operations.
UNCERTAINTY AND CONSOLIDATION IN THE HEALTHCARE INDUSTRY
The healthcare industry is subject to changing political, economic and
regulatory influences that may affect the procurement practices and operations
of healthcare industry participants. Federal and state legislatures periodically
consider programs to modify or amend the United States healthcare system at both
the federal and state level. These programs may contain proposals to increase
governmental involvement in healthcare, lower reimbursement rates or otherwise
change the environment in which healthcare industry participants operate.
Healthcare industry participants may react to these proposals and the
uncertainty surrounding such proposals by curtailing or deferring investments,
including investments in the Company's products and services. In addition, many
healthcare providers are consolidating to create larger healthcare delivery
organizations. This consolidation reduces the number of potential clients for
the Company's services, and the increased bargaining power of these
organizations could lead to reductions in the amounts paid for the Company's
services. Other healthcare information companies, such as billing services and
practice management vendors, which currently utilize the Company's services,
could develop or acquire transaction processing and networking capabilities and
may cease utilizing the Company's services in the future. The impact of these
developments in the healthcare industry is difficult to predict and could have a
material adverse effect on the Company's business, financial condition and
results of operations. To the extent that the current trend toward consolidation
in the industry continues, MEDE AMERICA may find it more difficult to obtain
access to payors, information provid-
12
<PAGE>
ers and practice management software vendors on whom its ability to deliver
services and enroll new clients now depends. Loss of access to these industry
participants could materially adversely affect the Company's business, financial
condition and results of operations.
DEPENDENCE ON INTELLECTUAL PROPERTY; RISK OF INFRINGEMENT
The Company's ability to compete effectively depends to a significant
extent on its ability to protect its proprietary information. The Company relies
on a combination of statutory and common law copyright, trademark and trade
secret laws, client licensing agreements, employee and third-party nondisclosure
agreements and other methods to protect its proprietary rights. The Company does
not include in its software any mechanisms to prevent or inhibit unauthorized
use, but generally enters into confidentiality agreements with its consultants,
clients and potential clients and limits access to, and distribution of, its
proprietary information. The Company has not filed any patent applications with
respect to its intellectual property. It is the Company's policy to defend its
intellectual property; however, there can be no assurance that the steps taken
by the Company to protect its proprietary information will be adequate to
prevent misappropriation of its technology or that the Company's competitors
will not independently develop technologies that are substantially equivalent or
superior to the Company's technology.
The Company is also subject to the risk of alleged infringement by it of
intellectual property rights of others. Although the Company is not currently
aware of any pending or threatened infringement claims with respect to the
Company's current or future products, there can be no assurance that third
parties will not assert such claims. Any such claims could require the Company
to enter into license arrangements or could result in protracted and costly
litigation, regardless of the merits of such claims. No assurance can be given
that any necessary licenses will be available or that, if available, such
licenses can be obtained on commercially reasonable terms. Furthermore,
litigation may be necessary to enforce the Company's intellectual property
rights, to protect the Company's trade secrets, to determine the validity and
scope of the proprietary rights of others or to defend against claims of
infringement. Such litigation could result in substantial costs and diversion of
resources and could have a material adverse effect on the Company's business,
financial condition and results of operations.
The Company expects that software developers will increasingly be subject
to such claims as the number of products and competitors providing software and
services to the healthcare industry increases and overlaps occur. Any such
claim, with or without merit, could result in costly litigation or might require
the Company to enter into royalty or licensing agreements, any of which could
have a material adverse effect on the Company's business, financial condition
and results of operations. Such royalty or licensing agreements, if required,
may not be available on terms acceptable to the Company or at all.
RISK OF PRODUCT DEFECTS
Products such as those offered by the Company may contain errors or
experience failures, especially when initially introduced or when new versions
are released. While the Company conducts extensive testing to address these
errors and failures, there can be no assurance that errors or performance
failures will not occur in products under development or in enhancements to
current products. Any such errors or failures could result in loss of revenues
and clients, delay in market acceptance, diversion of development resources,
damage to the Company's reputation or increased service costs, any of which
could have a material adverse effect on the Company's business, financial
condition and results of operations. To date, the Company has not experienced
any material product defects.
CONTROL BY EXISTING STOCKHOLDERS
After the Offering, 49.7% of the Common Stock will be owned by investment
funds affiliated with Welsh, Carson, Anderson & Stowe, a private investment firm
("WCAS") and 7.9% will be owned by investment funds affiliated with William
Blair Capital Partners L.L.C. ("WBCP"). See "Principal Shareholders" and
"Description of Capital Stock -- Recapitalization." As a result of this
concentration of ownership, these shareholders may be able to exercise control
over matters requiring shareholder ap-
13
<PAGE>
proval, including the election of directors and approval of significant
corporate transactions. Such control may have the effect of delaying or
preventing a change in control of the Company. The Company's Board of Directors
currently includes Thomas E. McInerney and Anthony J. de Nicola, designees of
WCAS, and Timothy M. Murray, a designee of WBCP. The funds affiliated with WCAS
may be deemed to be controlled by their respective general partners, the
general partners of each of which include some or all of the following
individuals: Thomas E. McInerney and Anthony J. de Nicola, directors of the
Company, Patrick J. Welsh, Russell L. Carson, Bruce K. Anderson, Richard H.
Stowe, Andrew M. Paul, Robert A. Minicucci, Paul B. Queally and Laura M.
VanBuren. The funds affiliated with WBCP may be deemed to be controlled by
their respective general partners, the general partners of which include
William Blair & Company L.L.C. and certain of its employees, including Timothy
E. Murray, a director of the Company.
NO PUBLIC MARKET FOR THE COMMON STOCK; PRICE AND MARKET VOLATILITY
Prior to this Offering, there has been no public market for the Common
Stock, and there can be no assurance that an active trading market will develop
or be sustained after this Offering or that the market price of the Common Stock
will not decline below the initial public offering price. The initial public
offering price has been determined by negotiations between the Company and the
Representatives of the Underwriters and may not be indicative of the market
price of the Common Stock in the future. See "Underwriting" for a discussion of
the factors considered in determining the initial public offering price. The
stock market has from time to time experienced extreme price and volume
fluctuations, particularly in the securities of technology companies, which have
often been unrelated to the operating performance of individual companies.
Announcements of technological innovations or new and enhanced commercial
products by the Company or its competitors, market conditions in the industry,
developments or disputes concerning proprietary rights, changes in earnings,
economic and other external factors, political and other developments and
period-to-period fluctuations in financial results of the Company may have a
significant impact on the market price and marketability of the Company's Common
Stock. Fluctuations in the trading price of the Common Stock may also adversely
affect the liquidity of the trading market for the Common Stock.
POTENTIAL ADVERSE EFFECT OF ANTI-TAKEOVER PROVISIONS
The Company's Board of Directors is authorized to issue up to 5,000,000
shares of Preferred Stock and to determine the price, rights, preferences and
privileges of those shares without any further vote or action by the Company's
stockholders. The rights of the holders of Common Stock will be subject to, and
may be adversely affected by, the rights of the holders of any shares of
Preferred Stock that may be issued in the future. While the Company has no
present intention to issue shares of Preferred Stock, any such issuance, while
providing desirable flexibility in connection with possible acquisitions and
other corporate purposes, could have the effect of making it more difficult for
a third party to acquire a majority of the outstanding voting stock of the
Company. In addition, such Preferred Stock may have other rights, including
economic rights senior to the Common Stock, and, as a result, the issuance
thereof could have a material adverse effect on the market value of the Common
Stock. Furthermore, the Company is subject to the anti-takeover provisions of
Section 203 of the Delaware General Corporation Law (the "DGCL"), which
prohibits the Company from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which such person first becomes an "interested stockholder,"
unless the business combination is approved in a prescribed manner. The
application of these provisions could have the effect of delaying or preventing
a change of control of the Company. Certain other provisions of the Amended and
Restated Certificate of Incorporation and the Company's Bylaws could also have
the effect of delaying or preventing changes of control or management of the
Company, which could adversely affect the market price of the Company's Common
Stock. See "Description of Capital Stock -- Preferred Stock" and "-- Delaware
Laws and Certain Charter and Bylaw Provisions; Anti-Takeover Measures."
SHARES ELIGIBLE FOR FUTURE SALE; POSSIBLE ADVERSE EFFECT ON FUTURE MARKET PRICE
Sales of Common Stock (including Common Stock issued upon the exercise of
outstanding stock options) in the public market after this Offering could
materially adversely affect the market price of the Common Stock. Upon the
completion of this Offering and giving effect to the Recapitalization, the
14
<PAGE>
Company will have 11,581,204 shares of Common Stock outstanding, assuming no
exercise of stock options and no exercise of the Underwriters' over-allotment
option. Of these outstanding shares of Common Stock, the 3,600,000 shares sold
in this Offering will be freely tradeable, without restriction under the
Securities Act of 1933, as amended (the "Securities Act"), unless purchased by
"affiliates" of the Company, as that term is defined in Rule 144 under the
Securities Act. The remaining 7,981,204 shares of Common Stock held by existing
stockholders are "restricted securities" as that term is defined in Rule 144
under the Securities Act and were issued and sold by the Company in reliance on
exemptions from the registration requirements of the Securities Act. These
shares may be resold in the public market only if registered or pursuant to an
exemption from registration, such as Rule 144 under the Securities Act. All
officers, directors and certain holders of Common Stock beneficially owning, in
the aggregate, approximately shares of Common Stock and options to purchase
shares of Common Stock, have agreed, pursuant to certain lock-up agreements,
that they will not sell, offer to sell, solicit an offer to purchase, contract
to sell, grant any option to sell, pledge, or otherwise transfer or dispose of,
directly or indirectly, any shares of Common Stock owned by them, or that could
be purchased by them through the exercise of options to purchase Common Stock of
the Company, for a period of 180 days after the date of this Prospectus without
the prior written consent of Smith Barney Inc. Upon expiration of the lock-up
agreements, all shares of Common Stock currently outstanding will be immediately
eligible for resale, subject to the requirements of Rule 144. The Company is
unable to predict the effect that sales may have on the then prevailing market
price of the Common Stock. See "Management -- Employee Benefit Plans,"
"Description of Capital Stock" and "Shares Eligible for Future Sale."
BENEFITS OF THE OFFERING TO CURRENT STOCKHOLDERS
Prospective investors should be aware that current holders of the Company's
Common Stock and Preferred Stock will benefit from the Offering. Approximately
$25.2 million of the net proceeds of the Offering will be used to prepay all
then outstanding principal and accrued interest on a Senior Subordinated Note
(as herein defined) held by WCAS Capital Partners II, L.P., one of the Company's
principal stockholders. In addition, approximately $17.8 million of the net
proceeds will be used to repay all then outstanding indebtedness under the
Company's current Credit Facility (as herein defined). The Credit Facility,
which is guaranteed by the Company's four principal stockholders, will be
replaced with a new facility, which will not be guaranteed by a third party. See
"Use of Proceeds" and "Certain Transactions."
After the Offering, all existing stockholders will benefit from certain
changes including the creation of a public market for the Company's Common
Stock. Moreover, the current shareholders will realize an immediate increase in
market and tangible book value. Assuming an initial public offering price of
$14.00 per share, the aggregate unrealized gain to current stockholders of the
Company, based on the difference between such public offering price of the
Common Stock and the acquisition cost of their equity, will be $82.7 million.
See "Dilution."
IMMEDIATE AND SUBSTANTIAL DILUTION
Purchasers of Common Stock in the Offering will incur immediate and
substantial dilution in the net tangible book value per share of Common Stock in
the amount of $12.98 per share, at an assumed initial public offering price of
$14.00 per share. To the extent that outstanding options to purchase Common
Stock are exercised, there will be further dilution. See "Dilution."
ABSENCE OF DIVIDENDS
No dividends have been paid on the Common Stock to date and the Company
does not anticipate paying dividends on the Common Stock in the foreseeable
future. Moreover, it is expected that the terms of the Amended Credit Facility
will prohibit the Company from paying dividends on the Common Stock. See
"Dividend Policy."
15
<PAGE>
RISKS ASSOCIATED WITH FORWARD-LOOKING STATEMENTS
This Prospectus contains certain statements that are "forward-looking
statements," which include, among other things, the discussions of the Company's
business strategy and expectations concerning developments in the healthcare EDI
industry, the Company's market position, future operations, transaction growth,
margins and profitability, and liquidity and capital resources. Investors in the
Common Stock offered hereby are cautioned that such forward-looking statement
involves risks and uncertainties, and that although the Company believes that
the assumptions on which the forward-looking statements contained herein are
reasonable, any of those assumptions could prove to be inaccurate, and as a
result, the forward-looking statements based on those assumptions also could be
incorrect. The uncertainties in this regard include, but are not limited to,
those identified in the risk factors discussed above. In light of these and
other uncertainties, the inclusion of a forward-looking statement herein should
not be regarded as a representation by the Company that the Company's plans and
objectives will be achieved.
16
<PAGE>
THE COMPANY
MEDE AMERICA is a leading provider of EDI products and services to a broad
range of providers and payors in the healthcare industry. The Company offers an
integrated suite of EDI solutions that allows hospitals, pharmacies, physicians,
dentists and other healthcare providers and provider groups to electronically
edit, process and transmit claims, eligibility and enrollment data, track claims
submissions throughout the claims payment process and obtain faster
reimbursement for their services. In addition to offering greater processing
speed, the Company's EDI products reduce processing costs, increase collection
rates and result in more accurate data interchange. The Company maintains over
540 direct connections with insurance companies, Medicare and Medicaid agencies,
Blue Cross and Blue Shield systems and other third party payors, as well as over
500 indirect connections with additional payors through claims clearinghouses.
Currently, the Company processes over 900,000 transactions per day for over
65,000 providers located in all 50 states. The Company's mission is to be the
leading provider of integrated healthcare transaction processing technology,
networks and databases, enabling its clients to improve the quality and
efficiency of their services.
The Company was formed in March 1995 through the consolidation and
subsequent spin-off of three subsidiaries of Card Establishment Services, Inc.
("CES"), in connection with the acquisition by First Data Corporation of CES'
credit card processing business. The three subsidiaries, MedE America, Inc.,
Medical Processing Center, Inc. ("MPC") and Wellmark, Inc. ("Wellmark"), which
comprised the heathcare services business of CES, historically provided EDI
services to hospitals and physicians. After the spin-off, the Company made
several strategic acquisitions to strengthen its core hospital/medical business
and to expand into the pharmaceutical and dental markets. In March 1995, the
Company acquired General Computer Corporation, subsequently renamed MEDE AMERICA
Corporation of Ohio (referred to herein as "MEDE OHIO"), a developer of EDI
systems and services for the pharmaceutical industry, and in June 1995 the
Company acquired Latpon Health Systems, Incorporated ("Latpon"), a developer of
proprietary EDI claims processing software for hospitals and physicians. These
acquisitions were followed by acquisitions of Electronic Claims and Funding,
Inc. ("EC&F"), and Premier Dental Systems, Corp. ("Premier"), in October 1995.
These companies were engaged in the EDI and management software businesses in
the dental market. The Company enhanced its presence in the pharmacy market by
acquiring Time-Share Computer Systems, Inc. ("TCS"), in February 1997 and The
Stockton Group, Inc. ("Stockton") in November 1997.
The Company's executive offices are located at 90 Merrick Avenue, Suite
501, East Meadow, New York 11554, and its telephone number is (516) 542-4500.
17
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
offered hereby, assuming an initial public offering price of $14.00 per share,
are estimated to be $45.9 million ($53.0 million if the Underwriters'
over-allotment option is exercised in full), after deducting the estimated
offering fees and expenses payable by the Company. The Company intends to use
the net proceeds from the Offering as follows: (i) approximately $25.2 million
to prepay all then outstanding principal and accrued interest on its outstanding
10% Senior Subordinated Note due February 14, 2002 (the "Senior Subordinated
Note"); (ii) approximately $17.8 million to repay all then outstanding
indebtedness under its current credit facility (the "Credit Facility"); and
(iii) the balance for general corporate and working capital purposes. Cash
realized by the Company upon any exercise of the Underwriters' overallotment
option would be applied to the payment of accrued dividends in lieu of having
such dividends convert into Common Stock. See "Certain Transactions." Pending
application to the foregoing uses, such proceeds will be invested in short-term,
investment-grade, interest-bearing obligations.
Outstanding borrowings under the Credit Facility currently bear interest at
a weighted average rate of 6.93% per annum, are guaranteed by WCAS and WBCP and
mature on October 31, 1999. The Company has received a letter from the lender
under the Credit Facility committing to provide an amended credit facility (the
"Amended Credit Facility") with total available credit of $10.0 million upon
substantially the same terms and conditions as the Credit Facility. Borrowings
under the Amended Credit Facility will not be guaranteed by any third party. It
is anticipated that the Amended Credit facility will take effect upon the
consummation of the Offering. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
DIVIDEND POLICY
The Company has never declared or paid any dividends on its Common Stock
and does not anticipate paying any cash dividends in the foreseeable future.
Moreover, it is expected that the terms of the Amended Credit Facility will
prohibit the Company from paying dividends on the Common Stock. The Company
currently intends to retain any earnings to fund future growth and the operation
of its business. See "Risk Factors -- Absence of Dividends."
18
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
March 31, 1998 on an actual basis and as adjusted to reflect the
Recapitalization and the issuance and sale by the Company of 3,600,000 shares of
Common Stock offered hereby, assuming an initial public offering price of $14.00
per share, after deducting the estimated offering fees and expenses payable by
the Company, and the application of the net proceeds thereof as described under
"Use of Proceeds." The following table should be read in conjunction with the
Consolidated Financial Statements and the notes thereto and the "Unaudited Pro
Forma Consolidated Financial Information" appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1998
-----------------------------
ACTUAL AS ADJUSTED(1)
----------- ---------------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt (including current portion)
Senior Subordinated Note(2) .................. $ 23,250 $ --
Credit Facility(2) ........................... 15,925 --
Other debt ................................... 1,324 1,324
--------- ---------
Total long-term debt ....................... 40,499 1,324
--------- ---------
Redeemable cumulative preferred stock ......... 30,623 --
--------- ---------
Stockholders' (deficit) equity
Common Stock(3) .............................. 57 116
Additional paid-in capital ................... 26,069 102,555
Accumulated deficit .......................... (51,463) (53,309)
--------- ---------
Total stockholders' (deficit) equity ......... (25,337) 49,362
--------- ---------
Total capitalization ......................... $ 45,785 $ 50,686
========= =========
</TABLE>
- ----------
(1) As adjusted to reflect the Recapitalization and the sale of 3,600,000 shares
of Common Stock offered by the Company hereby at an assumed initial public
offering price of $14.00 per share and the anticipated application of the
estimated net proceeds therefrom.
(2) As of June 30, 1998, the outstanding principal amount plus accrued interest
on the Senior Subordinated Note was approximately $25.6 million and the
outstanding indebtedness under the Credit Facility plus accrued interest was
approximately $16.9 million.
(3) Excludes 483,041 shares of Common Stock reserved for issuance upon exercise
of stock options outstanding under the Stock Plans, as of June 30, 1998, at
a weighted average exercise price of $4.84 per share, of which 212,758 are
exercisable. See "Management-Employee Benefit Plans." Includes 66,375 shares
of Common Stock issuable upon exercise of the Common Stock purchase warrants
as contemplated by the Recapitalization. See "Description of Capital Stock."
19
<PAGE>
DILUTION
The pro forma deficit in net tangible book value of the Company as of March
31, 1998, after giving effect to the Recapitalization, was approximately $(32.4)
million or $(4.08) per share of Common Stock. Pro forma net deficit in tangible
book value per share is determined by dividing the net tangible deficit in book
value of the Company (pro forma tangible assets less total liabilities) by the
number of shares of Common Stock outstanding. Dilution per share represents the
difference between the amount per share paid by purchasers of shares of Common
Stock in the Offering and the pro forma net tangible book value per share of
Common Stock immediately after completion of the Offering. Without taking into
account any changes in such pro forma net tangible book value after March 31,
1998, other than to give effect to (i) the sale of 3,600,000 shares of Common
Stock by the Company in this Offering at an assumed initial public offering
price of $14.00 per share and after deducting the estimated fees and offering
expenses, (ii) the application of the estimated net proceeds therefrom and (iii)
the Recapitalization, the pro forma net tangible book value of the Company as of
March 31, 1998 would have been approximately $11.7 million or $1.02 per share.
This represents an immediate increase in pro forma net tangible book value of
$5.10 per share to existing stockholders and an immediate dilution in pro forma
net tangible book value of $12.98 per share to new investors. The following
table illustrates this dilution on a per share basis.
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share ...................... $ 14.00
Pro forma net tangible book value per share before this Offering(1). $(4.08)
Increase per share attributable to new investors ................... 5.10
------
Pro forma net tangible book value per share after this Offering ...... 1.02
-------
Dilution per share to new investors(2) ............................... $ 12.98
=======
</TABLE>
- ----------
(1) Pro forma net tangible book value per share of Common Stock is determined by
dividing the Company's pro forma deficit in net tangible book value at March
31, 1998 of $(32.4) million, by the pro forma number of shares of Common
Stock outstanding, in each case after giving effect to the Recapitalization.
(2) Dilution per share to new investors is determined by subtracting pro forma
net tangible book value per share after this Offering from the initial
public offering price per share.
The following table sets forth, on a pro forma basis as of March 31, 1998,
after giving effect to the Recapitalization, the number of shares of Common
Stock purchased from the Company, the total consideration paid and the average
price per share paid by existing stockholders (excluding the fair value of
companies contributed in the March 1995 spin-off from CES) and to be paid by new
investors, based on an assumed initial public offering price of $14.00 per share
and before deducting estimated fees and expenses payable by the Company:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------------ -------------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------ --------- -------------- --------- ----------
<S> <C> <C> <C> <C> <C>
Existing stockholders ......... 7,932,917 68.8% $28,325,000 36.0% $ 3.57
New investors ................. 3,600,000 31.2 50,400,000 64.0 14.00
--------- ----- ----------- -----
Total ......................... 11,532,917 100.0% $78,725,000 100.0%
========== ===== =========== =====
</TABLE>
The foregoing tables assume no exercise of any outstanding stock options to
purchase Common Stock. At March 31, 1998 there were 488,497 shares of Common
Stock issuable upon the exercise of stock options outstanding under the
Company's Stock Plans, of which 212,083 were currently exercisable. Such options
have a weighted average exercise price of $4.83 per share. To the extent such
options are exercised, there will be further dilution to the new investors. See
"Capitalization," "Management -- Employee Benefit Plans" and "Description of
Capital Stock."
20
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma consolidated financial information has
been prepared by the Company's management from the historical Consolidated
Financial Statements of the Company and the notes thereto included elsewhere in
this Prospectus. The unaudited pro forma consolidated statements of operations
for the year ended June 30, 1997 and the nine months ended March 31, 1998
include adjustments that give effect to (i) the acquisition of TCS in February
1997, (ii) the acquisition of Stockton in November 1997, (iii) the
Recapitalization and (iv) the Offering, as if they had occurred as of July 1,
1996. The unaudited pro forma consolidated balance sheet as of March 31, 1998
gives effect to (i) the Recapitalization and (ii) the Offering as if they had
occurred on such date.
The pro forma adjustments are based upon available information and certain
assumptions that the Company believes are reasonable under the circumstances.
The unaudited pro forma consolidated financial information should be read in
conjunction with the historical financial statements of the Company and Stockton
and the respective notes thereto, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the other financial
information included herein. The unaudited pro forma consolidated financial
information is provided for information purposes only and does not purport to be
indicative of the results which would have been obtained had the acquisitions of
TCS and Stockton, the Recapitalization and the Offering been completed on the
dates indicated or which may be expected to occur in the future.
21
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ACTUAL
---------------------------------------
COMPANY TCS(1) STOCKTON(2)
-------------- ---------- -------------
<S> <C> <C> <C>
Revenues ...................................... $ 35,279 $ 2,743 $ 3,802
Operating expenses:
Operations ................................... 16,817 1,145 563
Sales, marketing and client services ......... 8,769 781 900
Research and development ..................... 3,278 132 103
General and administrative ................... 5,263 93 160
Depreciation and amortization ................ 5,293 90 109
Non-cash stock compensation .................. -- -- 1,280
Contingent consideration paid to former
owners of acquired businesses ............... 2,301 -- --
Acquired in-process research and
development ................................. 4,354 -- --
---------- ------- -------
Total operating expenses ...................... 46,075 2,241 3,115
---------- ------- -------
Income (loss) from operations ................. (10,796) 502 687
Other (income) expense ........................ (893) -- --
Interest expense, net ......................... 1,504 -- 100
---------- ------- -------
Income (loss) before provision for income
taxes ........................................ (11,407) 502 587
Provision for income taxes .................... 57 -- --
---------- ------- -------
Net income (loss) ............................. (11,464) 502 587
Preferred stock dividends ..................... (2,400) -- --
---------- ------- -------
Net income (loss) applicable to common
stockholders ................................. $ (13,864) $ 502 $ 587
========== ======= =======
Basic net loss per common share ............... $ (2.56)
Weighted average common shares
outstanding - Basic .......................... 5,425 -- --
</TABLE>
<TABLE>
<CAPTION>
RECAPITALIZATION
AND ACQUISITIONS PRO OFFERING PRO FORMA,
ADJUSTMENTS FORMA ADJUSTMENTS AS ADJUSTED
------------------ ------------- ----------------- --------------
<S> <C> <C> <C> <C>
Revenues ...................................... $ -- $ 41,824 $ -- $ 41,824
Operating expenses:
Operations ................................... 76 (3) 18,601 -- 18,601
Sales, marketing and client services ......... -- 10,450 -- 10,450
Research and development ..................... -- 3,513 -- 3,513
General and administrative ................... -- 5,516 -- 5,516
Depreciation and amortization ................ 1,627 (4) 7,062 7,062
(57)(5)
Non-cash stock compensation .................. -- 1,280 -- 1,280
Contingent consideration paid to former
owners of acquired businesses ............... -- 2,301 -- 2,301
Acquired in-process research and
development ................................. -- 4,354 -- 4,354
--------- --------- ---------- ----------
Total operating expenses ...................... (1,646) 53,077 -- 53,077
--------- --------- ---------- ----------
Income (loss) from operations ................. (1,646) (11,253) -- (11,253)
Other (income) expense ........................ -- (893) -- (893)
Interest expense, net ......................... 1,583 (6) 3,187 (2,831)(7) 356
--------- --------- ---------- ----------
Income (loss) before provision for income
taxes ........................................ (3,229) (13,547) 2,831 (10,716)
Provision for income taxes .................... -- 57 -- 57
--------- --------- ---------- ----------
Net income (loss) ............................. (3,229) (13,604) 2,831 (8) (10,773)
Preferred stock dividends ..................... 2,400 (9) -- -- --
--------- --------- ---------- ----------
Net income (loss) applicable to common
stockholders ................................. $ (829) $ (13,604) $ 2,831 $ (10,773)
========= ========= ========== ==========
Basic net loss per common share ............... $ (1.18)
Weighted average common shares
outstanding - Basic .......................... 106 (10) 5,531 3,600 (11) 9,131
</TABLE>
22
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED MARCH 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ACTUAL
----------------------------
COMPANY STOCKTON(12)
------------- --------------
<S> <C> <C>
Revenues .................................. $ 30,189 $1,646
Operating expenses:
Operations ............................... 12,485 216
Sales, marketing and client services. 7,769 298
Research and development ................. 2,886 43
General and administrative ............... 3,307 161
Depreciation and amortization ............ 4,846 54
--------- -------
Total operating expenses .................. 31,293 772
--------- ------
Income (loss) from operations ............. (1,104) 874
Other (income) expense .................... 13 --
Interest expense (income), net ............ 2,470 27
--------- ------
Income (loss) before provision for
income taxes ............................. (3,587) 847
Provision for income taxes ................ 37 --
--------- ------
Net income (loss) ......................... (3,624) 847
Preferred stock dividends ................. (1,800) --
--------- ------
Net income (loss) applicable to
common stockholders ...................... $ (5,424) $ 847
========= ======
Basic net loss per common share ........... $ (0.96)
Weighted average common shares
outstanding - Basic ...................... 5,677 --
</TABLE>
<TABLE>
<CAPTION>
RECAPITALIZATION
AND ACQUISITIONS OFFERING PRO FORMA,
ADJUSTMENTS PRO FORMA ADJUSTMENTS AS ADJUSTED
------------------ ------------- ----------------- ------------
<S> <C> <C> <C> <C>
Revenues .................................. $ -- $ 31,835 $ -- $ 31,835
Operating expenses:
Operations ............................... 29 (3) 12,730 -- 12,730
Sales, marketing and client services. -- 8,067 -- 8,067
Research and development ................. -- 2,929 -- 2,929
General and administrative ............... -- 3,468 -- 3,468
Depreciation and amortization ............ 291 (4) 5,156 -- 5,156
(35)(5)
--------- --------- ---------- ---------
Total operating expenses .................. 285 32,350 -- 32,350
--------- --------- ---------- --------
Income (loss) from operations ............. (285) (515) -- (515)
Other (income) expense .................... -- 13 -- 13
Interest expense (income), net ............ 258 (6) 2,755 (2,889)(7) (134)
--------- --------- ---------- --------
Income (loss) before provision for
income taxes ............................. (543) (3,283) 2,889 (394)
Provision for income taxes ................ -- 37 -- 37
--------- --------- ---------- --------
Net income (loss) ......................... (543) (3,320) 2,889 (8) (431)
Preferred stock dividends ................. 1,800 (9) -- -- --
--------- --------- ---------- --------
Net income (loss) applicable to
common stockholders ...................... $ 1,257 $ (3,320) $ 2,889 $ (431)
========= ========= ========== ========
Basic net loss per common share ........... $ (0.05)
Weighted average common shares
outstanding - Basic ...................... -- 5,677 3,600 (10) 9,277
</TABLE>
23
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
DESCRIPTION OF ACQUISITIONS
The acquisitions of TCS and Stockton were accounted for using the purchase
method of accounting and, accordingly, the net assets acquired have been
recorded at estimated fair value on their respective dates of acquisition
and the historical statement of operations data of the Company reflect the
results of operations of these businesses from their respective dates of
acquisition. The purchase prices and the allocation of the purchase prices
to the acquired assets are as follows:
<TABLE>
<CAPTION>
TCS STOCKTON
---------- ---------
(IN THOUSANDS)
<S> <C> <C>
Cash purchase price ......................... $11,645 $10,674
======= =======
Computer equipment .......................... $ 400 $ 260
Purchased client lists ...................... -- 742
Purchased software and technology ........... 2,619 968
Goodwill .................................... 4,092 8,704
In-process research and development ......... 4,354 --
------- -------
$11,645 $10,674
======= =======
</TABLE>
The Company is also contingently liable for additional consideration of up
to $2,600,000 (plus interest at an annual rate of 7.25%) if Stockton's
revenue during the 12-month period ending September 30, 1998 is at least
$5,000,000. No accrual has been made for the contingent liability as of
March 31, 1998. Such contingent consideration will be treated as additional
purchase price and will, therefore, be added to goodwill when and if it
becomes accruable.
The Stockton purchased client lists are being amortized on a straight-line
basis over five years. The purchased software and technology generally is
being amortized on a straight-line basis over three years for TCS and over
five years for Stockton. Goodwill is being amortized on a straight-line
basis over seven years for the TCS acquisition and over 20 years for the
Stockton acquisition. Computer equipment is being amortized on a
straight-line basis over three years.
(1) Represents the historical results of operations of TCS from July 1, 1996
through the date of acquisition by the Company in February 1997.
(2) Represents the historical results of operations of Stockton from July 1,
1996 through June 30, 1997.
(3) Represents rent expense relating to a new operating lease for the Stockton
facility.
(4) Represents adjustments for amortization expense related to the acquisitions
of TCS and Stockton as if they had occurred July 1, 1996, as follows:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
JUNE 30, 1997 MARCH 31, 1998
-------------------------------- ------------------
TCS STOCKTON TOTAL STOCKTON
------- ---------- --------- ------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Purchased client lists .................... $ -- $ 148 $ 148 $ 55
Purchased software and technology ......... 509 194 703 73
Goodwill .................................. 341 435 776 163
---- ----- ------ -----
$850 $ 777 $1,627 $ 291
==== ===== ====== =====
</TABLE>
(5) Represents the elimination of depreciation and amortization expenses
relating to assets of Stockton that were not acquired.
24
<PAGE>
(6) The interest expense adjustment relating to the TCS and Stockton
acquisitions is as follows:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
JUNE 30, 1997 MARCH 31, 1998
--------------- ------------------
(IN THOUSANDS)
<S> <C> <C>
Elimination of historical interest expense of Stockton ........... $ (111) $ (38)
Interest expense on portion of Senior Subordinated Note used
to fund TCS acquisition including amortization of discount ..... 939 --
Interest expense on borrowings under the Credit Facility used
to fund Stockton acquisition at a composite interest rate of 7.07% (The
effect of a .125% variance in the interest rate on the pro forma
adjustment for the year ended June 30, 1997 and the nine months ended
March 31, 1998 would be $14 and
$5, respectively.).............................................. 755 296
------- ------
$ 1,583 $ 258
======= ======
</TABLE>
(7) The interest expense adjustment relating to the Offering is as follows:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
JUNE 30, 1997 MARCH 31, 1998
--------------- ------------------
(IN THOUSANDS)
<S> <C> <C>
Interest expense on Senior Subordinated Note
including amortization of discount ........... $ (1,992) $ (2,125)
Interest expense on borrowings under the Credit
Facility ..................................... (839) (764)
-------- --------
$ (2,831) $ (2,889)
======== ========
</TABLE>
(8) In connection with the repayment of outstanding indebtedness under the
Credit Facility and the Senior Subordinated Note, the Company will record
an extraordinary charge relating to the elimination of deferred financing
costs associated with the Credit Facility and the write-off of the
remaining discount on the Senior Subordinated Note. Such charge would have
approximated $86,000 as of July 1, 1996, representing solely the write-off
of deferred financing costs associated with the Credit Facility. Such
charge would have approximated $1,846,000 as of March 31, 1998, consisting
of $96,000 relating to the write-off of deferred financing costs associated
with the Credit Facility and $1,750,000 relating to the write-off of the
remaining discount on the Senior Subordinated Note. Such charge has been
excluded from the pro forma statements of operations.
(9) Represents the elimination of the dividends accrued on the Preferred Stock
due to the Recapitalization.
(10) Represents the pro rata portion of Common Stock issued in connection with
the Senior Subordinated Note relating to the TCS acquisition.
(11) Represents the sale by the Company of 3,600,000 shares of Common Stock in
the Offering.
(12) Represents the historical results of operations of Stockton from July 1,
1997 through the date of acquisition by the Company in November 1997.
25
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
AS OF MARCH 31, 1998
-------------------------------
ADJUSTMENTS
RELATING TO THE
ACTUAL RECAPITALIZATION
------------ ------------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents .......................... $ 1,455 $ --
Accounts receivable, less allowance for doubt-
ful accounts ..................................... 7,463 --
Formulary receivables .............................. 1,502 --
Inventory .......................................... 240 --
Prepaid expenses and other current assets .......... 489 --
--------- -----------
Total current assets ............................. 11,149 --
Property and equipment, Net ......................... 4,944 --
Goodwill-Net ........................................ 32,408 --
Other intangible assets-Net ......................... 5,247 --
Other assets ........................................ 431 --
--------- -----------
Total ............................................... $ 54,179 $ --
========= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable ................................... $ 2,753 $ --
Accrued expenses and other current liabilities. 4,880 --
Current portion of long-term debt .................. 240 --
--------- -----------
Total current liabilities ........................ 7,873 --
Long-term debt ...................................... 40,259 --
Other long-term liabilities ......................... 761 --
Redeemable cumulative preferred stock ............... 30,623 (30,623)(1)
Stockholders' equity (deficit): .....................
Common Stock ....................................... 57 22 (1)
1 (2)
Additional paid-in capital ......................... 26,069 30,601 (1)
(1)(2)
Accumulated deficit ................................ (51,463) --
--------- -----------
Total stockholders' equity (deficit) ............. (25,337) 30,623
--------- -----------
Total ............................................... $ 54,179 $ --
========= ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1998
---------------------------------------------
ADJUSTMENTS
RELATING TO PRO FORMA,
PRO FORMA THE OFFERING AS ADJUSTED
----------- -------------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents .......................... $ 1,455 $ 4,280 (3) $ 5,735
Accounts receivable, less allowance for doubt-
ful accounts ..................................... 7,463 -- 7,463
Formulary receivables .............................. 1,502 -- 1,502
Inventory .......................................... 240 -- 240
Prepaid expenses and other current assets .......... 489 -- 489
--------- ------------ ---------
Total current assets ............................. 11,149 4,280 15,429
Property and equipment, Net ......................... 4,944 -- 4,944
Goodwill-Net ........................................ 32,408 -- 32,408
Other intangible assets-Net ......................... 5,247 -- 5,247
Other assets ........................................ 431 (96)(4) 335
--------- ------------ ---------
Total ............................................... $ 54,179 $ 4,184 $ 58,363
========= ============ =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable ................................... $ 2,753 -- $ 2,753
Accrued expenses and other current liabilities. 4,880 (717)(3) 4,163
Current portion of long-term debt .................. 240 384 (4) 624
--------- ------------ ---------
Total current liabilities ........................ 7,873 (333)(3) 7,540
Long-term debt ...................................... 40,259 (40,925) (3) 700
1,366 (4)
Other long-term liabilities ......................... 761 -- 761
Redeemable cumulative preferred stock ............... -- -- --
Stockholders' equity (deficit): .....................
Common Stock ....................................... 80 36 (3) 116
Additional paid-in capital ......................... 56,669 45,886 (3) 102,555
Accumulated deficit ................................ (51,463) (1,846)(4) (53,309)
--------- ------------ ---------
Total stockholders' equity (deficit) ............. 5,286 44,076 49,362
--------- ------------ ---------
Total ............................................... $ 54,179 $ 4,184 $ 58,363
========= ============ =========
</TABLE>
26
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(1) Represents the conversion of outstanding Preferred Stock and $6,627,000 of
accrued dividends on the Preferred Stock into Common Stock in connection
with the Recapitalization.
(2) Represents the exercise of all Common Stock purchase warrants in connection
with the Recapitalization.
(3) Represents the sale by the Company of 3,600,000 shares of Common Stock at an
assumed public offering price of $14.00 per share and the application of the
net proceeds to the Company as follows:
<TABLE>
<S> <C>
PROCEEDS
Gross proceeds from Offering ................................. $ 50,400
Underwriting discount and commissions ........................ (3,528)
Estimated Offering expenses .................................. (950)
---------
Net proceeds ............................................... 45,922
---------
USES
Repay Senior Subordinated Note ............................... (25,000)
Repay borrowings under the Credit Facility ................... (15,925)
Repay accrued interest on Senior Subordinated Note and borrow-
ings under the Credit Facility ............................. (717)
---------
Total uses ................................................. (41,642)
---------
Excess proceeds ............................................ $ 4,280
=========
</TABLE>
(4) Represents a $96,000 decrease in other assets relating to the elimination of
deferred financing costs associated with the Credit Facility and the
write-off of the remaining discount on the Senior Subordinated Note of
$1,750,000, both of which will be recorded as extraordinary items upon the
consummation of the Offering.
27
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The statement of operations data presented below for the years ended June
30, 1995, 1996 and 1997 and the nine months ended March 31, 1998 and the balance
sheet data as of June 30, 1996 and 1997 and March 31, 1998, are derived from,
and qualified by reference to, the audited consolidated financial statements of
the Company included elsewhere herein. The balance sheet data as of June 30,
1995 and March 31, 1997 are derived from, and qualified by reference to, the
respective audited and unaudited consolidated financial statements of the
Company not included herein. The statement of operations data for the nine month
period ended March 31, 1997 is derived from the unaudited consolidated financial
statements of the Company included elsewhere herein. In the opinion of
management, the unaudited consolidated financial statements have been prepared
on the same basis as the audited consolidated financial statements and include
all adjustments, consisting only of normal recurring adjustments necessary for a
fair presentation of the financial position and results of operations for such
period. The results for the nine month period ended March 31, 1998 are not
necessarily indicative of the results to be expected for the related full fiscal
year. The selected consolidated financial data should be read in conjunction
with, and is qualified in its entirety by, the Consolidated Financial Statements
of the Company, the notes thereto and the other financial information included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------------------
1995 1996 1997
---------------- ---------------- ------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues(1) .......................................... $ 16,246 $ 31,768 $ 35,279
Operating expenses:
Operations .......................................... 9,753 19,174 16,817
Sales, marketing and client services ................ 3,615 7,064 8,769
Research and development ............................ 2,051 2,132 3,278
General and administrative .......................... 3,119 6,059 5,263
Depreciation and amortization ....................... 2,995 5,176 5,293
Write-down of intangible assets ..................... 8,191 (2) 9,965 (3) --
Acquired in-process research and development (4).. -- -- 4,354
Other charges (5) ................................... 2,864 538 2,301
--------- --------- ---------
Total operating expenses ............................. 32,588 50,108 46,075
--------- --------- ---------
Loss from operations ................................. (16,342) (18,340) (10,796)
Other (income) expense ............................... -- 313 (893)
Interest expense, net ................................ 189 584 1,504
--------- --------- ---------
Loss before provision for income taxes ............... (16,531) (19,237) (11,407)
Provision for income taxes ........................... 70 93 57
--------- --------- ---------
Net loss ............................................. (16,601) (19,330) (11,464)
Preferred stock dividends ............................ (27) (2,400) (2,400)
--------- --------- ---------
Net loss applicable to common stockholders ........... $(16,628) $(21,730) $ (13,864)
========= ========= =========
Basic net loss per common share ...................... $ (3.17) $ (4.14) $ (2.56)(6)
Weighted average common shares outstanding-Basic ..... 5,238 5,245 5,425
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS
ENDED MARCH 31,
-------------------------------
1997 1998
------------ ------------------
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues(1) .......................................... $ 24,964 $ 30,189
Operating expenses:
Operations .......................................... 12,104 12,485
Sales, marketing and client services ................ 6,143 7,769
Research and development ............................ 2,455 2,886
General and administrative .......................... 3,340 3,307
Depreciation and amortization ....................... 3,502 4,846
Write-down of intangible assets ..................... -- --
Acquired in-process research and development (4).. 4,354 --
Other charges (5) ................................... 990 --
-------- ---------
Total operating expenses ............................. 32,888 31,293
-------- ---------
Loss from operations ................................. (7,924) (1,104)
Other (income) expense ............................... (885) 13
Interest expense, net ................................ 779 2,470
-------- ---------
Loss before provision for income taxes ............... (7,818) (3,587)
Provision for income taxes ........................... 43 37
-------- ---------
Net loss ............................................. (7,861) (3,624)
Preferred stock dividends ............................ (1,800) (1,800)
-------- ---------
Net loss applicable to common stockholders ........... $ (9,661) $ (5,424)
======== =========
Basic net loss per common share ...................... $ (1.81) $ (0.96)(6)
Weighted average common shares outstanding-Basic ..... 5,345 5,677
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AS OF JUNE 30, AS OF MARCH 31,
----------------------------------------- --------------------------
1995 1996 1997 1997 1998
--------- ------------- ------------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital ................................... $ 504 $ (4,207) $ (2,567) $ (546) $ 3,276
Total assets ...................................... 59,511 43,031 45,459 47,784 54,179
Long-term debt, including current portion ......... 5,805 11,601 25,161 25,278 40,499
Redeemable cumulative preferred stock ............. 24,023 26,423 28,823 28,223 30,623
Stockholders' equity (deficit) .................... 12,942 (8,472) (20,069) (15,916) (25,337)
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED JUNE 30, ENDED MARCH 31,
--------------------------------------------- ---------------------------
1995 1996 1997 1997 1998
------------- ------------- ------------- ------------- -----------
(IN THOUSANDS, EXCEPT PER TRANSACTION DATA)
<S> <C> <C> <C> <C> <C>
OTHER DATA:
EBITDA (7) ..................................... $ (13,347) $ (13,164) $ (5,503) $ (4,422) $ 3,742
Adjusted EBITDA (7) ............................ (2,292) (2,052) 2,211 922 3,742
Cash flows from operating activities ........... (3,561) (1,653) (4,020) (2,991) (3,842)
Cash flows from investing activities ........... (22,074) (4,919) (12,221) (11,630) (11,630)
Cash flows from financing activities ........... 33,434 657 15,521 15,818 15,008
Transactions processed(8)
Pharmacy ...................................... -- 107,032 126,201 88,463 136,685
Medical ....................................... -- 16,030 23,085 14,921 23,514
Dental ........................................ -- 6,021 12,188 8,759 10,767
--------- --------- --------- --------- ---------
Total transactions processed ................. -- 129,083 161,474 112,143 170,966
Transactions per FTE (8)(9) .................... -- 322 415 293 478
Revenue per FTE (9) ............................ $ 48 $ 79 $ 91 $ 65 $ 84
Operating expenses per transaction (8) ......... -- 0.39 0.29 0.29 0.18
</TABLE>
- ----------
(1) During the periods presented, the Company made a series of acquisitions and
divested certain non-core or unprofitable operations. Revenues attributable
to these divested operations, which are included in the statement of
operations data, were $1,595,000, $3,517,000, $2,252,000, $1,941,000 and
$241,000 in the fiscal years ended June 30, 1995, 1996 and 1997 and the nine
months ended March 31, 1997 and 1998, respectively.
(2) Reflects the write-off of goodwill related to the acquisitions of MPC and
Wellmark.
(3) Reflects the write-down of costs relating to client lists and related
allocable goodwill obtained in the acquisition of MEDE OHIO.
(4) Reflects the write-off of acquired in-process research and development costs
upon the consummation of the TCS acquisition.
(5) Reflects: (i) expenses recorded relating to contingent consideration paid to
former owners of acquired businesses of $538,000, $2,301,000, and $990,000
in the fiscal years ended June 30, 1996 and 1997 and the nine months ended
March 31, 1997, respectively; and (ii) expenses of $2,864,000 relating to
the spin-off of the Company by CES in the fiscal year ended June 30, 1995.
(6) Supplemental net loss per share, giving effect to the Recapitalization,
would be $(1.55) and $(0.47) for the fiscal year ended June 30, 1997 and the
nine months ended March 31, 1998, respectively.
(7) EBITDA represents net income (loss) plus provision for income taxes, net
interest expense, other (income) expense and depreciation and amortization.
EBITDA is not a measurement in accordance with GAAP and should not be
considered an alternative to, or more meaningful than, earnings (loss) from
operations, net earnings (loss) or cash flow from operations as defined by
GAAP or as a measure of the Company's profitability or liquidity. Not all
companies calculate EBITDA in the same manner and, accordingly, EBITDA shown
herein may not be comparable to EBITDA shown by other companies. The Company
has included information concerning EBITDA herein because management
believes EBITDA provides useful information. Adjusted EBITDA represents
EBITDA plus certain other charges as described below. The following table
summarizes EBITDA and adjusted EBITDA for all periods presented:
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED JUNE 30, ENDED MARCH 31,
------------------------------------------ ------------------------
1995 1996 1997 1997 1998
-------------- -------------- ------------ ------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
EBITDA ............................................... $ (13,347) $ (13,164) $ (5,503) $ (4,422) $ 3,742
Contingent consideration paid to former owners of ac-
quired businesses ................................... -- 538 2,301 990 --
Write-down of intangible assets ...................... 8,191 9,965 -- -- --
Acquired in-process research and development ......... -- -- 4,354 4,354 --
Expenses related to the CES spin-off ................. 2,864 -- --
Contract and legal settlement provisions ............. -- 609 1,059 -- --
---------- ---------- -------- --------- -------
Adjusted EBITDA ...................................... $ (2,292) $ (2,052) $ 2,211 $ 922 $ 3,742
========== ========== ======== ========= =======
</TABLE>
- ----------
(8) Transaction volumes are not available for the fiscal year ended June 30,
1995.
(9) Full-time equivalents ("FTE") represents the number of full-time employees
and part-time equivalents of full-time employees as of the end of the period
shown.
29
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the financial
statements, including the notes thereto, of the Company included elsewhere in
this Prospectus. This Prospectus contains forward-looking statements relating to
future events or future financial performance of the Company. Prospective
investors are cautioned that any such forward-looking statements are not
guarantees of future performance and involve risks and uncertainties. Actual
events or results may differ materially from those discussed in the
forward-looking statements as a result of various factors, including the risk
factors set forth under "Risk Factors" and the matters set forth in this
Prospectus generally.
OVERVIEW
MEDE AMERICA is a leading provider of EDI products and services to a broad
range of providers and payors in the healthcare industry. The Company's
integrated suite of EDI solutions and services allows hospitals, pharmacies,
physicians, dentists and other healthcare providers and provider groups to
electronically edit, process and transmit claims, eligibility and enrollment
data, track claims submissions throughout the claims payment process and obtain
faster reimbursement for their services. Currently, the Company processes over
900,000 transactions per day for over 65,000 providers located in all 50 states.
The Company was formed in March 1995 through the consolidation and
subsequent spin-off of three subsidiaries of CES, in connection with the
acquisition by First Data Corporation of CES' credit card processing business.
The three subsidiaries, MedE America, Inc., MPC and Wellmark, which comprised
the heathcare services business of CES, historically provided EDI services to
hospitals and physicians. Their combined financial results are reflected in the
fiscal 1995 financial statements on a full year basis.
Since its formation, the Company has expanded both through internal growth
and the acquisition of five healthcare transaction processing businesses. As
part of its strategy of providing an integrated suite of EDI products to a broad
range of healthcare providers, the Company has focused on acquisitions that
provided entry into new markets or expanded the Company's product suite. All
acquisitions have been accounted for under the purchase method of accounting.
The Company has actively pursued the integration of its acquisitions and, in the
process, has either divested, closed or modified various operations of the
acquired entities in order to eliminate non-core or redundant operations and
achieve cost savings and operating efficiencies. These integration activities
impacted the Company's financial results in the fiscal years ended June 30,
1995, 1996 and 1997 and the nine months ended March 31, 1998 and are ongoing.
30
<PAGE>
The following table summarizes the Company's acquisitions and divested
products and operations:
<TABLE>
<CAPTION>
PRIMARY PRODUCTS DIVESTED PRODUCTS
DATE OF FOUNDING/ OF FOUNDING/ DATE
FOUNDING COMPANIES ACQUIRED MARKET ACQUIRED COMPANY ACQUIRED COMPANY DIVESTED
- ------------------ -------- ------ ---------------- ---------------- --------
<S> <C> <C> <C> <C> <C>
MedE America, Inc. 4/94(1) Medical Eligibility Verification, -- --
Enrollment
MPC 5/94(1) Medical Hospital Claims, Data Entry 1/97
Physician Billing Physician Billing 12/96
Physician Billing 8/97
Wellmark 5/94(1) Medical Hospital Claims, -- --
Physician Billing
COMPANIES ACQUIRED BY
MEDE AMERICA
MEDE OHIO 3/95 Pharmacy Switching, PBM, Practice Management 2/96
Third Party Billing Software
Practice Management 12/97
Software
Latpon 6/95 Medical Hospital Claims Physician Billing 3/96
EC&F/Premier 10/95 Dental Dental Claims, Practice Practice Management 3/97
Management Software Software
TCS 2/97 Pharmacy/ PBM, Switching, -- --
Medical Eligibility Verification
11/97 Pharmacy PBM -- --
Stockton
</TABLE>
- -----------------
(1) Represents date acquired by CES.
In March 1995, the majority stockholder of the Company acquired all of the
outstanding shares of MEDE OHIO for a cash purchase price of approximately
$22,593,000, including transaction expenses. The majority stockholder
subsequently merged MEDE OHIO into the Company. MEDE OHIO develops EDI systems
for the pharmacy market and provides transaction switching/routing services. The
acquisition was accounted for under the purchase method and the Company recorded
total intangible assets of $25,814,000, consisting of $892,000 of software,
$2,527,000 of client lists and $22,395,000 of goodwill. During fiscal year 1996,
the Company wrote-down $9,965,000 of costs relating to client lists and related
allocable goodwill due to a loss of approximately 25% of the acquired MEDE OHIO
client base. The loss of this significant portion of MEDE OHIO's client base was
primarily due to problems experienced by the Company in the post-merger
integration of MEDE OHIO's operations into the Company's operations. This
post-merger integration process took place during the same general time period
in which the Company was spun-off from CES and a new management team was
installed at the Company. The Company generally is amortizing the software over
three years and the remaining value of client lists is being amortized over five
years. The goodwill is being amortized over 20 years.
In June 1995, the Company acquired substantially all of the assets of
Latpon for a cash purchase price of approximately $2,470,000, plus the
assumption of approximately $963,000 of liabilities (primarily long-term debt).
Latpon, a developer of claims processing software, provided EDI transaction
processing services to hospitals and hospital-based physician groups. Latpon
also provided electronic and manual business office administrative services. The
acquisition was accounted for under the purchase method and the Company recorded
total intangible assets of $2,291,000, consisting of $993,000 of software and
client lists and $1,298,000 of goodwill. The Company generally is amortizing the
software over five years and is amortizing the client lists and goodwill over
five years and 20 years, respectively.
31
<PAGE>
In October 1995, the Company acquired two commonly-owned companies, EC&F,
an all payor EDI dental claims processor, and Premier, a dental practice
management software vendor. The acquisitions were funded with an initial cash
payment of $4,050,000, including transaction expenses, and contingent earnout
payments based on the achievement of certain EBITDA growth targets by the EC&F
business over three one-year periods ending on September 30, 1998. The Company
recorded expenses of $538,000 during fiscal year 1996 relating to the first such
period and an aggregate $2,301,000 during fiscal year 1997 primarily relating to
the second and third such periods. The Company does not believe that any
additional amounts will be payable pursuant to this earn-out arrangement. The
acquisitions of EC&F and Premier were accounted for under the purchase method
and the Company recorded total intangible assets of $4,350,000, consisting of
$764,000 of software, and $3,586,000 of goodwill. The Company generally is
amortizing the software over three years and is amortizing the goodwill over 20
years. The Company sold Premier in January 1997 for a cash payment of $388,000.
There was no gain or loss on the sale of Premier.
In February 1997, the Company acquired TCS, a provider of pharmacy
switching and PBM transaction processing systems and services for pharmacies and
eligibility verification services for physicians, for a total cash payment of
$11,465,000, including transaction expenses. The acquisition was accounted for
under the purchase method and the Company recorded total intangible assets of
$11,065,000, consisting of $4,354,000 of in-process research and development,
$2,619,000 of software and $4,092,000 of goodwill. As of the date of the
acquisition, the Company wrote off the acquired in-process research and
development which had not reached technological feasibility and had no
alternative future use. The Company generally is amortizing the software over
three years and is amortizing the goodwill over seven years.
The in-process research and development acquired from TCS consisted of
advanced Windows software technology for PC and client server platforms for
healthcare EDI transactions. Products under development included: (1) a plan
member eligibility verification for workers compensation; (2) medical claims
processing system to meet the HCFA 1500 EDI standard; and (3) a switching system
for internet claims from retail pharmacies. At the time of the acquisition, the
Company estimated that continued development activities for six months to one
year resulting in additional estimated research and development costs of
$460,000 would be required in order to prove feasibility and bring the project
to commercial viability. It was the opinion of management that such projects had
an above average probability of successful completion and could contribute to
revenue, profit and cash flow within 18 to 24 months from the date of purchase.
At this time, all three projects are substantially complete. However, any or all
of these projects could fail to produce an economic gain. Such failure, if
encountered, would not affect the Company's current product suite and financial
results, but would decrease the Company's opportunities for growth. Estimated
costs to complete the acquired in-process research and development projects as
of the date of acquisition were as follows:
ESTIMATED RESEARCH AND DEVELOPMENT EXPENSE (IN THOUSANDS)
<TABLE>
<CAPTION>
WORKERS COMP. HCFA 1500 PHARMACY TOTAL
--------------- ----------- ---------- ------
<S> <C> <C> <C> <C>
Fiscal 1997 .......... $ 58 $ 70 $ 65 $193
Fiscal 1998 .......... 80 97 90 267
---- ---- ---- ----
Total ............... $138 $167 $155 $460
==== ==== ==== ====
</TABLE>
In November 1997, the Company acquired Stockton, a provider of PBM
transaction processing systems and related services for the pharmacy market.
Stockton was purchased for an initial cash payment of $10,674,000 including
transaction expenses, and a contingent earnout payment based upon the
achievement of certain revenue growth targets. If such revenue targets are
achieved over the 12-month period ending September 30, 1998, a maximum payment
of $2,600,000 (plus interest at an annual rate of 7.25%) will be made in
December 1998. Such additional consideration will be treated as additional
purchase price and will, therefore, be added to goodwill when and if it becomes
accruable. The acquisition was accounted for under the purchase method and the
Company recorded total intangible assets of
32
<PAGE>
$10,414,000, consisting of $1,710,000 of software and client lists and
$8,704,000 of goodwill. The Company generally is amortizing the software over
five years and is amortizing the client lists and goodwill over five years and
20 years, respectively.
Revenues
Revenues are derived from the sale of transaction processing products and
services primarily on a fee-for-transaction basis. Transaction fees vary
depending upon transaction type and service provided. The Company currently
receives fees from providers for the majority of its transactions including
claims processing, eligibility verification, claims switching, pharmacy script
processing and tracking and Medicaid enrollment. The Company also receives fees
from payors for the transmission of electronic claims and formulary payments
from pharmaceutical manufacturers relating to the Company's PBM script
processing and management reporting services. These transaction-based revenues
comprise the predominant portion of the Company's total revenues and tend to be
recurring. Other revenue is derived from one-time payments related to
installation and implementation services, software license fees and EDI systems
equipment sales. See "Business -- Suite of EDI Products and Services."
Transaction-based revenues and related formulary services revenues (if
applicable), which constitute the majority of the Company's total revenues, are
recognized at the time the transactions are processed and the services are
provided. Revenues associated with software support and implementation fees,
each constituting less than 3% of the Company's revenues for the nine months
ended March 31, 1998, are recognized ratably over the contract period or as the
service is provided. Revenue from licensing of software, which also constitutes
less than 3% of the Company's total revenues for the nine months ended March 31,
1998, is recognized upon installation if it is determined that the Company has
no significant remaining obligations and collectibility of the resulting
receivable is probable.
Operating Expenses
Operations Expense. Operations expense consists of data and voice
telecommunications expense, salaries and benefits for operations employees and
other costs associated with transaction processing and services provided to
clients, such as network and telecommunications, maintenance, computer
operations and systems administration, facilities and other additional indirect
expenses. Since 1996, operations expense as a percentage of revenues and
operations expense per transaction have declined as a result of the Company's
integration and restructuring efforts and increased operating leverage.
Restructuring charges recorded in connection with the Company's integration
activities have resulted in variability in the Company's quarterly operating
results.
Sales, Marketing and Client Services Expense. Sales, marketing and client
services expense consists primarily of salaries, benefits, commissions and
related indirect costs and expenditures for marketing programs, trade shows,
advertising, help desk software and related client communications. As the
Company continues to implement its growth strategy, sales, marketing and client
services expenses are expected to continue to increase.
Research and Development Expense. Research and development expense consists
primarily of salaries, benefits and related indirect expenses associated with
the design, research and development of new products and enhancements to
existing current products. The development of new software products and
enhancements to existing software products are expensed as incurred until
technological feasibility has been established. After technological feasibility
has been established, any additional software development costs are capitalized
in accordance with Statement of Financial Accounting Standards ("SFAS") No. 86,
"Accounting For the Cost of Computer Software To Be Sold, Leased or Otherwise
Marketed." Amortization of purchased software and technology and of capitalized
software development costs is provided on a product-by-product basis at the
greater of the amount computed using (a) the ratio of current revenues for a
product to the total of current and anticipated future revenues or (b) the
straight-line method over the remaining estimated economic life of the product.
Generally, an original estimated economic life of three to five years is
assigned to purchased software and technology and an original estimated economic
life of five years is assigned to capitalized software development costs.
Amortization begins in the period in which the related product is available for
general release to customers. During
33
<PAGE>
the nine months ended March 31, 1998, the Company capitalized $319,000 of
software development costs on a project for which technological feasibility had
been established but was not yet available for client release. Prior to July 1,
1997, the Company did not have any software development projects for which
significant development costs were incurred between the establishment of
technological feasibility and general client release of the product. The Company
believes that the development of enhanced and new product offerings are
essential to remaining competitive and it expects that development expenses will
increase in the future.
General and Administrative Expense. General and administrative expense
primarily consists of salaries, benefits and related indirect costs for the
administrative, executive, finance, legal, human resources and internal systems
personnel, as well as accounting and legal fees. As the Company implements its
growth strategy, general and administrative expenses are expected to increase.
Depreciation and Amortization Expense. The Company depreciates the cost of
its tangible capital assets on a straight-line basis over the estimated economic
life of the asset: three to five years for computer equipment, five years for
furniture and fixtures, and 20 to 25 years for buildings and improvements.
Acquisition-related intangible assets, which include the value of software and
client lists, are amortized based on the estimated useful economic life of the
asset at the time of acquisition, and therefore will vary among acquisitions.
The Company recorded amortization expense relating to goodwill and other
intangible assets of $3,541,000 and $3,389,000 during the fiscal year ended June
30, 1997 and the nine months ended March 31, 1998, respectively.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain items
from the consolidated statements of operations of the Company expressed as a
percentage of total revenues.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED JUNE 30, MARCH 31,
------------------------------ ------------------
1995 1996 1997 1997 1998
-------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
Revenues ...................................... 100% 100% 100% 100% 100%
Operating Expenses:
Operations ................................... 60 60 48 48 41
Sales, marketing and client services ......... 22 22 25 25 26
Research and development ..................... 13 7 9 10 10
General and administrative ................... 19 19 15 13 11
Depreciation and amortization ................ 18 16 15 14 16
</TABLE>
NINE MONTHS ENDED MARCH 31, 1998 COMPARED TO NINE MONTHS ENDED MARCH 31, 1997
Revenues
Revenues for the nine months ended March 31, 1998 were $30.2 million
compared to $25.0 million in the corresponding period of fiscal 1997,
representing an increase of 21%. The increase was primarily attributable to
incremental revenue from the acquisitions of TCS and Stockton in February 1997
and November 1997, respectively, partially offset by the loss of revenues from
operations that were divested. The increase was also due to the growth of the
existing business.
The Company processed 171 million transactions in the nine months ended
March 31, 1998, compared to 112 million transactions processed in the
corresponding period of fiscal 1997, representing an increase of 52%. The
increase resulted from the addition of new clients, increased transaction volume
from existing clients and the acquisitions of TCS and Stockton. The average
price per transaction received by the Company declined by 13% between such
periods, as a result of the greater proportion of transactions processed under
contracts with volume-based terms and pricing and a larger proportion of lower
priced eligibility verification transactions as a result of the acquisition of
TCS.
34
<PAGE>
Operating Expenses
Operations expense was $12.5 million for the nine months ended March 31,
1998 compared to $12.1 million in the corresponding period of fiscal 1997,
representing an increase of 3%. As a percentage of revenues, operations expense
decreased from 48% for the first nine months of fiscal 1997 to 41% in the
corresponding period of fiscal 1998. The containment of operations expense in
the nine months ended March 31, 1998 was a result of ongoing cost reduction
programs, systems consolidation for recent acquisitions and the impact of the
divested operations, which results are included in the 1997 period but not the
1998 period.
Sales, marketing and client services expense was $7.8 million for the nine
months ended March 31, 1998 compared to $6.1 million in the corresponding period
of fiscal 1997, representing an increase of 26%. As a percentage of revenues,
sales, marketing and client services expense increased from 25% for the first
nine months of fiscal 1997 to 26% in the corresponding period of fiscal 1998.
This increase was primarily due to the inclusion of TCS and Stockton in the
results of operations for the nine months ended March 31, 1998 and, to a lesser
extent, increases in expenses relating to the hiring of new employees for client
support and help desk service, the installation of help desk tracking software
and resources devoted to telesales.
Research and development expense was $2.9 million for the nine months ended
March 31, 1998 compared to $2.5 million in the corresponding period of fiscal
1997, representing an increase of 18%. As a percentage of revenues, research and
development expense was 10% for each such period. The Company capitalized
$319,000 of software development costs in the first nine months of 1998,
however, no software development costs were capitalized in the corresponding
period of fiscal 1997. Prior to July 1, 1997, the Company did not have any
software development projects for which significant development costs were
incurred between the establishment of technological feasibility and general
client release of the product.
General and administrative expense was $3.3 million for the nine months
ended March 31, 1998 and the corresponding period of fiscal 1997. As a
percentage of revenues, general and administrative expense decreased from 13%
for the first nine months of fiscal 1997 to 11% in the corresponding period of
fiscal 1998. This decrease was primarily a result of cost controls and the
consolidation and integration activities related to the Company's recent
acquisitions.
Depreciation and amortization expense was $4.8 million for the nine months
ended March 31, 1998 compared to $3.5 million in the corresponding period of
fiscal 1997, representing an increase of 38%. As a percentage of revenues,
depreciation and amortization expense increased from 14% for the first nine
months of fiscal 1997 to 16% in the corresponding period of fiscal 1998. This
increase was primarily attributable to the increased amortization expense
related to the acquisitions of TCS in February 1997 and Stockton in November
1997.
There were no acquisition-related expenses for the nine months ended March
31, 1998, as compared to $5.3 million of such expenses in the corresponding
period of fiscal 1997. Included in the amount for the prior period is a $4.4
million write-off related to in-process research and development from the
acquisition of TCS (for software that had not achieved technological feasibility
and had no alternative use), and a contingent earnout charge of $990,000
recorded by the Company in connection with the EC&F purchase agreement. In
addition, in the nine months ended March 31, 1997, the Company recorded a gain
of $885,000 from a sale of securities. See Note 12 of "Notes to Consolidated
Financial Statements."
YEAR ENDED JUNE 30, 1997 COMPARED TO JUNE 30, 1996
Revenues
Revenues for the fiscal year ended June 30, 1997 were $35.3 million
compared to $31.8 million in fiscal 1996, representing an increase of 11%. The
increase was primarily attributable to revenue from the acquisition of TCS in
February 1997, partially offset by the loss of revenues from operations that
were divested. The increase was also due to the growth of the existing business.
35
<PAGE>
The Company processed 161 million transactions in the fiscal year ended
June 30, 1997 compared to 129 million transactions processed in fiscal 1996,
representing an increase of 25%. The increase resulted from the addition of new
clients, the growth of business from existing clients and the TCS acquisition.
The average price per transaction in fiscal 1997 declined by 4% from fiscal
1996, primarily as a result of the divested operations having higher claims
pricing.
Operating Expenses
Operations expense was $16.8 million for the fiscal year ended June 30,
1997 compared to $19.2 million in fiscal 1996, representing a decrease of 12%.
As a percentage of revenues, operations expense decreased from 60% during the
first nine months of 1996 to 48% in fiscal 1996. The operations expense
improvement was a result of ongoing cost reduction programs, systems
consolidation for recent acquisitions and the divestitures of non-core or
unprofitable operations.
Sales, marketing and client services expense was $8.8 million for the
fiscal year ended June 30, 1997 compared to $7.1 million in fiscal 1996,
representing an increase of 24%. As a percentage of revenues, sales, marketing
and client service expense increased from 22% in fiscal 1996 to 25% in fiscal
1997. This increase was primarily due to the inclusion of the TCS acquisition in
the results for five months and, to a lesser extent, to the addition of client
support personnel and the increase in help desk tracking software expenses.
Research and development expense was $3.3 million for the fiscal year ended
June 30, 1997 compared to $2.1 million in fiscal 1996, representing an increase
of 54%. As a percentage of revenues, research and development expense increased
from 7% in fiscal 1996 to 9% in fiscal 1997. This increase in research and
development expense was due to the hiring of new employees and other expenses
related to the expansion of the Company's processing capacity and the
implementation of new technology processing platforms throughout its data
processing centers.
General and administrative expense was $5.3 million for the fiscal year
ended June 30, 1997 compared to $6.1 million in fiscal 1996, representing a
decrease of 13%. As a percentage of revenues, general and administrative expense
decreased from 19% in fiscal 1996 to 15% in fiscal 1997. This decrease was
primarily a result of consolidation and integration activities.
Depreciation and amortization expense was $5.3 million for fiscal year
ended June 30, 1997 compared to $5.2 million in fiscal 1996, representing an
increase of 2%. As a percentage of revenues, depreciation and amortization
expense decreased from 16% in fiscal 1996 to 15% in fiscal 1997.
Acquisition-related expenses for the fiscal year ended June 30, 1997
included a $4.4 million write-off related to in-process research and development
from the acquisition of TCS (for software that had not achieved technological
feasibility and had no alternative use), and a contingent earnout charge of $2.3
million recorded by the Company in connection with the EC&F purchase agreement.
In addition, in the nine months ended March 31, 1997, the Company recorded a
gain of $885,000 from a sale of securities. See Note 12 of "Notes to
Consolidated Financial Statements."
YEAR ENDED JUNE 30, 1996 COMPARED TO JUNE 30, 1995
Revenues
Revenues for the fiscal year ended June 30, 1996 were $31.8 million
compared to $16.2 million in fiscal 1995, representing an increase of 96%. The
increase in revenues was primarily attributable to the inclusion of MEDE OHIO
results for the full 12 months in fiscal 1996, compared to nearly four months in
fiscal 1995, the acquisition of Latpon in June 1995 and the acquisition of EC&F
and Premier in October 1995.
Operating Expenses
Operations expense was $19.2 million in the fiscal year ended June 30, 1996
compared to $9.8 million in fiscal 1995, representing an increase of 97%. As a
percentage of revenues, operations expense was 60% for both periods.
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<PAGE>
Sales, marketing and client services expense was $7.1 million in the fiscal
year ended June 30, 1996 compared to $3.6 million in fiscal 1995, representing
an increase of 95%, reflecting the impact of acquisitions. As a percentage of
revenues, sales, marketing and client services expense was 22% for both periods.
Research and development expense was $2.1 million for each of the fiscal
years ended June 30, 1996 and 1995. As a percentage of revenues, research and
development expense decreased from 13% in fiscal 1995 to 7% in fiscal 1996. This
decrease in research and development expense as a percentage of revenues
resulted from the inclusion of MEDE OHIO and EC&F in the Company's operations.
Their products tended to be less development intensive.
General and administrative expense was $6.1 million in the fiscal year
ended June 30, 1996 compared to $3.1 million in fiscal 1995, representing an
increase of 94%, reflecting the impact of acquisitions. As a percentage of
revenues, general and administrative expense was 19% for both periods.
Depreciation and amortization expense was $5.2 million in the fiscal year
ended June 30, 1996 compared to $3.0 million in fiscal 1995, representing an
increase of 73%. As a percentage of revenues, depreciation and amortization
expense decreased from 18% in fiscal 1995 to 16% in fiscal 1996. The increase in
depreciation and amortization expense was predominantly attributable to
amortization related to three acquisitions treated under purchase accounting:
MEDE OHIO in March 1995; Latpon in June 1995 and EC&F/Premier in October 1995.
During the fiscal year ended June 30, 1996, the Company wrote down
approximately $10.0 million of costs relating to client lists and related
allocable goodwill obtained in the acquisition of MEDE OHIO. Such intangible
assets were written down to the net present value of the estimated future cash
flows to be derived from these clients as of June 30, 1996. The write-down was
required due to a loss of approximately 25% of the acquired MEDE OHIO client
base. In addition, a contingent earnout charge of $538,000 was recorded in
connection with the EC&F purchase agreement during the fiscal year ended June
30, 1996.
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QUARTERLY OPERATING RESULTS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------------------------------------
9/30/96 12/31/96 3/31/97 6/30/97 9/30/97 12/31/97 3/31/98
----------- ------------ ----------- ------------- ----------- ------------ ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues .................................. $ 8,179 $ 7,831 $ 8,954 $10,315 $ 9,241 $ 9,849 $11,099
Operating Expenses:
Operations ............................... 4,298 3,683 4,123 4,713 4,285 3,942 4,258
Sales, marketing and client services. 1,925 1,957 2,261 2,626 2,385 2,432 2,952
Research and development ................. 783 754 918 823 806 1,059 1,021
General and administrative ............... 1,042 1,171 1,127 1,923 1,061 1,107 1,139
Depreciation and amortization ............ 1,102 1,044 1,356 1,791 1,554 1,573 1,719
Acquired in-process research and
development ............................ -- -- 4,354 -- -- -- --
Payment to former owners of ac-
quired businesses ...................... 330 330 330 1,311 -- -- --
-------- -------- -------- ------- -------- -------- -------
Total operating expenses .................. 9,480 8,939 14,469 13,187 10,091 10,113 11,089
-------- -------- -------- ------- -------- -------- -------
Income (loss) from operations ............. (1,301) (1,108) (5,515) (2,872) (850) (264) 10
Other (income) expense .................... -- -- (885) (8) -- -- 13
Interest expense, net ..................... 150 202 427 725 655 915 900
-------- -------- -------- --------- -------- -------- -------
Loss before provision for income taxes (1,451) (1,310) (5,057) (3,589) (1,505) (1,179) (903)
Provision for income taxes ................ 14 14 15 14 12 12 13
-------- -------- -------- --------- -------- -------- -------
Net loss .................................. $ (1,465) $ (1,324) $ (5,072) $(3,603) $ (1,517) $ (1,191) $ (916)
======== ======== ======== ========= ======== ======== =======
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has used capital from external sources to fund
its internal growth and operations and to make acquisitions. Such capital
requirements have been provided by (i) the Company's four principal
stockholders, through periodic purchases of the Company's debt and equity
securities and (ii) the Credit Facility. Since June 30, 1995 an investment fund
affiliated with WCAS has purchased a Senior Subordinated Note in the principal
amount of $25,000,000 and 370,993 shares of Common Stock from the Company for an
aggregate $25.0 million, which was used in connection with the acquisition of
TCS, to repay borrowings under the Credit Facility and for general working
capital purposes. See "Certain Transactions."
As of March 31, 1998, the Company had outstanding borrowings of $15,925,000
under the Credit Facility. Such borrowings currently bear interest at a weighted
average rate of 7.07% per annum. The total availability under the Credit
Facility is $20.0 million. See "Certain Transactions." All indebtedness under
the Credit Facility has been, and currently is, guaranteed by the Company's four
principal stockholders. The Company has received a letter from the lender under
the Credit Facility committing to provide an amended credit facility with total
available credit of $15.0 million. This facility would be comprised of a $7.5
million term loan to be used for acquisitions and a $7.5 million revolving
credit loan to be used for working capital purposes, each with a maximum term of
two years from October 31, 1998. Interest for the term and revolver loans is
computed at .25% above the bank's base rate, or 1.25% above a Eurodollar based
rate. Such borrowing rates are at the option of the Company for any particular
period during which borrowings exist. Covenants under the existing agreement
include: customary covenants and restrictions on additional liabilities and
disposition of assets, achieving year 2000 compliance by August 1999,
maintaining financial records and reporting, a maximum quarterly leverage ratio,
a minimum interest coverage ratio, as well as prior
38
<PAGE>
approval for acquisitions. Borrowings under the Amended Credit Facility will not
be guaranteed by any third party. It is anticipated that the Amended Credit
Facility will take effect upon the consummation of the Offering.
As of March 31, 1998, the Company had cash and cash equivalents of $1.5
million and net working capital of $3.3 million. Net cash used in operations was
$1.7 million, $4.0 million and $3.8 million for the fiscal years ended June 30,
1996 and 1997 and the nine months ended March 31, 1998, respectively. The $3.8
million net cash used in operations for the nine months ended March 31, 1998 was
used primarily for contingent earnout charges on acquisitions made in prior
fiscal years, and other accounts payable and accrued expenses totaling $3.7
million. In addition, $1.1 million of the net cash used was attributable to an
increase in formulary accounts receivable relating to Stockton (formulary
receivables normally have a 7-12 month collection cycle).
Cash used for investment purposes was $4.9 million, $12.2 million and $11.6
million for the fiscal years ended June 30, 1996 and 1997 and the nine months
ended March 31, 1998, respectively. Cash used for investment purposes during the
nine months ended March 31, 1998 was primarily used to acquire Stockton for
$10.7 million and also to fund capital expenditures (predominantly computer and
network hardware and software) in the amount of $646,000. The Company expects to
spend at least $2.0 million per annum for the foreseeable future for capital
investment to support growth in transaction processing.
Cash provided by financing activities was $657,000, $15.5 million and $15.0
million for the fiscal years ended June 30, 1996 and 1997 and the nine months
ended March 31, 1998, respectively. Cash provided by financing activities during
the nine months ended March 31, 1998 was primarily provided from borrowings
under the Credit Facility which was partially offset by principal repayments of
debt and capital lease obligations. In the fiscal year ended June 30, 1997, cash
was provided by the issuance of a Senior Subordinated Note in the principal
amount of $25,000,000 and 370,993 shares of Common Stock for aggregate proceeds
of $25.0 million, which proceeds were partially offset by the repayment of
outstanding borrowings under the Credit Facility and principal repayments of
debt and capital lease obligations.
Approximately $43.0 million of the proceeds of the Offering will be applied
to the repayment of the Company's outstanding indebtedness under the Credit
Facility and the Senior Subordinated Note. In connection with the repayment of
outstanding indebtedness under the Credit Facility and the Senior Subordinated
Note, the Company will record an extraordinary charge of approximately $1.7
million relating to the elimination of deferred financing costs associated with
the Credit Facility and the write-off of the remaining discount on the Senior
Subordinated Note. The Company expects to use the Amended Credit Facility to
finance the Company's future acquisitions and general working capital needs. The
Company also expects to finance acquisitions through the issuance of additional
equity and debt securities. The Company believes that the proceeds of the
Offering, together with existing cash balances and cash generated by operations
in the near term, and the borrowings expected to be made available under the
Amended Credit Facility, will be sufficient to finance the Company's operations
for at least 18 months. However, future acquisitions may require funding beyond
the Company's cash resources and currently anticipated capital or operating
requirements could change, with the result that the Company may be required to
raise additional funds through the public or private sale of additional
securities. See "Risk Factors -- Acquisition Strategy; Need for Additional
Capital."
YEAR 2000 COMPLIANCE
The Company has reviewed the Year 2000 compliance of its systems and has
adopted a program intended to ensure that it achieves compliance with respect to
all products, services and internal systems in a timely manner. Under such plan,
$1,020,000 has been budgeted through December 1999, of which $160,000 has been
spent through April 30, 1998. Certain of the Company's physician benefit
management clients are being migrated from the Company's PBM system in Ohio to
its PBM system acquired from Stockton. The total revenue from such clients is
expected to be $6,351,000 in fiscal 1999. A testing and migration timetable for
all such clients has been developed, with migration activities scheduled for
completion in mid-1999. The Company believes that it does not require additional
technology to achieve Year 2000 compliance and that it has sufficient resources
to implement its plan. The Company expects
39
<PAGE>
that the combined amount of budgeted expenses for Year 2000 compliance plus the
ongoing product development and development expenditures will increase as a
percent of revenue in future periods. However, there can be no assurance that
expenditures required to achieve compliance with Year 2000 requirements will not
exceed those amounts. See "Risk Factors -- Year 2000 Compliance" and "Business
- -- Year 2000 Compliance."
IMPACT OF INFLATION
Inflation has not had a material impact on the Company's historical
operations or financial condition.
RECENT ACCOUNTING PRONOUNCEMENTS
Recent pronouncements of the Financial Accounting Standards Board, which
are not required to be adopted at this date, include SFAS No. 130, "Reporting
Comprehensive Income", SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" and SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits." These pronouncements are not
expected to have a material impact on the Company's financial statements.
In March 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 statement is not required
to be adopted at this date. The Company is currently evaluating the impact of
this statement on its financial statements.
NET OPERATING LOSSES
As of March 31, 1998, the Company had net operating loss carryforwards for
federal income tax purposes of approximately $34,650,000. Such loss
carryforwards expire in the fiscal years 2005 through 2013. Because of certain
changes in ownership, as defined in the Internal Revenue Code, which occurred
during 1996 and 1995, certain of these net operating loss carryforwards are
subject to annual limitations. See Note 7 of "Notes to Consolidated Financial
Statements."
40
<PAGE>
BUSINESS
GENERAL
MEDE AMERICA is a leading provider of EDI products and services to a broad
range of providers and payors in the healthcare industry. The Company offers an
integrated suite of EDI solutions that allows hospitals, pharmacies, physicians,
dentists and other healthcare providers and provider groups to electronically
edit, process and transmit claims, eligibility and enrollment data, track claims
submissions throughout the claims payment process and obtain faster
reimbursement for their services. In addition to offering greater processing
speed, the Company's EDI products and services reduce processing costs, increase
collection rates and result in more accurate data interchange. The Company
maintains over 540 direct connections with insurance companies, Medicare and
Medicaid agencies, Blue Cross and Blue Shield systems and other third party
payors, as well as over 500 indirect connections with additional payors through
claims clearinghouses. Currently, the Company processes over 900,000
transactions per day for over 65,000 providers located in all 50 states. The
Company's mission is to be the leading provider of integrated healthcare
transaction processing technology, networks and databases, enabling its clients
to improve the quality and efficiency of their services.
The Company was formed in March 1995 through the consolidation and
subsequent spin-off of three subsidiaries of CES, in connection with the
acquisition by First Data Corporation of CES' credit card processing business.
The three subsidiaries, MedE America, Inc., MPC, and Wellmark, which comprised
the healthcare services business of CES, historically provided EDI services to
hospitals and physicians. Since its formation, the Company has expanded both
through internal growth and the acquisition of five healthcare transaction
processing businesses. As part of its strategy of providing an integrated suite
of EDI products and services to a broad range of healthcare providers, the
Company has focused on acquisitions that provided entry into new markets or
expanded the Company's product suite. The Company has actively pursued the
integration of its acquisitions and, in the process, has either divested, closed
or restructured various operations of the acquired entities in order to
eliminate non-core or redundant operations and achieve cost savings and
operating efficiencies.
INDUSTRY OVERVIEW
Innovations over the past decade in computer and telecommunications
technologies have resulted in the development of EDI systems to electronically
process and transmit information among the various participants in the
healthcare industry. These systems were designed to replace paper-based
recording and transmission of information, enabling greater processing speed,
reduced processing costs and more accurate data interchange. Electronic
processing enables providers to verify patient eligibility or obtain
authorization for services at the time of appointment, registration or at the
time of claim submission. The healthcare EDI processor then interfaces with the
payor to obtain an eligibility or authorization confirmation, which is
transmitted back to the provider. To obtain payment, providers must submit
claims information in formats specified by the respective payors. Healthcare EDI
processors can facilitate this process by utilizing customized software programs
that can perform "edits" to the data supplied by providers and re-format that
data to meet the data specifications of payors. Electronically transmitted
claims are sent either directly from the provider to the payor, or through the
healthcare EDI processor (which in turn transmits the claims to the payor
directly or through one or more intermediaries). The claim is received and
reviewed by the payor and the remittance response is communicated (usually not
electronically) back to the provider. Each of these steps in the healthcare
delivery process gives rise to a current or potential EDI transaction.
According to Health Data Directory, in 1997 over 4.1 billion electronic and
paper claims were paid in all sectors of the healthcare services market, and
over the past five years healthcare claims increased at an average rate of 5.5%
per year. The Company expects the volume of healthcare claims to continue to
grow as the U.S. population ages and life expectancy of the U.S. population
increases. The increase in claims has been accompanied by an increase in the
proportion of claims that are electronically processed. From 1993 to 1997, the
proportion of total healthcare claims that were electronically processed
41
<PAGE>
increased from 41% to approximately 60% at an average rate of 16% per year. The
Company expects the electronic processing of healthcare claims to continue to
increase as a result of increased reliance on electronic commerce and increased
emphasis on cost containment in the healthcare industry.
The penetration of electronic processing varies significantly among the
different markets within the healthcare industry. According to Health Data
Directory, in 1997 electronic processing accounted for approximately 13% of
total dental claims, 38% of total physician medical claims, 83% of total
hospital medical claims and 86% of total pharmacy claims. The Company believes
that there is significant market potential for EDI processing in the non-claim
area, including eligibility verification, remittance transactions and other data
exchange transactions such as claims tracking, referrals and physician
scripting. The Company believes that EDI penetration in these non-claim
transaction categories is low, and as a result, the EDI transaction growth in
these areas will exceed that of the EDI claims processing market.
As compared to claims processing, the electronic processing of non-claim
information transactions in the healthcare industry, such as eligibility
inquiries, enrollment in Medicare and Medicaid programs, referrals, formulary
inquiries to pharmacy benefit managers and prescription delivery, has emerged
only recently and is less pervasive. The Company believes that only a small
percentage of non-claim information transactions are managed electronically. In
addition to opportunities to expand its claims processing business, the Company
believes that there are significant possibilities to expand electronic
processing to non-claim areas in the healthcare market, for the following
reasons:
o As advanced technology continues to penetrate the healthcare industry, an
increasing amount of healthcare data will be managed electronically. For
example, healthcare providers are implementing practice management
software systems to manage the clinical, financial and administrative
aspects of their businesses. Increasingly, these software systems
incorporate EDI processing capabilities.
o Efforts by government and private insurers to contain healthcare costs are
expected to motivate hospitals and physicians to use EDI not only to lower
costs, but also to improve operating efficiencies and increase accuracy.
For example, state Medicaid programs and some private insurance companies
now encourage providers to verify patients' medical benefits eligibility
electronically.
o As the healthcare industry continues to undergo consolidation, the larger
scale of the resulting entities may result in increased EDI use. For
example, various managed care companies have encouraged their provider
networks to utilize EDI for authorizations, enrollment verification,
encounter reports and referrals.
Currently, the EDI market is fragmented and consists of several nationally
prominent EDI claims processors and several hundred regional EDI service
providers who occupy selected niches in specialized markets and geographical
sectors. Over the past several years, many of the regional EDI service providers
have been acquired by national organizations. The Company believes that
competitive conditions in the healthcare information industry will continue to
favor consolidation as larger, more diversified organizations are able to reduce
costs and offer an integrated package of standardized products and services.
COMPETITIVE STRENGTHS
The Company believes that it has several competitive strengths which will
enable it to capitalize on the significant growth opportunities in the
healthcare EDI marketplace.
COMPREHENSIVE SUITE OF EDI PRODUCTS AND SERVICES. The Company has followed
a strategy of developing or acquiring EDI products and services that may be
provided to a broad range of healthcare clients. The Company's products
incorporate open architecture designs and "best of breed" technology and may be
purchased as modular additions to the client's existing data storage and
retrieval system, or as part of a comprehensive EDI processing system. They are
designed to be compatible with a broad variety of hospital, medical, pharmacy
and dental practice management and billing systems. In addition, new products
can be added to respond to changing client requirements, and the scalability of
the Com-
42
<PAGE>
pany's products permits the client to accommodate increasing transaction volumes
without requiring substantial new investments in software and hardware. Because
of these product characteristics, the Company believes it is well positioned to
take advantage of the expected growth of EDI in areas such as eligibility,
managed care transactions and pharmacy to physician scripting.
BROAD AND DIVERSIFIED CLIENT BASE. The Company markets its products and
services to a broad range of healthcare providers including the medical market,
comprised of hospitals, clinics and physicians, the dental market comprised of
small to medium-sized dental practice groups, and the pharmacy market, which
includes retail pharmacies (independents and chains) as well as PBMs. In
addition, the Company has relationships through practice management system
vendors and other intermediaries. The Company's client base is highly
diversified, consisting of approximately 42,000 pharmacies, 8,000 dental
offices, 1,000 hospitals and clinics and 14,000 physicians. The Company's broad
and diversified client base provides it with transaction-based revenues that
tend to be recurring and positions it to capitalize on the rapid consolidation
taking place within the healthcare industry.
DIRECT RELATIONSHIPS WITH PROVIDERS AND PAYORS. The Company has developed
over 540 direct connections with healthcare payors including Medicare and
Medicaid agencies, Blue Cross and Blue Shield systems and commercial insurance
companies, and the Company is able to access over 500 additional payors through
contractual relationships with multiple claims clearinghouses. Additionally, the
Company has direct client relationships with providers such as hospitals,
clinics, physicians and pharmacies. The range of MEDE AMERICA's services and the
extent of its connectivity with payors provides the opportunity to achieve
deeper penetration of its provider base, while at the same time offering more
complete solutions to new clients. MEDE AMERICA believes that it is strongly
positioned to offer reliable, one-stop shopping to both providers and payors for
all their EDI needs.
FOCUS ON CLIENT SERVICE. The Company has focused on implementing a wide
range of client service and support functions. These support activities include
the use of automated client service tracking software, expanded client help desk
and account executive support functions, and extensive client feedback
mechanisms. This focus has enhanced the Company's awareness of client needs and
improved the Company's ability to respond to those needs. As a result of these
activities, of the clients that contributed to the Company's revenues in the
1997 fiscal year, approximately 90% continued as clients of the Company and
contributed to the Company's revenues in the nine months ended March 31, 1998.
The Company believes that its high quality client service enhances the
satisfaction of its clients and generates new revenue opportunities in the form
of expanded transaction volume and sales of new products and services.
LEADING TECHNOLOGY AND PRODUCT PLATFORMS. The Company recognizes the
critical role of technology and telecommunications platforms to ensure reliable
and high quality service. Over the past two years, MEDE AMERICA has invested
significant capital in new hardware and software systems resulting in an
estimated three-fold increase in transaction processing capacity. The Company
has designed its products on a modular client/server model, using open
architecture and commonly available hardware, with redundant processing
capabilities. The Company's redundancies in its computing capacity and its
dual-site operations enable it to provide uninterrupted processing and data
transmission with little if any downtime. As a result of such technology
investments, MEDE AMERICA believes it is able to provide high quality service to
its clients in the form of high network availability, batch transaction
reliability and high rates of payor claims acceptance. MEDE AMERICA also
believes that its technology platform, which is operating at approximately
one-third of its total capacity, provides it with substantial operating
leverage.
EXPERIENCED MANAGEMENT TEAM. Each member of the Company's senior management
team has over 15 years of experience in the information technology and
transaction processing industries and has extensive background in working with
emerging companies in the information processing industry. The Company believes
that the range and depth of its senior management team position it to address
the evolving requirements of its clients and to manage the growth required to
meet its strategic goals.
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<PAGE>
GROWTH STRATEGY
The Company's mission is to be the leading provider of integrated
healthcare transaction processing technology, networks and databases, enabling
its clients to improve the quality and efficiency of their services. To achieve
this objective, the Company is pursuing a growth strategy comprised of the
following elements:
o PROVIDE COMPREHENSIVE SUITE OF EDI SOLUTIONS. The Company believes that it
is critical to provide a full range of state of the art EDI solutions to
clients at every stage of the healthcare transaction spectrum. The Company
strives to develop fully modular products with open architecture to allow
for easy installation and integration with existing systems. These
features enhance the ability of the Company to offer one-stop shopping for
a client's EDI needs.
o FURTHER PENETRATE EXISTING CLIENT BASE. The Company believes that the
market for EDI transaction processing among its current clients has
significant potential. As EDI becomes more widespread in the healthcare
industry, the use of emerging EDI products and services such as
eligibility, enrollment, electronic credit card transactions and
electronic statement processing will become increasingly commonplace. The
Company believes that it is well positioned to cross sell such emerging
products and services to its existing client base.
o DEVELOP NEW EDI PRODUCTS AND SERVICES. The Company intends to develop new
EDI solutions to meet the evolving electronic transaction processing needs
of its existing and future healthcare clients. The Company believes that
the use of EDI will expand to encompass an increasing range of services
such as referrals, remittances and workers' compensation transactions. The
Company has a team of 97 research and development and technical support
professionals dedicated to developing, supporting and commercializing new
and enhanced EDI solutions. In addition, the Company intends to undertake
acquisitions in order to expand its suite of product offerings.
o UTILIZE STRATEGIC PARTNERSHIPS TO EXPAND CLIENT BASE. MEDE AMERICA's
strategic alliances with vendors, distributors and dealers of practice
management software have played an important role in building
relationships with small groups of physicians, pharmacists and dentists.
These companies promote MEDE AMERICA's EDI products as a modular addition
to their practice management software. The Company also has strategic
relationships with large hospital groups, Medicaid intermediaries, PBMs
and professional organizations. The Company believes that such strategic
partnerships provide important opportunities for increasing the Company's
revenue base.
o PURSUE STRATEGIC ACQUISITIONS. Currently, the EDI market includes several
hundred regional EDI service providers which occupy selected niches in
specialized markets and geographical areas. The Company intends to
capitalize on the fragmented market for the provision of EDI services by
aggressively pursuing consolidation opportunities in order to increase its
client and revenue base, expand its product suite, enter into new
geographic markets, utilize its operating leverage to increase efficiency
and add new talent and technical capacity in emerging areas of the EDI
processing industry.
SUITE OF EDI PRODUCTS AND SERVICES
MEDE AMERICA's products and services enable its healthcare clients to
process and transmit transactions more efficiently and accurately, reducing
costs and increasing overall processing speed. The Company's EDI products
incorporate open architecture designs and "best of breed" technology and may be
purchased as modular additions to existing data storage and retrieval systems or
as part of a comprehensive EDI processing system. They are designed to be
compatible with a broad variety of hospital, medical, pharmacy and dental
practice management and billing systems. In addition, new products can be added
to respond to changing client requirements. The scalability of the Company's
products permits its clients to accommodate increasing transaction volumes
without substantial new investments in software and hardware. The following
table illustrates the breadth of the Company's product and service offerings:
44
<PAGE>
MEDE AMERICA'S SUITE OF EDI PRODUCTS AND SERVICES
<TABLE>
<CAPTION>
NAME OF PRODUCT/SERVICE DESCRIPTION OF
AND MARKETS SERVED PRODUCT/SERVICE FEATURES CLIENT BENEFITS
- -------------------------- ----------------------------------------------- --------------------------------------------
<S> <C> <C>
HEALTHCARE CLAIM
PROCESSING
MEDEClaim -- o Downloads claims data from client soft- o Accelerates cash flow through faster
All Markets ware applications and provides claims claim reimbursement.
data entry and correction capability. Ed- o Increases cash flow through high level of
its, formats and screens transaction data payor acceptance of edited claims.
to meet payor-specific requirements. o Improves accounts receivables manage-
ment.
o Reduces administrative expenses.
OTHER CLAIM SERVICES
MEDE Assist -- o Bills, on a batch basis, pharmacy pre- o Improves accounts receivable manage-
Pharmacy scriptions and performs non-electronic ment and accelerates cash flow.
reconciliation and payor accounts re- o Reduces administrative expenses.
ceivable management.
Claims Tracking -- o Tracks and provides a lock box service o Improves accounts receivable manage-
Dental for payor reimbursements. ment and accelerates cash flow.
ELIGIBILITY VERIFICATION
MEDE Eligibility -- o Verifies patients' eligibility for specific o Reduces costs by minimizing fraud.
All Markets healthcare benefits for Medicaid and o Ensures patient services are supported
commercial payors. by a designated health benefit plan.
o Reduces administrative expenses.
MEDICAID ENROLLMENT
Medicaid o Processes and tracks Medicaid enrollment o Reduces expenses through on-line
Enrollment Manage- applications allowing for the verification application process.
ment System (MEMS) and processing of Medicaid claims. Uti- o Reduces application processing time.
-- Medical lized by hospitals and government agen- o Improves Medicaid claims billing and col-
cies in New York, New Jersey and lection.
California. o Reduces bad debt.
TRANSACTION SWITCHING
MEDE Xchange -- o Routes real-time and batch transaction o Reduces costs.
All Markets data from clients to facilitate transaction o Increases network availability and
transmission to payors. reliability.
o Supports a broad array of access methods o Provides extensive payor connectivity.
including dial-up, dial
to packet, ISDN and frame relay.
</TABLE>
45
<PAGE>
<TABLE>
<CAPTION>
NAME OF PRODUCT/SERVICE DESCRIPTION OF
AND MARKETS SERVED PRODUCT/SERVICE FEATURES CLIENT BENEFITS
- ------------------------- --------------------------------------------- --------------------------------------------
<S> <C> <C>
REAL-TIME BENEFIT
MANAGEMENT
MEDE Select -- o Adjudicates on-line claims, incorporat- o Accelerates cash flow through faster
All Markets ing patient eligibility and benefit review. claim reimbursement.
o Increases cash flow through high level of
payor acceptance of edited claims.
o Improves accounts receivables manage-
ment.
o Reduces administrative expenses.
PHARMACY PRACTICE
MANAGEMENT
SYSTEMS (PPM)
Solution Plus -- o Facilitates dispensing, inventory and o Expands drug pricing and coverage
Pharmacy pricing of products for hospital, outpa- capabilities.
tient and clinic pharmacies. o Improves cash flow.
o Provides on-line claims adjudication. o Improves efficiency of pharmacy
management and operations.
OTHER PRODUCTS AND
SERVICES
Link -- o Connects physicians to pharmacies for the o Reduces costs related to manual genera-
Medical and Pharmacy transmission of prescriptions and related tion and transmission of prescriptions.
information and approvals. o Increases accuracy and transmission speed
of prescriptions.
Formulary o Administers and manages formulary pro- o Reduces drug costs and increases PBM
Management -- grams for PBMs. revenue through manufacturer incentives,
Pharmacy o Promotes the usage by healthcare plans of o Promotes compliance with payor formu-
designated drug products. laries.
Patient Statements -- o Facilitates patient statement billing. o Reduces costs and improves patient
All Markets relations.
Credit/Debit Card and o Assists patients in making co-payments or o Reduces bad debt and enhances patient
Check Guarantee -- paying other out-of-pocket charges. convenience.
All Markets
Additional EDI o Processes data relating to referrals, en- o Reduces practice expense and improves
Transactions -- counters and benefit pre-certifications. efficiency and patient relations.
All Markets
</TABLE>
CLIENTS
The Company markets its products primarily to hospitals, pharmacies,
physicians, dentists and other healthcare providers and provider groups
(including HMOs, PPOs and healthcare practice management vendors). The Company
processes transactions for providers in all 50 states, with 75% of its
transactions generated by providers in 28 states. The Company believes it is one
of the largest pharmacy transaction routers in the U.S. (based on volume)
serving more than 42,000 pharmacies in various EDI capacities. MEDE AMERICA has
a strong presence in the medical market in New York, New Jersey, California,
46
<PAGE>
Florida, Minnesota, and Ohio, currently providing EDI services to more than
1,000 hospitals and clinics, and 14,000 physicians. In the dental market, MEDE
AMERICA serves more than 8,000 dental offices. No single client of the Company
accounted for more than 3% of the Company's revenues in fiscal year 1997.
SALES, MARKETING AND CLIENT SERVICES
The Company markets its products through a national sales and client
services organization consisting of 75 sales associates organized according to
market, client type and product category. The Company also has a client services
organization consisting of 57 associates dedicated to help desk and client
support functions. A significant component of compensation for all sales
personnel is performance based, although the Company bases quotas and bonuses on
a number of factors in addition to actual sales, such as client satisfaction and
collection of receivables.
MEDE AMERICA's marketing efforts include direct sales, telesales, strategic
partnerships with healthcare vendors, trade shows, direct marketing,
telemarketing, the Internet, and specific advertising and marketing campaigns
where appropriate. In the medical and pharmacy markets, the Company's current
strategic business alliances include relationships with some of the country's
largest hospitals, hospital networks, hospital information systems vendors,
practice management software vendors, pharmacy chains, healthcare organizations
and payors. The Company also maintains strategic alliances with certain state
Medicaid programs.
MEDE AMERICA's strategic alliances with vendors, distributors and dealers
of practice management software have played an important role in building
relationships with individual and small groups of physicians, pharmacies and
dentists. These companies promote MEDE AMERICA's EDI products as modular
additions to their practice management software. MEDE AMERICA has also won
endorsements from 18 state dental associations, representing nearly half of all
dentists in practice today. The Company's sales channels include targeting
dental practice management companies and payor-driven programs aimed at their
network providers. Recent significant expansion of MEDE AMERICA's direct
connectivity to dental payors has contributed to its ability to generate revenue
from this market while at the same time eliminating its dependence on other
processors and clearinghouses.
RESEARCH AND DEVELOPMENT
As of June 30, 1998, the Company employed 65 people in the areas of product
design, research and development, and 32 people in the areas of quality
assurance and technical support. The Company's product development strategy is
focused on continuous enhancement of its existing products to increase their
functionality and ease of use, and the development of new products for
additional EDI transactions and telecommunications offerings. Particular
attention is devoted to the ongoing integration of developed and acquired
systems and applications into a consolidated suite of EDI product offerings and
supporting services for the markets served by the Company.
In the Company's 1995, 1996 and 1997 fiscal years, research and development
expenditures totaled $2,051,000, $2,132,000 and $3,278,000, respectively,
representing approximately 13%, 7% and 9%, respectively, of the Company's total
revenues. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
TECHNOLOGY AND OPERATIONS
MEDE AMERICA recognizes the crucial role of technology and
telecommunications in the EDI marketplace. Since the beginning of fiscal 1996,
the Company has acquired new hardware and software and made data center
improvements costing more than $5.0 million. As a result, the Company is
currently operating at approximately one-third of its operating capacity. The
continuing use of newer emerging technologies and platforms has contributed
significantly to the Company's current operational position. Examples of such
innovations include the use of Internet technologies for data transmissions,
on-line transaction monitoring tools and development of Windows-based front-end
applications for clients.
47
<PAGE>
Advanced Open Architecture
MEDE AMERICA's products and applications offer clients the benefits of an
"open architecture" EDI system. As a result, a client's system can expand or
change without incurring significant incremental capital expenditures for
hardware or software. The open architecture of the Company's systems also
improves reliability and connectivity, and facilitates the cross selling of MEDE
AMERICA's products, in part because of the following characteristics:
o SCALABILITY. The Company's systems are designed to take full advantage of
the client/server environment, UNIX operating systems and Redundant Array
of Inexpensive Disks ("RAID") technology, allowing clients to expand their
processing capacity in order to accommodate the growth of their
businesses.
o MODULARITY. The Company's client/server systems have been developed with
discrete functionality that can be replicated and utilized with additional
hardware. This modularity enables MEDE AMERICA to optimize application and
hardware performance.
o REDUNDANCY. The implementation of a dual site, geographically dispersed
On-Line Transaction Processing ("OLTP") switch (Twinsburg, Ohio and
Mitchel Field, New York) and RAID technology for batch processing
significantly reduces the risk of business interruption. Each site is
designed to be entirely self-supporting.
o OPEN SYSTEMS. Through the use of an open systems architecture MEDE AMERICA
is able to add new functionality to applications without re-designing its
applications or architecture.
o INDUSTRY STANDARDS. Through the adoption and active use of pertinent
standards for healthcare EDI processing, MEDE AMERICA can support client
and payor processing requirements and provide standard interfaces to other
EDI processing organizations.
o EASE OF USE. The Company's products are either Windows-based or GUI-based
and function in UNIX, Novell and Windows NT operating environments,
thereby enhancing ease of use by MEDE AMERICA's clients.
o TELECOMMUNICATIONS OFFERINGS. MEDE AMERICA is an early adopter of emerging
telecommunications systems enabling the Company to migrate to newer
services, such as ISDN, dial to packet, frame relay, virtual private
networks and Internet communications. These new offerings provide the
Company with a competitive advantage through improved service levels or
pricing. To ensure reliable connectivity to its EDI clients, the Company
has established relationships with multiple telecommunications vendors.
COMPETITION
Competition in the market for the Company's products and services is
intense and is expected to increase. The EDI market is characterized by rapidly
changing technology, evolving user needs and frequent introduction of new
products. Many of the Company's competitors and potential competitors have
significantly greater financial, technical, product development, marketing and
other resources and market recognition than the Company. In addition, many of
the Company's competitors also currently have, or may develop or acquire,
substantial installed client bases in the healthcare industry. As a result of
these factors, the Company's competitors may be able to respond more quickly to
new or emerging technologies, changes in client requirements and political,
economic or regulatory changes in the healthcare industry, and may be able to
devote greater resources to the development, promotion and sale of their
products than the Company.
The Company's principal competitors include National Data Corporation,
Envoy Corporation and SSI, Inc. in claims processing and eligibility
verification; QuadraMed Corporation in claims processing; Medifax, Inc. and HDX
Healthcare Data Exchange Corporation in eligibility verification; and Envoy
Corporation in the dental market. MEDE AMERICA also may face potential
competition from other companies not currently involved in healthcare electronic
data transmission, which may enter the market as EDI becomes more established.
The Company believes that existing and potential clients in the
48
<PAGE>
healthcare EDI market evaluate the products and services of competing EDI
providers on the basis of the compatibility of the provider's software, cost,
ease of installation, the range of applications available, the quality of
service and the degree of payor connectivity. See "Risk Factors --
Competition."
GOVERNMENT REGULATION
The healthcare industry in the United States is subject to changing
political, economic and regulatory influences that may affect the procurement
practices and operations of healthcare organizations. During the past several
years, the healthcare industry has been subject to increasing levels of
governmental regulation of, among other things, reimbursement rates and certain
capital expenditures. For example, legislation has been proposed that would
mandate standards and impose restrictions on the Company's ability to transmit
healthcare data and recently, Congress has had under consideration proposals to
reform the healthcare system. While some of these proposals, if enacted, could
increase the demand for EDI products and services in the healthcare industry by
emphasizing cost containment, they might change the operating environment for
the Company's clients in ways that cannot be predicted. Healthcare organizations
could react to these proposals by curtailing or deferring investments, including
those for the Company's products and services.
The confidentiality of patient records and the circumstances under which
such records may be released for inclusion in the Company's databases are
subject to substantial regulation. State laws and regulations govern both the
disclosure and the use of confidential patient medical record information.
Although compliance with these laws and regulations is at present principally
the responsibility of the hospital, physician or other healthcare provider,
regulations governing patient confidentiality rights are evolving rapidly. The
Health Insurance Portability and Accountability Act, passed in 1997, mandates
the establishment of national standards for the confidentiality of patient data,
as well as record keeping, data format and data security obligations that will
apply to transaction processors, among others. It is possible that standards so
developed will necessitate changes to the Company's operations. Additional
legislation governing the dissemination of medical record information has been
proposed at both the federal and state levels. This legislation may require
holders of such information to implement security measures that may require
substantial expenditures by the Company. There can be no assurance that changes
to state or federal laws will not materially restrict the ability of healthcare
providers to submit information from patient records using the Company's
products. See "Risk Factors -- Proposed Healthcare Data Confidentiality
Legislation."
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are coded
to accept only two digit entries in the date code field. These date code fields
will need to accept four digit entries to distinguish 21st century dates from
20th century dates. As a result, prior to January 1, 2000, computer systems
and/or software used by many companies may need to be upgraded to comply with
such "Year 2000" requirements. Significant uncertainty exists in the software
industry concerning the potential consequences of the Year 2000 phenomenon. To
date, the Company has expended approximately $160,000 in addressing Year 2000
problems. The Company estimates that it will incur approximately $860,000 in
additional costs relating to its Year 2000 compliance program; however, there
can be no assurance that such amount will be sufficient to cover all costs
relating to Year 2000 issues. The Company believes that the majority of all
transactions being processed by it are running on Year 2000 compliant systems.
However, the Company believes that some systems with which its own computers
interact (for example, some payor and practice management systems) are not yet
Year 2000 compliant, and that the failure of these systems to be made Year 2000
compliant in a timely manner may adversely affect some of the Company's
operations. In addition, certain systems operated by MEDE AMERICA are not yet
Year 2000 compliant. The applications running on these systems are expected to
be discontinued, migrated to other systems or corrected before 2000. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Year 2000 Compliance." However, there can be no assurance that the
Company's systems will achieve Year 2000 compliance in a timely manner, if at
all. See "Risk Factors -- Year 2000 Compliance."
EMPLOYEES
As of June 30, 1998, the Company employed 364 people, including 112 in
operations, 75 in sales, 12 in marketing, 57 in client services, 65 in research
and development, 15 in finance, 18 in administration
49
<PAGE>
and ten in corporate. None of the Company's employees is represented by a union
or other collective bargaining group. The Company believes its relationship
with its employees to be satisfactory.
FACILITIES
The following chart summarizes the Company's facilities and their monthly
transaction capacities:
<TABLE>
<CAPTION>
ESTIMATED
MONTHLY
TRANSACTION OWNED/LEASE
FACILITY PERSONNEL TRANSACTION TYPE CAPACITY EXPIRATION DATE
- ------------------------------ ----------- ------------------------------ ------------- ----------------------
<S> <C> <C> <C> <C>
Ohio (Primary Medical and 152 Eligibility 2,000,000 Owned
Pharmacy Data Center) Real-Time Benefit Management 6,000,000
Switching 48,000,000
New York (Secondary Medical 33 Eligibility Enrollment 2,000,000 January 2003
and Pharmacy Data Center) 25,000
Georgia (Dental Data Center) 56 Dental Claims 1,600,000 January 2001
Corporate Headquarters, 115 Real-Time Benefit Management 2,000,000 Various dates between
Sales & Development January 1999 and Feb-
Offices (5 sites) and ruary 2003.
PBM Processing
</TABLE>
INTELLECTUAL PROPERTY
The Company considers its methodologies, computer software and many of its
databases to be proprietary. The Company relies on a combination of trade
secrets, copyright and trademark laws, contractual provisions and technical
measures to protect its rights in various methodologies, systems, products and
databases. The Company has no patents covering its software technology. Due to
the nature of its application software, the Company believes that patent and
trade secret protection are less significant than the Company's ability to
further develop, enhance and modify its current products. However, any
infringement or misappropriation of the Company's proprietary software and
databases could disadvantage the Company in its efforts to retain and attract
new clients in a highly competitive market and could cause the Company to lose
revenues or incur substantial litigation expense. The Company seeks to protect
its proprietary information through nondisclosure agreements with its
consultants, clients and potential clients, and limits access to, and
distribution of, its proprietary information. See "Risk Factors -- Dependence on
Intellectual Property; Risk of Infringement."
Substantial litigation regarding intellectual property rights exists in the
software industry, and the Company expects that software products may be
increasingly subject to third-party infringement claims as the number of
competitors in the Company's industry segment grows and the functionality of
products overlaps. Although the Company believes that its products do not
infringe on the intellectual rights of others, there can be no assurance that
such a claim will not be asserted against the Company in the future, or that a
license or similar agreement will be available on reasonable terms in the event
of an unfavorable ruling on any such claim. See "Risk Factors -- Dependence on
Intellectual Property; Risk of Infringement."
LEGAL PROCEEDINGS
In June 1995, the Company acquired substantially all of the assets of
Latpon for a purchase price of $2,470,000, plus the assumption of approximately
$963,000 of liabilities. On June 6, 1998, Curtis J. Oakley filed a complaint
with the Supreme Court of the State of New York, County of Nassau asserting
multiple causes of action against several persons, including a cause of action
naming the Company as a defendant, based on his alleged ownership of a 22%
interest in Latpon. According to the complaint, Mr. Oakley's claim against the
Company is for $2 million or such other amount as may be equivalent to the
present value of his alleged ownership interest in Latpon's predecessor. The
Company believes that it is fully indemnified by the former owners of Latpon
under the Latpon acquisition agreement against any costs or damages arising from
this claim. By letter dated July 10, 1998, one of the former owners of Latpon
confirmed that he would indemnify the Company in accordance with the terms of
the acquisition agreement.
50
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------------- ----- -----------------------------------
<S> <C> <C>
Thomas E. McInerney(2) ........... 56 Chairman of the Board of Directors
Thomas P. Staudt ................. 45 President and Chief Executive Officer, Director
Richard P. Bankosky .............. 55 Chief Financial Officer, Treasurer and Secretary
James T. Stinton ................. 48 Chief Information Officer
William M. McManus ............... 43 Senior Vice President and General Manager -- Medical
and Pharmacy
Roger L. Primeau ................. 55 Senior Vice President and General Manager -- Dental
Anthony J. de Nicola(1) .......... 33 Director
Timothy M. Murray(1)(2) .......... 45 Director
</TABLE>
- ----------
(1) Member of Audit Committee
(2) Member of Compensation Committee
Set forth below is information about each of the Company's executive
officers and directors.
THOMAS E. MCINERNEY has been Chairman of the Board of Directors of the
Company since March 1995 and a general partner of WCAS, an investment firm which
specializes in the acquisition of companies in the information services and
healthcare industries, since September 1986. Prior to joining WCAS, Mr.
McInerney was President and Chief Executive Officer of Dama Telecommunications
Corporation, a voice and data communications services company which he
co-founded in 1982. Mr. McInerney has also been President of the Brokerage
Services Division and later Group Vice President-Financial Services of ADP, with
responsibility for the ADP divisions that serve the securities, commodities,
bank, thrift and electronic funds transfer industries, and has held positions
with the American Stock Exchange, Citibank and American Airlines. Mr. McInerney
holds a B.A. degree from St. Johns University, and attended New York University
Graduate School of Business Administration. He is a director of Aurora
Electronics, Inc., The BISYS Group, Inc. and several private companies.
THOMAS P. STAUDT has been a director and the President and Chief Executive
Officer of the Company since March 1995. He served as President and Chief
Operating Officer of CES from May 1993, and as a director from August 1994,
until the sale of CES to First Data Corporation and the formation of the
Company in March 1995. At CES, Mr. Staudt was responsible for credit card and
healthcare transaction processing operations. Prior to joining CES, Mr. Staudt
was President and Chief Operating Officer of Harbridge Merchant Services, Inc.,
which he joined in December 1991. Mr. Staudt has also held positions with A.C.
Nielsen, a subsidiary of Dun & Bradstreet Corporation, and Wells Fargo Bank.
Mr. Staudt holds a B.S. degree from the U.S. Naval Academy and an M.B.A. from
San Francisco State University.
RICHARD P. BANKOSKY has been Chief Financial Officer, Treasurer and
Secretary of the Company since May 1996. He served as Chief Financial Officer
and Treasurer for TII Industries, Inc. from April 1995 to February 1996. Prior
to joining TII, he was Chief Financial Officer, Treasurer and Secretary for TSI
International Software Ltd from February 1989 to April 1995. Mr. Bankosky also
served as Chief Financial Officer and Secretary for V Band Systems Inc., was
founder and Chief Operating Officer of NCR Credit Corporation and served as
Director of Corporate Development at NCR Corporation. He holds a B.E.E. degree
in Computers and Electrical Engineering from Rensselaer Polytechnic Institute
and an M.B.A. from Adelphi University.
51
<PAGE>
JAMES T. STINTON has been Chief Information Officer of the Company since
October 1995. He served as Release Manager at Charles Schwab & Company from
April 1992 to September 1995. In that position he was responsible for the
development, coordination, testing and implementation for the Microsoft NT and
UNIX Client Server software. Prior to joining Charles Schwab & Company, he was
POS Systems Architect and Vice President at Wells Fargo Bank from February 1982
to April 1992. Mr. Stinton holds a degree from ONC Business Studies, Coventry
Technical College, Coventry, England, and a graduate certificate from Consumer
Banking Association, Retail Banking Management, McIntire Business School of the
University of Virginia.
WILLIAM M. MCMANUS has been Senior Vice President and General Manager --
Pharmacy and Medical of the Company since May 1997 and Senior Vice President and
General Manager -- Pharmacy since February 1996. From April 1994 through
February 1996 he was head of pharmacy system sales for National Data
Corporation. In that position he had overall responsibility for sales, marketing
and product management programs. Prior to April 1994, Mr. McManus held senior
level positions at OmniSYS, Inc., Healthcare Computer Corporation, PDX, Inc.,
and the computer division of Foxmeyer Corporation. Mr. McManus holds a B.S.
degree in Health and Physical Education from the University of South Carolina
and completed postgraduate courses in education and pharmacy at the University
of South Carolina.
ROGER L. PRIMEAU has been Senior Vice President and General Manager --
Dental of the Company since October 1996. From August 1989 through June 1996 he
was Vice President, Administration and Customer Relations of National
Electronic Information Corporation ("NEIC"). Prior to joining NEIC, Mr. Primeau
worked at Columbia Life Insurance Co. and Aetna Life & Casualty in a variety of
management positions. Mr. Primeau holds a B.S. degree in Biology from Holy
Cross College.
ANTHONY J. DE NICOLA has been a director of the Company since March 1995
and has been a general partner of WCAS since April 1994. Prior to joining WCAS,
Mr. de Nicola was an associate at William Blair & Company, L.L.C., an
investment banking firm with which he had been affiliated since 1990.
Previously, Mr. de Nicola worked in the Mergers and Acquisitions Department of
Goldman Sachs & Co. and held positions at McKinsey & Company and IBM. Mr. de
Nicola holds a B.A. degree from DePauw University and an M.B.A. from Harvard
Business School. He is a director of SEER Technologies, Inc. and several
private companies.
TIMOTHY M. MURRAY has been a director of the Company since March 1995 and
is a principal of William Blair & Company, L.L.C., an investment banking firm
with which he has been associated since 1979. He has also been the managing
partner of William Blair Leveraged Capital Fund since its formation in 1988 and
is a Managing Director of WBCP. Mr. Murray holds a B.A. degree from Duke
University and an M.B.A. from the University of Chicago. He is a director of
Daisytek International Corporation and several private companies.
THE BOARD OF DIRECTORS
COMMITTEES OF THE BOARD OF DIRECTORS
The only standing committees of the Board of Directors of the Company are
the Audit Committee and the Compensation Committee. The Audit Committee reviews
the results and scope of audits and other services provided by the Company's
independent public accountants. Its members are Messrs. de Nicola and Murray. In
May 1998, the Board of Directors constituted a Compensation Committee composed
of Messrs. McInerney and Murray which will be responsible for making
recommendations concerning salaries and incentive compensation for executive
officers of the Company. Prior to May 1998, the Board of Directors had sole
responsibility for establishing executive officer compensation. Thomas E.
Staudt, the Company's President and Chief Executive Officer, participated in the
deliberations of the Board concerning executive compensation.
COMPENSATION OF DIRECTORS
Prior to the Offering, the directors of the Company received no
compensation in respect of their service on the Board of Directors. Following
the Offering, under the "New Stock Plan" (as defined in, and described more
fully under, "-- Employee Benefit Plans"), each director who is not an employee
of
52
<PAGE>
the Company or any parent, subsidiary or affiliate of the Company and is not
(and is not affiliated with) a beneficial owner of 5% or more of the voting
stock of the Company (a "non-employee director") will be paid an annual retainer
of $7,500, plus $1,000 for each Board of Directors or committee meeting
attended, and will receive annually a non-qualified stock option to purchase up
to 1,000 shares of Common Stock at the fair market value of the Common Stock on
the date of grant.
Directors are entitled to reimbursement for out-of-pocket expenses
incurred while attending meetings of the Board of Directors or committee
meetings.
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning the
compensation paid by the Company to its Chief Executive Officer and each of the
four other most highly paid executive officers of the Company (the "Named
Executive Officers") in the 1997 fiscal year:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------------------------- ---------------
SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY($) BONUS($)(1) COMPENSATION($) OPTIONS(#)(2) COMPENSATION($)
- --------------------------------------- ----------------- ------------- ----------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
Thomas P. Staudt ...................... 180,000 50,000 -- 220,414 --
President and Chief Executive
Officer
Richard P. Bankosky ................... 135,000 20,000 -- 29,461 --
Chief Financial Officer, Treasurer
and Secretary
William M. McManus .................... 122,072 20,000 68,558 27,279 --
Senior Vice President and General
Manager -- Pharmacy and Medical
Roger L. Primeau ...................... 85,000 (3) 12,000 -- 18,113 --
Senior Vice President and General
Manager -- Dental
James T. Stinton ...................... 152,500 20,000 -- 34,917 --
Chief Information Officer ............
</TABLE>
- ----------
(1) Bonuses are granted under a bonus formula annually established by the Board
of Directors, based upon the performance (measured by EBITDA) of the Company
(or certain operating divisions thereof). Unless a specified percentage of
the EBITDA target is achieved, no bonus is paid. EBITDA targets are adjusted
to reflect accounting changes, acquisitions and other significant, one-time
events.
(2) Total number granted through June 30, 1997 (exercised and unexercised).
(3) Mr. Primeau's employment commenced in October 1996.
53
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information regarding grants of
options to purchase Common Stock in fiscal 1997 to each of the Named Executive
Officers:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK
PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM(1)
-------------------------------------------------------------- -------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS GRANTED EXERCISE
UNDERLYING OPTIONS TO EMPLOYEES IN PRICE EXPIRATION
GRANTED(#) FISCAL YEAR(2) ($/SHARE) DATE 5%($) 10%($)
-------------------- ----------------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Thomas P. Staudt ............ 2,182 4.27% 5.73 2/14/07 7,863 19,926
Richard P. Bankosky ......... 2,182 4.27% 5.73 2/14/07 7,863 19,926
William M. McManus .......... 5,455 10.68% 5.73 (3) 19,657 49,816
Roger L. Primeau ............ 18,112 35.47% (4) (5) 65,268 165,401
James T. Stinton ............ 2,182 4.27% 5.73 2/14/07 7,863 19,926
</TABLE>
- ----------
(1) Potential realizable value is based on the assumption that the price per
share of Common Stock appreciates at the assumed annual rate of stock
appreciation for the option term. The assumed 5% and 10% annual rates of
appreciation (compounded annually) over the term of the option are set forth
in accordance with the rules and regulations adopted by the Securities and
Exchange Commission and do not represent the Company's estimate of stock
price appreciation.
(2) Based upon total grants of options to purchase 51,059 shares in fiscal year
1997.
(3) Of such options, 2,182 expire February 14, 2007 and 3,273 expire June 9,
2007.
(4) Of such options, 16,367 are at an exercise price of $4.58 and 1,745 are at
an exercise price of $5.73.
(5) Of such options, 16,367 expire September 16, 2006 and 1,745 expire February
14, 2007.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
JUNE 30, 1997(#) JUNE 30, 1997($)
------------------------------- ------------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
------------- --------------- ------------- --------------
<S> <C> <C> <C> <C>
Thomas P. Staudt ............ 65,469 133,120 $300,000 $612,500
Richard P. Bankosky ......... 5,455 24,005 25,000 112,500
William M. McManus .......... 7,637 19,641 38,750 92,500
Roger L. Primeau ............ 0 18,112 0 85,000
James T. Stinton ............ 6,546 28,370 30,000 132,500
</TABLE>
<PAGE>
SEVERANCE AGREEMENTS
The Company maintains severance agreements with each of its executive
officers providing for salary continuation for a period of six months (twelve
months in the case of Mr. Staudt) if the executive is terminated for any reason
other than malfeasance, misconduct or moral turpitude.
NON-COMPETITION, NON-SOLICITATION AND CONFIDENTIALITY AGREEMENTS
Each executive officer and certain other employees of the Company have
entered into a Non-Competition, Non-Solicitation and Confidentiality Agreement
with the Company, the terms of which are as follows. For a term of 12 months
following the cessation of such employee's employment with the Company, the
employee will neither compete with the Company in the United States nor solicit
any customer or employee of the Company. In addition, the employee will not
disclose any trade secrets (as defined in the agreement) and, for a term of 12
months following the cessation of his or her employment by the Company, will not
disclose any confidential information (as defined in the agreement).
54
<PAGE>
EMPLOYEE BENEFIT PLANS
Under the MEDE AMERICA Corporation and its Subsidiaries Stock Option and
Restricted Stock Purchase Plan (the "Stock Plan"), up to 655,000 shares of
Common Stock are reserved for issuance to the officers and employees of the
Company. These shares may be issued either outright, as restricted stock awards,
or they may be issued pursuant to either "incentive stock options" under Section
422(b) of the Internal Revenue Code of 1986, as amended (the "Code"), or
"non-qualified" stock options. As of June 30, 1998, options to purchase up to an
aggregate 483,041 shares of Common Stock were outstanding, of which 212,758
options were exercisable. The weighted average exercise price for all options
granted under the Stock Plan is $4.84 per share. Following the Offering, the
Board of Directors has provided that no additional grants or awards will be made
under the Stock Plan.
Under the MEDE AMERICA Corporation and its Subsidiaries 1998 Stock Option
and Restricted Stock Purchase Plan (the "New Stock Plan"), a variety of awards,
including incentive stock options intended to qualify under Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), "non-qualified" stock
options, restricted stock awards and other stock-based awards, may be granted to
officers, employees, directors, consultants and advisors of the Company and its
subsidiaries. An aggregate, 1,500,000 shares of Common Stock are currently
reserved for issuance under the New Stock Plan. The Board of Directors will
initially administer the New Stock Plan, but may delegate such responsibility to
a committee of the Board (the "Plan Administrator").
The terms and conditions of individual awards made to employees and
consultants and, except as described below, non-employee directors, may vary,
subject to the following guidelines: (i) the exercise price of options may not
be less than 85% of the fair market value of the Common Stock on the date of
grant provided, however, that neither (a) the exercise price of incentive stock
options nor (b) the exercise price of non-qualified stock options intended to
qualify as "performance-based compensation" within the meaning of the Code may
be less than 100% of the fair market value of the Common Stock on the date of
grant (or, in the case of incentive stock options granted to a stockholder
owning in excess of 10% of the total combined voting power of all classes of
Company stock, 110% of the fair market value); (ii) the maximum number of shares
of Common Stock which may be the subject of awards granted to any employee under
the New Stock Plan during any calendar year may not exceed 300,000; (iii) the
term of incentive stock options may not exceed ten years from the date of grant;
and (iv) no awards may be granted after June 30, 2008.
Except as described below with respect to non-employee directors, the Plan
Administrator determines, within the guidelines set forth above, the amount of
each award, the conditions and limitations applicable to the exercise of an
option, the exercise price therefor and the form of payment that may be used to
exercise the award, which may include cash, check, shares of Common Stock and
promissory notes.
Each non-employee director automatically receives non-qualified stock
options to purchase up to 1,000 shares of Common Stock upon his or her initial
election to the Board of Directors and upon each anniversary thereof upon which
he or she is still serving as a director. The exercise price for each such
option is the fair market value on the date of grant. Non-employee director
options vest six months after grant and the exercise period may not exceed ten
years, provided that, subject to certain exceptions in the event of death or
disability, no non-employee director options may be exercised more than 90 days
after such director ceases to serve as a director.
The Board of Directors may grant restricted and unrestricted share awards
entitling recipients to acquire shares of Common Stock, subject to the right of
the Company to repurchase all or a part of such shares at their purchase price
from the recipient in the event that conditions specified by the Plan
Administrator are not satisfied prior to the end of the applicable restricted
period. Shares of restricted stock may not be sold, assigned, transferred,
pledged or otherwise encumbered during the applicable restricted period. The
Plan Administrator may, in its sole discretion, grant or sell (at a purchase
price per share equal to at least 85% of the fair market value) shares of Common
Stock free of any restrictions under the New Stock Plan. In the event of a
merger or sale of all or substantially all the assets of
55
<PAGE>
the Company, the Board of Directors may, in its discretion, take any one or more
of certain actions including accelerating all unvested or unrealizable awards,
terminating all unexercised options and requiring the acquiring company to
assume all outstanding awards.
While the Company currently anticipates that most grants under the New
Stock Plan will consist of stock options, the Company may also grant restricted
stock awards, which entitle recipients to acquire shares of Common Stock subject
to certain conditions. Options or other awards that are granted under the New
Stock Plan but expire unexercised are available for future grants. Vesting of
options under the New Stock Plan would be subject to acceleration at the
discretion of the Board of Directors under certain circumstances.
Under the Company's 1998 Employee Stock Purchase Plan (the "Purchase
Plan"), employees of the Company, including directors of the Company who are
employees, are eligible to participate in quarterly plan offerings in which
payroll deductions may be used to purchase shares of Common Stock. The purchase
price of such shares is the lower of 85% of the fair market value of the Common
Stock on the day the offering commences and 85% of the fair market value of the
Common Stock on the date the offering terminates. The first offering period
under the Purchase Plan will not commence until the completion of the Offering.
In fiscal 1998, the Company has granted options to purchase an aggregate
37,095 shares of Common Stock to the Named Executive Officers, as follows:
12,001 shares for Mr. McManus, 8,729 shares for Mr. Staudt and 5,455 shares for
each of Messrs. Bankosky, Stinton and Primeau. Such options have an exercise
price of $5.73 per share of Common Stock.
In addition, on [July ], 1998, the Board the Directors determined to grant
options to purchase an aggregate 400,000 shares of Common Stock under the New
Stock Plan to certain employees of the Company (including the Named Executive
Officers) contingent upon consummation of the Offering. Such options, which
include both incentive and non-qualified stock options, will have an exercise
price equal to the price to the public in the Offering and generally will vest
ratably over four years from the date of grant except that the initial
installment of options to be granted to certain executive officers, including
the Named Executive Officers, will vest immediately upon consummation of the
Offering. The grants to be received by each of the Named Executive Officers are
as follows: 160,000 shares for Mr. Staudt, 40,000 shares for each of Messrs.
Bankosky and McManus, 16,000 shares for Mr. Primeau and 30, 000 shares for Mr.
Stinton.
56
<PAGE>
CERTAIN TRANSACTIONS
In June 1995, the Company acquired MEDE OHIO, through a merger between the
Company and the parent of MEDE OHIO ("Parent"). Parent was owned by Welsh,
Carson, Anderson & Stowe V, L.P. ("WCAS V"), which had formed Parent to acquire
MEDE OHIO in an all cash merger that was consummated in March 1995. The
acquisition price of MEDE OHIO, including amounts required to finance the merger
and to provide MEDE OHIO with working capital and pre-merger bridge financing,
was approximately $22.6 million. The exchange ratio in the merger between Parent
and the Company was based on the acquisition cost of MEDE OHIO and an
independent valuation of the Company that was performed in connection with the
spin-off of the Company by CES. In the merger and a related offering to raise
working capital for the Company, the Company issued an aggregate 1,772,354
shares of Common Stock and 171,889 shares of Preferred Stock to investment funds
and individuals affiliated with WCAS, and an aggregate 866,504 shares of Common
Stock and 28,987 shares of Preferred Stock to investment funds affiliated with
WBCP.
In October 1995, WCAS V and Welsh, Carson, Anderson & Stowe VI, L.P. ("WCAS
VI"), each advanced the Company $1.75 million as bridge financing for the
Company's acquisition of EC&F and Premier. The loan bore interest at the rate of
10% per annum and matured on December 31, 1995. The Company repaid the loan in
December 1995.
On December 18, 1995, the Company issued to its four principal
stockholders, WCAS V, WCAS VI, William Blair Capital Partners V, L.P. ("Blair
V"), and William Blair Leveraged Capital Fund, Limited Partnership ("Blair
LCF"), warrants to purchase an aggregate 52,532 shares of Common Stock at an
exercise price of $4.58 per share in connection with their agreement to
guarantee the Company's obligations under the Credit Facility.
On January 10, 1997, the Company increased the amount of available
borrowings under the Credit Facility, and in connection therewith, WCAS V, WCAS
VI, Blair V and Blair LCF, each agreed to guarantee payment of a portion of the
additional debt to be incurred under the increased credit line. In consideration
for such guarantees, the Company issued to WCAS V, WCAS VI, Blair V and Blair
LCF warrants to purchase an aggregate 18,330 shares of Common Stock. The
warrants have a ten-year term and the exercise price thereunder is $5.73 per
share.
On October 31, 1997, the Company increased the amount of available
borrowings under the Credit Facility, and in connection therewith, WCAS V, WCAS
VI, Blair V and Blair LCF each agreed to guarantee payment of a portion of the
additional debt to be incurred under the increased credit line. In consideration
for such guarantees, the Company issued to WCAS V, WCAS VI, Blair V and Blair
LCF warrants to purchase an aggregate 34,200 shares of Common Stock. The
warrants have a ten year term and the exercise price thereunder is $5.73 per
share.
On February 14, 1997 the Company issued a 10% Senior Subordinated Note due
February 14, 2002 in the principal amount of $25,000,000, plus an aggregate
370,993 shares of Common Stock, to WCAS Capital Partners II, L.P. ("WCAS CP
II"), for an aggregate purchase price of $25,000,000. WCAS CP II is an affiliate
of each of WCAS V and WCAS VI, and Thomas McInerney and Anthony de Nicola, both
directors of the Company, are general partners of the sole WCAS CP II general
partner. The Company intends to use a portion of the proceeds of the Offering to
repay in full the Credit Facility and the 10% Senior Subordinated Note. See "Use
of Proceeds." The Company does not anticipate further borrowing from or seeking
further loan guarantees from any of the entities referred to above.
In connection with the Offering, the terms of the Preferred Stock will be
amended to provide for conversion of the aggregate liquidation value of the
Preferred Stock including accrued but unpaid dividends into Common Stock at the
price per share received by the Company upon the consummation of its initial
public offering; provided further, however, that cash realized by the Company
upon any exercise of the Underwriters' overallotment option would be applied to
the payment of accrued dividends in lieu of having such dividends convert into
Common Stock. In addition, in connection with the Offering, the holders of the
outstanding Common Stock purchase warrants agreed to exercise all such warrants
by the net issuance exercise method for an aggregate shares of Common Stock.
WCAS V, WCAS VI, Blair
57
<PAGE>
V and Blair LCF are the owners of an aggregate 193,100 shares of Preferred
Stock, and warrants to purchase 52,532 and 52,533 shares of Common Stock at
exercise prices of $4.58 and $5.73 per share, respectively.
Blair V and Blair LCF, and Timothy Murray, a director of the Company, are
each affiliates of William Blair & Company, L.L.C., an underwriter of the
Offering. See "Underwriting."
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of June 30, 1998, and as adjusted to
reflect the sale of Common Stock offered hereby, by (i) each person (or group of
affiliated persons) known by the Company to own beneficially more than five
percent of the outstanding shares of Common Stock, (ii) each of the Company's
directors, (iii) each of the Named Executive Officers and (iv) all directors and
executive officers of the Company as a group. The numbers of shares set forth
below (i) give effect to the Recapitalization and the Reverse Stock Split, (ii)
assume an Offering price of $14.00 per share of Common Stock, and (iii) assume a
sale of 3,600,000 shares of Common Stock in the Offering. Unless otherwise
indicated, the address for each stockholder is c/o the Company, 90 Merrick
Avenue, Suite 501, East Meadow, New York 11554.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED(1)
--------------------------------------
PERCENTAGE OWNED(2)
------------------------
BEFORE AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER OFFERING OFFERING
- ------------------------------------------------- ----------- ---------- -----------
<S> <C> <C> <C>
Welsh, Carson, Anderson & Stowe (3) ............. 5,754,393 72.10% 49.69%
320 Park Avenue, 25th Floor
New York, NY 10019
William Blair & Co., L.L.C. (4) ................. 918,465 11.51% 7.93%
222 West Adams Street
Chicago, Illinois 60606
Mellon Bank, as Trustee (5) ..................... 617,852 7.74% 5.33%
767 Fifth Avenue, 26th Floor
New York, NY 10153
Thomas P. Staudt (6) ............................ 166,211 2.05% 1.42%
Richard P. Bankosky ............................. 11,346 - -
James T. Stinton (7) ............................ 13,529 - -
William M. McManus (8) .......................... 16,147 - -
Roger L. Primeau (9) ............................ 6,982 - -
Thomas E. McInerney (10) ........................ 5,622,136 70.44% 48.55%
320 Park Avenue, 25th Floor
New York, NY 10019
Anthony J. de Nicola (11) ....................... 5,598,277 70.14% 48.34%
320 Park Avenue, 25th Floor
New York, NY 10019
Timothy M. Murray (12) .......................... 915,319 11.47% 7.90%
222 West Adams Street
Chicago, Illinois 60606
All current directors and executive officers as a 6,762,026 83.15% 57.63%
group (10 persons) .............................
</TABLE>
- ----------
- Represents beneficial ownership of less than 1% of the Common Stock.
58
<PAGE>
(1) Gives effect to the Recapitalization and the Reverse Stock Split. Unless
otherwise indicated, the entities and individuals identified in this table
have sole voting and investment power with respect to all shares shown as
beneficially owned by them, subject to community property laws, where
applicable.
(2) The percentages shown are based on 7,981,204 shares of Common Stock
outstanding on June 30, 1998, plus, as to each entity or group listed
unless otherwise noted, the number of shares of Common Stock deemed to be
owned by such holder pursuant to Rule 13d-3 under the Exchange Act as of
such date, assuming exercise of options held by such holder that are
exercisable within 60 days of the date of this Prospectus.
(3) Includes 2,571,773 shares of Common Stock held by WCAS V, 2,587,939 shares
of Common Stock held by WCAS VI, 62,233 shares of Common Stock held by WCAS
Information Partners L.P. ("WCAS Info."), 370,993 shares of Common Stock
held by WCAS CP II, and 161,455 shares of Common Stock held by individual
partners of WCAS. Such partners are also partners of the sole general
partner of each of the foregoing limited partnerships. The respective
general partners of WCAS V, WCAS VI, WCAS Info. and WCAS CP II are WCAS V
Partners, L.P., WCAS VI Partners, L.P., WCAS INFO Partners and WCAS CP II
Partners. The individual partners of each of these partnerships include
some or all of Patrick J. Welsh, Russell L. Carson, Bruce K. Anderson,
Richard H. Stowe, Thomas E. McInerney, Andrew M. Paul, Robert A. Minicucci,
Anthony J. de Nicola, Paul B. Queally and Laura M. VanBuren. The partners
of WCAS who are also directors of the Company are Thomas E. McInerney (who
is also Chairman of the Board of Directors) and Anthony J. de Nicola. Each
of the foregoing persons may be deemed to be the beneficial owner of the
Common Stock owned by WCAS.
(4) Includes 601,489 shares of Common Stock held by Blair V, 313,830 shares of
Common Stock held by Blair LCF and 3,146 shares of Common Stock held by an
individual affiliated with WBCP. Timothy M. Murray, a partner of WBCP, is
also a director of the Company and may be deemed to be a beneficial owner
of the Company's Common Stock owned by WBCP.
(5) Includes 308,926 shares of Common Stock held by Mellon Bank as Trustee for
the General Motors Salaried Employees Pension Trust and 308,926 shares of
Common Stock held by Mellon Bank as Trustee for the General Motors Hourly
Rate Employees Pension Fund.
(6) Includes options to purchase up to 109,551 shares of Common Stock.
(7) Includes options to purchase up to 13,529 shares of Common Stock.
(8) Includes options to purchase up to 16,147 shares of Common Stock.
(9) Includes options to purchase up to 6,982 shares of Common Stock.
(10) Includes 2,571,773 shares of Common Stock held by WCAS V, 2,587,939 shares
of Common Stock held by WCAS VI, 62,233 shares of Common Stock held by WCAS
Info. and 370,993 shares of Common Stock held by WCAS CP II. Mr. McInerney
disclaims beneficial ownership of such shares.
(11) Includes 2,571,773 shares of Common Stock held by WCAS V, 2,587,939 shares
of Common Stock held by WCAS VI, 62,233 shares of Common Stock held by WCAS
Info. and 370,993 shares of Common Stock held by WCAS CP II. Mr. de Nicola
disclaims beneficial ownership of such shares.
(12) Includes 601,489 shares of Common Stock held by Blair V and 313,830 shares
of Common Stock held by Blair LCF. Mr. Murray disclaims beneficial
ownership of such shares.
59
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 30,000,000 shares of
Common Stock, and 5,000,000 shares of Preferred Stock. Upon completion of this
Offering, and after giving effect to the Recapitalization and the Reverse Stock
Split, there will be 11,581,204 shares of Common Stock (12,107,304 shares if the
Underwriters' over-allotment option is exercised) and no shares of Preferred
Stock outstanding. As of June 30, 1998, before giving effect to the
Recapitalization and the Reverse Stock Split there were 26,049,938 shares of
Common Stock outstanding and 239,956 shares of Preferred Stock outstanding, held
of record by 127 stockholders. In addition, as of May 29, 1998, before giving
effect to the Recapitalization and the Reverse Stock Split there were
outstanding options to purchase 2,213,600 shares of Common Stock and warrants to
purchase 481,440 shares of Common Stock. Pursuant to the Recapitalization, all
such warrants will be exercised (for an aggregate 66,375 post Reverse Stock
Split shares), and all shares of Preferred Stock will be converted into an
aggregate 2,229,982 shares of Common Stock (based on the aggregate liquidation
preference of the Preferred Stock as of June 30, 1998, after giving effect to
the Reverse Stock Split and assuming no exercise of the Underwriters'
over-allotment option) prior to the consummation of the Offering.
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of stockholders. Subject to the rights
and preferences of the holders of any outstanding Preferred Stock, the holders
of Common Stock are entitled to receive ratably such dividends as are declared
by the Board of Directors out of funds legally available therefor. In the event
of a liquidation, dissolution or winding up of the Company, holders of Common
Stock have the right to a ratable portion of assets remaining after the payment
of all debts and other liabilities, subject to the liquidation preferences of
the holders of any outstanding Preferred Stock. Holders of Common Stock have
neither preemptive rights nor rights to convert their Common Stock into any
other securities and are not subject to future calls or assessments by the
Company. There are no redemption or sinking fund provisions applicable to the
Common Stock. All outstanding shares of Common Stock are, and the shares offered
hereby upon issuance and sale will be, fully paid and non-assessable. The
rights, preferences and privileges of the holders of Common Stock are subject
to, and may be adversely affected by, the rights of the holders of shares of
Preferred Stock that the Company may designate and issue in the future.
PREFERRED STOCK
Upon the closing of this Offering and assuming no exercise of the
Underwriters' over-allotment option, all of the outstanding shares of the
Preferred Stock together with accrued but unpaid dividends thereon will be
automatically converted at the public offering price into 2,229,982 shares of
Common Stock.
The Board of Directors is authorized, subject to certain limitations
prescribed by Delaware law, without further action by the stockholders, to issue
up to 5,000,000 shares of Preferred Stock, $.01 par value, in one or more series
and to fix the rights, preferences, privileges and restrictions thereof,
including dividend rights, conversion rights, voting rights, terms of
redemption, liquidation preferences, sinking fund terms and the number of shares
constituting any series or the designation of such series. The Company believes
that the power to issue Preferred Stock will provide flexibility in connection
with possible corporate transactions. The issuance of Preferred Stock, however,
could adversely affect the voting power of holders of Common Stock and restrict
their rights to receive payments upon liquidation. It could also have the effect
of delaying, deferring or preventing a change in control of the Company. The
Company has no present plans to issue any shares of Preferred Stock.
WARRANTS
As of June 30, 1998, there were outstanding warrants to purchase 66,375
shares of Common Stock (on a "net exercise" basis) held by four investors. These
warrants will be exercised in full upon the closing of this Offering.
60
<PAGE>
DELAWARE LAWS AND CERTAIN CHARTER AND BYLAW PROVISIONS; ANTI-TAKEOVER MEASURES
Upon the consummation of this Offering made hereby, the Company will be
subject to the provisions of Section 203 of the DGCL, an anti-takeover law. In
general, Section 203 prohibits a publicly-held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless the business combination is, or the
transaction in which the person became an interested stockholder was, approved
in a prescribed manner or another prescribed exception applies. For purposes of
Section 203, a "business combination" is defined broadly to include a merger,
asset sale or other transaction resulting in a financial benefit to the
interested stockholder, and subject to certain exceptions, an "interested
stockholder" is a person who, together with affiliates and associates, owns (or
within three years prior, did own) 15% or more of the corporation's voting
stock.
All directors elected to the Company's Board of Directors serve until the
next annual meeting of the stockholders and the election and qualification of
their successors or their earlier death, resignation or removal. The Board of
Directors is authorized to create new directorships and to fill such positions
so created. The Board of Directors (or its remaining members, even though less
than a quorum) is also empowered to fill vacancies on the Board of Directors
occurring for any reason for the remainder of the term of the vacant
directorship.
The Company's Bylaws provide that, for nominations to the Board of
Directors or for other business to be properly brought by a stockholder before
an annual meeting of stockholders, the stockholder must first have given timely
notice thereof in writing to the Secretary of the Company. To be timely, a
stockholder's notice generally must be delivered not less than sixty days nor
more than ninety days prior to the anniversary of the immediately preceding
annual meeting. The notice by a stockholder must contain, among other things,
certain information about the stockholder delivering the notice and a
description of the proposed business to be brought before the meeting.
Certain of the provisions of the Amended and Restated Certificate of
Incorporation and Bylaws discussed above could make more difficult or discourage
a proxy contest or other change in the management of the Company or the
acquisition or attempted acquisition of control by a holder of a substantial
block of the Company's stock. It is possible that such provisions could make it
more difficult to accomplish, or could deter, transactions which stockholders
may otherwise consider to be in their best interests.
As permitted by the DGCL, the Amended and Restated Certificate of
Incorporation provides that Directors of the Company shall not be personally
liable to the Company or its stockholders for monetary damages for breach of
their fiduciary duties as Directors, except for liability (i) for any breach of
their duty of loyalty to the Company and its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) for unlawful payments of dividends or unlawful stock
repurchases or redemptions, as provided in Section 174 or successor provisions
of the DGCL or (iv) for any transaction from which the Director derives an
improper personal benefit.
The Amended and Restated Certificate of Incorporation and Bylaws provide
that the Company shall indemnify its Directors and officers to the fullest
extent permitted by Delaware law (except in some circumstances, with respect to
suits initiated by the Director or officer) and advance expenses to such
Directors or officers to defend any action for which rights of indemnification
are provided. In addition, the Amended and Restated Certificate of Incorporation
and Bylaws also permit the Company to grant such rights to its employees and
agents. The Bylaws also provide that the Company may enter into indemnification
agreements with its Directors and officers and purchase insurance on behalf of
any person whom it is required or permitted to indemnify. The Company believes
that these provisions will assist the Company in attracting and retaining
qualified individuals to serve as Directors, officers and employees.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is ChaseMellon
Shareholder Services.
61
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this Offering there has been no market for the Common Stock of the
Company. The Company can make no prediction as to the effect, if any, that sales
of shares or the availability of shares for sale will have on the market price
prevailing from time to time. Nevertheless, sales of significant amounts of the
Common Stock in the public market, or the perception that such sales may occur,
could adversely affect prevailing market prices. See "Risk Factors -- Shares
Eligible for Future Sale."
Upon completion of this Offering, the Company expects to have 11,581,204
shares of Common Stock outstanding (excluding 483,041 shares reserved for
issuance upon the exercise of outstanding stock options) (12,121,204 shares of
Common Stock outstanding if the Underwriters' over-allotment option is exercised
in full). Of these shares, the 3,600,000 shares offered hereby will be freely
tradable without restrictions or further registration under the Securities Act,
except for any shares purchased by "affiliates" of the Company, as that term is
defined in Rule 144 under the Securities Act, which will be subject to the
resale limitations imposed by Rule 144, as described below.
All of the remaining 7,981,204 shares of Common Stock outstanding will be
"restricted securities" within the meaning of Rule 144 and may not be resold in
the absence of registration under the Securities Act, or pursuant to exemptions
from such registration including, among others, the exemption provided by Rule
144 under the Securities Act. Of the restricted securities, 590,768 shares are
eligible for sale in the public market immediately after this Offering pursuant
to Rule 144(k) under the Securities Act. A total of 7,343,585 additional
restricted securities will be eligible for sale in the public market in
accordance with Rule 144 or 701 under the Securities Act beginning 90 days after
the date of this Prospectus. Taking into consideration the effect of the lock-up
agreements described below and the provisions of Rules 144 and 144(k),
restricted shares will be eligible for sale in the public market
immediately after this Offering, restricted shares (excluding shares issuable
upon the exercise of outstanding stock options) will be eligible for sale
beginning 90 days after the date of this Prospectus, and the remaining
restricted shares will be eligible for sale upon the expiration of the lock-up
agreements 180 days after the date of this Prospectus, subject to the provisions
of Rule 144 under the Securities Act.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, a person (or persons whose shares are required to
be aggregated) whose restricted securities have been outstanding for at least
one year, including a person who may be deemed an "affiliate" of the Company,
may only sell a number of shares within any three-month period which does not
exceed the greater of (i) one percent of the then outstanding shares of the
Company's Common Stock (approximately 115,673 shares after this Offering) or
(ii) the average weekly trading volume in the Company's Common Stock in the four
calendar weeks immediately preceding such sale. Sales under Rule 144 are also
subject to certain requirements as to the manner of sale, notice and the
availability of current public information about the Company. A person who is
not an affiliate of the issuer, has not been an affiliate within three months
prior to the sale and has owned the restricted securities for at least two years
is entitled to sell such shares under Rule 144(k) without regard to any of the
limitations described above.
All officers, directors and certain holders of Common Stock beneficially
owning, in the aggregate, shares of Common Stock and options to purchase shares
of Common Stock, have agreed, pursuant to certain lock-up agreements, that they
will not sell, offer to sell, solicit an offer to purchase, contract to sell,
grant any option to sell, pledge, or otherwise transfer or dispose of, directly
or indirectly, any shares of Common Stock owned by them, or that could be
purchased by them through the exercise of options to purchase Common Stock of
the Company, for a period of 180 days after the date of this Prospectus without
the prior written consent of Smith Barney Inc. Upon expiration of the lock-up
agreements, all shares of Common Stock currently outstanding will be immediately
eligible for resale, subject to the requirements of Rule 144. The Company is
unable to predict the effect that sales may have on the then prevailing market
price of the Common Stock. See "Management -- Employee Benefit Plans" and
"Description of Capital Stock."
62
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in the Underwriting
Agreement dated the date hereof, each Underwriter named below has severally
agreed to purchase, and the Company has agreed to sell to such Underwriter,
shares of Common Stock which equal the number of shares set forth opposite the
name of such Underwriter below.
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
- ----------------------------------------------- -----------------
<S> <C>
Smith Barney Inc. ..........................
William Blair & Company, L.L.C. ............
Volpe Brown Whelan & Company, LLC ..........
------------
Total ...................................
============
</TABLE>
The Underwriters are obligated to take and pay for all shares of Common
Stock offered hereby (other than those covered by the over-allotment option
described below) if any such shares are taken.
The Underwriters, for whom Smith Barney Inc., William Blair & Company,
L.L.C. and Volpe Brown Whelan & Company, LLC are acting as representatives (the
"Representatives"), propose initially to offer part of the shares of Common
Stock directly to the public at the public offering price set forth on the cover
page hereof and part to certain dealers at a price that represents a concession
not in excess of $ per share under the public offering price. The Underwriters
may allow, and such dealers may reallow, a concession not in excess of $ per
share to other Underwriters or to certain other dealers. After the initial
public offering, the public offering price and such concessions may be changed
by the Underwriters. The Representatives have informed the Company that the
Underwriters do not intend to confirm sales to accounts over which they exercise
discretionary authority.
The Company has granted to the Underwriters an option, exercisable for 30
days from the date of this Prospectus, to purchase up to an aggregate of 540,000
additional shares of Common Stock at the public offering price set forth on the
cover page hereof less underwriting discounts and commissions. The Underwriters
may exercise such option to purchase additional shares solely for the purpose of
covering over-allotments, if any, incurred in connection with the sale of the
shares offered hereby. To the extent such option is exercised, each Underwriter
will become obligated, subject to certain conditions, to purchase approximately
the same percentage of such additional shares as the number set forth next to
such Underwriter's name in the preceding table bears to the total number of
shares in such table.
The Company and the Underwriters have agreed to indemnify each other
against certain liabilities, including liabilities under the Securities Act.
The Company and its executive officers and directors and certain other
holders of Common Stock and securities convertible into or exercisable or
exchangeable for Common Stock have agreed that for a period of 180 days after
the date of this Prospectus they will not, without the prior written consent of
Smith Barney Inc., sell, offer to sell, solicit an offer to purchase, contract
to sell, grant any option to sell,
63
<PAGE>
pledge or otherwise dispose of Common Stock or any securities convertible into
or exercisable or exchangeable for Common Stock except in certain limited
circumstances. See "Shares Eligible for Future Sale."
In connection with this Offering and in accordance with applicable law and
industry practice, the Underwriters may over-allot or effect transactions which
stabilize, maintain or otherwise affect the market price of the Common Stock at
levels above those which might otherwise prevail in the open market, including
by entering stabilizing bids, effecting syndicate covering transactions or
imposing penalty bids. A stabilizing bid means the placing of any bid, or the
effecting of any purchase, for the purpose of pegging, fixing or maintaining the
price of a security. A syndicate covering transaction means the placing of any
bid on behalf of the underwriting syndicate or the effecting of any purchase to
reduce a short position created in connection with the offering. A penalty bid
means an arrangement that permits Smith Barney Inc., as managing underwriter, to
reclaim a selling concession from a syndicate member in connection with the
Offering when shares of Common Stock originally sold by the syndicate member are
purchased in syndicate covering transactions. Such transactions may be effected
on the Nasdaq National Market, in the over-the-counter market, or otherwise. The
Underwriters are not required to engage in any of these activities. Any such
activities, if commenced, may be discontinued at any time.
Prior to this Offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price for the Common Stock has
been determined by negotiations between the Company and the Representatives.
Among the factors considered in determining the initial public offering price
were the history of, and the prospects for, the Company's business and the
industry in which it competes, an assessment of the Company's management, its
past and present operations, the past and present results of operations of the
Company and the trend of such results of operations, the prospects for earnings
of the Company, the present state of the Company's development, the general
condition of the securities market at the time of this Offering and the market
prices of similar securities of comparable companies at the time of this
Offering.
William Blair & Company, L.L.C., one of the Representatives of the
Underwriters, is affiliated with Blair V and Blair LCF, two of the Company's
principal stockholders and, by virtue of such affiliation, is, prior to the
Offering, an "affiliate" of the Company within the meaning of Rule 2720 of the
Conduct Rules of the National Association of Securities Dealers, Inc.
Accordingly, the Offering is being made in conformity with certain applicable
provisions of Rule 2720. Smith Barney Inc., another Underwriter of the Offering
(the "Independent Underwriter"), will act as a "qualified independent
underwriter," as defined in Rule 2720, in connection with the Offering. The
Independent Underwriter, in its role as qualified independent underwriter, has
performed due diligence investigations and reviewed and participated in the
preparation of this Prospectus and the Registration Statement of which this
Prospectus forms a part. The Independent Underwriter will not receive any
additional fees for serving as a qualified independent underwriter in connection
with the Offering. The price of shares of Common Stock sold to the public will
be no higher than that recommended by the Independent Underwriter.
Timothy M. Murray, a director of the Company, is a managing director of
WBCP and a principal of William Blair & Company, L.L.C.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Reboul, MacMurray, Hewitt, Maynard & Kristol and for the Underwriters
by Dewey Ballantine LLP, New York, New York.
EXPERTS
The consolidated financial statements of the Company as of June 30, 1996
and 1997 and March 31, 1998, and for each of the three years in the period ended
June 30, 1997, and for the nine months ended March 31, 1998, included in this
Prospectus, and the related financial statement schedule included else-
64
<PAGE>
where in this Registration Statement, have been audited by Deloitte & Touche
LLP, independent auditors, as stated in their reports appearing herein and
elsewhere in the Registration Statement, and have been so included in reliance
upon such report given upon their authority as experts in accounting and
auditing.
The statement of operations of Stockton for the year ended June 30, 1997
included in this Prospectus has been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report appearing herein and has been so
included in reliance upon such report given upon their authority as experts in
accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C. 20549, a Registration Statement on Form S-1,
including amendments thereto (the "Registration Statement"), under the
Securities Act with respect to the shares of Common Stock offered hereby. This
Prospectus, which constitutes part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement and the
exhibits and schedules filed therewith, certain portions of which have been
omitted as permitted by the rules and regulations of the Commission. For further
information with respect to the Company and the Common Stock offered hereby,
reference is hereby made to such Registration Statement and to the exhibits and
schedules filed therewith. Statements contained in this Prospectus regarding the
contents of any contract or other document referred to are not necessarily
complete, and in each instance reference is made to the copy of such contract or
other document filed as an exhibit to the Registration Statement, each such
statement being deemed to be qualified in its entirety by such reference. The
Registration Statement, including all exhibits and schedules thereto, may be
inspected without charge at the principal office of the Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the following regional offices of
the Commission: the New York regional office located at 7 World Trade Center,
Suite 1300, New York, New York 10048, and the Chicago regional office located at
the Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Copies of this material may also be obtained from the Commission's
Public Reference Section at 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. In addition, such material may also be accessed electronically
at the Commission's Internet home page: (http:// www.sec.gov).
The Company intends to furnish its stockholders with annual reports
containing financial statements audited by its independent public accountants,
and will make available quarterly reports for the first three quarters of each
fiscal year containing unaudited financial information and such other periodic
reports as the Company may determine to be appropriate or as may be required by
law.
65
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
MEDE AMERICA CORPORATION:
Independent Auditors' Report ............................................................ F-2
Consolidated Balance Sheets as of June 30, 1996 and 1997 and March 31, 1998 ............. F-3
Consolidated Statements of Operations for the Years Ended June 30, 1995, 1996 and 1997
and the Nine Months Ended March 31, 1997 (Unaudited) and 1998 ......................... F-4
Consolidated Statements of Stockholders' Equity (Deficit) for the Years Ended June 30,
1995, 1996 and 1997 and the Nine Months Ended March 31, 1998 .......................... F-5
Consolidated Statements of Cash Flows for the Years Ended June 30, 1995, 1996 and 1997
and the Nine Months Ended March 31, 1997 (Unaudited) and 1998 ......................... F-6
Notes to Consolidated Financial Statements .............................................. F-7
THE STOCKTON GROUP, INC.:
Independent Auditors' Report ............................................................ F-21
Statements of Income for the Year Ended June 30, 1997 and the Three Months Ended
September 30, 1997 (Unaudited) ........................................................ F-22
Notes to Financial Statement ............................................................ F-23
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
MEDE America Corporation
We have audited the accompanying consolidated balance sheets of MEDE America
Corporation and subsidiaries (the "Company") as of June 30, 1996 and 1997 and
March 31, 1998, and the related consolidated statements of operations,
stockholders' equity (deficit) and cash flows for each of the three years in the
period ended June 30, 1997 and the nine months ended March 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of MEDE America Corporation and
subsidiaries as of June 30, 1996 and 1997 and March 31, 1998, and the results of
their operations and their cash flows for each of the three years in the period
ended June 30, 1997 and the nine months ended March 31, 1998 in conformity with
generally accepted accounting principles.
Jericho, New York
May 8, 1998
(July 17, 1998 as to Note 13)
The accompanying consolidated financial statements include the effects of a
reverse stock split of the Company's common stock anticipated to be approved by
the Company's Board of Directors prior to the consummation of this public
offering. The above opinion is in the form which will be signed by Deloitte &
Touche LLP upon consummation of the reverse stock split, which is described in
Note 13 of the notes to consolidated financial statements and assuming that,
from May 8, 1998 to the date of such reverse stock split, no other events will
have occurred that would affect the accompanying consolidated financial
statements and notes thereto.
DELOITTE & TOUCHE LLP
Jericho, New York
July 17, 1998
F-2
<PAGE>
MEDE AMERICA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 AND 1997 AND MARCH 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
JUNE 30, EQUITY
--------------------------- MARCH 31, MARCH 31,
1996 1997 1998 1998
------------ ------------ ----------- --------------
(UNAUDITED)
(NOTE 1.O.)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ...................................... $ 2,639 $ 1,919 $ 1,455
Accounts receivable, less allowance for doubtful accounts of
$1,400, $1,716, and $958, respectively........................ 5,989 6,318 7,463
Formulary receivables .......................................... 74 405 1,502
Inventory ...................................................... 136 172 240
Prepaid expenses and other current assets ...................... 661 486 489
--------- --------- ---------
Total current assets ......................................... 9,499 9,300 11,149
PROPERTY AND EQUIPMENT -- Net (Notes 3 and 6) ................... 5,601 5,517 4,944
GOODWILL -- Net (Notes 1 and 2) ................................. 23,059 25,177 32,408
OTHER INTANGIBLE ASSETS -- Net (Notes 1 and 4) .................. 4,340 5,014 5,247
OTHER ASSETS .................................................... 532 451 431
--------- --------- ---------
TOTAL ........................................................... $ 43,031 $ 45,459 $ 54,179
========= ========= =========
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
EQUITY
CURRENT LIABILITIES:
Accounts payable ............................................... $ 2,567 $ 2,134 $ 2,753
Accrued expenses and other current liabilities (Notes 5 and
10) .......................................................... 9,739 9,195 4,880
Current portion of long-term debt (Note 6) ..................... 1,400 538 240
--------- --------- ---------
Total current liabilities .................................... 13,706 11,867 7,873
--------- --------- ---------
LONG-TERM DEBT (Note 6) ......................................... 10,201 24,623 40,259
--------- --------- ---------
OTHER LONG-TERM LIABILITIES (Note 10) ........................... 1,173 215 761
--------- --------- ---------
REDEEMABLE CUMULATIVE PREFERRED STOCK:
$.01 par value; 250 shares authorized; 240 shares issued and
outstanding (aggregate liquidation value of $23,996 plus ac-
crued dividends) (Note 9) .................................... 26,423 28,823 30,623 $ --
--------- --------- --------- ---------
COMMITMENTS AND CONTINGENCIES (Note 11)
STOCKHOLDERS' (DEFICIT) EQUITY:
Common stock, $.01 par value; 6,329 shares authorized; 5,280,
5,671, and 5,680 shares issued and outstanding, respectively 53 57 57 79
Additional paid-in capital ..................................... 27,850 27,713 26,069 56,670
Accumulated (deficit) equity ................................... (36,375) (47,839) (51,463) (51,463)
--------- --------- --------- ---------
Total stockholders' (deficit) equity ......................... (8,472) (20,069) (25,337) $ 5,286
--------- --------- --------- ---------
TOTAL ........................................................... $ 43,031 $ 45,459 $ 54,179
========= ========= =========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
MEDE AMERICA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 1995, 1996 AND 1997 AND
NINE MONTHS ENDED MARCH 31, 1997 (UNAUDITED) AND 1998
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED JUNE 30, MARCH 31,
------------------------------------------ ---------------------------
1995 1996 1997 1997 1998
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES .......................................... $ 16,246 $ 31,768 $ 35,279 $ 24,964 $ 30,189
--------- --------- --------- -------- --------
OPERATING EXPENSES:
Operations ....................................... 9,753 19,174 16,817 12,104 12,485
Sales, marketing and client services ............. 3,615 7,064 8,769 6,143 7,769
Research and development (Note 1) ................ 2,051 2,132 3,278 2,455 2,886
General and administrative ....................... 3,119 6,059 5,263 3,340 3,307
Depreciation and amortization .................... 2,995 5,176 5,293 3,502 4,846
Contingent consideration paid to former owners of
acquired businesses (Note 2) ................... -- 538 2,301 990 --
Write-down of intangible assets (Note 1) ......... 8,191 9,965 -- -- --
Acquired in-process research and development
(Note 2) ....................................... -- -- 4,354 4,354 --
Spin-off expense (Note 10) ....................... 2,864 -- -- -- --
--------- --------- --------- -------- --------
Total operating expenses ......................... 32,588 50,108 46,075 32,888 31,293
--------- --------- --------- -------- --------
LOSS FROM OPERATIONS .............................. (16,342) (18,340) (10,796) (7,924) (1,104)
OTHER (INCOME) EXPENSE (Note 12) .................. -- 313 (893) (885) 13
INTEREST EXPENSE, Net ............................. 189 584 1,504 779 2,470
--------- --------- --------- -------- --------
LOSS BEFORE PROVISION FOR INCOME
TAXES ............................................ (16,531) (19,237) (11,407) (7,818) (3,587)
PROVISION FOR INCOME TAXES (Note 7) ............... 70 93 57 43 37
--------- --------- --------- -------- --------
NET LOSS .......................................... (16,601) (19,330) (11,464) (7,861) (3,624)
PREFERRED STOCK DIVIDENDS ......................... (27) (2,400) (2,400) (1,800) (1,800)
--------- --------- --------- -------- --------
NET LOSS APPLICABLE TO COMMON
STOCKHOLDERS ..................................... $ (16,628) $ (21,730) $ (13,864) $ (9,661) $ (5,424)
========= ========= ========= ======== ========
BASIC NET LOSS PER COMMON SHARE ................... $ (3.17) $ (4.14) $ (2.56) $ (1.81) $ (0.96)
========= ========= ========= ======== ========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING -- BASIC ............................. 5,238 5,245 5,425 5,345 5,677
========= ========= ========= ======== ========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
MEDE AMERICA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED JUNE 30, 1995, 1996 AND 1997 AND
NINE MONTHS ENDED MARCH 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
----------------- PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT EQUITY (DEFICIT)
-------- -------- ------------ ------------- -----------------
<S> <C> <C> <C> <C> <C>
BALANCE, JULY 1, 1994 (Note 1) ........................ -- $-- $ 23,540 $ (444) $ 23,096
Net loss ............................................. -- -- -- (16,601) (16,601)
Preferred stock dividends ............................ -- -- (27) -- (27)
Capital contribution by stockholders and shares issued
in connection with MEDE OHIO acquisition, and
capital reorganization (Note 8) .................... 5,237 52 3,952 -- 4,004
Capital contribution of intercompany debt owed to CES
resulting from the Spin-off (Note 10) .............. -- -- 2,470 -- 2,470
----- --- -------- --------- ---------
BALANCE, JUNE 30, 1995 ................................ 5,237 52 29,935 (17,045) 12,942
Net loss ............................................. -- -- -- (19,330) (19,330)
Preferred stock dividends ............................ -- -- (2,400) -- (2,400)
Issuance of warrants ................................. -- -- 121 -- 121
Exercise of stock options ............................ 43 1 194 -- 195
----- --- -------- --------- ---------
BALANCE, JUNE 30, 1996 ................................ 5,280 53 27,850 (36,375) (8,472)
Net loss ............................................. -- -- -- (11,464) (11,464)
Preferred stock dividends ............................ -- -- (2,400) -- (2,400)
Issuance of common stock ............................. 371 4 2,121 -- 2,125
Issuance of warrants ................................. -- -- 52 -- 52
Exercise of stock options ............................ 20 -- 90 -- 90
----- --- -------- --------- ---------
BALANCE, JUNE 30, 1997 ................................ 5,671 57 27,713 (47,839) (20,069)
Net loss ............................................. -- -- -- (3,624) (3,624)
Preferred stock dividends ............................ -- -- (1,800) -- (1,800)
Issuance of warrants ................................. -- -- 98 -- 98
Exercise of stock options ............................ 9 -- 40 -- 40
Compensation relating to grant of options ............ -- -- 18 -- 18
----- --- -------- --------- ---------
BALANCE, MARCH 31, 1998 ............................... 5,680 $57 $ 26,069 $ (51,463) $ (25,337)
===== === ======== ========= =========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
MEDE AMERICA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1995, 1996 AND 1997 AND NINE MONTHS
ENDED MARCH 31, 1997 (UNAUDITED) AND 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------------
1995 1996 1997
--------------- ------------- ----------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ..................................................... $(16,601) $ (19,330) $ (11,464)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization ............................... 2,995 5,176 5,418
Provision for doubtful accounts ............................. 518 406 316
Write-down of intangible assets ............................. 8,191 9,965 --
Acquired in-process research and development ................ -- -- 4,354
(Gain) loss on sale of assets ............................... -- 313 (8)
Non-cash compensation expense ............................... -- -- --
Changes in operating assets and liabilities net of
effects of businesses acquired:
Accounts receivable ........................................ 648 977 (861)
Formularly receivables ..................................... -- (74) (331)
Inventory .................................................. (66) 262 (45)
Prepaid expenses and other current assets .................. (85) (179) 175
Other assets ............................................... 74 243 13
Accounts payable and accrued expenses and other cur-
rent liabilities ......................................... (589) 997 (629)
Other long-term liabilities ................................ 1,354 (409) (958)
-------- --------- -----------
Net cash used in operating activities .................... (3,561) (1,653) (4,020)
-------- --------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Business acquisitions, net of cash acquired .................. (21,566) (3,648) (11,450)
Purchases of property and equipment .......................... (508) (1,271) (1,477)
Additions to goodwill and other intangible assets ............ -- -- (143)
Proceeds from sale of property and equipment ................. -- -- 461
Proceeds from sale of net assets of Premier .................. -- -- 388
-------- --------- -----------
Net cash used in investing activities .................... (22,074) (4,919) (12,221)
-------- --------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Due to stockholders .......................................... 4,484 (4,484) --
Issuance of Senior Subordinated Note ......................... -- -- 22,875
Issuance of preferred stock .................................. 23,996 -- --
Issuance of common stock ..................................... 4,004 -- 2,125
Proceeds from intercompany debt due to CES ................... 1,297 -- --
Net proceeds (repayments) under Credit Facility .............. -- 8,250 (8,250)
Principal repayments of debt ................................. (1) (2,852) (801)
Principal repayments of capital lease obligations ............ (346) (452) (518)
Exercise of stock options .................................... -- 195 90
---------- --------- -----------
Net cash provided by financing activities ................ 33,434 657 15,521
---------- --------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS .................................................. 7,799 (5,915) (720)
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD ....................................................... 755 8,554 2,639
---------- --------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD....................... $ 8,554 $ 2,639 $ 1,919
========== ========= ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Interest .................................................... $ 246 $ 394 $ 1,541
========== ========= ===========
Income taxes ................................................ $ 348 $ 69 $ 111
========== ========= ===========
Non-cash investing and financing activities:
Assets acquired under capital leases or by incurring debt..... $ 848 $ 205 $ 129
========== ========= ===========
Issuance of warrants ......................................... $ -- $ 121 $ 52
========== ========= ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
-----------------------------
1997 1998
-------------- --------------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ..................................................... $ (7,861) $ (3,624)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization ............................... 3,543 5,096
Provision for doubtful accounts ............................. 195 265
Write-down of intangible assets ............................. -- --
Acquired in-process research and development ................ 4,354 --
(Gain) loss on sale of assets ............................... (8) 13
Non-cash compensation expense ............................... -- 18
Changes in operating assets and liabilities net of
effects of businesses acquired:
Accounts receivable ........................................ 17 (1,410)
Formularly receivables ..................................... (105) (1,097)
Inventory .................................................. 9 (68)
Prepaid expenses and other current assets .................. 94 (3)
Other assets ............................................... 84 118
Accounts payable and accrued expenses and other cur-
rent liabilities ......................................... (2,368) (3,696)
Other long-term liabilities ................................ (945) 546
---------- ----------
Net cash used in operating activities .................... (2,991) (3,842)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Business acquisitions, net of cash acquired .................. (11,450) (10,674)
Purchases of property and equipment .......................... (703) (646)
Additions to goodwill and other intangible assets ............ (83) (492)
Proceeds from sale of property and equipment ................. 218 182
Proceeds from sale of net assets of Premier .................. 388 --
---------- ----------
Net cash used in investing activities .................... (11,630) (11,630)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Due to stockholders .......................................... -- --
Issuance of Senior Subordinated Note ......................... 22,875 --
Issuance of preferred stock .................................. -- --
Issuance of common stock ..................................... 2,125 --
Proceeds from intercompany debt due to CES ................... -- --
Net proceeds (repayments) under Credit Facility .............. (8,250) 15,925
Principal repayments of debt ................................. (636) (508)
Principal repayments of capital lease obligations ............ (336) (449)
Exercise of stock options .................................... 40 40
---------- ----------
Net cash provided by financing activities ................ 15,818 15,008
---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS .................................................. 1,197 (464)
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD ....................................................... 2,639 1,919
---------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD....................... $ 3,836 $ 1,455
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Interest .................................................... $ 368 $ 1,734
========== ==========
Income taxes ................................................ $ 34 $ 95
========== ==========
Non-cash investing and financing activities:
Assets acquired under capital leases or by incurring debt..... $ 14 $ 120
========== ==========
Issuance of warrants ......................................... $ 52 $ 98
========== ==========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
MEDE AMERICA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1995, 1996 AND 1997 AND
NINE MONTHS ENDED MARCH 31, 1997 AND 1998
(Information as it relates to the nine months
ended March 31, 1997 is unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Description of Business - MEDE America Corporation and subsidiaries (the
"Company") is a leading provider of electronic data interchange ("EDI")
products and services to a broad range of providers and payors in the
healthcare industry. The Company's integrated suite of EDI products and
services permits hospitals, pharmacies, physicians, dentists, and other
healthcare providers and provider groups to electronically edit, process and
transmit claims, eligibility and enrollment data, track claims submissions
through the claims payment process and obtain faster reimbursement for their
services.
The accompanying consolidated financial statements include the accounts of
MEDE America Corporation and its wholly-owned subsidiaries: MEDE America,
Inc. ("MEDE"), Medical Processing Center, Inc. ("MPC"), Wellmark Incorporated
("Wellmark"), Electronic Claims and Funding, Inc. ("EC&F"), Premier Dental
Systems Corp. ("Premier"), and MEDE America Corporation of Ohio, Inc. ("MEDE
OHIO") (formerly General Computer Corporation). MPC, Wellmark, and MEDE
formerly constituted the healthcare information services business unit of
Card Establishment Services ("CES"). On March 9, 1995, CES was acquired by
First Data Corporation. Prior to this transaction, the former owners of CES
spun off the healthcare information services business unit as a new company
with MEDE America Corporation formed to serve as the holding company (the
"Spin-off"). Because there was no change in ownership as a result of this
Spin-off, the accompanying consolidated financial statements accounted for
MEDE, MPC, and Wellmark on an historical cost basis. Effective July 1, 1997,
MEDE, MPC and EC&F were merged into MEDE America Corporation.
The Company has instituted certain cost reduction programs and anticipates
continuing improvements in its operations. The Company anticipates that these
changes, among others, should bring the Company to profitability which, when
coupled with its revolving credit facility, will enable the Company to
satisfy its short-term cash flow and working capital requirements.
Additionally, the Company has received support from certain of its
stockholders in the past and believes that continued support would be
available if necessary to meet cash flow and working capital requirements.
However, if the IPO (as herein defined) is consummated as proposed, such
stockholders may not provide continued support (see Note 13).
b. Principles of Consolidation -- All significant intercompany transactions and
balances are eliminated in consolidation.
c. Revenue Recognition -- Transaction and related formularly services revenues
(if applicable) are recognized at the time the transactions are processed and
the services are rendered. Other service revenues (including post-contract
customer support) and other revenues (including revenues relating to
insignificant obligations at the time sales are recorded) are recognized
ratably over applicable contractual periods or as service is provided.
Revenue from the licensing of software is recognized only after it is
determined that the Company has no significant remaining obligations and that
collectibility of the resulting receivable is probable. Revenue from hardware
sales is recognized when the hardware is shipped.
d. Cash and Cash Equivalents -- The Company considers all highly liquid
instruments with original maturity dates of three months or less to be
components of cash and cash equivalents.
e. Accounts Receivable -- Accounts receivable are due primarily from companies
in the healthcare industry. Credit is extended based on an evaluation of the
customer's financial condition, and generally collateral is not required.
F-7
<PAGE>
MEDE AMERICA CORPORATION AND SUBSIDIARIES NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
f. Formularly Receivables -- Formularly receivables represent amounts due for
pharmacy related services provided to Practice Benefit Management ("PBM")
clients. Services include prescription processing from EDI transactions and
collecting and distributing pharmaceutical company fees for sponsored
programs to the PBM client. These receivables have a 7-12 month collection
cycle.
g. Inventory -- Inventory is stated at the lower of cost (first-in, first-out)
or market.
h. Property and Equipment -- Property and equipment is stated at cost less
accumulated depreciation and amortization, and is depreciated using the
straight-line method over the estimated useful lives of the related assets.
i. Goodwill -- Goodwill represents the excess of cost over the fair value of net
assets acquired and is amortized on a straight-line basis over 7 to 20 years.
Accumulated amortization amounted to $1,858,000 $3,306,000 and $4,816,000 as
of June 30, 1996 and 1997 and March 31, 1998, respectively.
j. Other Intangible Assets -- Other intangible assets include purchased client
lists, purchased software and technology, and capitalized software
development costs. Purchased client lists are amortized on a straight-line
basis over three to five years. Amortization of purchased software and
technology and of capitalized software development costs is provided on a
product-by-product basis at the greater of the amount computed using (a) the
ratio of current revenues for a product to the total of current and
anticipated future revenues or (b) the straight-line method over the
remaining estimated economic life of the product. Generally, an original
estimated economic life of three to five years is assigned to purchased
software and technology and an original estimated economic life of five years
is assigned to capitalized software development costs. Amortization begins in
the period in which the related product is available for general release to
customers.
k. Software Development Costs -- The development of new software products and
enhancements to existing software products are expensed as incurred until
technological feasibility has been established. After technological
feasibility is established, any additional costs are capitalized in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 86,
"Accounting For the Cost of Computer Software To Be Sold, Leased or Otherwise
Marketed." During the nine months ended March 31, 1998, the Company
capitalized $319,000 of software development costs on a project for which
technological feasibility had been established but was not yet available for
customer release. Prior to July 1, 1997, the Company did not have any
software development projects for which significant development costs were
incurred between the establishment of technological feasibility and general
customer release of the product.
l. Impairment of Long-Lived Assets -- In accordance with SFAS No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of," the Company continually evaluates whether events and
circumstances have occurred that indicate the remaining estimated useful life
of goodwill and/or other intangible assets may warrant revision or that all
or a portion of the remaining balance may not be recoverable.
As a result of this evaluation process, during the fiscal year ended June 30,
1995, the Company wrote-off goodwill totaling $8,191,000 related to the
acquisitions of MPC and Wellmark. Such write-off was required as a result of
losses incurred by MPC and Wellmark, the absence of new business generated by
MPC and Wellmark (which the Company's management attributed to obsolete
technology), projected operating and cash flow losses for MPC and Wellmark
and as a result of the June 1995 acquisition of Latpon (as hereinafter
defined) whose software technology was utilized to replace the systems used
by MPC and Wellmark to provide services to clients. Also, as a result of this
evaluation process, during the fiscal year ended June 30, 1996, the Company
wrote-down approximately $9,965,000 of costs relating to client lists and
related allocable goodwill obtained in the acquisition of MEDE OHIO. Such
intangible assets were written down to the net present value of the estimated
future cash flows to be derived from these clients as of June 30, 1996. The
write-down was required due to a loss of approximately 25% of the acquired
MEDE OHIO client base.
F-8
<PAGE>
MEDE AMERICA CORPORATION AND SUBSIDIARIES NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
m. Income Taxes -- The Company accounts for income taxes under SFAS No. 109,
"Accounting For Income Taxes," which requires recognition of deferred tax
assets and liabilities for the expected future tax consequences of events
that have been included in the Company's financial statements or tax returns.
Under this method, deferred tax assets and liabilities are determined based
on the differences between the financial accounting and tax bases of assets
and liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse.
n. Use of Estimates in the Preparation of Financial Statements -- The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
o. Pro Forma Stockholders' Equity -- Pro forma stockholders' equity as of March
31, 1998 reflects the conversion of 239,956 shares of preferred stock plus
$6,627,000 of accrued preferred stock dividends at the assumed initial public
offering ("IPO") price of $14.00 per share. See Note 13.
p. Unaudited Interim Financial Statements -- In the opinion of management, the
unaudited consolidated financial statements for the nine months ended March
31, 1997 are presented on a basis consistent with the audited consolidated
financial statements and reflect all adjustments, consisting of only normal
recurring adjustments, necessary for a fair presentation of the results
thereof. The results of operation for interim periods are not necessarily
indicative of the results to be expected for the entire year.
q. Reclassifications -- Certain amounts in prior years' financial statements
have been reclassified to conform with the 1998 presentation.
2. ACQUISITIONS
a. MEDE OHIO -- In March 1995, the majority stockholder of the Company acquired
all of the outstanding shares of MEDE OHIO for a cash purchase price of
approximately $22,593,000, including transaction expenses. The majority
stockholder subsequently merged MEDE OHIO into the Company (the "Merger") and
contributed an additional $1,279,000 as part of the capital reorganization
described in Note 8a. The Merger was recorded using the purchase method of
accounting. The purchase price paid by the Company for MEDE OHIO to its
majority stockholder was equal to the purchase price paid by its majority
stockholder. Therefore, the purchase accounting adjustments relating to the
acquisition of MEDE OHIO are based upon the estimated fair values of acquired
assets and liabilities upon their acquisition by the majority stockholder of
the Company in March 1995. Purchased software and technology and client lists
were valued at $892,000 and $2,527,000, respectively. Purchased software and
technology generally is being amortized over three years and purchased client
lists are being amortized over five years (see Note 1). MEDE OHIO is a
developer of electronic systems which provide EDI services relating to
insurance claims for prescription and other medical services.
b. Latpon -- In June 1995, the Company purchased certain assets of Latpon Health
Systems, Incorporated ("Latpon") for a cash purchase price of approximately
$2,470,000, plus the assumption of approximately $963,000 of liabilities
(primarily long-term debt). Purchased software and technology and client
lists were valued at $850,000 and $143,000, respectively, and generally are
being amortized over five years. Latpon provides electronic claims processing
for hospital and hospital-based physician groups, as well as business office
services that electronically and manually manage business office
administration.
c. EC&F and Premier -- In October 1995, the Company acquired all of the
outstanding shares of EC&F and Premier, which companies had common ownership,
for a cash purchase price of approximately $4,050,000, including transaction
expenses. The transaction was financed through loans ob-
F-9
<PAGE>
MEDE AMERICA CORPORATION AND SUBSIDIARIES NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
tained from the Company's majority stockholder. Such loans were subsequently
repaid with borrowings under the Company's Credit Facility. In addition, the
Company is contingently liable for additional consideration if certain
earnings levels are attained relating to EC&F during the three-year period
following the consummation of the transaction. At June 30, 1996, the Company
accrued $538,000 in connection with the contingent liability relating to
earnings levels attained during the first year. At June 30, 1997, the Company
accrued a settlement totaling $2,216,000 relating to the contingent liability
for the second and third years. Purchased software and technology was valued
at $764,000 and generally is being amortized over three years. EC&F and
Premier are developers of electronic systems which provide EDI services to
the dental industry. In March 1997, the Company sold the operating net assets
of Premier for $540,000, including the buyer's assumption of $152,000 of
Premier liabilities. There was no gain or loss on the sale of such net
assets.
d. TCS -- In February 1997, the Company purchased certain assets of Time-Share
Computer Systems, Inc. ("TCS") for $11,465,000, including transaction
expenses. Purchased research and development, which had not reached
technological feasibility and had no alternative future use amounted to
$4,354,000 and was charged to operations at the acquisition date. Purchased
software and technology was valued at $2,619,000 and generally is being
amortized over three years. TCS provides data processing and information
management services to healthcare providers and pharmacies through integrated
electronic data interchange systems. The acquisition was financed by a
portion of the proceeds from the Senior Subordinated Note and Share Purchase
Agreement (as hereinafter defined) (Note 6).
e. Stockton -- In November 1997, the Company purchased certain assets and
assumed certain liabilities of The Stockton Group, Inc. ("Stockton") for a
cash purchase price of $10,674,000, including transaction expenses. In
addition, the Company is contingently liable for additional consideration of
up to $2,600,000 (plus interest at an annual rate of 7.25%) if Stockton's
revenue during the 12-month period ended September 30, 1998 is at least
$5,000,000. No accrual has been made for this contingent liability as of
March 31, 1998. Such contingent consideration will be treated as additional
purchase price and will, therefore, be added to goodwill when and if it
becomes accruable. Purchased software and technology and client lists were
valued at $968,000 and $742,000, respectively, and generally are being
amortized over five years. Stockton is engaged in the business of providing
EDI and transaction processing services to the healthcare industry. The
transaction was financed through borrowings under the Company's revolving
credit facility.
These acquisitions were recorded using the purchase method of accounting and,
accordingly, the results of operations of these acquired companies are included
in the consolidated results of operations of the Company since the dates of
their respective acquisitions. The purchase price of each acquisition has been
allocated to the respective net assets acquired based upon their fair values.
Goodwill, which represents the excess of cost over the estimated fair value of
the net assets acquired, for these transactions were as follows: MEDE OHIO --
$22,395,000; Latpon -- $1,298,000; EC&F and Premier -- $3,586,000; TCS --
$4,092,000 and Stockton -- $8,704,000. Goodwill is being amortized over 20 years
except for the goodwill recorded in connection with the acquisition of TCS which
is being amortized over seven years.
F-10
<PAGE>
MEDE AMERICA CORPORATION AND SUBSIDIARIES NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The following unaudited pro forma information for the year ended June 30, 1997
and the nine months ended March 31, 1998 includes the operations of the Company,
inclusive of the operations of both TCS and Stockton as if the acquisitions had
occurred at July 1, 1996. This pro forma information gives effect to the
amortization expense associated with goodwill and other intangible assets
acquired, adjustments related to the fair market value of the assets and
liabilities acquired, interest expense relating to financing the acquisitions,
and related income tax effects.
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
JUNE 30, 1997 MARCH 31, 1998
--------------- ------------------
(IN THOUSANDS)
<S> <C> <C>
Revenues .................................... $ 41,824 $ 31,835
========= ========
Loss from operations ........................ $ (11,253) $ (515)
========= ========
Net loss .................................... $ (13,604) $ (3,320)
========= ========
Net loss applicable to common stock ......... $ (16,004) $ (5,120)
========= ========
Basic net loss per share .................... $ (2.95) $ (0.90)
========= ========
</TABLE>
3. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
JUNE 30,
USEFUL LIVES ------------------- MARCH 31,
(IN YEARS) 1996 1997 1998
-------------- -------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Land .......................................... $ 489 $ 210 $ 104
Building and improvements ..................... 20-25 2,452 2,190 2,156
Furniture and fixtures ........................ 5 897 1,150 1,229
Computer equipment ............................ 3-5 4,077 5,696 6,442
------ ------ ------
7,915 9,246 9,931
Less accumulated depreciation and amortization. 2,314 3,729 4,987
------ ------ ------
Property and equipment -- net ................. $5,601 $5,517 $4,944
====== ====== ======
</TABLE>
4. OTHER INTANGIBLE ASSETS
Other intangible assets consist of the following:
<TABLE>
<CAPTION>
JUNE 30,
--------------------- MARCH 31,
1996 1997 1998
--------- --------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Purchased client lists .................... $2,989 $2,989 $3,732
Less, accumulated amortization ............ 925 1,518 2,016
------ ------ ------
2,064 1,471 1,716
------ ------ ------
Purchased software and technology ......... 3,727 6,494 7,544
Less, accumulated amortization ............ 1,451 2,951 4,332
------ ------ ------
2,276 3,543 3,212
------ ------ ------
Software development costs ................ -- -- 319
------ ------ ------
Other intangible assets -- net ............ $4,340 $5,014 $5,247
====== ====== ======
</TABLE>
F-11
<PAGE>
MEDE AMERICA CORPORATION AND SUBSIDIARIES NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
5. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of the following:
<TABLE>
<CAPTION>
JUNE 30,
--------------------- MARCH 31,
1996 1997 1998
--------- --------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Accrued wages and related employee benefits ......... $1,020 $1,010 $1,554
Rebate liability .................................... 2,926 488 47
Pharmacy claims liability ........................... 91 576 798
Accrued professional fees ........................... 496 795 109
Deferred revenue .................................... 933 749 822
Accrued reorganization costs (Note 10) .............. 1,273 1,008 --
Due to former owners of acquired business ........... 538 2,216 --
Accrued litigation settlement ....................... -- 860 145
Accrued interest .................................... 22 5 717
Other ............................................... 2,440 1,488 688
------ ------ ------
Total ............................................... $9,739 $9,195 $4,880
====== ====== ======
</TABLE>
6. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
JUNE 30,
----------------------- MARCH 31,
1996 1997 1998
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Senior subordinated note less unamortized discount of $2,000,000 at
June 30, 1997 and $1,750,000 at March 31, 1998 (a).................... $ -- $23,000 $23,250
Credit Facility (b) ................................................... 8,250 -- 15,925
Obligations under capital leases (c) .................................. 1,158 769 440
Loan payable relating to an acquisition, collateralized by
$261,000 of certificates of deposits at March 31, 1998 due in
quarterly payments of $15,000 through February 2002, interest
at 6.7 percent........................................................ 392 342 291
Note payable, in connection with the sale of certain assets due in
monthly installments of $6,000 through January 2000, interest at 6.8
percent .............................................................. 241 180 131
Notes payable to former shareholders of EC&F, repaid in 1998 .......... 117 95 --
Note payable, collateralized by land and building of MEDE OHIO, due
in monthly installments of $19,000 through July 2000, interest at 12.5
percent .............................................................. 730 592 462
Note payable to bank, repaid in 1997 .................................. 296 -- --
Note payable to bank, repaid in 1998 .................................. 173 173 --
Other ................................................................. 244 10 --
------- ------- -------
11,601 25,161 40,499
Less current portion .................................................. 1,400 538 240
------- ------- -------
Total ................................................................. $10,201 $24,623 $40,259
======= ======= =======
</TABLE>
- ----------
F-12
<PAGE>
MEDE AMERICA CORPORATION AND SUBSIDIARIES NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(a) On February 14, 1997, the Company entered into an agreement with an
affiliate of certain shareholders of the Company under which the Company
issued a $25,000,000 senior subordinated note (the "Senior Subordinated
Note") and 370,993 shares of its common stock valued at $2,125,000
(representing the estimated fair value of the Common Stock) for total
consideration of $25,000,000 (the "Senior Subordinated Note and Share
Purchase Agreement"). The $2,125,000 relating to the shares of common stock
was recorded as a discount on the Senior Subordinated Note and is being
amortized over the term of the Senior Subordinated Note. The Senior
Subordinated Note bears interest at the rate of 10% per annum, payable
quarterly. One half of the principal sum is due on February 14, 2001, and
the second half is due on February 14, 2002. The terms of the Senior
Subordinated Note and Share Purchase Agreement place restrictions on the
consolidation, merger, or sale of the Company, indebtedness, and the payment
of any cash dividends.
(b) The revolving line of credit from a bank (the "Credit Facility") , as
currently amended on October 30, 1997, provides for maximum borrowings of
$20,000,000 and expires on October 31, 1999. Borrowings under the agreement
bear interest at either the bank's base rate, as defined, plus .25% or an
offshore rate, as defined, plus 1.25%. The weighted average interest rate on
outstanding borrowings at March 31, 1998 was 7.07%. The Company is required
to pay a commitment fee of .375% per annum on the unused portion of the
Credit Facility. All borrowings under the agreement are guaranteed by
certain stockholders of the Company. In consideration for the granting of
such guarantees, the stockholders were issued warrants to purchase 52,530
shares (valued at $121,000), 18,330 shares (valued at $52,000) and 34,200
shares (valued at $98,000) of the Company's common stock during the years
ended June 30, 1996 and 1997 and the nine months ended March 31, 1998,
respectively. All warrants issued were valued using the Black-Scholes Option
Pricing Model. The aggregate fair value of these warrants is recorded in
other assets as deferred financing costs and is being amortized over the
life of the agreement. The terms of the agreement, among other matters,
require the Company to maintain certain leverage and interest coverage
ratios and place restrictions on additional investments, indebtedness and
the payment of any cash dividends.
(c) The Company leases certain computer and office equipment under capital lease
arrangements expiring through July 2000. The gross value of the equipment
held under capital leases was $1,980,000, $2,110,000, and $2,247,000 as of
June 30, 1996 and 1997 and March 31, 1998, respectively, and the related
accumulated amortization was $994,000, $1,524,000, and $1,848,000,
respectively.
Maturities of long-term debt as of March 31, 1998 are as follows:
<TABLE>
<CAPTION>
DISCOUNT
YEAR ENDING JUNE 30, GROSS ON NOTE NET
- -------------------------------------------------------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
1998 (three months from April 1, 1998 to June 30, 1998). $ 180 $ 92 $ 88
1999 ................................................... 580 394 186
2000 ................................................... 16,354 435 15,919
2001 ................................................... 12,591 481 12,110
2002 ................................................... 12,544 348 12,196
------- ------ -------
Total .................................................. $42,249 $1,750 $40,499
======= ====== =======
</TABLE>
Based upon the borrowing rates currently available to the Company for loans with
similar terms, the fair value of the Company's debt approximates the carrying
amounts.
7. INCOME TAXES
The provision for income taxes for the fiscal years ended June 30, 1995, 1996
and 1997 and the nine months ended March 31, 1997 and 1998 consists entirely of
current state income taxes.
F-13
<PAGE>
MEDE AMERICA CORPORATION AND SUBSIDIARIES NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The provision for income taxes varies from the amount computed by applying the
statutory U.S. Federal income tax rate to the loss before provision for income
taxes as a result of the following:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED JUNE 30, MARCH 31,
------------------------------------------ ---------------------------
1995 1996 1997 1997 1998
------------ ------------ ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
U.S. Federal statutory rate ................... $ (5,621) $ (6,541) $ (3,878) $ (2,658) $ (1,220)
Increases (reductions) due to:
Nondeductible expenses ....................... 1,169 3,674 293 220 183
State taxes .................................. 70 93 57 43 37
Net operating losses not producing current tax
benefits ................................... 4,452 2,867 3,585 2,438 1,037
-------- -------- -------- -------- --------
Total ........................................ $ 70 $ 93 $ 57 $ 43 $ 37
======== ======== ======== ======== ========
</TABLE>
The net deferred tax asset is comprised of the following:
<TABLE>
<CAPTION>
JUNE 30,
--------------------------- MARCH 31,
1996 1997 1998
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Accounts receivable .................................... $ 607 $ 685 $ 375
Inventory .............................................. 2 -- --
Property and equipment ................................. (45) (61) 197
Goodwill ............................................... 2,024 3,540 3,619
Other intangible assets ................................ (163) 366 410
Accrued expenses and other current liabilities ......... 2,026 1,264 666
Net operating loss carryforwards ....................... 10,121 12,656 13,861
--------- --------- ---------
14,572 18,450 19,128
Less valuation allowance ............................... (14,572) (18,450) (19,128)
--------- --------- ---------
Total .................................................. $ -- $ -- $ --
========= ========= =========
</TABLE>
The valuation allowance increased during the years ended June 30, 1996 and 1997
and the nine months ended March 31, 1998 primarily as a result of additional net
operating loss carryforwards and net deductible temporary differences, for which
realization was not considered to be more likely than not. In the event that the
tax benefits relating to the valuation allowance are subsequently realized,
approximately $5,600,000 of benefits would reduce goodwill.
As of March 31, 1998, the Company had Federal net operating loss carryforwards
of approximately $34,650,000. Such loss carryforwards expire in the fiscal years
2005 through 2013. Because of the changes in ownership, as defined in the
Internal Revenue Code, which occurred during 1995 and 1996, certain net
operating loss carryforwards are subject to annual limitations.
8. STOCKHOLDERS' EQUITY
a. Capital Reorganization -- In connection with the acquisition and subsequent
merger of MEDE OHIO into the Company (Note 2), the capital structure of the
Company was adjusted such that each existing common stockholder of the
Company had the right to receive, in exchange for each common share held,
either (i) a cash payment of one dollar (the "MEDE Cash Consideration"), or
(ii) a unit consisting of one-half of one share of MEDE America Corporation
newly issued common stock and five one-thousandths of a share of MEDE America
Corporation newly issued preferred stock ("MEDE Unit"), together with cash in
lieu of fractional interests.
F-14
<PAGE>
MEDE AMERICA CORPORATION AND SUBSIDIARIES NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The Merger agreement required that a minimum of $5,000,000 of additional
capital be contributed to the Company through the issuance of additional MedE
Units ("Additional MEDE Units"). Stockholders who elected to receive the MEDE
Units were eligible to purchase, through a subscription agreement, Additional
MEDE Units up to the number that would maintain their pre-merger ownership
percentage. The majority stockholder of the Company guaranteed, by adjusting
the number of additional units they would purchase, that the excess of cash
received from the sale of Additional MEDE Units over the MEDE Cash
Consideration would yield the minimum of $5,000,000 of additional capital.
As a result of the Merger and the related capital reorganization, the Company
issued 5,237,456 shares of newly issued common stock and 239,956 shares of
newly issued preferred stock (Note 9).
The Company distributed $4,484 of MEDE Cash Consideration during July 1995.
b. Stock Option and Restricted Stock Purchase Plan -- In March 1995, the Company
established a stock option and restricted stock purchase plan (the "Stock
Plan"). The Stock Plan permits the granting of any or all of the following
types of awards: incentive stock options ("ISOs"); nonqualified stock options
("NQSO"); or restricted stock. The Stock Plan authorizes the issuance of
655,000 shares of common stock. ISOs may not be granted at a price less than
the fair market value of the Company's common stock on the date of grant (or
110 percent of the fair market value in the case of persons holding ten
percent or more of the voting stock of the Company) and expire not more than
ten years from the date of grant (five years in the case of ISOs granted to
persons holding ten percent or more of the voting stock of the Company). The
vesting period relating to the ISOs is determined by the Option Committee of
the Board of Directors at the date of grant. The exercise price, expiration
date, and vesting period relating to NQSOs are determined by the Option
Committee of the Board of Directors at the date of grant.
The table below summarizes the activity of the Stock Plan for the years ended
June 30, 1995, 1996 and 1997 and the nine months ended March 31, 1998:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER EXERCISE AVERAGE
OF PRICE EXERCISE
SHARES RANGE PRICE
------------ --------------- -----------
<S> <C> <C> <C>
Balance July 1, 1994 ............ -- $ -- $ --
Options granted ............... 480,316 $ 4.58 $ 4.58
------- ------------ -------
Balance June 30, 1995 ........... 480,316 $ 4.58 $ 4.58
Options granted ............... 117,950 $ 4.58 $ 4.58
Options exercised ............. (42,556) $ 4.58 $ 4.58
Canceled/lapsed ............... (91,217) $ 4.58 $ 4.58
------- ------------ -------
Balance, June 30, 1996 .......... 464,493 $ 4.58 $ 4.58
Options granted ............... 51,059 $ 4.58-$5.73 $ 5.17
Options exercised ............. (19,642) $ 4.58 $ 4.58
Canceled/lapsed ............... (65,684) $ 4.58 $ 4.58
------- ------------ -------
Balance, June 30, 1997 .......... 430,226 $ 4.58-$5.73 $ 4.64
Options granted ............... 81,926 $ 5.73 $ 5.73
Options exercised ............. (8,598) $ 4.58-$5.73 $ 4.64
Canceled/lapsed ............... (15,057) $ 4.58-$5.73 $ 4.62
------- ------------ -------
Balance, March 31, 1998 ......... 488,497 $ 4.58-$5.73 $ 4.83
======= ============ =======
</TABLE>
F-15
<PAGE>
MEDE AMERICA CORPORATION AND SUBSIDIARIES NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
During March 1998, the Company granted 47,565 options at an exercise price of
$5.73 per share. Based upon an independent valuation, the Company later
learned that the value of the Company's stock at the date of grant was $6.09.
As a result, the Company recorded compensation expense of $18,000 relating to
the granting of these options.
Significant option groups outstanding at March 31, 1998 and related weighted
average price and life information were as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICE OUTSTANDING LIFE (YEARS) PRICE EXERCISABLE PRICE
- ---------------- ------------- -------------- ---------- ------------- ---------
<S> <C> <C> <C> <C> <C>
$ 4.58 381,260 7.5 $ 4.58 201,394 $ 4.58
$ 5.73 107,237 9.6 $ 5.73 10,689 $ 5.73
------- -------
488,497 7.9 $ 4.83 212,083 $ 4.64
======= =======
</TABLE>
The Company applies APB opinion No. 25 and related interpretations in
accounting for its Option Plan. Accordingly, no compensation cost has been
recognized. If compensation cost for the Company's stock options had been
determined consistent with SFAS No. 123, "Accounting for Stock-Based
Compensation," the Company's net loss and net loss per share for the years
ended June 30, 1996 and 1997 and the nine months ended March 31, 1998 would
have been as follows:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED JUNE 30, ENDED
----------------------------- MARCH 31,
1996 1997 1998
------------- ------------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net loss -- as reported ......................... $ (19,330) $ (11,464) $ (3,624)
Net loss -- pro forma ........................... (19,345) (11,518) (3,678)
Basic net loss per share -- as reported ......... (4.14) (2.56) (0.96)
Basic net loss per share -- pro forma ........... (4.15) (2.57) (0.96)
</TABLE>
The weighted average fair value of the options granted for the years ended
June 30, 1996 and 1997, and for the nine months ended March 31, 1998 is
estimated at $1.56, $1.83, and $1.92 on the date of grant (using the minimum
value option pricing model) with the following weighted average assumptions
for the years ended June 30, 1996 and 1997, and for the nine months ended
March 31, 1998, respectively: a risk-free interest rate of 5.93%, 6.39%, and
5.86%; an expected option life of seven years and no expected volatility or
dividend yield. As required by SFAS No. 123, the impact of outstanding
nonvested stock options granted prior to July 1, 1995 has been excluded from
the pro forma calculation; accordingly, the 1996, 1997 and 1998 pro forma
adjustments are not indicative of future period pro forma adjustments when
the calculation will apply to all applicable stock options.
F-16
<PAGE>
MEDE AMERICA CORPORATION AND SUBSIDIARIES NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
c. Net income (loss) per share -- In 1997, the Company adopted SFAS No. 128,
"Earnings Per Share." Basic income per share is determined by using the
weighted average number of shares of common stock outstanding during each
period. Diluted income per share further assumes the issuance of common
shares for all dilutive outstanding stock options and warrants as calculated
using the treasury stock method. Diluted earnings per share is not shown for
any of the periods presented because the effect of including outstanding
options and warrants would be antidilutive. The calculation for the years
ended June 30, 1995, 1996 and 1997 and the nine months ended March 31, 1997
and 1998 was as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------------------------------------------------------------------------
1995 1996 1997
---------------------------------- ---------------------------------- -----------------------------
PER-SHARE PER-SHARE PER-SHARE
LOSS SHARES AMOUNT LOSS SHARES AMOUNT LOSS SHARES AMOUNT
------------- -------- ----------- ------------- -------- ----------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net loss ..................... $ (16,601) $ (19,330) $ (11,464)
Less: Preferred dividends .... (27) (2,400) (2,400)
--------- ----- --------- ---------
Basic net loss per share ..... $ (16,628) 5,238 $(3.17) $ (21,730) 5,245 $(4.14) $ (13,864) 5,425 $(2.56)
========= ===== ====== ========= ===== ====== ========= ===== ======
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED MARCH 31,
----------------------------------------------------------------------------
1997 1998
------------------------------------- ------------------------------------
PER-SHARE PER-SHARE
LOSS SHARES AMOUNT LOSS SHARES AMOUNT
------------ -------- ----------- ------------ -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net loss .......................... $ (7,861) $ (3,624)
Less: Preferred dividends ......... (1,800) (1,800)
-------- --------
Basic net loss per share .......... $ (9,661) 5,345 $(1.81) $ (5,424) 5,677 $(0.96)
======== ===== ====== ======== ===== ======
</TABLE>
9. REDEEMABLE CUMULATIVE PREFERRED STOCK
As of June 30, 1996 and 1997 and March 31, 1998, the Company had outstanding
239,956 shares of preferred stock. The preferred stock is subject to mandatory
redemption in two equal installments on May 31, 2001 and 2002; however, the
Company may redeem the preferred stock in whole at any time or in part from time
to time at its option. The Company would also be required to redeem the
preferred stock should it consummate a public offering of its common stock
pursuant to which the Company receives aggregate net proceeds of at least
$15,000,000. (See Note 13).
The redemption price, as well as liquidation value, of the preferred stock is
$100 per share plus any accrued but unpaid dividends. Dividends on this
preferred stock, which are cumulative, are payable, if declared, at $10 per
share per annum. No dividends have been declared or paid. At March 31, 1998,
cumulative undeclared and unpaid dividends on this preferred stock totaled
$6,627,000.
10. SPIN-OFF TRANSACTIONS
a. Spin-Off Expenses -- As a result of the Spin-off (Note 1), the Company
recorded a charge amounting to $2,864,000. Such charge represented amounts to
be paid to former stockholders of MEDE (who remained as executives of MEDE)
pursuant to contractual agreements which required such payments to be made
upon a change in control. The net present value of remaining payments totaled
$1,420,000 and $1,005,000 as of June 30, 1996 and 1997, respectively, of
which $500,000 and $1,005,000 were included in accrued reorganization costs
as of June 30, 1996 and 1997, respectively, and $920,000 was included in
other long-term liabilities as of June 30, 1996.
b. Capital Contribution of Intercompany Debt to CES -- On March 9, 1995, the
date of the Spin-off, Wellmark and MPC owed CES $2,247,000 and $492,000,
respectively. Such balances were forgiven concurrent with the Spin-off. In
addition, the Company assumed approximately $269,000 of liabilities relating
to CES employees. The net amount was recorded as a contribution of capital to
the Company at the Spin-off date.
F-17
<PAGE>
MEDE AMERICA CORPORATION AND SUBSIDIARIES NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
11. COMMITMENTS AND CONTINGENCIES
a. Leases -- The Company leases certain offices and equipment under operating
leases. The minimum noncancelable lease payments are as follows (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDING JUNE 30,
- -------------------
<S> <C>
1998 (three months from April 1, 1998 to June 30, 1998). $ 225
1999 ................................................... 909
2000 ................................................... 914
2001 ................................................... 809
2002 ................................................... 571
Thereafter ............................................. 381
------
Total minimum lease payments ........................... $3,809
======
</TABLE>
Rent expense for the years ended June 30, 1995, 1996 and 1997 and the nine
months ended March 31, 1997 and 1998 was $951,000, $853,000, $1,093,000,
$800,000 and $837,000, respectively.
b. Litigation -- The Company is engaged in various litigation in the ordinary
course of business. Management, based upon the advice of legal counsel, is of
the opinion that the amounts which may be awarded or assessed in connection
with these matters, if any, will not have a material effect on the
consolidated financial position or results of operations.
c. Employment Contracts -- The Company has employment contracts with certain of
its employees with annual enumeration ranging from $95,000 to $110,000.
Future minimum payments under these contracts are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING JUNE 30,
- -------------------
<S> <C>
1998 (three months from April 1, 1998 to June 30, 1998). $ 51
1999 ................................................... 205
2000 ................................................... 80
----
$336
====
</TABLE>
d. Defined Contribution Plans -- The Company maintained four defined
contribution plans (the "Plans") for all eligible employees, as defined by
the Plans until April 1, 1996. On April 1, 1996, the Company combined the
Plans into one defined contribution plan (the "New Plan"). The Company
previously made matching contributions at various percentages to three of the
Plans in accordance with the respective Plan documents and currently makes
matching contributions to the New Plan in an amount equal to fifty percent of
the employee salary deductions to a maximum of four percent of the employees
salary in accordance with the New Plan document. The Company incurred
$130,000, $197,000, $227,000, $169,000 and $148,000 for employer
contributions to the Plans/New Plan for the years ended June 30, 1995, 1996,
and 1997 and the nine months ended March 31, 1997 and 1998, respectively.
F-18
<PAGE>
MEDE AMERICA CORPORATION AND SUBSIDIARIES NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
e. Service Agreements -- The Company has entered into service agreements with
telecommunications providers which require the Company to utilize certain
minimum monthly amounts of the services of such providers. These agreements
expire through November 2001. The Company was in compliance with the terms of
these agreements as of March 31, 1998. The minimum monthly amounts under
these agreements are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING JUNE 30,
- --------------------
<S> <C>
1998 (three months from April 1, 1998 to June 30, 1998). $ 477
1999 ................................................... 1,795
2000 ................................................... 1,497
2001 ................................................... 1,429
2002 ................................................... 543
-------
Total .................................................. $ 5,741
=======
</TABLE>
12. OTHER INCOME
In February 1997, the Company exercised 26,712 options to purchase common shares
of First Data Corporation and subsequently sold the common shares resulting in a
pre-tax gain of $885,000. Such options were issued to former employees of the
Company prior to the Spin-off but reverted to the Company upon the termination
of these employees.
13. SUBSEQUENT EVENTS
a. Proposed Public Offering -- In 1998, the Company determined to work towards
an IPO of the Company's common stock on a firm commitment basis. The proposed
IPO contemplates that a total of 3,600,000 shares of common stock will be
offered at a price between $13.00 and $15.00 per share. The net proceeds of
the IPO will be used to retire all outstanding balances under its Senior
Subordinated Note and its Credit Facility plus any related accrued interest
(Note 6) and for other general corporate purposes including working capital.
b. Reverse Stock Split and Increase in Authorized Common Stock and Preferred
Stock -- In conjunction with the proposed IPO, the Company intends to
authorize a reverse stock split of all issued and outstanding common shares
at the rate of 1 for 4.5823, which will decrease the number of issued and
outstanding shares as of March 31, 1998 from approximately 26,025,000 to
approximately 5,680,000. This intended stock split has been retroactively
reflected in the accompanying financial statements for all periods presented.
The Company also intends to increase the number of shares of authorized
common stock to 30,000,000 and the number of shares of authorized preferred
stock to 5,000,000.
c. Recapitalization -- In conjunction with the proposed IPO, the Company
contemplates a recapitalization of its capital stock (the
"Recapitalization"). The Recapitalization involves the conversion of all
outstanding preferred stock into common stock (based upon liquidation value
as defined in Note 9) and the exercise of all outstanding warrants (Note 6).
However, cash realized by the Company upon any exercise of the underwriters'
overallotment option would be applied to the payment of accrued dividends in
lieu of having such dividends convert into common stock. To effect the
conversion of preferred stock, the Company must first amend the preferred
stock agreement to allow convertibility. The preferred stock conversion will
be effected based upon the IPO price per share. Assuming an IPO price of
$14.00 per share and no exercise of the underwriters' overallotment, the
preferred stock will be converted into approximately 2,187,000 shares of
common stock. The warrants will be converted, in a cashless exercise, into
approximately 66,000 shares of common stock.
d. Stock Purchase Plan -- In anticipation of the proposed IPO, the Board has
approved the 1998 Employee Stock Purchase Plan (the "Purchase Plan").
Employees of the Company, including direc-
F-19
<PAGE>
MEDE AMERICA CORPORATION AND SUBSIDIARIES NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
tors of the Company who are employees, are eligible to participate in
quarterly plan offerings in which payroll deductions may be used to purchase
shares of common stock. The purchase price of such shares is the lower of 85
percent of the fair market value of the common stock on the day the offering
commences and 85 percent of the fair market value of the common stock on the
date the offering terminates. The first offering period under the Purchase
Plan will not commence until the completion of the IPO.
e. New Stock Option and Restricted Stock Purchase Plan -- In anticipation of the
proposed IPO, the Board has approved the 1998 Stock Option and Restricted
Stock Purchase Plan (the "New Stock Plan"). The New Stock Plan permits the
granting of any or all of the following types of awards: incentive stock
options; nonqualified stock options; restricted stock; or other stock-based
awards, to officers, employees, directors, consultants and advisors of the
Company. To date, no options have been granted under the New Stock Plan,
however, the Board determined to grant options to purchase an aggregate
400,000 shares of common stock pursuant to the New Stock Plan to certain
employees of the Company (including certain executive officers) contingent
upon consummation of the IPO. Such options, which include both incentive and
non-qualified stock options, will have an exercise price equal to the price
to the public in the IPO and generally will vest ratably over four years from
the date of grant except that the initial installment of options to be
granted to certain executive officers will vest immediately upon consummation
of the IPO.
f. Revolving Line of Credit -- During July 1998, the Company received a letter
from the lender under the Credit Facility committing to provide an amended
credit facility with total available credit of $15.0 million. This facility
would be comprised of a $7.5 million term loan to be used for acquisitions
and a $7.5 million revolving credit loan to be used for working capital
purposes, each with a maximum term of two years from October 31, 1998.
Interest for the term and revolver loans is computed at .25% above the bank's
base rate, or 1.25% above a Eurodollar based rate. Such borrowing rates are
at the option of the Company for any particular period during which
borrowings exist.
F-20
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholder of
The Stockton Group, Inc.:
We have audited the accompanying statement of income of The Stockton Group, Inc.
(the "Company") for the year ended June 30, 1997. This financial statement is
the responsibility of the Company's management. Our responsibility is to express
an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statement of income is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the statement of income. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall statement of income presentation.
We believe that our audit of the statement of income provides a reasonable basis
for our opinion.
In our opinion, such statement of income presents fairly, in all material
respects, the results of operations of the Company for the year ended June 30,
1997 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Charlotte, North Carolina
October 7, 1997
F-21
<PAGE>
THE STOCKTON GROUP, INC.
STATEMENTS OF INCOME
YEAR ENDED JUNE 30, 1997 AND THE THREE MONTHS
ENDED SEPTEMBER 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
JUNE 30, 1997 SEPTEMBER 30, 1997
--------------- -------------------
(UNAUDITED)
<S> <C> <C>
REVENUES ....................................... $ 3,801,953 $1,056,748
OPERATING EXPENSES:
Operations .................................... (563,295) (137,495)
Sales, marketing, and client services ......... (899,366) (203,133)
Research and development ...................... (103,153) (24,405)
General and administrative .................... (159,517) (72,425)
Non-cash stock compensation (Note 4) .......... (1,280,000) --
Depreciation and amortization ................. (109,336) (37,411)
------------ ----------
Total operating expenses .................... (3,114,667) (474,869)
------------ ----------
INCOME FROM OPERATIONS ......................... 687,286 581,879
INTEREST EXPENSE ............................... (111,260) (22,574)
OTHER INCOME ................................... 11,229 8,020
------------ ----------
NET INCOME (Note 1) ............................ $ 587,255 $ 567,325
============ ==========
</TABLE>
See notes to financial statement.
F-22
<PAGE>
THE STOCKTON GROUP, INC.
NOTES TO FINANCIAL STATEMENT
YEAR ENDED JUNE 30, 1997 AND THE THREE MONTHS ENDED
SEPTEMBER 30, 1997 (UNAUDITED)
(INFORMATION AS IT RELATES TO THE THREE MONTHS ENDED
SEPTEMBER 30, 1997 IS UNAUDITED)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Description of Business -- The Stockton Group, Inc. (the "Company"), was
incorporated as an S Corporation in the State of South Carolina in July 1993.
The Company provides computer-based prescription drug claims processing to
Pharmaceutical Benefit Managers ("PBMs"), Health Maintenance Organizations
("HMOs"), Preferred Provider Organizations ("PPOs"), insurance companies,
Third-Party Administrators ("TPAs"), self-insured employers, and Taft-Hartley
Funds. The Company's services range from claims processing to full-service
program management, including eligibility verification, drug coverages and
exclusions, concurrent utilization review, drug pricing verification, supply
limitations and other applicable plan design requirements. The Company supports
a network of over 40,000 pharmacies nationwide.
In addition to claims processing fees, the Company receives rebate revenue from
drug manufacturers for prescription drug transactions that are processed through
the Company's system.
Use of Estimates in the Preparation of Financial Statements -- The preparation
of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates.
Major Customers -- For the year ended June 30, 1997, three customers accounted
for approximately 15%, 12% and 10%, respectively, of total revenues.
Revenue Recognition -- Revenue from prescription drug claims processing services
and rebates from drug manufacturers are recognized when the services are
delivered.
Property and Equipment -- Property and equipment is depreciated using the
double-declining balance method over the estimated useful lives of the related
assets. Assets under capital leases are depreciated using the straight-line
method over the lease term.
Income Taxes -- The Company has elected to be taxed as an S Corporation, and as
such its income is included in the current taxable income of its stockholder.
Accordingly, no provision has been made in the accompanying financial statements
for federal or state income taxes.
Unaudited Interim Financial Statement -- In the opinion of management, the
unaudited statement of income for the three months ended September 30, 1997 is
presented on a basis consistent with the audited statement of income and
reflects all adjustments, consisting of only normal recurring adjustments,
necessary for a fair presentation of the results thereof. The results of
operations for the three months ended September 30, 1997 is not necessarily
indicative of the results to be expected for the entire year.
2. NOTE PAYABLE TO STOCKHOLDER
The Company had a note payable to stockholder with an outstanding principal
balance of $359,621 at June 30, 1997. The note bore interest at a rate of prime
plus .25% (8.75% at June 30, 1997).
3. LEASE COMMITMENTS
The Company leased certain equipment under operating leases expiring at various
dates through April 2000. Rent expense for the year ended June 30, 1997 was
approximately $12,000.
F-23
<PAGE>
THE STOCKTON GROUP, INC.
NOTES TO FINANCIAL STATEMENT - (CONTINUED)
In addition, the Company leased its office facility and certain computer and
office equipment under capital lease arrangements with interest rates ranging
from 14.5% to 25%, expiring through July 2011. The lease arrangement for the
office facility was with a corporation in which the Company's sole stockholder
holds an ownership interest.
4. STOCK-BASED COMPENSATION ARRANGEMENTS
During 1994, the Company granted a key employee the right to acquire common
stock equivalent to a 25% equity ownership in the Company at no cost. The shares
have not yet been issued. At the date of the grant, the Company recorded
compensation cost equal to the fair market value of shares to be awarded to the
executive.
During 1997, the Company entered into an employment agreement with another new
key executive. Among other things, the agreement granted the executive the right
to acquire a 10% equity ownership in the Company at a nominal cost ($1.00) or,
if the Company is sold within one year, to receive 10% of the sales proceeds as
defined. Accordingly, the Company has recorded compensation cost in 1997, equal
to the estimated cash settlement to be paid to the executive based upon the
anticipated proceeds from the sale of the Company. (See Note 5).
5. SUBSEQUENT EVENT
In November 1997, the Company sold certain computer equipment, intangible assets
and the operations of the Company to MEDE America Corporation. All other assets
and liabilities remained with the Company. The purchase price was $10,400,000 in
cash. In addition, the purchase agreement requires additional consideration of
up to $2,600,000 (plus interest at an annual rate of 7.25%) to be paid if
Stockton's revenue during the 12-month period ended September 30, 1998 is at
least $5,000,000.
******
F-24
<PAGE>
====================================== ======================================
NO DEALER, SALESPERSON OR OTHER
PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY
REPRESENTATIONS CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS NOT
CONTAINED HEREIN MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY, ANY OF THE UNDERWRITERS OR BY 3,600,000 SHARES
ANY OTHER PERSON. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, ANY
SECURITIES OTHER THAN THE SHARES OF
COMMON STOCK OFFERED HEREBY, NOR DOES
IT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY OF [LOGO]
THE SECURITIES OFFERED HEREBY, TO ANY
PERSON IN ANY JURISDICTION IN WHICH IT
IS UNLAWFUL TO MAKE SUCH AN OFFER OR
SOLICITATION TO SUCH PERSON. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES CREATE ANY
IMPLICATION THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY MEDE AMERICA
DATE SUBSEQUENT TO THE DATE HEREOF. CORPORATION
---------------------------------
TABLE OF CONTENTS
PAGE
----
Prospectus Summary .............. 3 COMMON STOCK
Risk Factors .................... 9
Use Of Proceeds ................. 18
Dividend Policy ................. 18
Capitalization .................. 19
Dilution ........................ 20
Unaudited Pro Forma Consolidated
Financial Information ........ 21 --------------------------
Selected Financial Data ......... 28
Management's Discussion And PROSPECTUS
Analysis Of Financial
Condition And Results Of --------------------------
Operations ................... 30
Business ........................ 41
Management ...................... 52
Certain Transactions ............ 57
Principal Stockholders .......... 58
Description Of Capital Stock .... 60
Shares Eligible For Future Sale . 62
Underwriting .................... 63
Legal Matters ................... 64
Experts ......................... 64
Additional Information .......... 65 SALOMON SMITH BARNEY
Index To Financial Statements ... F-1
---------------------------------- WILLIAM BLAIR & COMPANY
UNTIL _____ , 1998 (25 DAYS AFTER
THE DATE OF THIS PROSPECTUS) ALL VOLPE BROWN WHELAN & COMPANY
DEALERS EFFECTING TRANSACTIONS IN THE
COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION,
MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS DELIVERY REQUIREMENT
IS IN ADDITION TO THE OBLIGATION OF
DEALERS TO DELIVER A PROSPECTUS WHEN JULY , 1998
ACTING AS UNDERWRITERS AND WITH
RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
====================================== ======================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the Registrant's expenses in connection with
the issuance and distribution of the securities being registered. Except for the
SEC Registration Fee and the National Association of Securities Dealers, Inc.
("NASD") Filing Fee, the amounts listed below are estimates:
<TABLE>
<S> <C>
SEC Registration Fee ......................... $ 18,320
NASD Filing Fee .............................. 6,710
Nasdaq Listing Fees .......................... *
Legal Fees and Expenses ...................... *
Blue Sky Fees and Expenses ................... 10,000
Accounting Fees and Expenses ................. *
Printing and Engraving ....................... *
Transfer Agent and Register Fees and Expenses. *
Miscellaneous ................................ $ *
---------
Total ........................................ $950,000
=========
</TABLE>
- ----------
* To be filed by Amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Amended and Restated Certificate of Incorporation (the
"Restated Certificate") and By-laws provide that the Company shall indemnify to
the fullest extent authorized by the Delaware General Corporation Law ("DGCL"),
each person who is involved in any litigation or other proceeding because such
person is or was a director or officer of the Company or is or was serving as an
officer or director of another entity at the request of the Company, against all
expense, loss or liability reasonably incurred or suffered in connection
therewith. The Restated Certificate and By-laws provide that the right to
indemnification includes the right to be paid expenses incurred in defending any
proceeding in advance of its final disposition; provided, however, that such
advance payment will only be made upon delivery to the Company of an
undertaking, by or on behalf of the director or officer, to repay all amounts so
advanced if it is ultimately determined that such director is not entitled to
indemnification. If the Company does not pay a proper claim for indemnification
in full within 60 days after a written claim for such indemnification is
received by the Company, the Restated Certificate and Restated Bylaws authorize
the claimant to bring an action against the Company and prescribe what
constitutes a defense to such action.
Section 145 of the DGCL permits a corporation to indemnify any director or
officer of the corporation against expenses (including attorney's fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
in connection with any action, suit or proceeding brought by reason of the fact
that such person is or was a director or officer of the corporation, and, with
respect to any criminal action or proceeding, if he or she had no reason to
believe his or her conduct was unlawful. In a derivative action, (i.e., one
brought by or on behalf of the corporation), indemnification may be made only
for expenses, actually and reasonably incurred by any director or officer in
connection with the defense or settlement of such an action or suit, if such
person acted in good faith and in a manner that he reasonably believed to be in,
or not opposed to, the best interests of the corporation, except that no
indemnification shall be made if such person shall have been adjudged to be
liable to the corporation, unless and only to the extent that the court in which
the action or suit was brought shall determine that the defendant is fairly and
reasonably entitled to indemnity for such expenses despite such adjudication of
liability.
II-1
<PAGE>
Pursuant to Section 102(b)(7) of the DGCL, the Restated Certificate
eliminates the liability of a director to the corporation or its stockholders
for monetary damages for such breach of fiduciary duty as a director, except for
liabilities arising (i) from any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) from acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (iii)
under Section 174 of the DGCL, or (iv) from any transaction from which the
director derived an improper personal benefit.
The Company expects to obtain primary and excess insurance policies
insuring the directors and officers of the Company against certain liabilities
that they may incur in their capacity as directors and officers. Under such
policies, the insurers, on behalf of the Company, may also pay amounts for which
the Company has granted indemnification to the directors or officers.
Additionally, reference is made to the Underwriting Agreement filed as
Exhibit 1.1 hereto, which provides for indemnification by the Underwriters of
the Company, its directors and officers who sign the Registration Statement and
persons who control the Company, under certain circumstances.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In the three years preceding the filing of this Registration Statement, the
Corporation has sold the following securities that were not registered under the
Securities Act:
(a) Issuances of Capital Stock
On June 27, 1995, in connection with the acquisition by the Registrant of
MEDE Ohio and a related offering, the Registrant issued an aggregate 239,956
shares of Preferred Stock and 13,999,538 shares of Common Stock to the
stockholders of the parent company of MEDE Ohio and stockholders of the
Registrant.
On December 18, 1995, in connection with their agreement to guarantee the
Registrant's obligations under a credit agreement between the Registrant and
Bank of America Illinois (the "Credit Facility"), the Registrant issued to WCAS
V, WCAS VI, Blair V and Blair LCF warrants to purchase an aggregate 240,720
shares of Common Stock at an exercise price of $1.00 per share.
On July 18, 1996, the Company issued 500 shares of Common Stock to Sharon
Hallberg, an employee of the Company, as a performance bonus.
On January 10, 1997, in connection with their agreement to guarantee
additional obligations of the Registrant under and amendment to the Credit
Facility, the Company issued to WCAS V, WCAS VI, Blair V and Blair LCF warrants
to purchase an aggregate 84,000 shares, of Common Stock at an exercise price of
$1.25 per share.
On February 14, 1997, the Company issued to WCAS CP II, for a purchase
price of $25 million, (i) a 10% Senior Subordinated Note due February 14, 2002
in the aggregate principal amount of $25,000,000 and (ii) 1,700,000 shares of
Common Stock.
On September 9, 1997, the Company issued 500 shares of Common Stock to Ed
Feltner, an employee of the Company, as a performance bonus.
On October 31, 1997, in connection with their agreement to guarantee
additional obligations of the Registrant under the amended Credit Agreement, the
Company issued to WCAS VI and Blair V warrants to purchase an aggregate 156,720
shares, of Common Stock at an exercise price of $1.25 per share.
(b) Certain Grants and Exercises of Stock Options
The MEDE America Corporation and its Subsidiaries Stock Option and
Restricted Stock Purchase Plan was adopted by the Registrant's Board of
Directors on March 22, 1995. As of May 29, 1998, options to purchase up to an
aggregate 3,349,000 shares of Common Stock, had been granted to employees of the
Registrant and its subsidiaries thereunder, of which options to purchase up to
an aggregate 2,389,600 shares of Common Stock, at a weighted average exercise
price of $1.09 per share, were outstanding as of such date. The Company has
issued an aggregate 350,400 shares of Common Stock upon the exercise of such
options.
II-2
<PAGE>
The securities issued in the foregoing transactions in paragraphs (a) and
(b) above were offered and sold in reliance upon exemptions from Securities Act
registration set forth in Section 4(2) of the Securities Act, or any regulations
promulgated thereunder, relating to sales by an issuer not involving a public
offering. No underwriters were involved in the foregoing sales of securities.
The sale and issuance of the above securities were deemed to be exempt from
registration under the Securities Act in reliance on Section 4(2) of the
Securities Act, or Regulation D promulgated thereunder, or Rule 701 promulgated
under Section 3(b) of the Securities Act, as transactions by an issuer not
involving a public offering or transactions pursuant to compensatory benefit
plans and contracts relating to compensation as provided under such Rule 701.
The recipients of securities in each such transaction represented their
intention to acquire the securities for investment only and not with a view to
or for sale in connection with any distribution thereof and appropriate legends
were affixed to the share certificates and instruments issued in such
transactions. All recipients had adequate access, through their relationships
with the Company, to information about the Registrant.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- -----------------------------------------------------------------
<S> <C> <C>
1.1 -- Form of Underwriting Agreement.
2.1+ -- Asset Purchase Agreement among MEDE AMERICA Corporation,
General Computer Corporation, Time-Share Computer Systems, et al,
dated as of February 3, 1997.
2.2+ -- Asset Purchase Agreement among MEDE AMERICA Corporation,
General Computer Corporation, The Stockton Group, et al, dated as
of October 20, 1997.
3.1+ -- Certificate of Incorporation of the Registrant as amended.
3.2 -- Form of Registrant's Amended and Restated Certificate of
Incorporation.
3.3 -- Amended Bylaws of the Registrant.
3.4+ -- Agreement and Plan of Merger, dated as of May 17, 1995, between
MEDE AMERICA Corporation and GENCC Holdings Corporation.
4.1* -- Specimen certificate for shares of Common Stock.
4.2+ -- Note and Share Purchase Agreement between MEDE AMERICA
Corporation and WCAS Capital Partners II, L.P., dated as of
February 14, 1997.
4.3 + -- Warrant Agreement dated as of October 31, 1997 among MEDE AMERICA
Corporation, Welsh, Carson, Anderson & Stowe V, L.P., Welsh,
Carson Anderson & Stowe VI, L.P., William Blair Leveraged Capital
Fund Limited Partnership and William Blair Capital Part- ners V,
L.P., and Warrants issued thereunder.
4.4 + -- Warrant Agreement dated as of January 10, 1997 among MEDE AMERICA
Corporation, Welsh, Carson, Anderson & Stowe V, L.P., Welsh,
Carson Anderson & Stowe VI, L.P., William Blair Leveraged Capital
Fund Limited Partnership and William Blair Capital Part- ners V,
L.P., and Warrants issued thereunder.
4.5 + -- Warrant Agreement dated as of December 18, 1995 among MEDE
AMERICA Corpora- tion, Welsh, Carson, Anderson & Stowe V, L.P.,
Welsh, Carson Anderson & Stowe VI, L.P., William Blair Leveraged
Capital Fund Limited Partnership and William Blair Capital
Partners V, L.P., and Warrants issued thereunder.
5.1* -- Opinion of Reboul, MacMurray, Hewitt, Maynard & Kristol, with
respect to the legality of securities being registered.
10.1 -- MEDE AMERICA Corporation and Its Subsidiaries Stock Option and
Restricted Stock Purchase Plan as amended.
10.2+ -- Credit Agreement between MEDE AMERICA Corporation and Bank of
America Illinois dated as of December 18, 1995 as amended, with
accompanying guarantees.
10.3 -- Form of Indemnification Agreement between MEDE AMERICA
Corporation and Directors thereof.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------- ----------------------------------------------------------------
<S> <C> <C>
10.4* -- Agreement of Lease dated as of October 15, 1991 between HMCC
Associates and MedE America, Inc.
10.5 -- Lease Agreement dated as of July 10, 1995 as amended January 3,
1997 between T&J Enterprises, LLC and Electronic Claims &
Funding, Inc.
10.6 -- Commitment Letter dated July 15, 1998 from Bank of America
National Trust & Savings Association to MEDE AMERICA Corporation,
regarding amendment to Credit Facility.
10.7 -- Form of Non-Competition, Non-Solicitation and Confidentiality
Agreement between MEDE AMERICA Corporation and Employees.
10.8 -- MEDE AMERICA Corporation and Its Subsidiaries 1998 Stock Option
and Restricted, Stock Purchase Plan.
21.1 + -- Subsidiaries of the Company.
23.1 -- Consent of Deloitte & Touche LLP, independent accountants.
23.2 -- Consent of Deloitte & Touche LLP, independent accountants.
23.3* -- Consent of Reboul, MacMurray, Hewitt, Maynard & Kristol (see
Exhibit 5.1).
24.1 + -- Power of Attorney.
27.1 + -- Financial Data Schedule.
</TABLE>
- ----------
* To be filed by amendment.
+ Previously filed.
(b) Financial Statement Schedules
Schedule II -- Valuation and Qualifying Accounts
ITEM 17. UNDERTAKINGS
(a) 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 provisions described under "Item
14-Indemnification of Directors and Officers" above, 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 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 Act and will be governed by the final adjudication of
such issue.
(b) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, 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
of 1933, 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.
(c) The undersigned Registrant 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.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to the Registration Statement to be signed on its
behalf by the undersigned thereunto duly authorized, on June 3, 1998.
MEDE AMERICA CORPORATION
By: THOMAS P. STAUDT
------------------------------
Thomas P. Staudt
President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities held on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- --------------------------- --------------------------------------- --------------
<S> <C> <C>
THOMAS P. STAUDT President and Chief Executive July 17, 1998
- ------------------------- Officer (Principal executive officer);
Thomas P. Staudt Director
THOMAS P. STAUDT Chief Financial Officer (Principal July 17, 1998
- ------------------------- financial and accounting officer)
Richard P. Bankosky
THOMAS P. STAUDT Director July 17, 1998
- -------------------------
Thomas E. McInerney
THOMAS P. STAUDT Director July 17, 1998
- -------------------------
Anthony J. de Nicola
THOMAS P. STAUDT Director July 17, 1998
- -------------------------
Timothy M. Murray
</TABLE>
II-5
<PAGE>
SCHEDULE II
MEDE AMERICA CORPORATION AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ---------------------------------- ------------ -------------------------- ----------------- -----------
ADDITIONS
--------------------------
CHARGED TO
BALANCE AT CHARGED TO OTHER BALANCE AT
BEGINNING COST AND ACCOUNTS- DEDUCTIONS END OF
DESCRIPTIONS OF PERIOD EXPENSES DESCRIBE -DESCRIBE PERIOD
- ---------------------------------- ------------ ------------ ----------- ----------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Year ended June 30, 1995 -
Allowance for bad debts ......... $ 868 $518 $-- $ -- (1) $1,386
====== ==== === == ======
Year ended June 30, 1996 -
Allowance for bad debts ......... $1,386 $406 $-- $ 392 (1) $1,400
====== ==== === ======== ======
Year ended June 30, 1997 -
Allowance for bad debts ......... $1,400 $316 $-- $ -- (1) $1,716
====== ==== === ======== ======
Nine months ended
March 31, 1998 -
Allowance for bad debts ......... $1,716 $265 $ $ 1,023 (1) $ 958
====== ==== === ======== ======
</TABLE>
- ----------
(1) Amounts written off.
S-1
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- -----------------------------------------------------------------
<S> <C> <C>
1.1 -- Form of Underwriting Agreement.
2.1+ -- Asset Purchase Agreement among MEDE AMERICA Corporation,
General Computer Corporation, Time-Share Computer Systems, et al,
dated as of February 3, 1997.
2.2+ -- Asset Purchase Agreement among MEDE AMERICA Corporation,
General Computer Corporation, The Stockton Group, et al, dated as
of October 20, 1997.
3.1+ -- Certificate of Incorporation of the Registrant as amended.
3.2 -- Form of Registrant's Amended and Restated Certificate of
Incorporation.
3.3 -- Amended Bylaws of the Registrant.
3.4+ -- Agreement and Plan of Merger, dated as of May 17, 1995, between
MEDE AMERICA Corporation and GENCC Holdings Corporation.
4.1* -- Specimen certificate for shares of Common Stock.
4.2+ -- Note and Share Purchase Agreement between MEDE AMERICA
Corporation and WCAS Capital Partners II, L.P., dated as of
February 14, 1997.
4.3 + -- Warrant Agreement dated as of October 31, 1997 among MEDE AMERICA
Corporation, Welsh, Carson, Anderson & Stowe V, L.P., Welsh,
Carson Anderson & Stowe VI, L.P., William Blair Leveraged Capital
Fund Limited Partnership and William Blair Capital Part- ners V,
L.P., and Warrants issued thereunder.
4.4 + -- Warrant Agreement dated as of January 10, 1997 among MEDE AMERICA
Corporation, Welsh, Carson, Anderson & Stowe V, L.P., Welsh,
Carson Anderson & Stowe VI, L.P., William Blair Leveraged Capital
Fund Limited Partnership and William Blair Capital Part- ners V,
L.P., and Warrants issued thereunder.
4.5 + -- Warrant Agreement dated as of December 18, 1995 among MEDE
AMERICA Corpora- tion, Welsh, Carson, Anderson & Stowe V, L.P.,
Welsh, Carson Anderson & Stowe VI, L.P., William Blair Leveraged
Capital Fund Limited Partnership and William Blair Capital
Partners V, L.P., and Warrants issued thereunder.
5.1* -- Opinion of Reboul, MacMurray, Hewitt, Maynard & Kristol, with
respect to the legality of securities being registered.
10.1 -- MEDE AMERICA Corporation and Its Subsidiaries Stock Option and
Restricted Stock Purchase Plan as amended.
10.2+ -- Credit Agreement between MEDE AMERICA Corporation and Bank of
America Illinois dated as of December 18, 1995 as amended, with
accompanying guarantees.
10.3 -- Form of Indemnification Agreement between MEDE AMERICA
Corporation and Directors thereof.
10.4* -- Agreement of Lease dated as of October 15, 1991 between HMCC
Associates and MedE America, Inc.
10.5 -- Lease Agreement dated as of July 10, 1995 as amended January 3,
1997 between T&J Enterprises, LLC and Electronic Claims &
Funding, Inc.
10.6 -- Commitment Letter dated July 15, 1998 from Bank of America
National Trust & Savings Association to MEDE AMERICA Corporation,
regarding amendment to Credit Facility.
10.7 -- Form of Non-Competition, Non-Solicitation and Confidentiality
Agreement between MEDE AMERICA Corporation and Employees.
10.8 -- MEDE AMERICA Corporation and Its Subsidiaries 1998 Stock Option
and Restricted, Stock Purchase Plan.
21.1 + -- Subsidiaries of the Company.
23.1 -- Consent of Deloitte & Touche LLP, independent accountants.
23.2 -- Consent of Deloitte & Touche LLP, independent accountants.
23.3* -- Consent of Reboul, MacMurray, Hewitt, Maynard & Kristol (see
Exhibit 5.1).
24.1+ -- Power of Attorney.
27.1+ -- Financial Data Schedule.
</TABLE>
- ----------
* To be filed by amendment.
+ Previously filed.
MedE America Corporation
3,600,000 Shares
Common Stock
($.01 par value)
Underwriting Agreement
New York, New York
, 1998
Smith Barney Inc.
William Blair & Company, L.L.C.
Volpe Brown Whelan & Company, LLC
As Representatives of the several Underwriters,
c/o Smith Barney Inc.
388 Greenwich Street
New York, New York 10013
Ladies and Gentlemen:
MedE America Corporation, a Delaware corporation (the "Company"),
proposes to sell to the several underwriters named in Schedule I hereto (the
"Underwriters"), for whom you (the "Representatives") are acting as
representatives, 3,600,000 shares of common stock, $.01 par value ("Common
Stock") of the Company (said shares to be issued and sold by the Company being
hereinafter called the "Underwritten Securities"). The Company also proposes to
grant to the Underwriters an option to purchase up to 540,000 additional shares
of Common Stock to cover over-allotments (the "Option Securities"; the Option
Securities, together with the Underwritten Securities, being hereinafter called
the "Securities"). To the extent there are no additional Underwriters listed on
Schedule I other than you, the term Representatives as used herein shall mean
you, as Underwriters, and the terms Representatives and Underwriters shall mean
either the singular or plural as the context requires. Certain terms used herein
are defined in Section 17 hereof.
1. Representations and Warranties. The Company represents and warrants
to, and agrees with, each Underwriter as set forth below in this Section 1.
(a) The Company has prepared and filed with the Commission a
registration statement (file number 333-55977) on Form S-1, including
a related preliminary prospectus, for registration under the Act of
the offering and sale of the Securities. The Company may have filed
one or more amendments thereto,
<PAGE>
including a related preliminary prospectus, each of which has
previously been furnished to you. The Company will next file with the
Commission either (1) prior to the Effective Date of such registration
statement, a further amendment to such registration statement
(including the form of final prospectus) or (2) after the Effective
Date of such registration statement, a final prospectus in accordance
with Rules 430A and 424(b). In the case of clause (2), the Company has
included in such registration statement, as amended at the Effective
Date, all information (other than Rule 430A Information) required by
the Act and the rules thereunder to be included in such registration
statement and the Prospectus. As filed, such amendment and form of
final prospectus, or such final prospectus, shall contain all Rule
430A Information, together with all other such required information,
and, except to the extent the Representatives shall agree in writing
to a modification, shall be in all substantive respects in the form
furnished to you prior to the Execution Time or, to the extent not
completed at the Execution Time, shall contain only such specific
additional information and other changes (beyond that contained in the
latest Preliminary Prospectus) as the Company has advised you, prior
to the Execution Time, will be included or made therein.
(b) On the Effective Date, the Registration Statement did or
will, and when the Prospectus is first filed (if required) in
accordance with Rule 424(b) and on the Closing Date (as defined
herein) and on any date on which Option Securities are purchased, if
such date is not the Closing Date (a "settlement date"), the
Prospectus (and any supplements thereto) will, comply in all material
respects with the applicable requirements of the Act and the rules
thereunder; on the Effective Date and at the Execution Time, the
Registration Statement did not or will not contain any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the
statements therein not misleading; and, on the Effective Date, the
Prospectus, if not filed pursuant to Rule 424(b), will not, and on the
date of any filing pursuant to Rule 424(b) and on the Closing Date and
any settlement date, the Prospectus (together with any supplement
thereto) will not, include any untrue statement of a material fact or
omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading; provided, however, that the Company makes
no representations or warranties as to the information contained in or
omitted from the Registration Statement, or the Prospectus (or any
supplement thereto) in reliance upon and in conformity with
information furnished herein or in writing to the Company by or on
behalf of any Underwriter through the Representatives specifically for
inclusion in the Registration Statement or the Prospectus (or any
supplement thereto).
(c) Each of the Company and its Subsidiaries (as defined herein)
has been duly incorporated and is validly existing as a corporation in
good standing under the laws of the jurisdiction in which it is
chartered or organized with full corporate power and authority to own
or lease, as the case may be, and to operate its properties and
conduct its business as described in the Prospectus, and is duly
2
<PAGE>
qualified to do business as a foreign corporation and is in good
standing under the laws of each jurisdiction which requires such
qualification;
(d) All the outstanding shares of capital stock of the
Subsidiaries has been duly and validly authorized and issued and are
fully paid and nonassessable, and, except as otherwise set forth in
the Prospectus, all outstanding shares of capital stock of the
Subsidiaries are owned by the Company directly free and clear of any
perfected security interest or any other security interests, claims,
liens or encumbrances;
(e) The Company's authorized equity capitalization is as set
forth in the Prospectus; the capital stock of the Company conforms in
all material respects to the description thereof contained in the
Prospectus; the outstanding shares of Common Stock have been duly and
validly authorized and issued and are fully paid and nonassessable;
the Securities have been duly and validly authorized, and, when issued
and delivered to and paid for by the Underwriters pursuant to this
Agreement, will be fully paid and nonassessable; the Securities are
duly listed, and admitted and authorized for trading, subject to
official notice of issuance and evidence of satisfactory distribution,
on the Nasdaq National Market; the certificates for the Securities are
in valid and sufficient form; the holders of outstanding shares of
capital stock of the Company are not entitled to preemptive or other
rights to subscribe for the Securities except for such rights of WCAS
Capital Partners II, L.P. as have been effectively waived; and, except
as set forth in the Prospectus, no options, warrants or other rights
to purchase, agreements or other obligations to issue, or rights to
convert any obligations into or exchange any securities for, shares of
capital stock of or ownership interests in the Company are
outstanding;
(f) There is no franchise, contract or other document of a
character required to be described in the Registration Statement or
Prospectus, or to be filed as an exhibit thereto, which is not
described or filed as required; and the statements in the Prospectus
under the headings "Risk Factors -- Proposed Healthcare Data
Confidentiality Legislation," "Business -- Government Regulation" and
"Business -- Legal Proceedings" fairly summarize the matters therein
described.
(g) This Agreement has been duly authorized, executed and
delivered by the Company and constitutes a valid and binding
obligation of the Company enforceable in accordance with its terms.
(h) The Company is not and, after giving effect to the offering
and sale of the Securities and the application of the proceeds thereof
as described in the Prospectus, will not be an "investment company" as
defined in the Investment Company Act of 1940, as amended.
(i) No consent, approval, authorization, filing with or order of
any court or governmental agency or body is required in connection
with the
3
<PAGE>
transactions contemplated herein, except such as have been obtained
under the Act and such as may be required under the blue sky laws of
any jurisdiction in connection with the purchase and distribution of
the Securities by the Underwriters in the manner contemplated herein
and in the Prospectus.
(j) Neither the issue and sale of the Securities nor the
consummation of any other of the transactions herein contemplated nor
the fulfillment of the terms hereof will conflict with, result in a
breach or violation of or the imposition of any lien, charge or
encumbrance upon any property or assets of the Company or the
Subsidiaries pursuant to, (i) the charter or by-laws of the Company or
the Subsidiaries, (ii) the terms of any indenture, contract, lease,
mortgage, deed of trust, note agreement, loan agreement or other
agreement, obligation, condition, covenant or instrument to which the
Company or the Subsidiaries are a party or bound or to which its or
their property is subject, or (iii) any statute, law, rule,
regulation, judgment, order or decree applicable to the Company or the
Subsidiaries, of any court, regulatory body, administrative agency,
governmental body, arbitrator or other authority having jurisdiction
over the Company or the Subsidiaries or any of its or their
properties.
(k) No holders of securities of the Company have rights to the
registration of such securities under the Registration Statement
except for such rights of WCAS Capital Partners II, L.P. as have been
effectively waived.
(l) The consolidated historical financial statements and
schedules of the Company and its consolidated Subsidiaries included in
the Prospectus and the Registration Statement present fairly in all
material respects the financial condition, results of operations and
cash flows of the Company as of the dates and for the periods
indicated, comply as to form with the applicable accounting
requirements of the Act and have been prepared in conformity with
generally accepted accounting principles applied on a consistent basis
throughout the periods involved (except as otherwise noted therein).
The selected financial data set forth under the caption "Selected
Consolidated Financial Data" in the Prospectus and Registration
Statement fairly present, on the basis stated in the Prospectus and
the Registration Statement, the information included therein. The pro
forma financial statements included in the Prospectus and the
Registration Statement include assumptions that provide a reasonable
basis for presenting the significant effects directly attributable to
the transactions and events described therein, the related pro forma
adjustments give appropriate effect to those assumptions, and the pro
forma adjustments reflect the proper application of those adjustments
to the historical financial statement amounts in the pro forma
financial statements included in the Prospectus and the Registration
Statement. The pro forma financial statements included in the
Prospectus and the Registration Statement comply as to form in all
material respects with the applicable accounting requirements of
Regulation S-X under the Act and the pro forma adjustments have been
properly applied to the historical amounts in the compilation of those
statements.
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(m) No action, suit or proceeding by or before any court or
governmental agency, authority or body or any arbitrator involving the
Company or the Subsidiaries or its or their property is pending or, to
the best knowledge of the Company, threatened that (i) could
reasonably be expected to have a material adverse effect on the
performance of this Agreement or the consummation of any of the
transactions contemplated hereby or (ii) could reasonably be expected
to have a material adverse effect on the condition (financial or
otherwise), prospects, earnings, business or properties of the Company
and the Subsidiaries, taken as a whole, whether or not arising from
transactions in the ordinary course of business, except as set forth
in or contemplated in the Prospectus (exclusive of any supplement
thereto) (a "Material Adverse Effect").
(n) Each of the Company and the Subsidiaries owns or leases all
such properties as are necessary to the conduct of its operations as
presently conducted.
(o) Neither the Company nor the Subsidiaries is in violation or
default of (i) any provision of its charter or bylaws, (ii) the terms
of any indenture, contract, lease, mortgage, deed of trust, note
agreement, loan agreement or other agreement, obligation, condition,
covenant or instrument to which it is a party or bound or to which its
property is subject, or (iii) any statute, law, rule, regulation,
judgment, order or decree of any court, regulatory body,
administrative agency, governmental body, arbitrator or other
authority having jurisdiction over the Company or the Subsidiaries or
any of its or their properties, as applicable.
(p) Deloitte and Touche LLP, who have certified certain financial
statements of the Company and its consolidated Subsidiaries and
delivered their report with respect to the audited consolidated
financial statements and schedules included in the Prospectus, are
independent public accountants with respect to the Company within the
meaning of the Act and the applicable published rules and regulations
thereunder.
(q) There are no transfer taxes or other similar fees or charges
under Federal law or the laws of any state, or any political
subdivision thereof, required to be paid in connection with the
execution and delivery of this Agreement or the issuance by the
Company or sale by the Company of the Securities.
(r) The Company has filed all foreign, federal, state and local
tax returns that are required to be filed or has requested extensions
thereof (except in any case in which the failure so to file would not
have a Material Adverse Effect) and has paid all taxes required to be
paid by it and any other assessment, fine or penalty levied against
it, to the extent that any of the foregoing is due and payable, except
for any such assessment, fine or penalty that is currently being
contested in good faith or as would not have a Material Adverse
Effect.
(s) No labor problem or dispute with the employees of the Company
or the Subsidiaries exists or is threatened or imminent, and the
Company is not aware of any existing or imminent labor disturbance by
the employees of any of
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its or the Subsidiaries' principal suppliers, contractors or
customers, that could have a Material Adverse Effect.
(t) The Company and the Subsidiaries are insured by insurers of
recognized financial responsibility against such losses and risks and
in such amounts as are prudent and customary in the businesses in
which they are engaged; all policies of insurance and fidelity or
surety bonds insuring the Company or the Subsidiaries or their
respective businesses, assets, employees, officers and directors are
in full force and effect; the Company and the Subsidiaries are in
compliance with the terms of such policies and instruments in all
material respects; and there are no claims by the Company or the
Subsidiaries under any such policy or instrument as to which any
insurance company is denying liability or defending under a
reservation of rights clause; neither the Company nor the Subsidiaries
have been refused any insurance coverage sought or applied for; and
neither the Company nor the Subsidiaries have any reason to believe
that it will not be able to renew its existing insurance coverage as
and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business at a
cost that would not have a Material Adverse Effect.
(u) The Subsidiaries are not currently prohibited, directly or
indirectly, from paying any dividends to the Company, from making any
other distribution on the Subsidiaries' capital stock, from repaying
to the Company any loans or advances to the Subsidiaries from the
Company or from transferring any of the Subsidiaries' property or
assets to the Company, except as described in or contemplated by the
Prospectus.
(v) The Company and the Subsidiaries possess all licenses,
certificates, permits and other authorizations issued by the
appropriate federal, state or foreign regulatory authorities necessary
to conduct their respective businesses, and neither the Company nor
the Subsidiaries have received any notice of proceedings relating to
the revocation or modification of any such certificate, authorization
or permit which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would have a Material Adverse
Effect.
(w) The Company and the Subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable
assurance that (i) transactions are executed in accordance with
management's general or specific authorizations; (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to
maintain asset accountability; (iii) access to assets is permitted
only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
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<PAGE>
(x) The Company has not taken, directly or indirectly, any action
designed to or which has constituted or which might reasonably be
expected to cause or result, under the Exchange Act or otherwise, in
stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the Securities.
(y) The Company and the Subsidiaries are (i) in compliance with
any and all applicable foreign, federal, state and local laws and
regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("Environmental Laws"), (ii) have received and are in
compliance with all permits, licenses or other approvals required of
them under applicable Environmental Laws to conduct their respective
businesses and (iii) have not received notice of any actual or
potential liability for the investigation or remediation of any
disposal or release of hazardous or toxic substances or wastes,
pollutants or contaminants, except where such non-compliance with
Environmental Laws, failure to receive required permits, licenses or
other approvals, or liability would not, individually or in the
aggregate, have a Material Adverse Effect. Except as set forth in the
Prospectus, neither the Company nor the Subsidiaries have been named
as a "potentially responsible party" under the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as
amended.
(z) In the ordinary course of its business, the Company
periodically reviews the effect of Environmental Laws on the business,
operations and properties of the Company and the Subsidiaries, in the
course of which it identifies and evaluates associated costs and
liabilities (including, without limitation, any capital or operating
expenditures required for clean-up, closure of properties or
compliance with Environmental Laws, or any permit, license or
approval, any related constraints on operating activities and any
potential liabilities to third parties). On the basis of such review,
the Company has reasonably concluded that such associated costs and
liabilities would not, singly or in the aggregate, have a Material
Adverse Effect.
(aa) Each of the Company and the Subsidiaries has fulfilled its
obligations, if any, under the minimum funding standards of Section
302 of the United States Employee Retirement Income Security Act of
1974 ("ERISA") and the regulations and published interpretations
thereunder with respect to each "plan" (as defined in Section 3(3) of
ERISA and such regulations and published interpretations) in which
employees of the Company and the Subsidiaries are eligible to
participate and each such plan is in compliance in all material
respects with the presently applicable provisions of ERISA and such
regulations and published interpretations. The Company and the
Subsidiaries have not incurred any unpaid liability to the Pension
Benefit Guaranty Corporation (other than for the payment of premiums
in the ordinary course) or to any such plan under Title IV of ERISA.
7
<PAGE>
(ab) MedE America of Ohio, an Ohio corporation, and Wellmark,
Incorporated, a Delaware corporation, are the only subsidiaries of the
Company (the "Subsidiaries").
(ac) The Company and the Subsidiaries own, possess, license or
have other rights to use, on reasonable terms, all patents, patent
applications, trade and service marks, trade and service mark
registrations, trade names, copyrights, licenses, inventions, trade
secrets, technology, know-how and other intellectual property
(collectively, the "Intellectual Property") necessary for the conduct
of the Company's business as now conducted or as proposed in the
Prospectus to be conducted. Except as set forth in the Prospectus
under the caption "Business--Intellectual Property," (a) there are no
rights of third parties to any such Intellectual Property; (b) there
is no material infringement by third parties of any such Intellectual
Property; (c) there is no pending or threatened action, suit,
proceeding or claim by others challenging the Company's rights in or
to any such Intellectual Property, and the Company is unaware of any
facts which would form a reasonable basis for any such claim; (d)
there is no pending or threatened action, suit, proceeding or claim by
others challenging the validity or scope of any such Intellectual
Property, and the Company is unaware of any facts which would form a
reasonable basis for any such claim; (e) there is no pending
threatened action, suit, proceeding or claim by others that the
Company infringes or otherwise violates any patent, trademark,
copyright, trade secret or other proprietary rights of others, and the
Company is unaware of any other fact which would form a reasonable
basis for any such claim; (f) there is no U.S. patent or published
U.S. patent application which contains claims that dominate or may
dominate any Intellectual Property described in the Prospectus as
being owned by or licensed to the Company or that interferes with the
issued or pending claims of any such Intellectual Property; and (g)
there is no prior art of which the Company is aware that may render
any U.S. patent held by the Company invalid or any U.S. patent
application held by the Company unpatentable which has not been
disclosed to the U.S. Patent and Trademark Office.
(ad) The statements contained in the Prospectus under the
captions "Risk Factors--Dependence on Intellectual Property; Risk of
Infringement," "Business--Intellectual Property" and "Business --
Legal Proceedings" insofar as such statements summarize legal matters,
agreements, documents, or proceedings discussed therein, are accurate
and fair summaries of such legal matters, agreements, documents or
proceedings.
(ae) Except as disclosed in the Registration Statement and the
Prospectus, the Company (i) does not have any material lending or
other relationship with any bank or lending affiliate of an
Underwriter and (ii) does not intend to use any of the proceeds from
the sale of the Securities hereunder to repay any outstanding debt
owed to any affiliate of an Underwriter.
(af) The Company and the Subsidiaries are implementing a
comprehensive, detailed program to analyze and address the risk that
the
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<PAGE>
computer hardware and software used by them may be unable to recognize
and properly execute date-sensitive functions involving certain dates
prior to and any dates after December 31, 1999 (the "Year 2000
Problem"), and reasonably believes that such risk will be remedied on
a timely basis without material expense and will not have a Material
Adverse Effect; and the Company believes, after due inquiry, that each
supplier, vendor, customer or financial service organization used or
serviced by the Company and the Subsidiaries has remedied or will
remedy on a timely basis the Year 2000 Problem, except to the extent
that a failure to remedy by any such supplier, vendor, customer or
financial service organization would not have a Material Adverse
Effect. The Company is in compliance with the Commissions staff legal
bulletin No. 5 dated January 12, 1998 related to Year 2000 compliance.
(ag) Any certificate signed by any officer of the Company and
delivered to the Representatives or counsel for the Underwriters in
connection with the offering of the Securities shall be deemed a
representation and warranty by the Company, as to matters covered
thereby, to each Underwriter.
2. Purchase and Sale.
(a) Subject to the terms and conditions and in reliance upon the
representations and warranties herein set forth, the Company agrees to
sell to each Underwriter, and each Underwriter agrees, severally and
not jointly, to purchase from the Company, at a purchase price of $
per share, the amount of the Underwritten Securities set forth
opposite such Underwriter's name in Schedule I hereto.
(b) Subject to the terms and conditions and in reliance upon the
representations and warranties herein set forth, the Company hereby
grants an option to the several Underwriters to purchase, severally
and not jointly, up to 540,000 Option Securities at the same purchase
price per share as the Underwriters shall pay for the Underwritten
Securities. Said option may be exercised only to cover over-allotments
in the sale of the Underwritten Securities by the Underwriters. Said
option may be exercised in whole or in part at any time (but not more
than once) on or before the 30th day after the date of the Prospectus
upon written or telegraphic notice by the Representatives to the
Company setting forth the number of shares of the Option Securities as
to which the several Underwriters are exercising the option and the
settlement date. The number of Option Securities to be purchased by
each Underwriter shall be the same percentage of the total number of
shares of the Option Securities to be purchased by the several
Underwriters as such Underwriter is purchasing of the Underwritten
Securities, subject to such adjustments as you in your absolute
discretion shall make to eliminate any fractional shares.
3. Delivery and Payment. Delivery of and payment for the Underwritten
Securities and the Option Securities (if the option provided for in Section 2(b)
hereof shall have been exercised on or before the third Business Day prior to
the
9
<PAGE>
Closing Date) shall be made at 10:00 AM, New York City time, on , 1998, or at
such time on such later date not more than three Business Days after the
foregoing date as the Representatives shall designate, which date and time may
be postponed by agreement between the Representatives and the Company or as
provided in Section 9 hereof (such date and time of delivery and payment for the
Securities being herein called the "Closing Date"). Delivery of the Securities
shall be made to the Representatives for the respective accounts of the several
Underwriters against payment by the several Underwriters through the
Representatives of the purchase price thereof to or upon the order of the
Company by wire transfer payable in same-day funds to an account specified by
the Company. Delivery of the Underwritten Securities and the Option Securities
shall be made through the facilities of The Depository Trust Company unless the
Representatives shall otherwise instruct.
If the option provided for in Section 2(b) hereof is exercised after
the third Business Day prior to the Closing Date, the Company will deliver the
Option Securities (at the expense of the Company) to the Representatives on the
date specified by the Representatives (which shall be within three Business Days
after exercise of said option) for the respective accounts of the several
Underwriters, against payment by the several Underwriters through the
Representatives of the purchase price thereof to or upon the order of the
Company by wire transfer payable in same-day funds to an account specified by
the Company. If settlement for the Option Securities occurs after the Closing
Date, the Company will deliver to the Representatives on the settlement date for
the Option Securities, and the obligation of the Underwriters to purchase the
Option Securities shall be conditioned upon receipt of, supplemental opinions,
certificates and letters confirming as of such date the opinions, certificates
and letters delivered on the Closing Date pursuant to Section 6 hereof.
4. Offering by Underwriters. It is understood that the several
Underwriters propose to offer the Securities for sale to the public as set forth
in the Prospectus.
5. Agreements. The Company agrees with the several Underwriters that:
(a) The Company will use its best efforts to cause the
Registration Statement, if not effective at the Execution Time, and
any amendment thereof, to become effective. Prior to the termination
of the offering of the Securities, the Company will not file any
amendment of the Registration Statement or supplement to the
Prospectus or any Rule 462(b) Registration Statement unless the
Company has furnished you a copy for your review prior to filing and
will not file any such proposed amendment or supplement to which you
reasonably object. Subject to the foregoing sentence, if the
Registration Statement has become or becomes effective pursuant to
Rule 430A, or filing of the Prospectus is otherwise required under
Rule 424(b), the Company will cause the Prospectus, properly
completed, and any supplement thereto to be filed with the Commission
pursuant to the applicable paragraph of Rule 424(b) within the time
period prescribed and will provide evidence satisfactory to the
Representatives of such timely filing.
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<PAGE>
The Company will promptly advise the Representatives (1) when the
Registration Statement, if not effective at the Execution Time, shall
have become effective, (2) when the Prospectus, and any supplement
thereto, shall have been filed (if required) with the Commission
pursuant to Rule 424(b) or when any Rule 462(b) Registration Statement
shall have been filed with the Commission, (3) when, prior to
termination of the offering of the Securities, any amendment to the
Registration Statement shall have been filed or become effective, (4)
of any request by the Commission or its staff for any amendment of the
Registration Statement, or any Rule 462(b) Registration Statement, or
for any supplement to the Prospectus or for any additional
information, (5) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the
institution or threatening of any proceeding for that purpose and (6)
of the receipt by the Company of any notification with respect to the
suspension of the qualification of the Securities for sale in any
jurisdiction or the institution or threatening of any proceeding for
such purpose. The Company will use its best efforts to prevent the
issuance of any such stop order or the suspension of any such
qualification and, if issued, to obtain as soon as possible the
withdrawal thereof.
(b) If, at any time when a prospectus relating to the Securities
is required to be delivered under the Act, any event occurs as a
result of which the Prospectus as then supplemented would include any
untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein in the light of the
circumstances under which they were made not misleading, or if it
shall be necessary to amend the Registration Statement or supplement
the Prospectus to comply with the Act or the rules thereunder, the
Company promptly will (1) notify the Representatives of any such
event; (2) prepare and file with the Commission, subject to the second
sentence of paragraph (a) of this Section 5, an amendment or
supplement which will correct such statement or omission or effect
such compliance; and (3) supply any supplemented Prospectus to you in
such quantities as you may reasonably request.
(c) As soon as practicable, the Company will make generally
available to its security holders and to the Representatives an
earnings statement or statements of the Company and the Subsidiaries
which will satisfy the provisions of Section 11(a) of the Act and Rule
158 under the Act.
(d) The Company will furnish to the Representatives and counsel
for the Underwriters signed copies of the Registration Statement
(including exhibits thereto) and to each other Underwriter a copy of
the Registration Statement (without exhibits thereto) and, so long as
delivery of a prospectus by an Underwriter or dealer may be required
by the Act, as many copies of each Preliminary Prospectus and the
Prospectus and any supplement thereto as the Representatives may
reasonably request.
(e) The Company will arrange, if necessary, for the qualification
of the Securities for sale under the laws of such jurisdictions as the
Representatives may designate and will maintain such qualifications in
effect so long as required for
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<PAGE>
the distribution of the Securities; provided that in no event shall
the Company be obligated to qualify to do business in any jurisdiction
where it is not now so qualified or to take any action that would
subject it to service of process in suits, other than those arising
out of the offering or sale of the Securities, in any jurisdiction
where it is not now so subject.
(f) The Company will not, without the prior written consent of
Salomon Smith Barney, for a period of 180 days following the Execution
Time, offer, sell or contract to sell, or otherwise dispose of (or
enter into any transaction which is designed to, or might reasonably
be expected to, result in the disposition (whether by actual
disposition or effective economic disposition due to cash settlement
or otherwise) by the Company or any affiliate of the Company or any
person in privity with the Company or any affiliate of the Company)
directly or indirectly, or announce the offering of, any other shares
of Common Stock or any securities convertible into, or exchangeable
for, shares of Common Stock; provided, however, that the Company may
issue and sell Common Stock pursuant to any employee stock option
plan, stock ownership plan or dividend reinvestment plan of the
Company in effect at the Execution Time and the Company may issue
Common Stock issuable upon the conversion of securities or the
exercise of warrants outstanding at the Execution Time.
(g) The Company will not take, directly or indirectly, any action
designed to or which has constituted or which might reasonably be
expected to cause or result, under the Exchange Act or otherwise, in
stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the Securities.
(h) The Company agrees to pay the costs and expenses relating to
the following matters: (i) the preparation, printing or reproduction
and filing with the Commission of the Registration Statement
(including financial statements and exhibits thereto), each
Preliminary Prospectus, the Prospectus, and each amendment or
supplement to any of them; (ii) the printing (or reproduction) and
delivery (including postage, air freight charges and charges for
counting and packaging) of such copies of the Registration Statement,
each Preliminary Prospectus, the Prospectus, and all amendments or
supplements to any of them, as may, in each case, be reasonably
requested for use in connection with the offering and sale of the
Securities; (iii) the preparation, printing, authentication, issuance
and delivery of certificates for the Securities, including any stamp
or transfer taxes in connection with the original issuance and sale of
the Securities; (iv) the printing (or reproduction) and delivery of
this Agreement, any blue sky memorandum and all other agreements or
documents printed (or reproduced) and delivered in connection with the
offering of the Securities; (v) the registration of the Securities
under the Exchange Act and the listing of the Securities on the Nasdaq
National Market; (vi) any registration or qualification of the
Securities for offer and sale under the securities or blue sky laws of
the several states (including filing fees and the reasonable fees and
expenses of counsel for the Underwriters relating to such registration
and qualification); (vii) any filings required to be
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<PAGE>
made with the National Association of Securities Dealers, Inc.
(including filing fees and the reasonable fees and expenses of counsel
for the Underwriters relating to such filings); (viii) the
transportation and other expenses incurred by or on behalf of Company
representatives in connection with presentations to prospective
purchasers of the Securities; (ix) the fees and expenses of the
Company's accountants and the fees and expenses of counsel (including
local and special counsel) for the Company; and (x) all other costs
and expenses incident to the performance by the Company of its
obligations hereunder.
6. Conditions to the Obligations of the Underwriters. The obligations
of the Underwriters to purchase the Underwritten Securities and the Option
Securities, as the case may be, shall be subject to the accuracy of the
representations and warranties on the part of the Company contained herein as of
the Execution Time, the Closing Date and any settlement date pursuant to Section
3 hereof, to the accuracy of the statements of the Company made in any
certificates pursuant to the provisions hereof, to the performance by the
Company of its obligations hereunder and to the following additional conditions:
(a) If the Registration Statement has not become effective prior
to the Execution Time, unless the Representatives agree in writing to
a later time, the Registration Statement will become effective not
later than (i) 6:00 PM New York City time on the date of determination
of the public offering price, if such determination occurred at or
prior to 3:00 PM New York City time on such date or (ii) 9:30 AM on
the Business Day following the day on which the public offering price
was determined, if such determination occurred after 3:00 PM New York
City time on such date; if filing of the Prospectus, or any supplement
thereto, is required pursuant to Rule 424(b), the Prospectus, and any
such supplement, will be filed in the manner and within the time
period required by Rule 424(b); and no stop order suspending the
effectiveness of the Registration Statement shall have been issued and
no proceedings for that purpose shall have been instituted or
threatened.
(b) The Company shall have caused Reboul, MacMurray, Hewitt,
Maynard & Kristol, counsel for the Company, to have furnished to the
Representatives their opinion, dated the Closing Date and addressed to
the Representatives, to the effect that:
(i) each of the Company and the Subsidiaries has been duly
incorporated and is validly existing as a corporation in good
standing under the laws of the jurisdiction in which it is
chartered or organized, with full corporate power and authority
to own or lease, as the case may be, and to operate its
properties and conduct its business as described in the
Prospectus, and is duly qualified to do business as a foreign
corporation and is in good standing under the laws of each
jurisdiction which requires such qualification.
(ii) all the outstanding shares of capital stock of each of
the Subsidiaries have been duly and validly authorized and issued
and are
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<PAGE>
fully paid and nonassessable, and, except as otherwise set forth
in the Prospectus, all outstanding shares of capital stock of the
Subsidiaries are owned by the Company directly free and clear of
any perfected security interest and, to the knowledge of such
counsel, after due inquiry, any other security interest, claim,
lien or encumbrance;
(iii) the Company's authorized equity capitalization is as
set forth in the Prospectus; the capital stock of the Company
conforms in all material respects to the description thereof
contained in the Prospectus; the outstanding shares of Common
Stock have been duly and validly authorized and issued and are
fully paid and nonassessable; the Securities have been duly and
validly authorized, and, when issued and delivered to and paid
for by the Underwriters pursuant to this Agreement, will be fully
paid and nonassessable; the Securities are duly listed, and
admitted and authorized for trading, subject to official notice
of issuance and evidence of satisfactory distribution, on the
Nasdaq National Market; the certificates for the Securities are
in valid and sufficient form; the holders of outstanding shares
of capital stock of the Company are not entitled to preemptive or
other rights to subscribe for the Securities except for such
rights of WCAS Capital Partners II, L.P. as have been effectively
waived; and, except as set forth in the Prospectus, no options,
warrants or other rights to purchase, agreements or other
obligations to issue, or rights to convert any obligations into
or exchange any securities for, shares of capital stock of or
ownership interests in the Company are outstanding;
(iv) to the knowledge of such counsel, there is no pending
or threatened action, suit or proceeding by or before any court
or governmental agency, authority or body or any arbitrator
involving the Company or the Subsidiaries or its or their
property of a character required to be disclosed in the
Registration Statement which is not adequately disclosed in the
Prospectus, and there is no franchise, contract or other document
of a character required to be described in the Registration
Statement or Prospectus, or to be filed as an exhibit thereto,
which is not described or filed as required; and the statements
included in the Prospectus under the headings "Risk Factors --
Proposed Healthcare Data Confidentiality Legislation," "Risk
Factors--Dependence on Intellectual Property; Risk of
Infringement," "Business -- Government Regulation," "Business --
Legal Proceedings" and "Business--Intellectual Property" fairly
summarize the matters therein described;
(v) the Registration Statement has become effective under
the Act; any required filing of the Prospectus, and any
supplements thereto, pursuant to Rule 424(b) has been made in the
manner and within the time period required by Rule 424(b); to the
knowledge of such counsel, no stop order suspending the
effectiveness of the Registration Statement has been issued, no
proceedings for that purpose have been instituted or threatened
and the Registration Statement and the Prospectus (other than the
financial
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<PAGE>
statements and other financial information contained therein, as
to which such counsel need express no opinion) comply as to form
in all material respects with the applicable requirements of the
Act and the rules thereunder; and such counsel has no reason to
believe that on the Effective Date or at the Execution Time the
Registration Statement contained any untrue statement of a
material fact or omitted to state any material fact required to
be stated therein or necessary to make the statements therein not
misleading or that the Prospectus as of its date and on the
Closing Date included or includes any untrue statement of a
material fact or omitted 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 (in each
case, other than the financial statements and other financial
information contained therein, as to which such counsel need
express no opinion);
(vi) this Agreement has been duly authorized, executed and
delivered by the Company;
(vii) the Company is not and, after giving effect to the
offering and sale of the Securities and the application of the
proceeds thereof as described in the Prospectus, will not be, an
"investment company" as defined in the Investment Company Act of
1940, as amended;
(viii) no consent, approval, authorization, filing with or
order of any court or governmental agency or body is required in
connection with the transactions contemplated herein, except such
as have been obtained under the Act and such as may be required
under the blue sky laws of any jurisdiction in connection with
the purchase and distribution of the Securities by the
Underwriters in the manner contemplated in this Agreement and in
the Prospectus and such other approvals (specified in such
opinion) as have been obtained;
(ix) neither the issue and sale of the Securities, nor the
consummation of any other of the transactions herein contemplated
nor the fulfillment of the terms hereof will conflict with,
result in a breach or violation of or imposition of any lien,
charge or encumbrance upon any property or assets of the Company
or its subsidiaries pursuant to, (i) the charter or by-laws of
the Company or the Subsidiaries, (ii) the terms of any indenture,
contract, lease, mortgage, deed of trust, note agreement, loan
agreement or other agreement, obligation, condition, covenant or
instrument to which the Company or the Subsidiaries are a party
or bound or to which its or their property is subject, or (iii)
any statute, law, rule, regulation, judgment, order or decree
applicable to the Company or the Subsidiaries of any court,
regulatory body, administrative agency, governmental body,
arbitrator or other authority having jurisdiction over the
Company or the Subsidiaries or any of their properties; and
15
<PAGE>
(x) no holders of securities of the Company have rights to
the registration of such securities under the Registration
Statement except for such rights of WCAS Capital Partners II,
L.P. as have been effectively waived.
In rendering such opinion, such counsel may rely (A) as to
matters involving the application of laws of any jurisdiction other
than the State of Delaware or the Federal laws of the United States,
to the extent they deem proper and specified in such opinion, upon the
opinion of other counsel of good standing whom they believe to be
reliable and who are satisfactory to counsel for the Underwriters and
(B) as to matters of fact, to the extent they deem proper, on
certificates of responsible officers of the Company and public
officials. References to the Prospectus in this paragraph (b) include
any supplements thereto at the Closing Date.
(c) The Representatives shall have received from Dewey Ballantine
LLP, counsel for the Underwriters, such opinion or opinions, dated the
Closing Date and addressed to the Representatives, with respect to the
issuance and sale of the Securities, the Registration Statement, the
Prospectus (together with any supplement thereto) and other related
matters as the Representatives may reasonably require, and the Company
shall have furnished to such counsel such documents as they request
for the purpose of enabling them to pass upon such matters.
(d) The Company shall have furnished to the Representatives a
certificate of the Company, signed by the Chairman of the Board or the
President and the principal financial or accounting officer of the
Company, dated the Closing Date, to the effect that the signers of
such certificate have carefully examined the Registration Statement,
the Prospectus, any supplements to the Prospectus and this Agreement
and that:
(i) the representations and warranties of the Company in
this Agreement are true and correct in all material respects on
and as of the Closing Date with the same effect as if made on the
Closing Date and the Company has complied with all the agreements
and satisfied all the conditions on its part to be performed or
satisfied at or prior to the Closing Date;
(ii) no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for
that purpose have been instituted or, to the Company's knowledge,
threatened; and
(iii) since the date of the most recent financial statements
included in the Prospectus (exclusive of any supplement thereto),
there has been no Material Adverse Effect.
16
<PAGE>
(e) The Representatives shall have received letters addressed to
you dated the date hereof and the Closing date from Deloitte and
Touche LLP and Carver Moquist Alagna, LLC, each independent certified
public accountants, substantially in the forms heretofore approved by
you.
(f) Subsequent to the Execution Time or, if earlier, the dates as
of which information is given in the Registration Statement (exclusive
of any amendment thereof) and the Prospectus (exclusive of any
supplement thereto), there shall not have been (i) any change or
decrease specified in the letter or letters referred to in paragraph
(e) of this Section 6 or (ii) any change, or any development involving
a prospective change, in or affecting the condition (financial or
otherwise), earnings, business or properties of the Company and the
Subsidiaries taken as a whole, whether or not arising from
transactions in the ordinary course of business, except as set forth
in or contemplated in the Prospectus (exclusive of any supplement
thereto) the effect of which, in any case referred to in clause (i) or
(ii) above, is, in the sole judgment of the Representatives, so
material and adverse as to make it impractical or inadvisable to
proceed with the offering or delivery of the Securities as
contemplated by the Registration Statement (exclusive of any amendment
thereof) and the Prospectus (exclusive of any supplement thereto).
(g) The Securities shall have been listed and admitted and
authorized for trading on the Nasdaq National Market, and satisfactory
evidence of such actions shall have been provided to the
Representatives.
(h) At or prior to the Execution Time, the Company shall have
furnished to the Representatives a letter substantially in the form of
Exhibit A hereto from each officer, director and stockholder of the
Company addressed to the Representatives.
(i) The Company shall have provided evidence to the Underwriters,
in form and substance satisfactory to the Representatives and for the
Underwriters, that concurrently with the Closing (i) the Senior
Subordinated Note and the Credit Facility (as such terms are defined
in the Prospectus) will be repaid in full in the manner set forth in
the Prospectus under the heading "Use of Proceeds" and (ii) the
Recapitalization (as defined in the Prospectus) will be completed.
(j) [Amended Credit Facility]
(k) The Company shall have provided evidence to the Underwriters,
in form and substance satisfactory to the Representatives and for the
Underwriters, that the Company's Certificate of Incorporation has been
amended to provide for the issuance of up to 5,000,000 shares of
Preferred Stock as set forth in the Prospectus under the headings
"Risk Factors--Potential Adverse Effect of Anti-Takeover Provisions,"
"Description of Capital Stock" and "Description of Capital
Stock--Preferred Stock."
17
<PAGE>
(l) Prior to the Closing Date, the Company shall have furnished
to the Representatives such further information, certificates and
documents as the Representatives may reasonably request.
If any of the conditions specified in this Section 6 shall not have
been fulfilled in all material respects when and as provided in this Agreement,
or if any of the opinions and certificates mentioned above or elsewhere in this
Agreement shall not be in all material respects reasonably satisfactory in form
and substance to the Representatives and counsel for the Underwriters, this
Agreement and all obligations of the Underwriters hereunder may be canceled at,
or at any time prior to, the Closing Date by the Representatives. Notice of such
cancelation shall be given to the Company in writing or by telephone or
facsimile confirmed in writing.
The documents required to be delivered by this Section 6 shall be
delivered at the office of Dewey Ballantine LLP, counsel for the Underwriters,
at 1301 Avenue of the Americas, New York, New York, on the Closing Date.
7. Reimbursement of Underwriters' Expenses. If the sale of the
Securities provided for herein is not consummated because any condition to the
obligations of the Underwriters set forth in Section 6 hereof is not satisfied,
because of any termination pursuant to Section 10 hereof or because of any
refusal, inability or failure on the part of the Company to perform any
agreement herein or comply with any provision hereof other than by reason of a
default by any of the Underwriters, the Company will reimburse the Underwriters
severally through Salomon Smith Barney on demand for all out-of-pocket expenses
(including reasonable fees and disbursements of counsel) that shall have been
incurred by them in connection with the proposed purchase and sale of the
Securities.
8. Indemnification and Contribution.
(a) The Company agrees to indemnify and hold harmless each
Underwriter, the directors, officers, employees and agents of each
Underwriter and each person who controls any Underwriter within the
meaning of either the Act or the Exchange Act against any and all
losses, claims, damages or liabilities, joint or several, to which
they or any of them may become subject under the Act, the Exchange Act
or other Federal or state statutory law or regulation, at common law
or otherwise, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of a material fact
contained in the registration statement for the registration of the
Securities as originally filed or in any amendment thereof, or in any
Preliminary Prospectus or the Prospectus, or in any amendment thereof
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 agrees to reimburse each such indemnified party, as
incurred, for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the Company will
not
18
<PAGE>
be liable in any such case to the extent that any such loss, claim,
damage or liability arises out of or is based upon any such untrue
statement or alleged untrue statement or omission or alleged omission
made therein in reliance upon and in conformity with written
information furnished to the Company by or on behalf of any
Underwriter through the Representatives specifically for inclusion
therein. This indemnity agreement will be in addition to any liability
which the Company may otherwise have.
(b) Each Underwriter severally and not jointly agrees to
indemnify and hold harmless the Company, each of its directors, each
of its officers who signs the Registration Statement, and each person
who controls the Company within the meaning of either the Act or the
Exchange Act, to the same extent as the foregoing indemnity from the
Company to each Underwriter, but only with reference to written
information relating to such Underwriter furnished to the Company by
or on behalf of such Underwriter through the Representatives
specifically for inclusion in the documents referred to in the
foregoing indemnity. This indemnity agreement will be in addition to
any liability which any Underwriter may otherwise have. The Company
acknowledges that the statements set forth in the last paragraph of
the cover page regarding delivery of the Securities, the legend in
block capital letters on page 2 related to stabilization, syndicate
covering transactions and penalty bids and, under the heading
"Underwriting" or "Plan of Distribution," (i) the sentences related to
concessions and reallowances and (ii) the paragraph related to
stabilization, syndicate covering transactions and penalty bids in any
Preliminary Prospectus and the Prospectus constitute the only
information furnished in writing by or on behalf of the several
Underwriters for inclusion in any Preliminary Prospectus or the
Prospectus.
(c) The Company hereby confirms that at its request Smith Barney
Inc. has without compensation acted as "qualified independent
underwriter" (in such capacity, the "QIU") within the meaning of Rule
2720 of the Conduct Rules of the National Association of Securities
Dealers, Inc. in connection with the offering of the Offered
Securities. The Company agrees to indemnify and hold harmless the QIU,
the directors, officers, employees and agents of the QIU and each
person who controls the QIU within the meaning of either the Act or
the Exchange Act against any and all losses, claims, damages or
liabilities, joint or several, to which they or any of them may become
subject under the Act, the Exchange Act or other Federal or state
statutory law or regulation, at common law or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact contained in the
registration statement for the registration of the Securities as
originally filed or in any amendment thereof, or in any Preliminary
Prospectus or the Prospectus, or in any amendment thereof 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 agrees to reimburse each such indemnified party, as
incurred, for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the Company will
not be liable in any such case to the extent that any such loss,
19
<PAGE>
claim, damage or liability arises out of or is based upon any such
untrue statement or alleged untrue statement or omission or alleged
omission made therein in reliance upon and in conformity with written
information furnished to the Company by or on behalf of the QIU
through the Representatives specifically for inclusion therein. This
indemnity agreement will be in addition to any liability which the
Company may otherwise have.
(d) Promptly after receipt by an indemnified party under this
Section 8 of notice of the commencement of any action, such
indemnified party will, if a claim in respect thereof is to be made
against the indemnifying party under this Section 8, notify the
indemnifying party in writing of the commencement thereof; but the
failure so to notify the indemnifying party (i) will not relieve it
from liability under paragraph (a), (b) or (c) above unless and to the
extent it did not otherwise learn of such action and such failure
results in the forfeiture by the indemnifying party of substantial
rights and defenses and (ii) will not, in any event, relieve the
indemnifying party from any obligations to any indemnified party other
than the indemnification obligation provided in paragraph (a), (b) or
(c) above. The indemnifying party shall be entitled to appoint counsel
of the indemnifying party's choice at the indemnifying party's expense
to represent the indemnified party in any action for which
indemnification is sought (in which case the indemnifying party shall
not thereafter be responsible for the fees and expenses of any
separate counsel retained by the indemnified party or parties except
as set forth below); provided, however, that such counsel shall be
satisfactory to the indemnified party. Notwithstanding the
indemnifying party's election to appoint counsel to represent the
indemnified party in an action, the indemnified party shall have the
right to employ separate counsel (including local counsel), and the
indemnifying party shall bear the reasonable fees, costs and expenses
of such separate counsel if (i) the use of counsel chosen by the
indemnifying party to represent the indemnified party would present
such counsel with a conflict of interest, (ii) the actual or potential
defendants in, or targets of, any such action include both the
indemnified party and the indemnifying party and the indemnified party
shall have reasonably concluded that there may be legal defenses
available to it and/or other indemnified parties which are different
from or additional to those available to the indemnifying party, (iii)
the indemnifying party shall not have employed counsel satisfactory to
the indemnified party to represent the indemnified party within a
reasonable time after notice of the institution of such action or (iv)
the indemnifying party shall authorize the indemnified party to employ
separate counsel at the expense of the indemnifying party. An
indemnifying party will not, without the prior written consent of the
indemnified parties, settle or compromise or consent to the entry of
any judgment with respect to any pending or threatened claim, action,
suit or proceeding in respect of which indemnification or contribution
may be sought hereunder (whether or not the indemnified parties are
actual or potential parties to such claim or action) unless such
settlement, compromise or consent includes an
20
<PAGE>
unconditional release of each indemnified party from all liability
arising out of such claim, action, suit or proceeding.
(e) In the event that the indemnity provided in paragraph (a) or
(b) of this Section 8 is unavailable to or insufficient to hold
harmless an indemnified party for any reason, the Company and the
Underwriters severally agree to contribute to the aggregate losses,
claims, damages and liabilities (including legal or other expenses
reasonably incurred in connection with investigating or defending
same) (collectively "Losses") to which the Company and one or more of
the Underwriters may be subject in such proportion as is appropriate
to reflect the relative benefits received by the Company on the one
hand and by the Underwriters on the other from the offering of the
Securities; provided, however, that in no case shall any Underwriter
(except as may be provided in any agreement among underwriters
relating to the offering of the Securities) be responsible for any
amount in excess of the underwriting discount or commission applicable
to the Securities purchased by such Underwriter hereunder. If the
allocation provided by the immediately preceding sentence is
unavailable for any reason, the Company and the Underwriters severally
shall contribute in such proportion as is appropriate to reflect not
only such relative benefits but also the relative fault of the Company
on the one hand and of the Underwriters on the other in connection
with the statements or omissions which resulted in such Losses as well
as any other relevant equitable considerations. Benefits received by
the Company shall be deemed to be equal to the total net proceeds from
the offering (before deducting expenses) received by it, and benefits
received by the Underwriters shall be deemed to be equal to the total
underwriting discounts and commissions, in each case as set forth on
the cover page of the Prospectus. Relative fault shall be determined
by reference to, among other things, whether any untrue or any alleged
untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information provided by
the Company on the one hand or the Underwriters on the other, the
intent of the parties and their relative knowledge, access to
information and opportunity to correct or prevent such untrue
statement or omission. The Company and the Underwriters agree that it
would not be just and equitable if contribution were determined by pro
rata allocation or any other method of allocation which does not take
account of the equitable considerations referred to above.
Notwithstanding the provisions of this paragraph (e), 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. For purposes of this
Section 8, each person who controls an Underwriter within the meaning
of either the Act or the Exchange Act and each director, officer,
employee and agent of an Underwriter shall have the same rights to
contribution as such Underwriter, and each person who controls the
Company within the meaning of either the Act or the Exchange Act, each
officer of the Company who shall have signed the Registration
Statement and each director of the Company shall have the same rights
to contribution as the Company, subject in each case to the applicable
terms and conditions of this paragraph (e).
21
<PAGE>
9. Default by an Underwriter. If any one or more Underwriters shall
fail to purchase and pay for any of the Securities agreed to be purchased by
such Underwriter or Underwriters hereunder and such failure to purchase shall
constitute a default in the performance of its or their obligations under this
Agreement, the remaining Underwriters shall be obligated severally to take up
and pay for (in the respective proportions which the amount of Securities set
forth opposite their names in Schedule I hereto bears to the aggregate amount of
Securities set forth opposite the names of all the remaining Underwriters) the
Securities which the defaulting Underwriter or Underwriters agreed but failed to
purchase; provided, however, that in the event that the aggregate amount of
Securities which the defaulting Underwriter or Underwriters agreed but failed to
purchase shall exceed 10% of the aggregate amount of Securities set forth in
Schedule I hereto, the remaining Underwriters shall have the right to purchase
all, but shall not be under any obligation to purchase any, of the Securities,
and if such nondefaulting Underwriters do not purchase all the Securities, this
Agreement will terminate without liability to any nondefaulting Underwriter or
the Company. In the event of a default by any Underwriter as set forth in this
Section 9, the Closing Date shall be postponed for such period, not exceeding
five Business Days, as the Representatives shall determine in order that the
required changes in the Registration Statement and the Prospectus or in any
other documents or arrangements may be effected. Nothing contained in this
Agreement shall relieve any defaulting Underwriter of its liability, if any, to
the Company and any nondefaulting Underwriter for damages occasioned by its
default hereunder.
10. Termination. This Agreement shall be subject to termination in the
absolute discretion of the Representatives, by notice given to the Company prior
to delivery of and payment for the Securities, if at any time prior to such time
(i) trading in the Company's Common Stock shall have been suspended by the
Commission or the Nasdaq National Market or trading in securities generally on
the New York Stock Exchange or the Nasdaq National Market shall have been
suspended or limited or minimum prices shall have been established on such
Exchange or National Market, (ii) a banking moratorium shall have been declared
either by Federal or New York State authorities or (iii) there shall have
occurred any outbreak or escalation of hostilities, declaration by the United
States of a national emergency or war, or other calamity or crisis the effect of
which on financial markets is such as to make it, in the sole judgment of the
Representatives, impractical or inadvisable to proceed with the offering or
delivery of the Securities as contemplated by the Prospectus (exclusive of any
supplement thereto).
11. Representations and Indemnities to Survive. The respective
agreements, representations, warranties, indemnities and other statements of the
Company or its officers and of the Underwriters set forth in or made pursuant to
this Agreement will remain in full force and effect, regardless of any
investigation made by or on behalf of any Underwriter or the Company or any of
the officers, directors or controlling persons referred to in Section 8 hereof,
and will survive delivery of and payment for the Securities. The provisions of
Sections 7 and 8 hereof shall survive the termination or cancelation of this
Agreement.
22
<PAGE>
12. Notices. All communications hereunder will be in writing and
effective only on receipt, and, if sent to the Representatives, will be mailed,
delivered or telefaxed to the Salomon Smith Barney General Counsel (fax no.:
(212) 816-7912) and confirmed to the General Counsel, Salomon Smith Barney, at
388 Greenwich Street, New York, New York, , Attention: General Counsel; or, if
sent to the Company, will be mailed, delivered or telefaxed to [FACSIMILE
NUMBER] and confirmed to it at , attention of the Legal Department.
13. Successors. This Agreement will inure to the benefit of and be
binding upon the parties hereto and their respective successors and the officers
and directors and controlling persons referred to in Section 8 hereof, and no
other person will have any right or obligation hereunder.
14. Applicable Law. This Agreement will be governed by and construed
in accordance with the laws of the State of New York applicable to contracts
made and to be performed within the State of New York.
15. Counterparts. This Agreement may be signed in one or more
counterparts, each of which shall constitute an original and all of which
together shall constitute one and the same agreement.
16. Headings. The section headings used herein are for convenience
only and shall not affect the construction hereof.
17. Definitions. The terms which follow, when used in this Agreement,
shall have the meanings indicated.
"Act" shall mean the Securities Act of 1933, as amended, and
the rules and regulations of the Commission promulgated thereunder.
"Business Day" shall mean any day other than a Saturday, a
Sunday or a legal holiday or a day on which banking institutions or
trust companies are authorized or obligated by law to close in New York
City.
"Commission" shall mean the Securities and Exchange
Commission.
"Effective Date" shall mean each date and time that the
Registration Statement, any post-effective amendment or amendments
thereto and any Rule 462(b) Registration Statement became or become
effective.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended, and the rules and regulations of the Commission promulgated
thereunder.
"Execution Time" shall mean the date and time that this
Agreement is executed and delivered by the parties hereto.
23
<PAGE>
"Preliminary Prospectus" shall mean any preliminary prospectus
referred to in paragraph 1(a) above and any preliminary prospectus
included in the Registration Statement at the Effective Date that omits
Rule 430A Information.
"Prospectus" shall mean the prospectus relating to the
Securities that is first filed pursuant to Rule 424(b) after the
Execution Time or, if no filing pursuant to Rule 424(b) is required,
shall mean the form of final prospectus relating to the Securities
included in the Registration Statement at the Effective Date.
"Registration Statement" shall mean the registration statement
referred to in paragraph 1(a) above, including exhibits and financial
statements, as amended at the Execution Time (or, if not effective at
the Execution Time, in the form in which it shall become effective)
and, in the event any post-effective amendment thereto or any Rule
462(b) Registration Statement becomes effective prior to the Closing
Date, shall also mean such registration statement as so amended or such
Rule 462(b) Registration Statement, as the case may be. Such term shall
include any Rule 430A Information deemed to be included therein at the
Effective Date as provided by Rule 430A.
"Rule 424", "Rule 430A" and "Rule 462" refer to such rules
under the Act.
"Rule 430A Information" shall mean information with respect to
the Securities and the offering thereof permitted to be omitted from
the Registration Statement when it becomes effective pursuant to Rule
430A.
"Rule 462(b) Registration Statement" shall mean a registration
statement and any amendments thereto filed pursuant to Rule 462(b)
relating to the offering covered by the registration statement referred
to in Section 1(a) hereof.
"Salomon Smith Barney" shall mean Smith Barney Inc. or Salomon
Brothers Inc to the extent that either such party is a signatory to
this Agreement.
24
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicate hereof, whereupon
this letter and your acceptance shall represent a binding agreement among the
Company and the several Underwriters.
Very truly yours,
MedE America Corporation
By: ______________________________________
Name:
Title:
25
<PAGE>
The foregoing Agreement is hereby
confirmed and accepted as of the date
first above written.
Smith Barney Inc.
William Blair & Company, L.L.C.
Volpe Brown Whelan & Company, LLC
By: Smith Barney Inc.
By: _________________________
Name:
Title:
For themselves and the other
several Underwriters named in
Schedule I to the foregoing
Agreement.
<PAGE>
SCHEDULE I
Number of Underwritten
Securities To be
Underwriters Purchased
------------ ----------------------
Smith Barney Inc....................................
William Blair & Company, L.L.C......................
Volpe Brown Whelan & Company, LLC...................
---------------
Total.............................
================
<PAGE>
[Form of Lock-Up Agreement] EXHIBIT A
[Letterhead of officer, director or shareholder of
Corporation]
MEDE AMERICA CORPORATION
Initial Public Offering of Common Stock
June ___, 1998
Smith Barney Inc.
William Blair & Company, L.L.C.
Volpe Brown Whelan & Company, LLC
c/o Smith Barney Inc.
388 Greenwich Street
New York, New York 10013
Ladies and Gentlemen:
This letter is being delivered to you in connection with the proposed
Underwriting Agreement (the "Underwriting Agreement"), between MEDE AMERICA
Corporation, a Delaware corporation (the "Company"), and each of you as
Underwriters named therein, relating to an underwritten initial public offering
of Common Stock, $.01 par value (the "Common Stock"), of the Company.
In order to induce you and the other Underwriters to enter into the
Underwriting Agreement, the undersigned will not, without the prior written
consent of Smith Barney Inc., sell, offer to sell, solicit an offer to purchase,
contract to sell, grant any option to sell, pledge or otherwise dispose of, or
file (or participate in the filing of) a registration statement with the
Securities and Exchange Commission in respect of, or establish or increase a put
equivalent position or liquidate or decrease a call equivalent position within
the meaning of Section 16 of the Securities Exchange Act of 1934, as amended,
and the rules and regulations of the Securities and Exchange Commission
promulgated thereunder with respect to, any shares of capital stock of the
Company or any securities convertible into or exercisable or exchangeable for
such capital stock, or publicly announce an intention to effect any such
transaction, for a period of 180 days after the date of the Final Prospectus,
other than shares of Common Stock disposed of as bona fide gifts approved by
Smith Barney Inc.
<PAGE>
If for any reason the Underwriting Agreement shall be terminated prior
to the Closing Date (as defined in the Underwriting Agreement), the agreement
set forth above shall likewise be terminated.
Yours very truly,
----------------------------------
Stockholder Name
By: _______________________________
Name:
Title:
Address:
A-2
EXHIBIT 3.2
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
MEDE AMERICA CORPORATION
------------------------
FIRST: The name of the Corporation is MEDE AMERICA
CORPORATION.
SECOND: The address of the registered office of the
Corporation in the State of Delaware is 1013 Centre Road, in the City of
Wilmington, County of New Castle. The name of the Corporation's registered agent
at such address is Corporation Service Company.
THIRD: The purpose for which the Corporation is formed is to
engage in any lawful act or activity for which corporations may be organized
under the Delaware General Corporation Law.
FOURTH: The total number of shares of all classes of stock
which the Corporation shall have authority to issue is 35,000,000 shares,
consisting of 5,000,000 shares of Preferred Stock, $.01 par value ("Preferred
Stock"), of which 250,000 shares are hereby designated as Series A Preferred
Stock, $.01 par value ("Series A Preferred Stock"), and 30,000, 000 shares of
Common Stock, $.01 par value ("Common Stock").
Effective immediately upon the filing of this Amended and Restated
Certificate of Incorporation in the office of the Secretary of State of the
State of Delaware, the outstanding shares of capital stock of the Corporation
shall be and hereby are combined and reclassified as follows: each shares of
Preferred Stock shall be reclassified as and converted into one share of Series
A Preferred Stock, and each 4.5823 shares of Common Stock shall be reclassified
as and converted into one share of Common Stock; provided, however, that
fractional shares of Common Stock will not be issued in connection with such
combination and reclassification, and each holder of a fractional share of
Common Stock shall receive in lieu thereof a cash payment from the Corporation,
the fair value of which shall be determined by the Board of Directors in good
faith within 90 days after the filing of this Amended and Restated Certificate
of Incorporation.
<PAGE>
Certificates representing shares combined and reclassified as provided
in this Amended and Restated Certificate of Incorporation are hereby canceled,
and, upon presentation of the canceled certificates to the Corporation, the
holders thereof shall be entitled to receive new certificates representing the
shares resulting from such combination and reclassification.
The Board of Directors is authorized to provide for the issuance of the
shares of Preferred Stock in series and, by filing a certificate pursuant to the
applicable law of the State of Delaware, to establish from time to time the
number of shares to be included in each such series, and to fix the designation,
powers, preferences and rights of the shares of each such series and the qualifi
cations, limitations or restrictions thereof. The authority of the Board of
Directors with respect to the Preferred Stock shall include, but not be limited
to, determination of the following:
1. The number of shares constituting that series and
the distinctive designation of that series;
2. The dividend rate on the shares of that series,
whether dividends shall be cumulative, and, if so, from which date or
dates, and the relative rights of priority, if any, of payment of
dividends on share of that series;
3. Whether that series shall have voting rights, in
addition to the voting rights provided by law, and, if so, the terms of
such voting rights;
4. Whether that series shall have conversion
privileges, and, if so, the terms and conditions of such conversion,
including provision for adjustment of the conversion rate in such
events as the Board of Directors shall determine;
5. Whether or not the shares of that series shall be
redeemable, and, if so, the terms and conditions of such redemption,
including the date or dates upon or after which they shall be
redeemable, and the amount per share payable in case of redemption,
which amount may vary under different conditions and at different
redemption dates;
6. Whether that series shall have a sinking fund for
the redemption or purchase of shares of that series, and, if so, the
terms and amount of such sinking fund;
7. The rights of the shares of that series in the
event of voluntary or involuntary liquidation, dissolution or winding
up of the Corporation, and the relative rights of priority, if any, of
payment of shares of that series; and
8. Any other relative rights, preferences and
limitations of that series.
All cross-references in each subdivision of this Article FOURTH refer
to other para graphs in such subdivision unless otherwise indicated. The
following is a statement of the designations,
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and the powers, preferences and rights, and the qualifications, limitations or
restrictions thereof, in respect of each class of stock of the Corporation:
I.
SERIES A PREFERRED STOCK
Except as otherwise expressly provided herein, all shares of
Series A Preferred Stock shall be identical and shall entitle the
holders thereof to the same rights and privileges.
1. Cumulative Dividends.
(i) The holders of Series A Preferred Stock shall be
entitled to receive, when and as declared by the Board of
Directors out of funds legally available for such purpose,
cash dividends at the rate of $10.00 per share per annum, and
no more. In the event such dividends are declared, the
dividend payment dates with respect thereto shall be the
immediately succeeding September 30.
(ii) In no event, so long as any Series A Preferred
Stock shall remain outstanding, shall any dividend whatsoever
be declared or paid upon, nor shall any distribution be made
upon, any Common Stock, other than a dividend or distribu tion
payable in shares of Common Stock, nor, without the written
consent of the holders of 66-2/3% of the outstanding Series A
Preferred Stock, shall any shares of Common Stock be purchased
or redeemed by the Corporation, nor shall any moneys be paid
to or made available for a sinking fund for the purchase or
redemption of any Common Stock, unless in each instance
cumulative dividends accrued and unpaid on all outstanding
shares of the Series A Preferred Stock for all past dividend
periods shall have been paid in full.
2. Redemption.
2A. Mandatory Redemptions. The Series A Preferred Stock
shall be redeemed in full in two equal installments on September 30,
2001 and September 30, 2002, at the Redemption Price (as defined
below).
2B. Optional Redemptions. The Series A Preferred Stock
may be redeemed in whole at any time or in part from time to time, at
the option of the Corporation, at the Redemption Price.
2C. Redemption Date; Redemption Price. Any date on which
the Corporation elects or is required to redeem Series A Preferred
Stock under this paragraph 2 shall be referred to as a "Redemption
Date." The per share "Redemption Price" of the Series A
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Preferred Stock to be redeemed on a Redemption Date shall be the sum of
(x) $100.00 per share, plus (y) any accrued but unpaid dividends
thereon to the date of such redemption.
2D. Notice of Redemption. Not less than 30 days before
any Redemption Date, written notice shall be given by mail, postage
prepaid to the holders of record of the Series A Preferred Stock to be
redeemed, addressed to each such stockholder at his or its post office
address as shown by the records of the Corporation, specifying the
number of shares to be redeemed, the subparagraph or subparagraphs of
this paragraph 2 pursuant to which such redemption shall be made, the
Redemption Price and the place at which and the date, which date shall
not be a day on which banks in the City of New York are required or
authorized to close, on which the shares of Series A Preferred Stock
will be redeemed. If such notice of redemption shall have been duly
given and if on or before such Redemption Date the funds necessary for
redemption shall have been set aside so as to be and continue to be
available therefor, then, notwithstanding that any certificate for
shares of Series A Preferred Stock to be redeemed shall not have been
surrendered for cancellation, after the close of business on such
Redemption Date, such shares shall no longer be deemed outstanding, the
dividends thereon shall cease to accrue, and all rights with respect to
such shares shall forthwith after the close of business on the
Redemption Date, cease, except only the right of the holders thereof to
receive the Redemption Price for such shares, without interest.
2E. Redeemed or Otherwise Acquired Shares to be Retired.
Any shares of Series A Preferred Stock redeemed pursuant to this
paragraph 2 or otherwise acquired by the Corporation in any manner
whatsoever shall be permanently retired and shall not under any
circumstances be reissued; and the Corporation may from time to time
take such appropriate corporate action as may be necessary to reduce
the authorized Series A Preferred Stock accordingly.
2F. Shares to be Redeemed, Purchased or Retired. In case
of the redemption, purchase or retirement, for any reason, of only a
part of the outstanding shares of the Series A Preferred Stock on a
Redemption Date, all shares of Series A Preferred Stock to be redeemed,
purchased or retired shall be selected pro rata, and there shall be so
redeemed, purchased or retired from each registered holder in whole
shares, as nearly as practicable to the nearest share, the proportion
of all the shares to be redeemed, purchased or retired which the number
of shares held of record by such holder bears to the total number of
shares of Series A Preferred Stock at the time outstanding.
3. Liquidation. Upon any liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary, or the
sale of all or substantially all the assets of the Corporation (each
such event being referred to as a "Liquidation"), a holder of the
shares of Series A Preferred Stock shall be entitled, before any
distribution or payment is made upon any Common Stock, to receive out
of the assets of the Corporation (x) $100.00 per share, plus (y) any
accrued but unpaid dividends thereon to the date of
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such redemption, for each share of Series A Preferred Stock held by
such holder. If upon such Liquidation, the assets to be distributed
among the holders of Series A Preferred Stock shall be insufficient to
permit payment to the holders of Series A Preferred Stock of that
amount distributable as aforesaid, then the entire assets of the
Corporation to be dis tributed shall be distributed ratably among the
holders of Series A Preferred Stock. Upon any such Liquidation, after
the holders of the Series A Preferred Stock shall have been paid in
full the amounts to which they shall be entitled, the holders of the
Common Stock will share the remaining net assets of the Corporation.
Written notice of such Liquida tion, stating a payment date, the
aggregate amount of the payments to which such holder of Series A
Preferred Stock is entitled and the place where said sums shall be
payable shall be given by mail, postage prepaid, not less than 30 days
prior to the payment date stated therein, to the holders of record of
the Series A Preferred Stock, such notice to be addressed to each
stockholder at its post office address as shown by the records of the
Corporation. Neither the consolidation or merger of the Corporation
into or with any other corporation or corporations, nor the reduction
of the capital stock of the Corpora tion, shall be deemed to be a
Liquidation.
4. Voting Rights. Except as otherwise provided by law or
this Certificate of Incorporation, the holders of Series A Preferred
Stock shall not be entitled to vote on matters presented to the
stockholders of the Corporation.
5. Restrictions. At any time when shares of Series A
Preferred Stock are outstanding, except where the vote or written
consent of the holders of a greater number of shares of the Corporation
is required by law or by this Certificate of Incorporation, and in
addition to any other vote required by law, without the prior consent
of the holders of 66-2/3% of the outstanding Series A Preferred Stock,
given in person or by proxy, either in writing or at a special meeting
called for that purpose, at which meeting the holders of the shares of
Series A Preferred Stock shall vote together as a class:
(i) The Corporation will not create or authorize the
creation of any additional class of shares unless the same
ranks junior to the Series A Preferred Stock both as to
dividends and as to the distribution of assets on Liquidation,
or increase the authorized amount of the Series A Preferred
Stock, or increase the authorized amount of any additional
class of shares unless the same ranks junior to the Series A
Preferred Stock both as to dividends and as to the
distribution of assets on Liquidation, or create or authorize
any obligations or securities convert ible into or
exchangeable for shares of Series A Preferred Stock or into
shares of any other class unless the same ranks junior to the
Series A Preferred Stock both as to dividends and as to the
distribution of assets on Liquidation, whether any such
creation or authorization or increase shall be by means of
amendment of the Certificate of Incorporation, merger,
consolidation, recapitalization or otherwise.
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(ii) The Corporation will not amend, alter or repeal
the Corporation's Certificate of Incorporation or By-laws in
any manner, or file any directors' reso lutions pursuant to
Section 151(g) of the Delaware General Corporation Law
containing any provision, in either case which affects the
respective preferences, voting power, qualifications, special
or relative rights or privileges of the Series A Preferred
Stock or the Common Stock or which in any manner adversely
affects the Series A Preferred Stock or the Common Stock or
the holders thereof.
6. Conversion. The shares of Series A Preferred Stock
shall be convertible as follows:
6A. In the event that, at any time while any of the
Series A Preferred Stock shall be outstanding, the Corporation shall
complete a firm commitment initial public offering of shares of Common
Stock registered under the Securities Act of 1933, as amended, in which
the net proceeds paid by the public to the Corporation are at least
$20,000,000, then all outstanding shares of Series A Preferred Stock
shall, automatically and without further action on the part of the
holders of the Series A Preferred Stock, be converted into such number
of fully paid and nonassessable whole shares of Common Stock as is
obtained by dividing the aggregate Liquidation Payments that would then
be payable in respect of the Series A Preferred Stock by the price to
the public in such initial public offering. Such conversion shall be
effective simultaneously with the closing of such public offering;
provided, however, that certificates evidencing the shares of Common
Stock issuable upon such conversion shall not be issued except on
surrender of the certificates for the shares of the Series A Preferred
Stock so converted.
6B. Fractional Shares; Dividends. No fractional shares
may be issued upon conversion of the Series A Preferred Stock into
Common Stock. If any fractional interest in a share of Common Stock
would, except for the provisions of the preceding sentence, be
deliverable upon any such conversion, the Corporation, in lieu of
delivering the fractional share thereof, shall pay to the holder
surrendering the Series A Preferred Stock for conversion an amount in
cash equal to the current market price of such fractional interest as
determined in good faith by the Board of Directors of the Corporation.
No cash dividends shall be paid in respect of the Series A Preferred
Stock upon such conversion.
6C. Stock to be Reserved. Prior to the consummation of an
initial public offering of its Common Stock, the Corporation will
reserve and keep available out of its authorized Common Stock or its
treasury shares, solely for the purpose of issue upon the conversion of
the Series A Preferred Stock as herein provided, such number of shares
of Common Stock as shall then be issuable upon the conversion of all
outstanding shares of Series A Preferred Stock. The Corporation
covenants that all shares of Common Stock which shall be so issued
shall be duly and validly issued and fully paid and nonassessable and
free from all taxes, liens and charges with respect to the issue
thereof. The Corporation will take all such action as may be necessary
to assure that all such shares of Common
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Stock may be so issued without violation of any applicable law or
regulation, or of any requirements of any national securities exchange
upon which the Common Stock of the Corporation may be listed.
6E. Issue Tax. The issuance of certificates for shares of
Common Stock upon conversion of the Series A Preferred Stock shall be
made without charge to the holders thereof for any issuance tax in
respect thereof; provided that the Corporation shall not be required to
pay any tax which may be payable in respect of any transfer involved in
the issuance and delivery of any certificate in a name other than that
of the holder of the Series A Preferred Stock which is being converted.
II.
COMMON STOCK
All shares of Common Stock shall be identical and shall
entitle the holders thereof to the same rights and privileges:
1. Dividends. When and as dividends are declared upon the
Common Stock, whether payable in cash, in property or in shares of
stock of the Corporation, the holders of Common Stock shall be entitled
to share equally, share for share, in such dividends.
2. Voting Rights. Each holder of Common Stock shall be
entitled to one vote per share.
FIFTH: The name and mailing address of the sole incorporator
of the Corporation are as follows:
Revital D. Havazelet
45 Rockefeller Plaza
New York, N.Y. 10111
SIXTH: In furtherance and not in limitation of the powers
conferred by the laws of the State of Delaware, the Board of Directors of the
Corporation is expressly authorized and empowered to make, alter or repeal the
By-laws of the Corporation, subject to the power of the stockholders of the
Corporation to alter or repeal any By-law made by the Board of Directors.
SEVENTH: The Corporation reserves the right at any time and
from time to time to amend, alter, change or repeal any provisions contained in
this Amended and Restated Certificate of Incorporation; and other provisions
authorized by the laws of the State of Delaware at the time in force may be
added or inserted, in the manner now or hereafter prescribed by law; and all
rights, preferences and privileges of whatsoever nature conferred upon
stockholders,
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directors or any other persons whomsoever by and pursuant to this Amended and
Restated Certificate of Incorporation in its present form or as hereafter
amended are granted subject to the right reserved in this Article.
EIGHTH: No person shall be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, provided, however, that the foregoing shall not eliminate or
limit the liability of a director (i) for any breach of the director's duty of
loyalty to the Corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the General Corporation Law of the State of
Delaware or (iv) for any transaction from which the director derived an improper
personal benefit.
NINTH: Every person now or hereafter serving as a director or
officer of the Corporation and every such director or officer serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, shall be
indemnified by the Corporation in accordance with and to the fullest extent
permitted by law for the defense of, or in connection with, any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, arising out of or in connection with such
service. Expenses incurred by any person so entitled to indemnification in
defending a civil or criminal action, suit or proceeding may be paid by the
Corporation in advance of the final disposition of such action, suit or
proceeding as authorized by the Board of Directors in the specific case upon
receipt of an undertaking by or on behalf of such director or officer to repay
such amount unless it shall ultimately be determined that he is entitled to be
indemnified by the Corporation as authorized in this Article.
IN WITNESS WHEREOF, the Corporation has caused this Amended and
Restated Certificate of Incorporation to be signed by Thomas P. Staudt, its
President and Chief Executive Officer, this day of July, 1998.
--------------------------------
Thomas P. Staudt
President and
Chief Executive Officer
8
EXHIBIT 3.3
- --------------------------------------------------------------------------------
BY-LAWS
OF
MEDE AMERICA CORPORATION
----------
Incorporated under the Laws of the
State of Delaware
---------
Adopted as of
February 13, 1995
Amended as of
May 24, 1996 and July , 1998
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I Offices......................................................1
ARTICLE II Meetings of Stockholders.....................................1
Section 1 Place of Meetings............................................1
Section 2 Annual Meeting...............................................1
Section 3 Special Meetings.............................................2
Section 4 Notice of Meetings...........................................2
Section 5 List of Stockholders.........................................2
Section 6 Quorum.......................................................3
Section 7 Voting.......................................................3
Section 8 Proxies......................................................3
Section 9 Action Without a Meeting.....................................3
ARTICLE III Board of Directors...........................................4
Section 1 Powers.......................................................4
Section 2 Election and Term............................................4
Section 3 Number.......................................................4
Section 4 Notification of Nominations..................................4
Section 5 Quorum and Manner of Acting..................................5
Section 6 Organization Meeting.........................................5
Section 7 Regular Meetings.............................................5
Section 8 Special Meetings; Notice.....................................5
Section 9 Removal of Directors.........................................5
Section 10 Resignations.................................................6
Section 11 Vacancies....................................................6
Section 12 Compensation of Directors....................................6
Section 13 Action Without a Meeting.....................................6
Section 14 Telephonic Participation in Meetings.........................6
Section 15 Committees...................................................6
ARTICLE IV Officers.....................................................7
Section 1 Principal Officers...........................................7
Section 2 Election and Term of Office..................................7
Section 3 Other Officers...............................................7
Section 4 Removal......................................................7
Section 5 Resignations.................................................7
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Page
----
Section 6 Vacancies.....................................................7
Section 7 Chairman of the Board.........................................7
Section 8 President.....................................................7
Section 9 Vice President................................................8
Section 10 Treasurer.....................................................8
Section 11 Secretary.....................................................8
Section 12 Salaries......................................................8
ARTICLE V Indemnification...............................................8
Section 1 Right of Indemnification......................................8
Section 2 Expenses......................................................8
Section 3 Agreements....................................................9
Section 4 Other Rights of Indemnification...............................9
Section 5 Indemnification of Employees and Agents.......................9
Section 6 Insurance.....................................................9
ARTICLE VI Shares and Their Transfer.....................................9
Section 1 Certificate for Stock.........................................9
Section 2 Stock Certificate Signature...................................9
Section 3 Stock Ledger..................................................9
Section 4 Cancellation.................................................10
Section 5 Registrations of Transfers of Stock..........................10
Section 6 Regulations..................................................10
Section 7 Lost, Stolen, Destroyed or Mutilated Certificates............10
Section 8 Record Dates.................................................10
ARTICLE VII Miscellaneous Provisions.....................................11
Section 1 Corporate Seal...............................................11
Section 2 Voting of Stocks Owned by the Corporation....................11
Section 3 Dividends....................................................11
ARTICLE VIII Amendments...................................................11
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<PAGE>
BY-LAWS
OF
MEDE AMERICA CORPORATION
(a Delaware corporation)
----------
ARTICLE I
OFFICES
The registered office of the Corporation in the State of
Delaware shall be located in the City of Wilmington, County of New Castle. The
Corporation may establish or discontinue, from time to time, such other offices
within or without the State of Delaware as may be deemed proper for the conduct
of the Corporation's business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Place of Meetings. All meetings of stock-holders
shall be held at such place or places, within or without the State of Delaware,
as may from time to time be fixed by the Board of Directors, or as shall be
specified in the respective notices, or waivers of notice, thereof.
Section 2. Annual Meeting. (a) The annual meeting of
stockholders for the election of Directors and the transaction of other business
shall be held on such date and at such place as may be designated by the Board
of Directors. At each annual meeting the stockholders entitled to vote shall
elect a Board of Directors and may transact such other proper business as may
come before the meeting.
(b) To be properly brought before an annual meeting, business
must be (i) specified in the notice of the meeting (or any supplement thereto)
given by or at the direction of the Chairman of the meeting or the Board of
Directors, (ii) otherwise properly brought before the meeting by or at the
direction of the Chairman of the meeting or the Board of Directors or (iii)
otherwise properly brought before the meeting by a stockholder. For business to
be properly brought before an annual meeting by a stockholder, the stockholder
must have given written notice thereof, either by personal delivery or by United
States mail, postage prepaid, to the Secretary of the Corporation, not more than
90 days or less
<PAGE>
than 60 days in advance of the anniversary date of the immediately preceding
annual meeting. Any such notice shall set forth as to each matter the
stockholder proposes to bring before the annual meeting (i) a brief description
of the business desired to be brought before the meeting and the reasons for
conducting such business at the meeting, and in the event that such business
includes a proposal to amend either the Certificate of Incorporation or By-laws
of the Corporation, the language of the proposed amendment; (ii) the name and
address of the stockholder proposing such business; (iii) a representation that
the stockholder is a holder of record of stock of the Corporation entitled to
vote at such meeting and intends to appear in person or by proxy at the meeting
to propose such business; (iv) any material interest of the stockholder in such
business; and (v) if the stockholder intends to solicit proxies in support of
such stockholder's proposal, a representation to that effect. No business shall
be conducted at an annual meeting of stockholders except in accordance with this
Section 2(b), and the Chairman of the meeting may refuse to permit any business
to be brought before an annual meeting without compliance with the foregoing
procedures or if the stockholder solicits proxies in support of such
stockholder's proposal without such stockholder having made the representation
required by clause (v) of the preceding sentence.
Section 3. Special Meetings. Except as otherwise required by
law, special meetings of the stockholders for any purpose or purposes may be
called only by the Chairman of the Board, the President, or a majority of the
entire Board of Directors. Only such business as is specified in the notice of
any special meeting of the stockholders shall come before such meeting.
Section 4. Notice of Meetings. Whenever stockholders are
required or permitted to take any action at a meeting, a written notice of the
meeting shall be given which shall state the place, date and hour of the
meeting, and, in the case of a special meeting, the purpose or purposes for
which the meeting is called. Unless otherwise provided by law, the written
notice of any meeting shall be given not less than ten nor more than sixty days
before the date of the meeting to each stockholder of record entitled to vote at
such meeting. If mailed, such notice shall be deemed to be given when deposited
in the United States mail, postage prepaid, directed to the stockholder at such
stockholder's address as it appears on the records of the Corporation. Notice
shall not be required to be given to any stockholder who shall waive such notice
in writing, whether prior to or after such meeting, or who shall attend such
meeting in person or by proxy unless such attendance is for the express purpose
of objecting, at the beginning of such meeting, to the transactions of any
business because the meeting is not lawfully called or convened.
Section 5. List of Stockholders. It shall be the duty of the
Secretary or other officer of the Corporation who shall have charge of the stock
ledger (or a transfer agent or similar entity appointed to perform such duty) to
prepare and make, at least ten days before every meeting of the stockholders, a
complete list of the stockholders entitled to vote thereat, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in his name. Such list shall be open to the examination of
any stockholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least ten days prior to the meeting, either
at a place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not so specified, at the place
where the meeting is to be held. The list shall be kept and produced at the time
and place of the meeting during the whole time thereof and subject to the
inspection of any stockholder who may be present. The original or duplicate
ledger shall be the only evidence as to who are
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the stockholders entitled to examine such list or the books of the Corporation
or to vote in person or by proxy at such meeting.
Section 6. Quorum. At each meeting of the stockholders, the
holders of record of a majority of the issued and outstanding stock of the
Corporation entitled to vote at such meeting, present in person or by proxy,
shall constitute a quorum for the transaction of business, except where
otherwise provided by law, the Certificate of Incorporation or these By-laws. In
the absence of a quorum, any officer entitled to preside at, or act as Secretary
of, such meeting shall have the power to adjourn the meeting from time to time
until a quorum shall be constituted.
Section 7. Voting. Every stockholder of record who is entitled
to vote shall at every meeting of the stockholders be entitled to one vote for
each share of stock held by him on the record date; except, however, that shares
of its own stock belonging to the Corporation or to another corporation, if a
majority of the shares entitled to vote in the election of directors of such
other corporation is held by the Corporation, shall neither be entitled to vote
nor counted for quorum pur poses. Nothing in this Section shall be construed as
limiting the right of the Corporation to vote its own stock held by it in a
fiduciary capacity. At all meetings of the stockholders, a quorum being present,
all matters shall be decided by majority vote of the shares of stock entitled to
vote held by stockholders present in person or by proxy, except as otherwise
required by law or the Certificate of Incorporation. Unless demanded by a
stockholder of the Corporation present in person or by proxy at any meeting of
the stockholders and entitled to vote thereat or so directed by the chairman of
the meeting or required by law, the vote thereat on any question need not be by
written ballot. On a vote by written ballot, each ballot shall be signed by the
stockholder voting, or in his name by his proxy, if there be such proxy, and
shall state the number of shares voted by him and the number of votes to which
each share is entitled.
Section 8. Proxies. Each stockholder entitled to vote at a
meeting of stockholders or to express consent to corporate action in writing
without a meeting may authorize another person or persons to act for him by
proxy. A proxy acting for any stockholder shall be duly appointed by an
instrument in writing subscribed by such stockholder. No proxy shall be valid
after the expiration of three years from the date thereof unless the proxy
provides for a longer period.
Section 9. Action Without a Meeting. Any action required to be
taken at any annual or special meeting of stockholders or any action which may
be taken at any annual or special meeting of stockholders may be taken without a
meeting, without prior notice and without a vote, if a consent in writing
setting forth the action so taken shall be signed by the holders of outstanding
stock having not less than the minimum number of votes that would be necessary
to authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voted. Prompt notice of the taking of the
corporate action without a meeting by less than unanimous written consent shall
be given to those stockholders who have not consented in writing.
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<PAGE>
ARTICLE III
BOARD OF DIRECTORS
Section 1. Powers. The business and affairs of the Corporation
shall be managed under the direction of the Board of Directors.
Section 2. Election and Term. Except as otherwise provided by
law, Directors shall be elected at the annual meeting of stockholders and shall
hold office until the next annual meeting of stockholders and until their
successors are elected and qualify, or until they sooner die, resign or are
removed. At each annual meeting of stockholders, at which a quorum is present,
the persons receiving a plurality of the votes cast shall be the Directors.
Acceptance of the office of Director may be expressed orally or in writing, and
attendance at the organization meeting shall constitute such acceptance.
Section 3. Number. The number of Directors shall be such
number as shall be determined from time to time by the Board of Directors but
shall not be less than three nor more than eleven and initially shall be two.
Section 4. Notification of Nominations. Nominations for the
election of directors may be made by the Board of Directors or by any
stockholder entitled to vote for the election of directors. Any stockholder
entitled to vote for the election of directors at a meeting may nominate persons
for election as directors only if written notice of such stockholder's intent to
make such nomination is given, either by personal delivery or by United States
mail, postage prepaid, to the Secretary of the Corporation (i) with respect to
an election to be held at an annual meeting of stockholders, not more than 120
days or less than 90 days in advance of the anniversary date of the immediately
preceding annual meeting, and (ii) with respect to an election to be held at a
special meeting of stockholders for the election of directors, not later than
the close of business on the seventh day following the date on which notice of
such meeting is first given to stockholders. Each such notice shall set forth
(a) the name and address of the stockholder who intends to make the nomination
and of the person or persons to be nominated; (b) a representation that the
stockholder is a holder of record of stock of the Corpora tion entitled to vote
at such meeting and intends to appear in person or by proxy at the meeting to
nominate the person or persons specified in the notice; (c) a description of all
arrangements or understandings between the stockholder and each nominee and any
other person or persons (naming such person or persons) pursuant to which the
nomination or nominations are to be made by the stockholder; (d) such other
information regarding each nominee proposed by such stockholder as would have
been required to be included in a proxy statement filed pursuant to the proxy
rules of the Securities and Exchange Commission had each nominee been nominated,
or intended to be nominated, by the Board of Directors; (e) the consent of each
nominee to serve as a director of the corporation if so elected; and (f) if the
stockholder intends to solicit proxies in support of such stockholder's
nominee(s), a representation to that effect. The Chairman of the meeting may
refuse to acknowledge the nomina tion of any person which was not made in
accordance with the foregoing procedure or if the stock holder nominating such
person(s) solicits proxies in support of such stockholder's nominee(s) without
such stockholder having made the representation required by clause (f) of the
preceding sentence.
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Section 5. Quorum and Manner of Acting. Unless otherwise
provided by law, the presence of 50% of the whole Board of Directors (or any
committee thereof) shall be necessary to constitute a quorum for the transaction
of business. In the absence of a quorum, a majority of the Directors present may
adjourn the meeting from time to time until a quorum shall be present. Notice of
any adjourned meeting need not be given. At all meetings of Directors, a quorum
being present, all matters shall be decided by the affirmative vote of a
majority of the Directors present, except as otherwise required by law. The
Board of Directors (or any committee thereof) may hold its meetings at such
place or places within or without the State of Delaware as the Board of
Directors may from time to time determine or as shall be specified in the
respective notices, or waivers of notice, thereof.
Section 6. Organization Meeting. Immediately after each annual
meeting of stockhold ers for the election of Directors the Board of Directors
shall meet at the place of the annual meeting of stockholders for the purpose of
organization, the election of officers and the transaction of other business.
Notice of such meeting need not be given. If such meeting is held at any other
time or place, notice thereof must be given as hereinafter provided for special
meetings of the Board of Directors, subject to the execution of a waiver of the
notice thereof signed by, or the attendance at such meeting of, all Directors
who may not have received such notice.
Section 7. Regular Meetings. Regular meetings of the Board of
Directors will be held quarterly, as regularly scheduled, and may be held at
such place, within or without the State of Delaware, as shall from time to time
be determined by the Board of Directors. After there has been such
determination, and notice thereof has been once given to each member of the
Board of Directors as hereinafter provided for special meetings, regular
meetings may be held without further notice being given.
Section 8. Special Meetings; Notice. Special meetings of the
Board of Directors (or any committee thereof) shall be held whenever called by
the Chairman of the Board, if any, the President or by a majority of the
Directors. Notice of each such meeting shall be mailed to each Director,
addressed to him at his residence or usual place of business, at least five days
before the date on which the meeting is to be held, or shall be sent to him at
such place by telegraph, cable, radio or wireless, or be delivered personally or
by telephone, not later than the day before the day on which such meeting is to
be held; provided, however, that any such notice relating to a meeting of a
committee of the Board of Directors need only be sent to each Director serving
on such committee. Each such notice shall state the time and place of the
meeting and, as may be required, the purposes thereof. Notice of any meeting of
the Board of Directors (or any committee thereof) need not be given to any
Director if he shall sign a written waiver thereof either before or after the
time stated therein for such meeting, or if he shall be present at the meeting.
Unless limited by law, the Company's Certificate of Incorpora tion, these
By-laws or the terms of the notice thereof, any and all business may be
transacted at any meeting without the notice thereof having specifically
identified the matters to be acted upon.
Section 9. Removal of Directors. Any Director or the entire
Board of Directors may be removed, with or without cause, at any time, by action
of the holders of record of the majority of the issued and outstanding stock of
the Corporation (a) present in person or by proxy at a meeting of holders of
such stock and entitled to vote thereon or (b) by a consent in writing in the
manner contemplated in Section 9 of Article II, and the vacancy or vacancies in
the Board of Directors caused
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by any such removal may be filled by action of such a majority at such meeting
or at any subsequent meeting or by consent.
Section 10. Resignations. Any Director of the Corporation may
resign at any time by giving written notice to the Chairman of the Board, if
any, the President, the Vice President or the Secretary of the Corporation. The
resignation of any Director shall take effect upon receipt of notice thereof or
at such later time as shall be specified in such notice; and, unless otherwise
specified therein, the acceptance of such resignation shall not be necessary to
make it effective.
Section 11. Vacancies. Any vacancies on the Board of Directors
resulting from death, resignation, removal or other cause shall only be filled
by the affirmative vote of a majority of the remaining directors then in office,
even though less than a quorum of the Board of Directors, or by a sole remaining
director, and newly created directorships resulting from any increase in the
number of directors shall be filled by the Board of Directors, or if not so
filled, by the stockholders at the next annual meeting thereof or at a special
meeting called for that purpose in accordance with Article II, Section 3 of
these By-laws. Any director elected in accordance with the preceding sentence
shall hold office for the remainder of the full term of such director and until
such director's successor shall have been elected and qualified.
Section 12. Compensation of Directors. Directors, as such,
shall not receive any stated salary for their services, but, by resolution of
the Board, a specific sum fixed by the Board plus expenses may be allowed for
attendance at each regular or special meeting of the Board or any committee
thereof; provided, however, that nothing herein contained shall be construed to
preclude any Director from serving the Corporation or any parent or subsidiary
corporation thereof in any other capacity and receiving compensation in such
capacity.
Section 13. Action Without a Meeting. Any action required or
permitted to be taken at any meeting of the Board of Directors (or any committee
thereof) may be taken without a meeting if a written consent thereto is signed
by all members of the Board (or such committee), and such written consent is
filed with the minutes or proceedings of the Board.
Section 14. Telephonic Participation in Meetings. Members of
the Board of Directors (or any committee thereof) may participate in a meeting
of the Board (or such committee) by means of conference telephone or similar
communications equipment by means of which all persons participat ing in the
meeting can hear each other, and such participation shall constitute presence in
person at such meeting.
Section 15. Committees. The Board of Directors may appoint
such committees of the Board of Directors as it may deem appropriate, and such
committees shall exercise the authority delegated to them. The membership of any
such committee shall consist of such Directors as the Board of Directors may
deem advisable from time to time to serve. The Board of Directors may fill in
any vacancies on any committee as they occur. Each committee shall meet as often
as its business may require.
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ARTICLE IV
OFFICERS
Section 1. Principal Officers. The Board of Directors shall
elect a President, a Secretary and a Treasurer, and may in addition elect a
Chairman of the Board, one or more Vice Presi dents and such other officers as
it deems fit; the President, the Secretary, the Treasurer, the Chairman of the
Board, if any, and the Vice Presidents, if any, being the principal officers of
the Corporation. One person may hold, and perform the duties of, any two or more
of said offices.
Section 2. Election and Term of Office. The principal officers
of the Corporation shall be elected annually by the Board of Directors at the
organization meeting thereof. Each such officer shall hold office until his
successor shall have been elected and shall qualify, or until his earlier death,
resignation or removal.
Section 3. Other Officers. In addition, the Board may elect,
or the Chairman of the Board, if any, or the President may appoint, such other
officers as they deem fit. Any such other officers chosen by the Board of
Directors shall be subordinate officers and shall hold office for such period,
have such authority and perform such duties as the Board of Directors, the
Chairman of the Board, if any, or the President may from time to time determine.
Section 4. Removal. Any officer may be removed, either with or
without cause, at any time, by resolution adopted by the Board of Directors at
any regular meeting of the Board, or at any special meeting of the Board called
for that purpose, at which a quorum is present.
Section 5. Resignations. Any officer may resign at any time by
giving written notice to the Chairman of the Board, if any, the President, the
Secretary or the Board of Directors. Any such resignation shall take effect upon
receipt of such notice or at any later time specified therein; and, unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective.
Section 6. Vacancies. A vacancy in any office may be filled
for the unexpired portion of the term in the manner prescribed in these By-laws
for election or appointment to such office for such term.
Section 7. Chairman of the Board. The Chairman of the Board of
Directors if one be elected, shall preside, if present, at all meetings of the
Board of Directors and he shall have and perform such other duties as from time
to time may be assigned to him by the Board of Directors.
Section 8. President. The President shall be the chief
executive officer of the Corpora tion and shall have the general powers and
duties of supervision and management usually vested in the office of president
of a corporation. He shall preside at all meetings of the stockholders if
present thereat, and in the absence or non-election of the Chairman of the Board
of Directors, at all meetings of the Board of Directors, and shall have general
supervision, direction and control of the business of the Corporation. Except as
the Board of Directors shall authorize the execution thereof in some other
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manner, he shall execute bonds, mortgages, and other contracts on behalf of the
Corporation, and shall cause the seal to be affixed to any instrument requiring
it and when so affixed the seal shall be attested by the signature of the
Secretary or the Treasurer.
Section 9. Vice President. Each Vice President shall have such
powers and shall perform such duties as shall be assigned to him by the
directors.
Section 10. Treasurer. The Treasurer shall have charge and
custody of, and be responsible for, all funds and securities of the Corporation.
He shall exhibit at all reasonable times his books of account and records to any
of the Directors of the Corporation upon application during business hours at
the office of the Corporation where such books and records shall be kept; when
requested by the Board of Directors, he shall render a statement of the
condition of the finances of the Corporation at any meeting of the Board or at
the annual meeting of stockholders; he shall receive, and give receipt for,
moneys due and payable to the Corporation from any source whatsoever; in
general, he shall perform all the duties incident to the office of Treasurer and
such other duties as from time to time may be assigned to him by the Chairman of
the Board of Directors, the President or the Board of Directors. The Treasurer
shall give such bond, if any, for the faithful discharge of his duties as the
Board of Directors may require.
Section 11. Secretary. The Secretary, if present, shall act as
secretary at all meetings of the Board of Directors and of the stockholders and
keep the minutes thereof in a book or books to be provided for that purpose; he
shall see that all notices required to be given by the Corporation are duly
given and served; he shall have charge of the stock records of the Corporation;
he shall see that all reports, statements and other documents required by law
are properly kept and filed; and in general he shall perform all the duties
incident to the office of Secretary and such other duties as from time to time
may be assigned to him by the President or the Board of Directors.
Section 12. Salaries. The salaries of the principal officers
shall be fixed from time to time by the Board of Directors, and the salaries of
any other officers may be fixed by the President.
ARTICLE V
INDEMNIFICATION
Section 1. Right of Indemnification. Every person now or
hereafter serving as a director or officer of the Corporation and every such
director or officer serving at the request of the Corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, shall be indemnified by the Corporation in accordance
with and to the fullest extent permitted by law for the defense of, or in
connection with, any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative.
Section 2. Expenses. Expenses incurred in defending a civil or
criminal action, suit or proceeding may be paid by the Corporation in advance of
the final disposition of such action, suit or proceeding as authorized by the
Board of Directors in the specific case upon receipt of an undertaking
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by or on behalf of such director or officer to repay such amount unless it shall
ultimately be determined that he is entitled to be indemnified by the
Corporation as authorized in this Article V.
Section 3. Agreements. The Company is authorized to enter into
indemnification agreements with any of its directors or officers subject to the
provisions of this Article V.
Section 4. Other Rights of Indemnification. The right of
indemnification herein provided shall not be deemed exclusive of any other
rights to which any such director or officer may now or hereafter be entitled
under any by-law, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a director or officer and shall inure to the benefit of the
heirs, executors and administrators of such person.
Section 5. Indemnification of Employees and Agents. The rights
of indemnification provided to directors and officers in this Article V may be
applicable, at the discretion of the Company, to its employees and agents.
Section 6. Insurance. The Company is authorized to purchase
insurance on behalf of any person whom it is required or permitted to indemnify
according to this Article V.
ARTICLE VI
SHARES AND THEIR TRANSFER
Section 1. Certificate for Stock. Every stockholder of the
Corporation shall be entitled to a certificate or certificates, to be in such
form as the Board of Directors shall prescribe, certifying the number of shares
of the capital stock of the Corporation owned by him. No certificate shall be
issued for partly paid shares.
Section 2. Stock Certificate Signature. The certificates for
such stock shall be numbered in the order in which they shall be issued and
shall be signed by the President or any Vice President and the Secretary or
Treasurer of the Corporation and its seal shall be affixed thereto. If such
certificate is countersigned (1) by a transfer agent other than the Corporation
or its employee, or, (2) by a registrar other than the Corporation or its
employee, the signatures of such officers of the Corporation may be facsimiles.
In case any officer of the Corporation who has signed, or whose facsimile
signature has been placed upon, any such certificate shall have ceased to be
such officer before such certificate is issued, it may be issued by the
Corporation with the same effect as if he were such officer at the date of
issue.
Section 3. Stock Ledger. A record shall be kept by the
Secretary or by any other officer, employee or agent designated by the Board of
Directors of the name of each person, firm or corporation holding capital stock
of the Corporation, the number of shares represented by, and the respective
dates of, each certificate for such capital stock, and in case of cancellation
of any such certificate, the respective dates of cancellation.
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Section 4. Cancellation. Every certificate surrendered to the
Corporation for exchange or registration of transfer shall be canceled, and no
new certificate or certificates shall be issued in exchange for any existing
certificate until such existing certificate shall have been so canceled, except,
subject to Section 7 of this Article VI, in cases provided for by applicable
law.
Section 5. Registrations of Transfers of Stock. Registrations
of transfers of shares of the capital stock of the Corporation shall be made on
the books of the Corporation by the registered holder thereof, or by his
attorney thereunto authorized by power of attorney duly executed and filed with
the Secretary of the Corporation or with a transfer clerk or a transfer agent
appointed as in Section 6 of this Article VI provided, and on surrender of the
certificate or certificates for such shares properly endorsed and the payment of
all taxes thereon. The person in whose name shares of stock stand on the books
of the Corporation shall be deemed the owner thereof for all purposes as regards
the Corporation; provided, however, that whenever any transfer of shares shall
be made for collateral security, and not absolutely, it shall be so expressed in
the entry of the transfer if, when the certificates are presented to the
Corporation for transfer, both the transferor and the transferee request the
Corporation to do so.
Section 6. Regulations. The Board of Directors may make such
rules and regulations as it may deem expedient, not inconsistent with the
Certificate of Incorporation or these By- laws, concerning the issue, transfer
and registration of certificates for shares of the stock of the Corporation. It
may appoint, or authorize any principal officer or officers to appoint, one or
more transfer clerks or one or more transfer agents and one or more registrars,
and may require all certificates of stock to bear the signature or signatures of
any of them.
Section 7. Lost, Stolen, Destroyed or Mutilated Certificates.
Before any certificates for stock of the Corporation shall be issued in exchange
for certificates which shall become mutilated or shall be lost, stolen or
destroyed, proper evidence of such loss, theft, mutilation or destruction shall
be procured for the Board of Directors, if it so requires.
Section 8. Record Dates. For the purpose of determining the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a date as a
record date for any such determination of stockholders. Such record date shall
not be more than sixty or less than ten days before the date of such meeting, or
more than sixty days prior to any other action. If a record date is not fixed by
the Board of Directors as aforesaid, (i) the date for determination of
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be the close of business on the day next preceding the day on which notice is
given, or if no notice is given, the day next preceding the day on which the
meeting is held, and (ii) the record date for determining stockholders for any
purpose other than that specified in clause (i) shall be the close of business
on the day on which the resolution of the Board of Directors relating thereto is
adopted.
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ARTICLE VII
MISCELLANEOUS PROVISIONS
Section 1. Corporate Seal. The Board of Directors shall
provide a corporate seal, which shall be in the form of a circle and shall bear
the name of the Corporation and words and figures showing that it was
incorporated in the State of Delaware in the year 1995. The Secretary shall be
the custodian of the seal. The Board of Directors may authorize a duplicate seal
to be kept and used by any other officer.
Section 2. Voting of Stocks Owned by the Corporation. The
Board of Directors may authorize any person on behalf of the Corporation to
attend, vote and grant proxies to be used at any meeting of stockholders of any
corporation (except the Corporation) in which the Corporation may hold stock.
Section 3. Dividends. Subject to the provisions of the
Certificate of Incorporation, the Board of Directors may, out of funds legally
available therefor, at any regular or special meeting declare dividends upon the
capital stock of the Corporation as and when they deem expedient. Before
declaring any dividend there may be set apart out of any funds of the
Corporation available for dividends such sum or sums as the Directors from time
to time in their discretion deem proper for working capital or as a reserve fund
to meet contingencies or for equalizing dividends or for such other purposes as
the Board of Directors shall deem conducive to the interests of the Corporation.
ARTICLE VIII
AMENDMENTS
These By-laws of the Corporation may be altered, amended or
repealed by the Board of Directors at (a) any regular or special meeting of the
Board of Directors, provided, however, that the Board of Directors may alter,
amend or repeal the provisions of these By-laws relating to the number of
Directors only if all the members of the Board of Directors consent thereto in
writing, or (b) by the affirmative vote of the holders of record of a majority
of the issued and outstanding stock of the Corporation (i) present in person or
by proxy at a meeting of holders of such stock and entitled to vote thereon or
(ii) by a consent in writing in the manner contemplated in Section 9 of Article
II, provided, however, that notice of the proposed alteration, amendment or
repeal is contained in the notice of such meeting. By-laws, whether made or
altered by the stockholders or by the Board of Directors, shall be subject to
alteration or repeal by the stockholders as in this Article VIII above provided.
11
MEDE AMERICA CORPORATION AND ITS SUBSIDIARIES
STOCK OPTION AND RESTRICTED STOCK PURCHASE PLAN
Section 1. Purpose. The purpose of the MedE America
Corporation and its Subsidiaries Stock Option and Restricted Stock Purchase Plan
(the "Plan") is to promote the interests of MedE America Corporation, a Delaware
corporation (the "Company"), and any Subsidiary thereof and the interests of the
Company's stockholders by providing an opportunity to selected employees,
officers and directors of the Company or any Subsidiary thereof as of the date
of the adoption of the Plan or at any time thereafter to purchase Common Stock
of the Company. By encouraging such stock ownership, the Company seeks to
attract, retain and motivate such employees and other persons and to encourage
such employees and other persons to devote their best efforts to the business
and financial success of the Company. It is intended that this purpose will be
effected by the granting of "non-qualified stock options" and/or "incentive
stock options" to acquire the Common Stock of the Company and/or by the granting
of rights to purchase the Common Stock of the Company on a "restricted stock"
basis. Under the Plan, the Committee shall have the authority (in its sole
discretion) to grant "incentive stock options" within the meaning of Section
422(b) of the Code, "non-qualified stock options" as described in Treasury
Regulation Section 1.83-7 or any successor regulation thereto, or "restricted
stock" awards.
Section 2. Definitions. For purposes of the Plan, the
following terms used herein shall have the following meanings, unless a
different meaning is clearly required by the context:
2.1. "Award" shall mean an award of the right to purchase
Common Stock granted under the provisions of Section 7 of the Plan.
2.2. "Board of Directors" shall mean the Board of Directors of
the Company.
2.3. "Code" shall mean the Internal Revenue Code of 1986, as
amended.
2.4. "Committee" shall mean the committee of the Board of
Directors referred to in Section 5 hereof; provided, that if no such committee
is appointed by the Board of Directors, the Board of Directors shall have all of
the authority and obligations of the Committee under the Plan.
<PAGE>
2.5. "Common Stock" shall mean the Common Stock, $.01 par
value, of the Company.
2.6. "Employee" shall mean (i) with respect to an ISO, any
person, including, without limitation, an officer or director of the Company,
who, at the time an ISO is granted to such person hereunder, is employed on a
full-time basis by the Company or any Parent or Subsidiary of the Company, and
(ii) with respect to a Non-Qualified Option and/or an Award, any person employed
by, or performing services for, the Company or any Parent or Subsidiary of the
Company, including, without limitation, directors and officers.
2.7. "ISO" shall mean an Option granted to a Participant
pursuant to the Plan that constitutes and shall be treated as an "incentive
stock option" as defined in Section 422(b) of the Code.
2.8. "Non-Qualified Option" shall mean an Option granted to a
Participant pursuant to the Plan that is intended to be, and qualifies as, a
"non-qualified stock option" as described in Treasury Regulation Section 1.83-7
or any successor regulation thereto and that shall not constitute or be treated
as an ISO.
2.9. "Option" shall mean any ISO or Non-Qualified Option
granted to an Employee pursuant to the Plan.
2.10. "Participant" shall mean any Employee to whom an Award
and/or an Option is granted under the Plan.
2.11. "Parent" of the Company shall have the meaning set forth
in Section 424(e) of the Code.
2.12. "Subsidiary" of the Company shall have the meaning set
forth in Section 424(f) of the Code.
Section 3. Eligibility. Awards and/or Options may be granted
to any Employee. The Committee shall have the sole authority to select the
persons to whom Awards and/or Options are to be granted hereunder, and to
determine whether a person is to be granted a Non-Qualified Option, an ISO or an
Award or any combination thereof. No person shall have any right to participate
in the Plan. Any person selected by the Committee for participation during any
one period will not by virtue of such participation have the right to be
selected as a Participant for any other period.
Section 4. Common Stock Subject to the Plan.
4.1. Number of Shares. The total number of shares of Common
Stock for which Options and/or Awards may be granted under
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the Plan shall not exceed in the aggregate Three Million One Thousand Four
Hundred (3,501,400) shares of Common Stock (subject to adjustment as provided in
Section 8 hereof).
4.2. Reissuance. The shares of Common Stock that may be
subject to Options and/or Awards granted under the Plan may be either authorized
and unissued shares or shares reacquired at any time and now or hereafter held
as treasury stock as the Committee may determine. In the event that any
outstanding Option expires or is terminated for any reason, the shares allocable
to the unexercised portion of such Option may again be subject to an Option
and/or Award granted under the Plan. If any shares of Common Stock issued or
sold pursuant to an Award or the exercise of an Option shall have been
repurchased by the Company, then such shares may again be subject to an Option
and/or Award granted under the Plan.
4.3. Special ISO Limitations.
(a) The aggregate fair market value (determined as of the date
an ISO is granted) of the shares of Common Stock with respect to which ISOs are
exercisable for the first time by an Employee during any calendar year (under
all incentive stock option plans of the Company or any Parent or Subsidiary of
the Company) shall not exceed $100,000.
(b) No ISO shall be granted to an Employee who, at the time
the ISO is granted, owns (actually or constructively under the provisions of
Section 424(d) of the Code) stock possessing more than 10% of the total combined
voting power of all classes of stock of the Company or any Parent or Subsidiary
of the Company, unless (i) the option price is at least 110% of the fair market
value (determined as of the time the ISO is granted) of the shares of Common
Stock subject to the ISO and (ii) the ISO by its terms is not exercisable more
than five years from the date it is granted.
4.4. Limitations Not Applicable to Non-Qualified Options or
Awards. Notwithstanding any other provision of the Plan, the provisions of
Sections 4.3(a) and (b) shall not apply, nor shall be construed to apply, to any
Non-Qualified Option or Award granted under the Plan.
Section 5. Administration of the Plan.
5.1. Administration. The Plan shall be administered by a
committee of the Board of Directors (the "Committee") established by the Board
of Directors and consisting of no less than three persons. All members of the
Committee shall be "disinterested persons" within the meaning of Rule 16b-3
promulgated under the Securities Exchange Act of 1934, as amended
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(the "Exchange Act"). The Committee shall be appointed from time to time by, and
shall serve at the pleasure of, the Board of Directors.
5.2. Grant of Options/Awards.
(a) Options. The Committee shall have the sole authority and
discretion under the Plan (i) to select the Employees who are to be granted
Options hereunder; (ii) to designate whether any Option to be granted hereunder
is to be an ISO or a Non-Qualified Option; (iii) to establish the number of
shares of Common Stock that may be subject to each Option; (iv) to determine the
time and the conditions subject to which Options may be exercised in whole or in
part; (v) to determine the amount (not less than the par value per share) and
the form of the consideration that may be used to purchase shares of Common
Stock upon exercise of any Option (including, without limitation, the
circumstances under which issued and outstanding shares of Common Stock owned by
a Participant may be used by the Participant to exercise an Option); (vi) to
impose restrictions and/or conditions with respect to shares of Common Stock
acquired upon exercise of an Option; (vii) to determine the circumstances under
which shares of Common Stock acquired upon exercise of any Option may be subject
to repurchase by the Company; (viii) to determine the circumstances and
conditions subject to which shares acquired upon exercise of an Option may be
sold or otherwise transferred, including, without limitation, the circumstances
and conditions subject to which a proposed sale of shares of Common Stock
acquired upon exercise of an Option may be subject to the Company's right of
first refusal (as well as the terms and conditions of any such right of first
refusal); (ix) to establish a vesting provision for any Option relating to the
time when (or the circumstances under which) the Option may be exercised by a
Participant, including, without limitation, vesting provisions that may be
contingent upon (A) the Company's meeting specified financial goals, (B) a
change of control of the Company or (C) the occurrence of other specified
events; (x) to accelerate the time when outstanding Options may be exercised,
provided, however, that any ISOs shall be deemed "accelerated" within the
meaning of Section 424(h) of the Code; and (xi) to establish any other terms,
restrictions and/or conditions applicable to any Option not inconsistent with
the provisions of the Plan. Notwithstanding anything in the Plan to the
contrary, in no event shall any Option granted to any director or officer of the
Company who is subject to Section 16 of the Exchange Act become exercisable, in
whole or in part, prior to the date that is six months after the date such
Option is granted to such director or officer.
(b) Awards. The Committee shall have the sole authority and
discretion under the Plan (i) to select the
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Employees who are to be granted Awards hereunder; (ii) to determine the amount
to be paid by a Participant to acquire shares of Common Stock pursuant to an
Award, which amount may be equal to, more than, or less than 100% of the fair
market value of such shares on the date the Award is granted (but in no event
less than the par value of such shares); (iii) to determine the time or times
and the conditions subject to which Awards may be made; (iv) to determine the
time or times and the conditions subject to which the shares of Common Stock
subject to an Award are to become vested and no longer subject to repurchase by
the Company; (v) to establish transfer restrictions and the terms and conditions
on which any such transfer restrictions with respect to shares of Common Stock
acquired pursuant to an Award shall lapse; (vi) to establish vesting provisions
with respect to any shares of Common Stock subject to an Award, including,
without limitation, vesting provisions which may be contingent upon (A) the
Company's meeting specified financial goals, (B) a change of control of the
Company or (C) the occurrence of other specified events; (vii) to determine the
circumstances under which shares of Common Stock acquired pursuant to an Award
may be subject to repurchase by the Company; (viii) to determine the
circumstances and conditions subject to which any shares of Common Stock
acquired pursuant to an Award may be sold or otherwise transferred, including,
without limitation, the circumstances and conditions subject to which a proposed
sale of shares of Common Stock acquired pursuant to an Award may be subject to
the Company's right of first refusal (as well as the terms and conditions of any
such right of first refusal); (ix) to determine the form of consideration that
may be used to purchase shares of Common Stock pursuant to an Award (including,
without limitation, the circumstances under which issued and outstanding shares
of Common Stock owned by a Participant may be used by the Participant to
purchase the Common Stock subject to an Award); (x) to accelerate the time at
which any or all restrictions imposed with respect to any shares of Common Stock
subject to an Award will lapse; and (xi) to establish any other terms,
restrictions and/or conditions applicable to any Award not inconsistent with the
provisions of the Plan.
5.3. Interpretation. The Committee shall be authorized to
interpret the Plan and may, from time to time, adopt such rules and regulations,
not inconsistent with the provisions of the Plan, as it may deem advisable to
carry out the purposes of the Plan.
5.4. Finality. The interpretation and construction by the
Committee of any provision of the Plan, any Option and/or Award granted
hereunder or any agreement evidencing any such Option and/or Award shall be
final and conclusive upon all parties.
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5.5. Expenses, Etc. All expenses and liabilities incurred by
the Committee in the administration of the Plan shall be borne by the Company.
The Committee may employ attorneys, consultants, accountants or other persons in
connection with the administration of the Plan. The Company, and its officers
and directors, shall be entitled to rely upon the advice, opinions or valuations
of any such persons. No member of the Committee shall be liable for any action,
determination or interpretation taken or made in good faith with respect to the
Plan or any Option and/or Award granted hereunder.
Section 6. Terms and Conditions of Options.
6.1. ISOs. The terms and conditions of each ISO granted under
the Plan shall be specified by the Committee and shall be set forth in an ISO
agreement between the Company and the Participant in such form as the Committee
shall approve. The terms and conditions of each ISO shall be such that each ISO
issued hereunder shall constitute and shall be treated as an "incentive stock
option" as defined in Section 422(b) of the Code. The terms and conditions of
any ISO granted hereunder need not be identical to those of any other ISO
granted hereunder.
The terms and conditions of each ISO shall include the
following:
(a) The option price shall be fixed by the Committee but shall
in no event be less than 100% (or 110% in the case of an Employee referred to in
Section 4.3(b) hereof) of the fair market value of the shares of Common Stock
subject to the ISO on the date the ISO is granted. For purposes of the Plan, the
fair market value per share of Common Stock as of any day shall mean the average
of the closing prices of sales of shares of Common Stock on all national
securities exchanges on which the Common Stock may at the time be listed or, if
there shall have been no sales on any such day, the average of the highest bid
and lowest asked prices on all such exchanges at the end of such day, or, if on
any day the Common Stock shall not be so listed, the average of the
representative bid and asked prices quoted in the NASDAQ system as of 3:30 p.m.,
New York time, on such day, or, if on any day the Common Stock shall not be
quoted in the NASDAQ system, the average of the high and low bid and asked
prices on such day in the over-the-counter market as reported by National
Quotation Bureau Incorporated, or any similar successor organization. If at any
time the Common Stock is not listed on any national securities exchange or
quoted in the NASDAQ system or the over-the-counter market, the fair market
value of the shares of Common Stock subject to an Option on the date the ISO is
granted shall be the fair market value thereof determined in good faith by the
Board of Directors.
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(b) ISOs, by their terms, shall not be transferable otherwise
than by will or the laws of descent and distribution, and, during a
Participant's lifetime, an ISO shall be exercisable only by the Participant.
(c) The Committee shall fix the term of all ISOs granted
pursuant to the Plan (including, without limitation, the date on which such ISO
shall expire and terminate); provided, however, that such term shall in no event
exceed ten years from the date on which such ISO is granted (or, in the case of
an ISO granted to an Employee referred to in Section 4.3(b) hereof, such term
shall in no event exceed five years from the date on which such ISO is granted).
Each ISO shall be exercisable in such amount or amounts, under such conditions
and at such times or intervals or in such installments as shall be determined by
the Committee in its sole discretion; provided, however, that in no event shall
any ISO granted to any director or officer of the Company who is subject to
Section 16 of the Exchange Act become exercisable, in whole or in part, prior to
the date that is six months after the date such ISO is granted to such director
or officer.
(d) To the extent that the Company or any Parent or Subsidiary
of the Company is required to withhold any Federal, state or local taxes in
respect of any compensation income realized by any Participant as a result of
any "disqualifying disposition" of any shares of Common Stock acquired upon
exercise of an ISO granted hereunder, the Company shall deduct from any payments
of any kind otherwise due to such Participant the aggregate amount of such
Federal, state or local taxes required to be so withheld or, if such payments
are insufficient to satisfy such Federal, state or local taxes, such Participant
will be required to pay to the Company, or make other arrangements satisfactory
to the Company regarding payment to the Company of, the aggregate amount of any
such taxes. All matters with respect to the total amount of taxes to be withheld
in respect of any such compensation income shall be determined by the Board of
Directors, in its sole discretion.
(e) In the sole discretion of the Committee the terms and
conditions of any ISO may (but need not) include any of the following
provisions:
(i) In the event a Participant shall cease to be employed by
the Company or any Parent or Subsidiary of the Company on a full-time
basis for any reason other than as a result of his death or
"disability" (within the meaning of Section 22(e)(3) of the Code), the
unexercised portion of any ISO held by such Participant at that time
may only be exercised within one month after the date on which the
Participant ceased to be so employed, and only to the extent
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that the Participant could have otherwise exercised such ISO as of the
date on which he ceased to be so employed.
(ii) In the event a Participant shall cease to be employed by the
Company or any Parent or Subsidiary of the Company on a full-time basis
by reason of his "disability" (within the meaning of Section 22(e)(3)
of the Code), the unexercised portion of any ISO held by such
Participant at that time may only be exercised within one year after
the date on which the Participant ceased to be so employed, and only to
the extent that the Participant could have otherwise exercised such ISO
as of the date on which he ceased to be so employed.
(iii) In the event a Participant shall die while in the employ of
the Company or a Parent or Subsidiary of the Company (or within a
period of one month after ceasing to be an Employee for any reason
other than his "disability" (within the meaning of Section 22(e)(3) of
the Code) or within a period of one year after ceasing to be an
Employee by reason of such "disability"), the unexercised portion of
any ISO held by such Participant at the time of his death may only be
exercised within one year after the date of such Participant's death,
and only to the extent that the Participant could have otherwise
exercised such ISO at the time of his death. In such event, such ISO
may be exercised by the executor or administrator of the Participant's
estate or by any person or persons who shall have acquired the ISO
directly from the Participant by bequest or inheritance.
6.2. Non-Qualified Options. The terms and conditions of each
Non-Qualified Option granted under the Plan shall be specified by the Committee,
in its sole discretion, and shall be set forth in a written option agreement
between the Company and the Participant in such form as the Committee shall
approve. The terms and conditions of each Non-Qualified Option will be such (and
each Non-Qualified Option Agreement shall expressly so state) that each
Non-Qualified Option issued hereunder shall not constitute nor be treated as an
"incentive stock option" as defined in Section 422(b) of the Code, but will be a
"non-qualified stock option" for Federal, state and local income tax purposes.
The terms and conditions of any Non-Qualified Option granted hereunder need not
be identical to those of any other Non-Qualified Option granted hereunder.
The terms and conditions of each Non-Qualified Option
Agreement shall include the following:
(a) The option (exercise) price shall be fixed by the
Committee and may be equal to, more than or less than 100% of the fair market
value of the shares of Common Stock subject to the
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Non-Qualified Option on the date such Non-Qualified Option is granted.
(b) The Committee shall fix the term of all NonQualified
Options granted pursuant to the Plan (including, without limitation, the date on
which such Non-Qualified Option shall expire and terminate). Such term may be
more than ten years from the date on which such Non-Qualified Option is granted.
Each Non-Qualified Option shall be exercisable in such amount or amounts, under
such conditions (including, without limitation, provisions governing the rights
to exercise such NonQualified Option), and at such times or intervals or in such
installments as shall be determined by the Committee in its sole discretion;
provided, however, that in no event shall any NonQualified Option granted to any
director or officer of the Company who is subject to Section 16 of the Exchange
Act become exercisable, in whole or in part, prior to the date that is six
months after the date such Non-Qualified Option is granted to such director or
officer.
(c) Non-Qualified Options shall not be transferable otherwise
than by will or the laws of descent and distribution, and during a Participant's
lifetime a Non-Qualified Option shall be exercisable only by the Participant.
(d) To the extent that the Company is required to withhold any
Federal, state or local taxes in respect of any compensation income realized by
any Participant in respect of a Non-Qualified Option granted hereunder or in
respect of any shares of Common Stock acquired upon exercise of a Non-Qualified
Option, the Company shall deduct from any payments of any kind otherwise due to
such Participant the aggregate amount of such Federal, state or local taxes
required to be so withheld or, if such payments are insufficient to satisfy such
Federal, state or local taxes, or if no such payments are due or to become due
to such Participant, then, such Participant will be required to pay to the
Company, or make other arrangements satisfactory to the Company regarding
payment to the Company of, the aggregate amount of any such taxes. All matters
with respect to the total amount of taxes to be withheld in respect of any such
compensation income shall be determined by the Board of Directors, in its sole
discretion.
7. Terms and Conditions of Awards. The terms and conditions of
each Award granted under the Plan shall be specified by the Committee, in its
sole discretion, and shall be set forth in a written agreement between the
Participant and the Company, in such form as the Committee shall approve. The
terms and provisions of any Award granted hereunder need not be identical to
those of any other Award granted hereunder.
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The terms and conditions of each Award shall include the
following:
(a) The amount to be paid by a Participant to acquire the
shares of Common Stock pursuant to an Award shall be fixed by the Committee and
may be equal to, more than or less than 100% of the fair market value of the
shares of Common Stock subject to the Award on the date the Award is granted
(but in no event less than the par value of such shares).
(b) Each Award shall contain such vesting provisions, such
transfer restrictions and such other restrictions and conditions as the
Committee, in its sole discretion, may determine, including, without limitation,
the circumstances under which the Company shall have the right and option to
repurchase shares of Common Stock acquired pursuant to an Award.
(c) Stock certificates representing Common Stock acquired
pursuant to an Award shall bear a legend referring to any restrictions imposed
on such Stock and such other matters as the Committee may determine.
(d) To the extent that the Company is required to withhold any
Federal, state or local taxes in respect of any compensation income realized by
the Participant in respect of an Award granted hereunder, in respect of any
shares acquired pursuant to an Award, or in respect of the vesting of any such
shares of Common Stock, then the Company shall deduct from any payments of any
kind otherwise due to such Participant the aggregate amount of such Federal,
state or local taxes required to be so withheld, or if such payments are
insufficient to satisfy such Federal, state or local taxes, or if no such
payments are due or to become due to such Participant, then such Participant
will be required to pay to the Company, or make other arrangements satisfactory
to the Company regarding payment to the Company of, the aggregate amount of any
such taxes. All matters with respect to the total amount of taxes to be withheld
in respect of any such compensation income shall be determined by the Committee,
in its sole discretion.
Section 8. Adjustments. (a) In the event that, after the
adoption of the Plan by the Board of Directors, the outstanding shares of the
Company's Common Stock shall be increased or decreased or changed into or
exchanged for a different number or kind of shares of stock or other securities
of the Company or of another entity through reorganization, merger or
consolidation, recapitalization, reclassification, stock split, split-up,
combination or exchange of shares or declaration of any dividends payable in
Common Stock, the Board of Directors shall appropriately adjust (i) the number
of shares of Common Stock (and the option price per share) subject to the
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<PAGE>
unexercised portion of any outstanding Option (to the nearest possible full
share); provided, however, that the limitations of Section 424 of the Code shall
apply with respect to adjustments made to ISOs, (ii) the number of shares of
Common Stock to be acquired pursuant to an Award which have not become vested,
and (iii) the number of shares of Common Stock for which Options and/or Awards
may be granted under the Plan, as set forth in Section 4.1 hereof, and such
adjustments shall be effective and binding for all purposes of the Plan.
(b) If any capital reorganization or reclassification of the
capital stock of the Company or any consolidation or merger of the Company with
another entity, or the sale of all or substantially all its assets to another
entity, shall be effected in such a way that holders of Common Stock shall be
entitled to receive stock, securities or assets with respect to or in exchange
for Common Stock, then, subject to Section 8(c) below, each holder of an Option
shall thereafter have the right to purchase, upon the exercise of the Option in
accordance with the terms and conditions specified in the option agreement
governing such Option and in lieu of the shares of Common Stock immediately
theretofore receivable upon the exercise of such Option, such shares of stock,
securities or assets (including, without limitation, cash) as may be issued or
payable with respect to or in exchange for a number of outstanding shares of
such Common Stock equal to the number of shares of such Common Stock immediately
theretofore so receivable had such reorganization, reclassification,
consolidation, merger or sale not taken place.
(c) Notwithstanding Section 8(b) hereof (but only if expressly
provided in any option agreement), in the event of (i) any offer to holders of
the Company's Common Stock generally relating to the acquisition of all or
substantially all of their shares, including, without limitation, through
purchase, merger or otherwise, or (ii) any proposed transaction generally
relating to the acquisition of substantially all of the assets or business of
the Company (herein sometimes referred to as an "Acquisition"), the Board of
Directors may, in its sole discretion, cancel any outstanding Options (provided,
however, that the limitations of Section 424 of the Code shall apply with
respect to adjustments made to ISO's) and pay or deliver, or cause to be paid or
delivered, to the holder thereof an amount in cash or securities having a value
(as determined by the Board of Directors acting in good faith) equal to the
product of (A) the number of shares of Common Stock (the "Option Shares") that,
as of the date of the consummation of such Acquisition, the holder of such
Option had become entitled to purchase (and had not purchased) multiplied by (B)
the amount, if any, by which (1) the formula or fixed price per share paid to
holders of shares of Common Stock pursuant to such Acquisition exceeds (2) the
option price applicable to such Option Shares.
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Section 9. Effect of the Plan on Employment Relationship.
Neither the Plan nor any Option and/or Award granted hereunder to a Participant
shall be construed as conferring upon such Participant any right to continue in
the employ of (or otherwise provide services to) the Company or any Subsidiary
or Parent thereof, or limit in any respect the right of the Company or any
Subsidiary or Parent thereof to terminate such Participant's employment or other
relationship with the Company or any Subsidiary or Parent, as the case may be,
at any time.
Section 10. Amendment of the Plan. The Board of Directors may
amend the Plan from time to time as it deems desirable; provided, however, that,
without the approval of the holders of a majority of the outstanding capital
stock of the Company entitled to vote thereon or consent thereto, the Board of
Directors may not amend the Plan (i) to increase (except for increases due to
adjustments in accordance with Section 8 hereof) the aggregate number of shares
of Common Stock for which Options and/or Awards may be granted hereunder, (ii)
to decrease the minimum exercise price specified by the Plan in respect of ISOs
or (iii) to change the class of Employees eligible to receive ISOs under the
Plan.
Section 11. Termination of the Plan. The Board of Directors
may terminate the Plan at any time. Unless the Plan shall theretofore have been
terminated by the Board of Directors, the Plan shall terminate ten years after
the date of its initial adoption by the Board of Directors. No Option and/or
Award may be granted hereunder after termination of the Plan. The termination or
amendment of the Plan shall not alter or impair any rights or obligations under
any Option and/or Award theretofore granted under the Plan.
Section 12. Effective Date of the Plan. The Plan shall be
effective as of March 22, 1995, the date on which the Plan was adopted by the
Board of Directors of the Company.
* * * * *
12
EXHIBIT 10.3
FORM OF INDEMNIFICATION AGREEMENT
INDEMNIFICATION AGREEMENT, made this ___ day of July, 1998, by
and between MedE America Corporation, a Delaware corporation (the
"Corporation"), and ___________________________("Indemnitee").
RECITALS
WHEREAS, Indemnitee is currently serving as, or is assuming
the position of, a director and/or officer of the Corporation and/or, at the
Corporation's request, a director, officer, employee and/or agent of another
Corporation, partnership, joint venture, trust or other enterprise, and the
Corporation wishes Indemnitee to continue in such capacity(ies);
WHEREAS, the Amended and Restated Certificate of Incorporation
of the Corporation (the "Certificate of Incorporation") and the By-laws of the
Corporation (the "By-laws") each provide that the Corporation shall indemnify,
to the fullest extent permitted by law, certain persons, including directors and
officers of the Corporation, against specified expenses and losses arising out
of certain threatened, pending or completed actions, suits or proceedings;
WHEREAS, Section 145(f) of the Delaware General Corporation
Law (the "DGCL") expressly recognizes that the indemnification provided by
Section 145 of the DGCL shall not be deemed exclusive of any other rights to
which those seeking indemnification or advancement of expenses may be entitled
under any bylaw, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in an official capacity and as to action in another
capacity while holding such office;
WHEREAS, in recognition of Indemnitee's need for protection
against personal liability in order to induce Indemnitee to serve or continue to
serve the Corporation in an effective manner as a director and/or officer of the
Corporation and/or, at the Corporation's request, as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, and, in the case of directors and officers, to supplement or
replace the Corporation's directors' and officers' liability insurance coverage,
and to provide Indemnitee with specific contractual assurance that the
protection promised by the Certificate of Incorporation and By-laws will be
available to Indemnitee, the Corporation, with the prior approval of its
stockholders, wishes to provide Indemnitee with the benefits contemplated by
this Agreement;
WHEREAS, as a result of the provision of such benefits,
Indemnitee has indicated that he is willing to serve, or continue to serve, as a
director and/or officer of the Corporation
<PAGE>
and/or, at the Corporation's request, as a director, officer, employee and/or
agent of another corporation, partnership, joint venture, trust or other
enterprise;
NOW, THEREFORE, , in consideration of the premises and mutual
covenants herein contained, the Corporation and Indemnitee hereby agrees as
follows:
1. Definitions.
(a) "Expenses" means, for the purposes of this Agreement, all
direct and indirect costs of any type or nature whatsoever (including, without
limitation, any fees and disbursements of Indemnitee's counsel, accountants
another experts and other out-of-pocket costs) actually and reasonably incurred
by Indemnitee in connection with the investigation, preparation, defense or
appeal of a Proceeding; provided, however, that Expenses shall not include
judgments, fines, penalties or amounts paid in settlement of a Proceeding unless
such matters may be indemnified under applicable provisions of the DGCL.
(b) "Proceeding" means, for the purposes of this Agreement,
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (including actions, suits or
proceedings brought by or in the right of the Corporation), in which Indemnitee
may be or may have been involved as a party or otherwise, by reason of the fact
that Indemnitee is or was a director or officer of the Corporation, by reason of
any action taken by him or of any inaction on his part while acting as such
director or officer or by reason of the fact that he is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
foreign or domestic corporation, partnership, joint venture, trust or other
enterprise, or was a director and/or officer of the foreign or domestic
corporation which was a predecessor corporation to the Corporation or of another
enterprise at the request of such predecessor corporation, whether or not he is
serving in such capacity at the time any liability or expense is incurred for
which indemnification or reimbursement can be provided under this Agreement.
2. Indemnification.
(a) Third Party Proceedings. To the fullest extent permitted
by law, the Corporation shall indemnify Indemnitee against Expenses and
liabilities of any type whatsoever (including, but not limited to, judgments,
fines, penalties, and amounts paid in settlement (if the settlement is approved
in advance by the Corporation)) incurred by Indemnitee in connection with a
Proceeding (other than a Proceeding by or in the right of the Corporation) if
Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to
be in, or not opposed to, the best interests of the Corporation, and, with
respect to any criminal action or proceeding, had no reasonable cause to believe
Indemnitee's conduct was unlawful. The termination of any Proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that Indemnitee did
not act in good faith and in a manner that Indemnitee reasonably believed to be
in, or not opposed to, the best interests of
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<PAGE>
the Corporation, or, with respect to any criminal Proceeding, had reasonable
cause to believe that Indemnitee's conduct was unlawful. Notwithstanding the
foregoing, no indemnification shall be made in any criminal proceeding where
Indemnitee has been adjudged guilty unless a disinterested majority of the
directors determines that Indemnitee did not receive, participate in or share in
any pecuniary benefit to the detriment of the Corporation and, in view of all
the circumstances of the case, Indemnitee is fairly and reasonably entitled to
indemnity for Expenses or liabilities.
(b) Proceedings by or in the Right of the Corporation. To the
fullest extent permitted by law, the Corporation shall indemnify Indemnitee
against Expenses incurred by Indemnitee in connection with the defense or
settlement of a Proceeding by or in the right of the Corporation to procure a
judgment in its favor if Indemnitee acted in good faith and in a manner
Indemnitee reason ably believed to be in, or not opposed to, the best interests
of the Corporation. Notwithstanding the foregoing, no indemnification shall be
made in respect of any claim, issue or matter as to which Indemnitee shall have
been adjudged to be liable to the Corporation in the performance of Indemnitee's
duty to the Corporation unless and only to the extent that the court in which
such Proceeding is or was pending shall determine upon application that, in view
of all the circumstances of the case, Indemnitee is fairly and reasonably
entitled to indemnity for Expenses.
(c) Scope. Notwithstanding any other provision of this
Agreement other than Section 3, the Corporation shall indemnify Indemnitee to
the fullest extent permitted by law, notwith standing that such indemnification
is not specifically authorized by other provisions of this Agreement, the
Certificate of Incorporation, the By-laws or statute.
3. Limitations on Indemnification. Any other provision herein
to the contrary notwithstanding, the Corporation shall not be obligated pursuant
to the terms of this Agreement:
(a) Excluded Acts. To indemnify Indemnitee for any acts or
omissions or transactions from which a director may not be relieved of
liability under Section 102(b)(7) of the DGCL; or
(b) Claims Initiated by Indemnitee. To indemnify or advance
expenses to Indemnitee with respect to Proceedings or claims initiated or
brought voluntarily by Indemnitee and not by way of defense, except with respect
to proceedings brought to establish or enforce a right to indemnification under
this Agreement or any other statute or law or otherwise as required under
Section 145 of the DGCL, but such indemnification or advancement of Expenses may
be provided by the Corporation in specific cases if a majority of the
disinterested directors has approved the initiation or bringing of such
proceeding or claim; or
(c) Lack of Good Faith. To indemnify Indemnitee for any
Expenses incurred by Indemnitee with respect to any proceeding instituted by
Indemnitee to enforce or interpret this Agreement, if a court of competent
jurisdiction determines that each of the material assertions made by Indemnitee
in such proceeding was not made in good faith or was frivolous; or
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<PAGE>
(d) Insured Claims. To indemnify Indemnitee for Expenses or
liabilities of any type whatsoever (including, but not limited to, judgments,
fines or penalties, and amounts paid in settlement) which have been paid
directly to or on behalf of Indemnitee by an insurance carrier under a policy of
directors' and officers' liability insurance maintained by the Corporation or
another policy of insurance maintained by the Corporation or Indemnitee; or
(e) Claims Under Section 16(b). To indemnify Indemnitee for
expenses and the payment of profits arising from the purchase and sale by
Indemnitee of securities in violation of Section 16(b) of the Securities
Exchange Act of 1934, as amended, or any similar successor statute.
4. Determination of Right to Indemnification. Upon receipt of
a written claim addressed to the Board of Directors for indemnification pursuant
to Section 2 of this Agreement, the Corporation shall determine by any of the
methods set forth in Section 145(d) of the DGCL whether Indemnitee has met the
applicable standards of conduct that make it permissible under applicable law to
indemnify Indemnitee. If a claim under Section 2 of this Agreement is not paid
in full by the Corporation within ninety days after such written claim has been
received by the Corporation, Indemnitee may at any time thereafter bring suit
against the Corporation to recover the unpaid amount of the claim and, unless
such action is dismissed by the court as frivolous or brought in bad faith,
Indemnitee shall be entitled to be paid also the expense of prosecuting such
claim. Neither the failure of the Corporation (including its Board of Directors,
independent legal counsel or its stockholders) to make a determination prior to
the commencement of such action that indemnification of Indemnitee is proper in
the circumstances because Indemnitee has met the applicable standard of conduct
under applicable law, nor an actual determination by the Corporation (including
its Board of Directors, independent legal counsel or its stockholders) that
Indemnitee has not met such applicable standard of conduct, shall create a
presumption that Indemnitee has not met the applicable standard of conduct. The
court in which such action is brought shall determine whether Indemnitee or the
Corporation shall have the burden of proof concerning whether Indemnitee has or
has not met the applicable standard of conduct.
5. Advancement and Repayment of Expenses. The Expenses
incurred by Indemnitee in defending and investigating any Proceeding shall be
paid by the Corporation prior to the final disposition of such Proceeding within
thirty days after receiving from Indemnitee copies of invoices presented to
Indemnitee for such Expenses and an undertaking by or on behalf of Indemnitee to
the Corporation to repay such amount to the extent it is ultimately determined
that Indemnitee is not entitled to indemnification. In determining whether or
not to make an advance hereunder, the ability of Indemnitee to repay shall not
be a factor. Notwithstanding the foregoing, in a proceeding brought by the
Corporation directly, in its own right (as distinguished from an action brought
derivatively or by any receiver or trustee), the Corporation shall not be
required to make the advances called for hereby if a majority of the
disinterested directors determines that (i) it does not appear that Indemnitee
has met the standards of conduct that made it permissible under applicable law
to indemnify Indemnitee and (ii) the advancement of Expenses would not be in the
best interests of the Corporation and its stockholders.
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<PAGE>
6. Partial Indemnification. If Indemnitee is entitled under
any provision of this Agreement to indemnification or advancement by the
Corporation of some or a portion of any Expenses or liabilities of any type
whatsoever (including, but not limited to, judgments, fines, penalties, and
amounts paid in settlement) incurred by him in the investigation, defense,
settlement or appeal of a Proceeding, but is not entitled to indemnification or
advancement of the total amount thereof, the Corporation shall nevertheless
indemnify or pay advancements to Indemnitee for the portion of such Expenses or
liabilities to which Indemnitee is entitled.
7. Notice to Corporation by Indemnitee. Indemnitee shall
notify the Corporation in writing of any matter with respect to which Indemnitee
intends to seek indemnification hereunder as soon as reasonably practicable
following the receipt by Indemnitee of written notice thereof; provided that any
delay in so notifying Corporation shall not constitute a waiver by Indemnitee of
his rights hereunder. The written notification to the Corporation shall be
addressed to the Board of Directors and shall include a description of the
nature of the Proceeding and the facts underlying the Proceeding and be
accompanied by copies of any documents filed with the court, if any, in which
the Proceeding is pending. In addition, Indemnitee shall give the Corporation
such information and cooperation as it may reasonably require and as shall be
within Indemnitee's power.
8. Defense of Claim. In the event that the Corporation shall
be obligated under Section 5 hereof to pay the Expenses of any Proceeding
against Indemnitee, the Corporation, if appropriate, shall be entitled to assume
the defense of such Proceeding, with counsel approved by Indemnitee, which
approval shall not be unreasonably withheld, upon the delivery to Indemnitee of
written notice of its election to do so. After delivery of such notice, approval
of such counsel by Indemnitee and the retention of such counsel by the
Corporation, the Corporation will not be liable to Indemnitee under this
Agreement for any fees of counsel subsequently incurred by Indemnitee with
respect to the same proceeding; provided that (i) Indemnitee shall have the
right to employ his or her own counsel in any such Proceeding at Indemnitee's
expense and (ii) if (A) the employment of counsel by Indemnitee has been
previously authorized by the Corporation, (B) Indemnitee shall have reasonably
concluded that there may be a conflict of interest between the Corporation and
Indemnitee in the conduct of such defense or (C) the Corporation shall not, in
fact, have employed counsel to assume the defense of such Proceeding, then the
fees and expenses of Indemnitee's counsel shall be paid by the Corporation.
9. Attorneys' Fees. If any legal action is necessary to
enforce the terms of this Agreement, the prevailing party shall be entitled to
recover, in addition to other amounts to which the prevailing party may be
entitled, actual attorneys' fees and court costs as may be awarded by the court.
10. Continuation of Obligations. All agreements and
obligations of the Corporation contained herein shall continue during the period
Indemnitee is a director or officer of the Corporation, or is or was serving at
the request of the Corporation as a director, officer, fiduciary, employee or
agent of another corporation, partnership, joint venture, trust or other
5
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enterprise, and shall continue thereafter so long as Indemnitee shall be subject
to any possible proceeding by reason of the fact that Indemnitee served in any
capacity referred to herein.
11. Successors and Assigns. This Agreement establishes
contract rights that shall be binding upon, and shall inure to the benefit of,
the successors, assigns, heirs and legal representatives of the parties hereto.
12. Non-exclusivity.
(a) The provisions for indemnification and advancement of
expenses set forth in this Agreement shall not be deemed to be exclusive of
another rights that Indemnitee may have under any provision of law, the
Certificate of Incorporation or By-laws, the vote of the Corporation's
stockholders or disinterested directors, other agreements or otherwise, both as
to action in his official capacity and action in another capacity while
occupying his position as a director or officer of the Corporation.
(b) In the event of any changes after the date of this
Agreement in any applicable law, statute, or rule that expand the right of
Delaware corporation to indemnify its directors and officers, Indemnitee's
rights and the Corporation's obligations under this Agreement shall be expanded
to the fullest extent permitted by such changes. In the event of any changes in
any applicable law, statute or rule that narrow the right of a Delaware
corporation to indemnify a director and officer, such changes, to the extent not
otherwise required by such law, statute or rule to be applied to this Agreement,
shall have no effect on this Agreement or the parties' rights and obligations
hereunder.
13. Effectiveness of Agreement. This Agreement shall be
effective as of the date set forth on the first page and may apply to acts or
omissions of Indemnitee that occurred prior to such date if Indemnitee was a
director or officer of the Corporation or its predecessor, or was serving at the
request of the Corporation or its predecessor as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, at the time such act or omission occurred.
14. Severability. Nothing in this Agreement is intended to
require or shall be construed as requiring the Corporation to do or omit to do
any act or thing in violation of applicable law. The Corporation's inability,
pursuant to court order, to perform its obligations under this Agreement shall
not constitute a breach of this Agreement. If this Agreement or any portion
hereof shall be invalidated on any ground by any court of competent
jurisdiction, then the Corporation shall nevertheless indemnify Indemnitee to
the fullest extent permitted by any applicable portion of this Agreement that
shall not have been invalidated, and the balance of this Agreement not so
invalidated shall be enforceable in accordance with its terms.
15. Governing Law. This Agreement shall be interpreted and
enforced in accordance with the laws of the State of Delaware. To the extent
permitted by applicable law, the
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<PAGE>
parties hereby waive any provisions of law that render any provision of this
Agreement unenforceable in any respect.
16. Notices. All notices, requests, demands and other
communications under this Agreement shall be in writing and shall be deemed duly
given (i) if delivered by hand or by nationally recognized overnight courier and
receipted for by the party addressed, on the date of such receipt, or (ii) if
delivered by facsimile transmission to the recipient followed by a copy sent by
mail, on the date of such transmission, or (iii) if mailed by certified or
registered mail with postage prepaid to the following address, on the third
business day after the mailing date:
If to the Corporation:
MedE America Corporation
90 Merrick Avenue, Suite 501
East Meadow, New York 11554
Facsimile: 516-542-4508
Attn.: General Counsel
If to Indemnitee:
or to such other address as either party shall have notified the other party in
accordance with this Section 16.
17. Mutual Acknowledgment. Both the Corporation and Indemnitee
acknowledge that in certain instances, federal law or applicable public policy
may prohibit the Corporation from indemnifying its directors and officers under
this Agreement or otherwise. Indemnitee understands and acknowledges that the
Corporation has undertaken or may be required in the future to undertake with
the Securities and Exchange Commission to submit the question of indemnification
to a court in certain circumstances for a determination of the Corporation's
right under public policy to indemnify Indemnitee.
18. Counterparts. This Agreement may be executed in several
counterparts, each of which shall constitute an original.
19. Amendment and Termination. No amendment, modification,
termination or cancellation of this Agreement shall be effective unless in
writing signed by both parties hereto.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the day and year first set forth above.
MEDE AMERICA CORPORATION
By
----------------------------
----------------------------
Indemnitee
8
LEASE AGREEMENT
THIS LEASE AGREEMENT (hereinafter called the "Lease") is made and entered
into this 10th day of July, 1995, by and between Rand Realty CO (hereinafter
called "Landlord"); and Electronic Claims & Funding, Inc. (hereinafter called
"Tenant").
1. PREMISES. Landlord does hereby rent and lease to Tenant and Tenant does
hereby rent and lease from Landlord for general office use reasonable and
customary for a project such as the Property (as defined below) only and for no
other purposes whatsoever, the space described below consisting of 6,400
rentable square feet of space known as Suite 200 hereinafter referred to as (the
"Premises") as described and shown on the floor plan attached hereto marked
Exhibit "A-1" and located on the Property as described and shown on Exhibit "A"
attached hereto and made a part hereof (the "Property") together with the
non-exclusive right to use the common area and parking areas on the Property (as
the same may from time to time be changed by Landlord) in common with all other
tenants of the Property with any other parties permitted by Landlord to use such
areas.
2. LEASE TERM. Tenant shall have and hold the Premises for a term ("Term")
commencing on August 1, 1995 (the "Commencement Date") and shall terminate at
noon on the last day of January 31, 2001 (the "Expiration Date") sixty-six (66)
full calendar months following the Commencement Date, unless sooner terminated
or extended as hereinafter provided.
3. RENT. Tenant shall pay to Landlord, at 4637 Buford Highway, Atlanta, GA
30341 or at such other place as Landlord shall designate in writing to Tenant;
the ("Base Rent") as set forth in Exhibit "D", due on the first day of each
calendar month, in advance, without abatement, demand, deduction or offset
whatsoever. One full monthly installment of Base Rent shall be due and payable
on the date of execution of this Lease by Tenant for the first month's Base Rent
and a like monthly installment of Base Rent shall be due and payable on or
before the first day of each calendar month following the Commencement Date
during the Term hereof; provided, that if the Commencement Date should be a date
other than the first day of a calendar month, Tenant shall pay, on or before the
Commencement Date, a prorated monthly Based Rent installment for the period from
the Commencement Date to the end of the Base Rent due for the first full
calendar month of the Term. Tenant shall pay, as additional rent ("Additional
Rent"), all other sums due from Tenant under this Lease (the term "Rent", as
used herein, means all Base Rent and Additional Rent payable hereunder from
Tenant to Landlord).
4. RENT ADJUSTMENT. The rent shall be adjusted pursuant to Special
Stipulation 1 which shall be incorporated herein by this reference.
5. LATE CHARGE INTEREST. Other remedies for non-payment of Rent
notwithstanding, if either the monthly payment of Base Rent or Tenant's monthly
payment of the estimated Tenant's Share of Common Area Maintenance Cost is not
received by Landlord on or before the fifth (5th) day of the month for which the
Base Rent or such estimated Tenant's Share payment is due, or if any other
payment due Landlord by Tenant is not received by Landlord on or before the
fifth (5th) day following the date such payment is due as herein provided or the
date on which Tenant was invoiced, a late charge of fifteen percent (15%)
percent of such past due amount shall be due and payable by Tenant to Landlord
as Additional Rent as compensation for Landlord's administrative expenses in
handling such late payments. In addition, interest at a rate equal to the lower
of the then current prime rate of NationsBank of Georgia, N.A., plus three
percent (3%) or the highest rate permitted by applicable law, from the fifth
(5th) day after the date such payment was due until such payment is received by
Landlord, shall be due and payable as Additional Rent in addition to such
amounts owed under this Lease.
6. PARTIAL PAYMENT. No payment by Tenant or acceptance by Landlord of an
amount less than the Rent herein stipulated shall be deemed a waiver of any
other Rent due. No partial payment or endorsement on any check or any letter
accompanying such payment of Rent shall be deemed an accord and satisfaction,
but Landlord may accept such payment without prejudice to Landlord's right to
collect the balance of any Rent due under the terms of this Lease or any late
charge assessed against Tenant hereunder.
7. CONSTRUCTION OF THIS AGREEMENT. No failure of Landlord to exercise any
power given Landlord hereunder, or to insist upon strict compliance by Tenant of
his obligations, hereunder, and no custom or practice of the parties at variance
with the terms hereof shall constitute a waiver of Landlord's right to demand
exact compliance with the terms hereof. Time is of the essence of this Lease.
8. USE OF THE PREMISES. "Tenant shall use and occupy the Premises for the
purpose described in Paragraph 1 above and for no other purpose whatsoever. The
Premises shall not be used for an illegal purpose, nor in violation of any valid
regulation of any governmental body, nor in any manner to create any nuisance or
trespass nor in any manner to violate the insurance or increase the rate of the
insurance on the Property or any of the buildings located on the Property.
9. DEFINITIONS. "Landlord", as used in this Lease, shall include first
party, its representatives, assigns and successors in title to the Premises.
"Tenant" shall include second party, its heirs and representatives, and, if this
Lease shall be validly assigned or sublet, shall also included Tenant's
assignees or subtenants as to the Premises or portion thereof, covered by such
assignment or sublease. "Landlord" and "Tenant" include male and female,
singular and plural, corporation (and if a corporation, its officers, employees,
agents or attorneys), partnership or individual, as may fit the particular
parties.
<PAGE>
10. REPAIRS BY LANDLORD. Tenant, by taking possession of the Premises,
shall accept and shall be held to have accepted the Premises and the leasehold
improvements therein, as suitable for the use intended by this Lease. Landlord
shall be responsible for repair of the building's roof, foundation, exterior
walls, common areas and structural portions, provided such repairs are not
necessary due to the act or omission of Tenant, Tenant's invitees or anyone in
the employ or control of Tenant or by Tenants failure to repair the Premises as
required by Paragraph 11 below. Tenant shall promptly notify Landlord in writing
of the need for any such repairs which Tenant believes need to be made and
Landlord shall repair any such items (which Landlord is obligated to repair)
within a reasonable time thereafter.
11. REPAIRS BY TENANT. Tenant shall be solely responsible for any and all
costs and expenses necessary to repair or restore any damage or injury to all or
any part of the Premises caused by Tenant or Tenant's agent, employees,
invitees, licenses, visitors or contractors, including but not limited to any
repairs or replacements necessitated by (i) the construction or installation of
improvements to the Premises by or on behalf of Tenant, or (ii) the moving of
any property into or out of the Premises. Landlord or its contractor shall make
all such repairs and replacements and the costs of such repair or replacements
shall be charged to Tenant as Additional Rent and shall become due and payable
by Tenant with the monthly installment of Base Rent next due hereunder. Landlord
shall be obligated to make any such repairs until Tenant notifies Landlord in
writing of the need for such repairs. Tenant accepts the Premises in their
present condition and as suited for the uses intended by Tenant. Tenant shall,
throughout the initial term of this Lease, and any extension or renewal thereof,
at its expense, maintain in good order and repair the Premises, including the
building, heating and air conditioning equipment (including but not limited to
replacement of parts, compressors, air handling units and heating units) and
other improvements located thereon, except those repairs expressly required to
be made by Landlord hereunder.
12. ALTERATIONS AND IMPROVEMENTS. Tenant shall not make or allow to be made
any alterations, physical additions or improvements in or to the Premises
without first obtaining in writing Landlord's written consent for such
alterations or additions, which shall not be unreasonably withheld. Any
alterations, physical additions or improvements shall at once become the
property of Landlord; provided, however, that Landlord, at its option, may
require Tenant to remove any leasehold improvements, physical additions or
improvements in the Premises in order to restore the Premises to the condition
which existed prior to Landlord leasing the Premises to Tenant. All costs of
alterations, additions or improvements to which Landlord consents shall be borne
by Tenant. Landlord shall, under no circumstances during the Term of this Lease,
be required by to carry any insurance on nor shall Landlord be liable for any
damage or loss to said alterations, additions or improvements or to any
leasehold improvements made by Landlord for the benefit of Tenant; and provided
further, that under no circumstances shall Landlord be required to pay, during
the Term of this Lease and any extensions or renewals thereof, any ad valorem or
Property tax on such alterations, additions or improvements. Tenant hereby
covenants to pay all such taxes when they become due. In the event any
alterations, additions improvements, or repairs are to be performed by
contractors or workmen other than Landlord's contractors or workmen, such
contractors or workmen must first be approved in writing by Landlord. During the
construction of any such alterations, additions or improvements, Tenant shall
carry insurance in types and amounts and with carriers reasonably acceptable to
Landlord. Tenant shall comply with all reasonable rules and regulations adopted
by Landlord for construction in the Building. Tenant shall keep the Building and
the Property and Landlord's interest therein free from any liens arising from
any work performed, materials furnished or obligations incurred by or on behalf
of Tenant. Notice is hereby given that neither Landlord nor any mortgagee or
lessor of Landlord shall be liable for any labor or materials furnished to
Tenant. If any lien is filed for such work or materials, such lien shall
encumber only Tenant's interest in leasehold improvements in the Premises.
Within ten (10) days after Tenant learns of the filing of any such lien, Tenant
shall either discharge or cancel such lien of record or post a bond sufficient
under the laws of the State of Georgia to cover double the amount of the lien
claim plus any penalties, interest, attorney's fees, court costs and other legal
expenses in connection with such lien. If Tenant fails to so discharge or bond
such lien within ten (10) calendar days after written demand from Landlord,
Landlord shall have the right, at Landlord's option, to pay the full amount of
such lien without inquiry into the validity thereof and Landlord shall be
promptly reimbursed upon demand by Tenant for all amounts so paid by Landlord
including expenses, interest and attorney's fees.
13. COMMON AREA MAINTENANCE COST. (a) Tenant agrees to reimburse Landlord,
upon taking occupancy of Premises, as Additional Rent hereunder, throughout the
Term, including any extensions or renewals thereof, for Tenant's Share (as
defined below) of the annual Common Area Maintenance Costs (as defined in
subparagraph (b) below which is estimated to be .52 cents per square foot for
1995) of the Building and related common and areas, including the parking areas.
The Common Area Maintenance Cost per square foot of the Building shall be
determined by dividing the total Common Area Maintenance Costs incurred for the
calendar year in question and dividing it by the total number of rentable square
feet in the buildings located on the Property as described in Exhibit "A", but
in no event shall Landlord be reimbursed for more than the total Common Area
Maintenance Cost actually incurred during the year in question. Tenant's pro
rata share of the Common Area Maintenance Cost shall be determined by
multiplying such amount by the number of rentable square feet contained with- in
the Premises (hereinafter called "Tenant's Share"). Landlord and Tenant hereby
conclusively agree that, for purposes of this Paragraph 13, the gross square
footage of the Premises is 7,000 gross square feet and the gross square feet of
the Property is 39,763, square feet and Tenant's Share shall be determined based
on such amounts. For purposes of calculation, the gross area leased to Tenant
shall be 17.60% of the entire Property. If the size of the Property or the
Premises is changed, the parties hereby agree to recalculate Tenant's Share
following such change.
(b) Common Area Maintenance Cost shall be
all those expenses of operating, servicing, managing, repairing and maintaining
the Property in a first-class manner deemed by Landlord reasonable and
appropriate and in the best interest of the tenants of the Property. Common Area
Maintenance Cost shall include, without limitation the following: (i) the wages
and salaries of all employees engaged in the operation and maintenance of the
Property; (ii) materials used in the operations and maintenance of the Property
(iii) the cost of maintenance and service agreements on landscaping, grounds
maintenance, trash and snow removal, and other similar services or agreements;
(iv) management expense, including, without limitation, management fees and
expenses whether paid to Landlord, if Landlord manages the Property or to a
third party management company; (v) the costs, including interest, amortized
over its useful life, of any capital improvement made to the Property to comply
with any governmental law or regulation that was not applicable to the Property
at the time of its construction, designed to improve the operating efficiency of
any system within the building or it is made or acquired to maintain the
first-class nature of the Property; (vi) common area utility cost.
(c) As soon as practicable after December
31 of each year during the Term of this Lease, Landlord shall furnish to Tenant
an itemized statement of such Common Area Maintenance Cost per rentable square
foot within the Property for the calendar year then ended. Tenant may have
access to Landlord's records, during normal business hours and at the place
where Landlord keeps such records, in order to audit or otherwise verify such
expenses. (i) On or before January 1 of each calendar year thereafter, Landlord
shall provide Tenant a written estimate of Tenants Share of annual Common Area
Maintenance Cost for the upcoming calendar year. Beginning with the first month
of each calendar year, Tenant shall pay to Landlord, together with monthly
payment of Base Rent as provided in Paragraph 3 hereinabove as Additional Rent
hereunder, an amount equal to one-twelfth (1/12th) of the estimated Tenant's
Share (as shown in Landlord's statement) of Common Area Maintenance Cost. In the
event
<PAGE>
at the end of any calendar year, Tenant has paid to Landlord an amount in excess
of Tenant's Share of any actual Common Area Maintenance Cost for such calendar
year, Landlord shall apply any such amount to any amount then owing to Landlord
hereunder, and if none, to the next due installment or installments of Rent due
hereunder and in tthe event at the end of any calendar year Tenant has paid to
Landlord less than Tenant's Share of any actual Common Area Maintenance Cost for
such calendar year, Tenant shall pay to Landlord any such deficiency within
thirty (30) days after Tenant receives the annual statement referred to above.
(ii) For the calendar year in which the Commencement Date occurs, the provisions
of this paragraph shall apply, but Tenant's Share for such year shall be subject
to a pro rata adjustment based upon the number of full and partial calendar
months of said calendar year between the Commencement Date and December 31 of
such calendar year. Landlord shall deliver to Tenant, on or before the
Commencement Date, the estimated Tenant's Share for the calendar year in which
the Commencement Date occurs and Tenant shall pay an equal monthly installment
of such estimated amount along with Tenant's monthly payment of Base Rent. For
the calendar year in which this Lease expires, and is not extended or renewed,
the provisions of this paragraph shall apply, but Tenant's Share for such year
shall be subject to a pro rata adjustment based upon the number of full and
partial calendar months of said calendar year prior to the expiration of the
Term of this Lease and shall be computed as soon as possible after December 31
of the calendar year in which such expiration occurs. If the prorated Tenant's
Share for the final calendar year differs from the estimated monthly payments
made by Tenant as required herein, Tenant shall pay to Landlord, or Landlord
shall pay to Tenant, as the case may be, within thirty (30) days after
Landlord's delivery of the applicable Operating Expense statement the amount by
which Tenant's Share (as prorated) differs from the estimated payments made by
Tenant.
(d) TAX AND INSURANCE. Upon taking
occupancy of Premises, Tenant shall pay monthly as Additional Rent during the
term of this Lease, and any extension or renewal thereof, Tenant's Share of
taxes (including; but not limited to ad valorem taxes, special assessments and
any other governmental charges) on the Premises as calculated in Sub Paragraph
13(a). Based upon the estimated taxation payable for 1995 which is $22,600.00,
Tenant shall be liable for a monthly amount of Tenant's Share of taxation in the
amount $331.46. If such taxes for the year in which the Lease terminates are not
ascertainable before payment of the last month's rental, then the amount of such
taxes assessed against the Property for the previous tax year shall be used as a
basis for determining the pro rata share, if any, to be paid by Tenant for that
portion of the last Lease year. Tenant shall further pay monthly its Tenant's
Share of the cost of fire and extended coverage insurance including any and all
public liability insurance on the building during the term of this Lease. Based
upon the estimated insurance payable for 1995 which is approximately $1,192.89,
Tenant shall be liable for a monthly amount of Tenant's Share of insurance in
the amount of $17.50.
14. LANDLORD'S FAILURE TO GIVE POSSESSION. Landlord shall not be liable for
damages to Tenant for failure to deliver possession of the Premises to Tenant if
such failure is caused by no fault of Landlord, by the failure of Tenant to
complete any construction or remodeling of the Premises, by Tenant's delay in
delivering or commenting on construction documents by Tenant's request to use
non-Property standard materials or by the failure of any previous tenant to
vacate the Premises.
15. ACCEPTANCE AND WAIVER. Landlord shall not be liable to the Tenant, its
agents or employees, for any damage caused to any of them due to the Property or
any of the buildings located thereon or any part or appurtenances thereof being
improperly constructed or being or becoming out of repair, or arising from the
leaking of gas, water, sewer or stream pipes, or from electricity, but Tenant,
by moving into the Premises and taking possession thereof, shall accept, and
shall be held to have accepted the Premises as suitable for the purposes for
which the same are leased, and shall accept and shall be held to have accepted
the Property and every appurtenances thereof, and Tenant by said act waives any
and all defects therein except for latent defects that were known to Landlord at
the time of entering into the Lease; provided, however, that this paragraph
shall not apply to any damages or injury caused by or resulting from the
negligence a willful misconduct of Landlord.
16. SIGNS. Tenant shall not paint or place signs, placards or other
advertisement of any character upon the windows or inside walls of the Premises
except with the consent of Landlord, which shall not be unreasonably withheld,
and Tenant shall place no signs upon the outside walls, common areas or the roof
of the Premises and shall place no items in the Premises which shall visibly
detract from the Property or the common areas.
17. CARDING. Landlord may card the Premises "For Rent" or with any other
appropriate sign at any time within one hundred eight (180) days prior to the
expiration, cancellation or termination of this Lease for any reason and during
such one hundred eighty (180) day period may exhibit the Premises to prospective
tenants.
18. REMOVAL OF FIXTURE. If not in default hereunder, Tenant may, prior to
the expiration of the Term of this Lease, or any extension thereof, remove any
fixtures and equipment which it has placed in the Premises which can be removed
without significant damage to the Premises, provided Tenant repairs all damages
to the Premises caused by such removal.
19. ENTERING PREMISES. Landlord may enter the Premises upon reasonable
prior oral notice (except in emergencies when no notice shall be required) at
reasonable hours provided that Landlord shall use all reasonable efforts not to
unreasonably interrupt Tenant's business operations: (1) to make repairs, if any
<PAGE>
which Landlord under the terms hereof must make to the Premises or adjacent
premises, or repairs on the building; (b) to inspect the Premises to see that
Tenant is complying with all of the terms and conditions hereof and with the
rules and regulations for the Property; (c) to remove from the Premises any
articles or signs kept or exhibited there in violation of the terms hereof; and
(d) to exercise any other right or perform any other obligation that Landlord
has under this Lease. Landlord shall be allowed to take all material into and
upon the Premises that may be required to make any repairs, improvements and
additions, or any alterations, without in any way being deemed or held guilty of
trespass or any eviction of Tenant. The Rent reserved herein shall in no
circumstances be abated while said repairs, alterations or additions are being
made and Tenant shall not be entitled to maintain a set-off or counterclaim for
damages against Landlord by reason of loss from interruption to the business of
Tenant because of the prosecution of any such work. All such repairs,
decorations, additions and improvements shall be done during ordinary business
hours, or, if any such work is at the request of Tenant to be done during any
other hours, the Tenant shall pay all overtime and other extra costs.
20. UTILITY BILLS. Tenant shall pay all utility bills, including, but not
limited to water, sewer, gas, electricity, fuel, light and heat bills for the
Premises or for Tenant's share of such charges for the Building, as applicable,
and Tenant shall pay all charges for garbage collection or other sanitary
services.
21. GENERAL LIABILITY OF TENANT. Tenant shall indemnify and save harmless
Landlord against all claims for damages to persons or property by reason of the
use or occupancy of the Premises, and all expenses incurred by Landlord because
of Tenant's use and occupancy, including attorney's fees and court costs. Tenant
shall be liable for and shall hold Landlord harmless in connection with damage
or injury to Landlord, the Premises and the Property and persons of Landlord's
other tenants, or anyone else if due to act or neglect of Tenant, its agents,
employees, invitees or of anyone in Tenant's control.
22. INSURANCE AND WAIVER OF SUBROGATION (a) Tenant shall keep in force at
Tenant's expense as long as this Lease remains in effect and during such other
times as Tenant occupies the Premises or any part thereof, commercial general
liability insurance covering the Premises and Tenant's use thereof, such
coverage to be in amount of at least $1,000,000.00 per occurrence, on an
occurrence basis with aggregate annual limits (applicable only to the Premises
and not any other location) of not less than $5,000,000.00 and, if necessary,
with a contractual liability endorsement for the indemnity in Paragraph 21 of
this Lease. Tenant shall also keep in force "all risks" casualty coverage and
water damage insurance covering Tenant's personal property, including, but not
limited to inventory, trade fixtures, floor coverings, furniture and all other
property of Tenant whether removable or not at the termination of this Lease,
including leasehold betterments and improvements. All such insurance on
leasehold betterments and improvements shall be in amounts sufficient to cover
the full replacement cost of any repair or reconstruction from any such hazard
during the entire Term of this Lease. All commercial general liability policies
shall list Landlord and any holder of a deed to secure debt, mortgage or other
security interest encumbering the Property as an additional insured as their
respective interests may appear and the "all risks" casualty coverage and water
damage insurance policies shall name Landlord and any holder of a to secure
debt, mortgage or other security interest encumbering the Property as loss
payees. All policies hereunder shall require that the insurer give Landlord
thirty (30) days prior written notice before any such policies are canceled.
Tenant shall deliver to Landlord certificates evidencing that such insurance is
in place and all premiums have been paid and shall deliver copies of the
policies to Landlord.
(b) Tenant shall not do or suffer to be
done, or keep or suffer to be kept, anything in, upon or about the Premises
which will contravene Landlord's policies insuring against loss or damage by
fire or other hazards, or Landlord's commercial general liability policies, or
which will prevent Landlord from securing such policies in companies acceptable
to Landlord: If anything done, permitted to be done or suffered to be done by
Tenant or kept in upon and about the Premises which shall cause the rate of fire
or other insurance on the Premises to be increased beyond the minimum rate from
time to time applicable to the Premises for the permitted use or permitted uses
made thereof, Tenant shall pay, as Additional Rent hereunder, the amount of any
such increase promptly upon demand by Landlord and shall cease such action until
such payment is made. All insurance required to be carried by Tenant must be
carried by companies licensed in Georgia which are reasonably acceptable to
Landlord
(c) Tenant hereby waives any rights of
action against Landlord for loss or damage to its improvements, fixtures and
personal property if such damage is covered by the type of "all risks" casualty
insurance required to be carried hereunder. Tenant shall cause its policy to
contain a waiver of subrogation provision.
23. GOVERNMENTAL REQUIREMENTS. Tenant shall, at its own expense, promptly
comply with all requirements of any legally constituted governmental or public
authority made necessary by reason Of TENANT'S occupancy of the Premises.
24. ABANDONMENT OF PREMISES. Tenant agrees not to abandon or vacate the
Premises during the Term or the Lease and to use said Premises for the purpose
herein leased and no other Until Expiration Date.
<PAGE>
25. ASSIGNMENT AND SUBLETTING. Tenant may not, without THe prior written
consent or Landlord, which consent shall not be unreasonably witheld, assign
this Lease or any interest hereunder, or sublet the Premises or any part thereof
or permit the use of the Premises by any party other than Tenant. In the event
that Tenant is a corporation or some other entity other than an individual, any
transfer of a majority or controlling interest in Tenant shall he considered an
assignment for purposes of this paragraph. Consent to one assignment or sublease
shall not destroy or waive this provision, and all later assignments and
subleases shall likewise be made only upon the prior written consent of
Landlord. In the event of any sublease or assignment to which Landlord consents,
Tenant shall pay to Landlord fifty percent (50%) of all consideration in excess
of the Rent due hereunder which Tenant receives from such assignee or subleasee.
Such amount shall be payable within five (5) days of the date Tenant receives
each payment from such assignee or subleasee. Subtenants or assignees shall
become liable to Landlord for all obligations or Tenant hereunder but Tenant
shall remain directly liable to Landlord for all Tenant's obligations under this
lease.
26. DEFAULT. If Tenant shall default lot the payment of Rent herein
reserved when due and fail to cure such default within five (5) days after
written notice or such default is given to Tenant by Landlord but Landlord shall
be required to provide only one (1) such written notice in any calendar year and
any late payment or Rent thereafter shall be an immediate default without any
notice or right to cure, or if Tenant shall be in default in performing any of
the terms or provisions of this Lease other than the provisions requiring the
payment of Rent, and fails to cure such default within fifteen (15) days after
notice of such default is given to Tenant by Landlord; or if Tenant vacates or
abandons the Premises; or if Tenant is adjudicated a bankrupt; or if a permanent
receiver is appointed for Tenant's Property and such receiver is not removed
within sixty (60) days after written notice from Landlord to Tenant to obtain
such removal; or if, whether voluntarily or involuntarily, Tenant takes
advantage of any debtor relief proceedings under any present or future law,
whereby the rent or any part thereof, is, or is proposed to be, reduced or
payment thereof deferred; or if Tenant's effects should be levied upon or
attached under process against Tenant, not satisfied or dissolved within fifteen
(15) days after written notice from Landlord to Tenant to obtain satisfaction
thereof; or, if Tenant is an individual, in the event of the death of the
individual and the failure of the executor, adiministrator personal
representative of the estate of the decreased individual to have assigned the
Lease within three (3) months after the death to an assignee approved by
Landlord; then, and in any of said events, Landlord, at its option, may exercise
any or all of the remedies set forth in Paragraph 27 below.
27. Remedies. Upon the occurrence of any default set forth in Paragraph 26
above which is not cured by Tenant within the applicable cure period, if any,
provided therein, Landlord may exercise all or any of the following remedies:
(i) terminate this Lease by giving Tenant written notice of the termination, in
which event this Lease shall terminate on the date specified in such notice and
all rights of Tenant under this lease shall expire and terminate as of such
date, Tenant shall remain liable for all obligations under this Lease up to the
date of such termination and Tenant shall surrender the Premises to Landlord on
the date specified in such notice, and if Tenant fails to so surrender Landlord
shall have the right, without notice, to enter upon and take possession of the
<PAGE>
Premises and to expel and remove Tenant and its effects without being liable for
prosecution or any claim of damages therefor; (ii) terminate this Lease as
provided in the immediately proceeding subsection and recover from Tenant all
damages Landlord may incur by reason of Tenant's default, including without
limitation, the then present value of (a) the total rent which would have been
payable hereunder by Tenant for the period beginning with the day following the
date of such termination and ending with the Expiration Date of the Term as
originally scheduled hereunder, minus (b) the aggregate reasonable rental value
of the Premises for the same period, plus (c) the costs of recovering the
Premises, and all other expenses incurred by Landlord due to Tenant's default,
including without limitation, reasonable attorney's fees, plus (d) the unpaid
Rent earned as of the date of termination plus interest, all of which sum shall
be immediately due and payable by Tenant to landlord; (iii) without terminating
this lease, declare immediately due and payable the present value (using a
discount rate of 9%) of all Rent due under this Lease for the entire remaining
scheduled Term of this Lease, together with the costs of recovering the Premises
and all other expenses incurred by Landlord in connection with Tenant's default,
plus the unpaid Rent earned as of the date of termination, plus interest
thereon: Landlord and Tenant acknowledging that such payment shall not be deemed
a penalty but shall merely constitute payment of liquid damages, it being
acknowledged by both parties that Landlord's actual damages, in the event of
such default, would be extremely difficult, if not impossible, to ascertain;
provided, however, that upon making any such payment, Tenant shall be entitled
to receive an amount from Landlord equal to all rents received by Landlord from
other tenants of the Premises during the remaining scheduled Term of the Lease,
provided that Tenant shall in no event be entitled to receive in excess of the
entire amount actually paid by Tenant to Landlord hereunder less all costs,
expenses and attorneys' fees of Landlord in connection with any re-letting; (iv)
without terminating this Lease, and without notice to Tenant, Landlord may in
its own name, but as agent for Tenant enter into and take possession of the
Premises and re-let the Premises, or a portion thereof, as agent of Tenant, upon
any terms and conditions as Landlord may deem necessary or desirable (Landlord
shall have no obligation to attempt to re-let the Premises or any part thereof.
Upon any such re-letting, all rentals received by Landlord from such re-letting
shall be applied first to the costs incurred by Landlord in accomplishing any
such re-letting and thereafter shall be applied to the Rent owed by Tenant to
Landlord during the remainder of the Term of this Lease.); (v) allow the
Premises to remain unoccupied and collect Rent from Tenant as it becomes due or
(vi) pursue such other remedies as are available at law or in equity.
28. DESTRUCTION OR DAMAGE. If the Premises are destroyed or damaged by
storm, fire, earthquake, or other casualty, Landlord shall notify Tenant in
writing, within ninety (90) days following such casualty, whether Landlord
reasonably deems that restoration can be accomplished within one (1) year after
the casualty occurs. If Landlord notifies Tenant that such restoration cannot be
accomplished within such period, or if substantial damage occurs during the last
year of the Term, this Lease shall terminate as of the date of such destruction
or damage and Rent shall be accounted for between Landlord and Tenant as of that
date. If Landlord deems that restoration can be accomplished within such period
and the casualty does not occur during the last year of the Term, Rent shall
abate in such proportion as the use of the Premises has been destroyed, Tenant
shall pay to Landlord all insurance proceeds covering the Premises, and Landlord
shall, to the extent of available insurance proceeds, restore the Property And
Premises to substantially the same condition as before the damage occurred as
soon as practicable, whereupon full Rent shall recommence. Notwithstanding
anything thereinabove to the contrary, if any such casualty causes material
damage and is not covered by Landlord's insurance, or if Landlord's mortgagee
does not make the insurance proceeds available to Landlord for restoration,
Landlord shall have the right to terminate this Lease at the time Landlord
provides Tenant the notice required above.
29. EMINENT DOMAIN. If the whole of the Premises, or such portion of either
as will make it economically unfeasible for Landlord to operate the Property or
will make the Premises unusable in the reasonable judgment of Landlord for the
purposes herein leased, is condemned or taken by any legally constituted
authority for any public use or purpose, then in either of said events, the Term
hereby granted shall cease from that time when possession thereof is taken by
the condemning authorities, and Rent shall be accounted for as between Landlord
and Tenant as of that date. Landlord shall notify Tenant of such determination
within ninety (90) days of the date title vests in the condemning authority. If
such taking occurs and Landlord does not terminate this Lease, this Lease shall
continue in full force and effect and the Rent shall be reduced pro rata in
proportion to the amount of the Premises so taken. Tenant shall have no right or
claim to any part of any award made to or received by Landlord for such
condemnation or taking, and all awards for such condemnation or taking shall be
made solely to Landlord.
30. SERVICE OF PROCESS. Except as otherwise provided by law, Tenant hereby
appoints its agent to receive the service of all dispossessory or distraint
proceedings and notices thereunder, the person in charge of or occupying the
Premises at the time of such proceeding or notice; and if no person be in charge
or occupying the Premises, then such service of notice may be made by attaching
the same to the front entrance of the Premises.
31. MORTGAGEE'S RIGHTS. Tenant agrees that this Lease shall be subject and
subordinate (i) to any loan deeds, mortgages, deeds to secure debt or any other
security interests now on the Premises and to all advances already made, or
which may be hereunder made on account of said loan deeds, mortgages, deeds to
secure debt or any other security interests to the full extent of all debts and
charges secured thereby and to all renewals or extensions of any part thereof,
and to any loan deed which now exists of which any owner of the Premises may
hereafter, at any time, elect to place on the Premises; (ii) to any Assignment
of Landlord's interest in Lease covering the Lease which now exists or which any
owner of the premises may hereafter, at any time elect to place on the Lease;
and (iii) to any Uniform Commercial Code Financing Statement covering the
personal property rights of Landlord or any Owner of the Premises which now
exists or any owner of the Premises may hereafter, at any time, elect to place
on thee foregoing personal property (all of the foregoing instruments set forth
in (i), (ii), and (iii) or above being hereafter collectively referred to as
"Security Documents"). Tenant agrees upon request of the holder of any Security
Documents ("Holder") to hereafter execute such paper or papers which the counsel
for Landlord or Holder may deem necessary to evidence the subordination of the
Lease to the Security Documents, in default of Tenant so doing, Landlord or
Holder is hereby empowered to execute such paper or papers in the name of Tenant
evidencing such subordination, as the act and deed of Tenant shall thereafter
remain bound pursuant to the terms of this Lease as if a new and identical Lease
between such Purchaser, as landlord, and Tenant, as tenant, had been entered
into for the reminder of the Term hereof and Tenant shall attorn to the
Purchaser upon such foreclosure sale and shall recognize such Purchaser as the
Landlord under the Lease. Such attornment shall be effective and self-operative
without the execution of any further instrument on the part of any of the
parties hereto. Tenant agrees, however, to execute and deliver at any time and
from time to time, upon the request of Landlord or of Holder, any instrument or
certificate that may the necessary or appropriate in any such Foreclosure
proceeding or otherwise to evidence such attornment.
<PAGE>
Tenant hereby acknowledges that if the interest of Landlord hereunder is
covered by an Assignment to Landlord's Interest in Lease, Tenant shall pay all
Rent due and payable under the Lease directly to the holder of the Assignment to
Landlord's Interest in Lease upon notification of the exercise of the rights
thereunder by the Holder thereof.
32. Tenant's Estoppel: Attornment. Tenant shall from time to time, upon not
less than ten (10) days prior written request by Landlord, execute, acknowledge
and deliver to Landlord a written statement certifying that this Lease is
unmodified and in full force and effect (or, if there have been modifications,
that the same is in full force and effect as modified and stating the
modifications), the dates to which the Rent has been paid, that Tenant is not in
default hereunder and has no offsets or defenses against Landlord under this
Lease, whether or not to the best of Tenants knowledge Landlord is in default
hereunder (and if so, specifying the nature of the default) and any other
information reasonably requested by Landlord, it being intended that any such
statement delivered pursuant to this paragraph may be relied upon by a
prospective purchaser of Landlord's interest or by a mortgagee of Landlord's
interest or assignee of any security deed upon Landlord's interest in the
Premises. In the event of any sale of the Property by Landlord, Tenant shall
attorn to the purchaser as Landlord hereunder. Such attornment shall be
effective and self-operative without the execution of any further instrument on
the part of any of the parties hereto. Tenant agrees, however, to executive and
deliver at any time and from time to time, upon the request of the Landlord or
of such purchaser any instrument on certificate that may be necessary to
appropriate to evidence such attornment.
33. Attorney Fees. If any Rent owing under this Lease is collected by or
through an Attorney at Law, Tenant agrees to pay fifteen percent (15%) thereof
as attorney's fees.
34. Parking. Landlord hereby agrees to maintain parking spaces on the
Property in a ratio equal to or greater than three (3) spaces per one thousand
rentable feet of the buildings on the Property. Tenant shall have no rights to
any specific parking spaces granted under this Lease; however, Tenant and its
employees shall be entitled to use the parking facilities located on the
Property in common with and on the same basis as the other tenants of the
Property. Landlord reserves the right to relocate, and to make alterations or
additions to such parking facilities at any time or to enter into
cross-easements to allow the use of such parking facilitated by the occupant of
other portions of the project of which the buildings on the Property are a part
of by adjoining land owners and their licenses and invites.
35. Storage. If landlord makes available to Tenant any storage space
outside the Premises anything stored therein shall be wholly at the risk of
Tenant, and Landlord shall have no responsibility of any character in respect
thereto.
36. Waste. (a) All normal trash and waste (i.e. waste that does not require
special handling pursuant to subparagraph (b) below) shall be disposed of
through the Tenant's janitorial service.
(b) Tenant shall not bring any hazardous
waste or substances (as defined by CERCLA, RCRA or any other applicable
government authority) into the Premises. Tenant hereby indemnifies and holds
harmless Landlord, its successors and assigns (including the holders of any
deeds to secure debt, mortgages or other security interest encumbering the
Property) from and against any loss, claims, demands, damage or injury Landlord
may suffer or sustain as a result of Tenant's failure to comply with the
provisions of this subparagraph (b).
37. Surrender of Premises. Whenever under the terms hereof Landlord is
entitled to possession of the Premises, Tenant at once shall surrender the
Premises and the keys thereto to Landlord in the same condition as on the
Commencement Date hereof, natural wear and tear and damage by casualty (unless
caused by Tenant) and condemnation only excepted, Tenant shall remove all of its
property therefrom and Landlord may forthwith re-enter the Premises and
repossess itself thereof and remove all persons and effects therefrom, using
such force as may be necessary without being guilty of forcible entry, detainer,
trespass or other tort. Tenant's obligation to observe or perform this covenant
shall survive the expiration or other termination of the Term of this Lease. If
the last day of the Term of this Lease or any renewal falls on Sunday or a legal
holiday, this Lease shall expire on the business day immediately preceding.
<PAGE>
38. Cleaning Premises. Upon vacating the Premises, Tenant agrees to clean
the Premises thoroughly or to pay Landlord for the cleaning necessary to restore
the Premises to their condition when Tenant's possession commenced, natural wear
and tear and damage by casualty (unless caused by Tenant) and condemnation only
excepted, regardless of whether any security deposit has been forfeited.
39. No Estate in Land. This contract shall create the relationship of
landlord and tenant between Landlord and Tenant; no estate shall pass out of
Landlord; Tenant has only a usufruct, not subject to levy or sale, and not
assignable by Tenant except with Landlord's consent.
40. Cumulative rights. All rights, powers and privileges conferred
hereunder upon the parties hereto shall be cumulative but not restrictive to
those given by law.
41. Paragraph Titles; Severability. The paragraph titles used herein are
not to be considered a substantive part of this Lease, but merely descriptive
aids to identify the paragraph to which they refer. Use of the masculine gender
includes the feminine and neuter, and vice versa, where necessary to impart
contextual continuity. If any paragraph or provision herein is held invalid by a
court of competent jurisdiction, all other paragraphs or severable provisions of
this Lease shall not be affected thereby, but shall remain in full force and
effect.
42. Damage or Theft of Personal Property. All personal property brought
into the Premises shall be at the risk of the Tenant only and Landlord shall not
be liable for theft thereof or any damage thereto occasioned by any acts of
co-tenants, or other occupants of the Property or any of the buildings located
thereon, or any other person, except, with respect to damage to the Premises, as
may be occasioned by the negligent or willful act of the Landlord, its employees
and agents.
43. Holding Over. In the event Tenant remains in possession of the Premises
after the expiration of the Term hereof, or of any renewal term, with Landlord's
acquiescence and without any express written agreement of the parties, Tenant
shall be a tenant at will and such tenancy shall be subject to all the
provisions hereof, except that the monthly rental shall be at double the monthly
Base Rent payable hereunder upon such expiration of the Term hereof, or of any
renewal term, as the same would be adjusted pursuant to the provisions of
Paragraph 4 hereof. There shall be no renewal of this Lease by operation of law
or otherwise. Nothing in this Paragraph shall be construed as a consent by
Landlord after the expiration of the Term hereof, or any renewal term.
44. Security Deposit. Tenant shall pay Landlord the sum of Five thousand
five hundred Dollars ($5,500.00) (hereinafter referred to as "Security Deposit")
which shall be held by the Landlord during the Term of this Lease, or any
renewal thereof. Under no circumstances will Tenant be entitled to any interest
on the Security Deposit. The Security Deposit may be used by Landlord, at its
discretion, to apply to any amount owing to Landlord hereunder, or to pay the
expenses of repairing any damage to the Premises, or to cure any default of
Tenant hereunder. If Landlord uses all or any portion of the Security Deposit as
permitted therein, Tenant shall, within ten (10) days of written demand by
Landlord, pay to Landlord the amount necessary to fully restore the Security
Deposit to its original amount. If there are no payments to be made from the
Security Deposit as set out in this paragraph, or if there is any balance of the
Security Deposit remaining after all payments have been made, the Security
Deposit, or such balance thereof remaining, will be refunded to the Tenant
within thirty (30) days after fulfillment by Tenant of all obligations
hereunder. In no event shall Tenant be entitled to apply the Security Deposit to
any Rent due hereunder. Upon sale or conveyance of the Property, Landlord may
transfer or assign the Security Deposit to any new owner of the Premises, and
upon such transfer all liability of Landlord for the Security Deposit shall
terminate. Landlord shall be entitled to commingle the Security Deposit with its
other funds.
45. Leasehold Improvements. Landlord hereby agrees to construct leasehold
improvements in the Premises, at a cost not to exceed $25,600.00, in accordance
with those plans and specifications ("Plans and Specifications") attached hereto
as Exhibit "C" and incorporated herein by reference ("Tenant's Work"). Tenant's
Work shall be constructed by a contractor chosen by Landlord and acceptable to
Tenant and shall be constructed in a good and workmanlike manner. Tenant shall
accept or reject contractor in a timely manner. Tenant shall not be entitled to
make any changes to the Plans and
<PAGE>
Specifications without the prior written consent of Landlord, which consent may
be withheld in Landlord's sole and absolute discretion unless Tenant first
agrees, in writing, to pay all increases and costs resulting from any such
change order and agrees that the determination of substantial completion of the
Tenant's Work shall be accelerated by the number of days of delay caused by such
change order. Landlord shall provide Tenant with up to $20,000.00 for additional
Leasehold Improvements on July 1, 1998. Said monies shall be provided after
Tenant submits to Landlord receipts for all materials, lien wavers signed by all
contractors, governmental permits and a certificate of occupancy. This
$20,000.00 shall applied to and be provided for Suite 200 only and shall not be
payable by Landlord if Tenant should purchase the Property on or before June 30,
1998.
46. Rules and Regulations. The Rules and regulations in regard to the
Property, annexed hereto as Exhibit "B", and all reasonable rules and
regulations, which Landlord may hereafter, from time to time, adopt and
promulgate for the government and management of said Property, are hereby made a
part of this Lease and shall, during the said term, be in all things observed
and performed by Tenant, his agents, employees and invites.
47. Quiet Enjoyment. Tenant, upon payment in full of the required Rent and
full performance of the terms, conditions, covenants and agreement contained in
this Lease, shall peaceably and quietly have, hold and enjoy the Premises during
the Term hereof. Landlord shall not be responsible for the acts or omissions of
any other tenant or third party that may interfere with Tenant's use and
enjoyment of the Premises.
48. Entire Agreement. This Lease contains the entire agreement of the
parties and no representations, inducement, promises, or agreements, oral or
otherwise, between the parties not embodied herein shall be of any force or
effect.
49. Limitation of Liability. Landlord's obligations and liability with
respect to this Lease shall be limited solely to Landlord's interest in the
Property, as such interest is constituted from time to time, and neither
Landlord nor any partner of landlord, or any officer, director, shareholder, or
partner of any partner of Landlord, shall have any personal liability whatsoever
with respect to this Lease.
50. Submission of Agreement. Submission of this Lease to Tenant for
signature does not constitute a reservation of space or an option to acquire a
right of entry. This Lease is not binding or effective until execution by and
delivery to both Landlord and Tenant.
51. Corporate Authority. If Tenant executes this Lease as a corporation,
each of the persons executing this Lease on behalf of Tenant does hereby
personally represent and warrant that Tenant is a duly organized and validly
existing corporation, that Tenant is qualified to do business in the State of
Georgia, that Tenant has full right, power and authority to enter into this
Lease, and that each person signing on behalf of Tenant is authorized to do so.
In the event any such representation and warranty is false, all persons who
execute this Lease shall be individually, jointly and severally, liable as
Tenant. Upon Landlord's request. Tenant shall provide Landlord with evidence
reasonably satisfactory to tenant confirming the foregoing representations and
warranties.
52. Notices. All notices, consents demands, requests, or other
communications required or permitted hereunder shall be deemed given, whether
actually received or not, when dispatched for hand delivery or delivery by air
express courier (with signed receipts) to the other party at the address set
forth below, or on the second business day after deposit in the United States
Mail, postage prepaid, certified, return receipt requested to the address set
forth below, except for notice of change of address which shall be deemed given
only upon actual receipt. Any time period for response to a notice shall begin
to run only when the notice is actually received, when delivery is refused or
when delivery cannot be accomplished because the party to whom the notice has
been sent can no longer be found at the correct notice address. The addresses of
the parties for notices are as follows:
<PAGE>
Landlord's Address for Notice: Tenant's Address for Notices:
Rand Realty Co. Electronic Claims & Funding, Inc.
1786 Resurgens Plaza Suite 200
945 E. Paces Ferry Rd., N.E. 2865 Amwiler Road
Atlanta, GA 30326 Atlanta, GA 30360
Attn: Mr. Stanley Levitt
53. Special Stipulations. Special Stipulations numbered 1 though 9 are
attached hereto as Exhibit "D" and made a part hereof and if the Special
Stipulations conflict with the above provisions, the Special Stipulations shall
control.
IN WITNESS WHEREOF, the parties herein have hereunto set their hands and
seals, the day and year first above written.
LANDORD: Rand Realty Co TENANT: Electronic Claims & Funding, Inc.
- ----------------------------------- -------------------------------------
BY: /s/ Harriet Rand BY: /s/
TITLE: President TITLE: President
(CORPORATE SEAL) (CORPORATE SEAL)
WITNESS: /s/ ATTESTED TO:
BY: /s/ Barbara B. Hughes
ITS: Vice President
(Corporate Secretary)
(CORPORATE RESOLUTION ATTACHED)
<PAGE>
CORPORATE RESOLUTION
Name of Corporation: Electronic Claims and Funding, Inc. a Georgia Corporation
I, the undersigned, hereby certify that I am an officer of the above named
Corporation; that the following is a true copy of the resolution duly adopted by
the Board of Directors of this Corporation at a meeting duly held on 5 day of
July, 1995, at which a quorum was present, and that such resolution has not been
rescinded or modified and is now in full force and effect.
Resolved, that Thomas W. Hughes has the authority to enter into this Lease
Agreement for Electronic Claims and Funding, Inc.
In Witness Whereof, I have hereunto subscribed my name and affixed the sale of
this Corporation,
this 7 day of July, 1995.
/s/ James E. Hunding
- ----------------
Title: Chairman of Board/Secretary
(Affix Corporate Seal)
<PAGE>
AMENDMENT TO LEASE
THIS AMENDMENT TO LEASE, made this 3rd day of January, 1997, between T & J
Enterprises, LLC as "Lessor", as successors in interest to 2865 Amwiler Road,
and Electronic Claims & Funding, Inc., as "Lessee."
W I T N E S S E T H
WHEREAS, by Lease Agreement dated the 1st of August, 1995 (the "Lease"),
Lessor did lease to Lessee a certain Premises (the "Demised Premises") in the
office building known as 2865 Amwiler Road located in Gwinnett County, Georgia;
and
WHEREAS, "Lessee" and "Lessor" desire to amend said Lease as follows:
NOW THEREFORE, in consideration of the Premises and the sum of ten and
00/100 dollars ($10.00) and other good and valuable considerations, the receipt
and sufficiency of which are hereby acknowledged, it is mutually agreed as
follows:
1. The Premises is hereby increased from 6,400 rentable square feet to
9,600 rentable square feet.
2. The monthly rent as stipulated in Exhibit "D" of the Lease is now based
upon 9,600 rentable square feet. The commencement date for this Amendment is
January 1, 1997. The monthly rent beginning January 1, 1997, is $6,776.00 and
shall escalate as described in Exhibit "D" which is four percent (4%) per lease
year. The common area maintenance fee paid monthly is also now based upon 9,600
rentable square feet.
3. Tenant hereby accepts the premises in "as is" condition without further
obligation from the Landlord.
4. All other terms and conditions of the Lease shall remain in full force
and effect.
IN WITNESS WHEREOF, "Lessor" and "Lessee" have caused this Third Amendment
to be duly authorized, executed and delivered as of the day and year first above
written.ove written.
Lessor: Lessee:
T & J ENTERPRISES, LLC ELECTRONIC CLAIMS & FUNDING, INC.
By: /s/ By: /s/ Roger L. Primeall
Its: /s/ Its:
<PAGE>
EXHIBIT E2
FIRST RIGHT REFUSAL AREA AMENDMENT
PAGE 1
THIS AMENDMENT TO LEASE AGREEMENT, is made into this ____ day of _______ 19__,
by and between RAND REALTY CO. ("Landlord") and ELECTRONIC CLAIMS & FUNDING,
INC. ("Tenant")
WITHNESSETH
WHEREAS, Landlord and Tenant have heretofore entered into that certain
Lease Agreement, attached hereto and incorporated herein by this reference
regarding certain real property in Land Lot 250 of the 6th District of Gwinnett
County, Georgia (the "Lease") covering the lease of Property described as: 2865
Amwiler Road, Atlanta, Georgia.
WHEREAS, Landlord and Tenant desire to amend the Lease,
NOW THEREFORE, for and in consideration of the sum of ONE AND NO/100THS
($1.00) DOLLAR and other good and valuable consideration, the receipt and
sufficiency of which is acknowledged by Landlord and Tenant, Landlord and Tenant
hereby agree as follows:
1. Tenant desires to lease the additional space by approximately 6528 gross
square feet which represents 16.42% of the total gross square footage of the
entire building for purposes of Tenant's pro rata charge of common area
maintenance charge, tax charge and insurance charge, base rental and any other
charge as set forth in the Lease.
2. Upon the execution of this amendment, Tenant shall pay to Landlord as
additional monthly Base Rental pursuant to Special Stipulation 2 in Exhibit "D"
of the Lease. Provided, however, in no event will the monthly Base Rental be
less than the rate as stipulated on a square footage bases in Exhibit D 1. In
terms of which the minimum base rental shall be:
If Right to Exercise in period 8/1/95 to 6/30/95; $4,428.16 per month or
$53.137.92 per annum which is calculated at $8.14 per square foot per annum for
base rental. This Right of First Refusal to rent additional space will escalate
at the same rate and at the same time intervals as set out in Paragraph 1 of
Special Stipulations in Exhibit "D".
3. Landlord will spend up to a maximum of $26, 112..00 of Leasehold improvement
money as provided for in Paragraph 45 of Lease if Tenant executes this Amendment
no later than June 30, 1997.
4. Tenant shall tender an additional security deposit equal to the first full
months Base Rental.
5. Lease Guaranty - The obligations of Tenant under this Lease shall be
unconditionally guaranteed by Video Enterprises Corporation d/b/a Entre Computer
Center, who agrees to execute the Lease Guaranty attached by Exhibit "G" hereto.
6. Assignment - Provided that Lease Guaranteed in terms of Paragraph 5 hereof,
Lease can be assigned to any entity in which effectively is 100% owned and
controlled by James Hindy and Thomas Hughes.
Except as expressly amended hereby, the Lease shall otherwise remain in
full force and effect as originally executed and previous amendments.
This Amendment shall bind and inure to the benefit of the parties hereto,
their respective heirs, executors, administrators, successors and assigns.
IN WITNESS WHEREOF, the Landlord and Tenant have signed, scaled and
delivered this Agreement on the day, month, and year first above written.
LANDLORD: RAND REALTY CO. TENANT: ELECTRONIC CLAIMS &
FUNDING, INC.
By: By:
----------------------------------- ------------------------------------
Title: Title:
-------------------------------- ---------------------------------
<PAGE>
EXHIBIT E3
FIRST RIGHT REFUSAL AREA AMENDMENT
PAGE 1
THIS AMENDMENT TO LEASE AGREEMENT, is made and entered into this *_______ day of
_______ 19__, by and between RAND REALTY CO. (Landlord") and ELECTRONIC CLAIMS &
FUNDING, INC. ("Tenant")
WITNESSETH
WHEREAS, Landlord and Tenant have heretofore entered into that certain
Lease Agreement, attached hereto and incorporated herein by this reference
regarding certain real property in Land Lot 250 of the 6th District of Gwinnett
County, Georgia (the "Lease") covering the lease of Property described as: 2865
Amwiler Road, Atlanta, Georgia.
WHEREAS, Landlord and Tenant desire to amend the Lease,
NOW, THEREFORE, for and in consideration of the sum of ONE AND NO/1OOTHS
($1.00) DOLLAR and other good and valuable consideration, the receipt and
sufficiency of which is acknowledged by Landlord and Tenant, Landlord and Tenant
hereby agree as follows:
1. Tenant desires to lease the additional space as shown on the floor plan on
page two of this amendment. This additional space will increase Tenants space by
approximately 12,428 gross square feet which represents 31.26% of the total
gross square footage of the entire building for purposes of Tenant's pro rata
charge of common area maintenance charge, tax charge and insurance charge, base
rental and any other charge as set forth in the Lease.
2. Upon the execution of this amendment, Tenant shall pay to Landlord as
additional monthly Base Rental pursuant to Special Stipulation 2 in Exhibit "D"
of the Lease. Provided, however, in no event will the monthly Base Rental be
less than the rate as stipulated on a square footage bases in Exhibit D 1 . In
terms of which the minimum base rental shall be:
If Right to Exercise in period 8/1/95 to 6/30/96; $8,430.32 per month or
$101,163.92 per annum which is calculated at $8.14 per square foot per annum for
base rental. This Right of First Refusal to rent additional space will escalate
at the same rate and at the same time intervals as set out in Paragraph 1 of
Special Stipulations in Exhibit "D".
3. Landlord will spend up to a maximum of $49,712.00 of Leasehold improvement
money as provided for in Paragraph 45 of Lease if Tenant executes this Amendment
no later than June 30, 1997.
4. Tenant shall tender an additional security deposit equal to the first full
months Base Rental.
5. Lease Guaranty - The obligations of Tenant under this Lease shall be
unconditionally guaranteed by Video Enterprises Corporation d/b/a Entre Computer
Center, who agrees to execute the Lease Guaranty attached by Exhibit "G" hereto.
6. Assignment - Provided that Lease Guaranteed in terms of Paragraph 5 hereof,
Lease can be assigned to any entity in which effectively is 100% owned and
controlled by James Hindy and Thomas Hughes.
Except as expressly amended hereby, the Lease shall otherwise remain in
full force and effect as originally executed and previous amendments.
This Amendment shall bind and inure to the benefit of the parties hereto,
their respective heirs, executors, administrators, successors and assigns.
IN WITNESS WHEREOF, the Landlord and Tenant have signed, sealed and
delivered this Agreement on the day, month, and year first above written.
LANDLORD: RAND REALTY CO. TENANT: ELECTRONIC CLAIMS & FUNDING, INC.
By: By:
----------------------------------- ------------------------------------
Title: Title:
-------------------------------- ---------------------------------
EXHIBIT 10.6
CONFIDENTIAL
July 15, 1998
MEDE AMERICA CORPORATION
------------------------
$15,000,000 SENIOR SECURED CREDIT FACILITIES
--------------------------------------------
COMMITMENT LETTER
-----------------
MedE America Corporation
90 Merrick Avenue, Suite 501
East Meadow, NY 11554
Attention: Mr. Richard Bankosky
Ladies and Gentlemen:
Bank of America National Trust and Savings Association ("Bank of America") is
pleased to advise you that it is willing, subject to the terms and conditions
contained in this letter and in the attached Summary of Terms and Conditions
(the "Term Sheet"), to commit up to $15,000,000 of senior secured credit
facilities (the "Senior Facilities").
It is agreed that Bank of America will act as the sole and exclusive
Administrative Agent for the Senior Facilities. You agree that no other agents,
co-agents or arrangers will be appointed, no other titles will be awarded and no
compensation (other than that expressly contemplated by the Term Sheet) will be
paid in connection with the Senior Facilities unless you and we shall so agree.
In addition to the conditions to funding or closing set forth in the Term Sheet,
Bank of America's commitment to provide financing hereunder is subject to, among
other conditions, (i) the negotiation and execution of a definitive credit
agreement (the "Credit Agreement") and other related documentation satisfactory
to the Lenders; (ii) there being no material adverse change in the reasonable
opinion of Bank of America in the financial condition, business, operations,
properties or prospects of the Borrower and its consolidated subsidiaries from
the date of the audited financial statements most recently provided prior to the
date hereof; (iii) there be no competing offering, placement, or arrangement of
any debt securities or bank financing by or on behalf of the Borrower, until the
closing of the transaction.
Whether or not the transactions contemplated hereby are consummated, the
Borrower hereby agrees to indemnify and hold harmless Bank of America, and their
respective directors, officers, employees and affiliates (each, an "indemnified
person") from and against any and all losses, claims, damages, liabilities (or
actions or other proceedings commenced or threatened in respect thereof) and
expenses that arise out of, result from or in any way relate to this commitment
letter, or the providing of the Senior Facilities, and to reimburse each
indemnified person, upon its demand, for any legal or other expenses (including
the allocated cost of in-house counsel) incurred in connection with
investigating, defending or participating in any such loss, claim, damage,
liability or action or other proceeding (whether or not such indemnified person
is a party to any action or proceeding out of which any such expenses arise),
other than any of the foregoing claimed by any indemnified person to the extent
incurred by reason of the gross negligence or willful misconduct of such person.
Neither Bank of America, nor any of their affiliates, shall be responsible or
liable to the Borrower or any other person for any consequential damages which
may be alleged.
<PAGE>
MedE America Corporation
July 15, 1998
Page 2
In addition, the Borrower hereby agrees to reimburse Bank of America from time
to time upon demand for their reasonable out-of-pocket costs and expenses
incurred at any time, including (i) attorneys' fees and allocated costs of
internal counsel (without duplication) in connection with the preparation and
delivery of the Credit Agreement and all related documents, and (ii) costs and
expenses in connection with the negotiation, closing, and enforcement of the
Senior Facilities, regardless of whether the Senior Facilities close. The
Borrower shall also pay all costs and expenses of the Administrative Agent
associated with amendments and other changes to the Credit Agreement, and all
costs and expenses of the Lenders in the collection of the obligations of the
Borrower (including reasonable attorney's fees and allocated costs of internal
counsel).
The terms contained in this letter and the Term Sheet are confidential and,
except for disclosure to your board of directors, officers and employees, to
professional advisors retained by you in connection with this transaction, or as
may be required by law, may not be disclosed in whole or in part to any other
person or entity without our prior written consent.
Upon your delivery to us of a signed copy of this letter, this letter shall
become a binding agreement under New York law as of the date so accepted. Bank
of America's commitment hereunder shall remain in effect until 5:00 p.m. Chicago
time, on July 31, 1998 when, if not so accepted, Bank of America's commitment
hereunder will terminate. This commitment will expire on September 1, 1998 if
the Senior Facilities have not closed on or before that date.
We are pleased to have the opportunity to work with you on this important
financing.
Very truly yours,
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By:
---------------------------
Title: Vice President
ACCEPTED AND AGREED TO:
MEDE AMERICA CORPORATION
THIS_____DAY OF JULY, 1998
By:
---------------------------
Title:
------------------------
<PAGE>
Confidential MEDE AMERICA CORPORATION
- --------------------------------------------------------------------------------
SUMMARY OF TERMS AND CONDITIONS1
MEDE AMERICA CORPORATION
$15,000,000 SENIOR SECURED CREDIT FACILITIES
BORROWER: MEDE AMERICA CORPORATION ("MedE" or the "Borrower").
GUARANTORS: All material operating subsidiaries and holding companies of
the Borrower.
ADMINISTRATIVE
AGENT: Bank of America National Trust and Savings Association (in
such capacity "Bank of America" or "Administrative Agent")
FACILITIES: Senior Secured Credit Facilities (the "Senior Facilities") up
to $15,000,000 consist- ing of:
(1) $7,500,000 2 -- year senior secured non-amortizing
revolving credit facility (the "Revolver").
(2) $7,500,000 2 -- year senior secured term loan ("Term Loan
A").
LENDERS: Bank of America.
PURPOSE: The Revolver will be used for working capital and general
corporate purposes.
The Term Loan A will be used to finance future acquisitions
including related fees and expenses.
AVAILABILITY: The Revolver will be available on a revolving basis after the
closing of the Senior Facilities ("Closing Date") and prior to
the maturity thereof.
- ---------
1 Unless otherwise defined herein, capitalized terms used herein shall have
the respective meanings set forth in the Commitment Letter to which this
Exhibit A is attached.
<PAGE>
Confidential MEDE AMERICA CORPORATION
- --------------------------------------------------------------------------------
Term Loan A may be drawn at any time up to the expiry date,
and once repaid may not be reborrowed. Availability under the
Term Loan A will be subject to (i) Bank of America's prior
written approval of acquisition target in a parallel line of
business, (ii) proforma covenant compliance and (iii) both
MedE and the acquisition target having Y2K compliant systems.
COVENANTS: The Company shall be at all times compliant with the following
covenants. (i) Debt/EBITDA Maximum 2.0x.
(ii) Interest Coverage Minimum 3.0x.
MATURITY DATE: Two year anniversary of the Closing Date, but no later than
October 31, 1998.
MANDATORY
PREPAYMENTS/
COMMITMENT
REDUCTIONS: Mandatory prepayments of Term Loan A will be made from: (1)
100% of the net cash proceeds of permitted asset sales
(subject to a basket and reinvestment rights to be
negotiated), (2) 100% of the net cash proceeds from any debt
offering, (3) 75% of the net cash proceeds received from the
issuance of equity securities and capital contributions,
exclusive of the August 1998 IPO. (4) 100% of the net cash
proceeds from insurance recovery and condemnation events,
subject to certain reinvestment rights to be agreed upon, and
(5) 100% of annual excess cash flow (to be defined), provided
that so long as no default or event of default exists under
the Senior Facilities, such percentage shall be reduced on a
basis to be determined based upon the achievement of certain
Leverage Ratios to be determined. Each such prepayment of the
Term Loan A shall be applied pro rata to the remaining
scheduled amortization payments of Term Loan A.
In addition, (x) loans under the Revolver will have to be
prepaid or cash collateralized, as appropriate, if at any time
the outstanding amount thereof ex- ceeds the total commitments
for the Revolver and (y) all Term Loan A shall be required to
be repaid, and the Revolver will terminate, upon the
occurrence of a change of control (to be defined) of the
Borrower.
COLLATERAL: Substantially similar to that in existing credit agreement,
including, but not limited to:
(1) A first lien on all the assets of the Company and its
subsidiaries.
(2) Stock of all subsidiaries.
PAGE 2
<PAGE>
Confidential MEDE AMERICA CORPORATION
- --------------------------------------------------------------------------------
BORROWING At the Borrower's option, interest on borrowings shall accrue
OPTIONS: on the following indexes plus the applicable spreads.
Eurodollar Rate: The Interbank Offered Rate (IBOR) for 1, 2,
3, 6 month dollar deposits as offered by Bank of America to
prime international banks in the off-shore dollar market at
11:00 a.m. New York time three business days prior to the
borrowing date, adjusted for reserve requirements.
Base Rate: The higher of (a) the rate as publicly announced
from time to time by Bank of America as its "Reference Rate"
or (b) Federal Funds Rate plus one-half of one percent per
annum. Any change in the Base Rate shall take effect at the
opening of business on the date specified in the public
announcement of such change in the case of clause (a) above,
or on a daily basis in the case of clause (b) above.
BORROWING RATE: With respect to Eurodollar Loans, the Eurodollar Rate plus the
Applicable Euro- dollar Margin described below. With respect
to Base Rate Loans, the Base Rate plus the Applicable Base
Rate Margin described below.
All amounts outstanding under the Senior Facilities shall bear
interest, at the Borrower's option, as follows:
A. With respect to the Revolver:
(i) at the Base Rate plus 0.25% per ammum; or
(ii) at the Eurodollar Rate plus 1.25% annum;
B. With respect to Term Loan A:
(i) at the Base Rate plus 0.25% per annum; or
(ii) at the Eurodollar Rate plus 1.25% per annum
Interest on Base Rate borrowings are to accrue base on a 365
(6)-day year and actual days elapsed. Interest on Eurodollar
borrowings and all fees are to accrue based on a 360-day year
and actual days elapsed.
INTEREST PAYMENTS:Interest on Base Rate advances shall be payable quarterly in
arrears. In the base of Eurodollar Loans, the earlier of the
end of each applicable interest period or quarterly in
arrears.
PAGE 3
<PAGE>
Confidential MEDE AMERICA CORPORATION
- --------------------------------------------------------------------------------
COMMITMENT FEE: Commitment Fee equal to 0.50% per annum times the total amount
of the Senior Facilities. Commitment Fees shall be payable
quarterly in arrears.
DEFAULT RATE: 2.00% above the rate otherwise applicable rate of Senior
Facilities.
REVOLVER
DRAWDOWNS: Revolver drawdowns are at the Borrower's option with one day
advance notice (by 11:00 a.m. New York time) for Base Rate
Loans and three business days advance notice (by 11:00 a.m.
New York time) for Eurodollar Loans in minimum amounts to be
determined.
VOLUNTARY
PREPAYMENTS: Base Rate Loans may be prepaid at any time, with same day
notice (by 11:00 a.m. New York time). Eurodollar Loans may be
prepaid at any time with at least three business days advance
notice (by 11:00 a.m. New York time), subject to compensating
the Lenders for any funding losses and related expenses in
connection with any prepayment made on a day other than the
last day of an interest period applicable thereto. Voluntary
prepayments shall be subject to minimum amounts to be
determined. Voluntary prepayments of Term Loan A shall be
applied to the outstanding Term Loan A and shall be applied to
reduce the scheduled amortization payments of each such
tranche of Term Loan A.
TERMINATION OR
VOLUNTARY
REDUCTION
OF THE FACILITIES:The Borrower may irrevocably reduce the commitments under the
Revolver in amounts of at least $1,000,000 at any time on
three business days advance notice.
DOCUMENTATION: The Senior Facilities will be subject to the execution of a
credit agreement (the "Credit Agreement") containing suitable
provisions mutually acceptable to the Borrower and the
Administrative Agent, including, without limitation,
representations and warranties, conditions precedent to
effectiveness, conditions precedent to making advances,
affirmative and negative covenants and events of default, as
outlined below.
REPRESENTATIONS
AND WARRANTIES: Those customarily found in credit agreements for similar
financings and such additional representations and warranties
as are appropriate under the circumstances, including but not
limited to representations related to corporate existence,
financial condition, litigation, no breach, corporate
authority, approvals,
PAGE 4
<PAGE>
Confidential MEDE AMERICA CORPORATION
- --------------------------------------------------------------------------------
ERISA, taxes, Investment Company Act, credit agreements and
other material agreements, investments, compliance with laws
and regulations, disclosure, assets, solvency, labor matters,
environmental matters, proprietary rights, real property,
insurance and Year 2000 compliance.
CONDITIONS TO THE
CLOSING DATE: Those customarily found in credit agreements for similar
financings and such additional conditions as are appropriate
under the circumstances, including but not limited to:
o MedE's IPO occurs;
o Repayment and cancellation of existing bank credit
facilities and other indebtedness;
o All documents and agreements signed and delivered;
o No Event of Default or incipient default;
o All representations and warranties are true as of the
date of each advance;
o Satisfactory completion of legal due diligence.
o No material adverse change in operations, business,
properties, condition (financial or otherwise) or
prospects of the Borrower or any of its subsidiaries
taken as a whole ("Material Adverse Change");
o No material adverse effect in the ability of the
Borrower to perform their obligations under the
Senior Facilities;
o No material adverse litigation
CONDITIONS TO EACH
ADVANCE (INCLUDING
INITIAL ADVANCE)
o No default of event of default under the Senior Facilities.
o Continued accuracy in all material respects of the
representations and warranties.
o Advances under the Term Loan A will be subject to: (i)
Bank of America's prior written approval of acquisition
target in a parallel line of business, (ii) proforma
covenant compliance and (iii) both MedE and the
acquisition target having Y2K compliant systems.
AFFIRMATIVE
COVENANTS: Standard for the Administrative Agent's similar financing and
such others as the Administrative Agent deems appropriate in
the context of the proposed Transaction, including the
obtaining of interest rate protection in amounts, and for
periods, to be determined.
PAGE 5
<PAGE>
Confidential MEDE AMERICA CORPORATION
- --------------------------------------------------------------------------------
FINANCIAL
COVENANTS: Usual and customary for transactions of this type including
but not limited to:
1. Maximum Leverage Ratio of 2.0x
2. Minimum Interest Coverage Ratio of 3.0x
NEGATIVE
COVENANTS: Standard for the Administrative Agent's similar financing and
such others as the Administrative Agent deems appropriate in
the context of the proposed Transaction, including, but not
limited to:
o Year 2000 Compliance required by 8/1/99
o Change of control (i.e. Facilities must be reconfirmed in
the event that an entity other than WCAS and its
affiliates assumes a controlling interest in the Company.)
o Restrictions on lines of business.
o Limitations on additional indebtedness and leasing
obligations.
o Restrictions on liens.
o Limitations on investments.
o Limitations on dividends and repayment of certain other
indebtedness.
o Restrictions on consolidations, mergers, acquisitions,
dissolutions, etc.
o Restrictions on assets dispositions.
o Restrictions on sale-leaseback transactions.
o Loan proceeds not to be used in violation of Regulation U.
o Restrictions on transactions with affiliates.
o Restrictions on the payment of management fees.
EVENTS OF
DEFAULT: Standard for the Administrative Agent's similar financing and
such others as the Agent deems appropriate in the context of
the proposed Transaction.
INCREASED COSTS/
CHANGE OF
CIRCUMSTANCE/
CAPITAL ADEQUACY/
INDEMNITIES: The Credit Agreement shall contain customary provisions
protecting and indemnifying the Lenders in the event of
unavailability of funding, illegality, increased costs,
capital adequacy charges and funding losses, and shall provide
for a withholding tax gross-up, and general indemnification of
the Administrative Agent, by the Borrower.
PAGE 6
<PAGE>
Confidential MEDE AMERICA CORPORATION
- --------------------------------------------------------------------------------
EXPENSES: The Borrower will pay all costs and expenses incurred at any
time by the Administrative Agent (including, without
duplication, reasonable attorney's fees and allocated costs of
internal counsel) in connection with the preparation and
delivery of the Credit Agreement and all related documents,
and in the negotiation, closing, and enforcement of the
Facilities, regardless of whether the Facilities close. The
Borrower shall also pay all costs and expenses of the
Administrative Agent associated with amendments and other
changes to the Credit Agreement, and all costs and expenses of
the Lenders in the collection of the obligations of the
Borrower (including reasonable attorneys' fees and allocated
costs of internal counsel).
DOCUMENTATION: Closing is subject to (among other conditions precedent) the
receipt by the Administrative Agent and the Lenders of loan
documentation in form and substance satisfactory to them.
GOVERNING LAW: State of New York.
This Summary of Terms and Conditions (the "Term Sheet") does not attempt to
describe all of the terms and conditions that would pertain to the Facilities,
nor do its terms suggest the specific phrasing of documentation clauses.
Instead, it is intended to outline certain points of business understanding
around which the Facilities will be structured. The closing of any financial
transaction relating to the Facilities would be subject to definitive loan
documentation mutually acceptable to the Borrower and the Administrative Agent
and would include various conditions precedent, including without limitations
the conditions set forth above.
PAGE 7
EXHIBIT 10.7
NON-COMPETITION, NON-SOLICITATION
AND CONFIDENTIALITY AGREEMENT
THIS AGREEMENT is made this ____ day of __________, 1998, by
and between MEDE AMERICA CORPORATION (the "Company") and _________________
("Employee").
In consideration of the employment of the Employee and the
salary and other remuneration and benefits paid by the Company to the Employee
while employed by the Company, and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged by the parties, the
parties agree:
1. NON-COMPETITION
(a) The Employee agrees that the Company is engaged in the
highly-competitive business of providing Healthcare Electronic Data Interchange
("EDI") services. The Employee agrees that due to the Employee's unique position
with the Company, which encompasses, among other things, strategic planning,
business development, promotion of shareholder interests, maintenance of
positive investor relations, and the supervision of personnel related to these
functions, engaging in any business which is directly or indirectly competitive
with the Company will cause the Company great and irreparable harm.
(b) The Employee agrees that the Employee's work for the
Company has brought and will continue to bring the Employee into close contact
with many of the Company's customers, trade secrets and confidential and
proprietary information. The Employee further agrees that the covenants
contained in paragraph 1(d) of this Agreement are reasonable and necessary to
protect the Company's legitimate business interests in its customer
relationships, trade secrets and proprietary and confidential information
(c) The Employee agrees that while employed by the Company, the
Employee will faithfully devote the Employee's best efforts and entire time to
advance the interests of the Company and will not directly or indirectly, on the
Employee's own behalf or another's behalf, engage in any manner in any business
relating to the provision of Healthcare EDI services, other than as an employee
of the Company.
1
<PAGE>
(d) The Employee agrees that for twelve (12) months after the
cessation of the Employee's employment with the Company, the Employee shall not,
directly or indirectly, on the Employee's own behalf or another's behalf, engage
in or perform, strategic planning, business development, promotion of
shareholder interests, maintenance of positive investor relations, and the
supervision of personnel related to these functions in a Healthcare EDI
organization, anywhere within the United States. The provisions of this
subparagraph apply, but are not limited to, the performance of the
above-described services for Envoy/NEIC, Inc. as an employee, officer, director,
partner or consultant.
2. NON-S0LICITATION OF CUSTOMERS
(a) The Employee agrees that while employed by the Company, the
Employee has had and will continue to have contact with and become aware of the
Company's customers and the representatives of those customers, their names and
addresses, specific customer needs and requirements, and leads and references to
prospective customers. The Employee further agrees that loss of such customers
will cause the Company great and irreparable harm.
(b) The Employee agrees that, for twelve (12) months after the
cessation of employment, the Employee will not directly or indirectly solicit,
contact, call upon, communicate with or attempt to communicate with any
customer, former customer or prospective customer of the Company for the purpose
of providing Healthcare EDI services. This restriction shall apply only to any
customer, former customer or prospective customer of the Company with whom the
Employee had contact during the Employee's employment with the Company. For the
purposes of this paragraph, "contact" means interaction between the Employee and
the customer, former customer or prospective customer which takes place to
initiate, develop or further the business relationship, or performing services
for the customer, former customer or prospective customer on behalf of the
Company.
3. NON-SOLICITATION OF EMPLOYEES
The Employee agrees that, for as long as the Employee is
employed by the Company and for twelve (12) months after the cessation of the
Employee's employment, the Employee will not recruit, hire or attempt to recruit
or hire, directly or by assisting others, any other employee of the
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<PAGE>
Company with whom the Employee had contact during the Employee's employment with
the Company. For the purposes of this paragraph, "contact" means any interaction
whatsoever between the Employee and the other employee.
4. TRADE SECRETS AND CONFIDENTIAL INFORMATION
(a) The Company's involvement in the business of Healthcare EDI
services has required and continues to require the expenditure of substantial
amounts of money and the use of skills developed over a long period of time. As
a result of these investments of money, skill and time, the Company has
developed and will continue to develop certain valuable trade secrets and
confidential information that are peculiar to the Company's business, the
disclosure of which would cause the Company great and irreparable harm.
(b) The term "Trade Secrets" means any scientific or technical
information, design, process, procedure, formula or improvement that is valuable
and not generally known to the Company's competitors. To the fullest extent
consistent with the foregoing and otherwise lawful, Trade Secrets shall include,
without limitation, information and documentation pertaining to the design,
specifications, capacity, testing, installation, implementation and customizing
techniques and procedures concerning the Company's present and future products
and services.
(c) The term "Confidential Information" means any data or
information and documentation, other than Trade Secrets, which is valuable to
the Company and not generally known to the public, including, but not limited
to:
i. Financial information, earnings, assets, debts, prices,
fee structures, volumes of purchases or sales, or other financial data, whether
relating to the Company generally or to particular products, services,
geographic areas or time periods;
ii. Supply and service information, including, but not
limited to, information concerning the goods and services utilized or purchased
by the Company, the names and addresses of suppliers, terms of supplier service
contracts or of particular transactions, or related information about potential
suppliers, to the extent that such information is not generally known to the
public, and to the extent that the combination of suppliers or use of particular
suppliers, though
3
<PAGE>
generally known or available, yields advantages to the Company the details of
which are not generally known;
iii. Marketing information, including, but not limited to,
details about ongoing or proposed marketing programs or agreements by or on
behalf of the Company, marketing forecasts, results of marketing efforts or
information about impending transactions;
iv. Personnel information, including, but not limited to,
employees' compensation or other terms of employment, actual or proposed
promotions, hiring, resignations, disciplinary actions, terminations or reasons
therefor, training methods, performance or other employee information; and,
v. Customer information, including, but not limited to,
any compilations of past, existing or prospective customers or customer
representatives, customer proposals or agreements between customers and the
Company, status of customer accounts or credit, customer preferences or related
information about actual or prospective customers.
5. NON-DISCLOSURE OF TRADE SECRETS
AND CONFIDENTIAL INFORMATION
The Employee agrees, except as specifically required in the
performance of the Employee's duties for the Company, that the Employee will
not, during the course of employment by the Company and for so long thereafter
as the pertinent information or documentation remain Trade Secrets, directly or
indirectly use, disclose or disseminate to any other person, organization or
entity or otherwise employ any Trade Secrets. The Employee further agrees,
except as specifically required in the performance of the Employee's duties for
the Company, that the Employee will not, during the course of employment by the
Company and for twelve (12) months after the cessation of that employment,
disclose or disseminate to any other person, organization or entity or otherwise
employ any Confidential Information. The obligations set forth herein shall not
apply to any Trade Secrets or Confidential Information which shall have become
generally known to competitors of the Company through no act or omission of the
Employee.
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<PAGE>
6. RETURN OF PROPERTY
The Employee agrees to deliver to the Company upon the
cessation of employment, and at any other time upon the Company's request, (i)
all memoranda, notes, records, computer programs, computer files, computer
equipment, drawings or other documentation, whether made or compiled by the
Employee alone or with others or made available to the Employee while employed
by the Company, pertaining to Trade Secrets, Confidential Information, and (ii)
all Trade Secrets, Confidential Information of the Company in the Employee's
possession.
9. WAIVER OF BREACH
The Company's waiver of a breach of any provision of this
Agreement by the Employee does not waive any subsequent breach by the Employee,
nor does the Company's failure to take action against any other employee for
similar breaches operate as a waiver by the Company of a breach.
11. SEVERABILITY
If any provision in this Agreement is determined to be in
violation of any law, rule or regulation or otherwise enforceable, such
determination shall not affect the validity of any other provision of this
Agreement, but such other provisions shall remain in full force and effect. Each
provision, paragraph and subparagraph of this Agreement is severable from every
other provision, paragraph and subparagraph and constitutes a separate and
distinct covenant.
12. SUCCESSORS
This Agreement shall be binding upon and inure to the benefit
of the Company and its successors and assigns, and the Employee, the Employee's
heirs, executors and administrators.
13. INJUNCTIVE RELIEF
The Employee understands, acknowledges and agrees that in the
event of a breach or threatened breach of any of the covenants and promises
contained in this Agreement, the Company will suffer irreparable injury for
which there is no adequate remedy at law, and the Company will therefore be
entitled to injunctive relief from the courts enjoining said breach or
threatened breach
5
<PAGE>
pending arbitration, as provided in paragraph 14 of this Agreement. The Employee
further acknowledges that the Company also shall have the right to seek a remedy
at law as well as or in lieu of equitable relief in the event of any such
breach.
16. ENTIRE AGREEMENT AND MODIFICATION
This Agreement supersedes any and all prior understandings and
agreements between the parties concerning restrictions on competition,
solicitation of customers and employees and confidentiality. This Agreement may
not be altered or amended except in conformity with Paragraphs 10 and 11, above,
or in writing, signed by the Employee and a representative of the Company with
actual authority to effect such alteration or amendment.
17. CHOICE OF LAW
The parties agree that this Agreement is to be governed by and
construed under New York law, without regard to the conflicts or choice of law
provisions of New York.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement on the date first above mentioned.
MEDE AMERICA CORPORATION
By:
----------------------------- ---------------------------------
[MedE Representative] Employee
---------------------------------
Witness
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EXHIBIT 10.8
MEDE AMERICA CORPORATION AND ITS SUBSIDIARIES
1998 STOCK OPTION AND RESTRICTED STOCK PURCHASE PLAN
Section 1. Purpose. The purpose of the MEDE AMERICA
Corporation and its Subsidiaries 1998 Stock Option and Restricted Stock Purchase
Plan (the "Plan") is to promote the interests of MEDE AMERICA Corporation, a
Delaware corporation (the "Company"), and any Subsidiary thereof and the
interests of the Company's stockholders by providing an opportunity to selected
Employees, Consultants and Non-Employee Directors of the Company to purchase
Common Stock of the Company, thereby enhancing the Company's ability to attract,
retain, motivate and encourage such persons to devote their best efforts to the
business and financial success of the Company. It is intended that this purpose
will be effected by awards of Non-Qualified Stock Options, Incentive Stock
Options, Restricted Stock and/or Unrestricted Stock.
Section 2. Definitions. For purposes of the Plan, the
following terms used herein have the following meanings, unless a different
meaning is clearly required by the context:
2.1. "Administrator" means the Board of Directors or any
Committees that shall be administering the Plan in accordance with Section 4
hereof.
2.2. "Annual Option" means a Non-Qualified Stock Option
granted to a Non- Employee Director on the next business day following each
annual meeting of stockholders at which such Non-Employee Director is elected as
a Director, other than the annual meeting of stockholders at which such
Non-Employee Director is initially elected a Director.
2.3. "Applicable Laws" means the legal requirements relating
to the administration of stock option plans under state corporate laws, federal
and state securities laws and the Code.
2.4. "Award" means any award of an Option or Stock under the
Plan.
2.5. "Board of Directors" means the Board of Directors of the
Company.
2.6. "Code" means the Internal Revenue Code of 1986, as
amended from time to time.
2.7. "Committee" means any committee appointed by the Board
of Directors in accordance with Section 4 of the Plan.
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2.8. "Common Stock" means the Common Stock, $.01 par value,
of the Company.
2.9. "Consultant" means any person, including an advisor,
engaged by the Company or a Parent or Subsidiary of the Company to render
services and who is compensated for such services; provided that the term
"Consultant" shall not include Directors who are paid only a director's fee by
the Company or who are not compensated by the Company for their services as
Directors.
2.10. "Designated Beneficiary" means the beneficiary
designated by a Participant, in a manner determined by the Administrator, to
receive amounts due or exercise rights of the Participant in the event of the
Participant's death. In the absence of an effective designation by a
Participant, Designated Beneficiary shall mean the Participant's estate.
2.11. "Director Option" means an Initial Option or an Annual
Option..
2.12. "Director" means any member of the Board of Directors.
2.13. "Employee" means any person, including without
limitation, an officer of the Company, who, is employed by the Company or any
Parent or Subsidiary of the Company. Neither service as a Director nor payment
of a director's fee by the Company shall constitute "employment" by the Company.
2.14. "Fair Market Value" means, as of any date, the value of
Common Stock determined as follows:
(i) If the Common Stock is listed on any established
stock exchange or a national market system, including without limitation the
National Market System of the National Association of Securities Dealers, Inc.
Automated Quotation ("NASDAQ") System, the Fair Market Value of a share of
Common Stock shall be the closing sales price for such stock (or the closing
bid, if no sales were reported) as quoted on such system or exchange (or the
exchange with the greatest volume of trading in Common Stock) on the last market
trading day prior to the day of determination, as reported in the Wall Street
Journal or such other source as the Administrator deems reliable;
(ii) If the Common Stock is quoted on the NASDAQ System
(but not on the National Market System thereof) or is regularly quoted by a
recognized securities dealer but selling prices are not reported, the Fair
Market Value of a share of Common Stock shall be the average between the high
bid and low asked prices for the Common Stock on the last market trading day
prior to the day of determination, as reported in the Wall Street Journal or
such other source as the Administrator deems reliable; or
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(iii) In the absence of an established market for the
Common Stock, the Fair Market Value shall be determined in good faith by the
Administrator.
2.15. "Incentive Stock Option" means an Option granted to a
Participant pursuant to Section 6 (including Section 6.7 thereof) which is
intended to meet the requirements of Section 422 of the Code or any successor
provision.
2.16. "Initial Option" means a Non-Qualified Stock Option
granted pursuant to Section 6.8 to a Non-Employee Director on the first business
day following his or her initial election to the Board of Directors.
2.17. "Non-Employee Director" means a Director who is not an
employee of the Company or any Parent, Subsidiary or affiliate of the Company
and is not (and is not affiliated with) a beneficial owner of 5% or more of the
voting stock of the Company.
2.18. "Non-Qualified Stock Option" means an Option granted to
a Participant pursuant to Section 6 that is not intended to be an Incentive
Stock Option.
2.19. "Option" means any Incentive Stock Option or
Non-Qualified Stock Option.
2.20. "Parent" of the Company shall have the meaning set forth
in Section 424(e) of the Code.
2.21. "Participant" means any Employee, Consultant or
Non-Employee Director to whom an Award is granted under the Plan.
2.22. "Restricted Period" means the period of time selected by
the Administrator during which shares subject to an Award of Restricted Stock
may be repurchased by or forfeited to the Company.
2.23. "Reporting Person" means a Participant that is subject
to Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act").
2.24. "Restricted Stock" means shares of Common Stock awarded
to a Participant under Section 7.
2.25. "Stock" means shares of Restricted Stock or Unrestricted
Stock.
2.26. "Subsidiary" of the Company shall have the meaning set
forth in Section 424(f) of the Code.
2.27. "Unrestricted Stock" means shares of Common Stock
awarded to a Participant under Section 7 free of any restrictions under the
Plan.
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Section 3. Common Stock Subject to the Plan.
3.1. Number of Shares. The total number of shares of Common
Stock for which Awards may be granted under the Plan shall not exceed in the
aggregate [1,500,000 (###)] shares of Common Stock (subject to adjustment as
provided in Section 3.3 hereof). The Company, during the term of this Plan, will
at all times reserve and keep available such number of shares of Common Stock as
shall be sufficient to satisfy the requirements of the Plan.
3.2. Reissuance. The shares of Common Stock that may be
subject to Awards under the Plan may be either authorized and unissued shares or
shares reacquired at any time and now or hereafter held as treasury stock as the
Administrator may determine. In the event that any outstanding Option expires,
is terminated, forfeited or becomes unexercisable for any reason without having
been exercised in full, the shares allocable to the unexercised portion of such
Option may again be subject to an Award under the Plan, subject, in the case of
Incentive Stock Options, to any limitation required by the Code. If any shares
of Common Stock issued or sold pursuant to a Stock award or the exercise of an
Option shall have been repurchased by the Company, then such shares shall not
again be available for future grant or award under the Plan.
3.3. Stock Dividends, Etc.. In the event that the
Administrator, in its sole discretion, determines that any stock dividend,
extraordinary cash dividend, recapitalization, reorganization, merger,
consolidation, split-up, spin-off, combination or other similar transaction
affects the Common Stock such that an adjustment is required in order to
preserve or prevent enlargement of the benefits or potential benefits intended
to be made available under the Plan, then the Administrator, subject, in the
case of Incentive Stock Options, to any limitation required under the Code, may
equitably adjust any or all of (i) the number and kind of shares in respect of
which Awards may be made under the Plan, (ii) the number and kind of shares
subject to outstanding Awards and (iii) the award, exercise or conversion price
with respect to any of the foregoing, and if considered appropriate, the
Administrator may cause the number of shares subject to any Award always to be a
whole number.
The Administrator may make Awards under the Plan in
substitution for stock and stock based awards held by employees of another
corporation who concurrently become employees of the Company as a result of a
merger or consolidation of the employing company with the Company or a Parent or
Subsidiary of the Company or the acquisition by the Company or a Parent or
Subsidiary of the Company of property or stock of the employing corporation. The
substitute Awards shall be granted on such terms and conditions as the
Administrator deems appropriate under the circumstances.
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Section 4. Administration of the Plan.
4.1. Procedure.
(a) Multiple Administrative Bodies. The Plan may be
administered by different Committees with respect to different groups
of Participants.
(b) Section 162(m). To the extent that the Administrator
determines it to be desirable to qualify Options granted hereunder as
"performance-based compensation" within the meaning of Section 162(m)
of the Code, the Plan shall be administered by a Committee consisting
of two or more Non-Employee Directors.
(c) Rule 16b-3. To the extent that the Administrator
determines it to be desirable to qualify transactions hereunder as
exempt under Rule 16b-3 of the Exchange Act, the transactions
contemplated hereunder shall be structured to satisfy the requirements
for exemption under Rule 16b-3.
(d) Other Administration. Other than as provided above,
the Plan shall be administered by (i) the Board of Directors or (ii) a
Committee, which committee shall be constituted to satisfy Applicable
Laws.
4.2. Powers of the Administrator. Subject to the
provisions of the Plan, and in the case of a Committee, subject to the specific
powers delegated by the Board of Directors to such Committee, the Administrator
shall have the authority, in its discretion:
(a) to determine the Fair Market Value of the Common
Stock, in accordance with Section 2.14 of the Plan;
(b) to select the Employees and Consultants to whom
Awards may be granted hereunder;
(c) to determine whether and to what extent awards of
Options and Stock, or any combination thereof, are granted hereunder;
(d) to determine the number of shares of Common Stock to
be covered by each Award made hereunder;
(e) to determine the amount (not less than par value per
share) and the form of the consideration that may be used to purchase
shares of Common Stock pursuant to any Stock award or upon exercise of
any Option (including, without limitation, the circumstances under
which issued and outstanding shares of Common Stock owned by a
Participant may be used by the Participant to exercise an Option);
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(f) to approve forms of agreements for use under the
Plan;
(g) to determine the terms and conditions, not
inconsistent with the terms of the Plan, of any Award granted
hereunder, including without limitation, the exercise price, the time
or times when Options may be exercised (which may be based on
performance criteria), any vesting, acceleration or waiver of
forfeiture restrictions and any restriction or limitation regarding any
Award or the shares of Common Stock relating thereto, based in each
case on such factors as the Administrator, in its sole discretion,
shall determine;
(h) to reduce the exercise price of any Option to the
then current Fair Market Value if the Fair Market Value of the Common
Stock covered by such Option shall have declined since the date the
Option was granted;
(i) to construe and interpret the terms of the Plan:
(j) to prescribe, amend and rescind rules and regulations
relating to the Plan;
(k) to modify or amend the terms of any Award;
(l) to accelerate vesting periods with respect to
outstanding Options and the end of Restricted Periods with respect to
Stock Awards; provided, however, that any Incentive Stock Options may
only be"accelerated" in accordance with Section 424(h) of the Code;
(m) to authorize any person to execute on behalf of the
Company any instrument required to effect any Award granted by the
Administrator; and
(n) to exercise all other powers granted to the
Administrator under the Plan and make all other determinations deemed
necessary or advisable for administering the Plan.
4.3. Effect of Administrator's Decision. The
Administrator's decisions, determinations and interpretations shall be
final and binding on all Participants and any other holders of Options
or Stock awarded under the Plan .
4.4. Expenses, Etc. All expenses and liabilities incurred
by the Administrator in the administration of the Plan shall be borne
by the Company. The Administrator may employ attorneys, consultants,
accountants or other persons in connection with the administration of
the Plan. The Company, and its officers and directors, shall be
entitled to rely upon the advice, opinions or valuations of any such
persons. No member of the Administrator shall be liable for any action,
determination or interpretation taken or made in good faith with
respect to the Plan or any Award granted thereunder.
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Section 5. Eligibility. Awards may be granted to any Employee,
Consultant or Non-Employee Director. The Administrator shall have the sole
authority to select the Employees and Consultants to whom discretionary Awards
are to be granted hereunder, and to determine whether a person is to be granted
a Non-Qualified Stock Option, an Incentive Stock Option, Restricted Stock or
Unrestricted Stock, or any combination thereof. Non-Employee Directors shall
only be eligible to receive grants of Non-Qualified Stock Options pursuant to
Section 6.8 of the Plan. No person other than an Employee, Consultant or
Non-Employee Director shall have any right to participate in the Plan. Any
person selected by the Administrator for participation during any one period
will not by virtue of such participation have the right to be selected as a
Participant for any other period. The maximum number of shares of Common Stock
which may be the subject of Awards granted to any one employee under the Plan
during any calendar year shall be 300,000 shares. For this purpose, the grant of
a new Award in substitution for outstanding Awards shall be deemed to constitute
a new grant, separate from the original grant that is to be canceled. Incentive
Stock Options may be granted only to persons eligible to receive Incentive Stock
Options under the Code.
Section 6. Options.
6.1. Subject to the provisions of the Plan, the Administrator
may award Incentive Stock Options and Non-Qualified Stock Options, and determine
the number of shares to be covered by each Option, the option price therefor and
the conditions and limitations applicable to the exercise of the Option. The
terms and conditions of Incentive Stock Options shall be subject to and comply
with Section 422 of the Code, or any successor provision, and any regulations
thereunder.
6.2. Exercise Price. The Administrator shall establish the
exercise price of each Option at the time such Option is awarded. Such price
shall not be less than 85% of the Fair Market Value of the Common Stock on the
date of grant; provided that (i) in the case of an Incentive Stock Option, the
exercise price shall not be less than 100% of the Fair Market Value of the
Common Stock at the time of grant and (ii) in the case of a Non-Qualified Stock
Option intended to qualify as "performance-based compensation" within the
meaning of Section 162(m) of the Code, the exercise price shall not be less than
100% of the Fair Market Value at the time of grant.
6.3. Vesting. Each Option shall be exercisable at such times
and subject to such terms and conditions as the Administrator may specify in the
applicable Option agreement or thereafter. The Administrator may impose such
conditions with respect to the exercise of Options, including conditions
relating to applicable federal or state securities laws, as it considers
necessary or advisable.
6.4. Payment. Options granted under the Plan may provide for
the payment of the exercise price by delivery of cash or check in an amount
equal to the exercise price of such Options or, to the extent permitted by the
Administrator at or after the award of the Option, by
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(a) delivery of shares of Common Stock owned by the optionee, valued at their
Fair Market Value on the date of such option exercise, (b) delivery of a
promissory note of the optionee to the Company on terms determined by the
Administrator, (c) delivery of an irrevocable undertaking by a broker to deliver
promptly to the Company sufficient funds to pay the exercise price or delivery
of irrevocable instructions to a broker to deliver promptly to the Company cash
or a check sufficient to pay the exercise price, (d) payment of such other
lawful consideration as the Administrator may determine or (e) any combination
of the foregoing. In the event an optionee pays some or all of the exercise
price of an Option by delivery of shares of Common Stock pursuant to clause(a)
above, the Administrator may provide for the automatic award of an Option for up
to the number of shares so delivered.
6.5. Transferability. Each Option granted under the Plan shall
provide that neither it nor any interest therein may be transferred, assigned,
pledged or hypothecated, by the optionee or by operation of law otherwise than
by will, the laws of descent and distribution or a "qualified domestic relations
order" (as defined in the Code), and shall be exercised during the lifetime of
the optionee only by the optionee or a transferree pursuant to such a "qualified
domestic relations order". No Option or interest therein may be or be made
subject to execution, attachment or similar process.
6.6. Cancellation and New Grant of Options. The Board of
Directors shall have the authority to effect, at any time and from time to time,
with the consent of the affected optionees, (i) the cancellation of any or all
outstanding options under the Plan and the grant in substitution therefor of new
Options under the Plan covering the same or different numbers of shares of
Common Stock and having an option exercise price per share which may be lower or
higher than the exercise price per share of the canceled Options or (ii) the
amendment of the terms of any and all outstanding Options under the Plan to
provide an option exercise price per share which is higher or lower than the
then current exercise price per share of such outstanding Options.
6.7. Incentive Stock Options. Options granted under the Plan
which are intended to be Incentive Stock Options shall be subject to the
following additional terms and conditions:
(a) All Incentive Stock Options granted under the Plan
shall, at the time of grant, be specifically designated as such in the option
agreement covering such Incentive Stock Options. The exercise period shall not
exceed ten years from the date of grant.
(b) If any Employee to whom an Incentive Stock Option is
to be granted under the Plan is, at the time of the grant of such option, the
owner of stock possessing more than 10% of the total combined voting power of
all classes of stock of the Company (after taking into account the attribution
of stock ownership rule of Section 424(d) of the Code), then the following
special provisions shall be applicable to the Incentive Stock Option granted to
such individual:
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(i) The purchase price per share of the Common Stock
subject to such Incentive Stock Option shall not be less than 110% of
the Fair Market Value of one share of Common Stock at the time of
grant; and
(ii) The Option exercise period shall not exceed five
years from the date of grant.
(c) For so long as the Code shall so provide, options
granted to any Employee under the Plan (and any other incentive stock option
plans of the Company or its Subsidiaries) which are intended to constitute
Incentive Stock Options shall not constitute Incentive Stock Options to the
extent that such Options, in the aggregate, become exercisable for the first
time in any one calendar year for shares of Common Stock with an aggregate Fair
Market Value (determined as of the respective date or dates of grant) of more
than $100,000.
(d) No Incentive Stock Option may be exercised
unless, at the time of such exercise, the Participant is, and has been
continuously since the date of grant of his or her Option, employed by the
Company, except that:
(i) an Incentive Stock Option may be exercised (to
the extent exercisable on the date the Participant ceased to be an
Employee of the Company or a Parent or Subsidiary) within the period of
three months after the date the Participant ceases to be an employee of
the Company or such Parent or Subsidiary (or within such lesser period
as may be specified in the applicable option agreement); provided, that
the agreement with respect to such Option may designate a longer
exercise period and that the exercise after such three-month period
shall be treated as the exercise of a Non-Qualified Stock Option under
the Plan;
(ii) if the Participant dies while in the employ of
the Company, or within three months after the Participant ceases to be
an Employee, the Incentive Stock Option (to the extent otherwise
exercisable on the date of death) may be exercised by the Participant's
Designated Beneficiary within the period of one year after the date of
death (or within such lesser period as may be specified in the
applicable Option agreement); and
(iii) if the Participant becomes disabled (within the
meaning of Section 22(e)(3) of the Code or any successor provision
thereto) while in the employ of the Company, the Incentive Stock Option
may be exercised (to the extent otherwise exercisable on the date of
death) within the period of one year after the date of such disability
(or within such lesser period as may be specified in the Option
agreement). In the event of the Participant's death during this
one-year period, the Incentive Stock Option may be exercised by the
Participant's Designated Beneficiary within the period of one year from
the date the Participant became disabled or within such lesser period
as may be specified in the applicable Option agreement.
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For all purposes of the Plan and any Option granted hereunder, (i) "employment"
shall be defined in accordance with the provisions of Section 1.421-7(h) of the
Treasury Regulations under the Code (or any successor regulations) and (ii) any
Option may provide that if such Option shall be assumed or a new Option
substituted therefor in a transaction to which Section 424(a) of the Code
applies, employment by such assuming or substituting corporation shall be
considered for all purposes of such Option to be employment by the Company.
Notwithstanding the foregoing provisions, no Incentive Stock Option may be
exercised after its expiration date.
6.8. Non-Employee Director Options. Director Options shall be
automatic and subject to the following additional terms and conditions:
(a) All Director Options shall be Non-Qualified Stock
Options.
(b) Each Non-Employee Director shall be granted an
Initial Option to purchase 1,000 shares of Common Stock on the date of his or
her initial election to the Board of Directors, and an Annual Option to purchase
1,000 shares of Common Stock on the next business day following each annual
meeting of stockholders.
(c) The exercise price of each Director Option will be
100% of the Fair Market Value at the time of grant.
(d) Director Options shall become exercisable six months
after the time of grant. The exercise period shall not exceed ten years from the
date of grant, provided that subject to the provisions of Section 6.8(e), no
Director Option may be exercised more than 90 days after the optionee ceases to
serve as a director of the Company.
(e) if a Non-Employee Director dies or becomes disabled
becomes disabled (within the meaning of Section 22(e)(3) of the Code or any
successor provision thereto) while a director of the Company, the Option may be
exercised (to the extent otherwise exercisable on the date of disability or
death), by such disabled director or, in the case of death, by the director's
Designated Beneficiary, in each case within the period of one year after the
date of disability or death (or within such lesser period as may be specified in
the applicable Option agreement).
Section 7. Restricted And Unrestricted Stock.
7.1. General. The Board of Directors may grant Awards
entitling recipients to acquire shares of Common Stock, subject to the right of
the Company to repurchase all or part of such shares at their purchase price (or
to require forfeiture of such shares if purchased at no cost) from the recipient
in the event that conditions specified by the Administrator in the applicable
Award are not satisfied prior to the end of the applicable Restricted Period or
Restricted Periods established by the Administrator for such Award. Conditions
for repurchase (or forfeiture) may be
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based on continuing employment or service or achievement of pre-established
performance or other goals and objectives.
7.2. Restricted Stock. Shares of Restricted Stock may not be
sold, assigned, transferred, pledged or otherwise encumbered, except as
permitted by the Administrator, during the applicable Restricted Period. Shares
of Restricted Stock shall be evidenced in such manner as the Board of Directors
may determine. Any certificates issued in respect of shares of Restricted Stock
shall be registered in the name of the Participant and, unless otherwise
determined by the Board of Directors, deposited by the Participant, together
with a stock power endorsed in blank, with the Company (or its designee). At the
expiration of the Restricted Period, the Company (or such designee) shall
deliver such certificates to the Participant or, if the Participant has died, to
the Participant's Designated Beneficiary.
7.3. Unrestricted Stock. The Administrator may, in its sole
discretion, grant (or sell at a purchase price determined by the Board of
Directors, which shall not be lower than 85% of Fair Market Value on the date of
sale) Unrestricted Stock to Participants.
7.4. Payment. The purchase price for each share of Restricted
Stock and Unrestricted Stock shall be determined by the Administrator and may
not be less than the par value of the Common Stock. Such purchase price may be
paid in the form of past services or such other lawful consideration as is
determined by the Board of Directors.
7.5. Certificates. Stock certificates representing Shares of
Restricted Stock or Unrestricted Stock shall bear a legend referring to any
restrictions imposed thereon and such other matters as the Administrator may
determine.
7.6. Acceleration. The Administrator may at any time
accelerate the expiration of the Restricted Period applicable to all, or any
particular, outstanding shares of Restricted Stock.
Section 8. General Provisions Applicable to Awards.
8.1. Applicability of Rule 16b-3. Those provisions of the Plan
which make an express reference to Rule 16b-3 shall apply to the Company only at
such time as the Company's Common Stock is registered under the Exchange Act, or
any successor provision, and then only with respect to Reporting Persons.
8.2. Documentation. Each Award under the Plan shall be
evidenced by an instrument delivered to the Participant specifying the terms and
conditions thereof and containing such other terms and conditions not
inconsistent with the provisions of the Plan as the Administrator considers
necessary or advisable. Such instruments may be in the form of agreements to be
executed by both the Company and the Participant, or certificates, letters or
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similar documents, acceptance of which will evidence agreement to the terms
thereof and of this Plan.
8.3. Administrator Discretion. Each type of Award may be made
alone, in addition to or in relation to any other type of Award. The terms of
each type of Award need not be identical, and the Administrator need not treat
Participants uniformly.
8.4. Termination of Status. Subject to the provisions of
Section 6, the Administrator shall determine the effect on an Award of the
disability, death, retirement, authorized leave of absence or other termination
of employment or other status of a Participant and the extent to which, and the
period during which, the Participant's legal representative, guardian or
Designated Beneficiary may exercise rights under such Award.
8.5. Mergers, Etc. In the event of a consolidation or merger
or sale of all or substantially all of the assets of the Company in which
outstanding shares of Common Stock are exchanged for securities, cash or other
property of any other corporation or business entity (an "Acquisition"), the
Board of Directors or the board of directors of any corporation assuming the
obligations of the Company, may, in its discretion, take any one or more of the
following actions as to outstanding Awards: (i) provide that such Awards shall
be assumed, or substantially equivalent Awards shall be substituted, by the
acquiring or succeeding corporation (or an affiliate thereof) on such terms as
the Board of Directors determines to be appropriate; (ii) upon written notice to
Participants, provide that all unexercised Options will terminate immediately
prior to the consummation of such transaction unless exercised by the
Participant within a specified period following the date of such notice; (iii)
in the event of an Acquisition under the terms of which holders of the Common
Stock of the Company will receive upon consummation thereof a cash payment for
each share surrendered in the Acquisition (the "Acquisition Price"), make or
provide for a cash payment to Participants equal to the difference between (A)
the Acquisition Price times the number of shares of Common Stock subject to
outstanding Options (to the extent then exercisable at prices not in excess of
the Acquisition Price) and (B) the aggregate exercise price of all such
outstanding Options in exchange for the termination of such Options; and (iv)
provide that all or any outstanding Awards shall become exercisable or
realizable in full prior to the effective date of such Acquisition.
8.6. Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, to the extent that an Option has not
been previously exercised, it will terminate immediately prior to the
consummation of such proposed action. The Board of Directors may, in the
exercise of its sole discretion in such instances, declare that any Award shall
terminate as of a date fixed by the Board of Directors and give each Participant
the right to exercise his or her Option as to all or any of the shares subject
thereto, including shares as to which the Option would not otherwise be
exercisable, or may accelerate the termination of the Restricted Period of any
Stock Award.
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8.7. Withholding. The Participant shall pay to the Company, or
make provision satisfactory to the Administrator for payment of, any taxes
required by law to be withheld in respect of Awards under the Plan no later than
the date of the event creating the tax liability. In the Administrator's
discretion, and subject to such conditions as the Administrator may establish,
such tax obligations may be paid in whole or in part in shares of Common Stock,
including shares retained from the Award creating the tax obligation, valued at
their Fair Market Value. The Company may, to the extent permitted by law, deduct
any such tax obligations from any payment of any kind otherwise due to the
Participant.
8.8. Foreign Nationals. Awards may be made to Participants who
are foreign nationals or employed outside the United States on such terms and
conditions different from those specified in the Plan as the Administrator
considers necessary or advisable to achieve the purposes of the Plan or comply
with applicable laws.
8.9. Amendment of Award. The Board of Directors may amend,
modify or terminate any outstanding Award, including substituting therefor
another Award of the same or a different type, changing the date of exercise or
realization and converting an Incentive Stock Option to a Non-Qualified Stock
Option; provided that the Participant's consent to such action shall be required
unless the Board of Directors determines that the action, taking into account
any related action, would not materially and adversely affect the Participant.
8.10. Conditions on Delivery of Common Stock. The Company will
not be obligated to deliver any shares of Common Stock pursuant to the Plan or
to remove restrictions from shares previously delivered under the Plan (i) until
all conditions of the Award have been satisfied or removed; (ii) until, in the
opinion of the Company's counsel, all applicable federal and state laws and
regulations have been complied with; (iii) if the outstanding Common Stock is at
the time listed on any stock exchange or admitted for trading on an automatic
quotation system, until the shares to be delivered have been listed or
authorized to be listed or quoted on such exchange or quotation system upon
official notice of notice of issuance; and (iv) until all other legal matters in
connection with the issuance and delivery of such shares have been approved by
the Company's counsel. If the sale of Common Stock has not been registered under
the Securities Act of 1933, as amended, the Company may require, as a condition
to exercise of the Award, such representations or agreements as the Company may
consider appropriate to avoid violation of such act and may require that the
certificates evidencing such Common Stock bear an appropriate legend restricting
transfer.
Section 9. Miscellaneous
9.1. No Right To Employment or Other Status. The grant of an
Award shall not be construed as giving a Participant the right to continued
employment or service for the Company. The Company expressly reserves the right
at any time to dismiss a Participant free from any liability or claim under the
Plan, except as expressly provided in the applicable Award.
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9.2. No Rights As Stockholder. Subject to the provisions of
the applicable Award, no Participant or Designated Beneficiary shall have any
rights as a stockholder with respect to any shares of Common Stock to be
distributed under the Plan until he or she becomes the record holder thereof.
9.3. Exclusion from Benefit Computations. No amounts payable
upon exercise of Awards granted under the Plan shall be considered salary, wages
or compensation to Participants for purposes of determining the amount or nature
of benefits that Participants are entitled to under any insurance, retirement or
other benefit plans or programs of the Company.
9.4. Inability to Obtain Authority. The inability of the
Company to obtain authority from any regulatory body having jurisdiction, which
authority is deemed by the Company's counsel to be necessary to the lawful
issuance and sale of any shares hereunder, shall relieve the Company of any
liability in respect of the failure to issue or sell such shares as to which
such requisite authority shall not have been obtained.
9.5. Grants Exceeding Allotted Shares. If the shares of Common
Stock covered by an Award exceeds, as of the date of grant, the number of Shares
which may be issued under the Plan without additional shareholder approval, such
Award shall be void with respect to such excess stock, unless such additional
shareholder approval is obtained in a timely manner.
9.6. Effective Date and Term.
(i) Effective Date. The Plan shall become effective on
July , 1998, the date of its adoption by the Board of Directors, but no
Incentive Stock Option granted under the Plan shall become exercisable unless
and until the Plan shall have been approved by the Company's stockholders. If
such stockholder approval is not obtained within twelve months after the date of
the Board of Director's adoption of the Plan, no Options previously granted
under the Plan shall be deemed to be Incentive Stock Options and no Incentive
Stock Options shall be granted thereafter under the Plan. Amendments to the Plan
not requiring stockholder approval shall become effective when adopted by the
Board of Directors; amendments requiring stockholder approval shall become
effective when adopted by the Board of Directors, but no Incentive Stock Option
granted after the date of such amendment shall become exercisable (to the extent
that such amendment to the Plan was required to enable the Company to grant such
Incentive Stock Option to a particular optionee) unless and until such amendment
shall have been approved by the Company's stockholders. If such stockholder
approval is not obtained within twelve months of the Board of Director's
adoption of such amendment, any Incentive Stock Options granted on or after the
date of such amendment shall terminate to the extent that such amendment to the
Plan was required to enable the Company to grant such Option to a particular
optionee. Subject to the limitations set forth in this Section 9(d), Awards may
be made under the Plan at any time after the effective date and before the date
fixed for termination of the Plan.
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(ii) Termination. The Plan shall terminate upon the
earlier of (i) the close of business on the day next preceding the tenth
anniversary of the date of its adoption by the Board of Directors, (ii) the date
on which all shares available for issuance under the Plan shall have been issued
pursuant to Awards under the Plan, or (iii) by action of the Board of Directors.
No Award may be granted hereunder after termination of the Plan. The termination
or amendment of the Plan shall not alter or impair any rights or obligations
under theretofore granted under the Plan.
9.7. Amendment of Plan. The Board of Directors may amend,
suspend or terminate the Plan or any portion thereof at any time; provided that
no amendment shall be made without stockholder approval if such approval is
necessary to comply with any applicable tax or regulatory requirement. Prior to
any such approval, Awards may be made under the Plan expressly subject to such
approval.
9.8. Governing Law. The provisions of the Plan shall be
governed by and interpreted in accordance with the laws of the State of
Delaware.
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EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULE
MEDE America Corporation
East Meadow, New York
We consent to the use in Amendment No. 1 to Registration Statement No. 333-55977
of MEDE America Corporation on Form S-1 of our report dated May 8, 1998 (June
17, 1998 as to Note 13) relating to the consolidated financial statements of
MEDE America Corporation as of June 30, 1996 and 1997 and March 31, 1998 and for
each of the three years in the period ended June 30, 1997 and the nine months
ended March 31, 1998 appearing in the Prospectus, which is a part of this
Registration Statement, and to the reference to us under the heading "Experts"
in such Prospectus.
Our audits of the consolidated financial statements of MEDE America Corporation
referred to in our aforementioned report also included the financial statement
schedule of MEDE America Corporation listed in Part II at Item 16(b). This
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion based on our audits. In our opinion
such financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
Jericho, New York
July 17, 1998
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
MEDE America Corporation
East Meadow, New York
We consent to the use in Amendment No. 1 to Registration Statement No.
333-55977 of MEDE America Corporation on Form S-1 of our report dated October
7, 1997 relating to the statement of income of The Stockton Group, Inc. for the
year ended June 30, 1997, appearing in the Prospectus, which is a part of this
Registration Statement, and to the reference to us under the heading "Experts"
in such Prospectus.
DELOITTE & TOUCHE LLP
Charlotte, North Carolina
July 17, 1998
