AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 3, 1998
REGISTRATION NO. 333 -
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
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:
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
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. [ ]
CALCULATION OF REGISTRATION FEE
================================================================================
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED(1) SHARE(2) PRICE(2) FEE
<S> <C> <C> <C> <C>
Common Stock, $.01 par value......... 4,140,000 shares $ 15.00 $62,100,000 $18,320
</TABLE>
================================================================================
(1) Includes 540,000 shares of Common Stock that may be sold pursuant to the
Underwriters' over-allotment option. See "Underwriting."
(2) Estimated solely for purposes of calculating the amount of the registration
fee paid pursuant to Rule 457(a) under the Securities Act of 1933, as
amended.
-----------------
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 JUNE 3, 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 SECURITIES AND
EXCHANGE COMMISSION OR ANY OTHER STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
================================================================================
<TABLE>
<CAPTION>
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........................ 11,567,304 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 483,132 shares of Common Stock issuable upon the exercise of stock
options outstanding as of May 29, 1998 under the MEDE AMERICA Corporation
and Its Subsidiaries Stock Option and Restricted Stock Purchase Plan (the
"Stock Plan"), of which 212,099 are exercisable. The weighted average
exercise price of all outstanding stock options is $4.84 per share. See
"Management -- Employee Benefit Plans."
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 AND PER TRANSACTION 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
OTHER DATA:
EBITDA(9) .................................. $(13,347) $(13,164) $ (5,503) $ (4,191)
Adjusted EBITDA(9) ......................... (2,292) (2,052) 2,211 4,803
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) ............... -- 324 412 474
Revenue per FTE(11) ........................ $ 44 $ 80 $ 90 $ 107
Operating expenses per transaction(10) ..... -- 0.39 0.29 0.29
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS
ENDED MARCH 31,
---------------------------------------------
ACTUAL PRO FORMA(2)
------------------------------- -------------
1997 1998 1998
------------ ------------------ -------------
(IN THOUSANDS, EXCEPT PER SHARE AND PER
TRANSACTION 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
OTHER DATA:
EBITDA(9) .................................. $ (4,422) $ 3,742 $ 4,641
Adjusted EBITDA(9) ......................... 922 3,742 4,641
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) ............... 291 480 487
Revenue per FTE(11) ........................ $ 65 $ 84 $ 89
Operating expenses per transaction(10) ..... 0.29 0.18 0.19
</TABLE>
<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>
(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 $(1.49) and $(0.46) 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>
NINE MONTHS ENDED
YEAR ENDED JUNE 30, MARCH 31,
------------------------------------------------------ -------------------------------
ACTUAL PRO FORMA ACTUAL PRO FORMA
------------------------------------------ ----------- ----------------------- -------
1995 1996 1997 1997 1997 1998 1998
-------------- -------------- ------------ ----------- ------------ ---------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
EBITDA ............................... $ (13,347) $ (13,164) $ (5,503) $ (4,191) $ (4,422) $ 3,742 $ 4,641
Contingent consideration paid to
former owners of acquired busi-
nesses ............................. -- 538 2,301 2,301 990 -- --
Write-down of intangible assets ...... 8,191 9,965 -- -- -- -- --
Acquired in-process research and
development ........................ -- -- 4,354 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 $ 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 revenues, EBITDA and Adjusted EBITDA 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>
Revenues ................................. $ 8,179 $ 7,831 $ 8,954 $ 10,315 $ 9,241 $ 9,849 $ 11,099
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 develop-
ment .................................... -- -- 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
$31,023,911 (including $7,028,311 of accrued dividends) as of May 29, 1998,
2,215,940 shares of Common Stock would be so issuable as of such date. In
addition, concurrently with the consummation of the Offering, an additional
66,379 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."
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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-
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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
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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
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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.
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 other key sales,
marketing and development personnel. The loss of the services of any of its
executive officers or the failure to hire or retain other key employees 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 providers 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
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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.
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 approval, 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.
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
Representa-
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tives 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
Company will have 11,567,304 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 7,967,304 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
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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 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. 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. See "Dividend Policy."
RISKS ASSOCIATED WITH FORWARD-LOOKING STATEMENTS
This Prospectus contains certain statements that are "forward-looking
statements" within the meaning of Section 27A of the Securities Act and Section
21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act").
Those statements 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.
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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.
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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 7.07% 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. The
Company currently intends to retain any earnings to fund future growth and the
operation of its business. See "Risk Factors -- Absence of Dividends."
17
<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>
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 May 29, 1998, the outstanding principal amount plus accrued interest
on the Senior Subordinated Note was approximately $25.4 million and the
outstanding indebtedness under the Credit Facility was approximately $16.8
million.
(3) Excludes 483,132 shares of Common Stock reserved for issuance upon exercise
of stock options outstanding under the Stock Plans, as of May 29, 1998, at
a weighted average exercise price of $4.84 per share, of which 212,099 are
exercisable. See "Management-Employee Benefit Plans." Includes 66,379
shares of Common Stock issuable upon exercise of the Common Stock purchase
warrants as contemplated by the Recapitalization. See "Description of
Capital Stock."
18
<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 ......... 7,933,034 68.8% $28,000,000 35.7% $ 3.53
New investors ................. 3,600,000 31.2 50,400,000 64.3 14.00
--------- ----- ----------- ----- ------
Total ......................... 11,533,034 100.0% $78,400,000 100.0%
========== ===== =========== =====
</TABLE>
The foregoing tables assume no exercise of any outstanding stock options to
purchase Common Stock. At March 31, 1998 there were 488,533 shares of Common
Stock issuable upon the exercise of stock options outstanding under the
Company's Stock Plans, of which 212,099 were currently exercisable. Such options
have a weighted average exercise price of $4.84 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."
19
<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.
20
<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 -- --
EBITDA(11) .................................... $ (5,503)
Adjusted EBITDA(11) ........................... $ 2,211
<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 (10,773)
Preferred stock dividends ..................... 2,400 (8) -- -- --
--------- --------- ---------- ----------
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 (9) 5,531 3,600 (10) 9,131
EBITDA(11) .................................... $ (4,191)
Adjusted EBITDA(11) ........................... $ 4,803
</TABLE>
21
<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 --
EBITDA(11) ................................ $ 3,742
Adjusted EBITDA(11) ....................... $ 3,742
</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 (431)
Preferred stock dividends ................. 1,800 (8) -- -- --
--------- --------- ---------- --------
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
EBITDA(11) ................................ $ 4,641
Adjusted EBITDA(11) ....................... $ 4,641
</TABLE>
22
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(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>
The acquisitions were accounted for using the purchase method of accounting
and, accordingly, the net assets acquired have been recorded at estimated
fair value on the date of acquisition and the historical statement of
operations data of the Company reflect the results of operations from these
businesses from the date acquired. In connection with the acquisitions of
TCS and Stockton, the Company acquired intangible assets as follows:
<TABLE>
<CAPTION>
TCS STOCKTON TOTAL
--------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Purchased client lists .................... $ -- $ 742 $ 742
Purchased software and technology ......... 2,619 968 3,587
Goodwill .................................. 4,092 8,704 12,796
------ ------- -------
$6,711 $10,414 $17,125
====== ======= =======
</TABLE>
The purchased client lists and purchased software and technology are being
amortized annually on a straight-line basis over three to five years.
Goodwill is being amortized annually on a straight-line basis over seven
years for the TCS acquisition and over 20 years for the Stockton
acquisition.
(5) Represents the elimination of depreciation and amortization expenses
relating to assets of Stockton that were not acquired.
(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 amorti-
zation of discount ................................... 939 --
Interest expense on borrowings under the Credit Facil-
ity used to fund Stockton acquisition at a composite
interest rate of 7.07% ............................... 755 296
------- ------
$ 1,583 $ 258
======= ======
</TABLE>
23
<PAGE>
(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) Represents the elimination of the dividends accrued on the Preferred Stock
due to the Recapitalization.
(9) Represents the pro rata portion of Common Stock issued in connection with
the Senior Subordinated Note relating to the TCS acquisition.
(10) Represents the sale by the Company of 3,600,000 shares of Common Stock in
the Offering.
(11) 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:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
JUNE 30, 1997 MARCH 31, 1998
----------------------------- -----------------------
ACTUAL PRO FORMA ACTUAL PRO FORMA
------------- ------------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
EBITDA ........................................... $ (5,503) $ (4,191) $ 3,742 $ 4,641
Contingent consideration paid to former
owners of acquired businesses .................. 2,301 2,301 -- --
Acquired-in-process research and develop-
ment ........................................... 4,354 4,354 -- --
Non-cash stock compensation ...................... -- 1,280 -- --
Contract and legal settlement provisions ......... 1,059 1,059 -- --
--------- --------- ------- -------
Adjusted EBITDA .................................. $ 2,211 $ 4,803 $ 3,742 $ 4,641
========= ========= ======= =======
</TABLE>
(12) Represents the historical results of operations of Stockton from July 1,
1997 through the date of acquisition by the Company in November 1997.
24
<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 $ --
========= ===========
<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>
25
<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 therefrom as described under the "Use of
Proceeds."
(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.
26
<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 AND PER TRANSACTION
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
OTHER DATA:
EBITDA (7) ........................................... $(13,347) $(13,164) $ (5,503)
Adjusted EBITDA (7) .................................. (2,292) (2,052) 2,211
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(8)
Pharmacy ............................................ -- 107,032 126,201
Medical ............................................. -- 16,030 23,085
Dental .............................................. -- 6,021 12,188
--------- --------- ----------
Total transactions processed ....................... -- 129,083 161,474
Transactions per FTE (8)(9) .......................... -- 324 412
Revenue per FTE (9) .................................. $ 44 $ 80 $ 90
Operating expenses per transaction (8) ............... -- 0.39 0.29
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS
ENDED MARCH 31,
-------------------------------
1997 1998
------------ ------------------
(IN THOUSANDS, EXCEPT PER SHARE
AND PER
TRANSACTION 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
OTHER DATA:
EBITDA (7) ........................................... $ (4,422) $ 3,742
Adjusted EBITDA (7) .................................. 922 3,742
Cash flows from operating activities ................. (2,991) (3,861)
Cash flows from investing activities ................. (11,630) (11,611)
Cash flows from financing activities ................. 15,818 15,008
Transactions processed(8)
Pharmacy ............................................ 88,463 136,685
Medical ............................................. 14,921 23,514
Dental .............................................. 8,759 10,767
--------- ----------
Total transactions processed ....................... 112,143 170,966
Transactions per FTE (8)(9) .......................... 291 480
Revenue per FTE (9) .................................. $ 65 $ 84
Operating expenses per transaction (8) ............... 0.29 0.18
</TABLE>
27
<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>
- ----------
(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 $(1.49) and $(0.46) 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:
<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.
28
<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 restructured various operations of the
acquired entities in order to eliminate non-core or redundant operations and
achieve cost savings and operating efficiencies. These restructuring and
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.
29
<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
<S> <C> <C> <C> <C> <C>
FOUNDING COMPANIES ACQUIRED MARKET ACQUIRED COMPANY ACQUIRED COMPANY DIVESTED
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
Stockton 11/97 Pharmacy PBM -- --
</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 $25,833,000, consisting of $890,000 of software,
$2,548,000 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 Company is amortizing the software over three years and the
remaining value of client lists 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 $2,389,000, consisting of $1,091,000 of software and
client lists and $1,298,000 of goodwill. The Company is amortizing the software
and client lists over five years and the goodwill over 20 years.
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
30
<PAGE>
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 is
amortizing the software over three years and 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 is amortizing the software over three years
and the goodwill over seven years.
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. The acquisition was accounted for under the purchase method and
the Company recorded total intangible assets of $10,414,000, consisting of
$1,710,000 of software and client lists and $8,704,000 of goodwill. The Company
is amortizing the software and client lists over five years and the goodwill
over 20 years.
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,
currently constituting less than 3% of the Company's revenues, are recognized
ratably over the contract period or as the service is provided. Revenue from
licensing of software, which also currently constitutes less than 3% of the
Company's total revenues, 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
31
<PAGE>
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." Capitalized software development costs are amortized on a
straight-line basis over the estimated useful product life (normally five years)
and amortization begins in the period in which the related product is first made
available for general release to clients. 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 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>
32
<PAGE>
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.
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.
33
<PAGE>
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.
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 6% 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
34
<PAGE>
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.
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.
35
<PAGE>
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 370,994 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 $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.
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 $3.9 million for the fiscal years ended June 30,
1996 and 1997 and the nine months ended March 31, 1998, respectively. The $3.9
million net cash used in operations for the nine months ended March 31, 1998 was
used primarily
36
<PAGE>
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 $627,000. 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 370,994 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. 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 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, "Dis-
37
<PAGE>
closures 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."
38
<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
39
<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-
40
<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.
41
<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:
42
<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>
43
<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 revenues
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,
44
<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 2% 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 70 sales associates organized according to
market, client type and product category. The Company also has a client services
organization consisting of 56 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 April 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.
45
<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
46
<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. 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 April 30, 1998, the Company employed 356 people, including 110 in
operations, 72 in sales, 11 in marketing, 56 in client services, 65 in research
and development, 14 in finance, 18 in administration 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.
47
<PAGE>
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 April 20, 1998, Curtis J. Oakley, a former employee
of the predecessor of Latpon filed a summons with notice with the Supreme Court
of the State of New York, County of Nassau stating his intent to assert a claim
against several persons including the Company, based on his alleged ownership of
a 22% interest in Latpon. According to the summons, Mr. Oakley's claim is for
$10 million or such other amount as may be shown at trial, based on his alleged
ownership interest. 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. The Company has filed a demand for a
complaint. Due to the lack of information that has been provided to date, the
Company is unable to predict what effect, if any, this litigation may have on
its business, financial condition or results of operations.
48
<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.
49
<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 non-employee director who is not
50
<PAGE>
(and is not affiliated with) a holder of 5% or more of the voting stock of the
Company, will be paid an annual retainer of $7,500, plus $1,000 for each Board
of Directors or committee meeting attended, and will receive annually a
non-qualified stock option to purchase up to 1,000 shares of Common Stock at the
fair market value of the Common Stock on the date of grant.
Directors are entitled to reimbursement for out-of-pocket expenses incurred
while attending meetings of the Board of Directors.
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning the
compensation paid by the Company to its Chief Executive Officer and each of the
four other most highly paid executive officers of the Company (the "Named
Executive Officers") in the 1997 fiscal year:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------------------------- ---------------
SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY($) BONUS($)(1) COMPENSATION($) OPTIONS(#)(2) COMPENSATION($)
- --------------------------------------- ----------------- ------------- ----------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
Thomas P. Staudt ...................... 180,000 50,000 -- 220,414 --
President and Chief Executive
Officer
Richard P. Bankosky ................... 135,000 20,000 -- 29,461 --
Chief Financial Officer, Treasurer
and Secretary
William M. McManus .................... 125,433 20,000 65,558 29,461 --
Senior Vice President and General
Manager -- Pharmacy and Medical
Roger L. Primeau ...................... 85,000 (3) 12,000 -- 18,113 --
Senior Vice President and General
Manager -- Dental
James T. Stinton ...................... 150,000 20,000 -- 34,917 --
Chief Information Officer ............
</TABLE>
- ----------
(1) Bonuses are granted under a bonus formula annually established by the Board
of Directors, based upon the performance (measured by EBITDA) of the Company
(or certain operating divisions thereof). Unless a specified percentage of
the EBITDA target is achieved, no bonus is paid. EBITDA targets are adjusted
to reflect accounting changes, acquisitions and other significant, one-time
events.
(2) Total number granted through June 30, 1997 (exercised and unexercised).
(3) Mr. Primeau's employment commenced in October 1996.
51
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information regarding grants of
options to purchase Common Stock in fiscal 1997 to each of the Named Executive
Officers:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK
PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM(1)
-------------------------------------------------------------- -------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS GRANTED EXERCISE
UNDERLYING OPTIONS TO EMPLOYEES IN PRICE EXPIRATION
GRANTED(#) FISCAL YEAR(2) ($/SHARE) DATE 5%($) 10%($)
-------------------- ----------------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Thomas P. Staudt ............ 2,182 4.27% $ 5.73 2/15/07 20,400 32,400
Richard P. Bankosky ......... 2,182 4.27% $ 5.73 2/15/07 20,400 32,400
William M. McManus .......... 8,729 17.09% $ 5.73 (3) 81,600 129,600
Roger L. Primeau ............ 18,113 35.47% $ 5.73 (4) 169,320 268,920
James T. Stinton ............ 2,182 4.27% $ 5.73 2/15/07 20,400 32,400
</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 51,066 shares in fiscal year
1997.
(3) 2,182 expire February 15, 2007, 3,273 expire June 9, 2007 and 3,274 expire
December 3, 2007.
(4) 16,367 expire September 16, 2006 and 1,746 expire February 15, 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 ............ 65,469 133,121 $300,000 $612,500
Richard P. Bankosky ......... 5,456 24,005 25,000 137,500
William M. McManus .......... 7,638 19,641 38,750 112,500
Roger L. Primeau ............ 0 18,113 0 85,000
James T. Stinton ............ 6,547 28,370 30,000 132,500
</TABLE>
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.
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 May 29, 1998, options to purchase up to an
aggregate 483,132 shares of Common Stock were outstanding, of which 212,099
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.
52
<PAGE>
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. The Board of Directors will initially administer the New Stock
Plan, but may delegate such responsibility to a committee of the Board. 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. To date, no options have
been granted under the New Stock Plan. 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 its 1998 fiscal year through May 29, 1998, the Company has granted
options to purchase an aggregate 37,101 shares of Common Stock to the Named
Executive Officers, as follows: 12,003 shares for Mr. McManus, 8,730 shares for
Mr. Staudt and 5,456 shares for each of Messrs. Bankosky, Stinton and Primeau.
Such options have an exercise price of $5.73 per share of Common Stock.
53
<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 52,533 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 18,331 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 34,201 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 10% Senior Subordinated Notes due
February 14, 2002 in the principal amount of $25,000,000, plus an aggregate
370,994 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
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<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 May 29, 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) ............. 5,753,534 72.21% 49.74%
320 Park Avenue, 25th Floor
New York, NY 10019
William Blair & Co., L.L.C. (4) ................. 916,762 11.51% 7.93%
222 West Adams Street
Chicago, Illinois 60606
Mellon Bank, as Trustee (5) ..................... 616,692 7.74% 5.33%
767 Fifth Avenue, 26th Floor
New York, NY 10153
Thomas P. Staudt (6) ............................ 166,151 2.06% 1.42%
Richard P. Bankosky ............................. 11,349 - -
James T. Stinton (7) ............................ 16,152 - -
William M. McManus (8) .......................... 13,531 - -
Roger L. Primeau (9) ............................ 4,060 - -
Thomas E. McInerney (10) ........................ 5,612,369 70.44% 48.52%
320 Park Avenue, 25th Floor
New York, NY 10019
Anthony J. de Nicola (11) ....................... 5,588,555 70.14% 48.31%
320 Park Avenue, 25th Floor
New York, NY 10019
Timothy M. Murray (12) .......................... 913,621 11.47% 7.90%
222 West Adams Street
Chicago, Illinois 60606
All current directors and executive officers as a 6,747,583 83.14% 57.59%
group (10 persons) .............................
</TABLE>
- ----------
- Represents beneficial ownership of less than 1% of the Common Stock.
55
<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 7,967,304 shares of Common Stock
outstanding on May 29, 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 2,566,414 shares of Common Stock held by WCAS V, 2,583,700 shares
of Common Stock held by WCAS VI, 62,117 shares of Common Stock held by WCAS
Information Partners L.P. ("WCAS Info."), 370,994 shares of Common Stock
held by WCAS CP II, and 170,310 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 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, and each may
be deemed to be beneficial owners of the Company's Common Stock owned by
WCAS.
(4) Includes 600,467 shares of Common Stock held by Blair V, 313,153 shares of
Common Stock held by Blair LCF and 3,141 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 308,346 shares of Common Stock held by Mellon Bank as Trustee for
the General Motors Salaried Employees Pension Trust and 308,346 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 109,554 shares of Common Stock.
(7) Includes options to purchase up to 16,152 shares of Common Stock.
(8) Includes options to purchase up to 13,531 shares of Common Stock.
(9) Includes options to purchase up to 4,060 shares of Common Stock.
(10) Includes 2,566,414 shares of Common Stock held by WCAS V, 2,583,700 shares
of Common Stock held by WCAS VI, 62,117 shares of Common Stock held by WCAS
Info. and 370,994 shares of Common Stock held by WCAS CP II. Mr. McInerney
disclaims beneficial ownership of such shares.
(11) Includes 2,566,414 shares of Common Stock held by WCAS V, 2,583,700 shares
of Common Stock held by WCAS VI, 62,117 shares of Common Stock held by WCAS
Info. and 370,994 shares of Common Stock held by WCAS CP II. Mr. de Nicola
disclaims beneficial ownership of such shares.
(12) Includes 600,467 shares of Common Stock held by Blair V and 313,153 shares
of Common Stock held by Blair LCF. Mr. Murray disclaims beneficial
ownership of such shares.
56
<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 11,567,304 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 May 29, 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 66,379 post Reverse Stock
Split shares), and all shares of Preferred Stock will be converted into an
aggregate 2,215,940 shares of Common Stock (based on the aggregate liquidation
preference of the Preferred Stock as of May 29, 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 2,215,940 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 May 29, 1998, there were outstanding warrants to purchase 66,379
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.
57
<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 annual meeting. The notice by a stockholder
must contain, among other things, certain information about the stockholder
delivering the notice and, as applicable, background information about the
nominee or 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.
58
<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 11,567,304
shares of Common Stock outstanding (excluding 483,132 shares reserved for
issuance upon the exercise of outstanding stock options) (12,107,304 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 7,967,304 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, 589,799 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 7,555,684 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."
59
<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,
60
<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-
61
<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.
62
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE
-----
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-20
Statements of Income for the Year Ended June 30, 1997 and the Three
Months Ended September 30, 1997 (Unaudited)........................... F-21
Notes to Financial Statement ........................................... F-22
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
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
June 2, 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 (Note 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>
NINE MONTHS ENDED
YEAR ENDED JUNE 30, MARCH 31,
--------------------------------------- ---------------------------
1995 1996 1997 1997 1998
------------ ------------ ------------- -------------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ..................................................... $(16,601) $ (19,330) $ (11,464) $ (7,861) $ (3,624)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization ............................... 2,995 5,176 5,418 3,543 5,103
Provision for doubtful accounts ............................. 518 406 316 195 265
Write-down of intangible assets ............................. 8,191 9,965 -- -- --
Acquired in-process research and development ................ -- -- 4,354 4,354 --
(Gain) loss on sale of assets ............................... -- 313 (8) (8) (13)
Non-cash compensation expense ............................... -- -- -- -- 18
Changes in operating assets and liabilities net of effects
of businesses acquired:
Accounts receivable ........................................ 648 977 (861) 17 (1,410)
Formularly receivables ..................................... -- (74) (331) (105) (1,097)
Inventory .................................................. (66) 262 (45) 9 (68)
Prepaid expenses and other current assets .................. (85) (179) 175 94 (3)
Other assets ............................................... 74 243 13 84 118
Accounts payable and accrued expenses and other cur-
rent liabilities ......................................... (589) 997 (629) (2,368) (3,696)
Other long-term liabilities ................................ 1,354 (409) (958) (945) 546
-------- --------- ---------- ---------- ----------
Net cash used in operating activities .................... (3,561) (1,653) (4,020) (2,991) (3,861)
-------- --------- ---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Business acquisitions, net of cash acquired .................. (21,566) (3,648) (11,450) (11,450) (10,674)
Purchases of property and equipment, net ..................... (508) (1,271) (1,477) (703) (627)
Additions to goodwill and other intangible assets ............ -- -- (143) (83) (492)
Proceeds from sale of property and equipment ................. -- -- 461 218 182
Proceeds from sale of net assets of Premier .................. -- -- 388 388 --
-------- --------- ---------- ---------- ----------
Net cash used in investing activities .................... (22,074) (4,919) (12,221) (11,630) (11,611)
-------- --------- ---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Due to stockholders .......................................... 4,484 (4,484) -- -- --
Issuance of Senior Subordinated Note ......................... -- -- 22,875 22,875 --
Issuance of preferred stock .................................. 23,996 -- -- -- --
Issuance of common stock ..................................... 4,004 -- 2,125 2,125 --
Proceeds from intercompany debt due to CES ................... 1,297 -- -- -- --
Net proceeds (repayments) under Credit Facility .............. -- 8,250 (8,250) (8,250) 15,925
Principal repayments of debt ................................. (1) (2,852) (801) (636) (508)
Principal repayments of capital lease obligations ............ (346) (452) (518) (336) (449)
Exercise of stock options .................................... -- 195 90 40 40
--------- --------- ---------- ---------- ----------
Net cash provided by financing activities ................ 33,434 657 15,521 15,818 15,008
--------- --------- ---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS .................................................. 7,799 (5,915) (720) 1,197 (464)
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD ....................................................... 755 8,554 2,639 2,639 1,919
--------- --------- ---------- ---------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD....................... $ 8,554 $ 2,639 $ 1,919 $ 3,836 $ 1,455
========= ========= ========== ========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Interest .................................................... $ 246 $ 394 $ 1,541 $ 368 $ 1,734
========= ========= ========== ========== ==========
Income taxes ................................................ $ 348 $ 69 $ 111 $ 34 $ 95
========= ========= ========== ========== ==========
Non-cash investing and financing activities:
Assets acquired under capital leases or by incurring debt..... $ 848 $ 205 $ 129 $ 14 $ 120
========= ========= ========== ========== ==========
Issuance of warrants ......................................... $ -- $ 121 $ 52 $ 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, Wellmark, and EC&F were merged
into MEDE America Corporation.
The Company has instituted certain cost reduction and restructuring
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 which is typical in the industry.
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 and are amortized on a straight-line basis over three to
five years.
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." Capitalized software development costs are amortized
on a straight-line basis over the estimated useful product life (normally
five years) and amortization begins in the period in which the related
product is available for general release to customers. 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.
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
F-8
<PAGE>
MEDE AMERICA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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. Purchased software and technology and
client lists were valued at $890,000 and $2,548,000, respectively, and are
being amortized over three and five years, respectively (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 $948,000 and $143,000, respectively, and
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 obtained
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 is being amortized over three years.
EC&F and Premier are developers of electronic
F-9
<PAGE>
MEDE AMERICA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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 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. Purchased software and technology and client lists
were valued at $968,000 and $742,000, respectively, and 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.
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.
YEAR ENDED NINE MONTHS ENDED
JUNE 30, 1997 MARCH 31, 1998
--------------- ------------------
(IN THOUSANDS)
Revenues ................................. $ 41,824 $ 31,835
========= ========
Loss from operations ..................... $ (11,253) $ (515)
========= ========
Net loss ................................. $ (13,456) $ (3,320)
========= ========
Net loss applicable to common stock ...... $ (15,856) $ (5,120)
========= ========
Basic net loss per share ................. $ (2.92) $ (0.90)
========= ========
F-10
<PAGE>
MEDE AMERICA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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>
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>
F-11
<PAGE>
MEDE AMERICA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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>
- ----------
(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 370,994 shares of its common stock valued at $2,125,000 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 guaran-
F-12
<PAGE>
MEDE AMERICA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
tees, the stockholders were issued warrants to purchase 52,533 shares
(valued at $121,000), 18,331 shares (valued at $52,000) and 34,201 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. 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.
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) $ (2,478) $ (1,213)
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 2,258 1,030
-------- -------- -------- -------- --------
Total ........................................ $ 70 $ 93 $ 57 $ 43 $ 37
======== ======== ======== ======== ========
</TABLE>
F-13
<PAGE>
MEDE AMERICA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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) 57
Goodwill ............................................... 2,024 3,540 3,619
Other intangible assets ................................ (163) 366 537
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 19,115
Less valuation allowance ............................... (14,572) (18,450) (19,115)
--------- --------- ---------
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.
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
F-14
<PAGE>
MEDE AMERICA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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 ............... 480,328 $ 4.58 $ 4.58
------- ------------ -------
Balance June 30, 1995 ........... 480,328 $ 4.58 $ 4.58
Options granted ............... 117,955 $ 4.58 $ 4.58
Options exercised ............. (42,555) $ 4.58 $ 4.58
Canceled/lapsed ............... (91,221) $ 4.58 $ 4.58
------- ------------ -------
Balance, June 30, 1996 .......... 464,507 $ 4.58 $ 4.58
Options granted ............... 51,066 $ 4.58-$5.73 $ 5.18
Options exercised ............. (19,641) $ 4.58 $ 4.58
Canceled/lapsed ............... (65,688) $ 4.58 $ 4.58
------- ------------ -------
Balance, June 30, 1997 .......... 430,244 $ 4.58-$5.73 $ 4.64
Options granted ............... 81,946 $ 5.73 $ 5.73
Options exercised ............. (8,598) $ 4.58-$5.73 $ 4.64
Canceled/lapsed ............... (15,059) $ 4.58-$5.73 $ 4.62
------- ------------ -------
Balance, March 31, 1998 ......... 488,533 $ 4.58-$5.73 $ 4.83
======= ============ =======
</TABLE>
During March 1998, the Company granted 47,574 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>
$ 4.58 381,272 7.5 $ 4.58 201,406 $ 4.58
$ 5.73 107,261 9.6 $ 5.73 10,693 $ 5.73
------- -------
488,533 7.9 $ 4.84 212,099 $ 4.64
======= =======
</TABLE>
F-15
<PAGE>
MEDE AMERICA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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.
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>
F-16
<PAGE>
MEDE AMERICA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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.
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):
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
======
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):
F-17
<PAGE>
MEDE AMERICA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
YEAR ENDING JUNE 30,
-------------------------------------------------------
1998 (three months from April 1, 1998 to June 30, 1998). $ 51
1999 ................................................... 205
2000 ................................................... 80
----
$336
====
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.
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 1999. The Company was in compliance with the terms of these
agreements as of March 31, 1998.
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
F-18
<PAGE>
MEDE AMERICA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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 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 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.
f. Revolving Line of Credit -- During June 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 $10,000,000 upon
substantially the same terms and condition as the Credit Facility (the
"Amended Credit Facility"). Borrowings under the Amended Credit Facility
will not be guaranteed by any third party. The Amended Credit Facility will
take effect upon the consummation of the IPO.
F-19
<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-20
<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-21
<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, approximately 37% of
revenues were generated from three customers who individually comprised 10% or
more 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-22
<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 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-23
<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 ................. 17
Dividend Policy ................. 17
Capitalization .................. 18
Dilution ........................ 19
Unaudited Pro Forma Consolidated
Financial Information ........ 20 --------------------------
Selected Financial Data ......... 27
Management's Discussion And PROSPECTUS
Analysis Of Financial
Condition And Results Of --------------------------
Operations ................... 29
Business ........................ 39
Management ...................... 49
Certain Transactions ............ 54
Principal Stockholders .......... 55
Description Of Capital Stock .... 57
Shares Eligible For Future Sale . 59
Underwriting .................... 60
Legal Matters ................... 61
Experts ......................... 61
Additional Information .......... 62 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 JUNE , 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:
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
========
- ----------
* To be filed by Amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Amended and Restated Certificate of Incorporation (the
"Restated Certificate") provides 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 provides 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 share, 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 million 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
II-2
<PAGE>
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.
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
EXHIBIT
NUMBER DESCRIPTION
- --------- -----------------------------------------------------------------
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 Partners 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 Partners V,
L.P., and Warrants issued thereunder.
4.5 -- Warrant Agreement dated as of December 18, 1995 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
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.
II-3
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
- -------- ------------------------------------------------------------------
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 -- Letter dated June 3, 1998 from Bank of America National Trust &
Savings Association to MEDE AMERICA Corporation, regarding
amendment to Credit Facility.
21.1 -- Subsidiaries of the Company.
23.1* -- Consent of Deloitte & Touche LLP, independent accountants.
23.2 -- Consent of Deloitte & Touche LLP, independent accounts.
23.3* -- Consent of Reboul, MacMurray, Hewitt, Maynard & Kristol (see
Exhibit 5.1).
24.1 -- Power of Attorney (see Signature Page).
27.1 -- Financial Data Schedule.
- ----------
* To be filed by amendment.
(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.
II-4
<PAGE>
(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-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this 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
POWER OF ATTORNEY AND SIGNATURES
We the undersigned officers and directors of MEDE AMERICA Corporation,
hereby severally constitute and appoint Thomas P. Staudt, Richard P. Bankosky
and David M. Goldwin, and each of them singly (with full power to each of them
to act alone), our true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution in each of them for him and in his name,
place and stead, and in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement (or any
other Registration Statement for the same offering that is to be effective upon
filing pursuant to Rule 462(b) under the Securities Act of 1933), and to file
the same, with all exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite or necessary to be done in
and about the premises, as full to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents or any of them or their or his substitute or substitutes may lawfully
do or cause to be done by virtue hereof.
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 June 3, 1998
- ------------------------- Officer (Principal executive officer);
Thomas P. Staudt Director
RICHARD P. BANKOSKY Chief Financial Officer (Principal June 3, 1998
- ------------------------- financial and accounting officer)
Richard P. Bankosky
THOMAS E. MCINERNEY Director June 3, 1998
- -------------------------
Thomas E. McInerney
ANTHONY J. DE NICOLA Director June 3, 1998
- -------------------------
Anthony J. de Nicola
TIMOTHY M. MURRAY Director June 3, 1998
- -------------------------
Timothy M. Murray
</TABLE>
II-6
<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
EXHIBIT
NUMBER DESCRIPTION
- --------- -----------------------------------------------------------------
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 Partners 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 Partners V,
L.P., and Warrants issued thereunder.
4.5 -- Warrant Agreement dated as of December 18, 1995 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
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 -- Letter dated June 3, 1998 from Bank of America National Trust &
Savings Association to MEDE AMERICA Corporation, regarding
amendment to Credit Facility.
21.1 -- Subsidiaries of the Company.
23.1* -- Consent of Deloitte & Touche LLP, independent accountants.
23.2 -- Consent of Deloitte & Touche LLP, independent accounts.
23.3* -- Consent of Reboul, MacMurray, Hewitt, Maynard & Kristol (see
Exhibit 5.1).
24.1 -- Power of Attorney (see Signature Page).
27.1 -- Financial Data Schedule.
- ----------
* To be filed by amendment.
EXHIBIT 2.1
================================================================================
ASSET PURCHASE AGREEMENT
among
MEDE AMERICA CORPORATION
GENERAL COMPUTER CORPORATION
TIME-SHARE COMPUTER SYSTEMS
JACK GUGGISBERG
DAVID C. McGUIRE
and
DARWIN J. DeROSIER
Dated as of February 3, 1997
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I. TRANSFERS........................................................ 1
SECTION 1.01 Transfer of Assets....................................... 1
SECTION 1.02 Instruments of Conveyance and
Transfer................................................. 3
SECTION 1.03 Nonassignable Contracts.................................. 3
ARTICLE II. CLOSING, PURCHASE PRICE, LIABILITIES, ETC........................ 4
SECTION 2.01 Closing.................................................. 4
SECTION 2.02 Purchase Price........................................... 4
SECTION 2.03 Payment to Seller on Closing Date........................ 4
SECTION 2.04 Non-Assumption of Certain Liabilities.................... 5
ARTICLE III. REPRESENTATIONS AND WARRANTIES................................... 6
SECTION 3.01 Representations and Warranties of Seller
and the Stockholders................................... 6
SECTION 3.02 Representations and Warranties of
Buyer and MedE......................................... 21
ARTICLE IV. COVENANTS........................................................ 22
SECTION 4.01 Covenants of Seller and the Stockholders................. 22
SECTION 4.02 Confidentiality.......................................... 24
SECTION 4.03 Allocation of Purchase Price............................. 24
SECTION 4.04 Preparation of Certain Financial
Statement.............................................. 24
SECTION 4.05 Certain Tax Matters...................................... 24
SECTION 4.06 Insurance................................................ 25
SECTION 4.07 Collection of Accounts Receivable........................ 25
SECTION 4.08 Retention of Employees................................... 26
SECTION 4.09 Payment of Liabilities................................... 26
SECTION 4.10 Name Change.............................................. 26
ARTICLE V. CONDITIONS PRECEDENT............................................. 26
SECTION 5.01 Conditions Precedent to Obligations
of Buyer and MedE...................................... 26
SECTION 5.02 Conditions Precedent to Obligations
of Seller and the Stockholders......................... 28
SECTION 5.03 Deemed Satisfaction of Certain
Conditions............................................. 30
ARTICLE VI. SURVIVAL OF REPRESENTATIONS;
INDEMNIFICATION............................................. 30
SECTION 6.01 Survival of Representations.............................. 30
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 6.02 Tax Indemnity............................................ 30
SECTION 6.03 General Indemnity........................................ 31
SECTION 6.04 Conditions of Indemnification............................ 32
SECTION 6.05 Basket................................................... 33
ARTICLE VII. TERMINATION...................................................... 33
SECTION 7.01 Termination............................................. 33
SECTION 7.02 Effect of Termination................................... 34
ARTICLE VIII. MISCELLANEOUS.................................................... 34
SECTION 8.01 Specific Performance.................................... 34
SECTION 8.02 Bulk Transfer Laws...................................... 34
SECTION 8.03 Expenses, Etc........................................... 34
SECTION 8.04 Execution in Counterparts............................... 35
SECTION 8.05 Notices................................................. 35
SECTION 8.06 Waivers................................................. 36
SECTION 8.07 Amendments, Supplements, Etc............................ 36
SECTION 8.08 Entire Agreement........................................ 37
SECTION 8.09 Applicable Law.......................................... 37
SECTION 8.10 Binding Effect, Benefits................................ 37
SECTION 8.11 Assignability........................................... 37
TESTIMONIUM .................................................................... 38
</TABLE>
(ii)
<PAGE>
INDEX TO EXHIBITS AND ANNEXES
Exhibit Description
- ------- -----------
A Form of Bill of Sale, Assignment and
Assumption Agreement
B Form of Escrow Agreement
C Form of Confidentiality, Non-Solicitation
and Non-Compete Agreement
D Form of Opinion of Hanson & Associates
E Form of Consulting Agreement
F Form of Opinion of Reboul, MacMurray,
Hewitt, Maynard & Kristol
(iii)
<PAGE>
INDEX TO SCHEDULES
Schedule Description
- -------- -----------
3.01(a) Jurisdictions
3.01(c) Capitalization
3.01(e) Effect of Agreements
3.01(f) Governmental Approvals
3.01(g) Financial Statements
3.01(h) Certain Changes or Events
3.01(i) Liens and Encumbrances
3.01(j) List of Properties, Contracts and Other
Data
3.01(k) Litigation
3.01(m) Employee Benefit Plans
3.01(n) Intellectual Property Rights
3.01(o) Software
3.01(t) Taxes
3.01(v) Transactions with Affiliates
3.01(w) Governmental Authorizations and Regulations
3.01(x) Insurance
4.01(e) Written Service Agreements; Supplements to
Service
Agreements
4.03 Allocation of Purchase Price
4.08 Retained Employees
5.03 Critical Contracts
(iv)
<PAGE>
37
ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT, dated as of February 3, 1997, among
MEDE AMERICA CORPORATION, a Delaware corporation ("MedE"), GENERAL COMPUTER
CORPORATION, an Ohio corporation and a wholly-owned subsidiary of MedE
("Buyer"), TIME-SHARE COMPUTER SYSTEMS, Inc., a Minnesota corporation
("Seller"), Jack Guggisberg, David C. McGuire and Darwin J. DeRosier
(collectively, the "Stockholders").
WHEREAS, Seller is engaged in the business of providing
electronic data interchange and transaction processing services to the
healthcare industry (the "Business"); and
WHEREAS, Seller desires to sell to Buyer, and Buyer desires to
purchase from Seller, all the assets and properties of Seller relating to the
Business (excluding certain specified assets), and to assume certain
liabilities, all on the terms and subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants herein contained, the parties hereby agree as follows:
I. TRANSFERS
SECTION 1.001. Transfer of Assets. () On the terms and subject
to the conditions hereinafter set forth, on the Closing Date (as hereinafter
defined), Seller shall sell, convey, transfer, assign and deliver to Buyer, and
Buyer shall purchase from Seller, for the consideration set forth in Section
2.03 hereof, all the then existing assets and properties (of every kind, nature
and description, real, personal or mixed, tangible or intangible and wherever
situated, whether or not carried on the books of Seller) of Seller to the extent
that such assets are necessary to, or attributable to, the Business, or used by
Seller in connection with the Business, except those assets excluded pursuant to
paragraph (b) below (said assets and properties so to be sold, conveyed,
transferred, assigned and delivered being hereinafter collectively called the
"Assets"), including, without limitation:
(i) all tangible personal property, inventory, machinery,
equipment, supplies, tools, fixtures, leaseholds, computer equipment,
work in process, spare parts, vehicles, furniture and office
furnishings, wherever situated (it being the intention hereby to assign
and transfer all the tangible personal property owned or claimed by
Seller;
(ii) all intangible personal property of whatsoever kind or
character, whether evidenced in writing or not,
<PAGE>
including but not limited to all customer lists, data bases,
proprietary assays, deferred charges and prepaid expenses, bonds,
claims, and causes of action (whether fixed or contingent);
(iii) the patents, trademarks and trade names, trademark and
trade name registrations, service marks and service mark registrations,
copyrights and copyright registrations, the applications therefor and
the licenses and franchises with respect thereto, in each case listed
in clause (iv) of Schedule 3.01(j) hereto, together with all trade
secrets, technology (including technology with respect to which Seller
is a licensee, in any such case only insofar as permitted under the
applicable license agreement), processes, inventions, designs,
drawings, blueprints, specifications, patterns, royalties, privileges,
permits and all other similar intangible personal property
(collectively, the "Intellectual Property Rights");
(iv) all technical materials and guidelines, brochures, sales
literature, promotional material and other selling material;
(v) all papers, documents, instruments, books and records,
files, agreements, books of account and other records by which the
Assets might be identified or enforced, or otherwise pertaining to the
Assets or the Business that are located at the offices or other
locations used in connection with the Assets or the Business
(including, without limitation, customer invoices, customer lists,
vendor and supplier lists, drafts and other documents and materials
relating to customer transactions);
(vi) the rights of Seller under all contracts, agreements,
licenses, leases, sales orders, purchase orders and other commitments
relating to the Assets or the Business;
(vii) all computer software programs, the source and object
codes for such software programs and all documentation and training
manuals related thereto owned, held or licensed by Seller; and
(viii) all other assets and rights of every kind and nature,
real or personal, tangible or intangible, that are owned or claimed by
Seller and that are necessary to, or attributable to, the Business or
used by Seller in connection with the Business (including, without
limitation, all goodwill), whether or not such assets are reflected in
the balance sheets and other financial statements of Seller, together
with the right to represent that Buyer is the successor in interest to
the Business.
2
<PAGE>
Without limiting the generality of the foregoing, the Assets shall, except as
set forth in paragraph (b) below, include all assets set forth or reflected on
the unaudited December 31, 1996 balance sheet of Seller (the "December 31, 1996
Balance Sheet"), together with all such assets as may be acquired by Seller
after said date and that would be included on a balance sheet prepared in like
manner from such accounting records as of the Closing Date, except for any such
assets that may be or have been disposed of after said date in the ordinary
course of business on a basis consistent with past practice.
(b) Anything herein contained to the contrary notwithstanding,
the following assets of Seller are specifically excluded from the Assets and
shall be retained by Seller:
(i) all cash and cash equivalents on hand, including
investment securities, bank accounts, temporary cash and petty cash
held by Seller as of the Closing Date;
(ii) all accounts receivable accrued on the books of Seller as
of the Closing Date and resulting from the delivery of goods and
services of the Business prior to the Closing Date;
(iii) all accrued but unbilled rebate commissions arising on
or prior to the Closing Date (in the event that such commissions are
paid to Buyer after the Closing Date, Buyer shall promptly remit the
same to Seller);
(iv) The 1995 Jeep Cherokee used by Jack Guggisberg; and
(v) any claims or rights against third parties relating to
liabilities or obligations that are not assumed by the Buyer pursuant
to this Agreement.
SECTION 1.002. Instruments of Conveyance and Transfer. Subject
to Section 1.03 below, on the Closing Date, Seller shall execute and deliver to
Buyer (i) a bill of sale in the form included in the Form of Bill of Sale,
Assignment and Assumption Agreement annexed hereto as Exhibit A (the "Bill of
Sale, Assignment and Assumption Agreement") and (ii) such other documents of
transfer that Buyer may reasonably request, transferring to Buyer the properties
and assets to be acquired by Buyer under the terms of this Agreement.
SECTION 1.003. Nonassignable Contracts. Nothing in this
Agreement shall be construed as an attempt or agreement to assign (i) any
contract, agreement, license, lease, sales order, purchase order or other
commitment that is nonassignable without the consent of the other party or
parties thereto unless such
3
<PAGE>
consent shall have been given (subject, however, to the covenant of Seller and
the Stockholders in Section 4.01(d) hereof), or (ii) any contract or claim as to
which all the remedies for the enforcement thereof enjoyed by Seller would not
pass to Buyer as an incident of the assignments provided for by this Agreement.
In order, however, that the full value of every contract and claim of the
character described in clauses (i) and (ii) above and all claims and demands on
such contracts may be realized, Seller and the Stockholders will use its best
efforts to obtain approval for assignment and, failing that, Seller shall, by
itself or by its agents, at the request and expense and under the direction of
Buyer, in the name of Seller or otherwise as Buyer shall specify and as shall be
permitted by law, take all action and do or cause to be done all things as shall
in the opinion of Buyer be reasonably necessary or proper (x) in order that the
rights and obligations of Seller under such contracts shall be preserved and (y)
for, and to facilitate, the collection of the moneys due and payable, and to
become due and payable, to Seller in and under every such contract and claim and
in respect of every such claim and demand, and Seller shall hold the same for
the benefit of and shall pay the same over promptly to Buyer.
II. CLOSING, PURCHASE PRICE, LIABILITIES, ETC.
SECTION 2.001 Closing. The closing (the "Closing") of the
transactions contemplated by this Agreement shall take place at the offices of
Reboul, MacMurray, Hewitt, Maynard & Kristol, 45 Rockefeller Plaza, New York,
N.Y., 10111, on February 13, 1996, or on such other date as the parties may
mutually agree (such date and time of closing being herein called the "Closing
Date"), and for tax and accounting purposes shall be deemed effective as of the
close of business on such date.
SECTION 2.002 Purchase Price. The aggregate purchase price
for the Assets hereunder shall be $11,250,000 (the "Purchase Price").
SECTION 2.003 Payment to Seller on Closing Date. On the
Closing Date, in full consideration for the sale, conveyance, transfer,
assignment and delivery to Buyer of the Assets, Buyer shall:
(a) pay to Seller $10,125,000 in cash by wire transfer to the
account specified by Seller, and
(b) cause $1,125,000 in cash (the "Retention") to be deposited
in an escrow account pursuant to an Escrow Agreement (the "Escrow
Agreement") among Buyer, MedE, Seller and
4
<PAGE>
the Escrow Agent named therein, substantially in the form of Exhibit B
hereto.
Pursuant to the terms of the Escrow Agreement, the Escrow Agent shall hold the
Retention to secure the indemnification obligations of Seller pursuant to
Article VI hereof and the purchase price adjustment provisions of Section 2.05
hereof.
SECTION 2.004 Non-Assumption of Certain Liabilities. Buyer is
not assuming, and shall not be deemed to have assumed, any liabilities or
obligations of Seller of any kind or nature whatsoever, except (x) executory
obligations under the operating contracts of Seller assigned to Buyer and (y)
those employment obligations set forth in Section 4.08 hereof, in each case only
to the extent expressly provided in the Bill of Sale, Assignment and Assumption
Agreement (collectively, the "Assumed Liabilities"). Without limiting the
generality of the foregoing, it is hereby agreed that Buyer is not assuming any
liability for and shall not have any obligation with respect to:
(i) any and all (x) accrued but unpaid current liabilities and
(y) non-current liabilities of Seller, in each case as determined in
accordance with generally accepted accounting principles consistently
applied ("GAAP"), either set forth or reflected on the December 31,
1996 Balance Sheet or incurred by Seller after December 31, 1996;
(ii) any liabilities or obligations of Seller that arise under
the terms of a contract, agreement, license, lease, sales order,
purchase order, or other commitment which shall not be assigned to
Buyer pursuant to this Agreement;
(iii) any liabilities or obligations of Seller to the
Stockholders and their respective affiliates (including without
limitation any notes payable to the Stockholders);
(iv) any liabilities or obligations of Seller under any Plan
(as defined in Section 3.01(m) hereof, including any obligation to
adopt or to sponsor such Plan of Seller except as Buyer may, in its
sole discretion, elect to adopt or to sponsor);
(v) any obligation of Seller arising out of any action, suit
or proceeding based upon an event occurring or a claim arising (A)
prior to or on the Closing Date or (B) after the Closing Date in the
case of claims in respect of products or services sold or provided by
Seller prior to the Closing Date or attributable to acts performed or
omitted by Seller prior to the Closing Date;
5
<PAGE>
(vi) any and all Taxes (as hereinafter defined) incurred by or
imposed upon Seller, or any predecessor company thereof, for all
periods prior to (and up to and including) the close of business on the
Closing Date, including without limitation any Taxes incurred by or
imposed upon Seller and arising out of the consummation of the
transactions contemplated by this Agreement; and
(vii) any liability in respect of any failure of Seller to
conduct the Business in compliance with any Permit, law, regulation or
order, including without limitation any Environmental Law or
Environmental Permit (as hereinafter defined), prior to the Closing
Date.
III. REPRESENTATIONS AND WARRANTIES
SECTION 3.001 Representations and Warranties of Seller and the
Stockholders. Seller and the Stockholders, jointly and severally, represent and
warrant to Buyer as follows:
(a) Organization, Power, Etc. of Seller. Seller is a
corporation duly formed, validly existing and in good standing under the laws of
the State of Minnesota. Seller has all requisite power and authority to own,
operate and lease the Assets, to carry on the Business as it is now being
conducted, to execute and deliver this Agreement together with the Escrow
Agreement, the Bill of Sale, Assignment and Assumption Agreement and a
Confidentiality, Non-Solicitation and Non-Compete Agreement in substantially the
form attached hereto as Exhibit C (collectively, the "Ancillary Agreements"),
and to perform its respective obligations hereunder and thereunder. Seller is
duly qualified or licensed to do business in each jurisdiction in which it owns
or leases any real property or in which the nature of the business transacted by
it makes such qualification necessary, unless the failure to be so licensed or
qualified would not have a material adverse effect on the properties, assets,
business, prospects, operations, or condition (financial or otherwise) of Seller
(a "Material Adverse Effect"). Schedule 3.01(a) sets forth a complete list of
the jurisdictions in which Seller is qualified to do business.
(b) Subsidiaries. Seller has no direct or indirect
subsidiaries, or any participating equity interest in any partnership, joint
venture or other non-corporate business enterprise. As used herein, the term
"subsidiary" shall mean any corporation, partnership or other business entity, a
majority of whose voting capital stock (or other voting interests, as the case
may be) is at the time owned by Seller and/or any subsidiaries thereof.
6
<PAGE>
(c) Capitalization. The authorized capital stock of Seller
consists of 1,000 shares of common stock, no par value, of which 1,000 shares
are issued and outstanding. All issued and outstanding shares of capital stock
of Seller are owned as set forth on Schedule 3.01(c) hereto. There are no
outstanding options, warrants, calls or other rights to subscribe for or
purchase or acquire from Seller, or any plans, contracts or commitments
providing for the issuance of, or the granting of rights to acquire (i) any
capital stock or partnership interests, as the case may be, of Seller or (ii)
any securities convertible into or exchangeable for any capital stock of Seller.
(d) Authorization of Agreements; Validity. The execution and
delivery by Seller of this Agreement and the Ancillary Agreements, and the
consummation by Seller of the transactions contemplated hereby and thereby, have
been duly authorized by all requisite corporate action. This Agreement has been
duly and validly executed by Seller and each of the Stockholders and constitutes
the legal, valid and binding obligation of Seller and each of the Stockholders,
enforceable in accordance with its terms. Each Ancillary Agreement, when duly
executed and delivered by Seller and each Stockholder that is a party thereto,
will constitute the legal, valid and binding obligation of Seller and each such
Stockholder, enforceable in accordance with its terms.
(e) Effect of Agreements. Except as set forth on Schedule
3.01(e) hereto, the execution and delivery by Seller and the Stockholders of
this Agreement and the Ancillary Agreements to which each is a party and the
performance by Seller and the Stockholders of their respective obligations
hereunder and thereunder will not (x) violate any provision of law, any order of
any court or other agency of government, the Articles of Incorporation or
By-laws of Seller, or any judgment, award, decree, indenture, agreement, Permit
(as defined herein) or other instrument to which Seller or any Stockholder is a
party, or by which Seller, any Stockholder, the Business or any of the Assets is
bound or affected; (y) conflict with, result in a breach of or constitute (with
due notice or lapse of time or both) a default under, any such indenture,
agreement, Permit or other instrument; or (z) result in the creation or
imposition of any lien, charge, security interest or encumbrance of any nature
whatsoever upon any of the Assets.
(f) Governmental Approvals. Except as set forth on Schedule
3.01(f) hereto, no approval, authorization, consent, order or action of or
filing with any court, administrative agency or other governmental authority (i)
is required for the execution and delivery by Seller and the Stockholders of
this Agreement and the Ancillary Agreements to which they are party or the
consummation by Seller and the Stockholders of the transac-
7
<PAGE>
tions contemplated hereby or thereby or (ii) is necessary in order that the
Business may be conducted immediately following the Closing Date substantially
in the same manner as theretofore conducted.
(g) Financial Statements.
(i) Prior to the Closing Date, Seller will furnish to Buyer
the December 31, 1996 Balance Sheet and the related unaudited
statements of operations, stockholders equity and cash flows for the
year then ended, (the "Financial Statements"). Except as set forth on
Schedule 3.01(g), the Financial Statements (including any related
schedules and/or notes) are complete and correct in all material
respects and have been prepared in accordance with GAAP. Except as set
forth on Schedule 3.01(g), the December 31, 1996 Balance Sheet fairly
presents the financial condition of the Business as of such date, and
such statements of operations, stockholders equity and cash flows
fairly present the results of operations of the Business for the year
then ended.
(ii) Except (x) as expressly set forth in the Financial
Statements, (y) as disclosed in Schedule 3.01(g) or (iii) as incurred
after December 31, 1996 in the ordinary course of business consistent
with past practice, Seller does not have any material liabilities or
obligations of any kind or nature, whether known or unknown, secured or
unsecured, absolute, accrued, contingent or otherwise, and whether due
or to become due.
(iii) The December 31, 1996 Balance Sheet correctly lists
and/or reflects, in accordance with GAAP, substantially all of the
Assets to be transferred to Buyer.
(h) Absence of Certain Changes or Events. Since December 31,
1996, except as otherwise set forth on Schedule 3.01(h) hereto and
except for the transactions contemplated hereby, Seller has not:
(i) incurred any obligation or liability (whether fixed,
absolute, accrued, contingent, known or unknown, or otherwise, of any
kind or nature whatsoever), except normal trade or business obligations
incurred in the ordinary course of business and consistent with past
practice and except in connection with this Agreement and the
transactions contemplated hereby;
(ii) discharged or satisfied any material lien, security
interest or encumbrance or paid any obligation or liability (fixed or
contingent) of any kind or nature whatsoever,
8
<PAGE>
other than in the ordinary course of business and consistent with past
practice;
(iii) mortgaged, pledged or subjected to any lien, security
interest or other encumbrance any of the Assets (other than mechanic's,
materialman's and similar statutory liens arising as a matter of law
and purchase money security interests arising in the ordinary course of
business between the date of delivery and payment);
(iv) transferred, leased or otherwise disposed of any of the
Assets except for a fair consideration in the ordinary course of
business and consistent with past practice or, except in the ordinary
course of business and consistent with past practice, acquired any
assets or properties to be used by or in connection with the Business;
(v) declared, set aside or paid any distribution (whether in
cash, stock or property or any combination thereof) in respect of its
capital stock or redeemed or otherwise acquired any of its capital
stock or split, combined or otherwise similarly changed its capital
stock or authorized the creation or issuance of or issued or sold any
capital stock or any securities or obligations convertible into or
exchangeable therefor, or given any person any right to acquire any of
its capital stock, or agreed to take any such action;
(vi) made any investment of a capital nature, whether by
purchase of stock or securities, contributions to capital, property
transfers or otherwise, in any partnership, corporation or other
entity;
(vii) canceled or compromised any debt or claim related to the
Business, except in the ordinary course of business and consistent with
past practice;
(viii) waived or released any rights of material value related
to the Business, except in any case for a fair consideration in the
ordinary course of business and consistent with past practice;
(ix) transferred or granted any rights under any concessions,
leases, licenses, sublicenses, agreements, patents, inventions,
trademarks, trade names, service marks or copyrights or with respect to
any know-how related to the Business, except in the ordinary course of
business and consistent with past practice;
(x) made or granted any wage, salary or benefit increase or
paid any bonus applicable to any group or clas-
9
<PAGE>
sification of employees generally, entered into or amended the terms of
any employment contract with, or made any loan to, or granted any
severance benefits to or entered into or amended the terms of any
material transaction of any other nature with, any officer or employee
engaged in the operations of the Business;
(xi) entered into any transaction, contract or commitment,
except (A) contracts listed on Schedule 3.01(j) hereto, (B) this
Agreement and the transactions contemplated hereby and (C) as involve
payments of less than $25,000;
(xii) suffered any casualty loss or damage (whether or not
such loss or damage shall have been covered by insurance) or received
any claim or claims in respect of the Business in excess of insurable
limits, or canceled any insurance coverage, in whole or in part, under
any policy the coverage limits of which exceed $25,000;
(xiii) suffered any material adverse change in any of its
operations or in its financial condition or in its assets, properties,
business or prospects;
(xiv) surrendered, had revoked or otherwise terminated or had
terminated any material license, Permit or other approval,
authorization or consent from any court, administrative agency or other
governmental authority; or
(xv) entered into any agreement or commitment to take any
action described in this Section 3.01(h).
(i) Title to Properties, Absence of Liens and Encumbrances.
Except as set forth in Schedule 3.01(i) hereto, Seller has good and marketable
title to all the Assets, free and clear of all liens, charges, pledges, security
interests or other encumbrances of any nature whatsoever. Except as set forth on
Schedule 3.01(i) hereto, all leases of real and personal property of Seller to
be assigned to Buyer hereunder are valid and binding in accordance with their
respective terms, and there is not under any such lease any existing default, or
any condition, event or act which with notice or lapse of time or both would
constitute such a default, nor would consummation of the transactions
contemplated hereby result in a default or any such condition, event or act.
(j) List of Properties, Contracts and Other Data. Annexed
hereto as Schedule 3.01(j) is a list setting forth with respect to the Business,
as of the dates specified on such Schedule, the following:
(i) all real properties owned in fee simple by Seller;
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(ii) all tangible assets owned by Seller with original book
value in excess of $10,000;
(iii) all leases of real or personal property involving
payments in excess of $10,000 per annum to which Seller is a party, either as
lessee or lessor;
(iv) (A) all patents, trademarks and trade names, trademark
and trade name registrations, service marks and service mark registrations,
copyrights and copyright registrations which are unexpired as of the date
hereof, all applications pending on said date for patents or for trademark,
trade name, service mark or copyright registrations, and all other proprietary
rights, owned or held by Seller, and (B) all licenses and sublicenses granted by
or to Seller and all other agreements to which Seller is a party which relate,
in whole or in part, to any items of the categories mentioned in (A) above or to
other Intellectual Property Rights used by Seller in connection with the
Business, whether owned by Seller or any affiliate thereof;
(v) all employment and consulting agreements, executive
compensation plans, collective bargaining agreements, bonus plans, deferred
compensation agreements, employee pension plans or retirement plans, employee
profit sharing plans, employee stock purchase and stock option plans, group life
insurance, hospitalization insurance or other plans or arrangements providing
for benefits to employees of Seller engaged in the Business, whether oral or
written;
(vi) all contracts, understandings and commitments (including,
without limitation, powers of attorney, mortgages, indentures and loan
agreements or obligations for borrowed money including, without limitation,
guarantees), whether oral or written, to which Seller is a party or to which
Seller or any of the Assets are subject and which are not specifically referred
to above, and which (A) is a contract or group of related contracts which
involve payments exceeding $25,000 per annum in amount, (B) is a sales contract
of an open-ended or blanket nature or provides for prepaid commissions or
rebates, (C) contains penalty provisions for late delivery or completion, (E)
cannot be performed in the normal course within 365 days after the Closing Date
or canceled within such period by Seller or its assignees without breach or
penalty, or (F) contains a prohibition on the assignment thereof or any
limitation on the ability of Seller to assign the same;
(vii) the names and current annual compensation rates of all
employees of Seller engaged in the Business earning in excess of $30,000 per
annum; and
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(viii) all agreements with third party payors.
True and complete copies of all documents and complete descriptions of all oral
understandings (if any) referred to in Schedule 3.01(j) hereto have been
provided or made available to Buyer and its counsel. Except as disclosed in said
Schedule, there is no claim that any contract referred to in said Schedule is
not valid and enforceable in accordance with its terms for the periods stated
therein, and there does not exist under any such contract any existing default
or event of default or event which with notice or lapse of time or both would
constitute such a default.
(k) Litigation. Except as otherwise set forth on Schedule
3.01(k) hereto, there are no actions, suits or proceedings involving claims by
or against Seller pending or, to the best knowledge of Seller, threatened
against Seller or relating to any of the operations of the Business, at law or
in equity, or before or by any Federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality, nor, to the
best of Seller's knowledge, is there any basis for any such claim. Except as set
forth in Schedule 3.01(k) hereto, there are no orders, judgments or decrees of
any court or governmental agency with respect to which Seller has been named or
is a party.
(l) Collective Bargaining Agreements; Labor Controversies;
Etc. Seller is not a party to any labor or collective bargaining agreement, and
there are no labor or collective bargaining agreements which pertain to any
employees engaged in the operations of the Business. No employees of Seller are
represented by any labor organization. No labor organization or group of
employees of Seller has made a pending demand for recognition, and there are no
representation proceedings or petitions seeking a representation proceeding
presently pending or, to the knowledge of Seller, threatened to be brought or
filed with the National Labor Relations Board or other labor relations tribunal.
There is no organizing activity involving Seller pending or, to the knowledge of
Seller, threatened by any labor organization or group of employees of Seller.
There are no (A) strikes, work stoppages, slowdowns, lockouts or arbitrations or
(B) material grievances or other material labor disputes pending or, to the
knowledge of Seller, threatened against or involving Seller. There are no unfair
labor practice charges, grievances or complaints pending or, to the knowledge of
Seller, threatened against or involving Seller or any group of employees of
Seller. Hours worked by and payments made to employees of Seller have not been
in violation of the federal Fair Labor Standards Act or any other law dealing
with such matters.
(m) Employee Benefit Plans.
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(i) Schedule 3.01(m) hereto lists each employee benefit plan
within the meaning of Section 3(3) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), maintained by Seller or to which Seller
contributes or is required to contribute or in which any employee of Seller
participates (a "Plan"). No Plan is a defined benefit plan as defined in Section
3(35) of ERISA. Seller has complied and currently is in compliance, both as to
form and operation, with the applicable provisions of ERISA and the Internal
Revenue Code of 1986, as amended (the "Code"), respectively, with respect to
each Plan.
(ii) Each of the Plans that is intended to qualify under
Section 401(a) of the Code does so qualify and is exempt from taxation
pursuant to Section 501(a) of the Code, and Seller has received
favorable and unrevoked determination letters from the Internal Revenue
Service to that effect.
(iii) Seller has not maintained, contributed to or been
required to contribute to, nor do any of its employees participate in,
a "multiemployer plan" (as defined in Section 3(37) of ERISA). No
amount is due or owing from Seller on account of a "multiemployer plan"
(as defined in Section 3(37) of ERISA) or on account of any withdrawal
therefrom. In addition, no withdrawal liability would result if there
were a partial or complete withdrawal from any multiemployer plan as of
the Closing Date.
(iv) Notwithstanding anything else set forth herein, Seller
has not incurred any liability with respect to any Plan under ERISA
(including, without limitation, Title I or Title IV of ERISA), the Code
or other applicable law, which has not been satisfied in full, and no
event has occurred, and there exists no condition or set of
circumstances which could result in the imposition of any liability
under ERISA (including, without limitation, Title I or Title IV of
ERISA), the Code or other applicable law with respect to any of the
Plans.
(v) No Plan, other than a Plan which is an employee pension
benefit plan (within the meaning of Section 3(2)(A) of ERISA), provides
benefits, including without limitation death, health or medical
benefits (whether or not insured), with respect to current or former
employees of Seller beyond their retirement or other termination of
service with Seller (other than (A) coverage mandated by applicable
law, (B) deferred compensation benefits accrued as liabilities on the
books of Seller, or (C) benefits the full cost of which is borne by the
current or former employee (or his beneficiary)).
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(vi) The consummation of the transactions contemplated by this
Agreement will not (A) entitle any current or former employee or
officer of Seller to severance pay, unemployment compensation or any
other payment, or (B) accelerate the time of payment or vesting, or
increase the amount of compensation due any such employee or officer.
(vii) Seller has provided to Buyer true and complete copies of
the following: (A) each of the Plans; (B) summary plan descriptions of
each of the Plans; (C) each trust agreement, insurance policy or other
instrument relating to the funding of each of the Plans; (D) the two
most recent Annual Reports (Form 5500 series) and accompanying
schedules filed with the Internal Revenue Service or United States
Department of Labor with respect to each of the Plans; (E) the most
recent audited financial statement for each of the Plans; (F) the most
recent actuarial report of each of the Plans; (G) each policy of
fiduciary liability insurance (and agreements related thereto)
maintained in connection with the Plans, and (H) the most recent
determination letter issued by the Internal Revenue Service with
respect to each of the Plans that is intended to qualify under Section
401(a) of the Code.
(n) Intellectual Property Rights. The Intellectual Property
Rights listed in clause (iv) of Schedule 3.01(j) hereto, constitute all such
proprietary rights that are necessary to the conduct of the Business as of the
date hereof. Seller owns or has valid rights to use all such Intellectual
Property Rights without conflict with the rights of others. Except as set forth
on Schedule 3.01(n) hereto, no person has made or, to the best knowledge of
Seller, threatened to make, any claims that the operations of the Business are
in violation of or infringe upon any intellectual property rights or any other
proprietary or trade rights of any third party, nor, to the best of Seller's
knowledge, is there any basis for any such claim. None of the Intellectual
Property Rights is the subject of any outstanding order, ruling, decree,
judgment or stipulation. Seller has taken and is taking reasonable precautions
to protect any material trade secrets and other confidential information
included in the Intellectual Property Rights.
(o) Software.
(i) The operating and applications computer software programs
and databases used by Seller in the conduct of the Business (other than
"off-the-shelf" programs and databases that are generally commercially
available at a per unit cost of less than $500) (collectively, the
"Software") are listed on Schedule 3.01(o) hereto. Except as set forth
on Schedule 3.01(o), Seller owns outright or holds valid licenses to
all
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copies of the Software used by it in the Business. None of the Software
used by Seller, and no use thereof, infringes upon or violates any
patent, copyright, trade secret or other proprietary right of any other
person and, to the best knowledge of Seller, no claim with respect to
any such infringement or violation is threatened, nor does any person
have any basis for such a claim. Seller has taken all steps necessary
to protect its right, title and interest in and to the Software owned
by Seller.
(ii) Seller possesses or has access to the original and all
copies of all Software (including, without limitation, all source code)
and all documentation relating thereto owned or used by Seller. Upon
consummation of the transactions contemplated by this Agreement, Buyer
will (A) own all the Software owned by Seller immediately prior to the
Closing, free and clear of all claims, liens, encumbrances, obligations
and liabilities and, (B) with respect to all Software licensed or
leased to Seller, have valid rights to use such Software on
substantially the same terms as presently apply to Seller.
(iii) Any programs, modifications, enhancements or other
inventions, improvements, discoveries, methods or works of authorship
included in the Software that were created by employees of Seller were
made in the regular course of such employees' employment with Seller
using Seller's facilities and resources, and as such constitute "works
made for hire".
(p) Use of Real Property. The owned and leased real property
listed on Schedule 3.01(h) hereto are used and operated in material compliance
and conformity with all applicable leases, contracts, commitments, licenses,
zoning ordinances, codes and Permits.
(q) Condition of Assets. As of the Closing Date, all tangible
personal property, fixtures, machinery and equipment comprising the Assets will
(i) be in a good state of repair (ordinary wear and tear excepted) and operating
condition and will be suitable for the purposes for which they are being used
and (ii) substantially conform with all ordinances, codes, regulations and
requirements applicable to them.
(r) Compliance With Law. The conduct of the Business by Seller
does not (x) violate in any material respect any federal, state or local laws,
statutes, ordinances, regulations or other similar rules relating to either the
federal Medicare program or any federal and/or state Medicaid programs, or (y)
to the best knowledge of Seller and the Stockholders, violate in any material
respect any other federal, state, local or foreign laws, statutes, ordinances,
regulations, decrees, orders, Permits or
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other similar rules presently in force. Seller is not liable for any arrears of
wages or any taxes or penalties for failure to comply with any of the foregoing.
(s) Third-Party Payor and Customer Contracts. Since December
31, 1996, Seller has not lost or been notified that (whether as a result of the
consummation of the transactions contemplated by this Agreement or otherwise) it
will lose or suffer diminution in its relationships with any third-party
payor(s) or other customer(s), other than normal attrition (at historically
consistent levels) associated with independent pharmacy customers.
(t) Taxes.
(i) Except as set forth on Schedule 3.01(t) hereto, Seller has
duly and timely filed all returns, declarations, reports, estimates,
information returns and statements ("Returns") required to be filed by
it in respect of any Taxes (as hereinafter defined). All Returns
(including all informational Returns) were correct as filed and
correctly reflect the facts regarding the income, business, assets,
operations, activities and status of Seller as well as any Taxes
required to be paid or collected by Seller. Seller has timely paid or
withheld all Taxes that are due and payable with respect to the Returns
referred to above. Seller has established, consistent with past
practice, an adequate reserve on the December 31, 1996 Balance Sheet
for the payment of all Taxes with respect to Seller not yet due for any
taxable period or portion thereof ending on or prior to the Closing
Date (or otherwise relating or attributable to the results of
operations of Seller on or prior to the Closing Date). Seller has
complied with all applicable laws, rules and regulations relating to
the payment and withholding of Taxes, and has timely withheld from
employee wages and paid over to the proper governmental authorities
when due all amounts required to be so withheld and paid over
(including, but not limited to, federal income taxes, Federal Insurance
Contribution Act taxes, state and local income and wage taxes, payroll
taxes, workers' compensation and unemployment compensation taxes).
(ii) Except as set forth in Schedule 3.01(t) hereto, (A)
Seller is not delinquent in the payment of any Taxes and has not
requested any extension of time within which to file or send any
Return, which Return has not since been filed or sent; (B) there is no
deficiency, claim, audit, action, suit, proceeding or investigation now
pending or threatened against or with respect to Seller in respect of
any Taxes; and (C) there are no requests for rulings or determinations
in respect of any Taxes pending between Seller and any
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taxing authority, and no such rulings or determinations have been
received by Seller.
(iii) Seller has not executed or entered into (and, prior to
the Closing, Seller will not execute or enter into) with the Internal
Revenue Service or any other taxing authority (A) any agreement or
other document extending or having the effect of extending the period
for assessments or collection of any Taxes for which Seller would be
liable or (B) a closing agreement pursuant to Section 7121 of the Code,
or any predecessor provision thereof or any similar provision of
foreign, state or local Tax law that relates to the assets or
operations of Seller.
(iv) Except as set forth on Schedule 3.01(t) hereto, Seller
has never (A) been a member of a consolidated, combined or unitary
group for federal, state, local or foreign Tax law purposes, (B) been a
party to any Tax-sharing or allocation agreement or (C) filed any
election or caused any deemed election under Section 338 of the Code.
(v) Seller is not a party to any agreement, contract or
arrangement that would result, by reason of the consummation of any of
the transactions contemplated herein, separately or in the aggregate,
in the payment of any "excess parachute payment" within the meaning of
Section 280G of the Code.
(vi) No agreement or consent pursuant to Section 341(f) of the
Code has ever been made with respect to Seller or any assets or
properties of Seller (or any predecessor corporation of Seller).
Further, Seller shall not make any agreement or consent pursuant to
said Section 341(f) in respect of the transactions contemplated by this
Agreement.
(vii) Seller has been, for all Tax periods beginning on or
after October 10, 1982, and ending on or before the Closing Date, a
validly electing subchapter S corporation within the meaning of Section
1361 of the Code and the corresponding provisions (if any) of state and
local income tax laws in all jurisdictions in which it is required to
report its business operations. Schedule 3.01(t) hereto lists all the
states and localities with respect to which Seller is or was required
to file any Returns and sets forth whether Seller is or was treated as
the equivalent of an S corporation by or with respect to each such
state and/or locality.
(viii) Except as set forth in Schedule 3.01(t), each of the
Stockholders (x) has paid all Taxes relating to the ownership interest
of such Stockholder in Seller and re-
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quired to be paid on or prior to December 31, 1996, by such
Stockholder.
(ix) For purposes of this Agreement, "Tax" (and with
correlative meaning, "Taxes") means (A) any net income, gross income,
gross receipts, franchise, profits, license, sales, use, ad valorem,
value added, property, payroll, withholding, excise, severance,
transfer, employment, alternative or add-on minimum, stamp, occupation,
premium, environmental or windfall profits taxes, customs duties or
other taxes, governmental fees or other like assessments or charges of
any kind whatsoever, together with any interest or any penalty,
addition to tax or additional amount imposed by any governmental
authority responsible for the imposition of any such Taxes (domestic or
foreign); (B) any liability of Seller for the payment of any amounts of
the type described in (A) as a result of being a member of an
affiliated, consolidated, combined or unitary group, or being a party
to any agreement or arrangement whereby liability of Seller for
payments of such amounts was determined or taken into account with
reference to the liability of any other person for any period prior to
the Closing Date; and (C) any liability of Seller with respect to the
payment of any amounts described in (A) as a result of any express or
implied obligation to indemnify any other person.
(u) Environmental Matters.
(i) Neither the business or operations of Seller nor, to the
knowledge of Seller and the Stockholders, the real property used by
Seller in the Business (the "Real Property") violates any applicable
Environmental Law (as defined below) in any material respect.
(ii) Seller has not disposed of, stored or used any
pollutants, contaminants or hazardous or toxic wastes, substances or
materials in violation of any Environmental Law on or at the Real
Property.
(iii) Seller is not the subject of any government or private
litigation or proceedings involving a demand for damages or other
potential liability pursuant to any Environmental Laws or Common Law
Environmental Principles (as defined below).
(ii) For the purposes of this Agreement, the following terms
have the meanings set forth below:
"Common Law Environmental Principles" means any principles of
common law under which a person or entity may be held liable for the
release or discharge of any pollutants,
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contaminants or hazardous or toxic wastes, substances or materials
into the environment.
"Environmental Law" shall mean any law, statute, regulation,
rule, order, consent decree, settlement agreement or governmental
requirement of any governmental authority, as in effect on the date of
this Agreement, which relates to or otherwise imposes liability or
standards of conduct concerning discharges or releases of any
pollutants, contaminants or hazardous or toxic wastes, substances or
materials into ambient air, water or land, or otherwise relating to the
manufacture, processing, generation, distribution, use, treatment,
storage, disposal, cleanup, transport or handling of pollutants,
contaminants or hazardous or toxic wastes, substances or materials.
(v) Transactions with Affiliates. Except as set forth on
Schedule 3.01(v) hereto, no partner, director, officer or Stockholder of Seller
or any member of such individual's immediate family, owns, directly or
indirectly, or has an ownership interest in (i) any business, (corporate or
otherwise) which is a party to, or in any property which is the subject of,
business arrangements or relationships of any kind with Seller, or (ii) any
business (corporate or other) which conducts the same business, or a business
similar to, that which is conducted by Seller.
(w) Governmental Authorizations and Regulations.
(i) Seller has all governmental licenses, franchises, permits,
consents, certificates, approvals and all registrations and filings
with any governmental body with respect thereto (collectively,
"Permits"), required under applicable law for the conduct of the
Business as currently conducted, other than any of the foregoing the
failure of which to have would not have, in the aggregate, a Material
Adverse Effect. Seller has made all required registrations and filings
with all governmental bodies that are required to be obtained in
connection with the operations of the Business. All such Permits are
listed on Schedule 3.01(w) hereto. Such Permits have been validly
issued by the appropriate governmental bodies and are in full force and
effect. No material default or violation, or event that with the lapse
of time or the giving of notice or both would become a material default
or violation, has occurred in the due observance of such Permit.
(ii) The Business is being conducted in material compliance
with all applicable laws, ordinances, rules and regulations of all
governmental authorities relating to Seller's Assets or applicable to
the Business, including
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without limitation the terms of all Permits. Seller has not received
any notice of any alleged violation of any of the foregoing.
(iii) Neither Seller nor any of its properties, operations or
businesses is subject to any court or administrative order, judgment,
injunction or decree. To the best knowledge of Seller, no action has
been taken or recommended by any governmental or regulatory official,
body or authority, either to revoke, withdraw or suspend any Permit.
(x) Insurance. All policies of fire, liability, workers'
compensation, and other forms of insurance providing insurance coverage to or
for Seller are listed in Schedule 3.01(x) hereto. All premiums with respect
thereto covering all periods up to and including the date as of which this
representation is being made have been paid, and no notice of cancellation or
termination has been received with respect to any such policy. All such policies
are in full force and effect and provide insurance, including without limitation
liability insurance, in such amounts and against such risks as is customary for
companies engaged in similar businesses to Seller.
(y) Broker's or Finders' Fees. All negotiations relative to
this Agreement and the transactions contemplated hereby have been carried out by
Seller directly with Buyer, without the intervention of any persons on behalf of
Seller in such a manner to give rise to any claim by any person against Buyer
for a finder's fee, brokerage commission or similar payment.
(z) Termination of Certain Business Arrangements.
(i) As of the Closing Date, all relationships and agreements
between Seller and the so-called "MHC" business entity ("MHC") shall
have been terminated, and neither Buyer nor MedE (either directly or as
a successor to Seller) shall have any further obligations with respect
thereto.
(ii) Certain of the written contracts relating to the
provision of Medicaid eligibility data to health care providers in the
State of Minnesota list "MA DATA, Inc." as the party providing such
data. Notwithstanding such statement in each such contract, the actual
party providing such data is Seller, and each such agreement represents
a valid and binding agreement between the health care provider named
therein and Seller.
(iii) As of the Closing Date, neither Seller, nor Buyer nor
MedE shall have any obligations of any sort to Andrew Johnson.
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SECTION 3.002. Representations and Warranties of Buyer and
MedE. Buyer and MedE jointly and severally represent and warrant to Seller as
follows:
(a) Organization, Corporate Power, Etc. Each of Buyer and MedE
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Ohio and the State of Delaware, respectively. Each of Buyer
and MedE has all requisite corporate power and authority to acquire, own, lease
and operate its properties and to execute and deliver this Agreement and the
Ancillary Agreements applicable to such party, and to perform its obligations
hereunder and thereunder.
(b) Authorization of Agreements; Validity. The execution and
delivery by Buyer and MedE of this Agreement and the Ancillary Agreements, and
the consummation by Buyer and MedE of the transactions contemplated hereby and
thereby, have been duly authorized by all requisite corporate action. This
Agreement has been duly and validly executed by Buyer and MedE and constitutes
the legal, valid and binding obligation of Buyer and MedE, enforceable in
accordance with its terms. Each Ancillary Agreement, when duly executed and
delivered by Buyer and MedE (if a party thereto), will constitute the legal,
valid and binding obligation of Buyer and MedE, enforceable in accordance with
its terms.
(c) Effect of Agreements. The execution and delivery by Buyer
and MedE of this Agreement and the Ancillary Agreements to which each is a party
and the performance by Buyer and MedE of their respective obligations hereunder
and thereunder will not (x) violate any provision of law, any order of any court
or other agency of government, the charter or By-laws of Buyer or MedE, or any
judgment, award, decree, indenture, agreement, Permit or other instrument to
which Buyer or MedE is a party, or by which Buyer or MedE is bound or affected
or (y) conflict with, result in a breach of or constitute (with due notice or
lapse of time or both) a default under, any such indenture, agreement, Permit or
other instrument.
(d) Actions Pending. There is no action, suit, investigation
or proceeding pending or, to the knowledge of Buyer and MedE, as the case may
be, threatened against or affecting Buyer or MedE or any of their respective
properties or rights before any court or by or before any governmental body or
arbitration board or tribunal, the outcome of which, if adversely decided, would
prevent the consummation of the transactions contemplated hereby.
(e) Governmental Approvals. No approval, authorization,
consent or order or action of or filing with any court, administrative agency or
other governmental authority is required
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for the execution and delivery by Buyer or MedE of this Agreement and the
Ancillary Agreements to which each is a party or the consummation by Buyer or
MedE of the transactions contemplated hereby or thereby.
(f) Broker's or Finders' Fees. All negotiations relative to
this Agreement and the transactions contemplated hereby have been carried out by
Buyer and MedE directly with Seller without the intervention of any persons on
behalf of Buyer or MedE in such a manner to give rise to any claim by any person
against Seller for a finder's fee, brokerage commission or similar payment.
IV. COVENANTS
SECTION 4.001. Covenants of Seller and the Stockholders.
(a) Seller and the Stockholders jointly and severally agree
that, at all times between the date hereof and the Closing Date, unless Buyer
and Seller shall otherwise agree in writing, Seller shall (and the Stockholders
shall cause Seller to):
(i) operate the Business only in the usual, regular and
ordinary manner and, to the extent consistent with such operations, use
its best efforts to preserve the current business organization of the
Business intact, keep available the services of those officers and
employees currently engaged in the operations of the Business and
preserve its present relationships with customers of, and all other
persons having business dealings with, the Business;
(ii) maintain all its Assets in good repair, order and
condition, reasonable wear and tear excepted;
(iii) maintain its books of account and records in the usual,
regular and ordinary manner, on a basis consistent with past practice,
and use its best efforts to comply with all laws applicable to it and
to the conduct of the Business and perform all its material obligations
without default;
(iv) not change the character of the Business in any material
manner;
(v) not, with respect to the Business take any action or
undertake any commitment or obligation of the types described in
clauses (i) through (xi) and (xiv) of Section 3.01(h) hereof; and
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(vi) not, except in the ordinary course and consistent with
past practice, amend or modify in any way adverse to the interests of
Seller any contract listed on Schedule 3.01(k) hereto.
(b) Between the date of this Agreement and the Closing Date,
Seller will afford the representatives of Buyer reasonable access during normal
business hours to the offices, facilities, books and records of Seller and the
opportunity to discuss the affairs of Seller with officers and employees of
Seller familiar therewith.
(c) Between the date of this Agreement and the Closing Date,
Seller shall not, except as required by GAAP, (i) utilize accounting principles
different from those used in the preparation of the Financial Statements, (ii)
change in any manner its method of maintaining its books of account and records
from such methods as in effect on December 31, 1996, or (iii) accelerate booking
of revenues or the deferral of expenses, other than as shall be consistent with
past practice and in the ordinary course of business.
(d) Between the date hereof and the Closing Date, Seller
shall, with Buyer's assistance and cooperation but at the expense of Seller,
promptly apply for or otherwise seek and use its best efforts (it being
understood, for purposes of paragraphs (d) and (e) hereof, that "best efforts"
shall not include either (i) incurring any material cash expenditures or (ii)
payment of any material sums) to obtain all authorizations, consents, waivers
and approvals as may be required in connection with the assignment of the
contracts, agreements, licenses, leases, sales orders, purchase orders and other
commitments and all Permits of which Seller is the beneficiary to be assigned to
Buyer pursuant to Section 1.01(a) hereto (including without limitation those
contracts listed pursuant to Section 3.01(j)(vi)(F) hereto).
(e) Between the date hereof and the Closing Date, Seller
shall, with Buyer's assistance and cooperation but at the expense of Seller, use
its best efforts (i) to enter into written service agreements with its customers
listed on Part I of Schedule 4.01(e) hereto, and (ii) to enter into supplements
to its written service agreements with its customers listed on Part II of
Schedule 4.01(e) hereto. The terms of such written service agreements and
supplements shall be reasonably acceptable to Buyer.
(f) Between the date of this Agreement and the Closing Date,
Seller will not enter into any transaction or make any agreement or commitment,
or permit any event to occur, which would result in any of the representations,
warranties or covenants of Seller contained in this Agreement not being true and
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correct at and as of the time immediately after the occurrence of such
transaction or event.
SECTION 4.002. Confidentiality. The contents of this Agreement
shall be kept confidential among the parties, except that each party may reveal
and discuss the contents with its respective professional advisors, including
attorneys and accountants. The parties may mutually agree in writing as to the
revealing of the subject transaction to current employees and to the public. In
so doing, the parties shall agree to the timing and content of the release of
such information.
SECTION 4.003. Allocation of Purchase Price. Each of the
parties hereto agrees to allocate the Purchase Price (and any liabilities
assumed by Buyer from Seller) among the Assets in the manner specified in
Schedule 4.03 hereto. Each of the parties hereto shall respect such allocation
for all financial accounting and Tax purposes and shall file all Returns and
other documents with all taxing authorities on a basis consistent therewith.
Buyer and Seller shall timely complete and file a Form 8594 Asset Acquisition
Statement of Allocation consistent with such allocation, and shall provide a
certified copy of such form to Buyer or Seller, as the case may be, and, if
applicable, shall file a certified copy of such form with its federal income Tax
Return for the period that includes the Closing Date.
SECTION 4.004. Preparation of Certain Financial Statements.
After the date hereof, Seller and the Stockholders shall provide MedE and Buyer
and their independent auditors with all reasonable assistance required to
prepare audited financial statements for the Business for and as of (x) the
period from January 1, 1997 through the Closing Date and (y) each of the twelve
month periods ended December 31, 1996, December 31, 1995, and December 31, 1994.
Seller and the Stockholders confirm and agree that such assistance shall
include, without limitation, (i) providing MedE, Buyer and their representatives
with all necessary financial information and data relating to the Business for
such periods, (ii) making available all employees of Seller or any of its
affiliates deemed necessary by MedE and Buyer to assist in the preparation of
such financial statements, and (iii) delivering to MedE's independent auditors a
management representation letter for such periods in a form reasonably
acceptable to such auditors.
Section 4.005. Certain Tax Matters. () All stamp, transfer,
sales or use Taxes imposed upon or incurred by any of the parties hereto in
connection with this Agreement and the transactions contemplated hereby shall be
borne by Buyer. Seller and Buyer shall jointly prepare and file all necessary
Returns and other documents with respect to all such stamp, transfer, sales or
use taxes and each party shall bear its own expenses in
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connection therewith. If required by applicable law, any other party hereto
shall join in the execution and filing of any such Returns or other documents.
(b) For all federal, state, local and foreign income and
franchise Tax purposes, each of the parties hereto agrees to treat the
acquisition of the Assets by Buyer, pursuant to the terms and conditions of this
Agreement, as a fully taxable sale of the assets of Seller to Buyer solely in
exchange for cash (and the liabilities assumed by Buyer from Seller).
(c) Seller shall be responsible for and shall pay (i) any and
all Taxes with respect to Seller, the Business or the Assets relating to any Tax
period or portion thereof ending on or before the Closing Date and (ii) any and
all Taxes incurred by or imposed upon Seller (other than any Taxes described in
paragraph (a) above) as a result of the consummation of any of the transactions
contemplated by this Agreement. The Stockholders shall be responsible for and
shall pay all Taxes relating to the ownership interest of such Stockholders in
Seller and attributable to any period (or portion thereof) ending on or prior to
the Closing Date.
SECTION 4.006. Insurance. Between the date of this Agreement
and the Closing Date, Seller shall maintain in full force and effect all
insurance policies listed on Schedule 3.01(x) hereto.
SECTION 4.007. Collection of Accounts Receivable. (a) For a
period of six months from the Closing Date, Buyer will use reasonable efforts to
collect for the benefit of Seller, and with the risk of non-collection
continuing to be the risk of Seller, the accounts receivable of Seller as of the
Closing Date (such receivables being hereinafter referred to as the "Collection
Receivables"). Buyer shall deposit in Seller's account, when and as received
(together with appropriate statements of collection), all monies, drafts, checks
and other instruments of payment received by it as payments on the Collection
Receivables, provided that payments applying to both Collection Receivables and
receivables of Buyer shall be deposited in Buyer's account and funds in the
amount attributable to the Collection Receivables shall be promptly remitted to
Seller. Buyer shall apply all collections from account debtors owing Collection
Receivables to the payment in full of undisputed and matured Collection
Receivables in priority to any accounts receivable from such account debtors
with respect to services rendered, goods sold or work done on or after the
Closing Date; provided, however, that in the event that any such collection is
received from such an account debtor as to whom transaction processing services
are discontinued, such collection shall be allocated between Seller and Buyer
pro rata on the basis of the ratio of (A) Collection Receivables
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payable by such account debtor to (B) receivables payable by such account debtor
that accrue after the Closing Date.
SECTION 4.008. Retention of Employees. Effective as of the
Closing Date, except for the employees of the Business listed in Schedule 4.08
hereto, Buyer will offer to continue the employment of all employees of Seller
at salaries equal to those now paid by Seller, and on such other terms as MedE
and Buyer make available to their employees generally. It is understood and
agreed that nothing in this Agreement shall be deemed to create any employment
status other than employment at will or require Buyer to continue for the
benefit of any employee any Plan or other benefits program or arrangement
maintained by Seller prior to the Closing Date.
SECTION 4.009. Payment of Liabilities. Seller shall, on a
timely basis and in a manner consistent with past practice, pay all liabilities
of Seller not assumed by Buyer.
SECTION 4.10. Name Change. Within 30 days of the Closing Date,
Seller shall change its name to a name that does not include the words "time,"
"share," "computer," "systems" or any variations thereon.
V. CONDITIONS PRECEDENT
SECTION 5.001. Conditions Precedent to Obligations of Buyer
and MedE. The obligations of Buyer and MedE under this Agreement are subject, at
the option of Buyer and MedE, to the satisfaction at or prior to the Closing
Date of each of the following conditions:
(a) Accuracy of Representations and Warranties. The
representations and warranties of Seller and the Stockholders contained in this
Agreement or in any certificate or document delivered to Buyer pursuant hereto
shall be true and correct in all material respects on and as of the Closing Date
as though made at and as of that date, and Seller and the Stockholders shall
have delivered to Buyer a certificate to that effect.
(b) Compliance with Covenants. Seller and the Stock holders
shall have performed and complied in all material respects with all terms,
agreements, covenants and conditions of this Agreement to be performed or
complied with by it at or prior to the Closing Date, and Seller and the
Stockholders shall have delivered to Buyer a certificate to that effect.
(c) Opinion of Counsel to Seller. Buyer shall have received
the favorable opinion of Hanson & Associates, counsel
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for Seller, dated the Closing Date, substantially in such form attached hereto
as Exhibit D.
(d) Legal Actions or Proceedings. No legal action or
proceeding shall have been instituted or threatened seeking to restrain,
prohibit, invalidate or otherwise affect the consummation of the transactions
contemplated hereby or which would, if adversely decided, have a Material
Adverse Effect.
(e) Consents; Assignment of Contracts. Seller shall have
obtained all the authorizations, consents, waivers and approvals required in
connection with the transfer or assignment of those Permits, contracts,
agreements, licenses, leases, sales orders, purchase orders and other
commitments listed on Schedule 3.01(j)(vi)(F) hereto.
(f) Written Service Agreements; Supplements to Service
Agreements. Seller shall have entered into written service agreements with its
customers listed on Part I of Schedule 4.01(e) hereto, and shall have entered
into supplements to its written service agreements with its customers listed on
Part II of Schedule 4.01(e) hereto. The terms of such agreements and supplements
shall be reasonably satisfactory to Buyer and its counsel.
(g) Ancillary Agreements. The Ancillary Agreements shall have
been executed and delivered by each party thereto, and said Agreements shall be
in full force and effect as of the Closing Date.
(h) Supporting Documents. Buyer and MedE shall have received
copies of the following supporting documents:
(i) a certificate of the Secretary of State of the State of
Minnesota, dated as of a recent date, as to the due incorporation and
good standing of Seller and listing all documents of Seller on file
with said Secretary; and
(ii) a certificate of the Secretary or an Assistant Secretary of
Seller dated the Closing Date and certifying: (1) that attached thereto
is a true and complete copy of resolutions adopted by the Board of
Directors of Seller authorizing the execution, delivery and performance
of this Agreement and the Ancillary Agreements and that all such
resolutions are still in full force and effect and are all the
resolutions adopted in connection with the transactions contemplated by
this Agreement and the Ancillary Agreements; and (2) as to the
incumbency and specimen signature of each officer of Seller furnishing
any certificate or instrument pursuant hereto, and a certification by
another officer of
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Seller as to the incumbency and signature of the officer signing the
certificate referred to herein.
(i) All Proceedings To Be Satisfactory. All corporate and
other proceedings to be taken by Seller in connection with the transactions
contemplated hereby and all documents incident thereto shall be reasonably
satisfactory in form and substance to Buyer and its counsel, and Buyer and said
counsel shall have received all such counterpart originals or certified or other
copies of such documents as it or they may reasonably request.
(j) Allocation of Purchase Price. Buyer and Seller shall have
agreed to an allocation of the Purchase Price among the Assets in accordance
with Section 4.03 hereof.
(k) MHC Acknowledgement. MHC shall have executed and delivered
to Buyer an acknowledgement that (i) no contract or understanding exists between
Buyer or MedE (either directly or as a successor to Seller) and MHC and (ii) no
sums are payable by MedE or Buyer to MHC as of the Closing Date. The content of
such acknowledgement shall be reasonably satisfactory to Buyer and its counsel.
SECTION 5.002. Conditions Precedent to Obligations of Seller
and the Stockholders. The obligations of Seller and the Stockholders under this
Agreement are subject, at the option of Seller and the Stockholders, to the
satisfaction at or prior to the Closing Date of each of the following
conditions:
(a) Accuracy of Representations and Warranties. The
representations and warranties of Buyer and MedE contained in this Agreement or
in any certificate or document delivered to Seller pursuant hereto shall be true
and correct in all material respects on and as of the Closing Date as though
made at and as of that date, and Buyer and MedE shall have delivered to Buyer a
certificate to that effect.
(b) Compliance with Covenants. Buyer and MedE shall have
performed and complied in all material respects with all terms, agreements,
covenants and conditions of this Agreement to be performed or complied with by
it at or prior to the Closing Date, and Buyer and MedE shall have delivered to
Seller a certificate to that effect.
(c) Legal Actions or Proceedings. No legal action or
proceeding shall have been instituted or threatened seeking to restrain,
prohibit, invalidate or otherwise affect the consummation of the transactions
contemplated hereby or which would, if adversely decided, have a Material
Adverse Effect.
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(d) Ancillary Agreements. The Ancillary Agreements shall have
been executed and delivered by each party thereto, and said Agreements shall be
in full force and effect as of the Closing Date.
(e) Consulting Agreement. MedE shall have executed and
delivered to Jack Guggisberg a Consulting Agreement substantially in the form of
Exhibit E attached hereto.
(f) Supporting Documents. Seller shall have received copies of
the following supporting documents:
(i) a certificate of the Secretary of State of the state of
incorporation of each of Buyer and MedE dated as of a recent date as to
the due incorporation and good standing of each of Buyer and MedE; and
(ii) a certificate of the Secretary or an Assistant Secretary of
Buyer and MedE dated the Closing Date and certifying: (1) that attached
thereto is a true and complete copy of resolutions adopted by the Board
of Directors of Buyer and MedE authorizing the execution, delivery and
performance of this Agreement and the Ancillary Agreements and that all
such resolutions are still in full force and effect and are all the
resolutions adopted in connection with the transactions contemplated by
this Agreement and the Ancillary Agreements; and (2) as to the
incumbency and specimen signature of each officer of Buyer and MedE
furnishing any certificate or instrument pursuant hereto, and a
certification by another officer of each of Buyer and MedE as to the
incumbency and signature of the officer signing the certificate
referred to herein.
(g) All Proceedings To Be Satisfactory. All corporate and
other proceedings to be taken by Buyer and MedE in connection with the
transactions contemplated hereby and all documents incident thereto shall be
reasonably satisfactory in form and substance to Seller and its counsel, and
Seller and said counsel shall have received all such counterpart originals or
certified or other copies of such documents as it or they may reasonably
request.
(h) Allocation of Purchase Price. Buyer and Seller shall have
agreed to an allocation of the Purchase Price among the Assets in accordance
with Section 4.03 hereof.
(i) Opinion of Buyer's Counsel. Seller shall have received the
favorable opinion of Reboul, MacMurray, Hewitt, Maynard & Kristol, counsel for
Buyer and MedE, dated the Closing Date, substantially in such form attached
hereto as Exhibit F.
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5.003. Deemed Satisfaction of Certain Conditions. It is
understood that if (i) Seller, acting diligently and in good faith, has
substantially but not fully met any of the conditions set forth in Sections
5.01(e) and 5.01(f) hereof, and (ii) Buyer reasonably determines that such
condition(s) will eventually be met in all material respects, then such
condition(s) shall be deemed to have been satisfied (subject, however, to the
continuing obligation of Seller to use its best efforts to effect the
satisfaction of such condition(s) without resort to this Section 5.03).
Notwithstanding the foregoing, it shall in any event be a condition to closing,
at Buyer's option, that the conditions set forth in Sections 5.01(e) and 5.01(f)
hereof shall have been fully satisfied with respect to each of the customers
and/or contracts listed on Schedule 5.03 hereto.
VI . SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION
SECTION 6.001. Survival of Representations. Except as
otherwise set forth below, all representations and warranties made by any party
hereto in this Agreement or pursuant hereto shall survive for a period of 18
months following the Closing Date, except for the representations and warranties
as to Tax and environmental matters made by any party hereto in this Agreement
or pursuant hereto (which representations and warranties shall survive for the
applicable statute of limitation period, including any extensions thereof).
SECTION 6.002. Tax Indemnity. () Seller and the Stockholders
hereby jointly and severally agree to indemnify, defend and hold Buyer and MedE
harmless from and against any and all Taxes incurred by, imposed upon or
attributable to Seller or any predecessor company thereof, including reasonable
legal fees and expenses incurred by any party hereto and relating thereto, for
any Tax period or portion thereof ending on or before the Closing Date.
(b) Buyer and MedE hereby jointly and severally agree to
indemnify, defend and hold Seller and the Stockholders harmless from and against
any and all Taxes incurred by, imposed upon or attributable to Buyer, MedE or
any predecessor company thereof, including reasonable legal fees and expenses
incurred by any party hereto and relating thereto, for any Tax period or portion
thereof ending after the Closing Date.
(c) For purposes of this Section 6.02, any interest, penalty
or additional charge included in Taxes shall be deemed to be a Tax for the
period to which the item or event giving rise to such interest, penalty or
additional charge is attributable, and not a Tax for the period during which
such interest, penalty or additional charge accrues.
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(d) The indemnity provided for in this Section 6.02 shall be
independent of any other indemnity provision hereof and, anything in this
Agreement to the contrary notwithstanding shall survive until the expiration of
the applicable statutes of limitation, including any extensions thereof, for the
Taxes referred to herein. Any Taxes, legal fees and expenses subject to
indemnification under this Section 6.02 shall not be subject to indemnification
under Section 6.03.
SECTION 6.003. General Indemnity. () Subject to the terms and
conditions of this Article VI, Seller and the Stockholders hereby jointly and
severally agree to indemnify, defend and hold Buyer and MedE harmless from and
against all demands, claims, actions or causes of action, assessments, losses,
damages, liabilities, costs and expenses, including, without limitation,
interest, penalties and reasonable attorneys' fees and expenses (collectively,
"Damages"), asserted against, resulting to, imposed upon or incurred by Buyer or
MedE by reason of or resulting from:
(i) a breach of any representation, warranty or covenant of
Seller or any Stockholder contained in or made pursuant to this
Agreement;
(ii) any liabilities or obligations of, or claims against or
imposed on Seller (whether absolute, accrued, contingent or otherwise
and whether a contractual, or any other type of liability, obligation
or claim) not assumed by Buyer pursuant to this Agreement;
(iii) any liabilities or obligations (whether absolute,
accrued, contingent or otherwise) in respect of any action, suit or
proceeding relating to the conduct of the Business by Seller and based
upon an event occurring or a claim arising on or prior to the Closing
Date (including without limitation those actions listed on Schedule
3.01(k) hereto); and
(iv) any liability in respect of any failure by Seller to
conduct the Business in compliance with any Permit, law, regulation or
order prior to the Closing Date.
(b) Subject to the terms and conditions of this Article VI,
Buyer and MedE hereby jointly and severally agree to indemnify, defend and hold
Seller and the Stockholders harmless from and against all Damages asserted
against, result imposed upon or incurred by Seller or any Stockholder to, by
reason of or resulting from:
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(i) a breach of any representation, warranty or covenant of
Buyer or MedE contained in or made pursuant to this Agreement;
(ii) the failure of Buyer to pay, perform and discharge when
due any Assumed Liabilities;
(iii) any liabilities or obligations (whether absolute,
accrued, contingent or otherwise) in respect of any action, suit or
proceeding relating to the conduct of the Business by Buyer and based
upon an event occurring or a claim arising after the Closing Date; and
(iv) any liability in respect of any failure by Buyer to
conduct the Business in compliance with any Permit, law, regulation or
order after the Closing Date.
SECTION 6.004. Conditions of Indemnification. The respective
obligations and liabilities of Seller, on the one hand, and Buyer, on the other
hand (the "indemnifying party"), to the other (the "party to be indemnified")
under Sections 6.02 and 6.03 hereof with respect to claims resulting from the
assertion of liability by third parties shall be subject to the following terms
and conditions:
(a) within 20 days after receipt of notice of commencement of
any action or the assertion in writing of any claim by a third party, the party
to be indemnified shall give the indemnifying party written notice thereof
together with a copy of such claim, process or other legal pleading, and the
indemnifying party shall have the right to undertake the defense thereof by
representatives of its own choosing;
(b) in the event that the indemnifying party, by the 30th day
after receipt of notice of any such claim (or, if earlier, by the tenth day
preceding the day on which an answer or other pleading must be served in order
to prevent judgment by default in favor of the person asserting such claim),
does not elect to defend against such claim, the party to be indemnified will
(upon further notice to the indemnifying party) have the right to undertake the
defense, compromise or settlement of such claim on behalf of and for the account
and risk of the indemnifying party, subject to the right of the indemnifying
party to assume the defense of such claim at any time prior to settlement,
compromise or final determination thereof, provided that the indemnifying party
shall be given at least 15 days prior written notice to the effectiveness of any
such proposed settlement or compromise;
(c) anything in this Section 6.04 to the contrary
notwithstanding (i) if there is a reasonable probability that a
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claim may materially and adversely affect the indemnifying party other than as a
result of money damages or other money payments, the indemnifying party shall
have the right, at its own cost and expense, to compromise or settle such claim,
but (ii) the indemnifying party shall not, without the prior written consent of
the party to be indemnified, settle or compromise any claim or consent to the
entry of any judgment which does not include as an unconditional term thereof
the giving by the claimant or the plaintiff to the party to be indemnified a
release from all liability in respect of such claim; and
(d) in connection with any such indemnification, the
indemnified party will cooperate in all reasonable requests of the indemnifying
party.
SECTION 6.005. Basket. Notwithstanding anything to the
contrary contained herein or in the Escrow Agreement, Seller and/or the
Stockholders shall only be required to indemnify Buyer and/or MedE for Taxes
and/or Damages pursuant to this Article VI to the extent that such Taxes and/or
Damages exceed $100,000 in the aggregate.
VII. TERMINATION
SECTION 7.001. Termination. This Agreement may be terminated
at any time prior to the Closing Date:
(a) by Buyer, if the conditions set forth in Section 5.01
shall not have been complied with or performed in any material respect
and such noncompliance or nonperformance shall not have been waived,
cured or eliminated (or by its nature cannot be cured or eliminated) by
Seller or the Stockholders on or before February 28, 1997;
(b) by Seller, if the conditions set forth in Section 5.02
shall not have been complied with or performed in any material respect
and such noncompliance or nonperformance shall not have been waived,
cured or eliminated (or by its nature cannot be cured or eliminated) by
Buyer or MedE on or before February 28, 1997; or
(c) by Buyer or Seller, in the event the Closing Date has not
occurred on or prior to the close of business on February 28, 1997 or
such later date as the parties hereto may agree in writing (unless such
event has been caused by the breach of this Agreement by the party
seeking such termination). A failure to satisfy a condition hereunder
(including without limitation a condition set forth in Section 5.01(e)
or 5.01(f) hereof) shall not of itself constitute a breach of this
Agreement.
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SECTION 7.002. Effect of Termination. In the event of the
termination of this Agreement pursuant to Section 7.01 hereof, this Agreement
shall thereafter become void and have no effect, and no party hereto shall have
any liability to any other party hereto or its partners or stockholders or
directors or officers in respect thereof, except that nothing herein shall
relieve any party from liability for any willful breach hereof. The terms of the
Non-Disclosure Agreement, dated December 6, 1996 between MedE and Seller shall
survive any termination of this Agreement. Without limiting the effect of said
Non-Disclosure Agreement, upon any termination of this Agreement, each of Buyer
and MedE, on the one hand, and Seller and the Stockholders, on the other hand,
(i) shall not use any confidential information disclosed by the other for its
own benefit and (ii) shall promptly return to the other all documents, papers
and other confidential information delivered to such party by the other at any
time prior to the date of such termination.
VII. MISCELLANEOUS
SECTION 8.001. Specific Performance. Seller and the
Stockholders acknowledge that the acquisition of the Assets is a vital,
necessary and unique part of Buyer's strategic plan, which includes the
acquisition and consolidation of other related businesses, and that any breach
of this Agreement by Seller or the Stockholders could not be adequately
compensated by damages. Buyer and MedE acknowledge that any breach of this
Agreement by Buyer or MedE could not be adequately compensated by damages.
Accordingly, each of Buyer and MedE, on the one hand, and Seller and the
Stockholders, on the other hand, shall be entitled, in the event of a breach of
this Agreement by the other, in addition to any other remedies that it may have,
to enforcement of this Agreement by a decree of specific performance requiring
that the other party or parties fulfill their respective obligations under this
Agreement.
SECTION 8.002. Bulk Transfer Laws. Subject to the provisions
of Section 6.03 hereof, Buyer hereby waives compliance by Seller with any
applicable bulk transfer laws, including, without limitation, the bulk transfer
provisions of the Uniform Commercial Code of any state, or any similar statute,
with respect to the transactions contemplated hereby.
SECTION 8.003. Expenses, Etc. Whether or not the transactions
contemplated by this Agreement are consummated, Seller and the Stockholders, on
the one hand, and Buyer and MedE, on the other hand, shall not have any
obligation to pay any of the fees and expenses of the other party incident to
the negotiation, preparation and execution of this Agreement, including the fees
and expenses of counsel, accountants, investment bankers and
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other experts. Seller and the Stockholders, on the one hand, and Buyer and MedE,
on the other hand, will indemnify the other and hold the other harmless from and
against any claims for finders fees or brokerage commissions in relation to or
in connection with such transactions as a result of any agreement or
understanding between such indemnifying party and any third party.
SECTION 8.004. Execution in Counterparts. This Agreement may
be executed in one or more counterparts, or by the parties hereto on separate
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
SECTION 8.005. Notices. All notices which are required or may
be given pursuant to the terms of this Agreement shall be in writing and shall
be sufficient in all respects if given in writing and delivered personally,
transmitted by facsimile, sent by nationally recognized overnight courier or
mailed by registered or certified mail postage prepaid, as follows:
If to Seller or to Jack Guggisberg, to:
Jack Guggisberg
13216 Longview Drive
Burnsville, Minnesota 55337
with a copy to:
Hanson & Associates
4900 IDF Center
80 South 8th Street
Minneapolis, Minnesota 55402
Attention: Jack W. Hanson, Esq.
Fax: (612) 332-2116
If to David C. McGuire, to:
David C. McGuire
8620 Eagle Creek Boulevard
Shakopee, Minnesota 55379
If to Darwin J. DeRosier, to:
Darwin J. DeRosier
7260 University Avenue
Suite 310
Minneapolis, Minnesota 55432
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If to Buyer or MedE, to:
MedE America Corporation
90 Merrick Avenue, Suite 501
East Meadow, New York 11554
Attention: David M. Goldwin, Esq.
Fax: (516) 542-4508
with a copy to:
Reboul, MacMurray, Hewitt, Maynard & Kristol
45 Rockefeller Plaza
New York, New York 10111
Attention: Mark J. Tannenbaum, Esq.
Fax: (212) 841-5725
or such other address or addresses as Seller and the Stockholders, on the one
hand, or Buyer and MedE, on the other hand, shall have designated by notice to
the other in writing.
SECTION 8.006. Waivers. Seller (acting on behalf of itself and
the Stockholders), on the one hand, and MedE (acting on behalf of itself and
Buyer), on the other hand, may, by written notice to the other, (i) extend the
time for the performance of any of the obligations or other actions of the other
under this Agreement; (ii) waive any inaccuracies in the representations or
warranties of the other contained in this Agreement or in any document delivered
pursuant to this Agreement; (iii) waive compliance with any of the conditions or
covenants of the other contained in this Agreement; or (iv) waive performance of
any of the obligations of the other under this Agreement. Except as provided in
the preceding sentence, no action taken pursuant to this Agreement, including,
without limitation, any investigation by or on behalf of any party shall be
deemed to constitute a waiver by such party of compliance with any
representations, warranties, covenants or agreements contained in this
Agreement. The waiver by any party of a breach of any provision of this
Agreement shall not operate or be construed as a waiver of any subsequent
breach.
SECTION 8.007. Amendments, Supplements, Etc. At any time this
Agreement may be amended or supplemented by such additional agreements, articles
or certificates as may be determined by the parties hereto to be necessary,
desirable or expedient to further the purposes of this Agreement, or to clarify
the intention of the parties hereto, or to add to or modify the covenants, terms
or conditions hereof or to effect or facilitate any governmental approval or
acceptance of this Agreement or to effect or facilitate the filing or recording
of this Agreement or the consummation of any of the transactions contemplated
hereby. Any such instrument must be in writing and signed by all parties.
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SECTION 8.008. Entire Agreement. This Agreement, its Exhibits
and Schedules, the Ancillary Agreements and the documents executed on the
Closing Date in connection herewith, constitute the entire agreement among the
parties hereto with respect to the subject matter hereof and supersede all prior
agreements and understandings, oral and written, between the parties hereto with
respect to the subject matter hereof. No representation, warranty, promise,
inducement or statement of intention has been made by any party which is not
embodied in this Agreement or such other documents, and no party shall be bound
by, or be liable for, any alleged representation, warranty, promise, inducement
or statement of intention not embodied herein or therein.
SECTION 8.009. APPLICABLE LAW. THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF MINNESOTA.
SECTION 8.10. Binding Effect; Benefits. This Agreement shall
inure to the benefit of and be binding upon the parties hereto and their
respective successors and assigns. Notwithstanding anything contained in this
Agreement to the contrary, nothing in this Agreement, expressed or implied, is
intended to confer on any person other than the parties hereto or their
respective successors and assigns any rights, remedies, obligations or
liabilities under or by reason of this Agreement.
SECTION 8.11. Assignability. Neither this Agreement nor any of
the parties' rights hereunder shall be assignable by any party hereto without
the prior written consent of the other parties hereto.
37
<PAGE>
IN WITNESS WHEREOF, this Asset Purchase Agreement has been
duly executed and delivered by the parties hereto as of this 3rd day of
February, 1997.
GENERAL COMPUTER CORPORATION
By
------------------------------
By
------------------------------
TIME-SHARE COMPUTER SYSTEMS, INC.
By
------------------------------
------------------------------
Jack Guggisberg
------------------------------
David C. McGuire
------------------------------
Darwin J. DeRosier
38
================================================================================
ASSET PURCHASE AGREEMENT
among
MEDE AMERICA CORPORATION
GENERAL COMPUTER CORPORATION
THE STOCKTON GROUP, INC.
and
JAMES S. SMITH
Dated as of October 20, 1997
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I. TRANSFERS ....................................................... 1
SECTION 1.01 Transfer of Assets....................................... 2
SECTION 1.02 Instruments of Conveyance and
Transfer............................................... 3
SECTION 1.03 Nonassignable Contracts.................................. 4
SECTION 1.04 Non-Assumption of Certain Liabilities.................... 4
ARTICLE II. CLOSING, PURCHASE PRICE, ETC..................................... 5
SECTION 2.01 Closing ................................................. 5
SECTION 2.02 Purchase Price........................................... 6
SECTION 2.03 Payment to Seller on Closing Date........................ 6
SECTION 2.04 Earn-Out ................................................ 6
SECTION 2.05 Dispute Resolution....................................... 8
ARTICLE III. REPRESENTATIONS AND WARRANTIES................................... 9
SECTION 3.01 Representations and Warranties of Seller
and the Stockholder.................................... 9
SECTION 3.02 Representations and Warranties of
Buyer and MedE......................................... 24
ARTICLE IV. COVENANTS 25
SECTION 4.01 Covenants of Seller and the Stockholder.................. 25
SECTION 4.02 Confidentiality.......................................... 27
SECTION 4.03 Allocation of Purchase Price............................. 27
SECTION 4.04 Preparation of Certain Financial
Statements............................................. 27
SECTION 4.05 Certain Tax Matters...................................... 28
SECTION 4.06 Insurance ............................................... 28
SECTION 4.07 Collection of Accounts Receivable........................ 28
SECTION 4.08 Retention of Employees................................... 29
SECTION 4.09 Payment of Certain Liabilities........................... 29
SECTION 4.10 Name Matters ............................................ 29
SECTION 4.11 Brookins and Lagnese..................................... 29
SECTION 4.12 Access to Records........................................ 30
ARTICLE V. CONDITIONS PRECEDENT............................................. 30
SECTION 5.01 Conditions Precedent to Obligations
of Buyer and MedE...................................... 30
SECTION 5.02 Conditions Precedent to Obligations
of Seller and the Stockholder.......................... 32
</TABLE>
<PAGE>
Page
----
ARTICLE VI. SURVIVAL OF REPRESENTATIONS;
INDEMNIFICATION.......................................... 34
SECTION 6.01 Survival of Representations.......................... 34
SECTION 6.02 Tax Indemnity........................................ 34
SECTION 6.03 General Indemnity.................................... 35
SECTION 6.04 Conditions of Indemnification........................ 36
ARTICLE VII. TERMINATION ................................................. 37
SECTION 7.01 Termination 37
SECTION 7.02 Effect of Termination................................ 37
ARTICLE VIII. MISCELLANEOUS................................................ 38
SECTION 8.01 Specific Performance................................. 38
SECTION 8.02 Bulk Transfer Laws................................... 38
SECTION 8.03 Expenses, Etc........................................ 38
SECTION 8.04 Execution in Counterparts............................ 38
SECTION 8.05 Notices ............................................. 39
SECTION 8.06 Waivers ............................................. 39
SECTION 8.07 Amendments, Supplements, Etc.......................... 40
SECTION 8.08 Entire Agreement...................................... 40
SECTION 8.09 Applicable Law........................................ 40
SECTION 8.10 Binding Effect; Benefits.............................. 40
SECTION 8.11 Assignability......................................... 41
TESTIMONIUM ................................................................. 42
(ii)
<PAGE>
INDEX TO EXHIBITS AND ANNEXES
Exhibit Description
- ------- -----------
A Form of Bill of Sale, Assignment and
Assumption Agreement
B Form of Non-Compete Agreement
C Form of Consulting Agreement
D Form of Standard Service Agreement
E Form of Opinion of Parker, Poe, Adams &
Bernstein
F Form of Opinion of Reboul, MacMurray,
Hewitt, Maynard & Kristol
(iii)
<PAGE>
INDEX TO SCHEDULES
Schedule Description
1.01(a)(i) Computer Equipment
1.01(a)(vi) Contracts to be Transferred
2.04 Customers of Seller
3.01(a) Jurisdictions
3.01(e) Effect of Agreements
3.01(f) Governmental Approvals
3.01(g) Financial Statements
3.01(h) Certain Changes or Events
3.01(i) Liens and Encumbrances
3.01(j) List of Properties, Contracts and
Other Data
3.01(k) Litigation
3.01(m) Employee Benefit Plans
3.01(n) Intellectual Property Rights
3.01(o) Software
3.01(s) Customers
3.01(t) Taxes
3.01(v) Transactions with Affiliates
3.01(w) Governmental Authorizations and
Regulations
3.01(x) Insurance
4.01(e) Written Service Agreements; Supplements
to Service Agreements
4.03 Allocation of Purchase Price
4.08 Retained Employees
(iv)
<PAGE>
ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT, dated as of October 20, 1997, among
MEDE AMERICA CORPORATION, a Delaware corporation ("MedE"), GENERAL COMPUTER
CORPORATION, an Ohio corporation and a wholly-owned subsidiary of MedE
("Buyer"), THE STOCKTON GROUP, INC., a South Carolina corporation ("Seller"),
and James S. Smith (the "Stockholder").
WHEREAS, Seller is engaged in the business of providing
electronic data interchange and transaction processing services to the
healthcare industry (the "Business"); and
WHEREAS, Seller desires to sell to Buyer, and Buyer desires to
purchase from Seller, all the assets and properties of Seller relating to the
Business (excluding certain specified assets), and to assume certain
liabilities, all on the terms and subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants herein contained, the parties hereby agree as follows:
I. TRANSFERS
SECTION 1.001. Transfer of Assets. () On the terms and subject
to the conditions hereinafter set forth, on the Closing Date (as hereinafter
defined), Seller shall sell, convey, transfer, assign and deliver to Buyer, and
Buyer shall purchase from Seller, for the consideration set forth in Section
2.03 hereof, all the then existing assets and properties (of every kind, nature
and description, real, personal or mixed, tangible or intangible and wherever
situated, whether or not carried on the books of Seller) of Seller to the extent
that such assets are necessary to, or attributable to, the Business, or used by
Seller in connection with the Business, except those assets excluded pursuant to
paragraph (b) below (said assets and properties so to be sold, conveyed,
transferred, assigned and delivered being hereinafter collectively called the
"Assets"), including, without limitation:
(i) all tangible personal property, inventory, machinery,
equipment, supplies, tools, fixtures, leaseholds, computer equipment
(including without limitation the computer hardware described on
Schedule 1.01(a)(i) hereto), work in process, spare parts, vehicles,
furniture and office furnishings, wherever situated (it being the
intention hereby to assign and transfer all the tangible personal
property owned or claimed by Seller);
<PAGE>
(ii) all intangible personal property of whatsoever kind or
character, whether evidenced in writing or not, including but not
limited to all customer lists, data bases, proprietary assays, deferred
charges and prepaid expenses, customer accounts, bonds, claims, and
causes of action (whether fixed or contingent);
(iii) the patents, trademarks and trade names (including
without limitation Seller's right, title and interest in and to the
"PreScrip" trade name as contemplated by Section 4.10 hereof),
trademark and trade name registrations, service marks and service mark
registrations, copyrights and copyright registrations, the applications
therefor and the licenses and franchises with respect thereto, in each
case listed in clause (iv) of Schedule 3.01(j) hereto, together with
all trade secrets, technology (including technology with respect to
which Seller is a licensee, in any such case only insofar as permitted
under the applicable license agreement), processes, inventions,
designs, drawings, blueprints, specifications, patterns, royalties,
privileges, permits and all other similar intangible personal property
(collectively, the "Intellectual Property Rights");
(iv) all technical materials and guidelines, brochures, sales
literature, promotional material and other selling material;
(v) all papers, documents, instruments, books and records,
files, agreements, books of account and other records by which the
Assets might be identified or enforced, or otherwise pertaining to the
Assets or the Business that are located at the offices or other
locations used in connection with the Assets or the Business
(including, without limitation, customer invoices, customer lists,
vendor and supplier lists, drafts and other documents and materials
relating to customer transactions);
(vi) the rights of Seller under (A) all contracts, agreements,
licenses, leases, sales orders, purchase orders and other commitments
relating to the Assets or the Business and listed on Schedule
1.01(a)(vi) hereto, and (B) the Key Customer Contracts (as defined
herein);
(vii) all computer software programs, the source and object
codes for such software programs and all documentation and training
manuals related thereto owned, held or licensed by Seller; and
(viii) all other assets and rights of every kind and nature,
real or personal, tangible or intangible, that are owned or claimed by
Seller and that are necessary to, or
2
<PAGE>
attributable to, the Business or used by Seller in connection with the
Business (including, without limitation, all goodwill), whether or not
such assets are reflected in the balance sheets and other financial
statements of Seller, together with the right to represent that Buyer
is the successor in interest to the Business.
Without limiting the generality of the foregoing, the Assets shall, except as
set forth in paragraph (b) below, include all assets set forth or reflected on
the audited balance sheet of Seller as of June 30, 1997 (the "June 30, 1997
Balance Sheet"), together with all such assets as may be acquired by Seller
after said date and that would be included on a balance sheet prepared in like
manner from such accounting records as of the Closing Date, except for any such
assets that may be or have been disposed of after said date in the ordinary
course of business on a basis consistent with past practice.
(b) Anything herein contained to the contrary notwithstanding,
the following assets and properties of Seller are specifically excluded from the
Assets and shall be retained by Seller:
(i) all cash and cash equivalents on hand, including
investment securities, bank accounts, temporary cash and petty cash
held by Seller as of the Closing Date;
(ii) all accounts receivable accrued on the books of Seller as
of the Closing Date and resulting from the delivery of goods and
services of the Business prior to the Closing Date;
(iii) all accrued but unbilled rebate commissions aris ing on
or prior to the Closing Date (in the event that such commissions are
paid to Buyer after the Closing Date, Buyer shall promptly remit the
same to Seller); and
(iv) any claims or rights against third parties relating to
liabilities or obligations that are not assumed by Buyer pursuant to
this Agreement.
SECTION 1.002. Instruments of Conveyance and Transfer. Subject
to Section 1.03 below, on the Closing Date, Seller shall execute and deliver to
Buyer (i) a bill of sale in the form included in the Form of Bill of Sale,
Assignment and Assumption Agreement annexed hereto as Exhibit A (the "Bill of
Sale, Assign ment and Assumption Agreement") and (ii) such other documents of
transfer that Buyer may reasonably request, transferring to Buyer the properties
and assets to be acquired by Buyer under the terms of this Agreement.
4
<PAGE>
SECTION 1.003. Nonassignable Contracts. Nothing in this
Agreement shall be construed as an attempt or agreement to assign (i) any
contract, agreement, license, lease, sales order, purchase order or other
commitment that is nonassignable without the consent of the other party or
parties thereto unless such consent shall have been given (subject, however, to
the covenant of Seller and the Stockholder in Section 4.01(d) hereof), or (ii)
any contract or claim as to which all the remedies for the enforcement thereof
enjoyed by Seller would not pass to Buyer as an incident of the assignments
provided for by this Agreement. In order, however, that the full value of every
contract and claim of the character described in clauses (i) and (ii) above and
all claims and demands on such contracts may be realized, Seller and the
Stockholder will use their best efforts to obtain approval for assignment and,
failing that, Seller shall, by itself or by its agents, at the request and
expense and under the direction of Buyer, in the name of Seller or otherwise as
Buyer shall specify and as shall be permitted by law, take all action and do or
cause to be done all things as shall in the opinion of Buyer be reasonably
necessary or proper (x) in order that the rights and obligations of Seller under
such contracts shall be preserved and (y) for, and to facilitate, the collection
of the moneys due and payable, and to become due and payable, to Seller in and
under every such contract and claim and in respect of every such claim and
demand, and Seller shall hold the same for the benefit of and shall pay the same
over promptly to Buyer.
SECTION 1.004. Non-Assumption of Certain Liabilities. Buyer is
not assuming, and shall not be deemed to have assumed, any liabilities or
obligations of Seller of any kind or nature whatsoever, except (x) executory
obligations under the operating contracts of Seller assigned to Buyer and listed
on Schedule 1.01(a)(vi) hereto, (y) executory obligations under the Key Customer
Contracts and (z) those employment obligations set forth in Section 4.08 hereof,
in each case only to the extent expressly provided in the Bill of Sale,
Assignment and Assumption Agreement (collectively, the "Assumed Liabilities").
Without limiting the generality of the foregoing, it is hereby agreed that Buyer
is not assuming any liability for and shall not have any obligation with respect
to:
(i) any and all (x) accrued but unpaid current liabilities and
(y) non-current liabilities of Seller, in each case as determined in
accordance with generally accepted accounting principles consistently
applied ("GAAP"), either set forth or reflected on the June 30, 1997
Balance Sheet or incurred by Seller after June 30, 1997;
(ii) any liabilities or obligations of Seller that arise under
the terms of a contract, agreement, license, lease, sales order,
purchase order, or other commitment
4
<PAGE>
which shall not be assigned to Buyer pursuant to this Agreement
(including, without limitation, any of the foregoing not listed on
Schedule 1.01(a)(vi) hereto);
(iii) any liabilities or obligations of Seller that arise
under the terms of a contract, agreement, license, lease, sales order,
purchase order, or other commitment which shall not be assigned to
Buyer pursuant to this Agreement;
(iv) any liabilities or obligations of Seller to the
Stockholder and his affiliates (including without limitation any notes
payable to the Stockholder), or to any other stockholder or purported
stockholder of Seller;
(v) any liabilities or obligations of Seller under any Plan
(as defined in Section 3.01(m) hereof, including any obligation to
adopt or to sponsor such Plan of Seller except as Buyer may, in its
sole discretion, elect to adopt or to sponsor);
(vi) any obligation of Seller arising out of any action, suit
or proceeding based upon an event occurring or a claim arising (A)
prior to or on the Closing Date or (B) after the Closing Date in the
case of claims in respect of products or services sold or provided by
Seller prior to the Closing Date or attributable to acts performed or
omitted by Seller prior to the Closing Date;
(vii) any and all Taxes (as hereinafter defined) incurred by
or imposed upon Seller, or any predecessor company thereof, for all
periods prior to (and up to and including) the close of business on the
Closing Date, including without limitation any Taxes incurred by or
imposed upon Seller and arising out of the consummation of the
transactions contemplated by this Agreement; and
(viii) any liability in respect of any failure of Seller to
conduct the Business in compliance with any Permit (as hereinafter
defined), law, regulation or order, including without limitation any
Environmental Law or Common Law Environmental Principle (each as
hereinafter defined), prior to the Closing Date.
II. CLOSING, PURCHASE PRICE, ETC.
SECTION 2.001. Closing. The closing (the "Closing") of the
transactions contemplated by this Agreement shall take place at the offices of
Reboul, MacMurray, Hewitt, Maynard & Kristol, 45 Rockefeller Plaza, New York,
New York, 10111, on
5
<PAGE>
November 15, 1997, or on such other date as the parties may mutually agree (such
date and time of closing being herein called the "Closing Date"), and for tax
and accounting purposes shall be deemed effective as of the close of business on
such date.
SECTION 2.002. Purchase Price. The aggregate purchase price
for the Assets hereunder shall be () $10,400,000 in cash, payable on the Closing
Date, plus () an amount (the "Earn Out Amount") up to $2,600,000, together with
interest on such amount from the Closing Date to the Earn-Out Payment Date (as
hereinafter defined), such amount and the rate of interest thereon to be
determined in accordance with (and paid pursuant to) the provisions of Section
2.04 hereof (all such payments being collectively referred to herein as the
"Purchase Price").
SECTION 2.003. Payment to Seller on Closing Date. On the
Closing Date, Buyer shall pay to Seller $10,400,000 in cash by wire transfer of
immediately available funds to the account specified by Seller.
SECTION 2.004. Earn-Out. Subject to the terms of this
Agreement, Buyer may make an additional payment to Seller in respect of the
Earn-Out Period (as hereinafter defined), on the following terms:
(a) For the purposes of this Agreement, the terms set forth
herein have the following meanings:
(i) "Customers" means those customers of Seller listed on
Schedule 2.04 hereto.
(ii) "Earn-Out Period" means the twelve month period ended
September 30, 1998.
(iii) "Revenue" means the aggregate amount of all new and
recurring revenue booked by Seller during any applicable period.
Revenue shall include revenue derived from rebate transactions
(accounted for on an accrual basis); provided that only the portion of
such revenue actually retained by Seller (i.e., excluding any portion
remitted to the Customers) shall be included in Revenue. Revenue shall
be computed in accordance with generally accepted accounting principles
as historically applied by Buyer with regard to its business. Revenue
shall not include (i) any such revenue attributable to conversion of
customers of Buyer to Seller's transaction-processing system or (ii)
commission uplift revenue for current and future customers of Seller.
(b) The chief financial officer of Buyer shall in good faith
calculate Revenue for the Earn-Out Period on or before November 30, 1998. Such
computation shall be made in accordance
6
<PAGE>
with generally accepted accounting principles as historically applied by Buyer
with regard to its business. Promptly after such determination, Buyer shall
deliver to Seller a written calculation of Revenue for the Earn-Out Period. If
Seller objects in writing to such calculation within ten days after receipt
thereof, Buyer and Seller shall use reasonable efforts to resolve any such
objections. If no objection is so delivered within such ten day period, such
calculation shall be final and binding as to all parties. To the extent that
Buyer and Seller resolve any such objections and agree as to the calculation of
Revenue for the Earn-Out Period, Buyer and Seller shall sign a certificate to
that effect and such resolution shall be deemed final and binding as to all
parties for purposes of this Agreement. If Seller's objections cannot be so
resolved by the parties within 30 days of the date such written objection is
delivered to Buyer, any remaining disputes shall be resolved by a mutually
acceptable "big six" accounting firm in accordance with Section 2.05 hereof.
(c) The Earn-Out Amount shall be calculated as follows:
(i) in the event that Revenue for the Earn-Out Period is equal
to or greater than $5,000,000, then the Earn-Out Amount shall be equal
to $2,600,000, together with interest (computed on the basis of a
360-day year consisting of twelve 30-day months) on such amount at (i)
the annual rate of 7.25% from the Closing Date to the last day of the
month in which Revenue for the Earn-Out Period exceeds $5,000,000 (the
"Target Month") and (ii) at the prime rate offered by Citibank N.A.
from the first day of the month after the Target Month until the
Earn-Out Payment Date (as hereinafter defined); or
(ii) in the event that Revenue for the Earn-Out Period is less
than the $5,000,000, then the Earn-Out Amount (if any) shall be equal
to (A) $2,600,000 less (B) the difference between $5,000,000 and
Revenue for the Earn-Out Period, together with interest at the annual
rate of 7.25% on such amount from the Closing Date to the Earn-Out
Payment Date.
(d) Within five business days of the final determination of
Revenue for the Earn-Out Period pursuant to paragraph (b) above (or, if
applicable, pursuant to Section 2.05 hereof), Buyer shall pay the Earn-Out
Amount to Seller by wire transfer to the account specified by Seller (the date
of such payment being referred to herein as the "Earn-Out Payment Date"). In the
event Buyer fails to so pay the Earn-Out Amount on the Earn-Out Payment Date,
(i) the Earn-Out Amount shall accrue interest at the rate of 12% per annum until
paid and (ii) Buyer shall pay any reason-
7
<PAGE>
able collection fees and expenses (including attorneys' fees) actually incurred
by Seller in causing such payment to be made.
(e) During the Earn-Out Period, Buyer and MedE shall take
reasonable actions to devote substantially such personnel and resources to the
operation of the Business as is consistent with the past practice of Seller.
Notwithstanding the foregoing, Seller and the Stockholder acknowledge that
during the Earn-Out Period the Business will be integrated with the business of
MedE and Buyer, and that any incidental effects on customer service resulting
from such integration shall not constitute a breach of the obligations of MedE
and Buyer set forth in the preceding sentence. In the event that a Customer
ceases to do business with Buyer and MedE as a result of (i) a breach by Buyer
or MedE of its service contract with such Customer or (ii) a determination by
MedE to discontinue (or alter in a significant and adverse manner) services to
an individual Customer, a business segment or a group of Customers, then for
purposes of determining the Earn-Out Amount the Revenue for the Earn-Out Period
shall be increased by (x) the Revenue received from such Customer during the
last full processing month prior to such cessation multiplied by (y) the number
of months (and a pro rata fraction of any partial month) remaining in the
Earn-Out Period. In the event MedE and Buyer cease to provide services to a
Customer as a result of (i) a breach by such Customer of its service contract
with Buyer and/or MedE or (ii) the failure or refusal of such Customer to enter
into or renew (as applicable) its service contract on substantially those terms
set forth in the form of Standard Service Agreement (as defined herein), such
cessation shall not result in an increase in the Revenue for the Earn-Out Period
as provided in the preceding sentence. In the event a Customer ceases to do
business with MedE and/or Buyer for any other reason during the Earn-Out Period,
Buyer and Seller shall in good faith attempt to determine the degree (if any) to
which Revenue should be credited for purposes of determining the Earn-Out
Amount, taking into account the standards of conduct set forth in the first two
sentences of this paragraph (e). In the event that Buyer and Seller cannot make
a mutually agreeable determination within 20 days, they shall submit this issue
to a "big six" accounting firm for resolution pursuant to Section 2.05 hereof.
(f) During the Earn-Out Period, MedE will furnish to the
Stockholder such monthly financial reports for the Business as MedE shall
produce in the ordinary course of its business consistent with past practice.
The Stockholder hereby agrees to keep any such reports confidential.
SECTION 2.005. Dispute Resolution. () If and to the extent any
disputes concerning (i) calculation of Revenue for the Earn-Out Period or (ii)
adjustments to such Revenue as a result
8
<PAGE>
of the loss of any Customers have not been resolved by Buyer and Seller in
accordance with Section 2.04(b) or Section 2.04(e), as the case may be, Buyer
and Seller shall retain a mutually acceptable "big six" accounting firm, acting
through one or more audit partners (who shall be agreed to by Buyer and Seller)
knowledgeable in businesses comparable to that of Seller, to review and resolve
any remaining differences. The resolution of such differences by such accounting
firm shall be final and binding on all parties hereto. Such accounting firm
shall be directed to deliver its resolution of such differences not more than 30
days after being so retained.
(b) The parties shall make available to each other and their
respective accountants, and, if applicable, the "big six" accounting firm
contemplated by paragraph (a) above, such books, records and other information
as any of them may reasonably request in connection herewith. The fees and
expenses of such accounting firm (if any) shall be borne equally by Buyer and
Seller.
II. REPRESENTATIONS AND WARRANTIES
SECTION 3.001. Representations and Warranties of Seller and
the Stockholder. Seller and the Stockholder, jointly and severally, represent
and warrant to Buyer as follows:
(a) Organization, Power, etc. of Seller; Power of Stockholder.
Seller is a corporation duly formed, validly existing and in good standing under
the laws of the State of South Carolina. Seller is duly qualified or licensed to
do business in each jurisdiction in which it owns or leases any real property or
in which the nature of the business transacted by it makes such qualification
necessary, unless the failure to be so licensed or qualified would not have a
material adverse effect on the properties, assets, business, prospects,
operations, or condition (financial or otherwise) of Seller (a "Material Adverse
Effect"). Schedule 3.01(a) sets forth a complete list of the jurisdictions in
which Seller is qualified to do business. Seller has all requisite power and
authority to own, operate and lease the Assets, to carry on the Business as it
is now being conducted, to execute and deliver this Agreement together with the
Bill of Sale, Assignment and Assumption Agreement and a Confidentiality,
Non-Solicitation and Non-Compete Agreement in substantially the form attached
hereto as Exhibit B (the "Non-Compete Agreement"), and to perform its
obligations hereunder and thereunder. The Stockholder has the individual power
and authority, and the legal right, to execute and deliver this Agreement, the
Non-Compete Agreement and a consulting agreement substantially in the form
attached hereto as Exhibit C (the "Consulting Agreement," and collectively with
the Bill of Sale, Assignment and Assumption
9
<PAGE>
Agreement and the Non-Compete Agreement, the "Ancillary Agreements"), and to
perform his obligations hereunder and thereunder.
(b) Subsidiaries. Seller has no direct or indirect
subsidiaries, or any participating equity interest in any partnership, joint
venture or other non-corporate business enterprise. As used herein, the term
"subsidiary" shall mean any corporation, partnership or other business entity, a
majority of whose voting capital stock (or other voting interests, as the case
may be) is at the time owned by Seller and/or any subsidiaries thereof.
(c) Capitalization. The authorized capital stock of Seller
consists of 100,000 shares of common stock, $1 par value, of which 65,000 shares
are issued and outstanding. All issued and outstanding shares of capital stock
of Seller are owned of record and beneficially by the Stockholder, free and
clear of any lien, charge, security interest or encumbrance of any nature
whatsoever. There are no outstanding options, warrants, calls or other rights to
subscribe for or purchase or acquire from Seller, or any plans, contracts or
commitments providing for the issuance of, or the granting of rights to acquire
(i) any capital stock or partnership interests, as the case may be, of Seller or
(ii) any securities convertible into or exchangeable for any capital stock of
Seller.
(d) Authorization of Agreements; Validity. The execution and
delivery by Seller of this Agreement and the Ancillary Agreements to which it is
a party, and the consummation by Seller of the transactions contemplated hereby
and thereby, have been duly authorized by all requisite corporate action. This
Agreement has been duly and validly executed by Seller and the Stockholder and
constitutes the legal, valid and binding obligation of Seller and the
Stockholder, enforceable against each of them in accordance with its terms. Each
of the Ancillary Agreements, when duly executed and delivered by Seller and/or
the Stockholder, as applicable, will constitute the legal, valid and binding
obligation of Seller and/or the Stockholder, as applicable, enforceable against
each of them in accordance with its terms.
(e) Effect of Agreements. Except as set forth on Schedule
3.01(e) hereto, the execution and delivery by Seller and the Stockholder of this
Agreement and the Ancillary Agreements to which each is a party and the
performance by Seller and the Stockholder of their respective obligations
hereunder and thereunder will not (x) violate any provision of law, any order of
any court or other agency of government, the Articles of Incorporation or
By-laws of Seller, or any judgment, award, decree, indenture, agreement, Permit
or other instrument to which Seller or the Stockholder is a party, or by which
Seller, the Stockholder,
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the Business or any of the Assets are bound or affected; (y) conflict with,
result in a breach of or constitute (with due notice or lapse of time or both) a
default under, any such indenture, agreement, Permit or other instrument; or (z)
result in the creation or imposition of any lien, charge, security interest or
encumbrance of any nature whatsoever upon any of the Assets.
(f) Governmental Approvals. Except as set forth on Schedule
3.01(f) hereto, no approval, authorization, consent, order or action of or
filing with any court, administrative agency or other governmental authority (i)
is required for the execution and delivery by Seller and the Stockholder of this
Agreement and the Ancillary Agreements to which they are party or the
consummation by Seller and the Stockholder of the transactions contemplated
hereby or thereby or (ii) is necessary in order that the Business may be
conducted immediately following the Closing Date substantially in the same
manner as theretofore conducted.
(g) Financial Statements.
(i) Prior to the Closing Date, Seller will furnish to Buyer
the June 30, 1997 Balance Sheet and the related audited statements of
operations, stockholders equity and cash flows for the year then ended,
(the "Financial Statements"), audited by Deloitte & Touche LLP, the
independent accountants retained by Seller. The Financial Statements
(including any related schedules and/or notes) are complete and correct
in all material respects and have been prepared in accordance with
GAAP. The June 30, 1997 Balance Sheet fairly presents the financial
condition of the Business as of such date, and such statements of
operations, stockholders equity and cash flows fairly present the
results of operations of the Business for the twelve months then ended.
(ii) Except (x) as expressly set forth in the Financial
Statements, (y) as set forth in Schedule 3.01(g) hereto or (z) as
incurred after June 30, 1997 in the ordinary course of business
consistent with past practice, Seller does not have any material
liabilities or obligations of any kind or nature, whether known or
unknown, secured or unsecured, absolute, accrued, contingent or
otherwise, and whether due or to become due.
(iii) The June 30, 1997 Balance Sheet correctly lists and/or
reflects, in accordance with GAAP, substantially all of the Assets to
be transferred to Buyer, other than goodwill and other intangible
assets resulting from the transactions contemplated hereby.
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(h) Absence of Certain Changes or Events. Since June 30, 1997,
except as otherwise set forth on Schedule 3.01(h) hereto and except for the
transactions contemplated hereby, Seller has not:
(i) incurred any obligation or liability (whether fixed,
absolute, accrued, contingent, known or unknown, or otherwise, of any
kind or nature whatsoever), except normal trade or business obligations
incurred in the ordinary course of business and consistent with past
practice and except in connection with this Agreement and the
transactions contemplated hereby;
(ii) discharged or satisfied any material lien, security
interest or encumbrance or paid any obligation or liability (fixed or
contingent) of any kind or nature whatsoever, other than in the
ordinary course of business and consistent with past practice;
(iii) mortgaged, pledged or subjected to any lien, security
interest or other encumbrance any of the Assets (other than mechanic's,
materialman's and similar statutory liens arising as a matter of law
and purchase money security interests arising in the ordinary course of
business between the date of delivery and payment);
(iv) transferred, leased or otherwise disposed of any of the
Assets except for a fair consideration in the ordinary course of
business and consistent with past practice or, except in the ordinary
course of business and consistent with past practice, acquired any
assets or properties to be used by or in connection with the Business;
(v) declared, set aside or paid any distribution (whether in
cash, stock or property or any combination thereof) in respect of its
capital stock or redeemed or otherwise acquired any of its capital
stock or split, combined or otherwise similarly changed its capital
stock or authorized the creation or issuance of or issued or sold any
capital stock or any securities or obligations convertible into or
exchangeable therefor, or given any person any right to acquire any of
its capital stock, or agreed to take any such action;
(vi) made any investment of a capital nature, whether by
purchase of stock or securities, contributions to capital, property
transfers or otherwise, in any partnership, corporation or other
entity;
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(vii) canceled or compromised any debt or claim related to the
Business, except in the ordinary course of business and consistent with
past practice;
(viii) waived or released any rights of material value related
to the Business, except in any case for a fair consideration in the
ordinary course of business and consistent with past practice;
(ix) transferred or granted any rights under any concessions,
leases, licenses, sublicenses, agreements, patents, inventions,
trademarks, trade names, service marks or copyrights or with respect to
any know-how related to the Business, except in the ordinary course of
business and consistent with past practice;
(x) made or granted any wage, salary or benefit increase or
paid any bonus applicable to any group or classification of employees
generally, entered into or amended the terms of any employment contract
with, or made any loan to, or granted any severance benefits to or
entered into or amended the terms of any material transaction of any
other nature with, any officer or employee engaged in the operations of
the Business;
(xi) entered into any transaction, contract or commitment,
except (A) contracts listed on Schedule 3.01(j) here to, (B) this
Agreement and the transactions contemplated hereby and (C) as involve
payments of less than $25,000;
(xii) suffered any casualty loss or damage (whether or not
such loss or damage shall have been covered by insurance) or received
any claim or claims in respect of the Business in excess of insurable
limits, or canceled any insurance coverage, in whole or in part, under
any policy the coverage limits of which exceed $25,000;
(xiii) suffered any material adverse change in any of its
operations or in its financial condition or in its assets, properties,
business or prospects;
(xiv) surrendered, had revoked or otherwise terminated or had
terminated any material license, Permit or other approval,
authorization or consent from any court, administrative agency or other
governmental authority; or
(xv) entered into any agreement or commitment to take any
action described in this Section 3.01(h).
(i) Title to Properties, Absence of Liens and Encumbrances.
Except as set forth in Schedule 3.01(i) hereto, Seller
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has good and marketable title to all the Assets, free and clear of all liens,
charges, pledges, security interests or other encumbrances of any nature
whatsoever. Except as set forth on Schedule 3.01(i) hereto, all leases of real
and personal property of Seller to be assigned to Buyer hereunder are valid and
binding in accordance with their respective terms, and there is not under any
such lease any existing default, or any condition, event or act which with
notice or lapse of time or both would constitute such a default, nor would
consummation of the transactions contemplated hereby result in a default or any
such condition, event or act.
(j) List of Properties, Contracts and Other Data. Annexed
hereto as Schedule 3.01(j) is a list setting forth with respect to the Business,
as of the dates specified on such Schedule, the following:
(i) all real properties owned in fee simple by Seller;
(ii) all tangible assets owned by Seller with original book
value in excess of $10,000;
(iii) all leases of real or personal property involving
payments in excess of $10,000 per annum to which Seller is a party,
either as lessee or lessor;
(iv) (A) all patents, trademarks and trade names, trademark
and trade name registrations, service marks and service mark
registrations, copyrights and copyright registrations which are
unexpired as of the date hereof, all applications pending on said date
for patents or for trademark, trade name, service mark or copyright
registrations, and all other proprietary rights, owned or held by
Seller, and (B) all licenses and sublicenses granted by or to Seller
and all other agreements to which Seller is a party which relate, in
whole or in part, to any items of the categories mentioned in (A) above
or to other Intellectual Property Rights used by Seller in connection
with the Business, whether owned by Seller or any affiliate thereof;
(v) all employment and consulting agreements, executive
compensation plans, collective bargaining agreements, bonus plans,
deferred compensation agreements, employee pension plans or retirement
plans, employee profit sharing plans, employee stock purchase and stock
option plans, group life insurance, hospitalization insurance or other
plans or arrangements providing for benefits to employees of Seller
engaged in the Business, whether oral or written;
(vi) all contracts in respect of customer accounts that either
(A) generated in excess of $10,000 in Revenue during
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the twelve months ended December 31, 1996 or (B) Seller reasonably
expects will generate in excess of $10,000 in Revenue during the twelve
months ended December 31, 1997 (collectively, the "Key Customer
Contracts");
(vii) all other contracts, understandings and commitments
(including, without limitation, powers of attorney, mortgages,
indentures and loan agreements or obligations for borrowed money
including, without limitation, guarantees), whether oral or written, to
which Seller is a party or to which Seller or any of the Assets are
subject and which are not specifically referred to above, and which (A)
is a contract or group of related contracts which involve payments
exceeding $25,000 per annum in amount, (B) is a sales contract of an
open-ended or blanket nature or provides for prepaid commissions or
rebates, (C) contains penalty provisions for late delivery or
completion, (E) cannot be performed in the normal course within 365
days after the Closing Date or canceled within such period by Seller or
its assignees without breach or penalty, or (F) contains a prohibition
on the assignment thereof or any limitation on the ability of Seller to
assign the same;
(viii) the names and current annual compensation rates of all
employees of Seller engaged in the Business earning in excess of
$30,000 per annum; and
(ix) all agreements with third party payors.
True and complete copies of all documents and complete descriptions of all oral
understandings (if any) referred to in Schedule 3.01(j) hereto have been
provided or made available to Buyer and its counsel. Except as disclosed in said
Schedule, there is no claim that any contract referred to in said Schedule is
not valid and enforceable in accordance with its terms for the periods stated
therein, and there does not exist under any such contract any existing default
or event of default or event which with notice or lapse of time or both would
constitute such a default.
(k) Litigation. Except as otherwise set forth on Schedule
3.01(k) hereto, there are no actions, suits or proceedings involving claims by
or against Seller pending or, to the best knowledge of Seller, threatened
against Seller or relating to any of the operations of the Business, at law or
in equity, or before or by any Federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality, nor, to the
best of Seller's knowledge, is there any basis for any such claim. Except as set
forth in Schedule 3.01(k) hereto, there are no orders, judgments or decrees of
any court or governmental agency with respect to which Seller has been named or
is a party.
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(l) Collective Bargaining Agreements, Labor Controversies,
etc. Seller is not a party to any labor or collective bargaining agreement, and
there are no labor or collective bargaining agreements which pertain to any
employees engaged in the operations of the Business. No employees of Seller are
represented by any labor organization. No labor organization or group of
employees of Seller has made a pending demand for recognition, and there are no
representation proceedings or petitions seeking a representation proceeding
presently pending or, to the knowledge of Seller, threatened to be brought or
filed with the National Labor Relations Board or other labor relations tribunal.
There is no organizing activity involving Seller pending or, to the knowledge of
Seller, threatened by any labor organization or group of employees of Seller.
There are no (A) strikes, work stoppages, slowdowns, lockouts or arbitrations or
(B) material grievances or other material labor disputes pending or, to the
knowledge of Seller, threatened against or involving Seller. There are no unfair
labor practice charges, grievances or complaints pending or, to the knowledge of
Seller, threatened against or involving Seller or any group of employees of
Seller. Hours worked by and payments made to employees of Seller have not been
in violation of the federal Fair Labor Standards Act or any other law dealing
with such matters.
(m) Employee Benefit Plans.
(i) Schedule 3.01(m) hereto lists each employee benefit plan
within the meaning of Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), maintained by Seller or to
which Seller contributes or is required to contribute or in which any
employee of Seller participates (a "Plan"). No Plan is a defined
benefit plan as defined in Section 3(35) of ERISA. Seller has complied
and currently is in compliance, both as to form and operation, with the
applicable provisions of ERISA and the Internal Revenue Code of 1986,
as amended (the "Code"), respectively, with respect to each Plan.
(ii) Each of the Plans that is intended to qualify under
Section 401(a) of the Code does so qualify and is exempt from taxation
pursuant to Section 501(a) of the Code, and Seller has received
favorable and unrevoked determination letters from the Internal Revenue
Service to that effect.
(iii) Seller has not maintained, contributed to or been
required to contribute to, nor do any of its employees participate in,
a "multiemployer plan" (as defined in Section 3(37) of ERISA). No
amount is due or owing from Seller on account of a "multiemployer plan"
(as defined in Section 3(37) of ERISA) or on account of any withdrawal
therefrom.
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In addition, no withdrawal liability would result if there were a
partial or complete withdrawal from any multiemployer plan as of the
Closing Date.
(iv) Notwithstanding anything else set forth herein, Seller
has not incurred any liability with respect to any Plan under ERISA
(including, without limitation, Title I or Title IV of ERISA), the Code
or other applicable law, which has not been satisfied in full, and no
event has occurred, and there exists no condition or set of
circumstances which could result in the imposition of any liability
under ERISA (including, without limitation, Title I or Title IV of
ERISA), the Code or other applicable law with respect to any of the
Plans.
(v) No Plan, other than a Plan which is an employee pension
benefit plan (within the meaning of Section 3(2)(A) of ERISA), provides
benefits, including without limitation death, health or medical
benefits (whether or not insured), with respect to current or former
employees of Seller beyond their retirement or other termination of
service with Seller (other than (A) coverage mandated by applicable
law, (B) deferred compensation benefits accrued as liabilities on the
books of Seller, or (C) benefits the full cost of which is borne by the
current or former employee (or his beneficiary)).
(vi) The consummation of the transactions contemplated by this
Agreement will not (A) entitle any current or former employee or
officer of Seller to severance pay, unemployment compensation or any
other payment, or (B) accelerate the time of payment or vesting, or
increase the amount of compensation due any such employee or officer.
(vii) Seller has provided to Buyer true and complete copies of
the following: (A) each of the Plans; (B) summary plan descriptions of
each of the Plans; (C) each trust agreement, insurance policy or other
instrument relating to the funding of each of the Plans; (D) the two
most recent Annual Reports (Form 5500 series) and accompanying
schedules filed with the Internal Revenue Service or United States
Department of Labor with respect to each of the Plans; (E) the most
recent audited financial statement for each of the Plans; (F) the most
recent actuarial report of each of the Plans; (G) each policy of
fiduciary liability insurance (and agreements related thereto)
maintained in connection with the Plans, and (H) the most recent
determination letter issued by the Internal Revenue Service with
respect to each of the Plans that is intended to qualify under Section
401(a) of the Code.
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(n) Intellectual Property Rights. The Intellectual Property
Rights listed in clause (iv) of Schedule 3.01(j) hereto, constitute all such
proprietary rights that are necessary to the conduct of the Business as of the
date hereof. Seller owns or has valid rights to use all such Intellectual
Property Rights without conflict with the rights of others. Except as set forth
on Schedule 3.01(n) hereto, no person has made or, to the best knowledge of
Seller, threatened to make, any claims that the operations of the Business are
in violation of or infringe upon any intellectual property rights or any other
proprietary or trade rights of any third party, nor, to the best of Seller's
knowledge, is there any basis for any such claim. None of the Intellectual
Property Rights is the subject of any outstanding order, ruling, decree,
judgment or stipulation. Seller has taken and is taking reasonable precautions
to protect any material trade secrets and other confidential information
included in the Intellectual Property Rights.
(o) Software.
(i) The operating and applications computer software programs
and databases used by Seller in the conduct of the Business (other than
"off-the-shelf" programs and databases that are generally commercially
available at a per unit cost of less than $500) (collectively, the
"Software") are listed on Schedule 3.01(o) hereto. Except as set forth
on Schedule 3.01(o), Seller owns outright or holds valid licenses to
all copies of the Software used by it in the Business. None of the
Software used by Seller, and no use thereof, infringes upon or violates
any patent, copyright, trade secret or other proprietary right of any
other person and, to the best knowledge of Seller, no claim with
respect to any such infringement or violation is threatened, nor does
any person have any basis for such a claim. Seller has taken all steps
necessary to protect its right, title and interest in and to the
Software owned by Seller.
(ii) Seller possesses or has access to the original and all copies
of all Software (including, without limitation, all source code) and
all documentation relating thereto owned or used by Seller. Upon
consummation of the transactions contemplated by this Agreement, Buyer
will (A) own all the Software owned by Seller immediately prior to the
Closing, free and clear of all claims, liens, encumbrances, obligations
and liabilities and, (B) with respect to all Software licensed or
leased to Seller, have valid rights to use such Software on
substantially the same terms as presently apply to Seller.
(iii) Any programs, modifications, enhancements or other inventions,
improvements, discoveries, methods or works of
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authorship included in the Software that were created by employees of
Seller were made in the regular course of such employees' employment
with Seller using Seller's facilities and resources, and as such
constitute "works made for hire".
(p) Use of Real Property. The owned and leased real property
listed on Schedule 3.01(h) hereto are used and operated in material compliance
and conformity with all applicable leases, contracts, commitments, licenses,
zoning ordinances, codes and Permits.
(q) Condition of Assets. As of the Closing Date, all tangible
personal property, fixtures, machinery and equipment comprising the Assets will
(i) be in a good state of repair (ordinary wear and tear excepted) and operating
condition and will be suitable for the purposes for which they are being used
and (ii) substantially conform with all ordinances, codes, regulations and
requirements applicable to them.
(r) Compliance With Law. The conduct of the Business by Seller
does not violate in any material respect any federal, state or local laws,
statutes, ordinances, regulations, decrees, orders, Permits or other similar
rules presently in force (including, without limitation, any of the foregoing
relating to the federal Medicare program, any federal and/or state Medicaid
programs or ERISA). Seller is not liable for any arrears of wages or any taxes
or penalties for failure to comply with any of the foregoing.
(s) Third-Party Payor and Customer Contracts. Except as
otherwise set forth on Schedule 3.01(s) hereto, since June 30, 1997, Seller has
not lost or been notified that (whether as a result of the consummation of the
transactions contemplated by this Agreement or otherwise) it will lose or suffer
diminution in its relationships with any third-party payor(s), formulary plans
or other customer(s), other than normal attrition at historically consistent
levels.
(t) Taxes.
(i) Except as set forth on Schedule 3.01(t) hereto, Seller has
duly and timely filed all returns, declarations, reports, estimates,
information returns and statements ("Returns") required to be filed by
it in respect of any Taxes (as hereinafter defined). All Returns
(including all informational Returns) were correct as filed and
correctly reflect the facts regarding the income, business, assets,
operations, activities and status of Seller as well as any Taxes
required to be paid or collected by Seller. Seller has timely paid or
withheld all Taxes that are due and payable with respect to the Returns
referred to above.
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Seller has established, consistent with past practice, an adequate
reserve on the June 30, 1997 Balance Sheet for the payment of all Taxes
with respect to Seller not yet due for any taxable period or portion
thereof ending on or prior to the Closing Date (or otherwise relating
or attributable to the results of operations of Seller on or prior to
the Closing Date). Seller has complied with all applicable laws, rules
and regulations relating to the payment and withholding of Taxes, and
has timely withheld from employee wages and paid over to the proper
governmental authorities when due all amounts required to be so
withheld and paid over (including, but not limited to, federal income
taxes, Federal Insurance Contribution Act taxes, state and local income
and wage taxes, payroll taxes, workers' compensation and unemployment
compensation taxes).
(ii) Except as set forth in Schedule 3.01(t) hereto, (A)
Seller is not delinquent in the payment of any Taxes and has not
requested any extension of time within which to file or send any
Return, which Return has not since been filed or sent; (B) there is no
deficiency, claim, audit, action, suit, proceeding or investigation now
pending or threatened against or with respect to Seller in respect of
any Taxes; and (C) there are no requests for rulings or determinations
in respect of any Taxes pending between Seller and any taxing
authority, and no such rulings or determinations have been received by
Seller.
(iii) Seller has not executed or entered into (and, prior to
the Closing, Seller will not execute or enter into) with the Internal
Revenue Service or any other taxing authority (A) any agreement or
other document extending or having the effect of extending the period
for assessments or collection of any Taxes for which Seller would be
liable or (B) a closing agreement pursuant to Section 7121 of the Code,
or any predecessor provision thereof or any similar provision of
foreign, state or local Tax law that relates to the assets or
operations of Seller.
(iv) Except as set forth on Schedule 3.01(t) hereto, Seller
has never (A) been a member of a consolidated, combined or unitary
group for federal, state, local or foreign Tax law purposes, (B) been a
party to any Tax-sharing or allocation agreement or (C) filed any
election or caused any deemed election under Section 338 of the Code.
(v) Seller is not a party to any agreement, contract or
arrangement that would result, by reason of the consummation of any of
the transactions contemplated herein, separately or in the aggregate,
in the payment of any "ex-
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cess parachute payment" within the meaning of Section 280G of the
Code.
(vi) No agreement or consent pursuant to Section 341(f) of the
Code has ever been made with respect to Seller or any assets or
properties of Seller (or any predecessor corporation of Seller).
Further, Seller shall not make any agreement or consent pursuant to
said Section 341(f) in respect of the transactions contemplated by this
Agreement.
(vii) Seller has been, for all Tax periods beginning on or
after its inception, and ending on or before the Closing Date, a
validly electing subchapter S corporation within the meaning of Section
1361 of the Code and the corresponding provisions (if any) of state and
local income tax laws in all jurisdictions in which it is required to
report its business operations. Schedule 3.01(t) hereto lists all the
states and localities with respect to which Seller is or was required
to file any Returns and sets forth whether Seller is or was treated as
the equivalent of an S corporation by or with respect to each such
state and/or locality.
(viii) Except as set forth in Schedule 3.01(t), the
Stockholder has paid all Taxes relating to his ownership interest in
Seller and required to be paid by him on or prior to June 30, 1997.
(ix) For purposes of this Agreement, "Tax" (and with
correlative meaning, "Taxes") means (A) any net income, gross income,
gross receipts, franchise, profits, license, sales, use, ad valorem,
value added, property, payroll, withholding, excise, severance,
transfer, employment, alternative or add-on minimum, stamp, occupation,
premium, environmental or windfall profits taxes, customs duties or
other taxes, governmental fees or other like assessments or charges of
any kind whatsoever, together with any interest or any penalty,
addition to tax or additional amount imposed by any governmental
authority responsible for the imposition of any such Taxes (domestic or
foreign); (B) any liability of Seller for the payment of any amounts of
the type described in (A) as a result of being a member of an
affiliated, consolidated, combined or unitary group, or being a party
to any agreement or arrangement whereby liability of Seller for
payments of such amounts was determined or taken into account with
reference to the liability of any other person for any period prior to
the Closing Date; and (C) any liability of Seller with respect to the
payment of any amounts described in (A) as a result of any express or
implied obligation to indemnify any other person.
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(u) Environmental Matters.
(i) Neither the business or operations of Seller nor, to the
knowledge of Seller and the Stockholder, the real property used by
Seller in the Business (the "Real Property") violates any applicable
Environmental Law in any material respect.
(ii) Seller has not disposed of, stored or used any
pollutants, contaminants or hazardous or toxic wastes, substances or
materials in violation of any Environmental Law on or at the Real
Property.
(iii) Seller is not the subject of any government or private
litigation or proceedings involving a demand for damages or other
potential liability pursuant to any Environmental Laws or Common Law
Environmental Principles (as defined below).
(ii) For the purposes of this Agreement, the following terms
have the meanings set forth below:
"Common Law Environmental Principles" means any principles of
common law under which a person or entity may be held liable for the
release or discharge of any pollutants, contaminants or hazardous or
toxic wastes, substances or materials into the environment.
"Environmental Law" shall mean any law, statute, regulation,
rule, order, consent decree, settlement agreement or governmental
requirement of any governmental authority, as in effect on the date of
this Agreement, which relates to or otherwise imposes liability or
standards of conduct concerning discharges or releases of any
pollutants, contaminants or hazardous or toxic wastes, substances or
materials into ambient air, water or land, or otherwise relating to the
manufacture, processing, generation, distribution, use, treatment,
storage, disposal, cleanup, transport or handling of pollutants,
contaminants or hazardous or toxic wastes, substances or materials.
(v) Transactions with Affiliates. Except as set forth on
Schedule 3.01(v) hereto, no partner, director or officer of Seller or any member
of such individual's immediate family, owns, directly or indirectly, or has an
ownership interest in (i) any business, (corporate or otherwise) which is a
party to, or in any property which is the subject of, business arrangements or
relationships of any kind with Seller, or (ii) any business (corporate or other)
which conducts the same business, or a business similar to, that which is
conducted by Seller.
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(w) Governmental Authorizations and Regulations.
(i) Seller has all governmental licenses, franchises, permits,
consents, certificates, approvals and all registrations and filings
with any governmental body with respect thereto (collectively,
"Permits"), required under applicable law for the conduct of the
Business as currently conducted, other than any of the foregoing the
failure of which to have would not have, in the aggregate, a Material
Adverse Effect. Seller has made all required registrations and filings
with all governmental bodies that are required to be obtained in
connection with the operations of the Business. All such Permits are
listed on Schedule 3.01(w) hereto. Such Permits have been validly
issued by the appropriate governmental bodies and are in full force and
effect. No material default or violation, or event that with the lapse
of time or the giving of notice or both would become a material default
or violation, has occurred in the due observance of such Permit.
(ii) The Business is being conducted in material compliance
with all applicable laws, ordinances, rules and regulations of all
governmental authorities relating to Seller's Assets or applicable to
the Business, including without limitation the terms of all Permits.
Seller has not received any notice of any alleged violation of any of
the foregoing.
(iii) Neither Seller nor any of its properties, operations or
businesses is subject to any court or administrative order, judgment,
injunction or decree. To the best knowledge of Seller, no action has
been taken or recommended by any governmental or regulatory official,
body or authority, either to revoke, withdraw or suspend any Permit.
(x) Insurance. All policies of fire, liability, workers'
compensation, and other forms of insurance providing insurance coverage to or
for Seller are listed in Schedule 3.01(x) hereto. All premiums with respect
thereto covering all periods up to and including the date as of which this
representation is being made have been paid, and no notice of cancellation or
termination has been received with respect to any such policy. All such policies
are in full force and effect and provide insurance, including without limitation
liability insurance, in such amounts and against such risks as is customary for
companies engaged in similar businesses to Seller.
(y) Broker's or Finders' Fees. All negotiations relative to
this Agreement and the transactions contemplated hereby have been carried out by
Seller directly with Buyer, without the intervention of any persons on behalf of
Seller in
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such a manner to give rise to any claim by any person against Buyer for a
finder's fee, brokerage commission or similar payment.
SECTION 3.002. Representations and Warranties of Buyer and
MedE. Buyer and MedE jointly and severally represent and warrant to Seller as
follows:
(a) Organization, Corporate Power, Etc. Each of Buyer and MedE
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Ohio and the State of Delaware, respectively. Each of Buyer
and MedE has all requisite corporate power and authority to acquire, own, lease
and operate its properties and to execute and deliver this Agreement and the
Ancillary Agreements applicable to such party, and to perform its obligations
hereunder and thereunder.
(b) Authorization of Agreements; Validity. The execution and
delivery by Buyer and MedE of this Agreement and the Ancillary Agreements, and
the consummation by Buyer and MedE of the transactions contemplated hereby and
thereby, have been duly authorized by all requisite corporate action. This
Agreement has been duly and validly executed by Buyer and MedE and constitutes
the legal, valid and binding obligation of Buyer and MedE, enforceable in
accordance with its terms. Each Ancillary Agreement, when duly executed and
delivered by Buyer and MedE (if a party thereto), will constitute the legal,
valid and binding obligation of Buyer and MedE, enforceable in accordance with
its terms.
(c) Effect of Agreements. The execution and delivery by Buyer
and MedE of this Agreement and the Ancillary Agreements to which each is a party
and the performance by Buyer and MedE of their respective obligations hereunder
and thereunder will not (x) violate any provision of law, any order of any court
or other agency of government, the charter or By-laws of Buyer or MedE, or any
judgment, award, decree, indenture, agreement, Permit or other instrument to
which Buyer or MedE is a party, or by which Buyer or MedE is bound or affected
or (y) conflict with, result in a breach of or constitute (with due notice or
lapse of time or both) a default under, any such indenture, agreement, Permit or
other instrument.
(d) Actions Pending. There is no action, suit, investigation
or proceeding pending or, to the knowledge of Buyer and MedE, as the case may
be, threatened against or affecting Buyer or MedE or any of their respective
properties or rights before any court or by or before any governmental body or
arbitration board or tribunal, the outcome of which, if adversely decided, would
prevent the consummation of the transactions contemplated hereby.
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(e) Governmental Approvals. No approval, authorization,
consent or order or action of or filing with any court, administrative agency or
other governmental authority is required for the execution and delivery by Buyer
or MedE of this Agreement and the Ancillary Agreements to which each is a party
or the consummation by Buyer or MedE of the transactions contemplated hereby or
thereby.
(f) Broker's or Finders' Fees. All negotiations relative to
this Agreement and the transactions contemplated hereby have been carried out by
Buyer and MedE directly with Seller without the intervention of any persons on
behalf of Buyer or MedE in such a manner to give rise to any claim by any person
against Seller for a finder's fee, brokerage commission or similar payment.
IV. COVENANTS
SECTION 4.001. Covenants of Seller and the Stockholder.
(a) Seller and the Stockholder jointly and severally agree
that, at all times between the date hereof and the Closing Date, unless Buyer
and Seller shall otherwise agree in writing, Seller shall (and the Stockholder
shall cause Seller to):
(i) operate the Business only in the usual, regular and
ordinary manner and, to the extent consistent with such operations, (A)
use its best efforts to preserve the current business organization of
the Business and Seller's present relationships with customers of, and
all other persons having business dealings with, the Business, and (B)
use reasonable efforts to keep available the services of those officers
and employees currently engaged in the operations of the Business;
(ii) maintain all its Assets in good repair, order and
condition, reasonable wear and tear excepted;
(iii) maintain its books of account and records in the usual,
regular and ordinary manner, on a basis consistent with past practice,
and use its best efforts to comply with all laws applicable to it and
to the conduct of the Business and perform all its material obligations
without default;
(iv) not change the character of the Business in any material
manner;
(v) not, with respect to the Business take any action or
undertake any commitment or obligation of the types
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described in clauses (i) through (xi) and (xiv) of Section 3.01(h)
hereof; and
(vi) not, except in the ordinary course and consistent with
past practice or as otherwise contemplated by this Section 4.01, amend
or modify in any way adverse to the interests of Seller any contract
listed on Schedule 1.01 hereto.
(b) Between the date of this Agreement and the Closing Date,
Seller will afford the representatives of Buyer reasonable access during normal
business hours to the offices, facilities, books and records of Seller and the
opportunity to discuss the affairs of Seller with officers and employees of
Seller familiar therewith.
(c) Between the date of this Agreement and the Closing Date,
Seller shall not, except as required by GAAP, (i) utilize accounting principles
different from those used in the preparation of the Financial Statements, (ii)
change in any manner its method of maintaining its books of account and records
from such methods as in effect on June 30, 1997, or (iii) accelerate booking of
revenues or the deferral of expenses, other than as shall be consistent with
past practice and in the ordinary course of business.
(d) Between the date hereof and the Closing Date, Seller
shall, with Buyer's assistance and cooperation but at the expense of Seller,
promptly apply for or otherwise seek and use reasonable efforts (it being
understood, for purposes of paragraphs (d) and (e) hereof, that "reasonable
efforts" shall not include either (i) incurring any material cash expenditures
or (ii) payment of any material sums) to obtain all authorizations, consents,
waivers and approvals as may be required in connection with the assignment of
the contracts, agreements, licenses, leases, sales orders, purchase orders and
other commitments and all Permits of which Seller is the beneficiary to be
assigned to Buyer pursuant to Section 1.01(a) hereto (including without
limitation (A) any Key Customer Contracts for which such consent is required and
(B) those contracts scheduled in response to Section 3.01(j)(vii)(F) hereof).
(e) Between the date hereof and the Closing Date, Seller
shall, with Buyer's assistance and cooperation but at the expense of Seller, use
reasonable efforts (i) to enter into written service agreements substantially in
the form attached as Exhibit D hereto ("Standard Service Agreements") with
respect to the Key Customer Contracts listed on Part I of Schedule 4.01(e)
hereto, and (ii) to enter into supplements to the Key Customer Contracts listed
on Part II of Schedule 4.01(e) hereto. The terms of such supplements shall be
satisfactory to Buyer.
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(f) Between the date of this Agreement and the Closing Date,
Seller will not enter into any transaction or make any agreement or commitment,
or permit any event to occur, which would result in any of the representations,
warranties or covenants of Seller contained in this Agreement not being true and
correct at and as of the time immediately after the occurrence of such
transaction or event.
SECTION 4.002. Confidentiality. The contents of this Agreement
shall be kept confidential among the parties, except that each party may reveal
and discuss the contents with its respective professional advisors, including
attorneys and accountants. The parties may mutually agree in writing as to the
revealing of the subject transaction to current employees and to the public. In
so doing, the parties shall agree to the timing and content of the release of
such information.
SECTION 4.003. Allocation of Purchase Price. Each of the
parties hereto agrees to allocate the Purchase Price (and any liabilities
assumed by Buyer from Seller) among the Assets in the manner specified in
Schedule 4.03 hereto. Each of the parties hereto shall respect such allocation
for all financial accounting and Tax purposes and shall file all Returns and
other documents with all taxing authorities on a basis consistent therewith.
Buyer and Seller shall timely complete and file a Form 8594 Asset Acquisition
Statement of Allocation consistent with such allocation, and shall provide a
certified copy of such form to Buyer or Seller, as the case may be, and, if
applicable, shall file a certified copy of such form with its federal income Tax
Return for the period that includes the Closing Date.
SECTION 4.004. Preparation of Certain Financial Statements.
After the date hereof, Seller and the Stockholder shall provide MedE and Buyer
and their independent auditors with all reasonable assistance required to
prepare audited financial statements for the Business for and as of (x) the
period from July 1, 1997 through the Closing Date and (y) each of the
twelve-month periods ended December 31, 1996, December 31, 1995, and December
31, 1994. Seller and the Stockholder confirm and agree that such assistance
shall include, without limitation, (i) providing MedE, Buyer and their
representatives with all necessary financial information and data relating to
the Business for such periods, (ii) making available all employees of Seller or
any of its affiliates deemed necessary by MedE and Buyer to assist in the
preparation of such financial statements, and (iii) delivering to MedE's
independent auditors a management representation letter for such periods in a
form reasonably acceptable to such auditors.
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Section 4.005. Certain Tax Matters. () All stamp, transfer,
sales or use Taxes imposed upon or incurred by any of the parties hereto in
connection with this Agreement and the transactions contemplated hereby shall be
borne by Buyer. Seller and Buyer shall jointly prepare and file all necessary
Returns and other documents with respect to all such stamp, transfer, sales or
use taxes and each party shall bear its own expenses in connection therewith. If
required by applicable law, any other party hereto shall join in the execution
and filing of any such Returns or other documents.
(b) For all federal, state, local and foreign income and
franchise Tax purposes, each of the parties hereto agrees to treat the
acquisition of the Assets by Buyer, pursuant to the terms and conditions of this
Agreement, as a fully taxable sale of the assets of Seller to Buyer solely in
exchange for cash (and the liabilities assumed by Buyer from Seller).
(c) Seller shall be responsible for and shall pay (i) any and
all Taxes with respect to Seller, the Business or the Assets relating to any Tax
period or portion thereof ending on or before the Closing Date and (ii) any and
all Taxes incurred by or imposed upon Seller (other than any Taxes described in
paragraph (a) above) as a result of the consummation of any of the transactions
contemplated by this Agreement. The Stockholder shall be responsible for and
shall pay all Taxes relating to his ownership interest in Seller and
attributable to any period (or portion thereof) ending on or prior to the
Closing Date.
SECTION 4.006. Insurance. Between the date of this Agreement
and the Closing Date, Seller shall maintain in full force and effect all
insurance policies listed on Schedule 3.01(x) hereto.
SECTION 4.007. Collection of Accounts Receivable. (a) For a
period of twelve months after the Closing Date, Buyer will use reasonable
efforts to collect for the benefit of Seller, and with the risk of
non-collection continuing to be the risk of Seller, the accounts receivable of
Seller as of the Closing Date (such receivables being hereinafter referred to as
the "Collection Receivables"). Buyer shall deposit in Seller's account, when and
as received (together with appropriate statements of collection), all monies,
drafts, checks and other instruments of payment received by it as payments on
the Collection Receivables, provided that payments applying to both Collection
Receivables and receivables of Buyer shall be deposited in Buyer's account and
funds in the amount attributable to the Collection Receivables shall be promptly
remitted to Seller. Buyer shall apply all collections from account debtors owing
Collection Receivables to the payment in full of undisputed and matured
Collection Receivables in priority to any accounts receivable from such
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account debtors with respect to services rendered, goods sold or work done on or
after the Closing Date; provided, however, that in the event that any such
collection is received from such an account debtor as to whom transaction
processing services are discontinued, such collection shall be allocated between
Seller and Buyer pro rata on the basis of the ratio of (A) Collection
Receivables payable by such account debtor to (B) receivables payable by such
account debtor that accrue after the Closing Date.
SECTION 4.008. Retention of Employees. Effective as of the
Closing Date, except for the employees of the Business listed in Schedule 4.08
hereto, Buyer will offer to continue the employment of all employees of Seller
at salaries equal to those now paid by Seller, and on such other terms as MedE
and Buyer make available to their employees generally. It is understood and
agreed that nothing in this Agreement shall be deemed to create any employment
status other than employment at will or require Buyer to continue for the
benefit of any employee any Plan or other benefits program or arrangement
maintained by Seller prior to the Closing Date.
SECTION 4.009. Payment of Certain Liabilities. () Seller
shall, on a timely basis and in a manner consistent with past practice, pay all
liabilities of Seller not assumed by Buyer.
(b) Prior to the Closing Date, Buyer shall pay to Seller
$130,000, to be used to repay purchase money indebtedness on the computer
equipment described on Schedule 1.01(a)(i) hereto. Seller shall promptly use
such sum to repay such indebtedness, and shall at the Closing deliver such
computer equipment free and clear of any liens, charges, pledges, security
interests or other encumbrances of any nature whatsoever.
SECTION 4.10. Name Matters. (a) Prior to the Closing Date,
Seller shall procure from Dan Bowden and PreScrip Services, Inc., all of their
respective right, title and interest in and to the name "PreScrip" and the
service mark associated therewith, and the same shall be among the Assets
conveyed to Buyer pursuant to Section 1.01 hereof.
(b) Within 30 days of the Closing Date, Seller shall change
its name to a name that does not include the word "Stockton" or any variation
thereon.
SECTION 4.11. Brookins and Lagnese. (a) Seller shall pay to
Gerald Brookins ("Brookins") and to Christopher Lagnese ("Lagnese") amounts
equal to 25% and 10%, respectively, of the Purchase Price, when and as the
Purchase Price is received by Seller.
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(b) Prior to the Closing Date, Seller and the Stockholder
shall use their reasonable efforts to procure from each of Brookins and Lagnese
a release whereby each waives any claim to any interest in the equity or the
assets of Seller (or any other ownership interest in or relating to Seller).
Such releases shall be reasonably satisfactory in form and substance to Buyer.
SECTION 4.12 Access to Records. Following the Closing Date,
Buyer and MedE shall grant the Stockholder, Brookins and Lagnese reasonable
access to the books and records of the Company and the Business for the purposes
of maintaining personal financial records and paying taxes, and for other
similar purposes; provided that any such person requesting access to such
information shall (i) provide reasonable notice of any such request, (ii)
conduct any investigation or review of such information so as to minimize any
disruption to the operations of MedE and Buyer and (iii) keep such information
confidential.
V. CONDITIONS PRECEDENT
SECTION 5.001. Conditions Precedent to Obligations of Buyer
and MedE. The obligations of Buyer and MedE under this Agreement are subject, at
the option of Buyer and MedE, to the satisfaction at or prior to the Closing
Date of each of the following conditions:
(a) Accuracy of Representations and Warranties. The
representations and warranties of Seller and the Stockholder contained in this
Agreement or in any certificate or document delivered to Buyer pursuant hereto
shall be true and correct in all material respects on and as of the Closing Date
as though made at and as of that date, and Seller and the Stockholder shall have
delivered to Buyer a certificate to that effect.
(b) Compliance with Covenants. Seller and the Stockholder
shall have performed and complied in all material respects with all terms,
agreements, covenants and conditions of this Agreement to be performed or
complied with by it at or prior to the Closing Date, and Seller and the
Stockholder shall have delivered to Buyer a certificate to that effect.
(c) Opinion of Counsel to Seller. Buyer shall have received an
acceptable opinion of Parker, Poe, Adams & Bernstein L.L.P., counsel for Seller,
dated the Closing Date, providing for opinions substantially in the form
attached hereto as Exhibit E.
(d) Legal Actions or Proceedings. No legal action or
proceeding shall have been instituted or threatened seeking to restrain,
prohibit, invalidate or otherwise affect the consumma-
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tion of the transactions contemplated hereby or which would, if adversely
decided, have a Material Adverse Effect.
(e) Consents; Assignment of Contracts. Seller shall have
obtained all the authorizations, consents, waivers and approvals required in
connection with the transfer or assignment of each of (i) the Key Customer
Contracts for which any such approval is required and (ii) those Permits,
contracts, agreements, licenses, leases, sales orders, purchase orders and other
commitments scheduled pursuant to Section 3.01(j)(vii)(F) hereof.
(f) Written Service Agreements; Supplements to Service
Agreements. Seller shall have entered into Standard Service Agreements in
respect of the Key Customer Contracts listed on Part I of Schedule 4.01(e)
hereto, and shall have entered into supplements to those Key Customer Contracts
listed on Part II of Schedule 4.01(e) hereto. The terms of such supplements
shall be reasonably satisfactory to Buyer and its counsel.
(g) Audited Financial Statements. Seller shall have delivered
to MedE and Buyer (x) audited financial statements for the Business for and as
of the twelve-month period ended June 30, 1997, and (y) financial statements for
the Business for and as of each of the twelve-month periods ended December 31,
1996, December 31, 1995, and December 31, 1994, unaudited but reviewed by the
independent accountants retained by Seller.
(h) Ancillary Agreements. The Ancillary Agreements shall have
been executed and delivered by each party thereto, and said Agreements shall be
in full force and effect as of the Closing Date.
(i) Employment Arrangements. Each of Brookins and Lagnese
shall have executed and delivered to MedE an Employment Agreement and a
Non-Compete Agreement. The terms of such agreements shall be satisfactory to
MedE and Brookins or Lagnese, as the case may be.
(j) Supporting Documents. Buyer and MedE shall have received
copies of the following supporting documents:
(i) (A) a copy of the charter of Seller as amended through the
date hereof, certified as of a recent date by the Secretary of State of
the state of South Carolina, and () a certificate of said Secretary of
State, dated as of a recent date, as to the due incorporation and good
standing of Seller and listing all documents of Seller on file with
said Secretary; and
(ii) a certificate of the Secretary or an Assistant Secretary of
Seller dated the Closing Date and certifying:
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(1) that attached thereto is a true and complete copy of resolutions
adopted by the Board of Directors of Seller authorizing the execution,
delivery and performance of this Agreement and the Ancillary Agreements
and that all such resolutions are still in full force and effect and
are all the resolutions adopted in connection with the transactions
contemplated by this Agreement and the Ancillary Agreements; and (2) as
to the incumbency and specimen signature of each officer of Seller
furnishing any certificate or instrument pursuant hereto, and a
certification by another officer of Seller as to the incumbency and
signature of the officer signing the certificate referred to herein.
(k) All Proceedings To Be Satisfactory. All corporate and
other proceedings to be taken by Seller in connection with the transactions
contemplated hereby and all documents incident thereto shall be reasonably
satisfactory in form and substance to Buyer and its counsel, and Buyer and said
counsel shall have received all such counterpart originals or certified or other
copies of such documents as it or they may reasonably request.
(l) Allocation of Purchase Price. Buyer and Seller shall have
agreed to an allocation of the Purchase Price among the Assets in accordance
with Section 4.03 hereof.
(m) Receipt of Releases. Buyer shall have received the
releases to be procured pursuant to Section 4.11 hereof.
SECTION 5.002. Conditions Precedent to Obligations of Seller
and the Stockholder. The obligations of Seller and the Stockholder under this
Agreement are subject, at the option of Seller and the Stockholder, to the
satisfaction at or prior to the Closing Date of each of the following
conditions:
(a) Accuracy of Representations and Warranties. The
representations and warranties of Buyer and MedE contained in this Agreement or
in any certificate or document delivered to Seller pursuant hereto shall be true
and correct in all material respects on and as of the Closing Date as though
made at and as of that date, and Buyer and MedE shall have delivered to Buyer a
certificate to that effect.
(b) Compliance with Covenants. Buyer and MedE shall have
performed and complied in all material respects with all terms, agreements,
covenants and conditions of this Agreement to be performed or complied with by
it at or prior to the Closing Date, and Buyer and MedE shall have delivered to
Seller a certificate to that effect.
(c) Legal Actions or Proceedings. No legal action or
proceeding shall have been instituted or threatened seeking to
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restrain, prohibit, invalidate or otherwise affect the consummation of the
transactions contemplated hereby or which would, if adversely decided, have a
Material Adverse Effect.
(d) Ancillary Agreements. The Ancillary Agreements shall have
been executed and delivered by each party thereto, and said Agreements shall be
in full force and effect as of the Closing Date.
(e) Supporting Documents. Seller shall have received copies of
the following supporting documents:
(i) (A) a copy of the charter of each of Buyer and MedE as
amended through the date hereof, certified as of a recent date by the
Secretary of State of the state in which Buyer or MedE (as applicable)
is incorporated, and () a certificate of said Secretary of State, dated
as of a recent date, as to the due incorporation and good standing of
Buyer or MedE (as applicable) and listing all documents of Buyer or
MedE on file with said Secretary; and
(ii) a certificate of the Secretary or an Assistant Secretary of
Buyer and MedE dated the Closing Date and certifying: (1) that attached
thereto is a true and complete copy of resolutions adopted by the Board
of Directors of Buyer and MedE authorizing the execution, delivery and
performance of this Agreement and the Ancillary Agreements and that all
such resolutions are still in full force and effect and are all the
resolutions adopted in connection with the transactions contemplated by
this Agreement and the Ancillary Agreements; and (2) as to the
incumbency and specimen signature of each officer of Buyer and MedE
furnishing any certificate or instrument pursuant hereto, and a
certification by another officer of each of Buyer and MedE as to the
incumbency and signature of the officer signing the certificate
referred to herein.
(f) All Proceedings To Be Satisfactory. All corporate and
other proceedings to be taken by Buyer and MedE in connection with the
transactions contemplated hereby and all documents incident thereto shall be
reasonably satisfactory in form and substance to Seller and its counsel, and
Seller and said counsel shall have received all such counterpart originals or
certified or other copies of such documents as it or they may reasonably
request.
(g) Allocation of Purchase Price. Buyer and Seller shall have
agreed to an allocation of the Purchase Price among the Assets in accordance
with Section 4.03 hereof.
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(h) Opinion of Buyer's Counsel. Seller shall have received the
favorable opinion of Reboul, MacMurray, Hewitt, Maynard & Kristol, counsel for
Buyer and MedE, dated the Closing Date, substantially in such form attached
hereto as Exhibit F.
(i) Lease Agreement. Buyer shall have entered into a lease
agreement with Troon Properties, Inc. on terms satisfactory to Buyer.
VI. SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION
SECTION 6.001. Survival of Representations. Except as
otherwise set forth below, all representations and warranties made by any party
hereto in this Agreement or pursuant hereto shall survive for a period of 24
months following the Closing Date, except for the representations and warranties
as to Tax and environmental matters made by any party hereto in this Agreement
or pursuant hereto (which representations and warranties shall survive for the
applicable statute of limitation period, including any extensions thereof).
SECTION 6.002. Tax Indemnity. () Seller and the Stockholder
hereby jointly and severally agree to indemnify, defend and hold Buyer and MedE
harmless from and against any and all Taxes incurred by, imposed upon or
attributable to Seller or any predecessor company thereof, including reasonable
legal fees and expenses incurred by any party hereto and relating thereto, for
any Tax period or portion thereof ending on or before the Closing Date.
(b) Buyer and MedE hereby jointly and severally agree to
indemnify, defend and hold Seller and the Stockholder harmless from and against
any and all Taxes incurred by, imposed upon or attributable to Buyer, MedE or
any predecessor company thereof, including reasonable legal fees and expenses
incurred by any party hereto and relating thereto, for any Tax period or portion
thereof ending after the Closing Date.
(c) For purposes of this Section 6.02, any interest, penalty
or additional charge included in Taxes shall be deemed to be a Tax for the
period to which the item or event giving rise to such interest, penalty or
additional charge is attributable, and not a Tax for the period during which
such interest, penalty or additional charge accrues.
(d) The indemnity provided for in this Section 6.02 shall be
independent of any other indemnity provision hereof and, anything in this
Agreement to the contrary notwithstanding shall survive until the expiration of
the applicable statutes of limitation, including any extensions thereof, for the
Taxes referred
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to herein. Any Taxes, legal fees and expenses subject to indemnification under
this Section 6.02 shall not be subject to indemnification under Section 6.03.
SECTION 6.003. General Indemnity. (a) Subject to the terms and
conditions of this Article VI, Seller and the Stockholder hereby jointly and
severally agree to indemnify, defend and hold Buyer and MedE harmless from and
against all demands, claims, actions or causes of action, assessments, losses,
damages, liabilities, costs and expenses, including, without limitation,
interest, penalties and reasonable attorneys' fees and expenses (collectively,
"Damages"), asserted against, imposed upon or incurred by Buyer or MedE by
reason of or resulting from:
(i) a breach of any representation, warranty or cove nant of
Seller or the Stockholder contained in or made pursuant to this
Agreement;
(ii) any liabilities or obligations of, or claims against or
imposed on Seller (whether absolute, accrued, contingent or otherwise
and whether a contractual, or any other type of liability, obligation
or claim) and not assumed by Buyer pursuant to this Agreement and the
Bill of Sale, Assignment and Assumption Agreement;
(iii) any liabilities or obligations (whether absolute,
accrued, contingent or otherwise) in respect of any action, suit or
proceeding relating to the conduct of the Business by Seller and based
upon an event occurring or a claim arising on or prior to the Closing
Date (including without limitation those actions listed on Schedule
3.01(k) hereto); and
(iv) any liability in respect of any failure by Seller to
conduct the Business in compliance with any Permit, law, regulation or
order prior to the Closing Date.
(b) Subject to the terms and conditions of this Article VI,
Buyer and MedE hereby jointly and severally agree to indemnify, defend and hold
Seller and the Stockholder harmless from and against all Damages asserted
against, imposed upon or incurred by Seller or the Stockholder by reason of or
resulting from:
(i) a breach of any representation, warranty or covenant of
Buyer or MedE contained in or made pursuant to this Agreement;
(iii) the failure of Buyer to pay, perform and discharge when
due any Assumed Liabilities;
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(iii) any liabilities or obligations (whether absolute,
accrued, contingent or otherwise) in respect of any action, suit or
proceeding relating to the conduct of the Business by Buyer and based
upon an event occurring or a claim arising after the Closing Date; and
(iv) any liability in respect of any failure by Buyer to
conduct the Business in compliance with any Permit, law, regulation or
order after the Closing Date.
SECTION 6.004. Conditions of Indemnification. The respective
obligations and liabilities of Seller and the Stockholder, on the one hand, and
Buyer and MedE, on the other hand (the "indemnifying parties"), to the others
(the "parties to be indemnified") under Sections 6.02 and 6.03 hereof with
respect to claims resulting from the assertion of liability by third parties
shall be subject to the following terms and conditions:
(a) within 20 days after receipt of notice of commencement of
any action or the assertion in writing of any claim by a third party, the
parties to be indemnified shall give the indemnifying parties written notice
thereof together with a copy of such claim, process or other legal pleading, and
the indemnifying parties shall have the right to undertake the defense thereof
by representatives of its own choosing;
(b) in the event that the indemnifying parties, by the 30th
day after receipt of notice of any such claim (or, if earlier, by the tenth day
preceding the day on which an answer or other pleading must be served in order
to prevent judgment by default in favor of the person asserting such claim),
does not elect to defend against such claim, the parties to be indemnified will
(upon further notice to the indemnifying parties) have the right to undertake
the defense, compromise or settlement of such claim on behalf of and for the
account and risk of the indemnifying parties, subject to the right of the
indemnifying parties to assume the defense of such claim at any time prior to
settlement, compromise or final determination thereof, provided that the
indemnifying parties shall be given at least 15 days prior written notice to the
effectiveness of any such proposed settlement or compromise;
(c) anything in this Section 6.04 to the contrary
notwithstanding (i) if there is a reasonable probability that a claim may
materially and adversely affect the indemnifying parties other than as a result
of money damages or other money payments, the indemnifying parties shall have
the right, at their own cost and expense, to compromise or settle such claim,
but (ii) the indemnifying parties shall not, without the prior written consent
of the party to be indemnified, settle or compromise any claim or consent to the
entry of any judgment which does
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not include as an unconditional term thereof the giving by the claimant or the
plaintiff to the parties to be indemnified a release from all liability in
respect of such claim; and
(d) in connection with any such indemnification, the
indemnified parties will cooperate in all reasonable requests of the
indemnifying parties.
VII. TERMINATION
SECTION 7.001. Termination. This Agreement may be terminated
at any time prior to the Closing Date:
(a) by Buyer, if the conditions set forth in Section 5.01
shall not have been complied with or performed in any material respect
and such noncompliance or nonperformance shall not have been waived,
cured or eliminated (or by its nature cannot be cured or eliminated) by
Seller or the Stockholder on or before November 30, 1997;
(b) by Seller, if the conditions set forth in Section 5.02
shall not have been complied with or performed in any material respect
and such noncompliance or nonperformance shall not have been waived,
cured or eliminated (or by its nature cannot be cured or eliminated) by
Buyer or MedE on or before November 30, 1997; or
(c) by Buyer or Seller, in the event the Closing Date has not
occurred on or prior to the close of business on November 30, 1997 or
such later date as the parties hereto may agree in writing (unless such
event has been caused by the breach of this Agreement by the party
seeking such termination). A failure to satisfy a condition hereunder
(including without limitation a condition set forth in Section 5.01(e)
or 5.01(f) hereof) shall not of itself constitute a breach of this
Agreement.
SECTION 7.002. Effect of Termination. In the event of the
termination of this Agreement pursuant to Section 7.01 hereof, this Agreement
shall thereafter become void and have no effect, and no party hereto shall have
any liability to any other party hereto or its partners or stockholders or
directors or officers in respect thereof, except that nothing herein shall
relieve any party from liability for any willful breach hereof. The terms of the
Non-Disclosure Agreement, dated as of February 24, 1997, between MedE and Seller
shall survive any termination of this Agreement. Without limiting the effect of
said Non-Disclosure Agreement, upon any termination of this Agreement, each of
Buyer and MedE, on the one hand, and Seller and the
37
<PAGE>
Stockholder, on the other hand, (i) shall not use any confidential information
disclosed by the other for its own benefit and (ii) shall promptly return to the
other all documents, papers and other confidential information delivered to such
party by the other at any time prior to the date of such termination.
VIII. MISCELLANEOUS
SECTION 8.001. Specific Performance. Seller and the
Stockholder acknowledge that the acquisition of the Assets is a vital, necessary
and unique part of Buyer's strategic plan, which includes the acquisition and
consolidation of other related businesses, and that any breach of this Agreement
by Seller or the Stockholder could not be adequately compensated by damages.
Buyer and MedE acknowledge that any breach of this Agreement by Buyer or MedE
could not be adequately compensated by damages. Accordingly, each of Buyer and
MedE, on the one hand, and Seller and the Stockholder, on the other hand, shall
be entitled, in the event of a breach of this Agreement by the other, in
addition to any other remedies that it may have, to enforcement of this
Agreement by a decree of specific performance requiring that the other party or
parties fulfill their respective obligations under this Agreement.
SECTION 8.002. Bulk Transfer Laws. Subject to the provisions
of Section 6.03 hereof, Buyer hereby waives compliance by Seller with any
applicable bulk transfer laws, including, without limitation, the bulk transfer
provisions of the Uniform Commercial Code of any state, or any similar statute,
with respect to the transactions contemplated hereby.
SECTION 8.003. Expenses, Etc. Whether or not the transactions
contemplated by this Agreement are consummated, Seller and the Stockholder, on
the one hand, and Buyer and MedE, on the other hand, shall not have any
obligation to pay any of the fees and expenses of the other party incident to
the negotiation, preparation and execution of this Agreement, including the fees
and expenses of counsel, accountants, investment bankers and other experts.
Seller and the Stockholder, on the one hand, and Buyer and MedE, on the other
hand, will indemnify the other and hold the other harmless from and against any
claims for finders fees or brokerage commissions in relation to or in connection
with such transactions as a result of any agreement or understanding between
such indemnifying party and any third party.
SECTION 8.004. Execution in Counterparts. This Agreement may
be executed in one or more counterparts, or by the parties hereto on separate
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
38
<PAGE>
SECTION 8.005. Notices. All notices which are required or may
be given pursuant to the terms of this Agreement shall be in writing and shall
be sufficient in all respects if given in writing and delivered personally,
transmitted by facsimile, sent by nationally recognized overnight courier or
mailed by registered or certified mail postage prepaid, as follows:
If to Seller or to the Stockholder, to:
The Stockton Group, Inc.
125 Venture Blvd.
Spartanburg, South Carolina 29306
Attention: President
Fax: (864) 574-0424
with a copy to:
Parker, Poe, Adams & Bernstein
101 West Saint John Street, Suite 203
Spartanburg, South Carolina 29306
Attention: T. Alexander Evins, Esq.
Fax: (864) 591-2050
If to Buyer or MedE, to:
MedE America Corporation
90 Merrick Avenue, Suite 501
East Meadow, New York 11554
Attention: David M. Goldwin, Esq.
Fax: (516) 542-4508
with a copy to:
Reboul, MacMurray, Hewitt, Maynard & Kristol
45 Rockefeller Plaza
New York, New York 10111
Attention: Mark J. Tannenbaum, Esq.
Fax: (212) 841-5725
or such other address or addresses as Seller and the Stockholder, on the one
hand, or Buyer and MedE, on the other hand, shall have designated by notice to
the other in writing.
SECTION 8.006. Waivers. Seller (acting on behalf of itself and
the Stockholder), on the one hand, and MedE (acting on behalf of itself and
Buyer), on the other hand, may, by written notice to the other, (i) extend the
time for the performance of any of the obligations or other actions of the other
under this Agreement; (ii) waive any inaccuracies in the representations or
warranties of the other contained in this Agreement or in any document delivered
pursuant to this Agreement; (iii) waive
39
<PAGE>
compliance with any of the conditions or covenants of the other contained in
this Agreement; or (iv) waive performance of any of the obligations of the other
under this Agreement. Except as provided in the preceding sentence, no action
taken pursuant to this Agreement, including, without limitation, any
investigation by or on behalf of any party shall be deemed to constitute a
waiver by such party of compliance with any representations, warranties,
covenants or agreements contained in this Agreement. The waiver by any party of
a breach of any provision of this Agreement shall not operate or be construed as
a waiver of any subsequent breach.
SECTION 8.007. Amendments, Supplements, Etc. At any time this
Agreement may be amended or supplemented by such additional agreements, articles
or certificates as may be determined by the parties hereto to be necessary,
desirable or expedient to further the purposes of this Agreement, or to clarify
the intention of the parties hereto, or to add to or modify the covenants, terms
or conditions hereof or to effect or facilitate any governmental approval or
acceptance of this Agreement or to effect or facilitate the filing or recording
of this Agreement or the consummation of any of the transactions contemplated
hereby. Any such instrument must be in writing and signed by all parties.
SECTION 8.008. Entire Agreement. This Agreement, its Exhibits
and Schedules, the Ancillary Agreements and the documents executed on the
Closing Date in connection herewith, constitute the entire agreement among the
parties hereto with respect to the subject matter hereof and supersede all prior
agreements and understandings, oral and written, between the parties hereto with
respect to the subject matter hereof. No representation, warranty, promise,
inducement or statement of intention has been made by any party which is not
embodied in this Agreement or such other documents, and no party shall be bound
by, or be liable for, any alleged representation, warranty, promise, inducement
or statement of intention not embodied herein or therein.
SECTION 8.009. APPLICABLE LAW. THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
SECTION 8.10. Binding Effect; Benefits. This Agreement shall
inure to the benefit of and be binding upon the parties hereto and their
respective successors and assigns. Notwithstanding anything contained in this
Agreement to the contrary, nothing in this Agreement, expressed or implied, is
intended to confer on any person other than the parties hereto or their
respective successors and assigns any rights, remedies, obligations or
liabilities under or by reason of this Agreement.
40
<PAGE>
SECTION 8.11. Assignability. Neither this Agreement nor any of
the parties' rights hereunder shall be assignable by any party hereto without
the prior written consent of the other parties hereto.
41
<PAGE>
IN WITNESS WHEREOF, this Asset Purchase Agreement has been
duly executed and delivered by the parties hereto as of the date first above
written.
GENERAL COMPUTER CORPORATION
By
--------------------------------------
MEDE AMERICA CORPORATION
By
--------------------------------------
THE STOCKTON GROUP, INC.
By
--------------------------------------
--------------------------------------
James S. Smith
42
CERTIFICATE OF INCORPORATION
OF
HIS HOLDINGS CORPORATION
------------------------
FIRST: The name of the Corporation is
HIS HOLDINGS 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 purposes for which the Corporation is formed are
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 stock which the
Corporation shall have authority to issue is 1,000 shares of the par value of
$.01 per share. All such shares shall be of one class and shall be designated
Common Stock.
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
1
<PAGE>
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 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, directors or any
other persons whomsoever by and pursuant to this 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 transac-
2
<PAGE>
tion from which the director derived an improper personal benefit.
IN WITNESS WHEREOF, the undersigned, being the incorporator
hereinabove named, for the purpose of forming a corporation pursuant to the
General Corporation Law of the State of Delaware, does make this Certificate,
hereby declaring, certifying and acknowledging under penalties of perjury that
the facts herein stated are true and that this Certificate is her act and deed,
and accordingly has hereunto set her hand, this 13th day of February, 1995.
--------------------------------
Revital D. Havazelet
Incorporator
3
<PAGE>
Exhibit A
---------
CERTIFICATE OF AMENDMENT
TO
CERTIFICATE OF INCORPORATION
OF
HIS HOLDINGS CORPORATION
--------------------
HIS HOLDINGS CORPORATION, a corporation organized and existing
under the laws of the State of Delaware (the "Corporation"), hereby certifies as
follows:
FIRST: that the following resolutions were duly adopted by
unanimous written consent of the Board of Directors of the Corporation, setting
forth a proposed amendment to the Certificate of Incorporation of the
Corporation; and declaring such amendment to be advisable and directing that
such amendment be submitted to the stockholders of the Corporation for their
approval. The resolutions are as follows:
"RESOLVED that there is hereby adopted an amendment to the
Corporation's amended Certificate of Incorporation pursuant to which
the name of the Corporation shall be changed to MedE America
Corporation, and, in connection with such change, Article FIRST of the
amended Certificate of Incorporation of the Corporation shall be
amended to read in its entirety as follows:
'FIRST: The name of the Corporation is
MedE America Corporation .'
RESOLVED that the Board of Directors declares the foregoing
amendment to the Corporation's amended Certificate of Incorporation to
be advisable and directs that the amendment be submitted to the
stockholders of the Corporation for their approval pursuant to Section
242(b) of the General Corporation Law of the State of Delaware."
SECOND: that the Amendment of the amended Certificate of
Incorporation effected by this Certificate was duly authorized by the holders of
a majority of the outstanding capital stock of the Corporation entitled to vote
thereon, after having been declared advisable by the Board of Directors of the
Corporation, all in accordance with the provisions of Section 228 of the General
Corporation Law of the State of Delaware and that written notice has been given
as provided in such Section.
1
<PAGE>
IN WITNESS WHEREOF, HIS HOLDINGS CORPORATION has caused its
corporate seal to be hereunto affixed and this certificate to be signed by Othon
Prounis, its Assistant Secretary, on this day of March, 1995.
HIS HOLDINGS CORPORATION
By
--------------------------
Othon Prounis
Assistant Secretary
<PAGE>
CERTIFICATE OF AMENDMENT
to
CERTIFICATE OF INCORPORATION
of
MEDE AMERICA CORPORATION
MEDE AMERICA CORPORATION, a corporation organized and existing
under the laws of the State of Delaware (the "Corporation"), hereby certifies as
follows:
FIRST: that the following resolutions were duly adopted by
unanimous written consent of the Board of Directors of the Corporation, setting
forth proposed amendments to the Certificate of Incorporation of the
Corporation; determining that the capital of the Corporation will not be
decreased on account of such amendments; and declaring such amendments to be
advisable and directing that such amendments be submitted to the stockholders of
the Corporation for its approval. The resolutions are as follows:
"RESOLVED, that there is hereby adopted an amendment to the
Corporation's Certificate of Incorporation pursuant to which (i) the
authorized capital stock of the Corporation shall be changed from
40,000 shares Common Stock, $.01 par value, to 25,011,000 shares,
consisting of 11,000 shares of Preferred Stock, $.01 par value, and
25,000,000 shares of Common Stock, $.01 par value, and (ii) the
relative voting, dividend, liquidation, redemption and other rights,
and the qualifications, limitations and restrictions thereof, in
respect of said Preferred Stock and Common Stock shall be restated;
and, in connection with such changes, Article FOURTH of the Certificate
of Incorporation of the Corporation shall be amended to read in its
entirety as follows:
'FOURTH: The total number of shares of all classes of stock
which the Corporation shall have authority to issue is 25,011,000
shares, consisting of 11,000 shares of Preferred Stock, $.01 par value
("Preferred Stock") and 25,000,000 shares of Common Stock, $.01 par
value ("Common Stock").
All cross-references in each subdivision of this Article
FOURTH refer to other paragraphs in such subdivision unless otherwise
indicated.
<PAGE>
The following is a statement of the designations, and the
powers, preferences and rights, and the qualifications, limitations or
restrictions thereof, in respect of each class of stock of the
Corporation:
I.
PREFERRED STOCK
1. Cumulative Dividends. (i) The holders of 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 $8.00 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 March 31.
(ii) In no event, so long as any 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 distribution payable in shares of Common Stock, nor,
without the written consent of the holders of 66 2/3% of the
outstanding 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 Preferred Stock for
all past dividend periods shall have been paid in full.
2. Redemption.
2A. Mandatory Redemptions.
(i) The Corporation shall redeem on March 31, 2000, all shares of
Preferred Stock which shall then be outstanding, at the Redemption
Price (as defined below).
(ii) Upon the consummation of an underwritten public offering pursuant
to an effective registration statement under the Securities Act of
1933, as amended, covering the offering and sale of the Corporation's
Common Stock pursuant to which the Corporation receives aggregate net
proceeds of at least $15 million (after underwriters', brokers' and
deal- ers' fees and commissions and underwriters' discounts and any
other offering expenses required to be disclosed in Part II of the
applicable registration statement) (a "Qualified Public Offering"), the
Corporation shall redeem all then outstanding shares of Preferred Stock
at the Redemption Price.
<PAGE>
2B. Optional Redemptions. The 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 Preferred Stock under this
paragraph 2 shall be referred to as a "Redemption Date." The per share
"Redemption Price" of the 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 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 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 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
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 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 Preferred Stock on a Redemption Date, all
shares of Preferred Stock to be redeemed, purchased or retired shall be
selected pro
<PAGE>
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 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
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 such redemption, for each share of
Preferred Stock held by such holder. If upon such Liquidation, the
assets to be distributed among the holders of Preferred Stock shall be
insufficient to permit payment to the holders of Preferred Stock of
that amount distributable as aforesaid, then the entire assets of the
Corporation to be distributed shall be distributed ratably among the
holders of Preferred Stock. Upon any such Liquidation, after the
holders of the 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 Liquidation, stating a payment date, the aggregate amount of the
payments to which such holder of 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 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 Corporation, shall be
deemed to be a Liquidation.
4. Voting Rights. Except as otherwise provided by law or this
Certificate of Incorporation, the holders of 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 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 Preferred Stock, given in person or by
<PAGE>
proxy, either in writing or at a special meeting called for that
purpose, at which meeting the holders of the shares of 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 Preferred Stock both as to dividends and
as to the distribution of assets on Liquidation, or increase
the authorized amount of the Preferred Stock, or increase the
authorized amount of any additional class of shares unless the
same ranks junior to the Preferred Stock both as to dividends
and as to the distribution of assets on Liquidation, or create
or authorize any obligations or securities convertible into or
exchangeable for shares of Preferred Stock or into shares of
any other class unless the same ranks junior to the 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.
(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' resolutions 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 Preferred Stock or the Common
Stock or which in any manner adversely affects the Preferred
Stock or the Common Stock or the holders thereof.
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.
<PAGE>
2. Voting Rights
Each holder of Common Stock shall be entitled to one vote per
share.'
"RESOLVED that the Board of Directors determines that the
capital of the Corporation will not be decreased on account of the
foregoing amendment, declares the foregoing amendment to the
Corporation's Certificate of Incorporation to be advisable and directs
that the amendment be submitted to the stockholders of the Corporation
for their approval pursuant to Section 242(b) of the General
Corporation Law of the State of Delaware."
SECOND: that the Amendment of the Certificate of Incorporation
effected by this Certificate was duly authorized by the holders of a majority of
the outstanding capital stock of the Corporation entitled to vote thereon, after
first having been declared advisable by the Board of Directors of the
Corporation, all in accordance with the provisions of Section 242 of the
Delaware General Corporation Law.
THIRD: Effective upon the filing of this Certificate of
Amendment with the Secretary of State of Delaware (the "Effective Time") each
(1) share of Common Stock, $.01 par value, of the Corporation issued and
outstanding at the Effective Time shall be reclassified as 611.4568797 shares of
Common Stock, $.01 par value, of the Corporation.
FOURTH: that the capital of the Corporation will not be
reduced under, or by reason of, the foregoing amendments to the Certificate of
Incorporation of the Corporation.
<PAGE>
IN WITNESS WHEREOF, MEDE AMERICA CORPORATION has caused its
corporate seal to be hereunto affixed and this certificate to be signed by Othon
Prounis, its Assistant Secretary, who hereby acknowledges under penalties of
perjury that the facts herein stated are true and that this certificate is his
act and deed, this 31st day of March, 1995.
MEDE AMERICA CORPORATION
By:
------------------------------
Name: Othon Prounis
Title: Assistant Secretary
7
<PAGE>
IN WITNESS WHEREOF, the undersigned, being all the Directors
of the Corporation, have executed this Consent as of this 31st day of March,
1995.
------------------------------
Bruce K. Anderson
------------------------------
Anthony J. deNicola
------------------------------
Thomas E. McInerney
------------------------------
Timothy M. Murray
------------------------------
Dana J. O'Brien
------------------------------
Thomas P. Staudt
3
<PAGE>
MEDE AMERICA CORPORATION
Written Consent of Stockholders
-------------------------------
-------------------------------------------
Pursuant to Section 228(a) of the General
Corporation Law of the State of Delaware
-------------------------------------------
The undersigned, being the holders of a majority of the issued
and outstanding Common Stock, $.01 par value of MedE America Corporation, a
Delaware corporation (the "Corporation"), acting pursuant to Section 228(a) of
the General Corporation Law of the State of Delaware, DO HEREBY CONSENT to the
adoption of, and DO HEREBY ADOPT the resolutions hereinafter set forth with the
same force and effect as if they had been duly adopted at a special meeting of
the stockholders of the Corporation duly called and held for such purpose, and
DO HEREBY DIRECT the Secretary of the Corporation to file this Consent with the
minutes of proceedings of stockholders of the Corporation:
RESOLVED that, pursuant to the General Corporation Law of the
State of Delaware, the Corporation be, and it hereby is, authorized and
empowered, upon the terms and conditions set forth in the proposed
Certificate of Amendment to Certificate of Incorporation of the
Corporation attached as Exhibit A to the Unanimous Written Consent of
the Board of Directors of the Corporation dated as of the date hereof
("the Certificate of Amendment"), to file with the Secretary of the
State of the state of Delaware a certificate of amendment of the
Corporation's Certificate of Incorporation, substantially in the form
of the Certificate of Amendment, with respect to such change;
RESOLVED that the form, terms and provisions of the
Certificate of Amendment, a copy of which has been submitted to the
undersigned stockholders of the Corporation, be, and they hereby are,
in all respects, approved.
1
<PAGE>
IN WITNESS WHEREOF, the undersigned stockholders have executed
this Consent on and as of the 31st day of March, 1995.
WELSH, CARSON, ANDERSON & STOWE V, L.P.
By WCAS V Partners, General Partner
By:
------------------------------------
Name:
General Partner
WCAS CAPITAL PARTNERS II, L.P.
By WCAS CP Partners, General Partner
By:
------------------------------------
Name:
General Partner
WILLIAM BLAIR LEVERAGED CAPITAL
FUND, LIMITED PARTNERSHIP
By
General Partner
By:
------------------------------------
Name:
Title:
PRUDENTIAL VENTURE PARTNERS II
By
General Partner
By:
------------------------------------
Name:
Title:
2
Annex A
-------
================================================================================
AGREEMENT AND PLAN OF MERGER
Between
MEDE AMERICA CORPORATION
and
GENCC HOLDINGS CORPORATION
Dated as of May 17, 1995
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I
THE MERGER
SECTION 1.01 The Merger................................................ 2
SECTION 1.02 Effect of the Merger...................................... 2
SECTION 1.03 Consummation of the Merger................................ 3
SECTION 1.04 Charter; By-Laws; Directors and
Officers.................................................. 3
SECTION 1.05 Further Assurances........................................ 3
ARTICLE II
CONVERSION OF SECURITIES
SECTION 2.01 Conversion of Securities of
the Company............................................... 4
SECTION 2.02 Stock Options, Warrants, Etc.............................. 4
SECTION 2.03 Conversion of Securities of
GENCC..................................................... 5
SECTION 2.04 Election Procedures....................................... 5
SECTION 2.05 Fractional Interests...................................... 6
SECTION 2.06 Dissenting Shares......................................... 6
SECTION 2.07 Surrender and Exchange of Shares.......................... 7
SECTION 2.08 Dissenting Shares After
Payment of Fair Value..................................... 7
SECTION 2.09 Closing of Stock Transfer Books........................... 7
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.01 Representations and Warranties of
the Company and GENCC .................................... 7
<PAGE>
ARTICLE IV
COVENANTS
SECTION 4.01 Certain Covenants......................................... 13
SECTION 4.02 Proxy Statement/Offering Memorandum....................... 13
SECTION 4.03 Other Agreements.......................................... 13
SECTION 4.04 Notification of Certain Matters........................... 14
SECTION 4.05 Consents.................................................. 14
ARTICLE V
CONDITIONS PRECEDENT TO THE MERGER
SECTION 5.01 Conditions Precedent to the Merger
Relating to the Company .................................. 14
SECTION 5.02 Conditions Precedent to the Merger
Relating to GENCC..........................................16
ARTICLE VI
TERMINATION AND ABANDONMENT
SECTION 6.01 Termination and Abandonment............................... 18
SECTION 6.02 Effect of Termination..................................... 18
ARTICLE VII
MISCELLANEOUS
SECTION 7.01 Expenses, Etc............................................. 19
SECTION 7.02 Publicity................................................. 19
SECTION 7.03 Execution in Counterparts................................. 19
SECTION 7.04 Notices................................................... 19
SECTION 7.05 Waivers................................................... 20
SECTION 7.06 Amendments, Supplements, Etc. .............................20
SECTION 7.07 Entire Agreement.......................................... 21
SECTION 7.08 Applicable Law............................................ 21
SECTION 7.09 Binding Effect, Benefits.................................. 21
SECTION 7.10 Assignability............................................. 21
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INDEX TO SCHEDULES AND EXHIBITS
Schedule Description
- -------- -----------
I Stockholders of the Constituent
Corporations
3.01(b) Subsidiaries
5.01(e) Consents to be Obtained by GENCC
5.02(e) Consents to be Obtained by the
Company
Exhibit ss. Ref. Description
------- -------- -----------
A 3.01(c)(i) Form of Certificate of Merger
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of May 17, 1995,
between MEDE AMERICA CORPORATION, a Delaware corporation (the "Company"), and
GENCC HOLDINGS CORPORATION, a Delaware corporation ("GENCC"). The Company and
GENCC are hereinafter sometimes referred to as the "Constituent Corporations"
and the Company as the "Surviving Corporation."
WHEREAS, the Company and GENCC desire that GENCC merge with
and into the Company (the "Merger"), upon the terms and subject to the
conditions set forth herein and in accordance with the General Corporation Law
of the State of Delaware (the "Dela- ware GCL") with the result that the Company
shall continue as the surviving corporation and the separate existence of GENCC
(except as it may be continued by operation of law) shall cease; and
WHEREAS, the Company and GENCC desire that upon the Merger, at
the Effective Time (as hereinafter defined) (i) all outstanding shares of Common
Stock, $.01 par value, of GENCC ("GENCC Common Stock"), and all outstanding
shares of Preferred Stock, $.01 par value, of GENCC ("GENCC Preferred Stock")
(excluding any shares of capital stock of GENCC held in the treasury of GENCC)
be converted into the right to receive, as to a portion thereof, a cash payment,
and as to the balance thereof, units consisting of fully paid and nonassessable
shares of Common Stock, $.01 par value, of the Surviving Corporation ("Surviving
Corporation Common Stock"), and fully paid and non-assessable shares of
Preferred Stock, $.01 par value, of the Surviving Corporation ("Surviving
Corporation Preferred Stock"), together with cash in lieu of fractional
interests, and (ii) all outstanding shares of Common Stock, $.01 par value, of
the Company (the "Company Common Stock") (excluding Dissenting Shares (as
hereinafter defined)) be converted into the right to receive, at the election of
the holder, either (i) a cash payment or (ii) units (the "Units"), each
consisting of (y) one-half of one share of fully paid and nonassessable shares
of Surviving Corporation Common Stock and (z) five one-thousandths of a share of
fully paid and nonassessable shares of Surviving Corporation Preferred Stock,
together with cash in lieu of fractional interests, as hereinafter provided; and
WHEREAS, all the outstanding shares of GENCC Common Stock and
all outstanding shares of GENCC Preferred Stock are held by Welsh, Carson,
Anderson & Stowe V, L.P. and certain of its affiliates (collectively, "WCAS")
and certain of such WCAS holders are also holders of shares of Company Common
Stock;
WHEREAS, as soon as practicable after the date hereof, the
Company shall circulate a Proxy Statement/Offering Memorandum, (the
"Proxy/Offering Memorandum"), in which the Company
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shall offer to sell, pursuant to a Subscription Agreement (the "Subscription
Agreement") to be consummated contemporaneously with the Effective Time,
additional Units ("Additional Units") to certain stockholders of the Company who
qualify as "accredited investors" (within the meaning of Rule 501 under the
Securities Act of 1933, as amended (the "Securities Act")) (offerees who so
subscribe being referred to as the "Participants") which would permit each
Participant to maintain the same percentage ownership of the Surviving
Corporation as it currently has in the Company; and
WHEREAS, the respective Boards of Directors of the
Company and GENCC have approved the Merger; and
WHEREAS, in connection with the Merger, William Blair
Leveraged Capital Fund, Limited Partnership, the members of WCAS who hold
Company Common Stock and GENCC (as holder of 100% of the outstanding shares of
Preferred Stock, $.01 par value, of the Company ("Company Preferred Stock")),
have entered into a Merger Consideration Election Agreement (the "Election
Agreement"), pursuant to which they have agreed to vote in favor of the Merger
and to elect to receive Units in exchange for all the shares of Company Common
Stock held by them at the Effective Time.
NOW, THEREFORE, in consideration of the mutual
representations, warranties, covenants, agreements and conditions contained
herein, and in order to set forth the terms and conditions of the Merger and the
mode of carrying the same into effect, the parties hereto hereby agree as
follows:
ARTICLE I
THE MERGER
SECTION 1.011 The Merger. Subject to the terms and conditions
of this Agreement, at the Effective Time, in accordance with this Agreement and
the Delaware GCL, GENCC shall be merged with and into the Company, the separate
existence of GENCC (except as it may be continued by operation of law) shall
cease, and the Company shall continue as the surviving corporation under the
corporate name of "MedE America Corporation."
SECTION 1.012 Effect of the Merger. Upon the effectiveness of
the Merger, the Surviving Corporation shall possess all the rights, privileges,
powers and franchises, as well of a public as of a private nature, and be
subject to all the restrictions, disabilities and duties, of each of the
Constituent Corporations; and all and singular, the rights, privileges, powers
and franchises of each of the Constituent Corporations,
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and all property, real, personal and mixed, and all debts due to any of the
Constituent Corporations on whatever account, as well for stock subscriptions as
all other things in action or belonging to each of the Constituent Corporations,
shall be vested in the Surviving Corporation; and all property, rights,
privileges, powers and franchises, and all and every other interest shall be
thereafter as effectually the property of the Surviving Corporation as they were
of the Constituent Corporations, and the title to any real estate vested by deed
or otherwise in any of the Constituent Corporations shall not revert or be in
any way impaired by reason of the Merger; but all rights of creditors and all
liens upon any property of any of the Constituent Corporations shall be
preserved unimpaired, and all debts, liabilities and duties of the Constituent
Corporations shall thenceforth attach to the Surviving Corporation, and may be
enforced against it to the same extent as if said debts, liabilities and duties
had been incurred or contracted by it.
SECTION 1.013 Consummation of the Merger. As soon as
practicable after the satisfaction or waiver of the conditions to the
obligations of the parties to effect the Merger set forth herein, provided that
this Agreement has not been terminated previously, the parties hereto will cause
the Merger to be consummated by filing with the Secretary of State of the State
of Delaware a properly executed Certificate of Merger (the time of such filing
being the "Effective Time").
SECTION 1.014 Charter; By-Laws; Directors and Officers. The
Certificate of Incorporation of the Surviving Corporation from and after the
Effective Time shall be the Certificate of Incorporation of the Company, as
amended by the Certificate of Merger (as hereinafter defined) and in effect
immediately prior to the Effective Time, until thereafter amended in accordance
with the provisions thereof and as provided by the Delaware GCL. The By-laws of
the Surviving Corporation from and after the Effective Time shall be the By-laws
of the Company as in effect immediately prior to the Effective Time, continuing
until thereafter amended in accordance with the provisions thereof and the
Certificate of Incorporation of the Surviving Corporation and as provided by the
Delaware GCL. The initial directors and officers of the Surviving Corporation
shall be the directors and officers, respectively, of the Company immediately
prior to the Effective Time, in each case until their respective successors are
duly elected and qualified.
SECTION 1.015 Further Assurances. If at any time after the
Effective Time the Surviving Corporation shall consider or be advised that any
deeds, bills of sale, assignments or assurances or any other acts or things are
necessary, desirable or proper (a) to vest, perfect or confirm, of record or
otherwise, in the Surviving Corporation, its right, title or interest in, to or
under any of the rights, privileges, powers, fran-
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chises, properties or assets of either of the Constituent Corporations, or (b)
otherwise to carry out the purposes of this Agreement, the Surviving Corporation
and its proper officers and directors or their designees shall be authorized to
execute and deliver, in the name and on behalf of either of the Constituent
Corporations, all such deeds, bills of sale, assignments and assurances and do,
in the name and on behalf of such Constituent Corporation, all such other acts
and things necessary, desirable or proper to vest, perfect or confirm its right,
title or interest in, to or under any of the rights, privileges, powers,
franchises, properties or assets of such Constituent Corporation and otherwise
to carry out the purposes of this Agreement.
ARTICLE II
CONVERSION OF SECURITIES
SECTION 2.021 Conversion of Securities of the Company. By
virtue of the Merger and without any action on the part of the holders of the
capital stock of the Company, at the Effective Time, all outstanding shares of
the capital stock of the Company (other than Dissenting Shares and outstanding
shares of Company Preferred Stock (which shall be canceled as provided in
paragraph (b) below)) shall be converted into the right to receive either the
MedE Stock Consideration or the MedE Cash Consideration (as each such term is
hereinafter defined), as follows:
(a) Company Common Stock. Each share of Company Common Stock
issued and outstanding immediately prior to the Effective Time (other than
Dissenting Shares) shall be converted into the right to receive either (i) $1.00
in cash, without interest (the "MedE Cash Consideration") or (ii) a Unit
consisting of (x) one-half (.5) of one fully paid and nonassessable share of
Surviving Corporation Common Stock and (y) five one- thousandths (.005) of one
fully paid and nonassessable share of Surviving Corporation Preferred Stock,
together with cash in lieu of fractional interests in such shares as provided in
Section 2.05(c) hereof (collectively, the "MedE Stock Consideration"), in each
case, as the holder thereof shall have elected, or be deemed to have elected, in
accordance with Section 2.04 hereof.
(b) Company Preferred Stock. Each share of Company Preferred
Stock issued and outstanding immediately prior to the Effective Time shall be
canceled and retired, and no capital stock of the Company, cash or other
consideration shall be paid or delivered in exchange therefor.
SECTION 2.022 Stock Options, Warrants, Etc. At the Effective
Time, the terms and provisions of each outstanding stock option, warrant or
other right to purchase Company Common Stock shall continue in full force and
effect and the holder
4
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thereof shall be entitled to receive, upon the exercise thereof and subject to
such other terms and provisions, a number of shares of Surviving Corporation
Common Stock equal to the number of shares of Company Common Stock that would
have been issued if such option, warrant or other right had been exercised
immediately prior to the Effective Time.
SECTION 2.023 Conversion of Securities of GENCC.
(a) GENCC Common Stock and GENCC Preferred Stock. At the
Effective Time, each unit (a "GENCC Unit") consisting of ten (10) shares of
GENCC Common Stock and one (1) share of GENCC Preferred Stock, in each case,
issued and outstanding immediately prior to the Effective Time shall, by virtue
of the Merger, automatically and without any action on the part of the holder
thereof, be converted into the right to receive either (x) $200 in cash, without
interest (the "GENCC Cash Consideration") or (y) shares of the capital stock of
the Surviving Corporation at a rate of 200 Units (the "GENCC Stock
Consideration"). GENCC Units shall be converted into the right to receive the
GENCC Cash Consideration to the extent only that the Surviving Corporation shall
have allocated cash to the payment thereof, and the remain- ing GENCC Units
shall be converted into GENCC Stock Consider- ation. The Surviving Corporation
shall allocate cash to the payment of GENCC Cash Consideration in respect of
GENCC Units in an amount equal to the excess of (i) the aggregate cash proceeds
received by the Surviving Corporation as of the Effective Time from the sale of
Additional Units pursuant to Subscription Agreements, over (ii) the sum of (a)
the total Mede Cash Consid- eration to be paid pursuant to Section 2.01(a)(i)
hereof and (b) $5 million. Prior to the Effective Time, the Company shall
confirm in writing to each holder of GENCC Units the amount of GENCC Cash
Consideration and GENCC Stock Consideration to be received by such holder in the
Merger.
SECTION 2.024 Election Procedures. (a) Prior to the Effective
Time, each holder of shares of Company Common Stock (other than Dissenting
Shares, if any) shall elect, in accordance with Section 2.04(b) hereof, to
receive in the Merger either the MedE Cash Consideration or the MedE Stock
Consideration in exchange for such shares. Shares of Company Common Stock in
respect of which the holder does not submit an effective notice of election
shall be deemed by the Company to be shares in respect of which the holder has
elected to receive the MedE Stock Consideration.
(b) Elections shall be made by notice given to the
Company in a form to be provided by the Company for that purpose to holders of
Company Common Stock, at the time of mailing to such holders of the
Proxy/Offering Memorandum. To be effective, a notice of election must be
properly completed as provided in the form of notice included in the
Proxy/Offering Memorandum,
5
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signed and submitted to the Company at the office designated on the form of
notice so provided, on or before the deadline specified therein, which shall be
no less than seven (7) days after the date on which the Proxy/Offering
Memorandum is mailed by the Company to stockholders of the Company.
SECTION 2.025 Fractional Interests. No certificates
representing fractional shares of Surviving Corporation Common Stock or
Surviving Corporation Preferred Stock shall be issued in connection with the
Merger, and such fractional interests will not entitle the owner thereof to any
rights of a stockholder of the Surviving Corporation. In lieu of any such
fractional interests, each holder of shares of Company Common Stock exchanged
pursuant to Section 2.01(a) who would otherwise have been entitled to receive a
fraction of a share of Surviving Corporation Common Stock or Surviving
Corporation Preferred Stock (after taking into account all shares of Company
Common Stock then held of record by such holder) shall receive (a) cash (without
interest) in an amount equal to the product of such fractional part of a share
of Surviving Corporation Common Stock or Surviving Corporation Preferred Stock,
as the case may be, multiplied by $1.00 and $100, respectively.
SECTION 2.026 Dissenting Shares. Notwithstanding anything in
this Agreement to the contrary, shares of capital stock of the Company that are
outstanding immediately prior to the Effective Time and that are held by
stockholders who have not voted such shares in favor of the approval and
adoption of this Agreement and who shall have delivered a written demand for
appraisal of such shares in the manner provided in Section 262 of the Delaware
GCL ("Dissenting Shares") shall not be converted into or be exchangeable for the
right to receive the MedE Cash Consideration or the MedE Stock Consideration, as
provided in Section 2.01 of this Agreement, but the holders of such shares shall
be entitled to payment of the appraised value of such shares in accordance with
the provisions of Section 262 of the Delaware GCL; provided, however, that (i)
if any holder of Dissenting Shares shall subsequently deliver a written
withdrawal of his demand for appraisal of such shares (with the written approval
of the Surviving Corporation, if such withdrawal is not tendered within 60 days
after the Effective Time), or (ii) if any holder fails to perfect or loses his
appraisal rights as provided in Section 262 of the Delaware GCL, or (iii) if any
holder of Dissenting Shares fails to demand payment within the time period
provided in Section 262 of the Delaware GCL, such holder or holders (as the case
may be) shall forfeit the right to appraisal of such shares and such shares
shall thereupon be deemed to have been converted into and to have become
exchangeable for, as of the Effective Time, the right to receive MedE Stock
Consideration as provided in Section 2.01 of this Agreement.
6
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SECTION 2.027 Surrender and Exchange of Shares. (a) At the
Effective Time, each holder of an outstanding certificate or certificates, which
prior thereto represented shares of Company Common Stock, GENCC Common Stock or
GENCC Preferred Stock shall surrender the same to the Surviving Corporation, and
each such holder shall be entitled upon such surrender to receive in exchange
therefor, without cost to it, the amount of MedE Cash Consideration, MedE Stock
Consideration, GENCC Cash Consideration or GENCC Stock Consideration, as
applicable, into which the shares theretofore represented by the certificate so
surrendered shall have been converted as provided in Section 2.01 and 2.03
hereof, and the certificate or certificates so surrendered in exchange for such
consideration shall forthwith be canceled by the Surviving Corporation.
(b) If a holder of shares of Company Common Stock, GENCC
Common Stock or GENCC Preferred Stock has lost the certificate evidencing such
shares owned by such holder, then such holder shall submit an affidavit
describing the lost certificate, the number of shares evidenced thereby and
affirming the loss of that certificate in lieu of surrendering the lost
certificate to the Surviving Corporation, which shall deem such lost certificate
canceled. Until so surrendered, the outstanding certificates that, prior to the
Effective Time, represented shares of the capital stock of the Company or GENCC
that shall have been converted as aforesaid shall be deemed for all corporate
purposes, except as hereinafter provided, to evidence the ownership of the
consideration into which such shares have been so converted.
SECTION 2.028 Dissenting Shares After Payment of Fair Value.
Dissenting Shares, if any, after payments of fair value in respect thereto have
been made to dissenting stockholders of the Company pursuant to the Delaware
GCL, shall be canceled.
SECTION 2.029 Closing of Stock Transfer Books. At and after
the Effective Time there shall be no transfers on the stock transfer books of
the Company or GENCC of shares of capital stock of the Company or GENCC that
were issued and outstanding immediately prior to the Effective Time.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.031 Representations and Warranties of the Company
and GENCC. Each of the Company and GENCC (being hereinafter referred to,
collectively, as the "Merger Parties" and, individually, as a "Merger Party")
represents and warrants, only as to itself and its subsidiaries to the other
Merger Party as follows:
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(a) Organization, Power, Etc. (i) Such Merger Party is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware, is duly qualified or licensed and is in good standing
to do business as a foreign corporation in each jurisdiction in which the
property owned, leased or operated by it or the nature of its business, as now
being conducted, makes such qualification or licensing necessary (other than any
such jurisdictions in which the failure to be so qualified would not, in the
aggregate, have a material adverse effect on its business, properties or
condition (financial or other)), and has all requisite corporate power and
authority to own, operate and lease its properties and to carry on its business
as now being conducted and to execute, deliver and perform this Agreement.
(b) Subsidiaries. Except as set forth in Schedule 3.01(b)
hereto, in Part I thereof in the case of the Company and in Part II thereof in
the case of GENCC, neither such Merger Party nor any of its subsidiaries owns of
record or beneficially, directly or indirectly, (i) any shares of outstanding
capital stock or securities convertible into capital stock of any other
corporation or (ii) any participating interest in any partnership, joint venture
or other non-corporate business enterprise. Each subsidiary of such Merger Party
is a corporation duly organized, validly existing and in good standing under the
laws of its jurisdiction of incorporation and has all requisite corporate power
and authority to own, operate or lease its properties and to carry on its
business as it is now being conducted. Each such subsidiary is duly qualified or
licensed and is in good standing to do business as a foreign corporation in each
jurisdiction in which the property owned, leased or operated by it or the nature
of its business as now being conducted makes such qualification or licensing
necessary (other than any such jurisdiction in which the failure to be so
qualified would not, in the aggregate, have a material adverse effect on the
business, properties or condition (financial or other) of such Merger Party and
its subsidiaries, taken as a whole). All the outstanding shares of capital stock
of such Merger Party's subsidiaries are validly issued, fully paid and
nonassessable and are owned by such Merger Party or by a wholly-owned subsidiary
of such Merger Party, free and clear of any liens, claims, charges or
encumbrances, and there are no irrevocable proxies outstanding with respect to
any such shares. For purposes of this Agreement, the term "subsidiary" shall
mean any corporation or other business entity a majority of the outstanding
voting stock of which is entitled to vote for the election of directors is at
the time owned by such Merger Party and/or one or more other subsidiaries.
(c) Capitalization. (i) The authorized capital stock of the
Company consists of 25,000,000 shares of Common Stock,
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$.01 par value, and 11,000 shares of Preferred Stock, $.01 par value, of which
20,000,000 shares of such Common Stock and 11,000 shares of such Preferred Stock
are issued and outstanding, fully paid and nonassessable and 2,500,000 shares of
the Company Common Stock are reserved for issuance under the stock option and
restricted stock purchase plan of the Company. After filing the Certificate of
Merger with the Secretary of State of the State of Delaware, in the form
attached hereto as Exhibit A (the "Certificate of Merger"), the authorized
capital stock of the Surviving Corporation will consist of 24,000,000 shares of
Surviving Corporation Common Stock and 215,000 shares of Surviving Corporation
Preferred Stock.
(ii) The authorized capital stock of GENCC consists of 2,750,000
shares of Common Stock, $.01 par value, and 125,000 shares of Preferred Stock,
$.01 par value, of which 1,150,000 shares of such Common Stock and 115,000
shares of such Preferred Stock are issued and outstanding, fully paid and
nonassessable.
(iii) Schedule I hereto, in Part I thereof in the case of the
Company and Part II thereof in the case of GENCC, contains a true and complete
list of all the holders of shares of capital stock of such Merger Party and
their respective share holdings, and all outstanding options, warrants, calls or
other rights to subscribe for or purchase or acquire from such Merger Party, or
any plans, contracts or commitments providing for the issuance of, or the
granting of rights to acquire (i) any capital stock of such Merger Party or (ii)
any securities convertible into or exchangeable for any capital stock of such
Merger Party. Except as set forth in said Schedule I, such Merger Party is not
contractually obligated to repurchase, redeem or otherwise acquire any of its
outstanding shares of capital stock or options to acquire such stock and, except
for the Election Agreement, there are no agreements among the stockholders of
such Merger Party regarding the voting of securities of such Merger Party.
(d) Authorization of Agreements, Etc. (i) The execution,
delivery and performance by such Merger Party of this Agreement, and the
consummation by it of the transactions contemplated hereby have been duly and
effectively authorized by all requisite corporate action. This Agreement
constitutes the legal, valid and binding obligation of such Merger Party,
enforceable against such Merger Party in accordance with its terms subject, as
to enforcement of remedies, to applicable bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and other similar laws affecting the
enforcement of creditors' rights in general and to general principles of equity,
regardless of whether enforcement is sought in a proceeding in equity or at law.
(ii) The issuance and delivery by the Company of the shares of the
Surviving Corporation Common Stock and the Surviv-
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ing Corporation Preferred Stock upon the consummation of the Merger at the
Effective Time, as contemplated herein, have been duly and effectively
authorized by all requisite corporate action, and such shares, when issued and
delivered in accordance with this Agreement, will be validly issued and
outstanding, fully paid and nonassessable shares of Surviving Corporation Common
Stock and Surviving Corporation Preferred Stock, as the case may be. The
issuance and delivery of the shares of Surviving Corporation Common Stock and
Surviving Corporation Preferred Stock, under the circumstances contemplated by
this Agreement, are not subject to any preemptive rights of stockholders of the
Company or to any right of first refusal or other similar right in favor of any
person and are exempt from the registration requirements of the Securities Act.
(e) Effect of Agreements. The execution and delivery by such
Merger Party of this Agreement, and performance by it of its obligations
hereunder will not violate, in any material respect, any provision of any
statute or regulation, the Certificate of Incorporation or By-laws of such
Merger Party or any of its subsidiaries or any order of any court or other
agency of government, or any judgment, award or decree or any indenture,
agreement or other instrument to which such Merger Party or any of its
subsidiaries is a party, or by which such Merger Party or any of its
subsidiaries or any of their respective properties or assets is bound, or
conflict with in any material respect, result in a material breach of or
constitute (with due notice or lapse of time or both) a material default under,
any such indenture, or any agreement or other instrument, or result in the
creation or imposition of any lien, charge, security interest or encumbrance of
any nature whatsoever upon any of the material properties or assets of such
Merger Party and its subsidiaries, taken as a whole.
(f) Financial Statements. (i) The Company has furnished to
GENCC: (A) the unaudited consolidated statement of financial position of the
Company and its subsidiaries as of February 28, 1995 and the related statements
of operations for the eight months then ended, certified by the principal
financial officer of the Company.
(ii) GENCC has furnished to the Company: (A) the consolidated
statements of the financial position of General Computer Corporation ("GCC") and
its subsidiaries for each of the three fiscal years ended May 31, 1992, 1993 and
1994 and the related statements of operations, changes in stockholders' equity
and cash flows for the fiscal years then ended, certified by KPMG Peat Marwick,
LLP, the independent public accountants then retained by GCC and (B) the
unaudited consolidated balance sheet of GCC as of November 30, 1994, and the
related unaudited statements of operations, change in stockholders' equity and
cash flows for
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the six months then ended, certified by the principal financial officer of GCC.
(iii) All such financial statements of such Merger Party
(including any related schedules and/or notes, if any) have been prepared in
accordance with generally accepted accounting principles consistently applied
and consistent with prior periods, except that such interim statements are
subject to year end adjustments (which consist of normal recurring accruals) and
do not contain footnote disclosures. Except as set forth in Schedule 3.01(f)
hereto, in Part I thereof in the case of the Company and Part II thereof in the
case of GCC, each of such statements of financial position of the Company and
its subsidiaries or GCC, as the case may be, fairly present in all material
respects the financial position of the applicable Merger Party and its
subsidiaries as of their respective dates, and such statements of operations,
changes in stockholders' equity and cash flows fairly present in all material
respects the results of operations of the applicable Merger Party and its
subsidiaries for the respective periods then ended, subject, in the case of
unaudited financial statements, to normal year-end adjustments and the absence
of footnote disclosure. Except (i) as set forth in the financial statements of
such Merger Party and its subsidiaries, (ii) as incurred in the ordinary course
of business and consistent with past practice, or (iii) as set forth on said
Schedule 3.01(f), to such Merger Party's knowledge, such Merger Party and its
subsidiaries have not incurred any material liabilities or obligations of any
kind or nature, whether known or unknown (whether absolute, secured, contingent
or otherwise) and whether due or to become due since February 28, 1995, in the
case of the Company and its subsidiaries, and since November 30, 1994, in the
case of GCC and GENCC.
(g) Absence of Certain Changes or Events. Except as otherwise
set forth in Schedule 3.01(g) hereto, in Part I thereof in the case of the
Company and Part II thereof in the case of GENCC, since February 28, 1995, in
the case of the Company and its subsidiaries, and since November 30, 1994, in
the case of GCC and GENCC, neither such Merger Party nor any of its subsidiaries
has:
(i) incurred any obligation or liability (fixed or
contingent), except normal trade or business obligations incurred in
the ordinary course of business and consistent with past practice, none
of which, individually or in the aggregate, is materially adverse, and
except in connection with this Agreement and the transactions
contemplated hereby;
(ii) discharged or satisfied any lien, security interest, charge or
other encumbrance or paid any obligation or
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liability (fixed or contingent), other than in the ordinary course of
business and consistent with past practice;
(iii) mortgaged, pledged or subjected to any lien, security
interest, charge or other encumbrance any of its assets or properties
with a value in excess of $100,000 (other than mechanic's,
materialman's and similar statutory liens arising in the ordinary
course of business and purchase money security interests arising as a
matter of law between the date of delivery and payment);
(iv) transferred, leased or otherwise disposed of any of its assets
or properties except for a fair consideration in the ordinary course of
business and consistent with past practice or, except in the ordinary
course of business and consistent with past practice, acquired any
assets or properties;
(v) authorized, declared or paid any dividend or made any
other distribution on or in respect of any class of its capital stock
or established a record date for any of the foregoing;
(vi) canceled or compromised any debt or claim greater than
$100,000 individually, other than in the ordinary course of business
consistent with past practice;
(vii) waived or released any rights of material value;
(viii) transferred or granted any rights under any concessions,
leases, licenses, agreements, patents, inventions, trademarks, trade
names, servicemarks or copyrights or with respect to any know-how other
than in the ordinary course of business consistent with past practice;
(ix) made or granted any wage or salary increase applicable to any
group or classification of employees generally, entered into any
employment contract with, or made any loan to, or entered into any
material transaction of any other nature with, any officer or employee
of such Merger Party or any of its subsidiaries or affiliates;
(x) entered into any transaction, contract or commitment that,
individually or in the aggregate, are material, except (A) contracts
listed, or which pursuant to the terms hereof are not required to be
listed, on Schedule 3.01(i) hereto, (B) this Agreement and the
transactions contemplated hereby and (C) as permitted by Section 4.01
hereof;
(xi) suffered any casualty loss or damage (whether or not such
loss or damage shall have been covered by insur-
12
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ance) which affects in any material respect its ability to conduct
its business; or
(xii) suffered any material adverse change in its business,
operations or condition (financial or other).
ARTICLE IV
COVENANTS
SECTION 4.01 Certain Covenants. During the period from the
date of this Agreement to the Effective Time, each Merger Party will conduct its
business and operations in the ordinary course consistent with past practice and
use its reasonable efforts to preserve its relationships with business partners,
suppliers, employees and customers. Without limiting the generality of the
foregoing, except as otherwise contemplated by this Agreement, each of the
parties hereto agrees that, from and after the date of this Agreement and until
the Effective Time, without the prior written consent of the other party hereto,
it will not, nor will it permit any of its Subsidiaries to, do any of the acts
or things of the kind described in Section 3.01(g) above.
SECTION 4.02 Proxy/Offering Memorandum. (a) As soon as
reasonably practicable following the execution and delivery of this Agreement,
the Company shall prepare the Proxy/Offering Memorandum with respect to the
Subscription Agreement and the Merger and the shares of Surviving Corporation
Common Stock and Surviving Corporation Preferred Stock to be issued pursuant to
the Subscription Agreement and in the Merger. GENCC shall cooperate fully with
the Company in the preparation of the Proxy/Offering Memorandum and any
amendments and supplements thereto. The Proxy/Offering Memorandum shall not be
distributed and no amendment or supplement thereto shall be made by the Company,
without the prior consent of GENCC and its counsel.
(b) As soon as reasonably practical following the execution
and delivery of this Agreement, GENCC shall solicit the written consent of its
stockholders to approve and adopt this Agreement and the Merger and for such
other purposes as many be necessary and desirable.
SECTION 4.03 Other Agreements. Subject to the terms and
conditions herein provided, each of the parties hereto agrees to use all
reasonable efforts to take, or cause to be taken, all action and to do, or cause
to be done, all things necessary, proper or advisable to consummate and make
effective as promptly as practicable the transactions contemplated by this
Agreement, including, without limitation, using all reasonable efforts to obtain
all necessary waivers, consents and approvals and to
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effect all necessary registrations and filings and submissions of information
requested by governmental authorities.
SECTION 4.044 Notification of Certain Matters. Each party
shall give prompt notice to the other party hereto of (i) the occurrence, or
failure to occur, of any event which such party believes would be likely to
cause any of its representations or warranties contained in this Agreement to be
untrue or inaccurate at any time from the date hereof to the Effective Time and
(ii) any failure of such party, or of any officer, director, employee or agent
thereof, to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it hereunder; provided, however, that failure to
give such notice shall not constitute a waiver of any defense that may be
validly asserted.
SECTION 4.045 Consents. Each party will use its reasonable
efforts to obtain the written consents of all persons and governmental
authorities required to be obtained by such party and necessary to the
consummation of the transactions contemplated by this Agreement.
ARTICLE V
CONDITIONS PRECEDENT TO THE MERGER
SECTION 5.051 Conditions Precedent to the Merger Relating to
the Company. The obligations of the Company to effect the Merger are subject to
the satisfaction (or, at its option, the waiver (except that the conditions
contained in paragraphs d, e, f, g, and h may not be waived) at or prior to the
Effective Time of each of the following conditions:
(a) Accuracy of Representations and Warranties. The
representations and warranties of GENCC contained in this Agreement or in any
certificate or document delivered to the Company pursuant hereto shall be true
and correct on and as of the Effective Time as though made at and as of that
date, and GENCC shall have delivered to the Company a certificate to that
effect.
(b) Compliance with Covenants. GENCC shall have performed and
complied with all terms, agreements, covenants and conditions of this Agreement
to be performed or complied with by them at or prior to the Effective Time, and
GENCC shall have delivered to the Company a certificate to that effect.
(c) All Proceedings to Be Satisfactory. All proceedings to be
taken by GENCC in connection with the transactions contemplated hereby and all
documents incident thereto shall be reasonably satisfactory in form and
substance to the Company and its counsel, and the Company and said counsel shall
have received
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<PAGE>
all such counterpart originals or certified or other copies of such documents as
it or they may reasonably request.
(d) Legal Actions or Proceedings. No legal action or
proceeding shall have been instituted or threatened seeking to restrain,
prohibit, invalidate or otherwise affect the consummation of the transactions
contemplated hereby or which would, if adversely decided, have a material
adverse affect on the business, properties or condition (financial or other) or
prospects of GENCC and its subsidiaries.
(e) Consents. The applicable waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act") shall have
expired and the other consents and actions set forth in Schedule 5.01(e) hereto
shall have been obtained or consummated, as the case may be.
(f) Stockholder Approval. This Agreement and the Merger shall
have been approved and adopted by the stockholders of the Company and GENCC in
accordance with the Delaware GCL and their respective Certificates of
Incorporation and By-laws.
(g) Subscription Agreement. The Subscription Agreement shall
have been executed and delivered by the parties thereto and each of the parties
thereto shall have consummated the transactions contemplated thereby.
(h) The Certificate of Merger. Certificate of Merger shall
have been filed with the Secretary of State of Delaware.
(i) Supporting Documents. On or prior to the Effective Time,
the Company and its counsel shall have received copies of the following
supporting documents:
(i) (1) copies of the Certificate of Incorporation of GENCC
and all amendments thereto, certified as of a recent date by the
Secretary of State of the State of Delaware, and (2) a certificate of
said Secretary dated as of a recent date as to the due incorporation
and good standing of GENCC and listing all documents of GENCC on file
with said Secretary, and (3) confirmation from said Secretary as of the
close of business on the next business day preceding the Effective Time
as to the continued good standing of GENCC and to the effect that no
amendment to its Certificate of Incorporation has been filed since the
date of the certificate referred to in clause (2) above; and
(ii) a certificate of the Secretary or an Assistant Secretary of
GENCC dated the Effective Time and certifying: (1) that attached
thereto is a true and complete copy of the By-laws of GENCC as in
effect on the date of such certification; (2) that attached thereto is
a true and complete copy
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<PAGE>
of the resolutions adopted by the Board of Directors and the
stockholders of GENCC authorizing the execution, delivery and
performance of this Agreement and the Merger and that all such
resolutions are still in full force and effect and are all the
resolutions adopted in connection with the transactions contemplated by
this Agreement; (3) that the Certificate of Incorporation of GENCC has
not been amended since the date of the last amendment referred to in
the certificate delivered pursuant to clause (i)(2) above; and (4) as
to the incumbency and specimen signature of each officer of GENCC
executing this Agreement and any certificate or instrument furnished
pursuant hereto, and a certification by another officer of GENCC as to
the incumbency and signature of the officer signing the certificate
referred to in this paragraph (ii).
All such documents shall be satisfactory in form and substance
to the Company and its counsel.
SECTION 5.02 Conditions Precedent to the Merger Relating to
GENCC. The obligation of GENCC to effect the Merger is subject to the
satisfaction (or, at its option, the waiver (except that the conditions
contained in paragraphs d, e, f, g, and h may not be waived) at or prior to the
Effective Time of each of the following conditions:
(a) Accuracy of Representations and Warranties. The
representations and warranties of the Company contained in this Agreement or in
any certificate or document delivered to GENCC pursuant hereto shall be true and
correct on and as of the Effective Time as though made at and as of that date,
and the Company shall have delivered to GENCC a certificate to such effect.
(b) Compliance with Covenants. the Company shall have
performed and complied with all terms, agreements, covenants and conditions of
this Agreement to be performed or complied with by it at or prior to the
Effective Time, and the Company shall have delivered to GENCC a certificate to
that effect.
(c) All Proceedings to Be Satisfactory. All corporate and
other proceedings to be taken by the Company in connection with the transactions
contemplated hereby and all documents incident thereto shall be reasonably
satisfactory in form and substance to GENCC and its counsel, and GENCC and said
counsel shall have received all such counterpart originals or certified or other
copies of such documents as they may reasonably request.
(d) Legal Actions or Proceedings. No legal action or
proceeding shall have been instituted or threatened seeking to restrain,
prohibit, invalidate or otherwise affect the consummation of the transactions
contemplated hereby or which would, if
16
<PAGE>
adversely decided, have a material adverse affect on the business, properties or
condition (financial or other) or prospects of the Company and its subsidiaries.
(e) Consents. The applicable waiting period under the HSR Act
shall have expired and the other consents and actions set forth in Schedule
5.02(e) hereto shall have been obtained or consummated as the case may be.
(f) Stockholder Approval. This Agreement and Merger shall have
been approved and adopted by the stockholders of the Company and GENCC in
accordance with the Delaware GCL and their respective Certificates of
Incorporation and By-laws.
(g) The Certificate of Merger. The Certificate of Merger shall
have been filed with the Secretary of State of Dela- ware.
(h) Subscription Agreement. The Subscription Agreement shall
have been executed and delivered by the parties thereto and each of the parties
thereto shall have consummated the transactions contemplated thereby.
(i) Supporting Documents. On or prior to the Effective Time,
GENCC and its counsel shall have received copies of the following supporting
documents:
(i) (1) copies of the Certificate of Incorporation of the
Company and all amendments thereto, certified as of a recent date by
the Secretary of State of the State of Dela- ware, (2) a certificate of
said Secretary dated as of a recent date as to the due incorporation
and good standing of the Company and listing all documents of the
Company on file with said Secretary, and (3) confirmation from said
Secretary as of the close of business on the next business day
preceding the Effective Time as to the continued due incorporation and
good standing of the Company and to the effect that no amendment to its
Certificate of Incorporation has been filed since the date of the
certificate referred to in clause (2) above (other than the Certificate
of Merger); and
(ii) a certificate of the Secretary or an Assistant Secretary of
the Company dated the Effective Time and certifying: (1) that attached
thereto is a true and complete copy of the By-laws of the Company as in
effect on the date of such certification; (2) that attached thereto is
a true and complete copy of resolutions adopted by the Board of
Directors of the Company authorizing the execution, delivery and
performance of this Agreement and that all such resolutions are still
in full force and effect and are all the resolutions adopted in
connection with the transactions contemplated by this Agreement; (3)
that the Certificate of
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Incorporation of the Company has not been amended since the date of the
last amendment referred to in the certificate delivered pursuant to
clause (i)(2) above (other than the Certificate of Merger); and (4) as
to the incumbency and specimen signature of each officer of the Company
executing this Agreement and any certificate or instrument furnished
pursuant hereto, and a certification by another officer of the Company
as to the incumbency and signature of the officer signing the
certificate referred to in this paragraph (ii).
All such documents shall be satisfactory in form and substance
to GENCC and its counsel.
ARTICLE VI
TERMINATION AND ABANDONMENT
SECTION 6.01 Termination and Abandonment. This Agreement may
be terminated and the Merger may be abandoned at any time prior to the Effective
Time, whether before or after approval by the stockholders of the Company and
GENCC:
(a) By mutual action of the Boards of Directors of the
Company and GENCC;
(b) By the Company, if the conditions set forth in Section
5.01 shall not have been complied with or performed in any material respect and
such noncompliance or nonperformance shall not have been cured or eliminated (or
by its nature cannot be cured or eliminated) by GENCC on or before June 30,
1995; or
(c) By GENCC, if the conditions set forth in Section 5.02
shall not have been complied with or performed in any material respect and such
noncompliance or nonperformance shall not have been cured or eliminated (or by
its nature cannot be cured or eliminated) by the Company on or before June 30,
1995.
SECTION 6.02 Effect of Termination. In the event of the
termination of this Agreement and the abandonment of the Merger pursuant to
Section 6.01, this Agreement shall thereafter become void and have no effect,
and no party hereto shall have any liability to any other party hereto or its
stockholders or directors or officers in respect thereof, and each party shall
be responsible for its own expenses, except that nothing herein shall relieve
any party from liability for any willful breach hereof.
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<PAGE>
ARTICLE VII
MISCELLANEOUS
SECTION 7.01 Expenses, Etc. Unless the transactions
contemplated by this Agreement are consummated, neither of the parties hereto
shall have any obligation to pay any of the fees and expenses of the other party
incident to the negotiation, preparation and execution of this Agreement,
including the fees and expenses of counsel, accountants, investment bankers and
other experts. At the Effective Time, the Surviving Corporation shall become
obligated to pay all such fees and expenses incurred by each of the Constituent
Corporations.
SECTION 7.02 Publicity. The parties hereto agree to cooperate
in issuing any press release or other public announcement concerning this
Agreement or the transactions contemplated hereby. Each party shall furnish to
the other drafts of all such press releases or announcements prior to their
release. Nothing contained herein shall prevent any party from at any time
furnishing any information required by any government authority.
SECTION 7.03 Execution in Counterparts. For the convenience of
the parties, this Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
SECTION 7.04 Notices. All notices which are required or may be
given pursuant to the terms of this Agreement shall be in writing and shall be
sufficient in all respects if given in writing and delivered or mailed by
registered or certified mail, postage prepaid, as follows:
If to the Company, to:
MedE America Corporation
333 Ovington Boulevard
Mitchel Field,
New York 11553
Attention: President
with a copy to:
Reboul, MacMurray, Hewitt,
Maynard & Kristol
45 Rockefeller Plaza
New York, New York 10111
Attention: Robert A. Schwed, Esq.
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If to GENCC, to:
GENCC Holdings Corporation
c/o Welsh, Carson, Anderson & Stowe
One World Financial Center
200 Liberty Street
New York, New York 10281
Attention: President
with a copy to:
Reboul, MacMurray, Hewitt,
Maynard & Kristol
45 Rockefeller Plaza
New York, New York 10111
Attention: Robert A. Schwed, Esq.
or such other address or addresses as either party hereto shall have designated
by notice in writing to the other party hereto.
SECTION 7.05 Waivers. Either party hereto may, by written
notice to the other party hereto, (i) extend the time for the performance of any
of the obligations or other actions of the other party under this Agreement;
(ii) waive any inaccuracies in the representations or warranties of the other
party contained in this Agreement or in any document delivered pursuant to this
Agreement; (iii) waive compliance with any of the conditions or covenants of the
other contained in this Agreement; or (iv) waive performance of any of the
obligations of the other under this Agreement. Except as provided in the
preceding sentence, no action taken pursuant to this Agreement, including
without limitation any investigation by or on behalf of either party, shall be
deemed to constitute a waiver by the party taking such action of compliance with
any representations, warranties, covenants or agreements contained in this
Agreement. The waiver by either party hereto of a breach of any provision of
this Agreement shall not operate or be construed as a waiver of any subsequent
breach.
SECTION 7.06 Amendments, Supplements, Etc. (a) Subject as set
forth in paragraph (b) below, at any time this Agreement may be amended or
supplemented by such additional agreements, articles or certificates, as may be
determined by the parties hereto to be necessary, desirable or expedient to
further the purposes of this Agreement, or to clarify the intention of the
parties hereto, or to add to or modify the covenants, terms or conditions hereof
or to effect or facilitate any governmental approval or acceptance of this
Agreement or to effect or facilitate the filing or recording of this Agreement
or the
20
<PAGE>
consummation of any of the transactions contemplated hereby. Any such instrument
must be in writing and signed by both parties.
(b) This Agreement may be varied or amended at any time before
or after the approval and adoption of this Agreement by the stockholders of the
Company and GENCC by action of the respective Boards of Directors of the Company
and GENCC, without action by the stockholders thereof, provided that after
approval and adoption of this Agreement by the stockholders of the Company or
GENCC, no such variance or amendment shall, without consent of such
stockholders, reduce the consideration that the holders of shares of the capital
stock of either of the Constituent Corporations shall be entitled to receive
upon the Effective Time pursuant to Section 2.01 and Section 2.03 hereof.
SECTION 7.07 Entire Agreement. This Agreement, its Exhibits
and Schedules, and the documents executed at the Effective Time in connection
herewith, constitute the entire agreement between the parties hereto with
respect to the subject matter hereof and supersede all prior agreements and
understandings, oral and written, between the parties hereto with respect to the
subject matter hereof. No representation, warranty, promise, inducement or
statement of intention has been made by either party which is not embodied in
this Agreement or such other documents, and neither party shall be bound by, or
be liable for, any alleged representation, warranty, promise, inducement or
statement of intention not embodied herein or therein. The representations and
warranties contained in this Agreement shall not survive after the Effective
Time.
SECTION 7.08 Applicable Law. This Agreement shall be governed
by and construed in accordance with the laws of the State of New York.
SECTION 7.09 Binding Effect, Benefits. This Agreement shall
inure to the benefit of and be binding upon the parties hereto and their
respective successors and assigns. Notwithstanding anything contained in this
Agreement to the contrary, nothing in this Agreement, expressed or implied, is
intended to confer on any person other than the parties hereto or their
respective successors and assigns, any rights, remedies, obligations or
liabilities under or by reason of this Agreement.
SECTION 7.10 Assignability. Neither this Agreement nor any of
the parties' rights hereunder shall be assignable by either party hereto without
the prior written consent of the other party hereto.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered
this Agreement as of the day and year first above written.
MEDE AMERICA CORPORATION
By
-------------------------
ATTEST:
- ---------------------
GENCC HOLDINGS CORPORATION
By
-------------------------
ATTEST:
- ---------------------
22
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SCHEDULE I
Part I
------
Stockholders of the Company
---------------------------
23
<PAGE>
SCHEDULE I
Part II
-------
Stockholders of GENCC
---------------------
Shares of Shares of
GENCC Pre- Common
Stockholder ferred Stock Stock
- ----------- ------------ -----
Welsh, Carson, Anderson 109,315 1,093,150
& Stowe V, L.P.
WCAS Information 2,000 20,000
Partners
Patrick J. Welsh 500 5,000
Russell L. Carson 500 5,000
Bruce K. Anderson 750 7,500
Richard H. Stowe 75 750
Delaware Charter Trust 75 750
Co. Trustee For Richard
H. Stowe
Andrew M. Paul 350 3,500
Thomas E. McInerney 750 7,500
Laura VanBuren 10 100
James B. Hoover 125 1,250
Robert H. Minicucci 400 4,000
Anthony J. deNicola 150 1,500
------- ---------
Total 115,000 1,150,000
======= =========
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SCHEDULE 3.01(b)
Part I
Subsidiaries of the Company
MedE America, Inc.
Medical Processing Center, Inc.
Wellmark Incorporated
Part II
Subsidiaries of GENCC
General Computer Corporation
Mavis Industries, Inc.
GCC Cognitive Service Network, Inc.
25
<PAGE>
SCHEDULE 5.01(e)
Consents to be Obtained by GENCC
None
SCHEDULE 5.02(e)
Consents to be Obtained by the Company
None
26
<PAGE>
CERTIFICATE OF MERGER
OF
GENCC HOLDINGS CORPORATION
WITH AND INTO
MEDE AMERICA CORPORATION
MEDE AMERICA CORPORATION ("MedE"), organized under and
existing by virtue of the General Corporation Law of the State of Delaware (the
"DGCL") does hereby certify as follows:
FIRST: The name and state of incorporation of each of the
constituent corporations (the "Constituent Corporations") are as follows:
Name State of Incorporation
---- ----------------------
ENCC Holdings Corporation Delaware
MedE America Corporation Delaware
SECOND: An Agreement and Plan of Merger dated as of May , 1995
(the "Merger Agreement"), between MedE and GENCC Holdings Corporation ("GENCC"),
providing for the merger of GENCC with and into MedE (the "Merger"), has been
approved, adopted, certified, executed and acknowledged by each of the
Constituent Corporations in accordance with the requirements of Section 251 of
the DGCL.
THIRD: The name of the surviving corporation is MedE America
Corporation (the "Surviving Corpor-tion").
FOURTH: The following amendments to the Certificate of
Incorporation of the Surviving Corporation shall be effected by the Merger and
the capital of the Surviving Corporation will not be decreased on account of
such amendments:
Article FOURTH of the Certificate of Incorporation of the
Surviving Corporation shall be amended to read in its entirety as
follows:
'FOURTH: The total number of shares of all classes of stock
which the Corporation shall have authority to issue is 30,240,000
shares, consisting of 240,000 shares of Preferred Stock, $.01 par value
("Preferred Stock") and 30,000,000 shares of Common Stock, $.01 par
value ("Common Stock").
All cross-references in each subdivision of this Article
FOURTH refer to other paragraphs in such subdivision unless otherwise
indicated.
27
<PAGE>
The following is a statement of the designations, and the
powers, preferences and rights, and the qualifications, limitations or
restrictions thereof, in respect of each class of stock of the
Corporation:
I.
PREFERRED STOCK
1. Cumulative Dividends. (i) The holders of 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 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 distribution payable in shares of Common Stock, nor,
without the written consent of the holders of 66 2/3% of the
outstanding 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 Preferred Stock for
all past dividend periods shall have been paid in full.
2. Redemption.
2A. Mandatory Redemptions.
(i) The Preferred Stock shall be redeemed in full in two equal
installments on September 30, of each of 2001 and 2002, at the
Redemption Price (as defined below).
(ii) Upon the consummation of an underwritten public offering pursuant
to an effective registration statement under the Securities Act of
1933, as amended, covering the offering and sale of the Corporation's
Common Stock pursuant to which the Corporation receives aggregate net
proceeds of at least $15 million (after underwriters', brokers' and
dealers' fees and commissions and underwriters' discounts and any other
offering expenses required to be disclosed in Part II of the applicable
registration statement) (a "Qualified Public Offering"), the
Corporation shall redeem all then outstanding shares of Preferred Stock
at the Redemption Price.
2B. Optional Redemptions. The 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 Preferred Stock under
28
<PAGE>
this paragraph 2 shall be referred to as a "Redemption Date." The per
share "Redemption Price" of the 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 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 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 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
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 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 Preferred Stock on a Redemption Date, all
shares of 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 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
Preferred Stock shall be entitled, before any distribution or payment
is made upon any Common Stock, to
29
<PAGE>
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 such
redemption, for each share of Preferred Stock held by such holder. If
upon such Liquidation, the assets to be distributed among the holders
of Preferred Stock shall be insufficient to permit payment to the
holders of Preferred Stock of that amount distributable as aforesaid,
then the entire assets of the Corporation to be distributed shall be
distributed ratably among the holders of Preferred Stock. Upon any such
Liquidation, after the holders of the 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 Liquidation, stating a payment
date, the aggregate amount of the payments to which such holder of
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 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 Corporation, shall be deemed to be a Liquidation.
4. Voting Rights. Except as otherwise provided by law or this
Certificate of Incorporation, the holders of 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 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 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 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 Preferred Stock both as to dividends and
as to the distribution of assets on Liquidation, or increase
the authorized amount of the Preferred Stock, or increase the
authorized amount of any additional class of shares unless the
same ranks junior to the Preferred Stock both as to dividends
and as to the distribution of assets on Liquidation, or create
or authorize any obligations or securities convertible into or
exchangeable for shares of Preferred Stock or into shares of
any other class unless the same ranks junior to the 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.
30
<PAGE>
(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' resolutions 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 Preferred Stock or the Common
Stock or which in any manner adversely affects the Preferred
Stock or the Common Stock or the holders thereof.
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: Effective upon the filing of this Certificate of Merger
with the Secretary of State of the State of Delaware (the "Effective Time"),
each share of Common Stock, $.01 par value, of MedE issued and outstanding at
the Effective Time shall be reclassified into a unit consisting of (i) .5 shares
of Common Stock and (ii) .005 shares of Preferred Stock and all shares of
Preferred Stock, $.01 par value, of MedE shall be canceled. Pursuant to Section
155 of the DGCL, the Board of Directors has determined that no fractional shares
of Common Stock will be issued in connection with the reclassification described
above, and that in lieu of the issuance of any fractional shares, the Surviving
Corporation shall pay, in cash, to those entitled thereto the fair value of
fractional interests as of the time when those entitled to receive such
fractions are determined.
SIXTH: The executed Merger Agreement is on file at the
principal place of business of the Surviving Corporation. The address of the
principal place of business of the Surviving Corporation is 333 Ovington
Boulevard, Suite 702, Mitchel Field, New York 11553.
SEVENTH: A copy of the Merger Agreement will be furnished by
the Surviving Corporation, on request and without cost, to any stock-
holder of either of the Constituent Corporations.
EIGHTH: The effective date of the Merger shall be , 1995.
31
<PAGE>
IN WITNESS WHEREOF, MedE America Corporation has caused this
Certificate of Merger to be executed as of this day of , 1995.
MEDE AMERICA CORPORATION
By:
---------------------------
Name:
Title:
32
<PAGE>
CERTIFICATE OF AMENDMENT
to
CERTIFICATE OF INCORPORATION
of
MEDE AMERICA CORPORATION
MEDE AMERICA CORPORATION, a corporation organized and existing
under the laws of the State of Delaware (the "Corporation"), hereby certifies as
follows:
FIRST: that the following resolutions were duly adopted by
unanimous written consent of the Board of Directors of the Corporation, setting
forth proposed amendments to the Certificate of Incorporation of the
Corporation; determining that the capital of the Corporation will not be
decreased on account of such amendments; and declaring such amendments to be
advisable and directing that such amendments be submitted to the stockholders of
the Corporation for its approval. The resolutions are as follows:
"RESOLVED, that there is hereby adopted an amendment to the
Corporation's Certificate of Incorporation pursuant to which the
authorized capital stock of the Corporation shall be changed from
24,215,000 shares, consisting of 215,000 shares of Preferred Stock,
$.01 par value ("Preferred Stock"), and 24,000,000 shares of Common
Stock, $.01 par value ("Common Stock"), to 29,250,000 shares,
consisting of 250,000 shares of Preferred Stock and 29,000,000 shares
of Common Stock and, in connection with such changes, the first
paragraph of Article FOURTH of the Certificate of Incorporation of the
Corporation shall be amended to read in its entirety as follows:
'FOURTH: The total number of shares of all classes of stock
which the Corporation shall have authority to issue is 29,250,000
shares, consisting of 250,000 shares of Preferred Stock, $.01 par value
("Preferred Stock") and 29,000,000 shares of Common Stock, $.01 par
value ("Common Stock").'
"RESOLVED that the Board of Directors determines that the
capital of the Corporation will not be decreased on account of the
foregoing amendment, declares the foregoing amendment to the
Corporation's Certificate of Incorporation to be advisable and directs
that the amendment be submitted
<PAGE>
to the stockholders of the Corporation for their approval pursuant to
Section 242(b) of the General Corporation Law of the State of
Delaware."
SECOND: that the Amendment of the Certificate of Incorporation
effected by this Certificate was duly authorized by the holders of a majority of
the outstanding capital stock of the Corporation entitled to vote thereon, after
first having been declared advisable by the Board of Directors of the
Corporation, all in accordance with the provisions of Section 242 of the
Delaware General Corporation Law.
THIRD: that the capital of the Corporation will not be reduced
under, or by reason of, the foregoing amendment to the Certificate of
Incorporation of the Corporation.
<PAGE>
IN WITNESS WHEREOF, MEDE AMERICA CORPORATION has caused its
corporate seal to be hereunto affixed and this certificate to be signed by
its , who hereby acknowledges under penalties of perjury that the
facts herein stated are true and that this certificate is his act and deed, this
day of , 1995.
MEDE AMERICA CORPORATION
By:
------------------------------
Name:
Title:
================================================================================
NOTE AND SHARE PURCHASE AGREEMENT
Between
MEDE AMERICA CORPORATION
and
WCAS CAPITAL PARTNERS II, L.P.
Dated as of February 14, 1997
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I. PURCHASE AND SALE OF SECURITIES....................... 1
SECTION 1.01 Issuance, Sale and Delivery of
the Securities................................. 1
SECTION 1.02 Payment for the Securities....................... 1
SECTION 1.03 Closing Date..................................... 1
ARTICLE II. REPRESENTATIONS AND WARRANTIES OF
THE COMPANY................................ 2
SECTION 2.01 Organization, Qualifications and
Corporate Power.................... 2
SECTION 2.02 Authorization of Agreements, Etc................. 2
SECTION 2.03 Validity......................................... 2
SECTION 2.04 Authorized Capital Stock......................... 3
SECTION 2.05 Governmental Approvals........................... 3
SECTION 2.06 Use of Proceeds.................................. 3
SECTION 2.07 Offering of the Securities....................... 3
SECTION 2.08 Compliance With Law.............................. 4
ARTICLE III. REPRESENTATIONS AND WARRANTIES
OF PURCHASER............................... 4
SECTION 3.01 Certain Securities Laws Matters.................. 4
ARTICLE IV. CONDITIONS TO THE OBLIGATION OF
PURCHASER.................................. 5
ARTICLE V. CONDITIONS TO THE OBLIGATION OF
THE COMPANY................................ 6
ARTICLE VI. MISCELLANEOUS......................................... 6
SECTION 6.01 Expenses......................................... 6
SECTION 6.02 Survival of Agreement............................ 6
SECTION 6.03 Brokerage........................................ 6
SECTION 6.04 Parties in Interest.............................. 7
SECTION 6.05 Notices.......................................... 7
SECTION 6.06 Law Governing.................................... 7
SECTION 6.07 Entire Agreement; Amendments..................... 7
SECTION 6.08 Successors and Assigns........................... 8
SECTION 6.09 Counterparts..................................... 8
SECTION 6.10 Headings......................................... 8
i
<PAGE>
INDEX TO EXHIBITS
Exhibit Description
- ------- -----------
EXHIBIT A Form of 10% Senior Subordinated Note
EXHIBIT B Form of Registration Rights Agreement
INDEX TO SCHEDULES
Schedule Description
- -------- -----------
2.02(a) Defaults
2.04(b) Capital Stock, Options, Warrants, Etc.
ii
<PAGE>
NOTE AND SHARE PURCHASE AGREEMENT, dated as of February 14,
1997, by and between MEDE AMERICA CORPORATION, a Delaware corporation (the
"Company"), and WCAS CAPITAL PARTNERS II, L.P., a Delaware limited partnership
("Purchaser").
WHEREAS the Company wishes to issue and sell to Purchaser (i)
its 10% Senior Subordinated Note in the principal amount of $25,000,000 and (ii)
1,700,000 shares (collectively, the "Shares") of common stock, $.01 par value
("Common Stock"), of the Company, subject to the conditions set forth herein;
and
WHEREAS Purchaser wishes to purchase said securities, all on
the terms and subject to the conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants herein contained, the parties hereby agree as follows:
I.
PURCHASE AND SALE OF SECURITIES
SECTION 1.01 Issuance, Sale and Delivery of the Securities. On
the Closing Date (as defined herein) the Company shall issue, sell and deliver
to Purchaser, and Purchaser shall purchase from the Company, (i) a 10% Senior
Subordinated Note of the Company, substantially in the form attached hereto as
Exhibit A, registered in the name of Purchaser, in the principal amount of
$25,000,000 (said note, and any notes issued in exchange or substitution
therefor, being hereinafter collectively called the "Subordinated Notes"), and
(ii) the Shares, to be evidenced by a stock certificate of the Company
registered in the name of the Purchaser. The Shares and the Subordinated Notes
are sometimes collectively referred to herein as the "Securities".
SECTION 1.02 Payment for the Securities. As payment in full
for the Securities being purchased by it hereunder, and against delivery thereof
as aforesaid, on the Closing Date Purchaser shall pay to the Company, by wire
transfer to an account designated in writing by the Company, the sum of
$25,000,000.
SECTION 1.03 Closing Date. The closing of the sale and
purchase of the Securities shall take place at the offices of Reboul, MacMurray,
Hewitt, Maynard & Kristol, 45 Rockefeller Plaza, New York, New York, at 10 a.m.,
New York time, on February 14, 1997, or at such other date and time as may be
mutually agreed upon by Purchaser and the Company (such date and time of closing
being herein called the "Closing Date").
<PAGE>
II.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Purchaser as follows:
SECTION 2.01 Organization, Qualifications and Corporate Power.
The Company is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Delaware and is duly licensed or
qualified to transact business as a foreign corporation and is in good standing
in each jurisdiction in which the nature of its business or the ownership of its
properties makes such licensing or qualification necessary, except where the
failure to be so licensed or qualified would not have a material adverse effect
on the business, assets, operations or condition (financial or other) of the
Company (a "Material Adverse Effect"). The Company has the corporate power and
authority to own and hold its properties and to carry on its business as
currently conducted, to execute, deliver and perform this Agreement and a
Registration Rights Agreement substantially in the form of Exhibit B hereto (the
"Registration Rights Agreement") and to issue, sell and deliver the Securities.
SECTION 2.02 Authorization of Agreements, Etc. (a) The
execution and delivery by the Company of this Agreement and the Registration
Rights Agreement, the performance by the Company of its obligations hereunder
and thereunder and the issuance, sale and delivery of the Securities have been
duly authorized by all requisite corporate action and, except as set forth in
Schedule 2.02(a) hereto, will not (x) violate any provision of law applicable to
the Company, any order of any court or other agency of government, the
Certificate of Incorporation or By-laws of the Company or any provision of any
indenture, agreement or other instrument to which the Company or any of its
properties or assets is bound; (y) conflict with, result in a breach of or
constitute (with due notice or lapse of time or both) a default under any such
indenture, agreement or other instrument; or (z) result in the creation or
imposition of any lien, charge or encumbrance of any nature whatsoever upon any
of the properties or assets of the Company that, in any such case, would have a
Material Adverse Effect.
(b) The Shares will, when issued and paid for in accordance
with the terms hereof, be validly issued, fully paid and nonassessable shares of
Common Stock. The issuance, sale and delivery of the Securities is not subject
to any preemptive rights of stockholders of the Company or to any right of first
refusal or other similar right in favor of any person.
SECTION 2.03 Validity. Each of this Agreement and the
Registration Rights Agreement has been duly executed and
2
<PAGE>
delivered by the Company and constitutes the legal, valid and binding obligation
of the Company, enforceable in accordance with its terms.
SECTION 2.04 Capital Stock. (a) The authorized capital stock
of the Company consists of (i) 250,000 shares of Preferred Stock, $.01 par
value, of which an aggregate 239,956 shares are validly issued and outstanding,
fully paid and nonassessable, and (ii) 29,000,000 shares of Common Stock, $.01
par value, of which an aggregate 24,235,038 shares are validly issued and
outstanding, fully paid and nonassessable.
(b) Except as set forth in Schedule 2.04(b) hereto and as
contemplated by this Agreement, (i) no subscription, warrant, option,
convertible security or other right (contingent or other) to purchase or acquire
any shares of any class of capital stock from the Company is authorized or
outstanding, (ii) there is no commitment of the Company to issue any shares,
warrants, options or other such rights or to distribute to holders of any class
of its capital stock any evidences of indebtedness or assets and (iii) the
Company has no obligation (contingent or other) to purchase, redeem or otherwise
acquire any shares of its capital stock or any interest therein or to pay any
dividend or make any other distribution in respect thereof.
SECTION 2.05 Governmental Approvals. No registration or filing
with, or consent or approval of, or other action by, any federal, state or other
governmental agency or instrumentality is or will be necessary for (i) the valid
execution, delivery and performance of this Agreement and the Registration
Rights Agreement or (ii) the issuance, sale and delivery of the Securities.
SECTION 2.06 Use of Proceeds. None of the transactions
contemplated by this Agreement (including, without limitation, the use of the
proceeds from the sale of the Subordinated Notes), will violate or result in a
violation of (a) Section 7 of the Securities Exchange Act of 1934, as amended,
or of any regulations issued pursuant thereto, or (b) Regulations G, T and X of
the Board of Governors of the Federal Reserve System. None of the proceeds from
the sale of the Subordinated Notes will be used to purchase or carry (or
refinance any borrowings the proceeds of which were used to purchase or carry)
any "margin security" within the meaning of said Regulation G, or for any other
purpose which would constitute the transactions contemplated by this Agreement a
"purpose credit" within the meaning of said Regulation G.
SECTION 2.07 Offering of the Securities. Neither the Company
nor any person acting on its behalf has taken or will take any action
(including, without limitation, any offer, issuance or sale of any securities
under circumstances which
3
<PAGE>
might require the integration of such securities with the Subordinated Notes
and/or the Shares under the Securities Act of 1933, as amended (the "Securities
Act"), or the rules and regulations of the Securities and Exchange Commission
(the "Commission") thereunder) which might subject the offering, issuance or
sale of the Subordinated Notes and/or the Shares to the registration provisions
of the Securities Act.
SECTION 2.08 Compliance With Law. The Company is not in
default in any material respect under any order of any court, governmental
authority or arbitration board or tribunal or under any laws, ordinances,
governmental rules or regulations to which the Company is subject. The Company
has not failed to obtain any material licenses, permits, franchises or other
governmental authorizations necessary to the ownership of its properties or to
the conduct of its business.
III.
REPRESENTATIONS AND WARRANTIES OF PURCHASER
SECTION 3.01 Certain Securities Law Matters. Purchaser
represents and warrants to the Company as follows:
(i) that it is acquiring the Securities and for its own
account for the purpose of investment and not with a view to, or for
sale in connection with, any distribution thereof;
(ii) that it is an "accredited investor" within the meaning of
Regulation D as promulgated by the Commission under the Securities Act;
(iii) that it understands that (a) neither the Subordinated
Notes nor the Shares have been registered under the Securities Act by
reason of their issuance in a transaction exempt from the registration
requirements of the Securities Act pursuant to Section 4(2) thereof,
(b) the Securities must be held indefinitely unless a subsequent
disposition thereof is registered under the Securities Act or is exempt
from such registration, (c) the Subordinated Notes and the Shares will
bear a legend to such effect and (d) the Company will make notations on
its transfer books to such effect;
(iv) that it is a sophisticated investor with knowledge and
experience in business and financial matters, is able to evaluate the
risks and benefits of the investment in the Subordinated Notes and the
Shares, has received certain information concerning the Company and has
had the opportunity to obtain additional information as desired in
4
<PAGE>
order to evaluate the merits of and the risks inherent in purchasing
the Securities; and
(v) that it understands that the exemption from registration
afforded by Rule 144 under the Securities Act depends on the
satisfaction of various conditions and that, if applicable, Rule 144
affords the basis of sales of the Securities in limited amounts under
certain conditions.
IV.
CONDITIONS TO THE OBLIGATION OF PURCHASER
The obligation of Purchaser to purchase and pay for the
Securities to be purchased by it hereunder on the Closing Date is, at its
option, subject to the satisfaction, on or before such date, of the following
conditions:
(i) Representations and Warranties to Be True and Correct. The
representations and warranties contained in Article II hereof shall be
true and correct on and as of the Closing Date with the same force and
effect as though such representations and warranties had been made on
and as of such date.
(ii) Performance. The Company shall have performed and complied
with all agreements and conditions contained herein required to be
performed or complied with by it prior to or at the Closing Date.
(iii) Opinion of Counsel. Purchaser shall have received an opinion
of counsel to the Company, in form and substance reasonably
satisfactory to Purchaser and its counsel, as to the matters set forth
in Sections 2.01, 2.02, 2.03, 2.04 and 2.05 hereof.
(iv) Registration Rights Agreement. The Company shall have executed
and delivered the Registration Rights Agreement, and the same shall be
in full force and effect.
(v) All Proceedings to Be Satisfactory. All corporate and other
proceedings to be taken by the Company in connection with the
transactions contemplated hereby and all documents incident thereto
shall be satisfactory in form and substance to Purchaser and its
counsel, and Purchaser and said counsel shall have received all such
counterpart originals or certified or other copies of such documents as
they may reasonably request.
5
<PAGE>
V.
CONDITIONS TO THE OBLIGATION OF THE COMPANY
The obligation of the Company to issue, sell and deliver the
Securities on the Closing Date is, at the Company's option, subject to the
satisfaction, on or before such date, of the following conditions:
(i) Representations and Warranties to Be True and Correct. The
representations and warranties contained in Article III hereof shall be
true and correct on and as of the Closing Date with the same force and
effect as though such representations and warranties had been made on
and as of such date.
(ii) Performance. Purchaser shall have performed and complied with
all agreements and conditions contained herein required to be performed
or complied with by it prior to or at the Closing Date.
(iii) All Proceedings to Be Satisfactory. All proceedings to be taken
by Purchaser in connection with the transactions contemplated hereby
and all documents incident thereto shall be satisfactory in form and
substance to the Company and its counsel, and the Company and said
counsel shall have received all such counterpart originals or certified
or other copies of such documents as it may reasonably request.
VI.
MISCELLANEOUS
SECTION 6.01 Expenses. Each party hereto will pay its own
expenses in connection with the transactions contemplated hereby, whether or not
such transactions shall be consummated; provided, however, that the Company
shall pay the fees and disbursements of Reboul, MacMurray, Hewitt, Maynard &
Kristol, counsel for Purchaser.
SECTION 6.02 Survival of Agreement. All covenants, agreements,
representations and warranties made herein shall survive the execution and
delivery of this Agreement and the issuance, sale and delivery of the Securities
pursuant hereto, and all statements contained in any certificate or other
instrument delivered by the Company hereunder shall be deemed to constitute
representations and warranties made by the Company.
SECTION 6.03 Brokerage. Each party hereto will indemnify and
hold harmless the others against and in respect of
6
<PAGE>
any claim for brokerage or other commissions relative to this Agreement or to
the transactions contemplated hereby.
SECTION 6.04 Parties in Interest. All covenants and agreements
contained in this Agreement by or on behalf of any of the parties hereto shall
bind and inure to the benefit of the respective successors and assigns or legal
representatives of the parties hereto whether so expressed or not.
SECTION 6.05 Notices. All notices, requests, consents and
other communications hereunder shall be in writing and shall be delivered
personally, sent by nationally recognized overnight carrier, sent by facsimile
or mailed by first-class registered mail, postage prepaid, addressed as follows:
(a) if to the Company, to it at:
90 Merrick Avenue
Suite 502
East Meadow, New York 11554
Attention: David M. Goldwin, Esq.
Fax: (516) 542-4508;
(b) if to Purchaser, to it at:
c/o Welsh, Carson, Anderson & Stowe
320 Park Avenue
Suite 2500
New York, New York 10022
Attention: Mr. Anthony J. de Nicola
Fax: (212) 945-2016
with a copy to:
Reboul, MacMurray, Hewitt, Maynard & Kristol
45 Rockefeller Plaza
New York, New York 10111
Attention: Mark J. Tannenbaum, Esq.
Fax: (212) 841-5725
SECTION 6.06 LAW GOVERNING. THIS AGREEMENT SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT
REGARD TO ITS CONFLICTS OF LAW PROVISIONS.
SECTION 6.07 Entire Agreement; Amendments. This Agreement
constitutes the entire agreement of the parties with respect to the subject
matter hereof and may not be modified or amended except by a writing signed by
the Company and approved by the holders of not less than 66-2/3% of the then
outstanding
7
<PAGE>
principal amount of the Subordinated Notes.
SECTION 6.08 Successors and Assigns. All of the terms,
covenants and provisions of this Agreement and of the agreements delivered
hereunder shall be binding upon and inure to the benefit of any successors,
assigns, legal representatives, or beneficiaries hereof, as the case may be.
SECTION 6.09 Counterparts. This Agreement may be executed in
two or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
SECTION 6.10 Headings. The headings of the Sections and
subsections of this Agreement are inserted for convenience only and do not
constitute a part of this Agreement.
8
<PAGE>
IN WITNESS WHEREOF, each of the Company and Purchaser has
executed this Note and Share Purchase Agreement as of the day and year first
above written.
MEDE AMERICA CORPORATION
By:
--------------------------------------
President and Chief
Executive Officer
WCAS CAPITAL PARTNERS II, L.P.
By: WCAS CP II Partners, General Partner
By:
--------------------------------------
General Partner
10
<PAGE>
Schedule 2.02(a)
Defaults
The issuance of the Notes shall constitute an event of default under the Credit
Agreement, dated December 18, 1995, between the Company and Bank of America
Illinois.
11
<PAGE>
Schedule 2.04(a)
Capital Stock, Options, Warrants, Etc.
The Company has issued warrants to acquire an aggregate 324,972 shares of Common
Stock to four stockholders.
The Company has issued options to acquire an aggregate 2,101,500 shares of
Common Stock to certain former and current employees, stockholders and
consultants.
12
AGREEMENT dated as of October 31, 1997, among MEDE AMERICA
CORPORATION, a Delaware corporation (the "Company"), WELSH, CARSON, ANDERSON &
STOWE V, L.P., a Delaware limited partnership ("WCAS V"), WELSH, CARSON,
ANDERSON & STOWE VI, L.P., a Delaware limited partnership ("WCAS VI"), WILLIAM
BLAIR LEVERAGED CAPITAL FUND LIMITED PARTNERSHIP, an Illinois limited
partnership, ("Blair LF") and WILLIAM BLAIR CAPITAL PARTNERS V, L.P., a Delaware
limited partnership, ("Blair V"; WCAS V, WCAS VI, Blair LF and Blair V being
hereinafter referred to individu- ally as a "Guarantor" and collectively as the
"Guarantors").
WHEREAS, the Guarantors are collectively the owners of
approximately 90% of the outstanding common and preferred stock of the Company;
WHEREAS, the Company and Bank of America Illinois (the "Bank")
are parties to a Credit Agreement, dated as of December 18, 1995 (the "Credit
Agreement"), as amended, providing for the extension by the Bank to the Company
of a revolving line of credit (the "Line of Credit");
WHEREAS, the maximum amount of Line of Credit was originally
$10,000,000, which was increased to $13.5 million as of February 10, 1997 and
subsequently decreased to $5 million.
WHEREAS, in connection with the establishment of the Line of
Credit and the February 10, 1997 increase in the maximum amount thereof, the
Guarantors gave certain guarantees to the Bank with respect to the Line of
Credit and, in consideration thereof, were issued warrants to purchase shares of
its Common Stock;
WHEREAS, the Company and the Bank have entered into the Third
Amendment to Credit Agreement, dated as of October 31, 1997 (the "Third
Amendment"), providing, among other things, for (i) an increase in the Line of
Credit of $15,000,000 (the "Additional Indebtedness"), which will permit the
Bank to advance a total of $20,000,000 thereunder, (ii) an extension of the
maturity date for all moneys borrowed under the Credit Agreement;
WHEREAS, in order to induce the Bank to increase and extend
the Line of Credit, the Bank, WCAS VI and Blair V, as well as the other
Guarantors, have agreed to modify the Guarantor Percentages provided for in the
Credit Agreement, with the effect that, effective as of the date hereof, only
WCAS VI and Blair V will be liable to the Bank on the Guaranty;
<PAGE>
WHEREAS, WCAS VI and Blair V are willing to assume the
additional financial risk associated with the Additional Indebtedness under the
Guaranty, and in consideration thereof, the Company is willing to issue to WCAS
VI and Blair V an additional 156,720 warrants to purchase shares of its Common
Stock, on the terms and conditions hereinafter set forth;
WHEREAS, as a result of the forgoing, the Guarantors wish to
amend and extend the previous agreements among themselves with respect to the
manner in which they will bear the economic incidence of any payments made by
any of them under the Guaranty;
WHEREAS, the Guarantors hereby confirm that they are assuming
the financial risk associated with the Guaranty and the Line of Credit
(including but not limited to the financial risk associated with the Additional
Indebtedness) in order to protect their existing substantial equity investments
in the Company and to ensure the Company's future financial viability; and
NOW, THEREFORE, in consideration of the foregoing and the
mutual agreements contained herein, the parties hereby agree as follows:
I.
ISSUANCE OF WARRANTS
Section 1.001. Issuance of Warrants. (a) In consideration of
the assumption by WCAS VI and Blair V of the additional financial risk
associated with the Additional Indebtedness under the Guaranty, the Company
shall execute and deliver to each of WCAS VI and Blair a warrant in the form
annexed hereto as Exhibit 1 (individually a "Warrant" and collectively the
"Warrants") to purchase shares of the Company's Common Stock, $.01 par value
("Common Stock"), at an initial exercise price of $1.25 per share. WCAS VI shall
be entitled to a Warrant to purchase a 125,376 shares of Common Stock and Blair
V shall be entitled to a Warrant to purchase 31,344 shares of Common Stock.
Section 1.002. Tax and Accounting Treatment. The Company, WCAS
VI and Blair V agree that for federal, state and local income tax as well as for
financial accounting purposes, the issuance of the Warrants by the Company to
WCAS VI and Blair V is in the nature of a dividend distribution and is not
compensation (or a payment) for any services, and each hereby agrees to treat
the issuance of the Warrants in such manner for all such purposes, all to the
maximum extent permitted by applicable law.
2
<PAGE>
II.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to, and agrees with, WCAS
VI and Blair V as follows:
Section 2.001. Organization. The Company is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware and is duly licensed or qualified to do business as a foreign
corporation in good standing in each of the jurisdiction in which it owns or
leases any real property or in which the nature of business transacted by it
makes such licensing or qualification necessary and where the failure to be so
licensed or qualified would have a material adverse affect on the business,
operations or financial condition of the Company. The Company has the corporate
power and authority to own and hold its properties and to carry on its business
as currently conducted, to execute, deliver and perform this Agreement and the
Warrants and to issue, sell and deliver the shares of Common Stock issuable upon
the exercise of the Warrants (the "Warrant Shares").
Section 2.002. Authorization of Agreement, etc. (a) The
execution, delivery and performance by the Company of this Agreement and the
Warrants, and the issuance, sale and delivery of the Warrant Shares upon
exercise of the Warrants, have been duly authorized by all requisite corporate
action and will not (i) violate any provision of law, any order of any court or
other agency of government, the Certificate of Incorporation or By-laws of the
Company, or any provision of any indenture, agreement or other instrument by
which the Company or any of its subsidiaries or any of their respective
properties or assets is bound or affected; (ii) conflict with, result in a
breach of or constitute (with due notice or lapse of time or both) a default any
such indenture, agreement or other instrument; or (iii) result in the creation
or imposition of any lien, charge or incumbrance of any nature upon any of the
properties or assets of the Company or any of its subsidiaries.
(b) The Warrant Shares have been duly reserved for issuance
upon exercise of the Warrants and, when so issued, will be duly authorized,
validly issued and outstanding, fully paid and non assessable shares of Common
Stock. Neither the execution and delivery of the Warrants nor the issuance and
delivery of the Warrant Shares upon exercise thereof is subject to any
preemptive rights of shareholders of the Company or to any right of first
refusal or other similar right in favor of any person.
Section 2.003. Validity. This Agreement has been duly executed
and delivered by the Company and constitutes the legal, valid and binding
obligation of the Company, enforceable in
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accordance with its terms. The Warrants, when executed in accordance with this
Agreement, will constitute legal, valid and binding obligations of the Company,
enforceable in accordance with their respective terms.
III.
REPRESENTATIONS AND WARRANTIES OF THE GUARANTORS
Each of WCAS VI and Blair V represents and warrants to the
Company that it is acquiring the Warrants, and will, upon exercise thereof,
acquire the Warrant Shares, for its own account for purpose of investment and
not with a view to or for sale in connection with any distribution thereof. Each
of WCAS VI and Blair V further represents that it understands (i) that neither
the Warrants nor the Warrant Shares have been registered under the Securities
Act of 1933, as amended (the "Securities Act"), by reason of their issuance in
transactions exempt from the registration requirements of the Securities Act
pursuant to Section 4(2) thereof, (ii) the Warrants and, upon exercise thereof,
the Warrant Shares must be held indefinitely unless a subsequent disposition
thereof is registered under the Securities Act or is otherwise exempt from such
registration, (iii) the Warrants and the Warrant Shares will bear a legend to
such effect and (iv) the Company will make a notation on its transfer books to
such effect. Each of WCAS VI and Blair V further understands that the exemption
from registration afforded by Rule 144 under the Securities Act depends on the
satisfaction of various conditions and that, if applicable, affords the basis of
sales of the Warrants and/or the Warrant Shares in limited amounts under certain
conditions. Each of WCAS VI and Blair V (i) acknowledges that it has had a full
opportunity to request from the Company to review and has received all
information deemed relevant in making a decision to enter into this Agreement
and consummate the transactions contemplated thereby and (ii) will comply with
the restrictions on transferability of the Warrants and Warrant Shares contained
in the Warrant. Each of WCAS VI and Blair V is an "Accredited Investor" within
the meaning of Rule 501(a) of the Securities Act.
IV.
AGREEMENTS AMONG THE GUARANTORS
The Guarantors agree that, as among themselves, the liability
for any and all payments made by any of them pursuant to the Guaranty will be
allocated to and borne by them, as follows: (i) 39.9% to WCAS VI, 39.9% to WCAS
V, 13.5% to Blair V and 6.7% to Blair LF with respect to the first $5 million of
principal indebtedness (and any interest, penalties and other charges thereon);
and (ii) 80% to WCAS VI and 20% to Blair V with respect to any payments in
excess of $5 million of principal
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indebtedness (and any interest, penalties and other charges thereon). Each of
the Guarantors agrees to indemnify each of the other Guarantors for any payments
made pursuant to the Guaranty (or to indemnify other Guarantors in accordance
with this Article IV) by such other Guarantor that were in excess of such other
Guarantor's pro rata share of all amounts paid by the Guarantors under the
Guaranty, determined in accordance with the first sentence of this Article IV,
but only to the extent of the excess, if any, of its own payments made pursuant
to the Guaranty plus the indemnity payments made by it to other Guarantors in
accordance with this Article IV, over its pro rata share of all amounts paid by
the Guarantors under the Guaranty, determined in accordance with the first
sentence of this Article IV. The foregoing shall apply irrespective of which of
the Guarantors has actually made or is liable to make payment under the terms
and provisions of the Guaranty and without regard to the release of any
Guarantor of its obligations under the Guaranty by the Bank or any assignee
thereof.
V.
AGREEMENTS OF THE COMPANY
The Company covenants and agrees that any right to payment
received by the Guarantors in respect of the Credit Agreement, as amended, and
their guaranty thereof, whether by way of purchase, subrogation or otherwise,
and regardless whether and to what extent the same shall be subordinated to
other indebtedness to the Banks or shall have been waived pending certain
events, may be applied, both as to principal and accrued and unpaid interest,
dollar for dollar, by the Guarantors, or any of them, as the purchase price of
any equity securities offered by the Company to investors for cash. In addition,
in the event that the Company shall be unable to make a payment under the Credit
Agreement, as amended, the Guarantors shall have the right (but not the
obligation) (i) to purchase additional equity securities of the Company and (ii)
to require the Company to use the net proceeds of such purchase to make such
payment under the Credit Agreement, as amended. The right set forth in the
preceding sentence may only be exercised upon joint approval by the Guarantors,
and the securities so purchased shall be issued at fair value, based upon
current market conditions for the issuance of equity securities. The Company
shall use its best efforts to provide the Guarantors with sufficient notice in
advance of a payment default under the Credit Agreement, as amended, to enable
the Guarantors to exercise their rights under this Article V.
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<PAGE>
VI.
MISCELLANEOUS
Section 6.001. Expenses. Each party hereto will pay its own
expenses in connection with the transactions contemplated hereby, whether or not
such transactions shall be consummated; provided, however, that the Company
shall pay the fees and disbursements of the Guarantors' special counsel, Messrs.
Reboul, MacMurray, Hewitt, Maynard & Kristol.
Section 6.002. Survival of Agreements. All covenants,
agreements, representations and warranties made herein shall survive the
execution and delivery of this Agreement and the Warrants and the issuance, sale
and delivery of the Warrant Shares.
Section 6.003. Parties in Interest. All covenants and
agreements contained in this Agreement by or on behalf of any of the parties
hereto shall bind and inure to the benefit of the respective successors and
assigns of the parties hereto whether so expressed or not.
Section 6.004. Notices. All notices, requests, consent and
other communications hereunder shall be in writing and shall be mailed by first
class registered mail, postage prepaid, or sent by a recognized courier service
addressed as follows:
If to the Company to it at:
90 Merrick Avenue, Suite 501
East Meadow, New York 11554
Fax: (516) 542-4508
Attention: David M. Goldwin, Esq.
If to WCAS V or WCAS VI to it at
320 Park Avenue
Suite 2500
New York, New York 10022
Attention: Anthony J. de Nicola
If to Blair LF or Blair V to it at
222 W. Adams Street
Chicago, Illinois 60606
Attention: Timothy M. Murray
or, in any such case, at such other address or addresses as shall have been
furnished in writing my such party to the others.
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<PAGE>
SECTION 6.005. LAW GOVERNING. THIS AGREEMENT SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
Section 6.006. Entire Agreement. This Agreement constitutes
the entire Agreement of the parties with respect to the subject matter hereof
and may not be modified or amended except in writing.
Section 6.007. Counterparts. This Agreement may be executed in
two or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the Company and the Guarantors have
executed this Agreement as of the day and year first above written.
MEDE AMERICA CORPORATION
By
--------------------------------------
Thomas P. Staudt
President and
Chief Executive Officer
WELSH, CARSON, ANDERSON &
STOWE V, L.P.
By WCAS V Partners, General Partner
By
--------------------------------------
General Partner
WELSH, CARSON, ANDERSON &
STOWE VI, L.P.
By WCAS VI Partners, L.P., General
Partner
By
--------------------------------------
General Partner
WILLIAM BLAIR LEVERAGED CAPITAL
FUND LIMITED PARTNERSHIP
By William Blair Leveraged Capital
Management, L.P.
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<PAGE>
By William Blair & Company,
General Partner
By
--------------------------------------
WILLIAM BLAIR CAPITAL
PARTNERS V, L.P.
By William Blair Capital Partners, LLC,
General Partner
By
--------------------------------------
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<PAGE>
THIS WARRANT HAS BEEN ISSUED IN RELIANCE UPON THE REPRESENTATION OF THE
HOLDER THAT IT HAS BEEN ACQUIRED FOR INVESTMENT PURPOSES AND NOT WITH A
VIEW TOWARDS THE RESALE OR OTHER DISTRIBUTION THEREOF. NEITHER THIS
WARRANT NOR THE SHARES ISSUABLE UPON THE EXERCISE OF THIS WARRANT HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933.
MEDE AMERICA CORPORATION
Stock Subscription Warrant
Warrant to Subscribe October 31, 1997
for 125,376 shares
Void After October 30, 2007
THIS CERTIFIES that, for value received, WELSH, CARSON,
ANDERSON & STOWE VI, L.P., a Delaware limited partnership ("Holder"), or its
registered assigns, is entitled to subscribe for and purchase from MEDE AMERICA
CORPORATION, a Delaware corporation (hereinafter called the "Corporation"), at
the price of $1.25 per share (such price as from time to time to be adjusted as
hereinafter provided being hereinafter called the "Warrant Exercise Price"), at
any time prior to October 30, 2007, up to ONE HUNDRED TWENTY-FIVE THOUSAND THREE
HUNDRED SEVENTY-SIX (125,376) (subject to adjustment as hereinafter provided)
fully paid and nonassessable shares of Common Stock, $.01 par value, of the
Corporation (hereinafter called the "Common Stock"), subject, however, to the
provisions and upon the terms and conditions hereinafter set forth. This Warrant
and any warrant or warrants subsequently issued upon exchange or transfer hereof
and each other warrant issued pursuant to the Agreement, dated as of October 31,
1997 (the "Agreement"), among the Corporation and the stockholders of the
Corporation named therein, and any warrant or warrants subsequently issued upon
exchange or transfer thereof, are hereinafter collectively called the
"Warrants".
<PAGE>
Section 1. Exercise of Warrant.
(a) Method of Exercise. The rights represented by this Warrant
may be exercised by the holder hereof, in whole at any time or from
time to time in part, but not as to a fractional share of Common Stock,
by the surrender of this Warrant (properly endorsed) at the office of
the Corporation as it may designate by notice in writing to the holder
hereof at the address of such holder appearing on the books of the
Corporation, and as further provided below in this Section 1:
(i) Cash Exercise. By payment to the Corporation of the
Warrant Exercise Price in cash or by certified or offi- cial bank
check, for each share being purchased;
(ii) Surrender of Indebtedness of or Claims Against
Corporation. By surrender to the Corporation for cancellation of any
indebtedness of or claim against the Corporation (including without
limitation any claim against the Corporation as subrogee in the event
the Holder shall have performed under its guarantee under the First
Amendment, as contemplated by the Agreement), or of any portion
thereof, for which credit shall be given toward the Warrant Exercise
Price for each share being acquired on a dollar-for-dollar basis with
reference to the principal amount canceled;
(iii) Net Issue Exercise. By an election to receive shares the
aggregate fair market value of which as of the date of exercise is
equal to the fair market value of this Warrant (or the portion thereof
being exercised) on such date, in which event the Corporation, upon
receipt of notice of such election, shall issue to the holder hereof a
number of shares of the Corporation's Common Stock equal to (A) the
number of shares of Common Stock acquirable upon exercise of all or any
portion of this Warrant being exercised, as at such date, multiplied by
(B) the balance remaining after deducting (x) the Warrant Exercise
Price, as in effect on such date, from (y) the fair market value of one
share of the Corporation's Common Stock as at such date and dividing
the result by (C) such fair market value; or
(iv) Combined Payment Method. By satisfaction of the Warrant
Exercise Price for each share being acquired in any combination of two
or more of the methods described in clauses (i), (ii) and (iii) above.
(b) Mandatory Exercise. Upon the consummation of an
underwritten public offering pursuant to an effective registration
statement under the Securities Act of 1933, as
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<PAGE>
amended (the "Securities Act"), covering the sale of the Corporation's
Common Stock at a price to the public of $3.00 or more (such price as
from time to time to be adjusted in the manner provided for in
paragraphs (d), (h) and (j) for the adjustment of the Warrant Exercise
Price), this Warrant, to the extent not previously exercised, shall be
surrendered (properly endorsed) at the office of the Corporation as it
may designate by notice in writing to the holder hereof at the address
of such holder appearing on the books of the Corporation, accompanied
by payment to the Corporation of the Warrant Exercise Price by one or
more of the methods specified in clauses (a)(i)-(iv) above; and to the
extent not so surrendered, it shall be deemed exercised in the manner
provided in clause (a)(iii) above and, upon delivery of the shares of
Common Stock determined in accordance therewith, this Warrant shall be
canceled.
(c) Definition of Fair Market Value. For the purposes of this
Section 1, "fair market value" shall mean, as to any security, as
follows: if that security is listed or admitted to trading on one or
more national securities exchanges, the average of the last reported
sales prices per share regular way or, in case no such reported sales
takes place on any such day, the average of the last reported bid and
asked prices per share regular way, in either case on the principal
national securities exchange on which that security is listed or
admitted to trading, for the 20 trading days immediately preceding the
date upon which the fair market value is determined (the "Determination
Date"); if that security is not listed or admitted to trading on a
national securities exchange but is quoted by the NASD Automated
Quotation System ("NASDAQ"), the average of the last reported sales
prices per share regular way or, in case no reported sale takes place
on any such day or the last reported sales prices are not then quoted
by NASDAQ, the average for each such day of the last reported bid and
asked prices per share, for the 20 trading days immediately preceding
the Determination Date as furnished by the National Quotation Bureau
Incorporated or any similar successor organization; and if that
security is not listed or admitted to trading on a national securities
exchange or quoted by NASDAQ or any other nationally recognized
quotation service, the "fair market value" shall be the fair value
thereof determined jointly by the Corporation and the registered
holders of Warrants outstanding representing a majority of the shares
of Common Stock acquirable upon exercise of the Warrants, provided,
however, that if such parties are unable to reach agreement within a
reasonable time, the "fair market value" shall be determined in good
faith by an independent investment banking firm selected jointly by the
Corporation and the registered holders of Warrants outstanding
representing a majority of the shares of Common Stock
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<PAGE>
issuable upon exercise of the Warrants or, if that selection cannot be
made within 15 days, by an independent investment banking firm selected
by the American Arbitration Association in accordance with its rules.
Anything in this paragraph (c) to the contrary notwithstanding, the
fair market value of this Warrant or any portion thereof as of any
Determination Date shall be equal to (i) the fair market value of the
shares of Common Stock issuable upon exercise of this Warrant (or such
portion thereof), (determined in accordance with the foregoing
provisions of this paragraph (c)), minus (ii) the aggregate Warrant
Exercise Price of this Warrant (or such portion thereof).
(d) Delivery of Certificates, Etc. In the event of any
exercise of the rights represented by this Warrant, a certificate or
certificates for the shares of Common Stock so purchased, registered in
the name of the holder, shall be delivered to the holder hereof within
a reasonable time, not exceeding ten days, after the rights represented
by this Warrant shall have been so exercised; and, unless this Warrant
has expired, a new Warrant representing the number of shares (except a
remaining fractional share), if any, with respect to which this Warrant
shall not then have been exercised shall also be issued to the holder
hereof within such time. The person in whose name any certificate for
shares of Common Stock is issued upon exercise of this Warrant shall
for all purposes be deemed to have become the holder of record of such
shares on the date on which the Warrant was surrendered and payment of
the Warrant Exercise Price and any applicable taxes was made, except
that, if the date of such surrender and payment is a date on which the
stock transfer books of the Corporation are closed, such person shall
be deemed to have become the holder of such shares at the close of
business on the next succeeding date on which the stock transfer books
are open.
Section 2. Adjustment of Number of Shares. Upon each
adjustment of the Warrant Exercise Price as provided in Section 3, the holder of
this Warrant shall thereafter be entitled to purchase, at the Warrant Exercise
Price resulting from such adjustment, the number of shares (calculated to the
nearest tenth of a share) obtained by multiplying the Warrant Exercise Price in
effect immediately prior to such adjustment by the number of shares purchasable
pursuant hereto immediately prior to such adjustment and dividing the product
thereof by the Warrant Exercise Price resulting from such adjustment.
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<PAGE>
Section 3. Adjustment of Price Upon Issuance of Common Stock.
If and whenever the Corporation shall issue or sell any shares of its Common
Stock for a consideration per share less than the Warrant Exercise Price in
effect immediately prior to the time of such issue or sale, then, forthwith upon
such issue or sale the Warrant Exercise Price shall be reduced to the price
(calculated to the nearest $.01) determined by dividing (i) an amount equal to
the sum of (a) the number of shares of Common Stock outstanding immediately
prior to such issue or sale (including as outstanding all shares of Common Stock
issuable upon conversion of all outstanding Convertible Securities (as
hereinafter defined) or exercise of outstanding Warrants multiplied by the then
existing Warrant Exercise Price, and (b) the consideration, if any, received by
the Corporation upon such issue or sale, by (ii) the total number of shares of
Common Stock outstanding immediately after such issue or sale (including as
outstanding all shares of Common Stock issuable upon conversion of all
outstanding Convertible Securities or exercise of outstanding Warrants). No
adjustments of the Warrant Exercise Price, however, shall be made in an amount
less than $.01 per share, but any such lesser adjustment shall be carried
forward and shall be made at the time and together with the next subsequent
adjustment which together with any adjustments so carried forward shall amount
to $.01 per share or more.
For purposes of this Section 3, the following paragraphs (a)
to (p), inclusive, shall also be applicable:
(a) Issuance of Rights or Options. In case at any time the
Corporation shall in any manner grant (whether directly or by
assumption in a merger or otherwise) any rights to subscribe for or to
purchase, or any options for the purchase of, Common Stock or any stock
or securities convertible into or exchangeable for Common Stock (such
rights or options being herein called "Options", and such convertible
or exchangeable stock or securities being herein called "Convertible
Securities") whether or not such Options or the right to convert or
exchange any such Convertible Securities are immediately exercisable,
and the price per share for which Common Stock is issuable upon the
exercise of such Options or upon conversion or exchange of such
Convertible Securities (determined by dividing (i) the total amount, if
any, received or receivable by the Corporation as consideration for the
granting of such Options, plus the minimum aggregate amount of
additional consideration payable to the Corporation upon the exercise
of all such Options, plus, in the case of such Options which relate to
Convertible Securities, the minimum aggregate amount of additional
consideration, if any, payable upon the issue or sale of such
Convertible Securities and upon the conversion or exchange thereof, by
(ii) the total maximum number of shares of Common Stock issuable upon
the exercise of such Options
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<PAGE>
or upon the conversion or exchange of all such Convertible Securities
issuable upon the exercise of such Options) shall be less than the
Warrant Exercise Price in effect immediately prior to the time of the
granting of such Options, then the total maximum number of shares of
Common Stock issuable upon the exercise of such Options or upon
conversion or exchange of the total maximum amount of such Convertible
Securities issuable upon the exercise of such Options shall be deemed
to have been issued for such price per share as of the date of granting
of such Options and thereafter shall be deemed to be outstanding.
Except as otherwise provided in paragraph (c), no adjustment of the
Warrant Exercise Price shall be made upon the actual issue of such
Common Stock or of such Convertible Securities upon exercise of such
Options or upon the actual issue of such Common Stock upon conversion
or exchange of such Convertible Securities.
(b) Issuance of Convertible Securities. In case the
Corporation shall in any manner issue (whether directly or by
assumption in a merger or otherwise) or sell any Convertible
Securities, whether or not the rights to exchange or convert thereunder
are immediately exercisable, and the price per share for which Common
Stock is issuable upon such conversion or exchange (determined by
dividing (i) the total amount received or receivable by the Corporation
as consideration for the issue or sale of such Convertible Securities,
plus the minimum aggregate amount of additional consideration, if any,
payable to the Corporation upon the conversion or exchange of all such
Convertible Securities) shall be less than the Warrant Exercise Price
in effect immediately prior to the time of such issue or sale, then the
total maximum number of shares of Common Stock issuable upon conversion
or exchange of all such Convertible Securities shall be deemed to have
been issued for such price per share as of the date of the issue or
sale of such Convertible Securities and thereafter shall be deemed to
be outstanding, provided that (i) except as otherwise provided in
paragraph (c) below, no adjustment of the Warrant Exercise Price shall
be made upon the actual issue of such Common Stock upon conversion or
exchange of such Convertible Securities, and (ii) if any such issue or
sale of such Convertible Securities is made upon exercise of any Option
to purchase any such Convertible Securities for which adjustments of
the Warrant Exercise Price have been or are to be made pursuant to
other provisions of this Section 3, no further adjustment of the
Warrant Exercise Price shall be made by reason of such issue or sale.
(c) Change in Option Price or Conversion Rate. Upon the
happening of any of the following events, namely, if the purchase price
provided for in any Option referred to in paragraph (a), the additional
consideration, if any, payable
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<PAGE>
upon the conversion or exchange of any Convertible Securities referred
to in paragraph (a) or (b), or the rate at which any Convertible
Securities referred to in paragraph (a) or (b) are convertible into or
exchangeable for Common Stock shall change at any time (other than
under or by reason of provisions designed to protect against dilution),
the Warrant Exercise Price in effect at the time of such event shall
forthwith be readjusted to the Warrant Exercise Price which would have
been in effect at such time had such Options or Convertible Securities
still outstanding provided for such changed purchase price, additional
consideration or conversion rate, as the case may be, at the time
initially granted, issued or sold; and on the expiration of any such
Option or the termination of any such right to convert or exchange such
Convertible Securities, the Warrant Exercise Price then in effect
hereunder shall forthwith be increased to the Warrant Exercise Price
which would have been in effect at the time of such expiration or
termination had such Option or Convertible Security, to the extent
outstanding immediately prior to such expiration or termination, never
been issued, and the Common Stock issuable thereunder shall no longer
be deemed to be outstanding.
If the purchase price provided for in any such Option referred to in
paragraph (a) or the rate at which any Convertible Securities referred
to in paragraph (a) or (b) are convertible into or exchangeable for
Common Stock, shall be reduced at any time under or by reason of
provisions with respect thereto designed to protect against dilution,
then in case of the delivery of Common Stock upon the exercise of any
such Option or upon conversion or exchange of any such Convertible
Security, the Warrant Exercise Price then in effect hereunder shall
forthwith be adjusted to such respective amount as would have been
obtained had such Option or Convertible Security never been issued as
to such Common Stock and had adjustments been made upon the issuance of
the shares of Common Stock delivered as aforesaid, but only if as a
result of such adjustment the Warrant Exercise Price then in effect
hereunder is thereby reduced.
(d) Stock Dividends. In case the Corporation shall declare a
dividend or make any other distribution upon any stock of the
Corporation payable in Common Stock, Options or Convertible Securities,
any Common Stock, Options or Convertible Securities, as the case may
be, issuable in payment of such dividend or distribution shall be
deemed to have been issued in a subdivision of outstanding shares as
provided in paragraph (h) below.
(e) Consideration for Stock. In case any shares of Common
Stock, Options or Convertible Securities shall be issued or sold for
cash, the consideration received therefor
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<PAGE>
shall be deemed to be the amount received by the Corporation therefor,
without deduction therefrom of any expenses incurred or any
underwriting commissions or concessions paid or allowed by the
Corporation in connection therewith. In case any shares of Common
Stock, Options or Convertible Securities shall be issued or sold for a
consideration other than cash, the amount of the consideration other
than cash received by the Corporation shall be deemed to be the fair
value of such consideration as determined by the Board of Directors of
the Corporation, without deduction of any expenses incurred or any
underwriting commissions or concessions paid or allowed by the
Corporation in connection therewith. The amount of consideration deemed
to be received by the Corporation pursuant to the foregoing provisions
of this paragraph (e) upon any issuance and/or sale, pursuant to an
established compensation plan of the Corporation, to directors,
officers or employees of the Corporation in connection with their
employment of shares of Common Stock, Options or Convertible
Securities, shall be increased by the amount of any tax benefit
realized by the Corporation as a result of such issuance and/or sale,
the amount of such tax benefit being the amount by which the Federal
and/or State income or other tax liability of the Corporation shall be
reduced by reason of any deduction or credit in respect of such
issuance and/or sale. In case any Options shall be issued in connection
with the issue and sale of other securities of the Corporation,
together comprising one integral transaction in which no specific
consideration is allocated to such Options by the parties thereto, such
Options shall be deemed to have been issued without consideration. In
case any shares of Common Stock, Options or Convertible Securities
shall be issued in connection with any merger or consolidation in which
the Corporation is the surviving corporation, the amount of
consideration therefor shall be deemed to be the fair value as
determined by the Board of Directors of the Corporation of such portion
of the assets and business of the non-surviving corporation as such
Board shall determine to be attributable to such Common Stock, Options
or Convertible Securities, as the case may be. In the event of any
consolidation or merger of the Corporation in which the Corporation is
not the surviving corporation or in the event of any sale of all or
substantially all of the assets of the Corporation for stock or other
securities of any corporation, the Corporation shall be deemed to have
issued a number of shares of its Common Stock for stock or securities
of the other corporation computed on the basis of the actual exchange
ratio on which the transaction was predicated and for a consideration
equal to the fair market value on the date of such transaction of such
stock or securities of the other corporation, and if any such
calculation results in adjustment of the Warrant Exercise Price, the
determination of the number of shares of Common Stock
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<PAGE>
receivable under this Warrant immediately prior to such merger,
consolidation or sale, for purposes of paragraph (j), shall be made
after giving effect to such adjustment of the Warrant Exercise Price.
(f) Record Date. In case the Corporation shall take a record
of the holders of its Common Stock for the purpose of entitling them
(i) to receive a dividend or other distribution payable in Common
Stock, Options or Convertible Securities, or (ii) to subscribe for or
purchase Common Stock, Options or Convertible Securities, then such
record date shall be deemed to be the date of the issue or sale of the
shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other distribution
or the date of the granting of such right of subscription or purchase,
as the case may be.
(g) Treasury Shares. The number of shares of Common Stock
outstanding at any given time shall not include shares owned or held by
or for the account of the Corporation, and the disposition of any such
shares shall be considered an issue or sale of Common Stock for the
purposes of this Section 3.
(h) Subdivision or Combination of Stock. In case the
Corporation shall at any time subdivide its outstanding shares of
Common Stock into a greater number of shares, the Warrant Exercise
Price in effect immediately prior to such subdivision shall be
proportionately reduced, and conversely, in case the outstanding shares
of Common Stock of the Corporation shall be combined into a smaller
number of shares, the Warrant Exercise Price in effect immediately
prior to such combination shall be proportionately increased.
(i) Certain Issues of Common Stock Excepted. Anything herein
to the contrary notwithstanding, the Corporation shall not be required
to make any adjustment of the Warrant Exercise Price in the case of the
issuance of shares of Common Stock upon exercise of employee stock
options approved by the Board of Directors of the Corporation.
(j) Reorganization, Reclassification, Consolidation, Merger or
Sale. If any capital reorganization or reclassification of the capital
stock of the Corporation or any consolidation or merger of the
Corporation with another corporation, or the sale of all or
substantially all of its assets to another corporation 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, as a condition of such reorganization,
reclassification, consolidation, merger or
9
<PAGE>
sale, lawful and adequate provisions shall be made whereby each holder
of the Warrants shall thereafter have the right to receive upon the
basis and upon the terms and conditions specified herein and in lieu of
the shares of Common Stock of the Corporation immediately theretofore
receivable upon the exercise of such Warrant or Warrants, such shares
of stock, securities or assets (including 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 stock
immediately theretofore so receivable had such reorganization,
reclassification, consolidation, merger or sale not taken place, and in
any such case appropriate provision shall be made with respect to the
rights and interests of such holder to the end that the provisions
hereof (including without limitation provisions for adjustments of the
Warrant Exercise Price) shall thereafter be applicable, as nearly as
may be, in relation to any shares of stock, securities or assets
thereafter deliverable upon the exercise of such exercise rights
(including an immediate adjustment, by reason of such reorganization or
reclassification, of the Warrant Exercise Price to the value for the
Common Stock reflected by the terms of such reorganization or
reclassification if the value so reflected is less than the Warrant
Exercise Price in effect immediately prior to such reorganization or
reclassifica- tion). In the event of a merger or consolidation of the
Corporation as a result of which a greater or lesser number of shares
of common stock of the surviving corporation are issuable to holders of
Common Stock of the Corporation outstanding immediately prior to such
merger or consolidation, the Warrant Exercise Price in effect
immediately prior to such merger or consolidation shall be adjusted in
the same manner as though there were a subdivision or combination of
the outstanding shares of Common Stock of the Corporation. The
Corporation will not effect any such consolidation, merger or any sale
of all or substantially all of its assets of properties, unless prior
to the consummation thereof the successor corporation (if other than
the Corporation) resulting from such consolidation or merger or the
corporation purchasing such assets shall assume by written instrument
executed and mailed or delivered to each holder of the Warrants at the
last address of such holder appearing on the books of the Corporation,
the obligation to deliver to such holder such shares of stock,
securities or assets as, in accordance with the foregoing provisions,
such holder may be entitled to receive.
(k) Notice of Adjustment. Upon any adjustment of the Warrant
Exercise Price, then and in each such case, the Corporation shall give
written notice thereof, by first class mail, postage prepaid, addressed
to each holder of the Warrants at the address of such holder as shown
on the books
10
<PAGE>
of the Corporation, which notice shall state the Warrant Exercise Price
resulting from such adjustment, setting forth in reasonable detail the
method of calculation and the facts upon which such calculation is
based.
(l) Certain Events. If any event occurs as to which in the
opinion of the Board of Directors of the Corporation the other
provisions of this Section 3 are not strictly applicable or if strictly
applicable would not fairly protect the exercise rights of this
Warrant, in accordance with the essential intent and principles of such
provisions to protect against dilution, then such Board of Directors
shall in good faith make an adjustment in the application of such
provisions, in accordance with such essential intent and principles, so
as to protect such exercise rights as aforesaid.
(m) Stock to Be Reserved. The Corporation will at all times
reserve and keep available out of its authorized Common Stock or its
treasury shares, solely for the purpose of issue upon the exercise of
this Warrant as herein provided, such number of shares of Common Stock
as shall then be issuable upon the exercise of this Warrant. 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, and, without limiting the generality of the
foregoing, the Corporation covenants that it will from time to time
take all such action as may be requisite to assure that the par value
per share of the Common Stock is at all times equal to or less than the
effective Warrant Exercise Price. The Corporation will take all such
action as may be necessary to assure that all such shares of Common
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. The
Corporation will not take any action which results in any adjustment of
the Warrant Exercise Price if the total number of shares of Common
Stock issued and issuable after such action upon exercise of this
Warrant would exceed the total number of shares of Common Stock then
authorized by the Corporation's Articles of Incorporation. The
Corporation has not granted and will not grant any right of first
refusal with respect to shares issuable upon exercise of this Warrant,
and there are no preemptive rights associated with such shares.
(n) Issue Tax. The issuance of certificates for shares of
Common Stock upon exercise of the Warrants shall be made without charge
to the holders of such Warrants for any issuance tax in respect thereof
provided that the Corporation shall not be required to pay any tax
which may be
11
<PAGE>
payable in respect of any transfer involved in the issuance and
delivery of any certificate in a name other than that of any holder of
the Warrants.
(o) Closing of Books. The Corporation will at no time close
its transfer books against the transfer of the shares of Common Stock
issued or issuable upon the exercise of this Warrant in any manner
which interferes with the timely exercise of this Warrant.
(p) Definition of Common Stock. As used herein the term
"Common Stock" shall mean and include the Common Stock, $.01 par value,
of the Corporation as authorized on the date hereof and also any
capital stock of any class of the Corporation hereinafter authorized
which shall not be limited to a fixed sum or percentage in respect of
the rights of the holders thereof to participate in dividends or in the
distribution of assets upon the voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, provided, however, that
the shares purchasable pursuant to this Warrant shall include only
shares designated as Common Stock, $.01 par value, of the Corporation
on the date hereof, or shares of any class or classes resulting from
any reclassification or reclassifications thereof which are not limited
to any such fixed sum or percentage and are not subject to redemption
by the Corporation and, in case at any time there shall be more than
one such resulting class, the shares of each class then so issuable
shall be substantially in the proportion which the total number of
shares of such class resulting from all such reclassifications bears to
the total number of shares of all such classes resulting from all such
reclassifications.
Section 4. Notices of Record Dates. In the event of
(1) any taking by the Corporation of a record of the holders
of any class of securities for the purpose of determining the holders
thereof who are entitled to receive any dividend or other distribution
(other than cash dividends out of earned surplus), or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any
class or any other securities or property, or to receive any other
right, or
(2) any capital reorganization of the Corporation, any
reclassification or recapitalization of the capital stock of the
Corporation or any transfer of all or substantially all the assets of
the Corporation to or consolidation or merger of the Corporation with
or into any other corporation, or
12
<PAGE>
(3) any voluntary or involuntary dissolution, liquidation or
winding-up of the Corporation,
then and in each such event the Corporation will give notice to the holder of
this Warrant specifying (i) the date on which any such record is to be taken for
the purpose of such dividend, distribution or right and stating the amount and
character of such dividend, distribution or right, and (ii) the date on which
any such reorganization, reclassification, recapitalization, transfer,
consolidation, merger, dissolution, liquidation or winding-up is to take place,
and the time, if any is to be fixed, as of which the holders of record of Common
Stock will be entitled to exchange their shares of Common Stock for securities
or other property deliverable upon such reorganization, reclassifi- cation,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding-up. Such notice shall be given at least 20 days and not more than 90
days prior to the date therein specified, and such notice shall state that the
action in question or the record date is subject to the effectiveness of a
registration statement under the Securities Act or to a favorable vote of
stockholders, if either is required.
Section 5. [omitted]
Section 6. No Stockholder Rights or Liabilities. This Warrant
shall not entitle the holder hereof to any voting rights or other rights as a
stockholder of the Corporation. No provi- sion hereof, in the absence of
affirmative action by the holder hereof to purchase shares of Common Stock, and
no mere enumera- tion herein of the rights or privileges of the holder hereof,
shall give rise to any liability of such holder for the Warrant Exercise Price
or as a stockholder of the Corporation, whether such liability is asserted by
the Corporation or by creditors of the Corporation.
Section 7. Investment Representation and Legend. The holder,
by acceptance of the Warrant, represents and warrants to the Corporation that it
is acquiring the Warrant and the shares of Common Stock (or other securities)
issuable upon the exercise hereof for investment purposes only and not with a
view towards the resale or other distribution thereof and agrees that (a) it
will not offer, sell, transfer, encumber or otherwise dispose of the Warrant or
any of the shares of Common Stock (or other securities) issuable upon the
exercise hereof unless either (i) there is an effective registration statement
under said Act relating thereto or (ii) the Corporation has received an opinion
of counsel, reasonably satisfactory in form and substance to the Corporation,
stating that such registration is not required; and (b) the Corporation may
affix upon this Warrant the following legend:
13
<PAGE>
"This Warrant has been issued in reliance upon the
representation of the holder that it has been acquired for investment
purposes and not with a view towards the resale or other distribution
thereof. Neither this Warrant nor the shares issuable upon the exercise
of this Warrant have been registered under the Securities Act of 1933."
The holder, by acceptance of this Warrant, further agrees that the Corporation
may affix the following legend to certificates for shares of Common Stock issued
upon exercise of this Warrant:
"The securities represented by this certificate have been
issued in reliance upon the representation of the holder that they have
been acquired for investment and not with a view toward the resale or
other distribution thereof, and have not been registered under the
Securities Act of 1933. Neither the securities evidenced hereby, nor
any interest therein, may be offered, sold, transferred, encumbered or
otherwise disposed of unless either (i) there is an effective
registration statement under said Act relating thereto or (ii) the
Corporation has received an opinion of counsel, reasonably satisfactory
in form and substance to the Corporation, stating that such
registration is not required."
Section 8. Lost, Stolen, Mutilated or Destroyed Warrant. If
this Warrant is lost, stolen, mutilated or destroyed, the Corporation may, on
such terms as to indemnity or otherwise as it may in its discretion reasonably
impose (which shall, in the case of a mutilated Warrant, include the surrender
thereof), issue a new Warrant of like denomination and tenor as the Warrant so
lost, stolen, mutilated or destroyed. Any such new Warrant shall constitute an
original contractual obligation of the Corporation, whether or not the allegedly
lost, stolen, mutilated or destroyed Warrant shall be at any time enforceable by
anyone.
Section 9. Notices. All notices, requests and other
communications required or permitted to be given or delivered hereunder shall be
in writing, and shall be delivered, or shall be sent by certified or registered
mail, postage prepaid and addressed, if to the holder to such holder at the
address shown on such holder's Warrant or at such other address as shall have
been furnished to the Corporation by notice from such holder. All notices,
requests and other communications required or permitted to be given or delivered
hereunder shall be in writing, and shall be delivered, or shall be sent by
certified or registered mail, postage prepaid and addressed to the Corporation
at such address as shall have been furnished to the holder by notice from the
Corporation.
14
<PAGE>
IN WITNESS WHEREOF, MedE America Corporation has executed this
Warrant on and as of the day and year first above written.
MEDE AMERICA CORPORATION
By
-------------------------------------
15
<PAGE>
SUBSCRIPTION
To:
Dated:
The undersigned, pursuant to the provisions set forth in the
within Warrant, hereby agrees to subscribe for and purchase shares of Common
Stock of MedE America Corporation, a Delaware Corporation (the "Corporation")
covered by such Warrant, and makes payment herewith in full therefor [at the
price per share provided by such Warrant [in cash] [by surrender of indebtedness
of the Corporation as provided in Section 1(a)(ii) of such Warrant] [as provided
in Section 1(a)(iii) of such Warrant].
Signature
------------------------------
----------------------------------------
Address
--------------------------------
----------------------------------------
<PAGE>
THIS WARRANT HAS BEEN ISSUED IN RELIANCE UPON THE REPRESENTATION OF THE
HOLDER THAT IT HAS BEEN ACQUIRED FOR INVESTMENT PURPOSES AND NOT WITH A
VIEW TOWARDS THE RESALE OR OTHER DISTRIBUTION THEREOF. NEITHER THIS
WARRANT NOR THE SHARES ISSUABLE UPON THE EXERCISE OF THIS WARRANT HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933.
MEDE AMERICA CORPORATION
Stock Subscription Warrant
Warrant to Subscribe October 31, 1997
for 31,344 shares
Void After October 30, 2007
THIS CERTIFIES that, for value received, WILLIAM BLAIR CAPITAL
PARTNERS V, L.P., a Delaware limited partnership ("Holder"), or its registered
assigns, is entitled to subscribe for and purchase from MEDE AMERICA
CORPORATION, a Delaware corporation (hereinafter called the "Corporation"), at
the price of $1.25 per share (such price as from time to time to be adjusted as
hereinafter provided being hereinafter called the "Warrant Exercise Price"), at
any time prior to October 30, 2007, up to THIRTY-ONE THOUSAND THREE HUNDRED
FORTY-FOUR (31,344) (subject to adjustment as hereinafter provided) fully paid
and nonassessable shares of Common Stock, $.01 par value, of the Corporation
(hereinafter called the "Common Stock"), subject, however, to the provisions and
upon the terms and conditions hereinafter set forth. This Warrant and any
warrant or warrants subsequently issued upon exchange or transfer hereof and
each other warrant issued pursuant to the Agreement, dated as of October 31,
1997 (the "Agreement"), among the Corporation and the stockholders of the
Corporation named therein, and any warrant or warrants subsequently issued upon
exchange or transfer thereof, are hereinafter collectively called the
"Warrants".
<PAGE>
Exhibit 1
Form of Warrant
THIS WARRANT HAS BEEN ISSUED IN RELIANCE UPON THE REPRESENTATION OF THE
HOLDER THAT IT HAS BEEN ACQUIRED FOR INVESTMENT PURPOSES AND NOT WITH A
VIEW TOWARDS THE RESALE OR OTHER DISTRIBUTION THEREOF. NEITHER THIS
WARRANT NOR THE SHARES ISSUABLE UPON THE EXERCISE OF THIS WARRANT HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933.
MEDE AMERICA CORPORATION
Stock Subscription Warrant
Warrant to Subscribe October , 1997
for [ ] shares
Void After October , 2007
THIS CERTIFIES that, for value received, [ ], a [ ] limited
partnership ("Holder"), or its registered assigns, is entitled to subscribe for
and purchase from MEDE AMERICA CORPORATION, a Delaware corporation (hereinafter
called the "Corporation"), at the price of $1.25 per share (such price as from
time to time to be adjusted as hereinafter provided being hereinafter called the
"Warrant Exercise Price"), at any time prior to October [ ], 2007, up to [ ] ([
]) (subject to adjustment as hereinafter provided) fully paid and nonassessable
shares of Common Stock, $.01 par value, of the Corporation (hereinafter called
the "Common Stock"), subject, however, to the provisions and upon the terms and
conditions hereinafter set forth. This Warrant and any warrant or warrants
subsequently issued upon exchange or transfer hereof and each other warrant
issued pursuant to the Agreement, dated as of October [ ], 1997 (the
"Agreement"), among the Corporation and the stockholders of the Corporation
named therein, and any warrant or warrants subsequently issued upon exchange or
transfer thereof, are hereinafter collectively called the "Warrants".
AGREEMENT
AGREEMENT dated as of January 10, 1997, among MEDE AMERICA
CORPORATION, a Delaware corporation (the "Company"), WELSH, CARSON, ANDERSON &
STOWE V, L.P., a Delaware limited partnership ("WCAS V"), WELSH, CARSON,
ANDERSON & STOWE VI, L.P., a Delaware limited partnership ("WCAS VI"), WILLIAM
BLAIR LEVERAGED CAPITAL FUND LIMITED PARTNERSHIP, an Illinois limited
partnership, ("Blair LF") and WILLIAM BLAIR CAPITAL PARTNERS V, L.P., a Delaware
limited partnership, ("Blair V"; WCAS V, WCAS VI, Blair LF and Blair V being
hereinafter referred to individually as a "Guarantor" and collectively as the
"Guarantors").
WHEREAS, the Guarantors are collectively the owners of
approximately 90% of the outstanding common and preferred stock of the Company;
WHEREAS, the Company and Bank of America Illinois (the "Bank")
are parties to a Credit Agreement, dated as of December 18, 1995 (the "Credit
Agreement"), providing for the extension by the Bank to the Company of a
revolving line of credit in the amount of $10,000,000 (the "Line of Credit");
WHEREAS, the Company and the Guarantors have determined that
it is imperative to the future viability of the Company that the Company enter
into that certain First Amendment to Credit Agreement, dated as of January 10,
1997 (the "First Amendment"), between the Company and the Bank, providing for
the amendment of the amount of the Line of Credit to enable the Bank to extend
up to an additional $3,500,000 in credit to the Company (the "Additional
Indebtedness"), up to an aggregate $13,500,000, to extend the maturity date for
all moneys borrowed under the Credit Agreement and to amend certain other
provisions of the Credit Agreement;
WHEREAS, the Bank is unwilling to enter into the First
Amendment or to extend the Additional Indebtedness to the Company unless the
payment of the Company's obligations to the Bank thereunder is guaranteed by the
Guarantors;
WHEREAS, in order to protect their existing substantial equity
investments in the Company and to ensure the Company's future financial
viability, the Guarantors are willing to assume additional financial risk in
their role as stockholders of the Company by giving certain guarantees to the
Bank with respect to the Line of Credit and the Additional Indebtedness; and
WHEREAS, in consideration of the Guarantors assuming such
additional financial risk by making such guarantees the
<PAGE>
Company is willing to issue to the Guarantors warrants to pur- chase shares of
its Common Stock;
NOW, THEREFORE, in consideration of the foregoing and the
mutual agreements contained herein, the parties hereby agree as follows:
I.
ISSUANCE OF WARRANTS
Section 1.001. Issuance of Warrants. (a) Upon the agreement by
each Guarantor to guarantee payment of the Additional Indebtedness, as evidenced
by such Guarantor's execution of the First Amendment, the Company shall execute
and deliver to such Guarantor a warrant or warrants, in the form annexed hereto
as Exhibit 1 (individually a "Warrant" and collectively the "Warrants") to
purchase shares of the Company's Common Stock, $.01 par value ("Common Stock"),
at an initial exercise price of $1.25 per share. Each Guarantor shall be
entitled to Warrants to purchase a number of shares of Common Stock equal to
84,000 shares multiplied by the percentage shown opposite such Guarantor's name
in Exhibit 2 hereto in the column headed "Percentage" (hereinafter called such
Guarantor's "Percentage").
Section 1.002. Tax and Accounting Treatment. The Company and
the Guarantors agree that for federal, state and local income tax as well as for
financial accounting purposes, the issuance of the Warrants by the Company to
the Guarantors is in the nature of a dividend distribution and is not
compensation (or a payment) for any services, and each hereby agrees to treat
the issuance of the Warrants in such manner for all such purposes, all to the
maximum extent permitted by applicable law.
II.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to, and agrees with, the
Guarantors as follows:
Section 2.001. Organization. The Company is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware and is duly licensed or qualified to do business as a foreign
corporation in good standing in each of the jurisdiction in which it owns or
leases any real property or in which the nature of business transacted by it
makes such licensing or qualification necessary and where the failure to be so
licensed or qualified would have a material adverse affect on the business,
operations or financial condition
2
<PAGE>
of the Company. The Company has the corporate power and authority to own and
hold its properties and to carry on its business as currently conducted, to
execute, deliver and perform this Agreement and the Warrants and to issue, sell
and deliver the shares of Common Stock issuable upon the exercise of the
Warrants (the "Warrant Shares").
Section 2.002. Authorization of Agreement, etc. (a) The
execution, delivery and performance by the Company of this Agreement and the
Warrants, and the issuance, sale and delivery of the Warrant Shares upon
exercise of the Warrants, have been duly authorized by all requisite corporate
action and will not (i) violate any provision of law, any order of any court or
other agency of government, the Certificate of Incorporation or By-laws of the
Company, or any provision of any indenture, agreement or other instrument by
which the Company or any of its subsidiaries or any of their respective
properties or assets is bound or affected; (ii) conflict with, result in a
breach of or constitute (with due notice or lapse of time or both) a default any
such indenture, agreement or other instrument; or (iii) result in the creation
or imposition of any lien, charge or incumbrance of any nature upon any of the
properties or assets of the Company or any of its subsidiaries.
(b) The Warrant Shares have been duly reserved for issuance
upon exercise of the Warrants and, when so issued, will be duly authorized,
validly issued and outstanding, fully paid and non assessable shares of Common
Stock. Neither the execution and delivery of the Warrants nor the issuance and
delivery of the Warrant Shares upon exercise thereof is subject to any
preemptive rights of shareholders of the Company or to any right of first
refusal or other similar right in favor of any person.
Section 2.003. Validity. This Agreement has been duly executed
and delivered by the Company and constitutes the legal, valid and binding
obligation of the Company, enforceable in accordance with its terms. The
Warrants, when executed in accordance with this Agreement, will constitute
legal, valid and binding obligations of the Company, enforceable in accordance
with their respective terms.
III.
REPRESENTATIONS AND WARRANTIES OF THE GUARANTORS
Each Guarantor represents and warrants to the Company that it
is acquiring the Warrants, and will, upon exercise thereof, acquire the Warrant
Shares, for its own account for purpose of investment and not with a view to or
for sale in connection with any distribution thereof. Each Guarantor further
represents that it understands (i) that neither the Warrants nor the Warrant
Shares have been registered under the Securities Act
3
<PAGE>
of 1933, as amended (the "Securities Act"), by reason of their issuance in
transactions exempt from the registration requirements of the Securities Act
pursuant to Section 4(2) thereof, (ii) the Warrants and, upon exercise thereof,
the Warrant Shares must be held indefinitely unless a subsequent disposition
thereof is registered under the Securities Act or is otherwise exempt from such
registration, (iii) the Warrants and the Warrant Shares will bear a legend to
such effect and (iv) the Company will make a notation on its transfer books to
such effect. Each Guarantor further understands that the exemption from
registration afforded by Rule 144 under the Securities Act depends on the
satisfaction of various conditions and that, if applicable, affords the basis of
sales of the Warrants and/or the Warrant Shares in limited amounts under certain
conditions. Each Guarantor (i) acknowledges that it has had a full opportunity
to request from the Company to review and has received all information deemed
relevant in making a decision to enter into this Agreement and consummate the
transactions contemplated thereby and (ii) will comply with the restrictions on
transferability of the Warrants and Warrant Shares contained in the Warrant.
Each Guarantor is an "Accredited Investor" within the meaning of Rule 501(a) of
the Securities Act.
IV.
AGREEMENTS AMONG THE GUARANTORS
The Guarantors agree with one another that all payments made
by them pursuant to their respective guarantees hereunder shall be allocated
between them in the proportions shown opposite their respective names on Exhibit
2, regardless of whether claims shall have been asserted under one Guarantor's
guarantee and not the other, and without regard to any release of any guarantee
by any beneficiary thereof.
V.
AGREEMENTS OF THE COMPANY
The Company covenants and agrees that any right to payment
received by the Guarantors in respect of the Credit Agreement, as amended, and
their guaranty thereof, whether by way of purchase, subrogation or otherwise,
and regardless whether and to what extent the same shall be subordinated to
other indebtedness to the Banks or shall have been waived pending certain
events, may be applied, both as to principal and accrued and unpaid interest,
dollar for dollar, by the Guarantors, or any of them, as the purchase price of
any equity securities offered by the Company to investors for cash. In addition,
in the event that the Company shall be unable to make a payment under the Credit
Agreement, as amended, the Guarantors shall have the right
4
<PAGE>
(but not the obligation) (i) to purchase additional equity securities of the
Company and (ii) to require the Company to use the net proceeds of such purchase
to make such payment under the Credit Agreement, as amended. The right set forth
in the preceding sentence may only be exercised upon joint approval by the
Guarantors, and the securities so purchased shall be issued at fair value, based
upon current market conditions for the issuance of equity securities. The
Company shall use its best efforts to provide the Guarantors with sufficient
notice in advance of a payment default under the Credit Agreement, as amended,
to enable the Guarantors to exercise their rights under this Article V.
VI.
MISCELLANEOUS
Section 6.001. Expenses. Each party hereto will pay its own
expenses in connection with the transactions contemplated hereby, whether or not
such transactions shall be consummated; provided, however, that the Company
shall pay the fees and disbursements of the Guarantors' special counsel, Messrs.
Reboul, MacMurray, Hewitt, Maynard & Kristol.
Section 6.002. Survival of Agreements. All covenants,
agreements, representations and warranties made herein shall survive the
execution and delivery of this Agreement and the Warrants and the issuance, sale
and delivery of the Warrant Shares.
Section 6.003. Parties in Interest. All covenants and
agreements contained in this Agreement by or on behalf of any of the parties
hereto shall bind and inure to the benefit of the respective successors and
assigns of the parties hereto whether so expressed or not.
Section 6.004. Notices. All notices, requests, consent and
other communications hereunder shall be in writing and shall be mailed by first
class registered mail, postage prepaid, or sent by a recognized courier service
addressed as follows:
If to the Company to it at:
90 Merrick Avenue, Suite 501
East Meadow, New York 11554
Fax: (516) 542-4508
Attention: David M. Goldwin, Esq.
If to any Guarantor, to it at
its address as set forth in Exhibit 2
5
<PAGE>
or, in any such case, at such other address or addresses as shall have been
furnished in writing my such party to the others.
SECTION 6.005. LAW GOVERNING. THIS AGREEMENT SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
Section 6.006. Entire Agreement. This Agreement constitutes
the entire Agreement of the parties with respect to the subject matter hereof
and may not be modified or amended except in writing.
Section 6.007. Counterparts. This Agreement may be executed in
two or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
6
<PAGE>
IN WITNESS WHEREOF, the Company and the Guarantors have
executed this Agreement as of the day and year first above written.
MEDE AMERICA CORPORATION
By
------------------------------------
Thomas P. Staudt
President and
Chief Executive Officer
WELSH, CARSON, ANDERSON &
STOWE V, L.P.
By WCAS V Partners, General Partner
By
-----------------------------------
General Partner
WELSH, CARSON, ANDERSON &
STOWE VI, L.P.
By WCAS VI Partners, L.P., General
Partner
By
------------------------------------
General Partner
WILLIAM BLAIR LEVERAGED CAPITAL
FUND LIMITED PARTNERSHIP
By William Blair Leveraged Capital
Management, L.P.
By William Blair & Company,
General Partner
By
-----------------------------------
WILLIAM BLAIR CAPITAL
PARTNERS V, L.P.
By William Blair Capital Partners, LLC,
General Partner
By
-----------------------------------
7
<PAGE>
Exhibit 2
Name and Address of
Guarantor Percentage
-------------------- ----------
Welsh, Carson, Anderson & Stowe V, L.P. 40%
320 Park Avenue
Suite 2500
New York, New York 10022
Attention: Anthony J. de Nicola
Welsh, Carson, Anderson & Stowe VI, L.P. 40
320 Park Avenue
Suite 2500
New York, New York 10022
Attention: Anthony J. de Nicola
William Blair Leveraged 6.7
Capital Fund Limited Partnership
222 W. Adams Street
Chicago, Illinois 60606
Attention: Timothy M. Murray
William Blair Capital 13.3
Partners V, L.P.
222 W. Adams Street
Chicago, Illinois 60606
Attention: Timothy M. Murray
100.0%
======
<PAGE>
THIS WARRANT HAS BEEN ISSUED IN RELIANCE UPON THE REPRESENTATION OF THE
HOLDER THAT IT HAS BEEN ACQUIRED FOR INVESTMENT PURPOSES AND NOT WITH A
VIEW TOWARDS THE RESALE OR OTHER DISTRIBUTION THEREOF. NEITHER THIS
WARRANT NOR THE SHARES ISSUABLE UPON THE EXERCISE OF THIS WARRANT HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933.
MEDE AMERICA CORPORATION
Stock Subscription Warrant
Warrant to Subscribe January 10, 1997
for 33,600 shares
Void After January 10, 2007
---------------------------
---------------------
THIS CERTIFIES that, for value received, WELSH, CARSON,
ANDERSON & STOWE V, L.P., a Delaware limited partnership ("Holder"), or its
registered assigns, is entitled to subscribe for and purchase from MEDE AMERICA
CORPORATION, a Delaware corporation (hereinafter called the "Corporation"), at
the price of $1.25 per share (such price as from time to time to be adjusted as
hereinafter provided being hereinafter called the "Warrant Exercise Price"), at
any time prior to January 10, 2007, up to THIRTY-THREE THOUSAND SIX HUNDRED
(33,600) (subject to adjustment as hereinafter provided) fully paid and
nonassessable shares of Common Stock, $.01 par value, of the Corporation
(hereinafter called the "Common Stock"), subject, however, to the provisions and
upon the terms and conditions hereinafter set forth. This Warrant and any
warrant or warrants subsequently issued upon exchange or transfer hereof and
each other warrant issued pursuant to the Agreement, dated as of January 10,
1997 (the "Agreement"), among the Corporation and the stockholders of the
Corporation named therein, and any warrant or warrants subsequently issued upon
exchange or transfer thereof, are hereinafter collectively called the
"Warrants".
<PAGE>
Section 1. Exercise of Warrant.
(a) Method of Exercise. The rights represented by this Warrant
may be exercised by the holder hereof, in whole at any time or from
time to time in part, but not as to a fractional share of Common Stock,
by the surrender of this Warrant (properly endorsed) at the office of
the Corporation as it may designate by notice in writing to the holder
hereof at the address of such holder appearing on the books of the
Corporation, and as further provided below in this Section 1:
(i) Cash Exercise. By payment to the Corporation of the
Warrant Exercise Price in cash or by certified or offi- cial bank
check, for each share being purchased;
(ii) Surrender of Indebtedness of or Claims Against
Corporation. By surrender to the Corporation for cancellation of any
indebtedness of or claim against the Corporation (including without
limitation any claim against the Corporation as subrogee in the event
the Holder shall have performed under its guarantee under the First
Amendment, as contemplated by the Agreement), or of any portion
thereof, for which credit shall be given toward the Warrant Exercise
Price for each share being acquired on a dollar-for-dollar basis with
reference to the principal amount canceled;
(iii) Net Issue Exercise. By an election to receive shares the
aggregate fair market value of which as of the date of exercise is
equal to the fair market value of this Warrant (or the portion thereof
being exercised) on such date, in which event the Corporation, upon
receipt of notice of such election, shall issue to the holder hereof a
number of shares of the Corporation's Common Stock equal to (A) the
number of shares of Common Stock acquirable upon exercise of all or any
portion of this Warrant being exercised, as at such date, multiplied by
(B) the balance remaining after deducting (x) the Warrant Exercise
Price, as in effect on such date, from (y) the fair market value of one
share of the Corporation's Common Stock as at such date and dividing
the result by (C) such fair market value; or
(iv) Combined Payment Method. By satisfaction of the Warrant
Exercise Price for each share being acquired in any combination of two
or more of the methods described in clauses (i), (ii) and (iii) above.
(b) Mandatory Exercise. Upon the consummation of an
underwritten public offering pursuant to an effective registration
statement under the Securities Act of 1933, as
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amended (the "Securities Act"), covering the sale of the Corporation's
Common Stock at a price to the public of $3.00 or more (such price as
from time to time to be adjusted in the manner provided for in
paragraphs (d), (h) and (j) for the adjustment of the Warrant Exercise
Price), this Warrant, to the extent not previously exercised, shall be
surrendered (properly endorsed) at the office of the Corporation as it
may designate by notice in writing to the holder hereof at the address
of such holder appearing on the books of the Corporation, accompanied
by payment to the Corporation of the Warrant Exercise Price by one or
more of the methods specified in clauses (a)(i)-(iv) above; and to the
extent not so surrendered, it shall be deemed exercised in the manner
provided in clause (a)(iii) above and, upon delivery of the shares of
Common Stock determined in accordance therewith, this Warrant shall be
canceled.
(c) Definition of Fair Market Value. For the purposes of this
Section 1, "fair market value" shall mean, as to any security, as
follows: if that security is listed or admitted to trading on one or
more national securities exchanges, the average of the last reported
sales prices per share regular way or, in case no such reported sales
takes place on any such day, the average of the last reported bid and
asked prices per share regular way, in either case on the principal
national securities exchange on which that security is listed or
admitted to trading, for the 20 trading days immediately preceding the
date upon which the fair market value is determined (the "Determination
Date"); if that security is not listed or admitted to trading on a
national securities exchange but is quoted by the NASD Automated
Quotation System ("NASDAQ"), the average of the last reported sales
prices per share regular way or, in case no reported sale takes place
on any such day or the last reported sales prices are not then quoted
by NASDAQ, the average for each such day of the last reported bid and
asked prices per share, for the 20 trading days immediately preceding
the Determination Date as furnished by the National Quotation Bureau
Incorporated or any similar successor organization; and if that
security is not listed or admitted to trading on a national securities
exchange or quoted by NASDAQ or any other nationally recognized
quotation service, the "fair market value" shall be the fair value
thereof determined jointly by the Corporation and the registered
holders of Warrants outstanding representing a majority of the shares
of Common Stock acquirable upon exercise of the Warrants, provided,
however, that if such parties are unable to reach agreement within a
reasonable time, the "fair market value" shall be determined in good
faith by an independent investment banking firm selected jointly by the
Corporation and the registered holders of Warrants outstanding
representing a majority of the shares of Common Stock
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<PAGE>
issuable upon exercise of the Warrants or, if that selection cannot be
made within 15 days, by an independent investment banking firm selected
by the American Arbitration Association in accordance with its rules.
Anything in this paragraph (c) to the contrary notwithstanding, the
fair market value of this Warrant or any portion thereof as of any
Determination Date shall be equal to (i) the fair market value of the
shares of Common Stock issuable upon exercise of this Warrant (or such
portion thereof), (determined in accordance with the foregoing
provisions of this paragraph (c)), minus (ii) the aggregate Warrant
Exercise Price of this Warrant (or such portion thereof).
(d) Delivery of Certificates, Etc. In the event of any
exercise of the rights represented by this Warrant, a certificate or
certificates for the shares of Common Stock so purchased, registered in
the name of the holder, shall be delivered to the holder hereof within
a reasonable time, not exceeding ten days, after the rights represented
by this Warrant shall have been so exercised; and, unless this Warrant
has expired, a new Warrant representing the number of shares (except a
remaining fractional share), if any, with respect to which this Warrant
shall not then have been exercised shall also be issued to the holder
hereof within such time. The person in whose name any certificate for
shares of Common Stock is issued upon exercise of this Warrant shall
for all purposes be deemed to have become the holder of record of such
shares on the date on which the Warrant was surrendered and payment of
the Warrant Exercise Price and any applicable taxes was made, except
that, if the date of such surrender and payment is a date on which the
stock transfer books of the Corporation are closed, such person shall
be deemed to have become the holder of such shares at the close of
business on the next succeeding date on which the stock transfer books
are open.
Section 2. Adjustment of Number of Shares. Upon each
adjustment of the Warrant Exercise Price as provided in Section 3, the holder of
this Warrant shall thereafter be entitled to purchase, at the Warrant Exercise
Price resulting from such adjustment, the number of shares (calculated to the
nearest tenth of a share) obtained by multiplying the Warrant Exercise Price in
effect immediately prior to such adjustment by the number of shares purchasable
pursuant hereto immediately prior to such adjustment and dividing the product
thereof by the Warrant Exercise Price resulting from such adjustment.
4
<PAGE>
Section 3. Adjustment of Price Upon Issuance of Common Stock.
If and whenever the Corporation shall issue or sell any shares of its Common
Stock for a consideration per share less than the Warrant Exercise Price in
effect immediately prior to the time of such issue or sale, then, forthwith upon
such issue or sale the Warrant Exercise Price shall be reduced to the price
(calculated to the nearest $.01) determined by dividing (i) an amount equal to
the sum of (a) the number of shares of Common Stock outstanding immediately
prior to such issue or sale (including as outstanding all shares of Common Stock
issuable upon conversion of all outstanding Convertible Securities (as
hereinafter defined) or exercise of outstanding Warrants multiplied by the then
existing Warrant Exercise Price, and (b) the consideration, if any, received by
the Corporation upon such issue or sale, by (ii) the total number of shares of
Common Stock outstanding immediately after such issue or sale (including as
outstanding all shares of Common Stock issuable upon conversion of all
outstanding Convertible Securities or exercise of outstanding Warrants). No
adjustments of the Warrant Exercise Price, however, shall be made in an amount
less than $.01 per share, but any such lesser adjustment shall be carried
forward and shall be made at the time and together with the next subsequent
adjustment which together with any adjustments so carried forward shall amount
to $.01 per share or more.
For purposes of this Section 3, the following paragraphs (a)
to (p), inclusive, shall also be applicable:
(a) Issuance of Rights or Options. In case at any time the
Corporation shall in any manner grant (whether directly or by
assumption in a merger or otherwise) any rights to subscribe for or to
purchase, or any options for the purchase of, Common Stock or any stock
or securities convertible into or exchangeable for Common Stock (such
rights or options being herein called "Options", and such convertible
or exchangeable stock or securities being herein called "Convertible
Securities") whether or not such Options or the right to convert or
exchange any such Convertible Securities are immediately exercisable,
and the price per share for which Common Stock is issuable upon the
exercise of such Options or upon conversion or exchange of such
Convertible Securities (determined by dividing (i) the total amount, if
any, received or receivable by the Corporation as consideration for the
granting of such Options, plus the minimum aggregate amount of
additional consideration payable to the Corporation upon the exercise
of all such Options, plus, in the case of such Options which relate to
Convertible Securities, the minimum aggregate amount of additional
consideration, if any, payable upon the issue or sale of such
Convertible Securities and upon the conversion or exchange thereof, by
(ii) the total maximum number of shares of Common Stock issuable upon
the exercise of such Options
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<PAGE>
or upon the conversion or exchange of all such Convertible Securities
issuable upon the exercise of such Options) shall be less than the
Warrant Exercise Price in effect immediately prior to the time of the
granting of such Options, then the total maximum number of shares of
Common Stock issuable upon the exercise of such Options or upon
conversion or exchange of the total maximum amount of such Convertible
Securities issuable upon the exercise of such Options shall be deemed
to have been issued for such price per share as of the date of granting
of such Options and thereafter shall be deemed to be outstanding.
Except as otherwise provided in paragraph (c), no adjustment of the
Warrant Exercise Price shall be made upon the actual issue of such
Common Stock or of such Convertible Securities upon exercise of such
Options or upon the actual issue of such Common Stock upon conversion
or exchange of such Convertible Securities.
(b) Issuance of Convertible Securities. In case the
Corporation shall in any manner issue (whether directly or by
assumption in a merger or otherwise) or sell any Convertible
Securities, whether or not the rights to exchange or convert thereunder
are immediately exercisable, and the price per share for which Common
Stock is issuable upon such conversion or exchange (determined by
dividing (i) the total amount received or receivable by the Corporation
as consideration for the issue or sale of such Convertible Securities,
plus the minimum aggregate amount of additional consideration, if any,
payable to the Corporation upon the conversion or exchange of all such
Convertible Securities) shall be less than the Warrant Exercise Price
in effect immediately prior to the time of such issue or sale, then the
total maximum number of shares of Common Stock issuable upon conversion
or exchange of all such Convertible Securities shall be deemed to have
been issued for such price per share as of the date of the issue or
sale of such Convertible Securities and thereafter shall be deemed to
be outstanding, provided that (i) except as otherwise provided in
paragraph (c) below, no adjustment of the Warrant Exercise Price shall
be made upon the actual issue of such Common Stock upon conversion or
exchange of such Convertible Securities, and (ii) if any such issue or
sale of such Convertible Securities is made upon exercise of any Option
to purchase any such Convertible Securities for which adjustments of
the Warrant Exercise Price have been or are to be made pursuant to
other provisions of this Section 3, no further adjustment of the
Warrant Exercise Price shall be made by reason of such issue or sale.
(c) Change in Option Price or Conversion Rate. Upon the
happening of any of the following events, namely, if the purchase price
provided for in any Option referred to in paragraph (a), the additional
consideration, if any, payable
6
<PAGE>
upon the conversion or exchange of any Convertible Securities referred
to in paragraph (a) or (b), or the rate at which any Convertible
Securities referred to in paragraph (a) or (b) are convertible into or
exchangeable for Common Stock shall change at any time (other than
under or by reason of provisions designed to protect against dilution),
the Warrant Exercise Price in effect at the time of such event shall
forthwith be readjusted to the Warrant Exercise Price which would have
been in effect at such time had such Options or Convertible Securities
still outstanding provided for such changed purchase price, additional
consideration or conversion rate, as the case may be, at the time
initially granted, issued or sold; and on the expiration of any such
Option or the termination of any such right to convert or exchange such
Convertible Securities, the Warrant Exercise Price then in effect
hereunder shall forthwith be increased to the Warrant Exercise Price
which would have been in effect at the time of such expiration or
termination had such Option or Convertible Security, to the extent
outstanding immediately prior to such expiration or termination, never
been issued, and the Common Stock issuable thereunder shall no longer
be deemed to be outstanding.
If the purchase price provided for in any such Option referred to in
paragraph (a) or the rate at which any Convertible Securities referred
to in paragraph (a) or (b) are convertible into or exchangeable for
Common Stock, shall be reduced at any time under or by reason of
provisions with respect thereto designed to protect against dilution,
then in case of the delivery of Common Stock upon the exercise of any
such Option or upon conversion or exchange of any such Convertible
Security, the Warrant Exercise Price then in effect hereunder shall
forthwith be adjusted to such respective amount as would have been
obtained had such Option or Convertible Security never been issued as
to such Common Stock and had adjustments been made upon the issuance of
the shares of Common Stock delivered as aforesaid, but only if as a
result of such adjustment the Warrant Exercise Price then in effect
hereunder is thereby reduced.
(d) Stock Dividends. In case the Corporation shall declare a
dividend or make any other distribution upon any stock of the
Corporation payable in Common Stock, Options or Convertible Securities,
any Common Stock, Options or Convertible Securities, as the case may
be, issuable in payment of such dividend or distribution shall be
deemed to have been issued in a subdivision of outstanding shares as
provided in paragraph (h) below.
(e) Consideration for Stock. In case any shares of Common
Stock, Options or Convertible Securities shall be issued or sold for
cash, the consideration received therefor
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<PAGE>
shall be deemed to be the amount received by the Corporation therefor,
without deduction therefrom of any expenses incurred or any
underwriting commissions or concessions paid or allowed by the
Corporation in connection therewith. In case any shares of Common
Stock, Options or Convertible Securities shall be issued or sold for a
consideration other than cash, the amount of the consideration other
than cash received by the Corporation shall be deemed to be the fair
value of such consideration as determined by the Board of Directors of
the Corporation, without deduction of any expenses incurred or any
underwriting commissions or concessions paid or allowed by the
Corporation in connection therewith. The amount of consideration deemed
to be received by the Corporation pursuant to the foregoing provisions
of this paragraph (e) upon any issuance and/or sale, pursuant to an
established compensation plan of the Corporation, to directors,
officers or employees of the Corporation in connection with their
employment of shares of Common Stock, Options or Convertible
Securities, shall be increased by the amount of any tax benefit
realized by the Corporation as a result of such issuance and/or sale,
the amount of such tax benefit being the amount by which the Federal
and/or State income or other tax liability of the Corporation shall be
reduced by reason of any deduction or credit in respect of such
issuance and/or sale. In case any Options shall be issued in connection
with the issue and sale of other securities of the Corporation,
together comprising one integral transaction in which no specific
consideration is allocated to such Options by the parties thereto, such
Options shall be deemed to have been issued without consideration. In
case any shares of Common Stock, Options or Convertible Securities
shall be issued in connection with any merger or consolidation in which
the Corporation is the surviving corporation, the amount of
consideration therefor shall be deemed to be the fair value as
determined by the Board of Directors of the Corporation of such portion
of the assets and business of the non-surviving corporation as such
Board shall determine to be attributable to such Common Stock, Options
or Convertible Securities, as the case may be. In the event of any
consolidation or merger of the Corporation in which the Corporation is
not the surviving corporation or in the event of any sale of all or
substantially all of the assets of the Corporation for stock or other
securities of any corporation, the Corporation shall be deemed to have
issued a number of shares of its Common Stock for stock or securities
of the other corporation computed on the basis of the actual exchange
ratio on which the transaction was predicated and for a consideration
equal to the fair market value on the date of such transaction of such
stock or securities of the other corporation, and if any such
calculation results in adjustment of the Warrant Exercise Price, the
determination of the number of shares of Common Stock
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<PAGE>
receivable under this Warrant immediately prior to such merger,
consolidation or sale, for purposes of paragraph (j), shall be made
after giving effect to such adjustment of the Warrant Exercise Price.
(f) Record Date. In case the Corporation shall take a record
of the holders of its Common Stock for the purpose of entitling them
(i) to receive a dividend or other distribution payable in Common
Stock, Options or Convertible Securities, or (ii) to subscribe for or
purchase Common Stock, Options or Convertible Securities, then such
record date shall be deemed to be the date of the issue or sale of the
shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other distribution
or the date of the granting of such right of subscription or purchase,
as the case may be.
(g) Treasury Shares. The number of shares of Common Stock
outstanding at any given time shall not include shares owned or held by
or for the account of the Corporation, and the disposition of any such
shares shall be considered an issue or sale of Common Stock for the
purposes of this Section 3.
(h) Subdivision or Combination of Stock. In case the
Corporation shall at any time subdivide its outstanding shares of
Common Stock into a greater number of shares, the Warrant Exercise
Price in effect immediately prior to such subdivision shall be
proportionately reduced, and conversely, in case the outstanding shares
of Common Stock of the Corporation shall be combined into a smaller
number of shares, the Warrant Exercise Price in effect immediately
prior to such combination shall be proportionately increased.
(i) Certain Issues of Common Stock Excepted. Anything herein
to the contrary notwithstanding, the Corporation shall not be required
to make any adjustment of the Warrant Exercise Price in the case of the
issuance of shares of Common Stock upon exercise of employee stock
options approved by the Board of Directors of the Corporation.
(j) Reorganization, Reclassification, Consolidation, Merger or
Sale. If any capital reorganization or reclassi- fication of the
capital stock of the Corporation or any consolidation or merger of the
Corporation with another corporation, or the sale of all or
substantially all of its assets to another corporation 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, as a condition of such reorganization,
reclassification, consolidation, merger or
9
<PAGE>
sale, lawful and adequate provisions shall be made whereby each holder
of the Warrants shall thereafter have the right to receive upon the
basis and upon the terms and conditions specified herein and in lieu of
the shares of Common Stock of the Corporation immediately theretofore
receivable upon the exercise of such Warrant or Warrants, such shares
of stock, securities or assets (including 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 stock
immediately theretofore so receivable had such reorganization,
reclassification, consolidation, merger or sale not taken place, and in
any such case appropriate provision shall be made with respect to the
rights and interests of such holder to the end that the provisions
hereof (including without limitation provisions for adjustments of the
Warrant Exercise Price) shall thereafter be applicable, as nearly as
may be, in relation to any shares of stock, securities or assets
thereafter deliverable upon the exercise of such exercise rights
(including an immediate adjustment, by reason of such reorganization or
reclassification, of the Warrant Exercise Price to the value for the
Common Stock reflected by the terms of such reorganization or
reclassification if the value so reflected is less than the Warrant
Exercise Price in effect immediately prior to such reorganization or
reclassifica- tion). In the event of a merger or consolidation of the
Corporation as a result of which a greater or lesser number of shares
of common stock of the surviving corporation are issuable to holders of
Common Stock of the Corporation outstanding immediately prior to such
merger or consolidation, the Warrant Exercise Price in effect
immediately prior to such merger or consolidation shall be adjusted in
the same manner as though there were a subdivision or combination of
the outstanding shares of Common Stock of the Corporation. The
Corporation will not effect any such consolidation, merger or any sale
of all or substantially all of its assets of properties, unless prior
to the consummation thereof the successor corporation (if other than
the Corporation) resulting from such consolidation or merger or the
corporation purchasing such assets shall assume by written instrument
executed and mailed or delivered to each holder of the Warrants at the
last address of such holder appearing on the books of the Corporation,
the obligation to deliver to such holder such shares of stock,
securities or assets as, in accordance with the foregoing provisions,
such holder may be entitled to receive.
(k) Notice of Adjustment. Upon any adjustment of the Warrant
Exercise Price, then and in each such case, the Corporation shall give
written notice thereof, by first class mail, postage prepaid, addressed
to each holder of the Warrants at the address of such holder as shown
on the books
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of the Corporation, which notice shall state the Warrant Exercise Price
resulting from such adjustment, setting forth in reasonable detail the
method of calculation and the facts upon which such calculation is
based.
(l) Certain Events. If any event occurs as to which in the
opinion of the Board of Directors of the Corporation the other
provisions of this Section 3 are not strictly applicable or if strictly
applicable would not fairly protect the exercise rights of this
Warrant, in accordance with the essential intent and principles of such
provisions to protect against dilution, then such Board of Directors
shall in good faith make an adjustment in the application of such
provisions, in accordance with such essential intent and principles, so
as to protect such exercise rights as aforesaid.
(m) Stock to Be Reserved. The Corporation will at all times
reserve and keep available out of its authorized Common Stock or its
treasury shares, solely for the purpose of issue upon the exercise of
this Warrant as herein provided, such number of shares of Common Stock
as shall then be issuable upon the exercise of this Warrant. 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, and, without limiting the generality of the
foregoing, the Corporation covenants that it will from time to time
take all such action as may be requisite to assure that the par value
per share of the Common Stock is at all times equal to or less than the
effective Warrant Exercise Price. The Corporation will take all such
action as may be necessary to assure that all such shares of Common
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. The
Corporation will not take any action which results in any adjustment of
the Warrant Exercise Price if the total number of shares of Common
Stock issued and issuable after such action upon exercise of this
Warrant would exceed the total number of shares of Common Stock then
authorized by the Corporation's Articles of Incorporation. The
Corporation has not granted and will not grant any right of first
refusal with respect to shares issuable upon exercise of this Warrant,
and there are no preemptive rights associated with such shares.
(n) Issue Tax. The issuance of certificates for shares of
Common Stock upon exercise of the Warrants shall be made without charge
to the holders of such Warrants for any issuance tax in respect thereof
provided that the Corporation shall not be required to pay any tax
which may be
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<PAGE>
payable in respect of any transfer involved in the issuance and
delivery of any certificate in a name other than that of any holder of
the Warrants.
(o) Closing of Books. The Corporation will at no time close
its transfer books against the transfer of the shares of Common Stock
issued or issuable upon the exercise of this Warrant in any manner
which interferes with the timely exercise of this Warrant.
(p) Definition of Common Stock. As used herein the term
"Common Stock" shall mean and include the Common Stock, $.01 par value,
of the Corporation as authorized on the date hereof and also any
capital stock of any class of the Corporation hereinafter authorized
which shall not be limited to a fixed sum or percentage in respect of
the rights of the holders thereof to participate in dividends or in the
distribution of assets upon the voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, provided, however, that
the shares purchasable pursuant to this Warrant shall include only
shares designated as Common Stock, $.01 par value, of the Corporation
on the date hereof, or shares of any class or classes resulting from
any reclassification or reclassifications thereof which are not limited
to any such fixed sum or percentage and are not subject to redemption
by the Corporation and, in case at any time there shall be more than
one such resulting class, the shares of each class then so issuable
shall be substantially in the proportion which the total number of
shares of such class resulting from all such reclassifications bears to
the total number of shares of all such classes resulting from all such
reclassifications.
Section 4. Notices of Record Dates. In the event of
(1) any taking by the Corporation of a record of the holders
of any class of securities for the purpose of determining the holders
thereof who are entitled to receive any dividend or other distribution
(other than cash dividends out of earned surplus), or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any
class or any other securities or property, or to receive any other
right, or
(2) any capital reorganization of the Corporation, any
reclassification or recapitalization of the capital stock of the
Corporation or any transfer of all or substantially all the assets of
the Corporation to or consolidation or merger of the Corporation with
or into any other corporation, or
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(3) any voluntary or involuntary dissolution, liquidation or
winding-up of the Corporation, then and in each such event the Corporation will
give notice to the holder of this Warrant specifying (i) the date on which any
such record is to be taken for the purpose of such dividend, distribution or
right and stating the amount and character of such dividend, distribution or
right, and (ii) the date on which any such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding-up is to take place, and the time, if any is to be fixed, as of which
the holders of record of Common Stock will be entitled to exchange their shares
of Common Stock for securities or other property deliverable upon such
reorganization, reclassifi- cation, recapitalization, transfer, consolidation,
merger, dissolution, liquidation or winding-up. Such notice shall be given at
least 20 days and not more than 90 days prior to the date therein specified, and
such notice shall state that the action in question or the record date is
subject to the effectiveness of a registration statement under the Securities
Act or to a favorable vote of stockholders, if either is required.
Section 5. [omitted]
Section 6. No Stockholder Rights or Liabilities. This Warrant
shall not entitle the holder hereof to any voting rights or other rights as a
stockholder of the Corporation. No provi- sion hereof, in the absence of
affirmative action by the holder hereof to purchase shares of Common Stock, and
no mere enumera- tion herein of the rights or privileges of the holder hereof,
shall give rise to any liability of such holder for the Warrant Exercise Price
or as a stockholder of the Corporation, whether such liability is asserted by
the Corporation or by creditors of the Corporation.
Section 7. Investment Representation and Legend. The holder,
by acceptance of the Warrant, represents and warrants to the Corporation that it
is acquiring the Warrant and the shares of Common Stock (or other securities)
issuable upon the exercise hereof for investment purposes only and not with a
view towards the resale or other distribution thereof and agrees that (a) it
will not offer, sell, transfer, encumber or otherwise dispose of the Warrant or
any of the shares of Common Stock (or other securities) issuable upon the
exercise hereof unless either (i) there is an effective registration statement
under said Act relating thereto or (ii) the Corporation has received an opinion
of counsel, reasonably satisfactory in form and substance to the Corporation,
stating that such registration is not required; and (b) the Corporation may
affix upon this Warrant the following legend:
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<PAGE>
"This Warrant has been issued in reliance upon the
representation of the holder that it has been acquired for investment
purposes and not with a view towards the resale or other distribution
thereof. Neither this Warrant nor the shares issuable upon the exercise
of this Warrant have been registered under the Securities Act of 1933."
The holder, by acceptance of this Warrant, further agrees that the Corporation
may affix the following legend to certificates for shares of Common Stock issued
upon exercise of this Warrant:
"The securities represented by this certificate have been
issued in reliance upon the representation of the holder that they have
been acquired for investment and not with a view toward the resale or
other distribution thereof, and have not been registered under the
Securities Act of 1933. Neither the securities evidenced hereby, nor
any interest therein, may be offered, sold, transferred, encumbered or
otherwise disposed of unless either (i) there is an effective
registration statement under said Act relating thereto or (ii) the
Corporation has received an opinion of counsel, reasonably satisfactory
in form and substance to the Corporation, stating that such
registration is not required."
Section 8. Lost, Stolen, Mutilated or Destroyed Warrant. If
this Warrant is lost, stolen, mutilated or destroyed, the Corporation may, on
such terms as to indemnity or otherwise as it may in its discretion reasonably
impose (which shall, in the case of a mutilated Warrant, include the surrender
thereof), issue a new Warrant of like denomination and tenor as the Warrant so
lost, stolen, mutilated or destroyed. Any such new Warrant shall constitute an
original contractual obligation of the Corporation, whether or not the allegedly
lost, stolen, mutilated or destroyed Warrant shall be at any time enforceable by
anyone.
Section 9. Notices. All notices, requests and other
communications required or permitted to be given or delivered hereunder shall be
in writing, and shall be delivered, or shall be sent by certified or registered
mail, postage prepaid and addressed, if to the holder to such holder at the
address shown on such holder's Warrant or at such other address as shall have
been furnished to the Corporation by notice from such holder. All notices,
requests and other communications required or permitted to be given or delivered
hereunder shall be in writing, and shall be delivered, or shall be sent by
certified or registered mail, postage prepaid and addressed to the Corporation
at such address as shall have been furnished to the holder by notice from the
Corporation.
14
<PAGE>
IN WITNESS WHEREOF, MedE America Corporation has executed this
Warrant on and as of the day and year first above written.
MEDE AMERICA CORPORATION
By
-----------------------------
15
<PAGE>
SUBSCRIPTION AGREEMENT
To:
Dated:
The undersigned, pursuant to the provisions set forth in the
within Warrant, hereby agrees to subscribe for and purchase shares of Common
Stock of MedE America Corporation, a Delaware Corporation (the "Corporation")
covered by such Warrant, and makes payment herewith in full therefor [at the
price per share provided by such Warrant [in cash] [by surrender of indebtedness
of the Corporation as provided in Section 1(a)(ii) of such Warrant] [as provided
in Section 1(a)(iii) of such Warrant].
Signature
-------------------------
-----------------------------------
Address
----------------------------
-----------------------------------
<PAGE>
THIS WARRANT HAS BEEN ISSUED IN RELIANCE UPON THE REPRESENTATION OF THE
HOLDER THAT IT HAS BEEN ACQUIRED FOR INVESTMENT PURPOSES AND NOT WITH A
VIEW TOWARDS THE RESALE OR OTHER DISTRIBUTION THEREOF. NEITHER THIS
WARRANT NOR THE SHARES ISSUABLE UPON THE EXERCISE OF THIS WARRANT HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933.
MEDE AMERICA CORPORATION
Stock Subscription Warrant
Warrant to Subscribe January 10, 1997
for 33,600 shares
Void After January 10, 2007
---------------------------
-------------------
THIS CERTIFIES that, for value received, WELSH, CARSON,
ANDERSON & STOWE VI, L.P., a Delaware limited partnership ("Holder"), or its
registered assigns, is entitled to subscribe for and purchase from MEDE AMERICA
CORPORATION, a Delaware corporation (hereinafter called the "Corporation"), at
the price of $1.25 per share (such price as from time to time to be adjusted as
hereinafter provided being hereinafter called the "Warrant Exercise Price"), at
any time prior to January 10, 2007, up to THIRTY-THREE THOUSAND SIX HUNDRED
(33,600) (subject to adjustment as hereinafter provided) fully paid and
nonassessable shares of Common Stock, $.01 par value, of the Corporation
(hereinafter called the "Common Stock"), subject, however, to the provisions and
upon the terms and conditions hereinafter set forth. This Warrant and any
warrant or warrants subsequently issued upon exchange or transfer hereof and
each other warrant issued pursuant to the Agreement, dated as of January 10,
1997 (the "Agreement"), among the Corporation and the stockholders of the
Corporation named therein, and any warrant or warrants subsequently issued upon
exchange or transfer thereof, are hereinafter collectively called the
"Warrants".
<PAGE>
THIS WARRANT HAS BEEN ISSUED IN RELIANCE UPON THE REPRESENTATION OF THE
HOLDER THAT IT HAS BEEN ACQUIRED FOR INVESTMENT PURPOSES AND NOT WITH A
VIEW TOWARDS THE RESALE OR OTHER DISTRIBUTION THEREOF. NEITHER THIS
WARRANT NOR THE SHARES ISSUABLE UPON THE EXERCISE OF THIS WARRANT HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933.
MEDE AMERICA CORPORATION
Stock Subscription Warrant
Warrant to Subscribe January 10, 1997
for 5,628 shares
Void After January 10, 2007
---------------------------
-------------------
THIS CERTIFIES that, for value received, WILLIAM BLAIR
LEVERAGED CAPITAL FUND LIMITED PARTNERSHIP, an Illinois limited partnership
("Holder"), or its registered assigns, is entitled to subscribe for and purchase
from MEDE AMERICA CORPORATION, a Delaware corporation (hereinafter called the
"Corporation"), at the price of $1.25 per share (such price as from time to time
to be adjusted as hereinafter provided being hereinafter called the "Warrant
Exercise Price"), at any time prior to January 10, 2007, up to FIVE THOUSAND SIX
HUNDRED TWENTY-EIGHT (5,628) (subject to adjustment as hereinafter provided)
fully paid and nonassessable shares of Common Stock, $.01 par value, of the
Corporation (hereinafter called the "Common Stock"), subject, however, to the
provisions and upon the terms and conditions hereinafter set forth. This Warrant
and any warrant or warrants subsequently issued upon exchange or transfer hereof
and each other warrant issued pursuant to the Agreement, dated as of January 10,
1997 (the "Agreement"), among the Corporation and the stockholders of the
Corporation named therein, and any warrant or warrants subsequently issued upon
exchange or transfer thereof, are hereinafter collectively called the
"Warrants".
<PAGE>
THIS WARRANT HAS BEEN ISSUED IN RELIANCE UPON THE REPRESENTATION OF THE
HOLDER THAT IT HAS BEEN ACQUIRED FOR INVESTMENT PURPOSES AND NOT WITH A
VIEW TOWARDS THE RESALE OR OTHER DISTRIBUTION THEREOF. NEITHER THIS
WARRANT NOR THE SHARES ISSUABLE UPON THE EXERCISE OF THIS WARRANT HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933.
Stock Subscription Warrant
Warrant to Subscribe January 10, 1997
for 11,172 shares
Void After January 10, 2007
---------------------------
-------------------
THIS CERTIFIES that, for value received, WILLIAM BLAIR CAPITAL
PARTNERS V, L.P., a Delaware limited partnership ("Holder"), or its registered
assigns, is entitled to subscribe for and purchase from MEDE AMERICA
CORPORATION, a Delaware corporation (hereinafter called the "Corporation"), at
the price of $1.25 per share (such price as from time to time to be adjusted as
hereinafter provided being hereinafter called the "Warrant Exercise Price"), at
any time prior to January 10, 2007, up to ELEVEN THOUSAND ONE HUNDRED
SEVENTY-TWO (11,172) (subject to adjustment as hereinafter provided) fully paid
and nonassessable shares of Common Stock, $.01 par value, of the Corporation
(hereinafter called the "Common Stock"), subject, however, to the provisions and
upon the terms and conditions hereinafter set forth. This Warrant and any
warrant or warrants subsequently issued upon exchange or transfer hereof and
each other warrant issued pursuant to the Agreement, dated as of January 10,
1997 (the "Agreement"), among the Corporation and the stockholders of the
Corporation named therein, and any warrant or warrants subsequently issued upon
exchange or transfer thereof, are hereinafter collectively called the
"Warrants".
<PAGE>
Exhibit 1
Form of Warrant
---------------
THIS WARRANT HAS BEEN ISSUED IN RELIANCE UPON THE REPRESENTATION OF THE
HOLDER THAT IT HAS BEEN ACQUIRED FOR INVESTMENT PURPOSES AND NOT WITH A
VIEW TOWARDS THE RESALE OR OTHER DISTRIBUTION THEREOF. NEITHER THIS
WARRANT NOR THE SHARES ISSUABLE UPON THE EXERCISE OF THIS WARRANT HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933.
MEDE AMERICA CORPORATION
Stock Subscription Warrant
Warrant to Subscribe January , 1997
for [ ] shares
Void After January , 2007
-------------------------
----------------------
THIS CERTIFIES that, for value received, [ ], a [ ] limited partnership
("Holder"), or its registered assigns, is entitled to subscribe for and purchase
from MEDE AMERICA CORPORATION, a Delaware corporation (hereinafter called the
"Corporation"), at the price of $1.25 per share (such price as from time to time
to be adjusted as hereinafter provided being hereinafter called the "Warrant
Exercise Price"), at any time prior to January [ ] , 2007, up to [ ]
([ ]) (subject to adjustment as hereinafter provided) fully paid and
nonassessable shares of Common Stock, $.01 par value, of the provisions
Corporation (hereinafter called the "Common Stock"), subject, however, to the
and upon the terms and conditions hereinafter set forth. This Warrant and any
warrant or warrants subsequently issued upon exchange or transfer hereof and
each other warrant issued pursuant to the Agreement, dated as of January
[ ], 1997 (the "Agreement"), among the Corporation and the stockholders
of the Corporation named therein, and any warrant or warrants subsequently
issued upon exchange or transfer thereof, are hereinafter collectively called
the "Warrants".
AGREEMENT
AGREEMENT dated as of December 18, 1995, among MEDE AMERICA
CORPORATION, a Delaware corporation (the "Company"), WELSH, CARSON, ANDERSON &
STOWE V, L.P., a Delaware limited partnership ("WCAS V"), WELSH, CARSON,
ANDERSON & STOWE VI, L.P., a Delaware limited partnership ("WCAS VI"), WILLIAM
BLAIR LEVERAGED CAPITAL FUND LIMITED PARTNERSHIP, an Illinois limited
partnership, ("Blair LF") and WILLIAM BLAIR CAPITAL PARTNERS V, L.P., a Delaware
limited partnership, ("Blair V"; WCAS V, WCAS VI, Blair LF and Blair V being
hereinafter referred to individually as a "Guarantor" and collectively as the
"Guarantors").
WHEREAS, the Guarantors are collectively the owners of 80% of
the outstanding common and preferred stock of the Company; and
WHEREAS, the Company and the Guarantors have determined that
it is imperative to the future viability of the Company that the Company enter
into that certain Credit Agreement dated as of December 18, 1995 (the "Credit
Agreement") between the Company and Bank of America Illinois (the "Bank"),
providing for the extension by the Bank to the Company of a revolving line of
credit in the amount of $10,000,000 (the "Line of Credit"); and
WHEREAS, the Bank is unwilling to enter into the Credit
Agreement or make the Line of Credit available to the Company unless the payment
of the Company's obligations to the Bank thereunder is guaranteed by the
Guarantors;
WHEREAS, in order to protect their existing substantial equity
investments in the Company and to ensure the Company's future financial
viability, the Guarantors are willing to assume additional financial risk in
their role as stockholders of the Company by giving certain guarantees to the
Bank with respect to the Line of Credit; and
WHEREAS, in consideration of the Guarantors assuming such
additional financial risk by making such guarantees the Company is willing to
issue to the Guarantors the warrants to purchase shares of its Common Stock.
NOW, THEREFORE, in consideration of the foregoing and the
mutual agreements contained herein, the parties hereby agree as follows:
<PAGE>
I.
ISSUANCE OF WARRANTS
Section 1.01. Issuance of Warrants. (a) Upon the execution and
delivery by each Guarantor of its guarantee in substantially the form annexed
hereto as Exhibit 1 (the "Guarantee" and collectively the "Guarantees"), the
Company will execute and deliver to each Guarantor a warrant or warrants, in the
form annexed hereto as Exhibit 2 (individually a "Warrant" and collectively the
"Warrants") to purchase shares of the Company's Common Stock, $.01 par value
("Common Stock"), at an initial exercise price of $1.00 per share, as follows:
Each Guarantor shall be entitled to Warrants to purchase a
number of shares equal to 240,000 shares multiplied by the percentage shown
opposite such Guarantor's name in Schedule I hereto in the column headed
"Percentage" (hereinafter called such Guarantor's "Percentage").
Section 1.02. Tax and Accounting Treatment. The Company and
the Guarantors agree that for federal, state and local income tax as well as for
financial accounting purposes, the issuance of the Warrants by the Company to
the Guarantors is in the nature of a dividend distribution and is not
compensation (or a payment) for any services, and each hereby agrees to treat
the issuance of the Warrants in such manner for all such purposes, all to the
maximum extent permitted by applicable law.
II.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to, and agrees with, the
Guarantors as follows:
Section 2.01. Organization. The Company is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware and is duly licensed or qualified to do business as a foreign
corporation in good standing in each of the jurisdiction in which it owns or
leases any real property or in which the nature of business transacted by it
makes such licensing or qualification necessary and where the failure to be so
licensed or qualified would have a material adverse affect on the business,
operations or financial condition of the Company. The Company has the corporate
power and authority to own and hold its properties and to carry on its business
as currently conducted, to execute, deliver and perform this Agreement and the
Warrants and to issue, sell and deliver the shares
2
<PAGE>
of Common Stock issuable upon the exercise of the Warrants (the "Warrant
Shares").
Section 2.02. Authorization of Agreement, etc. (a) The
execution, delivery and performance by the Company of this Agreement and the
Warrants, and the issuance, sale and delivery of the Warrant Shares upon
exercise of the Warrants have been duly authorized by all requisite corporate
action and will not violate any provision of law, any order of any court or
other agency of government, the Certificate of Incorporation or By-laws of the
Company, or any provision of any indenture, agreement or other instrument by
which the Company or any of its subsidiaries or any of their respective
properties or assets is bound or affected, or conflict with, result in a breach
of or constitute (with due notice or lapse of time or both) a default any such
indenture, agreement or other instrument, or result in the creation or
imposition of any lien, charge or incumbrance of any nature upon any of the
properties or assets of the Company or any of its subsidiaries.
(b) The Warrant Shares have been duly reserved for issuance
upon exercise of the Warrants and, when so issued, will be duly authorized,
validly issued and outstanding, fully paid and non assessable shares of Common
Stock. Neither the execution and delivery of the Warrants nor the issuance and
delivery of the Warrant Shares upon exercise thereof is subject to any
preemptive rights of shareholders of the Company or to any right of first
refusal or other similar right in favor of any person.
Section 2.03. Validity. This Agreement has been duly executed
and delivered by the Company and constitutes the legal, valid and binding
obligation of the Company, enforceable in accordance with its terms. The
Warrants, when executed in accordance with this Agreement, will constitute
legal, valid and binding obligations of the Company, enforceable in accordance
with their respective terms.
III.
REPRESENTATIONS AND WARRANTIES OF THE GUARANTORS
Each Guarantor represents and warrants to the Company that it
is acquiring the Warrants, and will, upon exercise thereof, acquire the Warrant
Shares, for its own account for purpose of investment and not with a view to or
for sale in connection with any distribution thereof. Each Guarantor further
represents that it understands (i) that neither the Warrants nor the Warrant
Shares have been registered under the Securities Act by reason of their issuance
in transactions exempt from the registration requirements of the Securities Act
pursuant to Section 4(2) thereof, (ii) the Warrants and, upon exercise thereof,
the Warrant Shares must be held indefinitely unless a
3
<PAGE>
subsequent disposition thereof is registered under the Securities Act or is
otherwise exempt from such registration, (iii) the Warrants and the Warrant
Shares will bear a legend to such effectand (iv) the Company will make a
notation on its transfer books to such effect. Each Guarantor further
understands that the exemption from registration afforded by Rule 144 under the
Securities Act depends on the satisfaction of various conditions and that, if
applicable, affords the basis of sales of the Warrants and/or the Warrant Shares
in limited amounts under certain conditions. Each Guarantor (i) acknowledges
that it has had a full opportunity to request from the Company to review and has
received all information deemed relevant in making a decision to enter into this
Agreement and consummate the transactions contemplated thereby and (ii) will
comply with the restrictions on transferability of the Warrants and Warrant
Shares contained in the Warrant. Each Guarantor is an "Accredited Investor"
within the meaning of Rule 501(a) of the Securities Act.
IV.
AGREEMENTS AMONG THE GUARANTORS
The Guarantors agree with one another that all payments made
by them pursuant to their respective Guarantees shall be allocated between them
in the proportions shown opposite their respective names on Schedule I,
regardless of whether claims shall have been asserted under one Guarantor's
Guarantee and not the other, and without regard to any release of any Guarantee
by any beneficiary thereof.
V.
AGREEMENTS OF THE COMPANY
The Company covenants and agrees that any right to payment
received by the Guarantors in respect of the Credit Agreement and their guaranty
thereof, whether by way of purchase, subrogation or otherwise, and regardless
whether and to what extent the same shall be subordinated to other indebtedness
to the Banks or shall have been waived pending certain events, may be applied,
both as to principal and accrued and unpaid interest, dollar for dollar, by the
Guarantors, or any of them, as the purchase price of any equity securities
offered by the Company to investors for cash. In addition, in the event that the
Company shall be unable to make a payment under the Credit Agreement, the
Guarantors shall have the right (but not the obligation) (i) to purchase
additional equity securities of the Company and (ii) to require the Company to
use the net proceeds of such purchase to make such payment under the Credit
Agreement. The right set forth in the preceding sentence may only be exercised
upon joint approval by the Guarantors, and the securities so purchased shall
4
<PAGE>
be issued at fair value, based upon current market conditions for the issuance
of equity securities. The Company shall use its best efforts to provide the
Guarantors with sufficient notice in advance of a payment default under the
Credit Agreementto enable the Guarantors to exercise their rights under this
Article V.
VI.
MISCELLANEOUS
Section 6.001. Expenses. Each party hereto will pay its own
expenses in connection with the transactions contemplated hereby, whether or not
such transactions shall be consummated, provided, however, that the Company
shall pay the fees and disbursements of the Guarantors' special counsel, Messrs.
Reboul, MacMurray, Hewitt, Maynard & Kristol and Kirkland & Ellis.
Section 6.002. Survival of Agreements. All covenants,
agreements, representations and warranties made herein shall survive the
execution and delivery of this Agreement and the Warrants and the issuance, sale
and delivery of the Warrant Shares.
Section 6.003. Parties in Interest. All covenants and
agreements contained in this Agreement by or on behalf of any of the parties
hereto shall bind and inure to the benefit of the respective successors and
assigns of the parties hereto whether so expressed or not.
Section 6.004. Notices. All notices, requests, consent and
other communications hereunder shall be in writing and shall be mailed by first
class registered mail, postage prepaid, or sent by a recognized courier service
addressed as follows:
If to the Company to it at:
333 Ovington Boulevard, Suite 702
Mitchell Field, New York 11553
Attention: Thomas P. Staudt, Chief Executive
Officer
If to any Guarantor, to it at its address as set forth in
Schedule 1, or,
in any such case, at such other address or addresses as shall
have been furnished in writing my such party to the others.
Section 6.005. Law Governing. This Agreement shall be governed
by and construed in accordance with the laws of the State of New York.
5
<PAGE>
Section 6.006. Entire Agreement. This Agreement constitutes
the entire Agreement of the parties with respect to the subject matter hereof
and may not be modified or amended except in writing.
Section 6.07. Counterparts. This Agreement may be executed in
two or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
6
<PAGE>
IN WITNESS WHEREOF, the Company and the Guarantors have
executed this Agreement as of the day and year first above written.
MEDE AMERICA CORPORATION
By
-------------------------------------
Thomas P. Staudt,
Chief Executive Officer
WELSH, CARSON, ANDERSON &
STOWE V, L.P.
By WCAS V Partners, General Partner
By
-------------------------------------
General Partner
WELSH, CARSON, ANDERSON &
STOWE VI, L.P.
By WCAS VI Partners, L.P., General
Partner
By
-------------------------------------
General Partner
WILLIAM BLAIR LEVERAGED CAPITAL
FUND LIMITED PARTNERSHIP
By William Blair Leveraged Capital
Management, L.P.
By William Blair & Company,
General Partner
By
-------------------------------------
WILLIAM BLAIR CAPITAL
PARTNERS V, L.P.
By William Blair Capital Partners, LLC,
General Partner
By
-------------------------------------
7
<PAGE>
Schedule 1
Name and Address of
Guarantor Percentage
- ------------------- ----------
Welsh, Carson, Anderson & Stowe V, L.P. 40%
One World Financial Center
Suite 3601
New York, N.Y. 10281
Attention: Anthony J. de Nicola
Welsh, Carson, Anderson & Stowe VI, L.P. 40
One World Financial Center
Suite 3601
New York, N.Y. 10281
Attention: Anthony J. de Nicola
William Blair Leveraged 6.7
Capital Fund Limited Partnership
222 W. Adams Street
Chicago, Illinois 60606
Attention: Timothy M. Murray
William Blair Capital 13.3
Partners V, L.P.
222 W. Adams Street
Chicago, Illinois 60606
Attention: Timothy M. Murray
100.00%
======
8
<PAGE>
THIS WARRANT HAS BEEN ISSUED IN RELIANCE UPON THE REPRESENTATION OF
THE HOLDER THAT IT HAS BEEN ACQUIRED FOR INVESTMENT PURPOSES AND NOT
WITH A VIEW TOWARDS THE RESALE OR OTHER DISTRIBUTION THEREOF. NEITHER
THIS WARRANT NOR THE SHARES ISSUABLE UPON THE EXERCISE OF THIS WARRANT
HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933.
MEDE AMERICA CORPORATION
Stock Subscription Warrant
Warrant to Subscribe December 18, 1995
for 96,000 shares
Void After December 17, 2005
----------------------------
-----------------------
THIS CERTIFIES that, for value received, WELSH, CARSON,
ANDERSON & STOWE VI, L.P., a Delaware limited partnership ("Holder"), or its
registered assigns, is entitled to subscribe for and purchase from MEDE AMERICA
CORPORATION, a Delaware corporation (hereinafter called the "Corporation"), at
the price of $1.00 per share (such price as from time to time to be adjusted as
hereinafter provided being hereinafter called the "Warrant Exercise Price"), at
any time prior to December 18, 2005, up to NINETY SIX THOUSAND (96,000) (subject
to adjustment as hereinafter provided) fully paid and nonassessable shares of
Common Stock, $.01 par value, of the Corporation (hereinafter called the "Common
Stock"), subject, however, to the provisions and upon the terms and conditions
hereinafter set forth. This Warrant and any warrant or warrants subsequently
issued upon exchange or transfer hereof and each other warrant issued pursuant
to the Agreement dated as of December 18, 1995 (the "Agreement") among the
Corporation and the stockholders of the Corporation named therein, and any
warrant or warrants subsequently issued upon exchange or transfer thereof, are
hereinafter collectively called the "Warrants".
1
<PAGE>
Section 1. Exercise of Warrant.
(a) Method of Exercise. The rights represented by this Warrant
may be exercised by the holder hereof, in whole at any time or from
time to time in part, but not as to a fractional share of Common Stock,
by the surrender of this Warrant (properly endorsed) at the office of
the Corporation as it may designate by notice in writing to the holder
hereof at the address of such holder appearing on the books of the
Corporation, and as further provided below in this Section 1:
(i) Cash Exercise. By payment to the Corporation of
the Warrant Exercise Price in cash or by certified or offi-
cial bank check, for each share being purchased;
(ii) Surrender of Indebtedness of or Claims Against Corporation. By
surrender to the Corporation for cancellation of any indebtedness of or
claim against the Corporation (including without limitation any claim
against the Corporation as subrogee in the event the Holder shall have
performed under its Guarantee, as defined in the Agreement), or of any
portion thereof, for which credit shall be given toward the Warrant
Exercise Price for each share being acquired on a dollar-for-dollar
basis with reference to the principal amount cancelled;
(iii) Net Issue Exercise. By an election to receive shares the
aggregate fair market value of which as of the date of exercise is
equal to the fair market value of this Warrant (or the portion thereof
being exercised) on such date, in which event the Corporation, upon
receipt of notice of such election, shall issue to the holder hereof a
number of shares of the Corporation's Common Stock equal to (A) the
number of shares of Common Stock acquirable upon exercise of all or any
portion of this Warrant being exercised, as at such date, multiplied by
(B) the balance remaining after deducting (x) the Warrant Exercise
Price, as in effect on such date, from (y) the fair market value of one
share of the Corporation's Common Stock as at such date and dividing
the result by (C) such fair market value; or
(iv) Combined Payment Method. By satisfaction of the Warrant
Exercise Price for each share being acquired in any combination of two
or more of the methods described in clauses (i), (ii) and (iii) above.
(b) Mandatory Exercise. Upon the consummation of an
underwritten public offering pursuant to an effective registration
statement under the Securities Act of 1933, covering
2
<PAGE>
the sale of the Corporation's Common Stock at a price to the public of
$3.00 or more (such price as from time to time to be adjusted in the
manner provided for in paragraphs (d), (h) and (j) for the adjustment
of the Warrant Exercise Price), this Warrant, to the extent not
previously exercised, shall be surrendered (properly endorsed) at the
office of the Corporation as it may designate by notice in writing to
the holder hereof at the address of such holder appearing on the books
of the Corporation, accompanied by payment to the Corporation of the
Warrant Exercise Price by one or more of the methods specified in
clauses (a)(i)-(iv) above; and to the extent not so surrendered, it
shall be deemed exercised in the manner provided in clause (a)(iii)
above and, upon delivery of the shares of Common Stock determined in
accordance therewith, this Warrant shall be cancelled.
(c) Definition of Fair Market Value. For the purposes of this
Section 1, "fair market value" shall mean, as to any security, as
follows: if that security is listed or admitted to trading on one or
more national securities exchanges, the average of the last reported
sales prices per share regular way or, in case no such reported sales
takes place on any such day, the average of the last reported bid and
asked prices per share regular way, in either case on the principal
national securities exchange on which that security is listed or
admitted to trading, for the 20 trading days immediately preceding the
date upon which the fair market value is determined (the "Determination
Date"); if that security is not listed or admitted to trading on a
national securities exchange but is quoted by the NASD Automated
Quotation System ("NASDAQ"), the average of the last reported sales
prices per share regular way or, in case no reported sale takes place
on any such day or the last reported sales prices are not then quoted
by NASDAQ, the average for each such day of the last reported bid and
asked prices per share, for the 20 trading days immediately preceding
the Determination Date as furnished by the National Quotation Bureau
Incorporated or any similar successor organization; and if that
security is not listed or admitted to trading on a national securities
exchange or quoted by NASDAQ or any other nationally recognized
quotation service, the "fair market value" shall be the fair value
thereof determined jointly by the Corporation and the registered
holders of Warrants outstanding representing a majority of the shares
of Common Stock acquirable upon exercise of the Warrants, provided,
however, that if such parties are unable to reach agreement within a
reasonable time, the "fair market value" shall be determined in good
faith by an independent investment banking firm selected jointly by the
Corporation and the registered holders of Warrants outstanding
representing a majority of the shares of Common Stock
3
<PAGE>
issuable upon exercise of the Warrants or, if that selection cannot be
made within 15 days, by an independent investment banking firm selected
by the American Arbitration Association in accordance with its rules.
Anything in this paragraph (c) to the contrary notwithstanding, the
fair market value of this Warrant or any portion thereof as of any
Determination Date shall be equal to (i) the fair market value of the
shares of Common Stock issuable upon exercise of this Warrant (or such
portion thereof), (determined in accordance with the foregoing
provisions of this paragraph (c)), minus (ii) the aggregate Warrant
Exercise Price of this Warrant (or such portion thereof).
(d) Delivery of Certificates, Etc. In the event of any
exercise of the rights represented by this Warrant, a certificate or
certificates for the shares of Common Stock so purchased, registered in
the name of the holder, shall be delivered to the holder hereof within
a reasonable time, not exceeding ten days, after the rights represented
by this Warrant shall have been so exercised; and, unless this Warrant
has expired, a new Warrant representing the number of shares (except a
remaining fractional share), if any, with respect to which this Warrant
shall not then have been exercised shall also be issued to the holder
hereof within such time. The person in whose name any certificate for
shares of Common Stock is issued upon exercise of this Warrant shall
for all purposes be deemed to have become the holder of record of such
shares on the date on which the Warrant was surrendered and payment of
the Warrant Exercise Price and any applicable taxes was made, except
that, if the date of such surrender and payment is a date on which the
stock transfer books of the Corporation are closed, such person shall
be deemed to have become the holder of such shares at the close of
business on the next succeeding date on which the stock transfer books
are open.
Section 2. Adjustment of Number of Shares. Upon each
adjustment of the Warrant Exercise Price as provided in Section 3, the holder of
this Warrant shall thereafter be entitled to purchase, at the Warrant Exercise
Price resulting from such adjustment, the number of shares (calculated to the
nearest tenth of a share) obtained by multiplying the Warrant Exercise Price in
effect immediately prior to such adjustment by the number of shares purchasable
pursuant hereto immediately prior to such adjustment and dividing the product
thereof by the Warrant Exercise Price resulting from such adjustment.
4
<PAGE>
Section 3. Adjustment of Price Upon Issuance of Common Stock.
If and whenever the Corporation shall issue or sell any shares of its Common
Stock for a consideration per share less than the Warrant Exercise Price in
effect immediately prior to the time of such issue or sale, then, forthwith upon
such issue or sale the Warrant Exercise Price shall be reduced to the price
(calculated to the nearest $.01) determined by dividing (i) an amount equal to
the sum of (a) the number of shares of Common Stock outstanding immediately
prior to such issue or sale (including as outstanding all shares of Common Stock
issuable upon conversion of all outstanding Convertible Securities (as
hereinafter defined) or exercise of outstanding Warrants multiplied by the then
existing Warrant Exercise Price, and (b) the consideration, if any, received by
the Corporation upon such issue or sale, by (ii) the total number of shares of
Common Stock outstanding immediately after such issue or sale (including as
outstanding all shares of Common Stock issuable upon conversion of all
outstanding Convertible Securities or exercise of outstanding Warrants). No
adjustments of the Warrant Exercise Price, however, shall be made in an amount
less than $.01 per share, but any such lesser adjustment shall be carried
forward and shall be made at the time and together with the next subsequent
adjustment which together with any adjustments so carried forward shall amount
to $.01 per share or more.
For purposes of this Section 3, the following paragraphs (a)
to (p), inclusive, shall also be applicable:
(a) Issuance of Rights or Options. In case at any time the
Corporation shall in any manner grant (whether directly or by
assumption in a merger or otherwise) any rights to subscribe for or to
purchase, or any options for the purchase of, Common Stock or any stock
or securities convertible into or exchangeable for Common Stock (such
rights or options being herein called "Options", and such convertible
or exchangeable stock or securities being herein called "Convertible
Securities") whether or not such Options or the right to convert or
exchange any such Convertible Securities are immediately exercisable,
and the price per share for which Common Stock is issuable upon the
exercise of such Options or upon conversion or exchange of such
Convertible Securities (determined by dividing (i) the total amount, if
any, received or receivable by the Corporation as consideration for the
granting of such Options, plus the minimum aggregate amount of
additional consideration payable to the Corporation upon the exercise
of all such Options, plus, in the case of such Options which relate to
Convertible Securities, the minimum aggregate amount of additional
consideration, if any, payable upon the issue or sale of such
Convertible Securities and upon the conversion or exchange thereof, by
(ii) the total maximum number of shares of Common Stock issuable upon
the exercise of such Options
5
<PAGE>
or upon the conversion or exchange of all such Convertible Securities
issuable upon the exercise of such Options) shall be less than the
Warrant Exercise Price in effect immediately prior to the time of the
granting of such Options, then the total maximum number of shares of
Common Stock issuable upon the exercise of such Options or upon
conversion or exchange of the total maximum amount of such Convertible
Securities issuable upon the exercise of such Options shall be deemed
to have been issued for such price per share as of the date of granting
of such Options and thereafter shall be deemed to be outstanding.
Except as otherwise provided in paragraph (c), no adjustment of the
Warrant Exercise Price shall be made upon the actual issue of such
Common Stock or of such Convertible Securities upon exercise of such
Options or upon the actual issue of such Common Stock upon conversion
or exchange of such Convertible Securities.
(b) Issuance of Convertible Securities. In case the
Corporation shall in any manner issue (whether directly or by
assumption in a merger or otherwise) or sell any Convertible
Securities, whether or not the rights to exchange or convert thereunder
are immediately exercisable, and the price per share for which Common
Stock is issuable upon such conversion or exchange (determined by
dividing (i) the total amount received or receivable by the Corporation
as consideration for the issue or sale of such Convertible Securities,
plus the minimum aggregate amount of additional consideration, if any,
payable to the Corporation upon the conversion or exchange of all such
Convertible Securities) shall be less than the Warrant Exercise Price
in effect immediately prior to the time of such issue or sale, then the
total maximum number of shares of Common Stock issuable upon conversion
or exchange of all such Convertible Securities shall be deemed to have
been issued for such price per share as of the date of the issue or
sale of such Convertible Securities and thereafter shall be deemed to
be outstanding, provided that (i) except as otherwise provided in
paragraph (c) below, no adjustment of the Warrant Exercise Price shall
be made upon the actual issue of such Common Stock upon conversion or
exchange of such Convertible Securities, and (ii) if any such issue or
sale of such Convertible Securities is made upon exercise of any Option
to purchase any such Convertible Securities for which adjustments of
the Warrant Exercise Price have been or are to be made pursuant to
other provisions of this Section 3, no further adjustment of the
Warrant Exercise Price shall be made by reason of such issue or sale.
(c) Change in Option Price or Conversion Rate. Upon the
happening of any of the following events, namely, if the purchase price
provided for in any Option referred to in paragraph (a), the additional
consideration, if any, payable
6
<PAGE>
upon the conversion or exchange of any Convertible Securities referred
to in paragraph (a) or (b), or the rate at which any Convertible
Securities referred to in paragraph (a) or (b) are convertible into or
exchangeable for Common Stock shall change at any time (other than
under or by reason of provisions designed to protect against dilution),
the Warrant Exercise Price in effect at the time of such event shall
forthwith be readjusted to the Warrant Exercise Price which would have
been in effect at such time had such Options or Convertible Securities
still outstanding provided for such changed purchase price, additional
consideration or conversion rate, as the case may be, at the time
initially granted, issued or sold; and on the expiration of any such
Option or the termination of any such right to convert or exchange such
Convertible Securities, the Warrant Exercise Price then in effect
hereunder shall forthwith be increased to the Warrant Exercise Price
which would have been in effect at the time of such expiration or
termination had such Option or Convertible Security, to the extent
outstanding immediately prior to such expiration or termination, never
been issued, and the Common Stock issuable thereunder shall no longer
be deemed to be outstanding.
If the purchase price provided for in any such Option referred to in
paragraph (a) or the rate at which any Convertible Securities referred
to in paragraph (a) or (b) are convertible into or exchangeable for
Common Stock, shall be reduced at any time under or by reason of
provisions with respect thereto designed to protect against dilution,
then in case of the delivery of Common Stock upon the exercise of any
such Option or upon conversion or exchange of any such Convertible
Security, the Warrant Exercise Price then in effect hereunder shall
forthwith be adjusted to such respective amount as would have been
obtained had such Option or Convertible Security never been issued as
to such Common Stock and had adjustments been made upon the issuance of
the shares of Common Stock delivered as aforesaid, but only if as a
result of such adjustment the Warrant Exercise Price then in effect
hereunder is thereby reduced.
(d) Stock Dividends. In case the Corporation shall declare a
dividend or make any other distribution upon any stock of the
Corporation payable in Common Stock, Options or Convertible Securities,
any Common Stock, Options or Convertible Securities, as the case may
be, issuable in payment of such dividend or distribution shall be
deemed to have been issued or sold without consideration.
(e) Consideration for Stock. In case any shares of Common
Stock, Options or Convertible Securities shall be issued or sold for
cash, the consideration received therefor shall be deemed to be the
amount received by the Corporation
7
<PAGE>
therefor, without deduction therefrom of any expenses incurred or any
underwriting commissions or concessions paid or allowed by the
Corporation in connection therewith. In case any shares of Common
Stock, Options or Convertible Securities shall be issued or sold for a
consideration other than cash, the amount of the consideration other
than cash received by the Corporation shall be deemed to be the fair
value of such consideration as determined by the Board of Directors of
the Corporation, without deduction of any expenses incurred or any
underwriting commissions or concessions paid or allowed by the
Corporation in connection therewith. The amount of consideration deemed
to be received by the Corporation pursuant to the foregoing provisions
of this paragraph (e) upon any issuance and/or sale, pursuant to an
established compensation plan of the Corporation, to directors,
officers or employees of the Corporation in connection with their
employment of shares of Common Stock, Options or Convertible
Securities, shall be increased by the amount of any tax benefit
realized by the Corporation as a result of such issuance and/or sale,
the amount of such tax benefit being the amount by which the Federal
and/or State income or other tax liability of the Corporation shall be
reduced by reason of any deduction or credit in respect of such
issuance and/or sale. In case any Options shall be issued in connection
with the issue and sale of other securities of the Corporation,
together comprising one integral transaction in which no specific
consideration is allocated to such Options by the parties thereto, such
Options shall be deemed to have been issued without consideration. In
case any shares of Common Stock, Options or Convertible Securities
shall be issued in connection with any merger or consolidation in which
the Corporation is the surviving corporation, the amount of
consideration therefor shall be deemed to be the fair value as
determined by the Board of Directors of the Corporation of such portion
of the assets and business of the non-surviving corporation as such
Board shall determine to be attributable to such Common Stock, Options
or Convertible Securities, as the case may be. In the event of any
consolidation or merger of the Corporation in which the Corporation is
not the surviving corporation or in the event of any sale of all or
substantially all of the assets of the Corporation for stock or other
securities of any corporation, the Corporation shall be deemed to have
issued a number of shares of its Common Stock for stock or securities
of the other corporation computed on the basis of the actual exchange
ratio on which the transaction was predicated and for a consideration
equal to the fair market value on the date of such transaction of such
stock or securities of the other corporation, and if any such
calculation results in adjustment of the Warrant Exercise Price, the
determination of the number of shares of Common Stock receivable under
this Warrant immediately prior to such
8
<PAGE>
merger, consolidation or sale, for purposes of paragraph (j), shall be
made after giving effect to such adjustment of the Warrant Exercise
Price.
(f) Record Date. In case the Corporation shall take a record
of the holders of its Common Stock for the purpose of entitling them
(i) to receive a dividend or other distribution payable in Common
Stock, Options or Convertible Securities, or (ii) to subscribe for or
purchase Common Stock, Options or Convertible Securities, then such
record date shall be deemed to be the date of the issue or sale of the
shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other distribution
or the date of the granting of such right of subscription or purchase,
as the case may be.
(g) Treasury Shares. The number of shares of Common Stock
outstanding at any given time shall not include shares owned or held by
or for the account of the Corporation, and the disposition of any such
shares shall be considered an issue or sale of Common Stock for the
purposes of this Section 3.
(h) Subdivision or Combination of Stock. In case the
Corporation shall at any time subdivide its outstanding shares of
Common Stock into a greater number of shares, the Warrant Exercise
Price in effect immediately prior to such subdivision shall be
proportionately reduced, and conversely, in case the outstanding shares
of Common Stock of the Corporation shall be combined into a smaller
number of shares, the Warrant Exercise Price in effect immediately
prior to such combination shall be proportionately increased.
(i) Certain Issues of Common Stock Excepted. Anything herein
to the contrary notwithstanding, the Corporation shall not be required
to make any adjustment of the Warrant Exercise Price in the case of the
issuance of shares of Common Stock upon exercise of employee stock
options approved by the Board of Directors of the Corporation.
(j) Reorganization, Reclassification, Consolidation, Merger or
Sale. If any capital reorganization or reclassi- fication of the
capital stock of the Corporation or any consolidation or merger of the
Corporation with another corporation, or the sale of all or
substantially all of its assets to another corporation 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, as a condition of such reorganization,
reclassification, consolidation, merger or sale, lawful and adequate
provisions shall be made whereby
9
<PAGE>
each holder of the Warrants shall thereafter have the right to receive
upon the basis and upon the terms and conditions specified herein and
in lieu of the shares of Common Stock of the Corporation immediately
theretofore receivable upon the exercise of such Warrant or Warrants,
such shares of stock, securities or assets (including 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 stock immediately theretofore so receivable had such
reorganization, reclassification, consolidation, merger or sale not
taken place, and in any such case appropriate provision shall be made
with respect to the rights and interests of such holder to the end that
the provisions hereof (including without limitation provisions for
adjustments of the Warrant Exercise Price) shall thereafter be
applicable, as nearly as may be, in relation to any shares of stock,
securities or assets thereafter deliverable upon the exercise of such
exercise rights (including an immediate adjustment, by reason of such
reorganization or reclassification, of the Warrant Exercise Price to
the value for the Common Stock reflected by the terms of such
reorganization or reclassification if the value so reflected is less
than the Warrant Exercise Price in effect immediately prior to such
reorganization or reclassifica- tion). In the event of a merger or
consolidation of the Corporation as a result of which a greater or
lesser number of shares of common stock of the surviving corporation
are issuable to holders of Common Stock of the Corporation outstanding
immediately prior to such merger or consolidation, the Warrant Exercise
Price in effect immediately prior to such merger or consolidation shall
be adjusted in the same manner as though there were a subdivision or
combination of the outstanding shares of Common Stock of the
Corporation. The Corporation will not effect any such consolidation,
merger or any sale of all or substantially all of its assets of
properties, unless prior to the consummation thereof the successor
corporation (if other than the Corporation) resulting from such
consolidation or merger or the corporation purchasing such assets shall
assume by written instrument executed and mailed or delivered to each
holder of the Warrants at the last address of such holder appearing on
the books of the Corporation, the obligation to deliver to such holder
such shares of stock, securities or assets as, in accordance with the
foregoing provisions, such holder may be entitled to receive.
(k) Notice of Adjustment. Upon any adjustment of the Warrant
Exercise Price, then and in each such case, the Corporation shall give
written notice thereof, by first class mail, postage prepaid, addressed
to each holder of the Warrants at the address of such holder as shown
on the books of the Corporation, which notice shall state the Warrant
10
<PAGE>
Exercise Price resulting from such adjustment, setting forth in
reasonable detail the method of calculation and the facts upon which
such calculation is based.
(l) Certain Events. If any event occurs as to which in the
opinion of the Board of Directors of the Corporation the other
provisions of this Section 3 are not strictly applicable or if strictly
applicable would not fairly protect the exercise rights of this
Warrant, in accordance with the essential intent and principles of such
provisions to protect against dilution, then such Board of Directors
shall in good faith make an adjustment in the application of such
provisions, in accordance with such essential intent and principles, so
as to protect such exercise rights as aforesaid.
(m) Stock to Be Reserved. The Corporation will at all times
reserve and keep available out of its authorized Common Stock or its
treasury shares, solely for the purpose of issue upon the exercise of
this Warrant as herein provided, such number of shares of Common Stock
as shall then be issuable upon the exercise of this Warrant. 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, and, without limiting the generality of the
foregoing, the Corporation covenants that it will from time to time
take all such action as may be requisite to assure that the par value
per share of the Common Stock is at all times equal to or less than the
effective Warrant Exercise Price. The Corporation will take all such
action as may be necessary to assure that all such shares of Common
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. The
Corporation will not take any action which results in any adjustment of
the Warrant Exercise Price if the total number of shares of Common
Stock issued and issuable after such action upon exercise of this
Warrant would exceed the total number of shares of Common Stock then
authorized by the Corporation's Articles of Incorporation. The
Corporation has not granted and will not grant any right of first
refusal with respect to shares issuable upon exercise of this Warrant,
and there are no preemptive rights associated with such shares.
(n) Issue Tax. The issuance of certificates for shares of
Common Stock upon exercise of the Warrants shall be made without charge
to the holders of such Warrants 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
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<PAGE>
and delivery of any certificate in a name other than that of any
holder of the Warrants.
(o) Closing of Books. The Corporation will at no time close
its transfer books against the transfer of the shares of Common Stock
issued or issuable upon the exercise of this Warrant in any manner
which interferes with the timely exercise of this Warrant.
(p) Definition of Common Stock. As used herein the term
"Common Stock" shall mean and include the Common Stock, $.01 par value,
of the Corporation as authorized on December 18, 1995 and also any
capital stock of any class of the Corporation hereinafter authorized
which shall not be limited to a fixed sum or percentage in respect of
the rights of the holders thereof to participate in dividends or in the
distribution of assets upon the voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, provided, however, that
the shares purchasable pursuant to this Warrant shall include only
shares designated as Common Stock, $.01 par value, of the Corporation
on December 18, 1995, or shares of any class or classes resulting from
any reclassification or reclassifications thereof which are not limited
to any such fixed sum or percentage and are not subject to redemption
by the Corporation and, in case at any time there shall be more than
one such resulting class, the shares of each class then so issuable
shall be substantially in the proportion which the total number of
shares of such class resulting from all such reclassifications bears to
the total number of shares of all such classes resulting from all such
reclassifications.
Section 4. Notices of Record Dates. In the event of
(1) any taking by the Corporation of a record of the holders
of any class of securities for the purpose of determining the holders
thereof who are entitled to receive any dividend or other distribution
(other than cash dividends out of earned surplus), or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any
class or any other securities or property, or to receive any other
right, or
(2) any capital reorganization of the Corporation, any
reclassification or recapitalization of the capital stock of the
Corporation or any transfer of all or substantially all the assets of
the Corporation to or consolidation or merger of the Corporation with
or into any other corporation, or
(3) any voluntary or involuntary dissolution, liquidation or
winding-up of the Corporation,
12
<PAGE>
then and in each such event the Corporation will give notice to the holder of
this Warrant specifying (i) the date on which any such record is to be taken for
the purpose of such dividend, distribution or right and stating the amount and
character of such dividend, distribution or right, and (ii) the date on which
any such reorganization, reclassification, recapitalization, transfer,
consolidation, merger, dissolution, liquidation or winding-up is to take place,
and the time, if any is to be fixed, as of which the holders of record of Common
Stock will be entitled to exchange their shares of Common Stock for securities
or other property deliverable upon such reorganization, reclassifi- cation,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding-up. Such notice shall be given at least 20 days and not more than 90
days prior to the date therein specified, and such notice shall state that the
action in question or the record date is subject to the effectiveness of a
registration statement under the Securities Act of 1933 or to a favorable vote
of stockholders, if either is required.
Section 5. [omitted]
Section 6. No Stockholder Rights or Liabilities. This Warrant
shall not entitle the holder hereof to any voting rights or other rights as a
stockholder of the Corporation. No provi- sion hereof, in the absence of
affirmative action by the holder hereof to purchase shares of Common Stock, and
no mere enumera- tion herein of the rights or privileges of the holder hereof,
shall give rise to any liability of such holder for the Warrant Exercise Price
or as a stockholder of the Corporation, whether such liability is asserted by
the Corporation or by creditors of the Corporation.
Section 7. Investment Representation and Legend. The holder,
by acceptance of the Warrant, represents and warrants to the Corporation that it
is acquiring the Warrant and the shares of Common Stock (or other securities)
issuable upon the exercise hereof for investment purposes only and not with a
view towards the resale or other distribution thereof and agrees that (a) it
will not offer, sell, transfer, encumber or otherwise dispose of the Warrant or
any of the shares of Common Stock (or other securities) issuable upon the
exercise hereof unless either (i) there is an effective registration statement
under said Act relating thereto or (ii) the Corporation has received an opinion
of counsel, reasonably satisfactory in form and substance to the Corporation,
stating that such registration is not required; and (b) the Corporation may
affix upon this Warrant the following legend:
"This Warrant has been issued in reliance upon the
representation of the holder that it has been acquired for investment
purposes and not with a view towards the resale
13
<PAGE>
or other distribution thereof. Neither this Warrant nor the shares
issuable upon the exercise of this Warrant have been registered under
the Securities Act of 1933."
The holder, by acceptance of this Warrant, further agrees that the Corporation
may affix the following legend to certificates for shares of Common Stock issued
upon exercise of this Warrant:
"The securities represented by this certificate have been
issued in reliance upon the representation of the holder that they have
been acquired for investment and not with a view toward the resale or
other distribution thereof, and have not been registered under the
Securities Act of 1933. Neither the securities evidenced hereby, nor
any interest therein, may be offered, sold, transferred, encumbered or
otherwise disposed of unless either (i) there is an effective
registration statement under said Act relating thereto or (ii) the
Corporation has received an opinion of counsel, reasonably satisfactory
in form and substance to the Corporation, stating that such
registration is not required."
Section 8. Lost, Stolen, Mutilated or Destroyed Warrant. If
this Warrant is lost, stolen, mutilated or destroyed, the Corporation may, on
such terms as to indemnity or otherwise as it may in its discretion reasonably
impose (which shall, in the case of a mutilated Warrant, include the surrender
thereof), issue a new Warrant of like denomination and tenor as the Warrant so
lost, stolen, mutilated or destroyed. Any such new Warrant shall constitute an
original contractual obligation of the Corporation, whether or not the allegedly
lost, stolen, mutilated or destroyed Warrant shall be at any time enforceable by
anyone.
Section 9. Notices. All notices, requests and other
communications required or permitted to be given or delivered hereunder shall be
in writing, and shall be delivered, or shall be sent by certified or registered
mail, postage prepaid and addressed, if to the holder to such holder at the
address shown on such holder's Warrant or at such other address as shall have
been furnished to the Corporation by notice from such holder. All notices,
requests and other communications required or permitted to be given or delivered
hereunder shall be in writing, and shall be delivered, or shall be sent by
certified or registered mail, postage prepaid and addressed to the Corporation
at such address as shall have been furnished to the holder by notice from the
Corporation.
14
<PAGE>
IN WITNESS WHEREOF, MedE America Corporation has executed this
Warrant on and as of the day and year first above written.
MEDE AMERICA CORPORATION
By
----------------------------------
15
<PAGE>
SUBSCRIPTION AGREEMENT
To:
Dated:
The undersigned, pursuant to the provisions set forth in the
within Warrant, hereby agrees to subscribe for and purchase [ ] shares of Common
Stock of MedE America Corporation, a Delaware Corporation (the "Corporation")
covered by such Warrant, and makes payment herewith in full therefor [at the
price per share provided by such Warrant [in cash] [by surrender of indebtedness
of the Corporation as provided in Section 1(a)(ii) of such Warrant] [as provided
in Section 1(a)(iii) of such Warrant].
Signature
---------------------------
------------------------------------
Address
-----------------------------
------------------------------------
<PAGE>
THIS WARRANT HAS BEEN ISSUED IN RELIANCE UPON THE REPRESENTATION OF
THE HOLDER THAT IT HAS BEEN ACQUIRED FOR INVESTMENT PURPOSES AND NOT
WITH A VIEW TOWARDS THE RESALE OR OTHER DISTRIBUTION THEREOF. NEITHER
THIS WARRANT NOR THE SHARES ISSUABLE UPON THE EXERCISE OF THIS WARRANT
HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933.
MEDE AMERICA CORPORATION
Stock Subscription Warrant
Warrant to Subscribe December 18, 1995
for 96,000 shares
Void After December 17, 2005
----------------------------
-----------------------
THIS CERTIFIES that, for value received, WELSH, CARSON,
ANDERSON & STOWE VI, L.P., a Delaware limited partnership ("Holder"), or its
registered assigns, is entitled to subscribe for and purchase from MEDE AMERICA
CORPORATION, a Delaware corporation (hereinafter called the "Corporation"), at
the price of $1.00 per share (such price as from time to time to be adjusted as
hereinafter provided being hereinafter called the "Warrant Exercise Price"), at
any time prior to December 18, 2005, up to NINETY SIX THOUSAND (96,000) (subject
to adjustment as hereinafter provided) fully paid and nonassessable shares of
Common Stock, $.01 par value, of the Corporation (hereinafter called the "Common
Stock"), subject, however, to the provisions and upon the terms and conditions
hereinafter set forth. This Warrant and any warrant or warrants subsequently
issued upon exchange or transfer hereof and each other warrant issued pursuant
to the Agreement dated as of December 18, 1995 (the "Agreement") among the
Corporation and the stockholders of the Corporation named therein, and any
warrant or warrants subsequently issued upon exchange or transfer thereof, are
hereinafter collectively called the "Warrants".
<PAGE>
THIS WARRANT HAS BEEN ISSUED IN RELIANCE UPON THE REPRESENTATION OF
THE HOLDER THAT IT HAS BEEN ACQUIRED FOR INVESTMENT PURPOSES AND NOT
WITH A VIEW TOWARDS THE RESALE OR OTHER DISTRIBUTION THEREOF. NEITHER
THIS WARRANT NOR THE SHARES ISSUABLE UPON THE EXERCISE OF THIS WARRANT
HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933.
MEDE AMERICA CORPORATION
Stock Subscription Warrant
Warrant to Subscribe December 18, 1995
for 96,000 shares
Void After December 17, 2005
----------------------------
------------------------
THIS CERTIFIES that, for value received, WELSH, CARSON,
ANDERSON & STOWE V, L.P., a Delaware limited partnership ("Holder"), or its
registered assigns, is entitled to subscribe for and purchase from MEDE AMERICA
CORPORATION, a Delaware corporation (hereinafter called the "Corporation"), at
the price of $1.00 per share (such price as from time to time to be adjusted as
hereinafter provided being hereinafter called the "Warrant Exercise Price"), at
any time prior to December 18, 2005, up to NINETY SIX THOUSAND (96,000) (subject
to adjustment as hereinafter provided) fully paid and nonassessable shares of
Common Stock, $.01 par value, of the Corporation (hereinafter called the "Common
Stock"), subject, however, to the provisions and upon the terms and conditions
hereinafter set forth. This Warrant and any warrant or warrants subsequently
issued upon exchange or transfer hereof and each other warrant issued pursuant
to the Agreement dated as of December 18, 1995 (the "Agreement") among the
Corporation and the stockholders of the Corporation named therein, and any
warrant or warrants subsequently issued upon exchange or transfer thereof, are
hereinafter collectively called the "Warrants".
<PAGE>
THIS WARRANT HAS BEEN ISSUED IN RELIANCE UPON THE REPRESENTATION OF THE
HOLDER THAT IT HAS BEEN ACQUIRED FOR INVESTMENT PURPOSES AND NOT WITH A
VIEW TOWARDS THE RESALE OR OTHER DISTRIBUTION THEREOF. NEITHER THIS
WARRANT NOR THE SHARES ISSUABLE UPON THE EXERCISE OF THIS WARRANT HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933.
MEDE AMERICA CORPORATION
Stock Subscription Warrant
Warrant to Subscribe December 18, 1995
for 16,080 shares
Void After December 17, 2005
----------------------------
-------------------
THIS CERTIFIES that, for value received, WILLIAM BLAIR
LEVERAGED CAPITAL FUND LIMITED PARTNERSHIP, an Illinois limited partnership
("Holder"), or its registered assigns, is entitled to subscribe for and purchase
from MEDE AMERICA CORPORATION, a Delaware corporation (hereinafter called the
"Corporation"), at the price of $1.00 per share (such price as from time to time
to be adjusted as hereinafter provided being hereinafter called the "Warrant
Exercise Price"), at any time prior to December 18, 2005, up to SIXTEEN THOUSAND
EIGHTY (16,080) (subject to adjustment as hereinafter provided) fully paid and
nonassessable shares of Common Stock, $.01 par value, of the Corporation
(hereinafter called the "Common Stock"), subject, however, to the provisions and
upon the terms and conditions hereinafter set forth. This Warrant and any
warrant or warrants subsequently issued upon exchange or transfer hereof and
each other warrant issued pursuant to the Agreement dated as of December 18,
1995 (the "Agreement") among the Corporation and the stockholders of the
Corporation named therein, and any warrant or warrants subsequently issued upon
exchange or transfer thereof, are hereinafter collectively called the
"Warrants".
<PAGE>
THIS WARRANT HAS BEEN ISSUED IN RELIANCE UPON THE REPRESENTATION OF THE
HOLDER THAT IT HAS BEEN ACQUIRED FOR INVESTMENT PURPOSES AND NOT WITH A
VIEW TOWARDS THE RESALE OR OTHER DISTRIBUTION THEREOF. NEITHER THIS
WARRANT NOR THE SHARES ISSUABLE UPON THE EXERCISE OF THIS WARRANT HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933.
MEDE AMERICA CORPORATION
Stock Subscription Warrant
Warrant to Subscribe December 18, 1995
for 32,640 shares
Void After December 17, 2005
----------------------------
-----------------------
THIS CERTIFIES that, for value received, WILLIAM BLAIR CAPITAL
PARTNERS V, L.P., a Delaware limited partnership ("Holder"), or its registered
assigns, is entitled to subscribe for and purchase from MEDE AMERICA
CORPORATION, a Delaware corporation (hereinafter called the "Corporation"), at
the price of $1.00 per share (such price as from time to time to be adjusted as
hereinafter provided being hereinafter called the "Warrant Exercise Price"), at
any time prior to December 18, 2005, up to THIRTY TWO THOUSAND SIX HUNDRED FORTY
(32,640) (subject to adjustment as hereinafter provided) fully paid and
nonassessable shares of Common Stock, $.01 par value, of the Corporation
(hereinafter called the "Common Stock"), subject, however, to the provisions and
upon the terms and conditions hereinafter set forth. This Warrant and any
warrant or warrants subsequently issued upon exchange or transfer hereof and
each other warrant issued pursuant to the Agreement dated as of December 18,
1995 (the "Agreement") among the Corporation and the stockholders of the
Corporation named therein, and any warrant or warrants subsequently issued upon
exchange or transfer thereof, are hereinafter collectively called the
"Warrants".
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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<PAGE>
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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<PAGE>
(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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<PAGE>
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.
5
<PAGE>
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.
6
<PAGE>
(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
7
<PAGE>
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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<PAGE>
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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<PAGE>
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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<PAGE>
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.
* * * * *
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================================================================================
CREDIT AGREEMENT
BETWEEN
MEDE AMERICA CORPORATION
AND
BANK OF AMERICA ILLINOIS
DATED: DECEMBER 18, 1995
================================================================================
<PAGE>
TABLE OF CONTENTS
SECTION PAGE
ARTICLE I
DEFINITIONS
1.01 Certain Defined Terms................................................... 1
1.02 Other Interpretive Provisions........................................... 10
1.03 Accounting Principles................................................... 11
ARTICLE II
THE CREDITS
2.01 The Revolving Credit.................................................... 11
2.02 Loan Accounts........................................................... 11
2.03 Procedure for Borrowing................................................. 11
2.04 Conversion and Continuation Elections................................... 11
2.05 Voluntary Termination or Reduction of Commitment........................ 12
2.06 Optional Prepayments.................................................... 13
2.07 Repayment............................................................... 13
2.08 Interest................................................................ 13
2.09 Fees.................................................................... 13
(a) Commitment Fees......................................... 13
(b) Other Fees.............................................. 14
2.10 Computation of Fees and Interest........................................ 14
2.11 Payments by the Company................................................. 14
ARTICLE III
TAXES, YIELD PROTECTION AND ILLEGALITY
3.01 Taxes................................................................... 15
3.02 Illegality.............................................................. 16
3.03 Increased Costs and Reduction of Return................................. 16
3.04 Funding Losses.......................................................... 16
3.05 Inability to Determine Rates............................................ 17
3.06 Survival................................................................ 17
ARTICLE IV
CONDITIONS PRECEDENT
4.01 Conditions of Initial Loans............................................. 17
(a) Credit Agreement........................................ 17
(b) Resolutions; Incumbency................................. 17
(c) Organization Documents; Good Standing................... 18
(d) Legal Opinions.......................................... 18
(e) Payment of Fees......................................... 18
(f) Guaranties.............................................. 18
(g) Certificate............................................. 18
(h) Existing Agreement...................................... 19
4.02 Conditions to All Borrowings............................................ 19
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SECTION PAGE
(a) Notice of Borrowing..................................... 19
(b) Continuation of Representations and Warranties.......... 19
(c) No Existing Default..................................... 19
ARTICLE V
REPRESENTATIONS AND WARRANTIES
5.01 Corporate Existence and Power........................................... 19
5.02 Corporate Authorization; No Contravention............................... 20
5.03 Governmental Authorization.............................................. 20
5.04 Binding Effect.......................................................... 20
5.05 Litigation.............................................................. 20
5.06 No Default.............................................................. 20
5.07 ERISA Compliance........................................................ 20
5.08 Use of Proceeds; Margin Regulations..................................... 21
5.09 Title to Properties..................................................... 21
5.10 Taxes................................................................... 21
5.11 Financial Condition..................................................... 21
5.12 Regulated Entities...................................................... 22
5.13 Copyrights, Patents, Trademarks and Licenses, etc....................... 22
5.14 Subsidiaries............................................................ 22
5.15 Solvency................................................................ 22
5.16 Full Disclosure......................................................... 22
ARTICLE VI
AFFIRMATIVE COVENANTS
6.01 Financial Statements.................................................... 23
6.02 Certificates; Other Information......................................... 23
6.03 Notices................................................................. 24
6.04 Preservation of Corporate Existence, Etc................................ 25
6.05 Maintenance of Property................................................. 25
6.06 Insurance............................................................... 25
6.07 Payment of Obligations.................................................. 25
6.08 Compliance with Laws.................................................... 26
6.09 Compliance with ERISA................................................... 26
6.10 Inspection of Property and Books and Records............................ 26
6.11 Environmental Laws...................................................... 26
6.12 Use of Proceeds......................................................... 26
6.13 Further Assurances...................................................... 26
ARTICLE VII
NEGATIVE COVENANTS
7.01 Limitation on Liens..................................................... 27
7.02 Disposition of Assets................................................... 28
7.03 Consolidations and Mergers.............................................. 28
7.04 Loans and Investments................................................... 28
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SECTION PAGE
7.05 Limitation on Indebtedness.............................................. 29
7.06 Transactions with Affiliates............................................ 29
7.07 Use of Proceeds......................................................... 29
7.08 Contingent Obligations.................................................. 29
7.09 Joint Ventures.......................................................... 29
7.10 Lease Obligations....................................................... 30
7.11 Restricted Payments..................................................... 30
7.12 ERISA................................................................... 30
7.13 Change in Business...................................................... 30
7.14 Accounting Changes...................................................... 30
7.15 Maximum Leverage Ratio.................................................. 30
7.16 Minimum Interest Coverage Ratio......................................... 30
ARTICLE VIII
EVENTS OF DEFAULT
8.01 Event of Default........................................................ 31
(a) Non-Payment............................................. 31
(b) Representation or Warranty.............................. 31
(c) Specific Defaults....................................... 31
(d) Other Defaults.......................................... 31
(e) Cross-Default........................................... 31
(f) Insolvency; Voluntary Proceedings....................... 31
(g) Involuntary Proceedings................................. 32
(h) ERISA................................................... 32
(i) Monetary Judgments...................................... 32
(j) Non-Monetary Judgments.................................. 32
(k) Change of Control....................................... 32
(l) Loss of Licenses........................................ 32
(m) Guarantor Defaults...................................... 33
8.02 Remedies................................................................ 33
8.03 Rights Not Exclusive.................................................... 33
ARTICLE IX
MISCELLANEOUS
9.01 Amendments and Waivers................................................ 33
9.02 Notices............................................................... 33
9.03 No Waiver; Cumulative Remedies........................................ 34
9.04 Costs and Expenses.................................................... 34
9.05 Company Indemnification............................................... 35
9.06 Marshalling; Payments Set Aside....................................... 35
9.07 Successors and Assigns................................................ 36
9.08 Assignments, Participations, etc...................................... 36
9.09 Confidentiality....................................................... 37
9.10 Set-off............................................................... 37
9.11 Counterparts.......................................................... 37
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SECTION PAGE
9.12 Severability.......................................................... 37
9.13 No Third Parties Benefited............................................ 37
9.14 Governing Law and Jurisdiction........................................ 38
9.15 Waiver of Jury Trial.................................................. 38
9.16 Entire Agreement...................................................... 38
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SCHEDULES
Schedule 5.05 Litigation
Schedule 5.07 ERISA
Schedule 5.13 Intellectual Property Matters
Schedule 5.17 Subsidiaries and Minority Interests
Schedule 7.01 Permitted Liens
Schedule 7.05 Certain Indebtedness
Schedule 7.08 Contingent Obligations
Schedule 9.02 Lending Office; Addresses for Notices
EXHIBITS
Exhibit A Form of Compliance Certificate
Exhibit B Form of Notice of Borrowing
Exhibit C Form of Notice of Conversion/Continuation
Exhibit D-1 Form of Legal Opinion of Company's Counsel
Exhibit D-2 Form of Legal Opinion of Guarantor's Counsel
Exhibit E Form of Guaranty
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CREDIT AGREEMENT
This CREDIT AGREEMENT is entered into as of December 18, 1995 between MEDE
AMERICA CORPORATION (the "Company") and Bank of America Illinois (the "Bank").
WHEREAS, the Bank has agreed to make available to the Company a revolving
credit facility upon the terms and conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the mutual agreements, provisions and
covenants contained herein, the parties agree as follows:
ARTICLE I
DEFINITIONS
1.01 Certain Defined Terms. The following terms have the following
meanings:
"Affiliate" means, as to any Person, any other Person which, directly
or indirectly, is in control of, is controlled by, or is under common
control with, such Person. A Person shall be deemed to control another
Person if the controlling Person possesses, directly or indirectly, the
power to direct or cause the direction of the management and policies of
the other Person, whether through the ownership of voting securities,
membership interests, by contract, or otherwise.
"Agreement" means this Credit Agreement.
"Applicable Margin" means
(i) with respect to Base Rate Loans, .25%;
(ii) with respect to Offshore Rate Loans, 1.25%.
"Assignee" has the meaning specified in subsection 9.08(a).
"Attorney Costs" means and includes all fees and disbursements of any
law firm or other external counsel, the allocated cost of internal legal
services and all disbursements of internal counsel.
"Bank" means Bank of America Illinois. Unless the context otherwise
clearly requires, references to the Bank shall also include any of the
Bank's "Affiliates" that may at any time of determination be a party to a
Swap Contract with the Company.
"Bankruptcy Code" means the Federal Bankruptcy Reform Act of 1978 (11
U.S.C. ss.101, et seq.).
"Base Rate" means, for any day, the higher of: (a) 0.50% per annum
above the latest Federal Funds Rate; and (b) the rate of interest in effect
for such day as publicly announced from time to time by the Bank in San
Francisco, California, as its "reference rate." (The "reference rate" is a
rate set by the Bank based upon various factors including the Bank's
<PAGE>
costs and desired return, general economic conditions and other factors,
and is used as a reference point for pricing some loans, which may be
priced at, above, or below such announced rate.) Any change in the
reference rate announced by the Bank shall take effect at the opening of
business on the day specified in the public announcement of such change.
"Base Rate Loan" means a Loan that bears interest based on the Base
Rate.
"Borrowing Date" means any date on which a Loan is disbursed.
"Business Day" means any day other than a Saturday, Sunday or other
day on which commercial banks in New York City or San Francisco, California
are authorized or required by law to close and, if the applicable Business
Day relates to any Offshore Rate Loan, means such a day on which dealings
are carried on in the applicable offshore dollar interbank market.
"Capital Adequacy Regulation" means any guideline, request or
directive of any central bank or other Governmental Authority, or any other
law, rule or regulation, whether or not having the force of law, in each
case, regarding capital adequacy of any bank or of any corporation
controlling a bank.
"Change of Control" means the Guarantors shall cease to own 75% of the
shares of the Company.
"Closing Date" means the date on which all conditions precedent set
forth in Section 4.01 are satisfied or waived by the Bank (or, in the case
of subsection 4.01(e), waived by the Person entitled to receive such
payment).
"Code" means the Internal Revenue Code of 1986, and regulations
promulgated thereunder.
"Compliance Certificate" means a certificate substantially in the form
of Exhibit A.
"Contingent Obligation" means, as to any Person, any direct or
indirect liability of that Person, whether or not contingent, with or
without recourse, (a) with respect to any Indebtedness, lease, dividend,
letter of credit or other obligation (the "primary obligations") of another
Person (the "primary obligor"), including any obligation of that Person (i)
to purchase, repurchase or otherwise acquire such primary obligations or
any security therefor, (ii) to advance or provide funds for the payment or
discharge of any such primary obligation, or to maintain working capital or
equity capital of the primary obligor or otherwise to maintain the net
worth or solvency or any balance sheet item, level of income or financial
condition of the primary obligor, (iii) to purchase property, securities or
services primarily for the purpose of assuring the owner of any such
primary obligation of the ability of the primary obligor to make payment of
such primary obligation, or (iv) otherwise to assure or hold harmless the
holder of any such primary obligation against loss in respect thereof
(each, a "Guaranty Obligation"); (b) with respect to any Surety Instrument
issued for the account of that Person or as to which that Person is
otherwise liable for reimbursement of drawings or payments; (c) to purchase
any materials, supplies or other property from, or to obtain the services
of, another Person if the relevant contract or other related document or
obligation requires that payment for such
2
<PAGE>
materials, supplies or other property, or for such services, shall be made
regardless of whether delivery of such materials, supplies or other
property is ever made or tendered, or such services are ever performed or
tendered; and (d) in respect of Swap Contracts. The amount of any
Contingent Obligation shall, in the case of Guaranty Obligations, be deemed
equal to the stated or determinable amount of the primary obligation in
respect of which such Guaranty Obligation is made or, if not stated or if
indeterminable, the maximum reasonably anticipated liability in respect
thereof.
"Contractual Obligation" means, as to any Person, any provision of any
security issued by such Person or of any agreement, undertaking, contract,
indenture, mortgage, deed of trust or other instrument, document or
agreement to which such Person is a party or by which it or any of its
property is bound.
"Conversion/Continuation Date" means any date on which, under Section
2.04, the Company (a) converts Loans of one Type to another Type, or (b)
continues as Loans of the same Type, but with a new Interest Period, Loans
having Interest Periods expiring on such date.
"Default" means any event or circumstance which, with the giving of
notice, the lapse of time, or both, would (if not cured or otherwise
remedied during such time) constitute an Event of Default.
"Dollars", "dollars" and "$" each mean lawful money of the United
States.
"EBITDA" means net income (or loss) plus consolidated interest, income
taxes, depreciation, amortization and other non-cash charges.
"Environmental Laws" means all federal, state or local laws, statutes,
common law duties, rules, regulations, ordinances and codes, together with
all administrative orders, directed duties, requests, licenses,
authorizations and permits of, and agreements with, any Governmental
Authorities, in each case relating to environmental, health, safety and
land use matters; including the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 ("CERCLA"), the Clean Air Act, the
Federal Water Pollution Control Act of 1972, the Solid Waste Disposal Act,
the Federal Resource Conservation and Recovery Act, the Toxic Substances
Control Act and the Emergency Planning and Community Right-to-Know Act.
"ERISA" means the Employee Retirement Income Security Act of 1974, and
regulations promulgated thereunder.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) under common control with the Company within the meaning of
Section 414(b) or (c) of the Code (and Sections 414(m) and (o) of the Code
for purposes of provisions relating to Section 412 of the Code).
"ERISA Event" means (a) a Reportable Event with respect to a Pension
Plan; (b) a withdrawal by the Company or any ERISA Affiliate from a Pension
Plan subject to Section 4063 of ERISA during a plan year in which it was a
substantial employer (as defined in Section
3
<PAGE>
4001(a)(2) of ERISA) or a cessation of operations which is treated as such
a withdrawal under Section 4062(e) of ERISA; (c) a complete or partial
withdrawal by the Company or any ERISA Affiliate from a Multiemployer Plan
or notification that a Multiemployer Plan is in reorganization; (d) the
filing of a notice of intent to terminate, the treatment of a Plan
amendment as a termination under Section 4041 or 4041A of ERISA, or the
commencement of proceedings by the PBGC to terminate a Pension Plan or
Multiemployer Plan; (e) an event or condition which might reasonably be
expected to constitute grounds under Section 4042 of ERISA for the
termination of, or the appointment of a trustee to administer, any Pension
Plan or Multiemployer Plan; or (f) the imposition of any liability under
Title IV of ERISA, other than PBGC premiums due but not delinquent under
Section 4007 of ERISA, upon the Company or any ERISA Affiliate.
"Event of Default" means any of the events or circumstances specified
in Section 8.01.
"Exchange Act" means the Securities Exchange Act of 1934, and
regulations promulgated thereunder.
"FDIC" means the Federal Deposit Insurance Corporation, and any
Governmental Authority succeeding to any of its principal functions.
"Federal Funds Rate" means, for any day, the rate set forth in the
weekly statistical release designated as H.15(519), or any successor
publication, published by the Federal Reserve Bank of New York (including
any such successor, "H.15(519)") on the preceding Business Day opposite the
caption "Federal Funds (Effective)"; or, if for any relevant day such rate
is not so published on any such preceding Business Day, the rate for such
day will be the arithmetic mean as determined by the Bank of the rates for
the last transaction in overnight Federal funds arranged prior to 9:00 a.m.
(New York City time) on that day by each of three leading brokers of
Federal funds transactions in New York City selected by the Bank.
"FRB" means the Board of Governors of the Federal Reserve System, and
any Governmental Authority succeeding to any of its principal functions.
"Further Taxes" means any and all present or future taxes, levies,
assessments, imposts, duties, deductions, fees, withholdings or similar
charges (including, without limitation, net income taxes and franchise
taxes), and all liabilities with respect thereto, imposed by any
jurisdiction on account of amounts payable or paid pursuant to Section
3.01.
"GAAP" means generally accepted accounting principles set forth from
time to time in the opinions and pronouncements of the Accounting
Principles Board and the American Institute of Certified Public Accountants
and statements and pronouncements of the Financial Accounting Standards
Board (or agencies with similar functions of comparable stature and
authority within the U.S. accounting profession), which are applicable to
the circumstances as of the date of determination.
"Governmental Authority" means any nation or government, any state or
other political subdivision thereof, any central bank (or similar monetary
or regulatory authority) thereof, any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or
4
<PAGE>
pertaining to government, and any corporation or other entity owned or
controlled, through stock or capital ownership or otherwise, by any of the
foregoing.
"Guarantor" means each of WCAS V,WCAS VI, WB Capital Partners and WB
Leveraged Capital.
"Guarantor's Support Percentage" shall mean, as of the Closing Date,
(i) with respect to WCAS V, 40%, (ii) with respect to WCAS VI, 40%, (iii)
with respect to WB Leveraged Capital, 6.7%, and (iv) with respect to WB
Capital Partners, 13.3%.
"Guaranty Obligation" has the meaning specified in the definition of
"Contingent Obligation."
"Indebtedness" of any Person means, without duplication, (a) all
indebtedness for borrowed money; (b) all obligations issued, undertaken or
assumed as the deferred purchase price of property or services (other than
trade payables entered into in the ordinary course of business on ordinary
terms); (c) all non-contingent reimbursement or payment obligations with
respect to Surety Instruments; (d) all obligations evidenced by notes,
bonds, debentures or similar instruments, including obligations so
evidenced incurred in connection with the acquisition of property, assets
or businesses; (e) all indebtedness created or arising under any
conditional sale or other title retention agreement, or incurred as
financing, in either case with respect to property acquired by the Person
(even though the rights and remedies of the seller or bank under such
agreement in the event of default are limited to repossession or sale of
such property); (f) all obligations with respect to capital leases; (g) all
indebtedness referred to in clauses (a) through (f) above secured by (or
for which the holder of such Indebtedness has an existing right, contingent
or otherwise, to be secured by) any Lien upon or in property (including
accounts and contracts rights) owned by such Person, even though such
Person has not assumed or become liable for the payment of such
Indebtedness; and (h) all Guaranty Obligations in respect of indebtedness
or obligations of others of the kinds referred to in clauses (a) through
(g) above.
"Indemnified Liabilities" has the meaning specified in Section 9.05.
"Indemnified Person" has the meaning specified in Section 9.05.
"Independent Auditor" has the meaning specified in subsection 6.01(a).
"Insolvency Proceeding" means, with respect to any Person, (a) any
case, action or proceeding with respect to such Person before any court or
other Governmental Authority relating to bankruptcy, reorganization,
insolvency, liquidation, receivership, dissolution, winding-up or relief of
debtors, or (b) any general assignment for the benefit of creditors,
composition, marshalling of assets for creditors, or other, similar
arrangement in respect of its creditors generally or any substantial
portion of its creditors; undertaken under U.S. Federal, state or foreign
law, including the Bankruptcy Code.
"Interest Payment Date" means, as to any Loan other than a Base Rate
Loan, the last day of each Interest Period applicable to such Loan and, as
to any Base Rate Loan, the last
5
<PAGE>
Business Day of each calendar quarter and each date such Loan is converted
into another Type of Loan, provided, however, that if any Interest Period
for an Offshore Rate Loan exceeds three months, the date that falls three
months after the beginning of such Interest Period and after each Interest
Payment Date thereafter is also an Interest Payment Date.
"Interest Period" means, as to any Offshore Rate Loan, the period
commencing on the Borrowing Date of such Loan or on the
Conversion/Continuation Date on which the Loan is converted into or
continued as an Offshore Rate Loan, and ending on the date one, two, three
or six months thereafter as selected by the Company in its Notice of
Borrowing or Notice of Conversion/Continuation, provided that:
(i) if any Interest Period would otherwise end on a day that is
not a Business Day, that Interest Period shall be extended to the
following Business Day unless the result of such extension would be to
carry such Interest Period into another calendar month, in which event
such Interest Period shall end on the preceding Business Day;
(ii) any Interest Period pertaining to an Offshore Rate Loan that
begins on the last Business Day of a calendar month (or on a day for
which there is no numerically corresponding day in the calendar month
at the end of such Interest Period) shall end on the last Business Day
of the calendar month at the end of such Interest Period.
"IRS" means the Internal Revenue Service, and any Governmental
Authority succeeding to any of its principal functions under the Code.
"Investments" has the meaning specified in Section 7.04.
"Lending Office" means the office or offices of the Bank specified as
its "Lending Office" or "Domestic Lending Office" or "Offshore Lending
Office", as the case may be, on the signature pages of this Agreement, or
such other office or offices as the Bank may from time to time notify the
Company.
"Leverage Ratio" means, at any date, the ratio of (i) Indebtedness
outstanding on such date to (ii) EBITDA for the preceding six month period
multiplied by a factor of two.
"Lien" means any security interest, mortgage, deed of trust, pledge,
hypothecation, assignment, charge or deposit arrangement, encumbrance, lien
(statutory or other) or preferential arrangement of any kind or nature
whatsoever in respect of any property (including those created by, arising
under or evidenced by any conditional sale or other title retention
agreement, the interest of a lessor under a capital lease, any financing
lease having substantially the same economic effect as any of the
foregoing, or the filing of any financing statement naming the owner of the
asset to which such lien relates as debtor, under the Uniform Commercial
Code or any comparable law) and any contingent or other agreement to
provide any of the foregoing, but not including the interest of a lessor
under an operating lease.
6
<PAGE>
"Loan" means an extension of credit by the Bank to the Company under
Article II, and may be a Base Rate Loan or an Offshore Rate Loan (each, a
"Type" of Loan).
"Loan Documents" means this Agreement, any Notes, fee letters, and all
other documents delivered to the Bank in connection with the transactions
contemplated by this Agreement.
"Margin Stock" means "margin stock" as such term is defined in
Regulation G, T, U or X of the FRB.
"Material Adverse Effect" means (a) a material adverse change in, or a
material adverse effect upon, the operations, business, properties,
condition (financial or otherwise) or prospects of the Company and its
Subsidiaries taken as a whole; (b) a material impairment of the ability of
the Company or any Subsidiary to perform under any Loan Document and to
avoid any Event of Default; or (c) a material adverse effect upon (i) the
legality, validity, binding effect or enforceability against the Company or
any Subsidiary of any Loan Document.
"Minimum Interest Coverage Ratio" means the ratio of (i) EBITDA to
(ii) cash interest expense, each for the preceding six month period.
"Multiemployer Plan" means a "multiemployer plan", within the meaning
of Section 4001(a)(3) of ERISA, to which the Company or any ERISA Affiliate
makes, is making, or is obligated to make contributions or, during the
preceding three calendar years, has made, or been obligated to make,
contributions.
"Notice of Borrowing" means a notice in substantially the form of
Exhibit B.
"Notice of Conversion/Continuation" means a notice in substantially
the form of Exhibit C.
"Obligations" means all advances, debts, liabilities, obligations,
covenants and duties arising under any Loan Document owing by the Company
to the Bank or any Indemnified Person, whether direct or indirect
(including those acquired by assignment), absolute or contingent, due or to
become due, now existing or hereafter arising.
"Offshore Rate" means, for any Interest Period, with respect to an
Offshore Rate Loan, the rate of interest per annum (rounded upward to the
next 1/16th of 1%) determined by the Bank as follows:
Offshore Rate = IBOR
------------------------------------
1.00 - Eurodollar Reserve Percentage
Where,
"Eurodollar Reserve Percentage" means for any day for any Interest
Period the
7
<PAGE>
maximum reserve percentage (expressed as a decimal, rounded upward to the
next 1/100th of 1%) in effect on such day (whether or not applicable to the
Bank) under regulations issued from time to time by the FRB for determining
the maximum reserve requirement (including any emergency, supplemental or
other marginal reserve requirement) with respect to Eurocurrency funding
(currently referred to as "Eurocurrency liabilities"); and
"IBOR" means the rate of interest per annum determined by the Bank as
the rate at which dollar deposits in the approximate amount of the Bank's
Offshore Rate Loan for such Interest Period would be offered by the Bank's
Grand Cayman Branch, Grand Cayman B.W.I. (or such other office as may be
designated for such purpose by the Bank), to major banks in the offshore
dollar interbank market at their request at approximately 11:00 a.m. (New
York City time) two Business Days prior to the commencement of such
Interest Period.
The Offshore Rate shall be adjusted automatically as to all
Offshore Rate Loans then outstanding as of the effective date of any
change in the Eurodollar Reserve Percentage.
"Offshore Rate Loan" means a Loan that bears interest based on the
Offshore Rate.
"Organization Documents" means, for any corporation, the certificate
or articles of incorporation, the bylaws, any certificate of determination
or instrument relating to the rights of preferred shareholders of such
corporation, any shareholder rights agreement, and all applicable
resolutions of the board of directors (or any committee thereof) of such
corporation.
"Other Taxes" means any present or future stamp or documentary taxes
or any other excise or property taxes, charges or similar levies which
arise from any payment made hereunder or from the execution, delivery or
registration of, or otherwise with respect to, this Agreement or any other
Loan Documents.
"Participant" has the meaning specified in subsection 9.08(b).
"PBGC" means the Pension Benefit Guaranty Corporation, or any
Governmental Authority succeeding to any of its principal functions under
ERISA.
"Pension Plan" means a pension plan (as defined in Section 3(2) of
ERISA) subject to Title IV of ERISA which the Company sponsors, maintains,
or to which it makes, is making, or is obligated to make contributions, or
in the case of a multiple employer plan (as described in Section 4064(a) of
ERISA) has made contributions at any time during the immediately preceding
five (5) plan years.
"Permitted Liens" has the meaning specified in Section 7.01.
"Person" means an individual, partnership, corporation, limited
liability company, business trust, joint stock company, trust,
unincorporated association, joint venture or Governmental Authority.
8
<PAGE>
"Plan" means an employee benefit plan (as defined in Section 3(3) of
ERISA) which the Company sponsors or maintains or to which the Company
makes, is making, or is obligated to make contributions and includes any
Pension Plan.
"Reportable Event" means any of the events set forth in Section
4043(b) of ERISA or the regulations thereunder, other than any such event
for which the 30-day notice requirement under ERISA has been waived in
regulations issued by the PBGC.
"Requirement of Law" means, as to any Person, any law (statutory or
common), treaty, rule or regulation or determination of an arbitrator or of
a Governmental Authority, in each case applicable to or binding upon the
Person or any of its property or to which the Person or any of its property
is subject.
"Responsible Officer" means the chief executive officer or the
president of the Company, or any other officer having substantially the
same authority and responsibility; or, with respect to compliance with
financial covenants, the chief financial officer or the treasurer of the
Company, or any other officer having substantially the same authority and
responsibility.
"Revolving Commitment" means $10,000,000.
"Revolving Termination Date" means the earlier to occur of:
(a) May 15, 1997; and
(b) the date on which the Revolving Commitment terminates in
accordance with the provisions of this Agreement.
"SEC" means the Securities and Exchange Commission, or any
Governmental Authority succeeding to any of its principal functions.
"Solvent" means, as to any Person at any time, that (a) the fair value
of the property of such Person is greater than the amount of such Person's
liabilities (including disputed, contingent and unliquidated liabilities)
as such value is established and liabilities evaluated for purposes of
Section 101(31) of the Bankruptcy Code and, in the alternative, for
purposes of the New York Uniform Fraudulent Transfer Act; (b) the present
fair saleable value of the property of such Person is not less than the
amount that will be required to pay the probable liability of such Person
on its debts as they become absolute and matured; (c) such Person is able
to realize upon its property and pay its debts and other liabilities
(including disputed, contingent and unliquidated liabilities) as they
mature in the normal course of business; (d) such Person does not intend
to, and does not believe that it will, incur debts or liabilities beyond
such Person's ability to pay as such debts and liabilities mature; and (e)
such Person is not engaged in business or a transaction, and is not about
to engage in business or a transaction, for which such Person's property
would constitute unreasonably small capital.
"Subsidiary" of a Person means any corporation, association,
partnership, limited liability company, joint venture or other business
entity of which more than 50% of the voting
9
<PAGE>
stock, membership interests or other equity interests (in the case of
Persons other than corporations), is owned or controlled directly or
indirectly by the Person, or one or more of the Subsidiaries of the Person,
or a combination thereof. Unless the context otherwise clearly requires,
references herein to a "Subsidiary" refer to a Subsidiary of the Company.
"Surety Instruments" means all letters of credit (including standby
and commercial), banker's acceptances, bank guaranties, shipside bonds,
surety bonds and similar instruments.
"Swap Documents" means any agreement, whether or not in writing,
relating to any transaction that is a rate swap, basis swap, forward rate
transaction, commodity swap, commodity option, equity or equity index swap
or option, bond, note or bill option, interest rate option, forward foreign
exchange transaction, cap, collar or floor transaction, currency swap,
cross-currency rate swap, swaption, currency option or any other, similar
transaction (including any option to enter into any of the foregoing) or
any combination of the foregoing, and, unless the context otherwise clearly
requires, any master agreement relating to or governing any or all of the
foregoing.
"Taxes" means any and all present or future taxes, levies,
assessments, imposts, duties, deductions, fees, withholdings or similar
charges, and all liabilities with respect thereto, excluding, in the case
of the Bank, taxes imposed on or measured by the Bank's net income by the
jurisdiction (or any political subdivision thereof) under the laws of which
the Bank is organized or maintains a lending office.
"Type" has the meaning specified in the definition of "Loan."
"Unfunded Pension Liability" means the excess of a Plan's benefit
liabilities under Section 4001(a)(16) of ERISA, over the current value of
that Plan's assets, determined in accordance with the assumptions used for
funding the Pension Plan pursuant to Section 412 of the Code for the
applicable plan year.
"United States" and "U.S." each means the United States of America.
"WB Capital Partners" means William Blair Capital Partners V, L.P., a
Delaware limited partnership.
"WB Leveraged Capital" means William Blair Leveraged Capital Fund,
Limited Partnership, a Delaware limited partnership.
"WCAS V" means Welsh, Carson, Anderson & Stowe V, L.P., a Delaware
limited partnership.
"WCAS VI" means Welsh, Carson, Anderson & Stowe VI, L.P., a Delaware
limited partnership.
"Wholly-Owned Subsidiary" means any corporation in which (other than
directors' qualifying shares required by law) 100% of the capital stock of
each class having ordinary
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voting power, and 100% of the capital stock of every other class, in each
case, at the time as of which any determination is being made, is owned,
beneficially and of record, by the Company, or by one or more of the other
Wholly-Owned Subsidiaries, or both.
1.02 Other Interpretive Provisions.
(a) The meanings of defined terms are equally applicable to the
singular and plural forms of the defined terms.
(b) The words "hereof", "herein", "hereunder" and similar words refer
to this Agreement as a whole and not to any particular provision of this
Agreement; and subsection, Section, Schedule and Exhibit references are to
this Agreement unless otherwise specified.
(c) The term "documents" includes any and all instruments, documents,
agreements, certificates, indentures, notices and other writings, however
evidenced.
(d) The term "including" is not limiting and means "including without
limitation."
(e) In the computation of periods of time from a specified date to a
later specified date, the word "from" means "from and including"; the words
"to" and "until" each mean "to but excluding", and the word "through" means
"to and including."
1.03 Accounting Principles. Unless the context otherwise clearly requires,
all accounting terms not expressly defined herein shall be construed, and all
financial computations required under this Agreement shall be made, in
accordance with GAAP, consistently applied.
ARTICLE II
THE CREDITS
2.01 The Revolving Credit. The Bank agrees, on the terms and conditions set
forth herein, to make Loans to the Company from time to time on any Business Day
during the period from the Closing Date to the Revolving Termination Date, in an
aggregate amount not to exceed at any time outstanding the Revolving Commitment.
Within the limits of the Revolving Commitment, and subject to the other terms
and conditions hereof, the Company may borrow under this Section, prepay under
Section 2.06 and reborrow under this Section.
2.02 Loan Accounts. The Loans made by the Bank shall be evidenced by one or
more loan accounts or records maintained by the Bank in the ordinary course of
business. The loan accounts or records maintained by the Bank shall be
conclusive absent manifest error of the amount of the Loans made by the Bank to
the Company and the interest and payments thereon. Any failure so to record or
any error in doing so shall not, however, limit or otherwise affect the
obligation of the Company hereunder to pay any amount owing with respect to the
Loans.
2.03 Procedure for Borrowing. Each Loan shall be made upon the Company's
irrevocable written notice delivered to the Bank in the form of a Notice of
Borrowing (which notice must be received by the Bank prior to 12:00 noon (New
York time) (i) three Business Days prior to the requested Borrowing Date, in the
case of Offshore Rate Loans; and (ii) one Business Day prior to the
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requested Borrowing Date, in the case of Base Rate Loans, specifying:
(a) The amount of the Loan, which shall be in a minimum amount of
$1,000,000 or any multiple of $250,000 in excess thereof;
(b) The requested Borrowing Date, which shall be a Business Day;
(c) Whether the Loan is to be an Offshore Rate Loan, or a Base Rate
Loan;
(d) The duration of the Interest Period applicable to the Loan
included in such notice. If the Notice of Borrowing fails to specify the
duration of the Interest Period for an Offshore Rate Loan, such Interest
Period shall be three months.
2.04 Conversion and Continuation Elections.
(a) The Company may, upon irrevocable written notice to the Bank in
accordance with subsection 2.04(b):
(1) elect, as of any Business Day, in the case of Base Rate
Loans, or as of the last day of the applicable Interest Period, in the
case of any other Type of Loans, to convert any such Loans (or any
part thereof in an amount not less than 1,000,000, or that is in an
integral multiple of $250,000 in excess thereof) into Loans of any
other Type; or
(2) elect, as of the last day of the applicable Interest Period,
to continue any Loans having Interest Periods expiring on such day (or
any part thereof in an amount not less than $1,000,000, or that is in
an integral multiple of $250,000 in excess thereof);
provided, that if at any time the amount of an Offshore Rate Loan is
reduced, by payment, prepayment, or conversion of part thereof to be less
than $250,000], such Offshore Rate Loan shall automatically convert into a
Base Rate Loan, and on and after such date the right of the Company to
continue such Loans as, and convert such Loans into Offshore Rate Loans,
shall terminate.
(b) The Company shall deliver a Notice of Conversion/Continuation to
be received by the Bank not later than 12:00 noon (New York time) at least
(i) three Business Days in advance of the Conversion/Continuation Date, if
the Loans are to be converted into or continued as Offshore Rate Loans; and
(ii) one Business Day in advance of the Conversion/Continuation Date, if
the Loans are to be converted into Base Rate Loans, specifying:
(1) The proposed Conversion/Continuation Date;
(2) The aggregate amount of Loans to be converted or continued;
(3) The Type of Loans resulting from the proposed conversion or
continuation; and
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(4) Other than in the case of conversions into Base Rate Loans,
the duration of the requested Interest Period.
(c) If upon the expiration of any Interest Period applicable to
Offshore Rate Loans, the Company has failed to select timely a new Interest
Period to be applicable to such Offshore Rate Loans or if any Default or
Event of Default then exists, the Company shall be deemed to have elected
to convert such Offshore Rate Loans into Base Rate Loans effective as of
the expiration date of such Interest Period.
(d) Unless the Bank otherwise consents, during the existence of a
Default or Event of Default, the Company may not elect to have a Loan
converted into or continued as an Offshore Rate Loan.
2.05 Voluntary Termination or Reduction of Commitment. The Company may,
upon not less than one Business Day's prior notice to the Bank, terminate the
Revolving Commitment, or permanently reduce the Revolving Commitment by a
minimum amount of $1,000,000 or any multiple of $1,000,000 in excess thereof;
unless, after giving effect thereto and to any prepayments of Loans made on the
effective date thereof, the then-outstanding principal amount of the Loans would
exceed the amount of the Revolving Commitment then in effect. Once reduced in
accordance with this Section, the Revolving Commitment may not be increased. All
accrued commitment fees to, but not including the effective date of any
reduction or termination of the Revolving Commitment, shall be paid on the
effective date of such reduction or termination.
2.06 Optional Prepayments. Subject to Section 3.04, the Company may, at any
time or from time to time, upon not less than three Business Days' irrevocable
notice to the Bank, ratably prepay Loans in whole or in part, in minimum amounts
of $1,000,000 or any multiple of $250,000 in excess thereof. Such notice of
prepayment shall specify the date and amount of such prepayment and the Type(s)
of Loans to be prepaid. If such notice is given by the Company, the Company
shall make such prepayment and the payment amount specified in such notice shall
be due and payable on the date specified therein, together with accrued interest
to each such date on the amount prepaid and any amounts required pursuant to
Section 3.04.
2.07 Repayment. The Company shall repay to the Bank in full on the
Revolving Termination Date the aggregate principal amount of Loans outstanding
on such date.
2.08 Interest.
(a) Each Loan shall bear interest on the outstanding principal amount
thereof from its Borrowing Date at a rate per annum equal to the Offshore
Rate or the Base Rate, as the case may be (and subject to the Company's
right to convert to other Types of Loans under Section 2.04), plus the
Applicable Margin.
(b) Accrued but unpaid interest on each Loan shall be paid in arrears
on each Interest Payment Date.Interest shall also be paid on the date of
any prepayment of Loans under Section 2.06 for the portion of the Loans so
prepaid and upon payment (including prepayment) in full thereof and, during
the existence of any Event of Default, accrued but
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unpaid interest shall be paid on demand of the Bank.
(c) Notwithstanding subsection (a) of this Section, while any Event of
Default set forth in paragraph (a), (f) or (g) of Section 8.01exists or
after acceleration, the Company shall pay interest (after as well as before
entry of judgment thereon to the extent permitted by law) on the principal
amount of all outstanding Obligations, at a rate per annum which is
determined by adding 2% per annum to the Applicable Margin then in effect
for such Loans; provided, however, that, on and after the expiration of any
Interest Period applicable to any Offshore Rate Loan outstanding on the
date of occurrence of such Event of Default or acceleration, the principal
amount of such Loan shall, during the continuation of such Event of Default
or after acceleration, bear interest at a rate per annum equal to the Base
Rate plus 2%.
2.09 Fees.
(a) Commitment Fees. The Company shall pay to the Bank a commitment
fee on the average daily unused portion of the Bank's Revolving Commitment,
computed on a quarterly basis in arrears on the last Business Day of each
calendar quarter based upon the daily utilization for that quarter as
calculated by the Bank, equal to 3/8 of 1% per annum. Such commitment fee
shall accrue from the Closing Date to the Revolving Termination Date and
shall be due and payable quarterly in arrears on the last Business Day of
each calendar quarter commencing on December 31, 1995 through the Revolving
Termination Date, with the final payment to be made on the Revolving
Termination Date; provided that, in connection with any reduction or
termination of Revolving Commitment under Section 2.05, the accrued
commitment fee calculated for the period ending on such date shall also be
paid on the date of such reduction or termination, with the following
quarterly payment being calculated on the basis of the period from such
reduction or termination date to such quarterly payment date. The
commitment fees provided in this subsection shall accrue at all times after
the above-mentioned commencement date, including at any time during which
one or more conditions in Article IV are not met.
(b) Other Fees. The Company shall pay a facility fee of $25,000, on
the Closing Date. In addition, the Company shall pay an additional fee of
$10,000, payable on the date of any voluntary termination of the Revolving
Commitment by the Company prior to December 18, 1996.
2.10 Computation of Fees and Interest.
(a) All computations of interest for Base Rate Loans when the Base
Rate is determined by the Bank's "reference rate" shall be made on the
basis of a year of 365 or 366 days, as the case may be, and actual days
elapsed. All other computations of fees and interest shall be made on the
basis of a 360-day year and actual days elapsed (which results in more
interest being paid than if computed on the basis of a 365-day year).
Interest and fees shall accrue during each period during which interest or
such fees are computed from the first day thereof to the last day thereof.
(b) Each determination of an interest rate by the Bank shall be
conclusive and binding on the Company in the absence of manifest error.
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2.11 Payments by the Company.
(a) All payments to be made by the Company shall be made without
set-off, recoupment or counterclaim. Except as otherwise expressly provided
herein, all payments by the Company shall be made to the Bank at the place
indicated as the place of payment in the signature pages of this Agreement
or such other address as the Bank may specify in writing to the Company
from time to time, and shall be made in dollars and in immediately
available funds, no later than 12:00 noon (New York time) on the date
specified herein. Any payment received by the Bank later than 12:00 noon
(New York time) shall be deemed to have been received on the following
Business Day and any applicable interest or fee shall continue to accrue.
(b) Subject to the provisions set forth in the definition of "Interest
Period" herein, whenever any payment is due on a day other than a Business
Day, such payment shall be made on the following Business Day, and such
extension of time shall in such case be included in the computation of
interest or fees, as the case may be.
ARTICLE III
TAXES, YIELD PROTECTION AND ILLEGALITY
3.01 Taxes.
(a) Any and all payments by the Company to the Bank under this
Agreement and any other Loan Document shall be made free and clear of, and
without deduction or withholding for, any Taxes. In addition, the Company
shall pay all Other Taxes.
(b) If the Company shall be required by law to deduct or withhold any
Taxes, Other Taxes, or Further Taxes from or in respect of any sum payable
hereunder to the Bank, then:
(1) The sum payable shall be increased as necessary so that,
after making all required deductions and withholdings (including
deductions and withholdings applicable to additional sums payable
under this Section), the Bank receives and retains an amount equal to
the sum it would have received and retained had no such deductions or
withholdings been made;
(2) The Company shall make such deductions and withholdings;
(3) The Company shall pay the full amount deducted or withheld to
the relevant taxing authority or other authority in accordance with
applicable law; and
(4) The Company shall also pay to the Bank at the time interest
is paid, Further Taxes in the amount that the Bank specifies as
necessary to preserve the after-tax yield the Bank would have received
if such Taxes, Other Taxes, or Further Taxes had not been imposed.
(c) The Company agrees to indemnify and hold harmless the Bank for the
full
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amount of (i) Taxes, (ii) Other Taxes, and (iii) Further Taxes in the
amount that the Bank specifies as necessary to preserve the after-tax yield
the Bank would have received if such Taxes, Other Taxes, or Further Taxes
had not been imposed and any liability (including penalties, interest,
additions to tax and expenses) arising therefrom or with respect thereto,
whether or not such Taxes, Other Taxes, or Further Taxes were correctly or
legally asserted. Payment under this indemnification shall be made within
30 days after the date the Bank makes written demand therefor.
(d) Within 30 days after the date of any payment by the Company of
Taxes, Other Taxes, or Further Taxes, the Company shall furnish the Bank
the original or a certified copy of a receipt evidencing payment thereof,
or other evidence of payment satisfactory to the Bank.
(e) If the Company is required to pay any amount to the Bank pursuant
to subsections (b) or (c) of this Section, then the Bank shall use
reasonable efforts (consistent with legal and regulatory restrictions) to
change the jurisdiction of its Lending Office so as to eliminate any such
additional payment by the Company which may thereafter accrue, if such
change in the sole judgment of the Bank is not otherwise disadvantageous to
the Bank.
3.02 Illegality.
(a) If the Bank determines that the introduction of any Requirement of
Law, or any change in any Requirement of Law, or in the interpretation or
administration of any Requirement of Law, has made it unlawful, or that any
central bank or other Governmental Authority has asserted that it is
unlawful, for the Bank or its applicable Lending Office to make Offshore
Rate Loans, then, on notice thereof by the Bank to the Company, any
obligation of the Bank to make Offshore Rate Loans shall be suspended until
the Bank notifies the Company that the circumstances giving rise to such
determination no longer exist.
(b) If the Bank determines that it is unlawful to maintain any
Offshore Rate Loan, the Company shall, upon its receipt of notice of such
fact and demand from the Bank, prepay in full such Offshore Rate Loans of
the Bank then outstanding, together with interest accrued thereon and
amounts required under Section 3.04, either on the last day of the Interest
Period thereof, if the Bank may lawfully continue to maintain such Offshore
Rate Loans to such day, or immediately, if the Bank may not lawfully
continue to maintain such Offshore Rate Loan. If the Company is required to
so prepay any Offshore Rate Loan, then concurrently with such prepayment,
the Company shall borrow from the Bank, in the amount of such repayment, a
Base Rate Loan.
3.03 Increased Costs and Reduction of Return.
(a) If the Bank determines that, due to either (i) the introduction of
or any change in or in the interpretation of any law or regulation or (ii)
the compliance by that Bank with any guideline or request from any central
bank or other Governmental Authority (whether or not having the force of
law), there shall be any increase in the cost to the Bank of agreeing to
make or making, funding or maintaining any Offshore Rate Loans, then the
Company shall be liable for, and shall from time to time, upon demand, pay
to the Bank, additional amounts as are sufficient to compensate the Bank
for such increased costs.
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(b) If the Bank shall have determined that (i) the introduction of any
Capital Adequacy Regulation, (ii) any change in any Capital Adequacy
Regulation, (iii) any change in the interpretation or administration of any
Capital Adequacy Regulation by any central bank or other Governmental
Authority charged with the interpretation or administration thereof, or
(iv) compliance by the Bank (or its Lending Office) or any corporation
controlling the Bank with any Capital Adequacy Regulation, affects or would
affect the amount of capital required or expected to be maintained by the
Bank or any corporation controlling the Bank and (taking into consideration
the Bank's or such corporation's policies with respect to capital adequacy
and the Bank's desired return on capital) determines that the amount of
such capital is increased as a consequence of its Revolving Commitment,
Loans, credits or Obligations under this Agreement, then, upon demand of
the Bank to the Company, the Company shall pay to the Bank, from time to
time as specified by the Bank, additional amounts sufficient to compensate
the Bank for such increase.
3.04 Funding Losses. The Company shall reimburse the Bank and hold the Bank
harmless from any loss or expense which the Bank may sustain or incur as a
consequence of:
(a) The failure of the Company to make on a timely basis any payment
of principal of any Offshore Rate Loan;
(b) The failure of the Company to borrow, continue or convert a Loan
after the Company has given (or is deemed to have given) a Notice of
Borrowing or a Notice of Conversion/Continuation;
(c) The failure of the Company to make any prepayment in accordance
with any notice delivered under Section 2.06;
(d) The prepayment or other payment (including after acceleration
thereof) of an Offshore Rate Loan on a day that is not the last day of the
relevant Interest Period; or
(e) The automatic conversion under Section 2.04 of any Offshore Rate
Loan on a day that is not the last day of the relevant Interest Period;
including any such loss or expense arising from the liquidation or reemployment
of funds obtained by it to maintain its Offshore Rate Loans or from fees payable
to terminate the deposits from which such funds were obtained.
3.05 Inability to Determine Rates. If the Bank determines that for any
reason adequate and reasonable means do not exist for determining the Offshore
Rate for any requested Interest Period with respect to a proposed Offshore Rate
Loan, or that the Offshore Rate applicable pursuant to subsection 2.08(a) for
any requested Interest Period with respect to a proposed Offshore Rate Loan does
not adequately and fairly reflect the cost to the Bank of funding such Loan, the
Bank will promptly so notify the Company. Thereafter, the obligation of the Bank
to make or maintain Offshore Rate Loans hereunder shall be suspended until the
Bank revokes such notice in writing. Upon receipt of such notice, the Company
may, without penalty or charge, revoke any Notice of Borrowing or Notice of
Conversion/Continuation then submitted by it. If the Company does not revoke
such Notice,
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the Bank shall make, convert or continue the Loans, as proposed by the Company,
in the amount specified in the applicable notice submitted by the Company, but
such Loans shall be made, converted or continued as Base Rate Loans instead of
Offshore Rate Loans.
3.06 Survival. The agreements and obligations of the Company in this
Article III shall survive the payment of all other Obligations.
ARTICLE IV
CONDITIONS PRECEDENT
4.01 Conditions of Initial Loans. The obligation of the Bank to make its
initial Loan hereunder is subject to the condition that the Bank shall have
received on or before the Closing Date all of the following, in form and
substance satisfactory to the Bank:
(a) Credit Agreement. This Agreement executed by each party hereto;
(b) Resolutions; Incumbency.
(1) Copies of the resolutions of the board of directors of the
Company authorizing the transactions contemplated hereby, certified as
of the Closing Date by the Secretary or an Assistant Secretary of the
Company; and
(2) A certificate of the Secretary or Assistant Secretary of the
Company certifying the names and true signatures of the officers of
the Company authorized to execute, deliver and perform, as applicable,
this Agreement, and all other Loan Documents to be delivered by it
hereunder;
(c) Organization Documents; Good Standing. Each of the following
documents:
(1) The articles or certificate of incorporation and the bylaws
of the Company as in effect on the Closing Date, certified by the
Secretary or Assistant Secretary of the Company as of the Closing
Date; and
(2) A good standing and tax good standing certificate for the
Company from the Secretary of State (or similar, applicable
Governmental Authority) of its state of incorporation and each state
where the Company is qualified to do business as a foreign corporation
as of a recent date, together with a bring-down certificate by
facsimile, dated the Closing Date;
(d) Legal Opinions.
(1) An opinion of Reboul, MacMurray, Hewitt, Maynard & Kristol,
counsel to the Company and addressed to the Bank, substantially in the
form of Exhibit D-1;
(2) An opinion of each of Reboul, MacMurray, Hewitt, Maynard &
Kristol and Kirkland & Ellis, counsel to the Guarantors and addressed
to the Bank, substantially in the form of Exhibit D-2.
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(e) Payment of Fees. Evidence of payment by the Company of all accrued
and unpaid fees, costs and expenses to the extent then due and payable on
the Closing Date, together with Attorney Costs of the Bank to the extent
invoiced prior to or on the Closing Date, plus such additional amounts of
Attorney Costs as shall constitute the Bank's reasonable estimate of
Attorney Costs incurred or to be incurred by it through the closing
proceedings (provided that such estimate shall not thereafter preclude
final settling of accounts between the Company and the Bank) including any
such costs, fees and expenses arising under or referenced in Sections 2.09
and 9.04;
(f) Guaranties. The Guaranties executed by each of the Guarantors in
substantially the form of Exhibit E, together with resolutions and
incumbency certificates substantially similar to those delivered in
connection with 4.01(b) above.
(g) Certificate. A certificate signed by a Responsible Officer, dated
as of the Closing Date, stating that:
(1) the representations and warranties contained in Article V are
true and correct on and as of such date, as though made on and as of
such date;
(2) no Default or Event of Default exists or would result from
the disbursement of the initial Loan; and
(3) there has occurred since September 30, 1995, no event or
circumstance that has resulted or could reasonably be expected to
result in a Material Adverse Effect;
(h) Existing Agreement. Evidence that the loan agreement with Society
National Bank is being terminated simultaneously with the effectiveness of
this Agreement and all commitments thereunder are being cancelled and all
obligations thereunder are being fully repaid with the proceeds of the
Loans made on the Closing Date and all liens in favor of Society National
Bank have been released simultaneously herewith.
4.02 Conditions to All Borrowings. The obligation of the Bank to make any
Loan to be made by it (including its initial Loan) is subject to the
satisfaction of the following conditions precedent on the relevant Borrowing
Date;
(a) Notice of Borrowing. The Bank shall have received a Notice of
Borrowing;
(b) Continuation of Representations and Warranties. The
representations and warranties in Article V shall be true and correct on
and as of such Borrowing Date with the same effect as if made on and as of
such Borrowing Date;
(c) No Existing Default. No Default or Event of Default shall exist or
shall result from the making of such Loan; and
Each Notice of Borrowing submitted by the Company hereunder shall constitute a
representation and
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warranty by the Company hereunder, as of the date of each such notice and as of
each Borrowing Date, that the conditions in this Section 4.02 are satisfied.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
The Company represents and warrants to the Bank that:
5.01 Corporate Existence and Power. The Company and each of its
Subsidiaries:
(a) Is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation;
(b) Has the power and authority and all governmental licenses,
authorizations, consents and approvals to own its assets, carry on its
business and to execute, deliver, and perform its obligations under the
Loan Documents to which it is a party;
(c) Is duly qualified as a foreign corporation and is licensed and in
good standing under the laws of each jurisdiction where its ownership,
lease or operation of property or the conduct of its business requires such
qualification or license; and
(d) Is in compliance with all Requirements of Law; except, in each
case referred to in clause (c) or clause (d), to the extent that the
failure to do so could not reasonably be expected to have a Material
Adverse Effect.
5.02 Corporate Authorization; No Contravention. The execution, delivery and
performance by the Company and its Subsidiaries of this Agreement and each other
Loan Document to which the Company is party, have been duly authorized by all
necessary corporate action, and do not and will not:
(a) Contravene the terms of any of the Company's Organization
Documents;
(b) Conflict with or result in any breach or contravention of, or the
creation of any Lien under, any document evidencing any Contractual
Obligation to which the Company is a party or any order, injunction, writ
or decree of any Governmental Authority to which the Company or its
property is subject; or
(c) Violate any Requirement of Law.
5.03 Governmental Authorization. No approval, consent, exemption,
authorization, or other action by, or notice to, or filing with, any
Governmental Authority is necessary or required in connection with the
execution, delivery or performance by, or enforcement against, the Company or
any of its Subsidiaries of the Agreement or any other Loan Document to which it
is a party.
5.04 Binding Effect. This Agreement and each other Loan Document to which
the Company is a party constitute the legal, valid and binding obligations of
the Company enforceable against the Company in accordance with their respective
terms, except as enforceability may be limited by
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applicable bankruptcy, insolvency, or similar laws affecting the enforcement of
creditors' rights generally or by equitable principles relating to
enforceability.
5.05 Litigation. Except as specifically disclosed in Schedule 5.05, there
are no actions, suits, proceedings, claims or disputes pending, or to the best
knowledge of the Company, threatened or contemplated, at law, in equity, in
arbitration or before any Governmental Authority, against the Company, or its
Subsidiaries or any of their respective properties which:
(a) purport to affect or pertain to this Agreement or any other Loan
Document, or any of the transactions contemplated hereby or thereby; or
(b) if there is a reasonable possibility of an adverse decision to the
Company or its Subsidiaries, which would reasonably be expected to have a
Material Adverse Effect. No injunction, writ, temporary restraining order
or any order of any nature has been issued by any court or other
Governmental Authority purporting to enjoin or restrain the execution,
delivery or performance of this Agreement or any other Loan Document, or
directing that the transactions provided for herein or therein not be
consummated as herein or therein provided.
5.06 No Default. No Default or Event of Default exists or would result from
the incurring of any Obligations by the Company. As of the Closing Date, neither
the Company nor any Subsidiary is in default under or with respect to any
Contractual Obligation in any respect which, individually or together with all
such defaults, could reasonably be expected to have a Material Adverse Effect.
5.07 ERISA Compliance. Except as specifically disclosed in Schedule 5.07:
(a) Each Plan is in compliance in all material respects with the
applicable provisions of ERISA, the Code and other federal or state law.
Each Plan which is intended to qualify under Section 401(a) of the Code has
received a favorable determination letter from the IRS and to the best
knowledge of the Company, nothing has occurred which would cause the loss
of such qualification. The Company and each ERISA Affiliate has made all
required contributions to any Plan subject to Section 412 of the Code, and
no application for a funding waiver or an extension of any amortization
period pursuant to Section 412 of the Code has been made with respect to
any Plan.
(b) There are no pending or, to the best knowledge of Company,
threatened claims, actions or lawsuits, or action by any Governmental
Authority, with respect to any Plan which has resulted or could reasonably
be expected to result in a Material Adverse Effect. There has been no
prohibited transaction or violation of the fiduciary responsibility rules
with respect to any Plan which has resulted or could reasonably be expected
to result in a Material Adverse Effect.
(c) (i) No ERISA Event has occurred or is reasonably expected to
occur; (ii) no Pension Plan has any Unfunded Pension Liability; (iii)
neither the Company nor any ERISA Affiliate has incurred, or reasonably
expects to incur, any liability under Title IV of ERISA with respect to any
Pension Plan (other than premiums due and not delinquent under Section 4007
of ERISA); (iv) neither the Company nor any ERISA Affiliate has incurred,
or reasonably expects to incur, any liability (and no event has occurred
which, with the giving of notice under
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Section 4219 of ERISA, would result in such liability) under Section 4201
or 4243 of ERISA with respect to a Multiemployer Plan; and (v) neither the
Company nor any ERISA Affiliate has engaged in a transaction that could be
subject to Section 4069 or 4212(c) of ERISA.
5.08 Use of Proceeds; Margin Regulations. The proceeds of the Loans are to
be used solely for the purposes set forth in and permitted by Section 6.12 and
Section 7.07. Neither the Company nor any Subsidiary is generally engaged in the
business of purchasing or selling Margin Stock or extending credit for the
purpose of purchasing or carrying Margin Stock.
5.09 Title to Properties. The Company and each Subsidiary have good record
and marketable title in fee simple to, or valid leasehold interests in, all real
property necessary or used in the ordinary conduct of their respective
businesses, except for such defects in title as could not, individually or in
the aggregate, have a Material Adverse Effect. As of the Closing Date, the
property of the Company and its Subsidiaries is subject to no Liens, other than
Permitted Liens.
5.10 Taxes. The Company and its Subsidiaries have filed all Federal and
other material tax returns and reports required to be filed, and have paid all
Federal and other material taxes, assessments, fees and other governmental
charges levied or imposed upon them or their properties, income or assets
otherwise due and payable, except those which are being contested in good faith
by appropriate proceedings and for which adequate reserves have been provided in
accordance with GAAP. There is no proposed tax assessment against the Company or
any Subsidiary that would, if made, have a Material Adverse Effect.
5.11 Financial Condition.
(a) The unaudited consolidated financial statements of the Company and
its Subsidiaries dated September 30, 1995, and the related consolidated
statements of income or operations, shareholders' equity and cash flows for
the fiscal quarter ended on that date:
(1) Were prepared in accordance with GAAP consistently applied
throughout the period covered thereby, except as otherwise expressly
noted therein;
(2) Fairly present the financial condition of the Company and its
Subsidiaries as of the date thereof and results of operations for the
period covered thereby; and
(3) Show all material indebtedness and other liabilities, direct
or contingent, of the Company and its consolidated Subsidiaries as of
the date thereof, including liabilities for taxes, material
commitments and Contingent Obligations.
(b) Since September 30, 1995, there has been no Material Adverse
Effect.
5.12 Regulated Entities. None of the Company, any Person controlling the
Company, any Guarantor or any Subsidiary, is an "Investment Company" within the
meaning of the Investment Company Act of 1940. The Company is not subject to
regulation under the Public Utility Holding Company Act of 1935, the Federal
Power Act, the Interstate Commerce Act, any state public utilities code, or any
other Federal or state statute or regulation limiting its ability to incur
Indebtedness.
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5.13 Copyrights, Patents, Trademarks and Licenses, etc. The Company or its
Subsidiaries own or are licensed or otherwise have the right to use all of the
patents, trademarks, service marks, trade names, copyrights, contractual
franchises, authorizations and other rights that are reasonably necessary for
the operation of their respective businesses, without conflict with the rights
of any other Person except where the failure to own or otherwise have the right
to use such property could not reasonably be expected to have a Material Adverse
Effect. Except as specifically disclosed in Schedule 5.13, to the best knowledge
of the Company, no slogan or other advertising device, product, process, method,
substance, part or other material now employed, or now contemplated to be
employed, by the Company or any Subsidiary infringes upon any rights held by any
other Person. Except as specifically disclosed in Schedule 5.13, no claim or
litigation regarding any of the foregoing is pending or threatened, and no
patent, invention, device, application, principle or any statute, law, rule,
regulation, standard or code is pending or, to the knowledge of the Company,
proposed, which, in either case, could reasonably be expected to have a Material
Adverse Effect.
5.14 Subsidiaries. The Company has no Subsidiaries other than those
specifically disclosed in part (a) of Schedule 5.14 hereto and has no equity
investments in any other corporation or entity other than those specifically
disclosed in part (b) of Schedule 5.14.
5.15 Solvency. The Company and its Subsidiaries are Solvent.
5.16 Full Disclosure. None of the representations or warranties made by the
Company or any Subsidiary in the Loan Documents as of the date such
representations and warranties are made or deemed made, and none of the
statements contained in any exhibit, report, statement or certificate furnished
by or on behalf of the Company or any Subsidiary in connection with the Loan
Documents (including the offering and disclosure materials delivered by or on
behalf of the Company to the Bank prior to the Closing Date), contains any
untrue statement of a material fact or omits any material fact required to be
stated therein or necessary to make the statements made therein, in light of the
circumstances under which they are made, not misleading as of the time when made
or delivered.
ARTICLE VI
AFFIRMATIVE COVENANTS
So long as the Bank shall have any Revolving Commitment hereunder, or any
Loan or other Obligation shall remain unpaid or unsatisfied, unless the Bank
waives compliance in writing:
6.01 Financial Statements. The Company shall deliver to the Bank, in form
and detail satisfactory to the Bank:
(a) (No later than January 31, 1996, for the fiscal year ended June
30, 1995), thereafter, as soon as available, but not later than 90 days
after the end of each fiscal year, a copy of the audited consolidated
balance sheet of the Company and its Subsidiaries as at the end of such
fiscal year and the related consolidated statements of income or
operations, shareholders' equity and cash flows for such fiscal year,
setting forth in each case in comparative form the figures for the previous
fiscal year, and accompanied by the opinion of Deloitte & Touche or another
nationally-recognized independent public accounting firm ("Independent
Auditor") which report shall state that such consolidated financial
statements present fairly the financial position for the periods indicated
in conformity with GAAP applied
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on a basis consistent with prior years. Such opinion shall not be qualified
or limited because of a restricted or limited examination by the
Independent Auditor of any material portion of the Company's or any
Subsidiary's records;
(b) As soon as available, but not later than 45 days after the end of
each of the first three fiscal quarters of each fiscal year (commencing
with the fiscal quarter ended December 31, 1995, a copy of the unaudited
consolidated balance sheet of the Company and its Subsidiaries as of the
end of such quarter and the related consolidated statements of income,
shareholders' equity and cash flows for the period commencing on the first
day and ending on the last day of such quarter, and certified by a
Responsible Officer as fairly presenting, in accordance with GAAP (subject
to ordinary, good faith year-end audit adjustments), the financial position
and the results of operations of the Company and the Subsidiaries;
6.02 Certificates; Other Information. The Company shall furnish to the
Bank:
(a) Concurrently with the delivery of the financial statements
referred to in subsection 6.01(a), a certificate of the Independent Auditor
stating that in making the examination necessary therefor no knowledge was
obtained of any Default or Event of Default, except as specified in such
certificate;
(b) Concurrently with the delivery of the financial statements
referred to in subsections 6.01(a) and (b), a Compliance Certificate
executed by a Responsible Officer together with written management
discussions and analysis of the operating results and financial condition
of the Company;
(c) Promptly, copies of all financial statements and reports that the
Company sends to its shareholders generally, and copies of all financial
statements and regular, periodical or special reports (including Forms 10K,
10Q and 8K) that the Company or any Subsidiary may make to, or file with,
the SEC; and
(d) Promptly, such additional information regarding the business,
financial or corporate affairs of the Company or any Subsidiary as the
Bank, may from time to time reasonably request.
6.03 Notices. The Company shall promptly notify the Bank:
(a) Of the occurrence of any Default or Event of Default, and of the
occurrence or existence of any event or circumstance that foreseeably will
become a Default or Event of Default;
(b) of (i) any breach or non-performance of, or any default under, any
Contractual Obligation by the Company or any of its Subsidiaries which
could result in a Material Adverse Effect; and (ii) any material dispute,
litigation, investigation, proceeding or suspension which may exist at any
time between the Company or any of its Subsidiaries and any Governmental
Authority;
(c) Of the commencement of, or any material development in, any
litigation or
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proceeding affecting the Company or any Subsidiary (i) in which the amount
of damages claimed is $3,000,000 (or its equivalent in another currency or
currencies) or more, (ii) in which injunctive or similar relief is sought
and which, if adversely determined, would reasonably be expected to have a
Material Adverse Effect, or (iii) in which the relief sought is an
injunction or other stay of the performance of this Agreement or any Loan
Document;
(d) Of any other litigation or proceeding affecting the Company or any
of its Subsidiaries which the Company would be required to report to the
SEC pursuant to the Exchange Act, within four days after reporting the same
to the SEC;
(e) Of the occurrence of any of the following events affecting the
Company or any ERISA Affiliate (but in no event more than 10 days after
such event), and deliver to the Bank a copy of any notice with respect to
such event which is filed with a Governmental Authority and any notice
delivered by a Governmental Authority to the Company or any ERISA Affiliate
with respect to such event:
(1) An ERISA Event;
(2) a material increase in the Unfunded Pension Liability of any
Pension Plan;
(3) The adoption of, or the commencement of contributions to, any
Plan subject to Section 412 of the Code by the Company or any ERISA
Affiliate; or
(4) The adoption of any amendment to a Pension Plan or other Plan
subject to Section 412 of the Code, if such amendment results in a
material increase in contributions or Unfunded Pension Liability;
(f) of any material change in accounting policies or financial
reporting practices by the Company or any of its consolidated Subsidiaries.
Each notice under this Section shall be accompanied by a written
statement by a Responsible Officer setting forth details of the occurrence
referred to therein, and stating what action the Company or any affected
Subsidiary proposes to take with respect thereto and at what time. Each
notice under subsection 6.03(a) shall describe with particularity any and
all clauses or provisions of this Agreement or other Loan Document that
have been (or foreseeably will be) breached or violated.
6.04 Preservation of Corporate Existence, Etc. The Company shall, and
shall, except as otherwise permitted under Section 7.03, cause each Subsidiary
to:
(a) Preserve and maintain in full force and effect its corporate
existence and good standing under the laws of its state or jurisdiction of
incorporation;
(b) Preserve and maintain in full force and effect all governmental
rights, privileges, qualifications, permits, licenses and franchises
necessary or desirable in the normal conduct of its business;
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(c) Use reasonable efforts, in the ordinary course of business, to
preserve its business organization and goodwill; and
(d) Preserve or renew all of its registered patents, trademarks, trade
names and service marks, the non-preservation of which could reasonably be
expected to have a Material Adverse Effect.
6.05 Maintenance of Property. The Company shall maintain, and shall cause
each Subsidiary to maintain, and preserve all its property which is used or
useful in its business in good working order and condition, ordinary wear and
tear excepted and make all necessary repairs thereto and renewals and
replacements thereof except where the failure to do so could not reasonably be
expected to have a Material Adverse Effect. The Company and each Subsidiary
shall use the standard of care typical in the industry in the operation and
maintenance of its facilities.
6.06 Insurance. The Company shall maintain, and shall cause each of its
Subsidiaries to maintain, with financially sound and reputable independent
insurers, insurance with respect to its properties and business against loss or
damage of the kinds customarily insured against by Persons engaged in the same
or similar business, of such types and in such amounts as are customarily
carried under similar circumstances by such other Persons; including workers'
compensation insurance, public liability and property and casualty insurance.
6.07 Payment of Obligations. The Company shall, and shall cause each
Subsidiary to, pay and discharge as the same shall become due and payable, all
their respective obligations and liabilities, including:
(a) All tax liabilities, assessments and governmental charges or
levies upon it or its properties or assets, unless the same are being
contested in good faith by appropriate proceedings and adequate reserves in
accordance with GAAP are being maintained by the Company or such
Subsidiary;
(b) All lawful claims which, if unpaid, would by law become a Lien
upon its property; and
(c) All indebtedness, as and when due and payable, but subject to any
subordination provisions contained in any instrument or agreement
evidencing such Indebtedness.
6.08 Compliance with Laws. The Company shall comply, and shall cause each
Subsidiary to comply, in all material respects with all Requirements of Law of
any Governmental Authority having jurisdiction over it or its business
(including the Federal Fair Labor Standards Act), except such as may be
contested in good faith or as to which a bona fide dispute may exist.
6.09 Compliance with ERISA. The Company shall, and shall cause each of its
ERISA Affiliates to: (a) maintain each Plan in compliance in all material
respects with the applicable provisions of ERISA, the Code and other federal or
state law; (b) cause each Plan which is qualified under Section 401(a) of the
Code to maintain such qualification; and (c) make all required
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contributions to any Plan subject to Section 412 of the Code.
6.10 Inspection of Property and Books and Records. The Company shall
maintain and shall cause each Subsidiary to maintain proper books of record and
account, in which full, true and correct entries in conformity with GAAP
consistently applied shall be made of all financial transactions and matters
involving the assets and business of the Company and such Subsidiary. The
Company shall permit, and shall cause each Subsidiary to permit, representatives
and independent contractors of the Bank to visit and inspect any of their
respective properties, to examine their respective corporate, financial and
operating records, and make copies thereof or abstracts therefrom, and to
discuss their respective affairs, finances and accounts with their respective
directors, officers, and independent public accountants, all at the expense of
the Bank and at such reasonable times during normal business hours and as often
as may be reasonably desired, upon reasonable advance notice to the Company;
provided, however, when an Event of Default exists the Bank may do any of the
foregoing at the expense of the Company at any time during normal business hours
and without advance notice.
6.11 Environmental Laws. The Company shall, and shall cause each Subsidiary
to, conduct its operations and keep and maintain its property in compliance with
all Environmental Laws. Upon the written request of the Bank, the Company shall
submit and cause each of its Subsidiaries to submit, to the Bank, at the
Company's sole cost and expense, at reasonable intervals, a report providing an
update of the status of any environmental, health or safety compliance, hazard
or liability issue that could, individually or in the aggregate, result in
liability in excess of $3,000,000.
6.12 Use of Proceeds. The Company shall use the proceeds of the Loans to
refinance certain existing Indebtedness, including repayment of promissory notes
in favor of WCAS V and WCAS VI, repayment of the Company's obligations to
Society National Bank, for working capital, acquisitions and other general
corporate purposes not in contravention of any Requirement of Law or of any Loan
Document.
6.13 Further Assurances. The Company shall ensure that all written
information, exhibits and reports furnished by the Company or any Subsidiary to
the Bank do not and will not contain any untrue statement of a material fact and
do not and will not omit to state any material fact or any fact necessary to
make the statements contained therein not misleading in light of the
circumstances in which made, and will promptly disclose to the Bank and correct
any defect or error that may be discovered therein or in any Loan Document or in
the execution, acknowledgement or recordation thereof.
ARTICLE VII
NEGATIVE COVENANTS
So long as the Bank shall have any Revolving Commitment hereunder, or any
Loan or other Obligation shall remain unpaid or unsatisfied, unless the Bank
waives compliance in writing:
7.01 Limitation on Liens. The Company shall not, and shall not suffer or
permit any Subsidiary to, directly or indirectly, make, create, incur, assume or
suffer to exist any Lien upon or with respect to any part of its property,
whether now owned or hereafter acquired, other than the following ("Permitted
Liens"):
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(a) Any Lien existing on property of the Company or any Subsidiary on
the Closing Date and set forth in Schedule 7.01 securing Indebtedness
outstanding on such date;
(b) Liens for taxes, fees, assessments or other governmental charges
which are not delinquent or remain payable without penalty, or to the
extent that non-payment thereof is permitted by Section 6.07, provided that
no notice of lien has been filed or recorded under the Code;
(c) Carriers', warehousemen's, mechanics', landlords', materialmen's,
repairmen's or other similar Liens arising in the ordinary course of
business which are not delinquent or remain payable without penalty or
which are being contested in good faith and by appropriate proceedings,
which proceedings have the effect of preventing the forfeiture or sale of
the property subject thereto;
(d) Liens (other than any Lien imposed by ERISA) consisting of pledges
or deposits required in the ordinary course of business in connection with
workers' compensation, unemployment insurance and other social security
legislation;
(e) Liens on the property of the Company or its Subsidiary securing
(i) the non-delinquent performance of bids, trade contracts (other than for
borrowed money), leases, statutory obligations, (ii) contingent obligations
on surety and appeal bonds, and (iii) other non-delinquent obligations of a
like nature; in each case, incurred in the ordinary course of business,
provided all such Liens in the aggregate would not (even if enforced) cause
a Material Adverse Effect;
(f) Liens consisting of judgment or judicial attachment liens,
provided that the enforcement of such Liens is effectively stayed and all
such liens in the aggregate at any time outstanding for the Company and its
Subsidiaries do not exceed $3,000,000;
(g) Easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business which, in the
aggregate, are not substantial in amount, and which do not in any case
materially detract from the value of the property subject thereto or
interfere with the ordinary conduct of the businesses of the Company and
its Subsidiaries.
(h) additional Liens not otherwise permitted hereunder which secure
Indebtedness permitted under Section 7.05 not exceeding $2,500,000 in
aggregate amount at any time outstanding.
7.02 Disposition of Assets. The Company shall not, and shall not suffer or
permit any Subsidiary to, directly or indirectly, sell, assign, lease, convey,
transfer or otherwise dispose of (whether in one or a series of transactions)
any property (including accounts and notes receivable, with or without recourse)
or enter into any agreement to do any of the foregoing, except:
(a) Dispositions of inventory, or used, worn-out or surplus equipment,
all in the ordinary course of business;
(b) The sale of equipment to the extent that such equipment is
exchanged for credit
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against the purchase price of similar replacement equipment, or the
proceeds of such sale are reasonably promptly applied to the purchase price
of such replacement equipment; and
(c) The sale of other disposition of assets not otherwise permitted
hereunder, provided that the value of all assets so sold or disposed of
does not exceed in the aggregate $2,500,000 during the term of the
Revolving Loan Commitment.
7.03 Consolidations and Mergers. The Company shall not, and shall not
suffer or permit any Subsidiary to, merge, consolidate with or into, or convey,
transfer, lease or otherwise dispose of (whether in one transaction or in a
series of transactions) all or substantially all of its assets (whether now
owned or hereafter acquired) to or in favor of any Person, except:
(a) Any Subsidiary may merge with the Company, provided that the
Company shall be the continuing or surviving corporation, or with any one
or more Subsidiaries, provided that if any transaction shall be between a
Subsidiary and a Wholly-Owned Subsidiary, the Wholly-Owned Subsidiary shall
be the continuing or surviving corporation; and
(b) Any Subsidiary may sell all or substantially all of its assets
(upon voluntary liquidation or otherwise), to the Company or another
Wholly-Owned Subsidiary.
7.04 Loans and Investments. The Company shall not purchase or acquire, or
suffer or permit any Subsidiary to purchase or acquire, or make any commitment
therefor, any capital stock, equity interest, or any obligations or other
securities of, or any interest in, any Person, or make or commit to make any
acquisitions, or make or commit to make any advance, loan, extension of credit
or capital contribution to or any other investment in, any Person including any
Affiliate of the Company (together, "Investments"), except for:
(a) Investments held by the Company or Subsidiary in the form of cash
equivalents [or short term marketable securities];
(b) Extensions of credit in the nature of accounts receivable or notes
receivable arising from the sale or lease of goods or services in the
ordinary course of business; or
(c) Extensions of credit by the Company to any of its Wholly-Owned
Subsidiaries or by any of its Wholly-Owned Subsidiaries to another of its
Wholly-Owned Subsidiaries or to the Company; or
(d) Acquisitions in an amount not exceeding $2,500,000 for any
individual acquisition or $7,500,000 in the aggregate for all acquisitions,
provided that, the Company shall provide a compliance certificate executed
by a Responsible Officer, showing pro forma compliance with the covenants
herein after giving effect to each such acquisition.
7.05 Limitation on Indebtedness. The Company shall not, and shall not
suffer or permit any Subsidiary to, create, incur, assume, suffer to exist, or
otherwise become or remain directly or indirectly liable with respect to, any
Indebtedness, except:
(a) Indebtedness incurred pursuant to this Agreement;
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(b) Indebtedness consisting of Contingent Obligations permitted
pursuant to Section 7.08;
(c) Indebtedness existing on the Closing Date and set forth in
Schedule 7.05;
(d) Indebtedness incurred in connection with leases permitted pursuant
to Section 7.10; and
(e) other Indebtedness not otherwise permitted hereunder in an amount
not to exceed $2,000,000 at any time.
7.06 Transactions with Affiliates. The Company shall not, and shall not
suffer or permit any Subsidiary to, enter into any transaction with any
Affiliate of the Company, except upon fair and reasonable terms no less
favorable to the Company or such Subsidiary than would obtain in a comparable
arm's-length transaction with a Person not an Affiliate of the Company or such
Subsidiary.
7.07 Use of Proceeds. The Company shall not, and shall not suffer or permit
any Subsidiary to, use any portion of the Loan proceeds, directly or indirectly,
(i) to purchase or carry Margin Stock, (ii) to repay or otherwise refinance
indebtedness of the Company or others incurred to purchase or carry Margin
Stock, (iii) to extend credit for the purpose of purchasing or carrying any
Margin Stock, or (iv) to acquire any security in any transaction that is subject
to Section 13 or 14 of the Exchange Act.
7.08 Contingent Obligations. The Company shall not, and shall not suffer or
permit any Subsidiary to, create, incur, assume or suffer to exist any
Contingent Obligations except:
(a) Endorsements for collection or deposit in the ordinary course of
business;
(b) Contingent Obligations of the Company and its Subsidiaries
existing as of the Closing Date and listed in Schedule 7.08; and
(c) Contingent Obligations of any Person, including any Wholly-Owned
Subsidiary, provided that the value of such Contingent Obligations shall
not exceed $2,000,000.
7.09 Joint Ventures. The Company shall not, and shall not suffer or permit
any Subsidiary to enter into any joint venture, other than in the ordinary
course of business.
7.10 Lease Obligations. The Company shall not, and shall not suffer or
permit any Subsidiary to, create or suffer to exist any obligations for the
payment of rent for any property under lease or agreement to lease, except for:
(a) Leases of the Company and of Subsidiaries in existence on the
Closing Date;
(b) Operating leases entered into by the Company or any Subsidiary
after the Closing Date in the ordinary course of business with aggregate
annual rental payments not to exceed $2,500,000;
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(c) Capital leases other than those permitted under clauses (a) of
this Section, entered into by the Company or any Subsidiary after the
Closing Date to finance the acquisition of equipment; provided that the
aggregate annual rental payments for all such capital leases shall not
exceed in any fiscal year $2,500,000.
7.11 Restricted Payments. The Company shall not, and shall not suffer or
permit any Subsidiary to, (a) declare or make any dividend payment or other
distribution of assets, properties, cash, rights, obligations or securities on
account of any shares of any class of its capital stock, or purchase, redeem or
otherwise acquire for value any shares of its capital stock or any warrants,
rights or options to acquire such shares, now or hereafter outstanding, except
that (i) the Company may declare and make dividend payments or other
distributions payable solely in its common stock and (ii) any Wholly-Owned
Subsidiary may make any dividend payment to the Company, provided, that such
Wholly-Owned Subsidiary would be Solvent after giving effect to such dividend
payment; and (b) purchase, redeem or otherwise prepay any existing Indebtedness
other than the Indebtedness hereunder.
7.12 ERISA. The Company shall not, and shall not suffer or permit any of
its ERISA Affiliates to: (a) engage in a prohibited transaction or violation of
the fiduciary responsibility rules with respect to any Plan which has resulted
or could reasonably expected to result in liability of the Company in an
aggregate amount in excess of $3,000,000; or (b) engage in a transaction that
could be subject to Section 4069 or 4212(c) of ERISA.
7.13 Change in Business. The Company shall not, and shall not suffer or
permit any Subsidiary to, engage in any material line of business substantially
different from those lines of business carried on by the Company and its
Subsidiaries on the date hereof.
7.14 Accounting Changes. The Company shall not, and shall not suffer or
permit any Subsidiary to, make any significant change in accounting treatment or
reporting practices, except as required by GAAP, or change the fiscal year of
the Company or of any Subsidiary.
7.15 Maximum Leverage Ratio. The Leverage Ratio at the end of each
quarterly period shall not exceed the ratio set forth below for the periods set
forth below:
Quarter Ending Maximum Ratio
-------------- -------------
December 31, 1995 (9.0)
March 31, 1996 5.65
June 30, 1996 2.30
September 30, 1996
and thereafter 2.00
For purposes of calculating the Leverage Ratio hereunder, (i) EBITDA shall
include EBITDA of the Company and its Subsidiaries adjusted, on a pro forma
basis, to include the EBITDA for the applicable period of any business acquired
by the Company; and (ii) Indebtedness shall include Indebtedness of the Company
and its Subsidiaries.
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7.16 Minimum Interest Coverage Ratio. The Minimum Interest Coverage Ratio
for each fiscal quarter shall not be less than the ratio set forth below at the
end of each fiscal quarter for the periods set forth below:
Quarter Ending Maximum Ratio
-------------- -------------
December 31, 1995 (3.75)
March 31, 1996 2.35
June 30, 1996 4.90
September 30, 1996
and thereafter 6.00
For purposes of calculating the Minimum Interest Coverage Ratio hereunder,
EBITDA and cash interest expense shall include, respectively, EBITDA and cash
interest expense of the Company and its Subsidiaries adjusted, on a pro forma
basis, to include the EBITDA and incremental projected cash interest expense, if
any, with respect to the acquisition of any business acquired by the Company
during the two fiscal quarters prior to the date of calculation of the Minimum
Interest Coverage Ratio.
ARTICLE VIII
EVENTS OF DEFAULT
8.01 Event of Default. Any of the following shall constitute an "Event of
Default":
(a) Non-Payment. The Company fails to make, (i) when and as required
to be made herein, payments of any amount of principal of any Loan, or (ii)
within 3 days after the same becomes due, payment of any interest, fee or
any other amount payable hereunder or under any other Loan Document; or
(b) Representation or Warranty. Any representation or warranty by the
Company or any Subsidiary made or deemed made herein, in any other Loan
Document or which is contained in any certificate, document or financial or
other statement by the Company, any Subsidiary, or any Responsible Officer,
furnished at any time under this Agreement, or in or under any other Loan
Document, is incorrect in any material respect on or as of the date made or
deemed made; or
(c) Specific Defaults. The Company fails to perform or observe any
term, covenant or agreement contained in any of Section 6.03 or in Article
VII (other than Sections 7.01, 7.04 and 7.06 thereof); or
(d) Other Defaults. The Company fails to perform or observe any other
term or covenant contained in this Agreement or any other Loan Document,
and such default shall continue unremedied for a period of 20 days after
the earlier of (i) the date upon which a Responsible Officer knew or
reasonably should have known of such failure or (ii) the date upon which
written notice thereof is given to the Company by the Bank; or
(e) Cross-Default. The Company or any Subsidiary (A) fails to make any
payment in
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respect of any Indebtedness or Contingent Obligation, having an aggregate
principal amount (including undrawn committed or available amounts and
including amounts owing to all creditors under any combined or syndicated
credit arrangement) of more than $1,000,000 when due (whether by scheduled
maturity, required prepayment, acceleration, demand, or otherwise); or (B)
fails to perform or observe any other condition or covenant, or any other
event shall occur or condition exist, under any agreement or instrument
relating to any such Indebtedness or Contingent Obligation, if the effect
of such failure, event or condition is to cause, or to permit the holder or
holders of such Indebtedness or beneficiary or beneficiaries of such
Indebtedness (or a trustee or agent on behalf of such holder or holders or
beneficiary or beneficiaries) to cause such Indebtedness to be declared to
be due and payable prior to its stated maturity, or such Contingent
Obligation to become payable or cash collateral in respect thereof to be
demanded.
(f) Insolvency; Voluntary Proceedings. The Company or any Subsidiary
(i) ceases or fails to be solvent, or generally fails to pay, or admits in
writing its inability to pay, its debts as they become due, subject to
applicable grace periods, if any, whether at stated maturity or otherwise;
(ii) voluntarily ceases to conduct its business in the ordinary course;
(iii) commences any Insolvency Proceeding with respect to itself; or (iv)
takes any action to effectuate or authorize any of the foregoing; or
(g) Involuntary Proceedings. (i) Any involuntary Insolvency Proceeding
is commenced or filed against the Company or any Subsidiary, or any writ,
judgment, warrant of attachment, execution or similar process, is issued or
levied against a substantial part of the Company's or any Subsidiary's
properties, and any such proceeding or petition shall not be dismissed, or
such writ, judgment, warrant of attachment, execution or similar process
shall not be released, vacated or fully bonded within 60 days after
commencement, filing or levy; (ii) the Company or any Subsidiary admits the
material allegations of a petition against it in any Insolvency Proceeding,
or an order for relief (or similar order under non-U.S. law) is ordered in
any Insolvency Proceeding; or (iii) the Company or any Subsidiary
acquiesces in the appointment of a receiver, trustee, custodian,
conservator, liquidator, mortgagee in possession (or agent therefor), or
other similar Person for itself or a substantial portion of its property or
business; or
(h) ERISA. (i) An ERISA Event shall occur with respect to a Pension
Plan or Multiemployer Plan which has resulted or could reasonably be
expected to result in liability of the Company under Title IV of ERISA to
the Pension Plan, Multiemployer Plan or the PBGC in an aggregate amount in
excess of $3,000,000; or (ii) the aggregate amount of Unfunded Pension
Liability among all Pension Plans at any time exceeds $3,000,000; or (iii)
the Company or any ERISA Affiliate shall fail to pay when due, after the
expiration of any applicable grace period, any installment payment with
respect to its withdrawal liability under Section 4201 of ERISA under a
Multiemployer Plan in an aggregate amount in excess of $3,000,000; or
(i) Monetary Judgments. One or more non-interlocutory judgments,
non-interlocutory orders, decrees or arbitration awards is entered against
the Company or any Subsidiary involving in the aggregate a liability (to
the extent not covered by independent third-party insurance as to which the
insurer does not dispute coverage) as to any single or related series of
transactions, incidents or conditions, of $3,000,000 or more, and the same
shall remain
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unsatisfied, unvacated and unstayed pending appeal for a period of 10 days
after the entry thereof; or
(j) Non-Monetary Judgments. Any non-monetary judgment, order or decree
is entered against the Company or any Subsidiary which does or would
reasonably be expected to have a Material Adverse Effect, and there shall
be any period of 30 consecutive days during which a stay of enforcement of
such judgment or order, by reason of a pending appeal or otherwise, shall
not be in effect; or
(k) Change of Control. There occurs any Change of Control; or
(l) Loss of Licenses. Any other Governmental Authority revokes or
fails to renew any material license, permit or franchise of the Company or
any Subsidiary, or the Company or any Subsidiary for any reason loses any
material license, permit or franchise, or the Company or any Subsidiary
suffers the imposition of any restraining order, escrow, suspension or
impound of funds in connection with any proceeding (judicial or
administrative) with respect to any material license, permit or franchise,
in each case where such event could reasonably be expected to have a
Material Adverse Effect; or
(m) Guarantor Defaults. Any Guarantor fails in any material respect to
perform or observe any term, covenant or agreement in its Guaranty or any
Guaranty is for any reason partially (including with respect to future
advances) or wholly revoked or invalidated, or otherwise ceases to be in
full force and effect, or any Guarantor or any other Person contests in any
manner the validity or enforceability thereof or denies that it has any
further liability or obligation thereunder; or any event described at
subsections (f) or (g) of this Section occurs with respect to any
Guarantor.
8.02 Remedies. If any Event of Default occurs, the Bank may:
(a) Declare its commitment to make Loans to be terminated, whereupon
such commitment shall be terminated;
(b) Declare the unpaid principal amount of all outstanding Loans, all
interest accrued and unpaid thereon, and all other amounts owing or payable
hereunder or under any other Loan Document to be immediately due and
payable, without presentment, demand, protest or other notice of any kind,
all of which are hereby expressly waived by the Company; and
(c) Exercise on behalf of itself all rights and remedies available to
it under the Loan Documents or applicable law;
provided, however, that upon the occurrence of any event specified in subsection
(f) or (g) of Section 8.01 (in the case of clause (i) of subsection (g) upon the
expiration of the 60-day period mentioned therein), the obligation of the Bank
to make Loans shall automatically terminate and the unpaid principal amount of
all outstanding Loans and all interest and other amounts as aforesaid shall
automatically become due and payable without further act of the Bank.
8.03 Rights Not Exclusive. The rights provided for in this Agreement and
the other Loan
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Documents are cumulative and are not exclusive of any other rights, powers,
privileges or remedies provided by law or in equity, or under any other
instrument, document or agreement now existing or hereafter arising.
ARTICLE IX
MISCELLANEOUS
9.01 Amendments and Waivers. No amendment or waiver of any provision of
this Agreement or any other Loan Document, and no consent with respect to any
departure by the Company therefrom, shall be effective unless the same shall be
in writing and signed by the Bank and the Company, and then any such waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given.
9.02 Notices.
(a) All notices, requests, consents, approvals, waivers and other
communications shall be in writing (including, unless the context expressly
otherwise provides, by facsimile transmission, provided that any matter
transmitted by the Company by facsimile (i) shall be immediately confirmed
by a telephone call to the recipient at the number specified on Schedule
9.02, and (ii) shall be followed promptly by delivery of a hard copy
original thereof) and mailed, faxed or delivered, to the address or
facsimile number specified for notices on Schedule 9.02; or, as directed to
the Company or the Bank, to such other address as shall be designated by
such party in a written notice to the other party, and as directed to any
other party, at such other address as shall be designated by such party in
a written notice to the other party.
(b) All such notices, requests and communications shall, when
transmitted by overnight delivery, or faxed, be effective when delivered
for overnight (next-day) delivery, or transmitted in legible form by
facsimile machine, respectively, or if mailed, upon the third Business Day
after the date deposited into the U.S. mail, or if delivered, upon
delivery; except that notices pursuant to Article II to the Bank shall not
be effective until actually received by the Bank.
(c) Any agreement of the Bank herein to receive certain notices by
telephone or facsimile is solely for the convenience and at the request of
the Company. The Bank shall be entitled to rely on the authority of any
Person purporting to be a Person authorized by the Company to give such
notice and the Bank shall not have any liability to the Company or other
Person on account of any action taken or not taken by the Bank in reliance
upon such telephonic or facsimile notice. The obligation of the Company to
repay the Loans shall not be affected in any way or to any extent by any
failure by the Bank to receive written confirmation of any telephonic or
facsimile notice or the receipt by the Bank of a confirmation which is at
variance with the terms understood by the Bank to be contained in the
telephonic or facsimile notice.
9.03 No Waiver; Cumulative Remedies. No failure to exercise and no delay in
exercising, on the part of the Bank, any right, remedy, power or privilege
hereunder, shall operate as a waiver thereof; nor shall any single or partial
exercise of any right, remedy, power or privilege hereunder preclude any other
or further exercise thereof or the exercise of any other right, remedy, power or
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privilege.
9.04 Costs and Expenses. The Company shall:
(a) Whether or not the transactions contemplated hereby are
consummated, pay or reimburse the Bank within five Business Days after
demand (subject to subsection 4.01(e)) for all costs and expenses incurred
by the Bank in connection with the development, preparation, delivery,
administration and execution of, and any amendment, supplement, waiver or
modification to (in each case, whether or not consummated), this Agreement,
any Loan Document and any other documents prepared in connection herewith
or therewith, and the consummation of the transactions contemplated hereby
and thereby, including reasonable Attorney Costs incurred by the Bank with
respect thereto; and
(b) Pay or reimburse the Bank within five Business Days after demand
(subject to subsection 4.01(e)) for all costs and expenses (including
Attorney Costs) incurred by them in connection with the enforcement,
attempted enforcement, or preservation of any rights or remedies under this
Agreement or any other Loan Document during the existence of an Event of
Default or after acceleration of the Loans (including in connection with
any "workout" or restructuring regarding the Loans, and including in any
Insolvency Proceeding or appellate proceeding); and
(c) Pay or reimburse the Bank within five Business Days after demand
(subject to subsection 4.01(e)) for all appraisal (including the allocated
cost of internal appraisal services), audit, environmental inspection and
review (including the allocated cost of such internal services), search and
filing costs, fees and expenses, incurred or sustained by the Bank in
connection with the matters referred to under subsections (a) and (b) of
this Section.
9.05 Company Indemnification.
(a) Whether or not the transactions contemplated hereby are
consummated, the Company shall indemnify, defend and hold the Bank, each of
its Affiliates, and each of its respective officers, directors, employees,
counsel, agents and attorneys-in-fact (each, an "Indemnified Person")
harmless from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, charges, expenses and
disbursements (including Attorney Costs) of any kind or nature whatsoever
which may at any time (including at any time following repayment of the
Loans) be imposed on, incurred by or asserted against any such Person in
any way relating to or arising out of this Agreement or any document
contemplated by or referred to herein, or the transactions contemplated
hereby, or any action taken or omitted by any such Person under or in
connection with any of the foregoing, including with respect to any
investigation, litigation or proceeding (including any Insolvency
Proceeding or appellate proceeding) related to or arising out of this
Agreement or the Loans or the use of the proceeds thereof, whether or not
any Indemnified Person is a party thereto (all the foregoing, collectively,
the "Indemnified Liabilities"); provided, that the Company shall have no
obligation hereunder to any Indemnified Person with respect to Indemnified
Liabilities resulting solely from the gross negligence or willful
misconduct of such Indemnified Person. The agreements in this Section shall
survive payment of all other Obligations.
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(b) The Company shall indemnify, defend and hold harmless each
Indemnified Person, from and against any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, charges,
expenses or disbursements (including Attorney Costs and the allocated cost
of internal environmental audit or review services), which may be incurred
by or asserted against such Indemnified Person in connection with or
arising out of any pending or threatened investigation, litigation or
proceeding. No action taken by legal counsel chosen by the Bank in
defending against any such investigation, litigation or proceeding or
requested remedial, removal or response action shall vitiate or any way
impair the Company's obligation and duty hereunder to indemnify and hold
harmless the Bank.
(c) The obligations in this Section shall survive payment of all other
Obligations. At the election of any Indemnified Person, the Company shall
defend such Indemnified Person using legal counsel satisfactory to such
Indemnified Person in such Person's sole discretion, at the sole cost and
expense of the Company. All amounts owing under this Section shall be paid
within 30 days after demand.
9.06 Marshalling; Payments Set Aside. The Bank shall be under no obligation
to marshall any assets in favor of the Company or any other Person or against or
in payment of any or all of the Obligations. To the extent that the Company
makes a payment to the Bank, or the Bank exercises its right of set-off, and
such payment or the proceeds of such set-off or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential, set aside
or required (including pursuant to any settlement entered into by the Bank in
its discretion) to be repaid to a trustee, receiver or any other party, in
connection with any Insolvency Proceeding or otherwise, then to the extent of
such recovery the obligation or part thereof originally intended to be satisfied
shall be revived and continued in full force and effect as if such payment had
not been made or such set-off had not occurred.
9.07 Successors and Assigns. The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns, except that the Company may not assign or transfer any
of its rights or obligations under this Agreement without the prior written
consent of the Bank.
9.08 Assignments, Participations, etc.
(a) The Bank may, with the written consent of the Company at all times
other than during the existence of an Event of Default which consent of the
Company shall not be unreasonably withheld, at any time assign and delegate
to one or more Persons (provided that no written consent of the Company
shall be required in connection with any assignment and delegation by the
Bank to a Person that is an Affiliate of the Bank) (each an "Assignee")
all, or any ratable part of all, of the Loans, the Revolving Commitment and
the other rights and obligations of the Bank hereunder.
(b) The Bank may at any time sell to one or more commercial banks or
other Persons not Affiliates of the Company (a "Participant") participating
interests in any Loans, the Revolving Commitment of the Bank and the other
interests of the Bank hereunder and under the other Loan Documents;
provided, however, that (i) the Bank's obligations under this Agreement
shall remain unchanged, (ii) the Bank shall remain solely responsible for
the performance of such obligations, (iii) the Company shall continue to
deal solely and directly
37
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with the Bank in connection with the Bank's rights and obligations under
this Agreement and the other Loan Documents. In the case of any such
participation, the Participant shall be entitled to the benefit of Sections
3.01, 3.03 and 9.05 as though it were also the Bank hereunder, and if
amounts outstanding under this Agreement are due and unpaid, or shall have
been declared or shall have become due and payable upon the occurrence of
an Event of Default, each Participant shall be deemed to have the right of
set-off in respect of its participating interest in amounts owing under
this Agreement to the same extent as if the amount of its participating
interest were owing directly to it as the Bank under this Agreement.
(c) Each Participant that is not a United States person (as such term
is defined in Section 7701(a)(30) of the Code) for U.S. federal income tax
purposes, shall, (i) prior to becoming a Participant, provide to the
Company two original signed copies of United States Internal Revenue
Service Form 4224 or Form 1001 certifying to such Participant's entitlement
to a complete exemption from United States withholding tax with respect to
any sums payable to such Participant under this Agreement or any other Loan
Document, and (ii) prior to the date any such form expires or becomes
obsolete, provide to the Company reasonably sufficient documentation
demonstrating that such Participant remains entitled to such complete
exemption from United States withholding tax. Notwithstanding the
provisions of Section 3.01 herein, neither the Company nor any Subsidiary
shall be required to pay any additional amounts in respect of this
Agreement or any other Loan Document to the extent that the obligation to
pay such amounts results from the failure of any Participant to comply with
this paragraph (c).
9.09 Confidentiality. The Bank agrees to take and to cause its Affiliates
to take normal and reasonable precautions and exercise due care to maintain the
confidentiality of all information identified as "confidential" or "secret" by
the Company and provided to it by the Company or any Subsidiary, under this
Agreement or any other Loan Document, and neither it nor any of its Affiliates
shall use any such information other than in connection with or in enforcement
of this Agreement and the other Loan Documents or in connection with other
business now or hereafter existing or contemplated with the Company or any
Subsidiary; except to the extent such information (i) was or becomes generally
available to the public other than as a result of disclosure by the Bank, or
(ii) was or becomes available on a non-confidential basis from a source other
than the Company, provided that such source is not bound by a confidentiality
agreement with the Company known to the Bank; provided, however, that the Bank
may disclose such information (A) at the request or pursuant to any requirement
of any Governmental Authority to which the Bank is subject or in connection with
an examination of the Bank by any such authority; (B) pursuant to subpoena or
other court process; (C) when required to do so in accordance with the
provisions of any applicable Requirement of Law; (D) to the extent reasonably
required in connection with any litigation or proceeding to which the Bank or
its respective Affiliates may be party; (E) to the extent reasonably required in
connection with the exercise of any remedy hereunder or under any other Loan
Document; (F) to the Bank's independent auditors and other professional
advisors; (G) to any Participant or Assignee, actual or potential, provided that
such Person agrees in writing to keep such information confidential to the same
extent required of the Bank hereunder; (H) as to the Bank or its Affiliate, as
expressly permitted under the terms of any other document or agreement regarding
confidentiality to which the Company or any Subsidiary is party or is deemed
party with the Bank or such Affiliate; and (I) to its Affiliates.
9.10 Set-off. In addition to any rights and remedies of the Bank provided
by law, if an Event of
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Default exists or the Loans have been accelerated, the Bank is authorized at any
time and from time to time, without prior notice to the Company, any such notice
being waived by the Company to the fullest extent permitted by law, to set off
and apply any and all deposits (general or special, time or demand, provisional
or final) at any time held by, and other indebtedness at any time owing by, the
Bank to or for the credit or the account of the Company against any and all
Obligations owing to the Bank, now or hereafter existing, irrespective of
whether or not the Bank shall have made demand under this Agreement or any Loan
Document and although such Obligations may be contingent or unmatured.
9.11 Counterparts. This Agreement may be executed in any number of separate
counterparts, each of which, when so executed, shall be deemed an original, and
all of said counterparts taken together shall be deemed to constitute but one
and the same instrument.
9.12 Severability. The illegality or unenforceability of any provision of
this Agreement or any instrument or agreement required hereunder shall not in
any way affect or impair the legality or enforceability of the remaining
provisions of this Agreement or any instrument or agreement required hereunder.
9.13 No Third Parties Benefited. This Agreement is made and entered into
for the sole protection and legal benefit of the Company, the Bank, the Bank's
Affiliates, and their permitted successors and assigns, and no other Person
shall be a direct or indirect legal beneficiary of, or have any direct or
indirect cause of action or claim in connection with, this Agreement or any of
the other Loan Documents.
9.14 Governing Law and Jurisdiction.
(a) THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAW OF THE STATE OF NEW YORK; PROVIDED THAT THE BANK SHALL RETAIN
ALL RIGHTS ARISING UNDER FEDERAL LAW.
(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR
ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW
YORK OR OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK, AND BY
EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF THE COMPANY AND THE BANK
CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE NON-EXCLUSIVE
JURISDICTION OF THOSE COURTS. EACH OF THE COMPANY AND THE BANK IRREVOCABLY
WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR
BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER
HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN
RESPECT OF THIS AGREEMENT OR ANY DOCUMENT RELATED HERETO. THE COMPANY AND
THE BANK EACH WAIVE PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER
PROCESS, WHICH MAY BE MADE BY ANY OTHER MEANS PERMITTED BY NEW YORK LAW.
9.15 Waiver of Jury Trial. THE COMPANY AND THE BANK EACH WAIVE THEIR
RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED
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UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS,
OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION, PROCEEDING OR
OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER
PARTY OR ANY AFFILIATE OF THE BANK, PARTICIPANT OR ASSIGNEE, WHETHER WITH
RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. THE COMPANY AND THE BANK
EACH AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT
TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE
THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS
SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE
OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT OR THE
OTHER LOAN DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF. THIS WAIVER SHALL APPLY
TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS.
9.16 Entire Agreement. This Agreement, together with the other Loan
Documents, embodies the entire agreement and understanding among the Company and
the Bank and supersedes all prior or contemporaneous agreements and
understandings of such Persons, verbal or written, relating to the subject
matter hereof and thereof.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered in New York by their proper and duly authorized
officers as of the day and year first above written.
MEDE AMERICA CORPORATION
By: /s/ Elias M. Nemnom
Title: Chief Financial Officer
BANK OF AMERICA ILLINOIS
By: /s/ Linda A. Carper
Title: Managing Director
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FIRST AMENDMENT TO CREDIT AGREEMENT
This Amendment, dated as of January 10, 1997 (this "Amendment") is entered
into by and between MEDE AMERICA CORPORATION, a Delaware corporation (the
"Company") and BANK OF AMERICA ILLINOIS (the "Bank").
RECITALS
The Company and the Bank are parties to a Credit Agreement dated as of
December 18, 1996 (the "Credit Agreement") pursuant to which the Bank extended a
revolving credit facility and made revolving loans. Capitalized terms used and
not otherwise defined or amended in this Amendment shall have the meanings
respectively assigned to them in the Credit Agreement.
The Company has requested that the Bank increase the amount of its
commitment, extend the maturity date and modify certain covenants. _The Company
has requested that the Bank enter into this Amendment in order to approve and
reflect the foregoing, and the Bank has agreed to do so, all upon the terms and
provisions and subject to the conditions hereinafter set forth.
AGREEMENT
In consideration of the foregoing and the mutual covenants and agreement
hereinafter set forth, the parties hereto mutually agree as follows:
A. AMENDMENTS
1. Amendment of Section 1.01
Section 1.01 is hereby amended by restating the following definitions
in their entirety:
"Revolving Commitment" means $13,500,000.
"Revolving Termination Date" means the earlier to occur of (a)
August 31, 1997; and (b)_the date on which the Revolving
Commitment terminates in accordance with the provisions of this
Agreement.
2. Amendment of Section 2.03(a)
Section 2.03(a) is hereby amended and restated in its entirety as
follows:
(a)the amount of the Loan, which shall be in a minimum amount
of $250,000 or any multiple of
<PAGE>
$50,000 in excess thereof;
3. Amendment of Section 2.04(a)
Section 2.04(a) is hereby amended and restated in its entirety as
follows:
(a) The Company may, upon irrevocable written notice to the
Bank in accordance with subsection 2.04(b):
(1) elect, as of any Business Day, in the case of Base Rate
Loans, or as of the last day of the applicable Interest Period, in
the case of any other Type of Loans, to convert any such Loans (or
any part thereof in an amount not less than $250,000, or that is in
an integral multiple of $50,000 in excess thereof) into Loans of any
other Type; or
(2) elect, as of the last day of the applicable Interest
Period, to continue any Loans having Interest Periods expiring on
such day (or any part thereof in an amount not less than $250,000,
or that is in an integral multiple of $50,000 in excess thereof);
provided, that if at any time the amount of an Offshore Rate Loan is
reduced, by payment, prepayment, or conversion of part thereof to be less
than $250,000, such Offshore Rate Loan shall automatically convert into a
Base Rate Loan, and on and after such date the right of the Company to
continue such Loans as, and convert such Loans into Offshore Rate Loans,
shall terminate.
4. Amendment of Section 2.06
Section 2.06 is hereby amended and restated in its entirety as follows:
2.06 Optional Prepayments. Subject to Section 3.04, the
Company may, at any time or from time to time, upon not less than
three Business Days' irrevocable notice to the Bank, ratably prepay
Loans in whole or in part, in minimum amounts of $250,000 or any
multiple of $50,000 in excess thereof. Such notice of prepayment
shall specify the date and amount of such prepayment and the Type(s)
of Loans to be prepaid. If such notice is given by the Company, the
Company shall make such prepayment and the payment amount specified
in such notice shall be due and payable on the date specified
therein, together
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with accrued interest to each such date on the amount prepaid and
any amounts required pursuant to Section 3.04.
5. Amendment of Section 7.15
Section 7.15 is hereby amended and restated in its entirety as follows:
Maximum Leverage Ratio. Beginning with the quarterly
period ending December 31, 1996, the Leverage Ratio
at the end of each quarterly period shall not exceed
the ratio set forth below for the periods set forth
below:
Quarter Ending Maximum Ratio
------------------------------------------------
December 31, 1996 20.00
March 31, 1997 11.50
June 30, 1997 5.75
For purposes of calculating the Leverage Ratio
hereunder, (i) EBITDA shall include EBITDA of the
Company and its Subsidiaries adjusted, on a pro forma
basis, to include the EBITDA for the applicable
period of any business acquired by the Company; and
(ii) Indebtedness shall include Indebtedness of the
Company and its Subsidiaries. This covenant shall not
apply to the quarterly periods ending June 30, 1996
and September 30, 1996.
6. Amendment of Section 7.16.
Section 7.16 is hereby amended and restated in its entirety as follows:
Minimum Interest Coverage Ratio. Beginning with the
quarterly period ending December 31, 1996, the
Minimum Interest Coverage Ratio for each fiscal
quarter shall not be less than the ratio set forth
below at the end of each fiscal quarter for the
periods set forth below:
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Quarter Ending Minimum Ratio
------------------------------------------------
December 31, 1996 0.75
March 31, 1997 1.50
June 30, 1997 3.00
For purposes of calculating the Minimum Interest
Coverage Ratio hereunder, EBITDA and cash interest
expense shall include, respectively, EBITDA and cash
interest expense of the Company and its Subsidiaries
adjusted, on a pro forma basis, to include the EBITDA
and incremental projected cash interest expense, if
any, with respect to the acquisition of any business
acquired by the Company during the two fiscal
quarters prior to the date of calculation of the
Minimum Interest Coverage Ratio. This covenant shall
not apply to the quarterly periods ending June 30,
1996 and September 30, 1996.
B. REPRESENTATIONS AND WARRANTIES
The Company hereby represents and warrants to the Bank that:
1. No Event of Default specified in the Credit Agreement and no
event which with notice or lapse of time or both would become
such an Event of Default has occurred and is continuing;
2. Except as otherwise indicated on Schedule I attached hereto,
the representations and warranties of the Company pursuant to
the Credit Agreement are true on and as of the date hereof as
if made on and as of said date;
3. The making and performance by the Company of this Amendment
have been duly authorized by all corporate action; and
4. No consent, approval, authorization, permit or license from
any federal or state regulatory authority is required in
connection with the making or performance by the Company of
the Credit Agreement as amended hereby.
C. CONDITIONS PRECEDENT
This Amendment will become effective as of January 10, 1997 provided
that the Bank shall have received in form and substance satisfactory to the
Bank, all of the following:
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<PAGE>
1. A copy of a resolution passed by the Board of Directors of the
Company, certified by the Secretary or an Assistant Secretary
of the Company as being in full force and effect on the date
hereof, authorizing the execution, delivery and performance of
the Credit Agreement as hereby amended.
2. A certificate of incumbency certifying the names of the
officers of the Company authorized to sign this Amendment,
together with the true signatures of such officers.
3. Executed counterparts of this Amendment.
4. An amendment fee of $15,000.
D. MISCELLANEOUS
1. This Amendment may be signed in any number of counterparts,
each of which shall be an original, with same effect as if the
signatures thereto and hereto were upon the same instrument.
2. Except as herein specifically amended, all terms, covenants
and provisions of the Credit Agreement shall remain in full
force and effect and shall be performed by the parties hereto
according to its terms and provisions and all references
therein or in the Exhibits shall henceforth refer to the
Credit Agreement as amended by this Amendment.
3. This Amendment shall be governed by and construed in
accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Amendment as of the date first written.
MEDE AMERICA CORPORATION
By:
------------------------------------
Title:
---------------------------------
-5-
<PAGE>
BANK OF AMERICA ILLINOIS
By:
------------------------------------
Title:
---------------------------------
CONSENTED AND ACKNOWLEDGED:
WELSH, CARSON, ANDERSON & STOWE
V, L.P.
By:
WCAS V PARTNERS,L.P.
Its General Partner
By:
-------------------------------
General Partner
WELSH, CARSON, ANDERSON & STOWE
VI, L.P.
By:
WCAS VI PARTNERS, L.P.
Its General Partner
By:
-------------------------------
General Partner
WILLIAM BLAIR LEVERAGED CAPITAL FUND
LIMITED PARTNERSHIP
By: WILLIAM BLAIR LEVERAGED CAPITAL
MANAGEMENT, L.P.
By: WILLIAM BLAIR & COMPANY,
General Partner
By:
-------------------------------
-6-
<PAGE>
WILLIAM BLAIR CAPITAL PARTNERS V, L.P.
By: WILLIAM BLAIR CAPITAL PARTNERS, LLC,
General Partner
By:
-------------------------------
-7-
<PAGE>
SECOND AMENDMENT TO CREDIT AGREEMENT
This Amendment, dated as of April 4, 1997 (this "Amendment") is entered
into by and between MEDE AMERICA CORPORATION, a Delaware corporation (the
"Company") and BANK OF AMERICA ILLINOIS (the "Bank").
RECITALS
The Company and the Bank are parties to a Credit Agreement dated as of
December 18, 1996 as amended (the "Credit Agreement") pursuant to which the Bank
extended a revolving credit facility and made revolving loans. Capitalized terms
used and not otherwise defined or amended in this Amendment shall have the
meanings respectively assigned to them in the Credit Agreement.
The Company has requested that the Bank decrease the amount of its
commitment and modify certain covenants. _The Company has requested that the
Bank enter into this Amendment in order to approve and reflect the foregoing,
and the Bank has agreed to do so, all upon the terms and provisions and subject
to the conditions hereinafter set forth.
In consideration of the foregoing and the mutual covenants and agreement
hereinafter set forth, the parties hereto mutually agree as follows:
A. AMENDMENTS
1. Amendment of Section 1.01
Section 1.01 is hereby amended by restating the following definitions
in their entirety:
"Revolving Commitment" means $5,000,000.
2. Amendment of Section 7.15
Section 7.15 is hereby amended and restated in its entirety as
follows:
Maximum Leverage Ratio. Beginning with the quarterly period
ending March 31, 1997, the Leverage Ratio at the end of each
quarterly period shall not exceed the ratio set forth below
for the periods set forth below:
<TABLE>
<CAPTION>
Quarter Ending Maximum Ratio
-------------- -------------
<S> <C>
March 31, 1997 51.00
June 30, 1997 13.00
</TABLE>
<PAGE>
For purposes of calculating the Leverage Ratio hereunder, (i)
EBITDA shall include EBITDA of the Company and its
Subsidiaries adjusted, on a pro forma basis, to include the
EBITDA for the applicable period of any business acquired by
the Company; and (ii) Indebtedness shall include Indebtedness
of the Company and its Subsidiaries. This covenant shall not
apply to the quarterly periods ending June 30, 1996, September
30, 1996 or December 31, 1996.
3. Amendment of Section 7.16.
Section 7.16 is hereby amended and restated in its entirety as
follows:
Minimum Interest Coverage Ratio. Beginning with the quarterly
period ending March 31, 1997, the Minimum Interest Coverage
Ratio for each fiscal quarter shall not be less than the ratio
set forth below at the end of each fiscal quarter for the
periods set forth below:
<TABLE>
<CAPTION>
Quarter Ending Minimum Ratio
<S> <C>
March 31, 1997 0.25
June 30, 1997 0.75
</TABLE>
For purposes of calculating the Minimum Interest Coverage
Ratio hereunder, EBITDA and cash interest expense shall
include, respectively, EBITDA and cash interest expense of the
Company and its Subsidiaries adjusted, on a pro forma basis,
to include the EBITDA and incremental projected cash interest
expense, if any, with respect to the acquisition of any
business acquired by the Company during the two fiscal
quarters prior to the date of calculation of the Minimum
Interest Coverage Ratio. This covenant shall not apply to the
quarterly periods ending June 30, 1996, September 30, 1996 or
December 31, 1996.
B. WAIVER
The Company has requested that the Bank waive the restrictions of
Sections 7.04(d) and 7.05(e) in order to permit its acquisition of Time Share
Computers ("TCS"). The Bank hereby waives Sections 7.04(d) and 7.05(e) with
respect to the TCS Acquisition.
-2-
<PAGE>
C. REPRESENTATIONS AND WARRANTIES
The Company hereby represents and warrants to the Bank that:
1. No Event of Default specified in the Credit Agreement and no
event which with notice or lapse of time or both would become
such an Event of Default has occurred and is continuing;
2. The representations and warranties of the Company pursuant to
the Credit Agreement are true on and as of the date hereof as
if made on and as of said date;
3. The making and performance by the Company of this Amendment
have been duly authorized by all corporate action; and
4. No consent, approval, authorization, permit or license from
any federal or state regulatory authority is required in
connection with the making or performance by the Company of
the Credit Agreement as amended hereby.
D. CONDITIONS PRECEDENT
This Amendment will become effective as of April 4, 1997 (except with
respect to the amendment to Section 1.01, which shall be effective as of March
14, 1997) provided that the Bank shall have received in form and substance
satisfactory to the Bank, all of the following:
1. A copy of a resolution passed by the Board of Directors of the
Company, certified by the Secretary or an Assistant Secretary
of the Company as being in full force and effect on the date
hereof, authorizing the execution, delivery and performance of
the Credit Agreement as hereby amended.
2. A certificate of incumbency certifying the names of the
officers of the Company authorized to sign this Amendment,
together with the true signatures of such officers.
3. Executed counterparts of this Amendment.
E. MISCELLANEOUS
1. This Amendment may be signed in any number of counterparts,
each of which shall be an original, with same effect as if the
signatures thereto and hereto were upon the same instrument.
-3-
<PAGE>
2. Except as herein specifically amended, all terms, covenants
and provisions of the Credit Agreement shall remain in full
force and effect and shall be performed by the parties hereto
according to its terms and provisions and all references
therein or in the Exhibits shall henceforth refer to the
Credit Agreement as amended by this Amendment.
3. This Amendment shall be governed by and construed in
accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Amendment as of the date first written.
MEDE AMERICA CORPORATION
By:
---------------------------------
Title:
------------------------------
BANK OF AMERICA ILLINOIS
By:
---------------------------------
Title:
------------------------------
CONSENTED AND ACKNOWLEDGED:
WELSH, CARSON, ANDERSON &
STOWE V, L.P.
By: WCAS V PARTNERS, L.P.
Its General Partner
By:
------------------------
General Partner
WELSH, CARSON, ANDERSON &
STOWE VI, L.P.
By: WCAS VI PARTNERS, L.P.
Its General Partner
By:
------------------------
General Partner
-4-
<PAGE>
WILLIAM BLAIR LEVERAGED CAPITAL FUND
LIMITED PARTNERSHIP
By: WILLIAM BLAIR LEVERAGED CAPITAL
MANAGEMENT, L.P.
By: WILLIAM BLAIR & COMPANY,
General Partner
By:
-------------------------
WILLIAM BLAIR CAPITAL PARTNERS V, L.P.
By: WILLIAM BLAIR CAPITAL PARTNERS,
LLC, General Partner
By:
--------------------------
-5-
<PAGE>
THIRD AMENDMENT TO CREDIT AGREEMENT
This Amendment, dated as of October __, 1997 (this "Amendment") is
entered into by and between MEDE AMERICA CORPORATION, a Delaware corporation
(the "Company") and BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION (as
successor by merger to Bank of America Illinois) (the "Bank").
RECITALS
The Company and the Bank are parties to a Credit Agreement dated as of
December 18, 1995, as amended (the "Credit Agreement"), pursuant to which the
Bank extended a revolving credit facility. Capitalized terms used and not
otherwise defined or amended in this Amendment shall have the meanings
respectively assigned to them in the Credit Agreement.
The Company has requested that the Bank extend the maturity date,
increase the commitment and modify the financial covenants. In order to induce
the Bank to agree to the foregoing, the Bank has requested, and the Company has
agreed, to pay an Amendment fee. The Company has requested that the Bank enter
into this Amendment in order to approve and reflect the foregoing, and the Bank
has agreed to do so, all upon the terms and provisions and subject to the
conditions hereinafter set forth.
AGREEMENT
In consideration of the foregoing and the mutual covenants and
agreement hereinafter set forth, the parties hereto mutually agree as follows:
A. AMENDMENTS
1. Amendment of Section 1.01. Section 1.01 is hereby amended by
amending the definitions of:
(a) "Revolving Commitment" by deleting the amount "$5,000,000" and
substituting the amount "$20,000,000" therefor; and
(b) "Revolving Termination Date" by deleting the date "May 15,
1997" and substituting the date "October 31, 1999".
2. Amendment of Section 7.15. Section 7.15 is hereby amended and
restated as follows:
7.15 Maximum Leverage Ratio. The Leverage Ratio at the end of each
quarterly period shall not exceed the ratio set forth below for the
periods set forth below:
<PAGE>
<TABLE>
<CAPTION>
Quarter Ending Maximum Ratio
<S> <C>
December 31, 1997 11.00
March 31, 1998 6.75
June 30, 1998 5.00
September 30, 1998 3.00
and thereafter
</TABLE>
For purposes of calculating the Leverage Ratio hereunder, (i)
EBITDA shall include EBITDA of the Company and its Subsidiaries
adjusted, on a pro forma basis, to include the EBITDA for the
applicable period of any business acquired by the Company; and (ii)
Indebtedness shall include Indebtedness of the Company and its
Subsidiaries.
3. Amendment of Section 7.16. Section 7.16 is hereby amended and
restated as follows:
7.16 Minimum Interest Coverage Ratio. The Minimum Interest
Coverage Ratio for each fiscal quarter shall not be less than the ratio
set forth below at the end of each fiscal quarter for the periods set
forth below:
<TABLE>
<CAPTION>
Quarter Ending Maximum Ratio
<S> <C>
December 31, 1997 1.20
March 31, 1998 1.90
June 30, 1998 2.30
September 30, 1998 3.00
and thereafter
</TABLE>
For purposes of calculating the Minimum Interest Coverage
Ratio hereunder, EBITDA and cash interest expense shall include,
respectively, EBITDA and cash interest expense of the Company and its
Subsidiaries adjusted, on a pro forma basis, to include the EBITDA and
incremental projected cash interest expense, if any, with respect to
the acquisition of any business acquired by the Company during the two
fiscal quarters prior to the date of calculation of the Minimum
Interest Coverage Ratio.
B. REPRESENTATIONS AND WARRANTIES
The Company hereby represents and warrants to the Bank that:
1. No Event of Default specified in the Credit Agreement and no event
which with notice or lapse of time or both would become such an Event of Default
has occurred and is continuing;
-2-
<PAGE>
2. The representations and warranties of the Company pursuant to the
Credit Agreement are true on and as of the date hereof as if made on and as of
said date;
3. The making and performance by the Company of this Amendment have
been duly authorized by all corporate action; and
4. No consent, approval, authorization, permit or license from any
federal or state regulatory authority is required in connection with the making
or performance of the Credit Agreement as amended hereby.
C. CONDITIONS PRECEDENT
This Amendment will become effective as of October __, 1997 provided
that the Bank shall have received in form and substance satisfactory to the
Bank, all of the following:
1. A copy of a resolution passed by the Board of Directors of the
Company, certified by the Secretary or an Assistant Secretary of the Company as
being in full force and effect on the date hereof, authorizing the borrowing
herein provided for and the execution, delivery and performance of the Credit
Agreement as hereby amended.
2. A certificate of incumbency certifying the names of the officers of
the Company authorized to sign this Amendment, together with the true signatures
of such officers.
3. Executed counterparts of this Amendment.
4. Payment of an amendment fee in the amount of $25,000.
5. A copy of the executed asset purchase agreement among the Company,
General Computer Corporation, The Stockton Group, Inc. and James S. Smith for a
total consideration of $13,000,000 (the "Asset Purchase").
6. Evidence that all conditions to the closing of the Asset Purchase
have occurred and all documents and agreements required thereby have been
executed and delivered.
D. MISCELLANEOUS
1. This Amendment may be signed in any number of counterparts, each of
which shall be an original, with same effect as if the signatures thereto and
hereto were upon the same instrument.
-3-
<PAGE>
2. Except as herein specifically amended, all terms, covenants and
provisions of the Credit Agreement shall remain in full force and effect and
shall be performed by the parties hereto according to its terms and provisions
and all references therein or in the Exhibits shall henceforth refer to the
Credit Agreement as amended by this Amendment.
3. This Amendment shall be governed by and construed in accordance with
the laws of the State of New York.
-4-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Amendment as of the date first written.
MEDE AMERICA CORPORATION
By:
-------------------------------------
Title:
----------------------------------
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By:
-------------------------------------
Title:
----------------------------------
ACKNOWLEDGED AND AGREED:
WELSH, CARSON, ANDERSON & STOWE V, L.P.
By: WCAS V PARTNERS
Its General Partner
By:
-----------------------------------
Its General Partner
WELCH, CARSON, ANDERSON & STOWE VI, L.P.
By: WCAS VI PARTNERS
Its General Partner
By:
-----------------------------------
Its General Partner
-5-
<PAGE>
WILLIAM BLAIR LEVERAGED CAPITAL FUND
LIMITED PARTNERSHIP
By: WILLIAM BLAIR LEVERAGED CAPITAL
MANAGEMENT, L.P.
By: WILLIAM BLAIR & COMPANY,
General Partner
By:
------------------------------
WILLIAM BLAIR CAPITAL PARTNERS V, L.P.
By: WILLIAM BLAIR CAPITAL PARTNERS, LLC,
General Partner
By:
------------------------------
-6-
<PAGE>
FOURTH AMENDMENT TO CREDIT
This Amendment, dated as of December 29, 1997 (this "Amendment") is
entered into by and between MEDE AMERICA CORPORATION, a Delaware corporation
(the "Company") and BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION (the
"Bank").
RECITALS
The Company and the Bank are parties to a Credit Agreement dated as of
December 18, 1995, as amended (the "Credit Agreement"), pursuant to which the
Bank extended a revolving credit facility. Capitalized terms used and not
otherwise defined or amended in this Amendment shall have the meanings
respectively assigned to them in the Credit Agreement.
The Guarantors have requested that the Bank agree to a redistribution
of the guarantee amount within the respective funds currently providing the
Guaranty. The Company has requested that the Bank enter into this Amendment in
order to approve and reflect the foregoing, and the Bank has agreed to do so,
all upon the terms and provisions and subject to the conditions hereinafter set
forth.
AGREEMENT
In consideration of the foregoing and the mutual covenants and
agreement hereinafter set forth, the parties hereto mutually agree as follows:
A. AMENDMENTS
Amendment of Section 1.01. Section 1.01 is hereby amended by amending
and restating the definition of "Guarantor's Support Percentage" as follows:
"Guarantor's Support Percentage" shall mean (i) with respect
to WCAS V, 0%, (ii) with respect to WCAS VI, 80%, (iii) with respect to
WB Leveraged Capital, 1.6%, and (iv) with respect to WB Capital
Partners, 18.4%.
B. REPRESENTATIONS AND WARRANTIES
The Company hereby represents and warrants to the Bank that:
1. No Event of Default specified in the Credit Agreement and no event
which with notice or lapse of time or both would become such an Event of Default
has occurred and is continuing;
2. The representations and warranties of the Company pursuant to the
Credit Agreement are true on and as of the date hereof as if made, except as
otherwise previously disclosed to the Bank, on and as of said date;
3. The making and performance by the Company of this Amendment have
been duly authorized by all corporate action; and
<PAGE>
4. No consent, approval, authorization, permit or license from any
federal or state regulatory authority is required in connection with the making
or performance of the Credit Agreement as amended hereby.
C. CONDITIONS PRECEDENT
This Amendment will become effective as of December 29, 1997 provided
that the Bank shall have received in form and substance satisfactory to the Bank
executed counterparts of this Amendment.
D. MISCELLANEOUS
1. This Amendment may be signed in any number of counterparts, each of
which shall be an original, with same effect as if the signatures thereto and
hereto were upon the same instrument.
2. Except as herein specifically amended, all terms, covenants and
provisions of the Credit Agreement shall remain in full force and effect and
shall be performed by the parties hereto according to its terms and provisions
and all references therein or in the Exhibits shall henceforth refer to the
Credit Agreement as amended by this Amendment.
3. This Amendment shall be governed by and construed in accordance with
the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Amendment as of the date first written.
MEDE AMERICA CORPORATION
By:
---------------------------------
Title:
-------------------------------
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By:
----------------------------------
Title:
-------------------------------
2
<PAGE>
ACKNOWLEDGED AND AGREED:
WELSH, CARSON, ANDERSON & STOWE V, L.P.
By: WCAS V PARTNERS
General Partner
By:
----------------------------------------
General Partner
WELSH, CARSON, ANDERSON & STOWE VI, L.P.
By: WCAS VI PARTNERS
General Partner
By:
----------------------------------------
General Partner
WILLIAM BLAIR LEVERAGED CAPITAL FUND
LIMITED PARTNERSHIP
By: WILLIAM BLAIR LEVERAGED CAPITAL
MANAGEMENT, L.P.
By: WILLIAM BLAIR & COMPANY,
General Partner
By:
-------------------------------
WILLIAM BLAIR CAPITAL PARTNERS V, L.P.
By: WILLIAM BLAIR CAPITAL PARTNERS, LLC,
General Partner
By:
-------------------------------
-3-
EXHIBIT 10.6
BANK OF AMERICA LETTERHEAD
June 3, 1998
Mr. Richard P. Bankosky
Chief Financial Officer
MedE America Corporation
The Financial Center
90 Merrick Avenue, Suite 501
East Meadow, NY 11554
Re: Credit Facility
Dear Mr. Bankosky:
This letter will serve to confirm our conversation earlier today. As we
discussed, Bank of America hereby commits to provide MedE America with a $10MM
revolving credit facility to be effective upon the consummation of MedE
America's IPO and upon substantially the same terms and conditions as are
contained in the current credit agreement. You requested and we have agreed to
release the Welsh Carson and William Blair guarantees following the IPO. To
effect the change, we would propose an amendment to the existing credit
facility.
Best Regards,
Subsidiaries of the Registrant:
MEDE America Corporation of Ohio
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULE
MEDE America Corporation
East Meadow, New York
We consent to the use in this Registration Statement of MEDE America Corporation
on Form S-1 of our report dated May 8, 1998 (June 2, 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
June 2, 1998
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
MEDE America Corporation
East Meadow, New York
We consent to the use in this Registration Statement 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
June 2, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001062779
<NAME> MedE America Corporation
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 1,455
<SECURITIES> 0
<RECEIVABLES> 8,421
<ALLOWANCES> 958
<INVENTORY> 240
<CURRENT-ASSETS> 11,149
<PP&E> 9,931
<DEPRECIATION> 4,987
<TOTAL-ASSETS> 54,179
<CURRENT-LIABILITIES> 7,873
<BONDS> 0
30,623
0
<COMMON> 57
<OTHER-SE> (25,394)
<TOTAL-LIABILITY-AND-EQUITY> 54,179
<SALES> 30,189
<TOTAL-REVENUES> 30,189
<CGS> 0
<TOTAL-COSTS> 31,293
<OTHER-EXPENSES> 13
<LOSS-PROVISION> 265
<INTEREST-EXPENSE> 2,470
<INCOME-PRETAX> (3,587)
<INCOME-TAX> 37
<INCOME-CONTINUING> (3,624)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,624)
<EPS-PRIMARY> (0.96)
<EPS-DILUTED> 0
</TABLE>
