AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 22, 1998
REGISTRATION NO. 333 - 55977
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------------
MEDE AMERICA CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7374 11-3270245
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification No.)
incorporation or organization) Classification Code Number)
</TABLE>
90 MERRICK AVENUE, SUITE 501
EAST MEADOW, NEW YORK 11554
(516) 542-4500
(Address, including zip code, and telephone number, including area
code, of registrant's principal executive offices)
-----------------
DAVID M. GOLDWIN, ESQ.
GENERAL COUNSEL
MEDE AMERICA CORPORATION
90 MERRICK AVENUE, SUITE 501
EAST MEADOW, NEW YORK 11554
(516) 542-4500
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
-----------------
COPIES TO:
<TABLE>
<S> <C>
MARK J. TANNENBAUM, ESQ. FREDERICK W. KANNER, ESQ.
REBOUL, MACMURRAY, HEWITT, DEWEY BALLANTINE LLP
MAYNARD & KRISTOL 1301 AVENUE OF THE AMERICAS
45 ROCKEFELLER PLAZA NEW YORK, NY 10019
NEW YORK, NY 10111 (212) 259-8000
(212) 841-5700
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
-----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
================================================================================
<PAGE>
SUBJECT TO COMPLETION, DATED JULY 22, 1998
PROSPECTUS
3,600,000 SHARES
[GRAPHIC OMITTED]
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."
------------------
<TABLE>
<S> <C>
SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERE HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURI-
TIES AND EXCHANGE COMMISSION OR ANY OTHER STATE SECURITIES COMMIS-
SION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
</TABLE>
<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.
3
<PAGE>
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 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
<TABLE>
<S> <C>
COMMON STOCK OFFERED BY THE COMPANY.. 3,600,000 shares
COMMON STOCK TO BE OUTSTANDING AFTER THE
OFFERING............................ 11,581,204 shares (1)(2)
USE OF PROCEEDS.................... To retire all outstanding bank and
subordinated indebtedness and
accrued interest thereon, and for
other general corporate purposes,
including working capital.
PROPOSED NASDAQ NATIONAL MARKET SYMBOL.... MEDE
</TABLE>
- ----------
(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 (i) 1,250,000 shares of Common Stock issuable pursuant to the Medic
Warrant (as defined herein) and (ii) 483,041 shares of Common Stock issuable
upon the exercise of stock options outstanding as of June 30, 1998 under the
MEDE AMERICA Corporation and Its Subsidiaries Stock Option and Restricted
Stock Purchase Plan (the "Stock Plan"), of which 212,758 are exercisable.
The weighted average exercise price of all outstanding stock options is
$4.84 per share. See "Recent Developments" and "Management -- Employee
Benefit Plans."
RECENT DEVELOPMENTS
The Company is currently in the process of compiling preliminary financial
results for the three months ended June 30, 1998 and expects to report the
following financial information:
Revenues for the three months ended June 30, 1998 were $12.1 million
compared to $10.3 million in the corresponding period of fiscal 1997,
representing an increase of 18%. Net loss for the three months ended June 30,
1998 was $(738,000) compared to $(3.6 million) in the corresponding period of
fiscal 1997, representing a decrease of 80%. The Company processed 63.8 million
transactions in the three months ended June 30, 1998, compared to 49.3 million
transactions processed in the corresponding period of fiscal 1997, representing
an increase of 29%.
On July 17, 1998, the Company entered into a Transaction Processing
Agreement (the "Processing Agreement") with Medic Computer Systems, Inc.
("Medic"), a subsidiary of Misys plc that develops and licenses software for
healthcare providers, principally physicians, MSO; and PPMs. Under the
Processing Agreement, the Company will undertake certain software development
obligations, and from July 1, 1999 it will be the exclusive processor (subject
to certain exceptions) for Medic's subscribers for medical reimbursement claims
submitted to payors with whom MedE has or establishes connectivity. Under the
Processing Agreement, the Company will be entitled to certain revenues to be
paid by payors as well as certain fees to be paid by Medic. The Processing
Agreement sets forth detailed performance criteria and development and
implementation timetables. The Processing Agreement is for a fixed term of five
years, with annual renewals thereafter.
Contemporaneously, to ensure a close working relationship between the
parties, on July 17, 1998 the Company granted to Medic a warrant (the "Medic
Warrant") to acquire 1,250,000 shares of the Company's Common Stock, at a per
share exercise price equal to the price of the Common Stock to the public in the
Offering. The Medic Warrant vests over a two year period and may be exercised up
to five years after issuance. The Medic Warrant contains customary weighted
average antidilution provisions. The Company and certain of its principal
stockholders have agreed that following the completion of the Offering and until
the earlier of the termination of the Processing Agreement or the disposition by
5
<PAGE>
Medic and its affilates of at least 25% of the shares of Common Stock issuable
under the Medic Warrant, Medic shall have the right to designate one director to
the Company's Board of Directors. As of the date of this Prospectus, Medic has
not named a designee.
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."
6
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------------------------------------
ACTUAL PRO FORMA(1)
---------------------------------------------------- --------------
1995 1996 1997 1997
---------------- ---------------- ------------------ --------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues(3) .................................... $ 16,246 $ 31,768 $ 35,279 $ 41,824
Operating expenses:
Operations .................................... 9,753 19,174 16,817 18,601
Sales, marketing and client services .......... 3,615 7,064 8,769 10,450
Research and development ...................... 2,051 2,132 3,278 3,513
General and administrative .................... 3,119 6,059 5,263 5,516
Depreciation and amortization ................. 2,995 5,176 5,293 7,062
Write-down of intangible assets ............... 8,191 (4) 9,965 (5) -- --
Acquired in-process research and
development(6) .............................. -- -- 4,354 4,354
Other charges(7) .............................. 2,864 538 2,301 3,581
--------- --------- --------- ---------
Total operating expenses ....................... 32,588 50,108 46,075 53,077
--------- --------- --------- ---------
Loss from operations ........................... (16,342) (18,340) (10,796) (11,253)
Other (income) expense ......................... -- 313 (893) (893)
Interest expense (income), net ................. 189 584 1,504 356
--------- --------- --------- ---------
Loss before provision for income taxes ......... (16,531) (19,237) (11,407) (10,716)
Provision for income taxes ..................... 70 93 57 57
--------- --------- --------- ---------
Net loss ....................................... (16,601) (19,330) (11,464) (10,773)
Preferred stock dividends ...................... (27) (2,400) (2,400) --
--------- --------- --------- ---------
Net loss applicable to common
stockholders................................... $(16,628) $(21,730) $ (13,864) $ (10,773)
========= ========= ========= =========
Basic net loss per common share ................ $ (3.17) $ (4.14) $ (2.56)(8) $ (1.18)
Weighted average common shares
outstanding - Basic ........................... 5,238 5,245 5,425 9,131
<CAPTION>
NINE MONTHS
ENDED MARCH 31,
---------------------------------------------
ACTUAL PRO FORMA(2)
------------------------------- -------------
1997 1998 1998
------------ ------------------ -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues(3) .................................... $ 24,964 $ 30,189 $31,835
Operating expenses:
Operations .................................... 12,104 12,485 12,730
Sales, marketing and client services .......... 6,143 7,769 8,067
Research and development ...................... 2,455 2,886 2,929
General and administrative .................... 3,340 3,307 3,468
Depreciation and amortization ................. 3,502 4,846 5,156
Write-down of intangible assets ............... -- -- --
Acquired in-process research and
development(6) .............................. 4,354 -- --
Other charges(7) .............................. 990 -- --
-------- --------- -------
Total operating expenses ....................... 32,888 31,293 32,350
-------- --------- -------
Loss from operations ........................... (7,924) (1,104) (515)
Other (income) expense ......................... (885) 13 13
Interest expense (income), net ................. 779 2,470 (134)
-------- --------- -------
Loss before provision for income taxes ......... (7,818) (3,587) (394)
Provision for income taxes ..................... 43 37 37
-------- --------- -------
Net loss ....................................... (7,861) (3,624) (431)
Preferred stock dividends ...................... (1,800) (1,800) --
-------- --------- -------
Net loss applicable to common
stockholders................................... $ (9,661) $ (5,424) $ (431)
======== ========= =======
Basic net loss per common share ................ $ (1.81) $ (0.96)(8) $ (0.05)
Weighted average common shares
outstanding - Basic ........................... 5,345 5,677 9,277
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1998
---------------------------
ACTUAL AS ADJUSTED
------------ ------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital ................................... $ 3,276 $ 7,889
Total assets ...................................... 54,179 58,363
Long-term debt, including current portion ......... 40,499 1,324
Redeemable cumulative preferred stock ............. 30,623 --
Stockholders' equity (deficit) .................... (25,337) 49,362
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------------------------
ACTUAL PRO FORMA(1)
---------------------------------------- --------------
1995 1996 1997 1997
------------- ------------- ------------ --------------
(IN THOUSANDS, EXCEPT PER TRANSACTION DATA)
<S> <C> <C> <C> <C>
OTHER DATA:
EBITDA(9) ................................... $ (13,347) $ (13,164) $ (5,503) $ (4,191)
Adjusted EBITDA(9) .......................... (2,292) (2,052) 2,211 4,803
Cash flows from operating activities ........ (3,561) (1,653) (4,020) --
Cash flows from investing activities ........ (22,074) (4,919) (12,221) --
Cash flows from financing activities ........ 33,434 657 15,521 --
Transactions processed(10)
Pharmacy ................................... -- 107,032 126,201 145,903
Medical .................................... -- 16,030 23,085 27,814
Dental ..................................... -- 6,021 12,188 12,188
--------- --------- --------- --------
Total transactions processed ............. -- 129,083 161,474 185,905
Transactions per FTE(10)(11) ................ -- 322 415 478
Revenue per FTE(11) ......................... $ 48 $ 79 $ 91 $ 108
Operating expenses per transaction(10) ...... -- 0.39 0.29 0.29
<CAPTION>
NINE MONTHS
ENDED MARCH 31,
---------------------------------------
ACTUAL PRO FORMA(2)
------------------------- -------------
1997 1998 1998
------------ ------------ -------------
(IN THOUSANDS, EXCEPT PER TRANSACTION DATA)
<S> <C> <C> <C>
OTHER DATA:
EBITDA(9) ................................... $ (4,422) $ 3,742 $ 4,641
Adjusted EBITDA(9) .......................... 922 3,742 4,641
Cash flows from operating activities ........ (2,991) (3,842) --
Cash flows from investing activities ........ (11,630) (11,630) --
Cash flows from financing activities ........ 15,818 15,008 --
Transactions processed(10)
Pharmacy ................................... 88,463 136,685 140,234
Medical .................................... 14,921 23,514 23,514
Dental ..................................... 8,759 10,767 10,767
--------- ---------- ---------
Total transactions processed ............. 112,143 170,966 174,515
Transactions per FTE(10)(11) ................ 293 478 487
Revenue per FTE(11) ......................... $ 65 $ 84 $ 89
Operating expenses per transaction(10) ...... 0.29 0.18 0.19
</TABLE>
(Footnotes on following page)
7
<PAGE>
(1) Gives effect to (i) the acquisition of Time-Share Computer Systems, Inc.
("TCS") in February 1997, (ii) the acquisition of The Stockton Group, Inc.
("Stockton") in November 1997, (iii) the Recapitalization and (iv) the
Offering, as if they had occurred on July 1, 1996.
(2) Gives effect to (i) the acquisition of Stockton in November 1997, (ii) the
Recapitalization and (iii) the Offering, as if they had occurred on July 1,
1996.
(3) During the periods presented, the Company made a series of acquisitions and
divested certain non-core or unprofitable operations. Revenues attributable
to these divested operations, which are included in the statement of
operations data, were $1,595,000, $3,517,000, $2,252,000, $1,941,000 and
$241,000 in the fiscal years ended June 30, 1995, 1996 and 1997 and the nine
months ended March 31, 1997 and 1998, respectively.
(4) Reflects the write-off of goodwill related to the acquisitions of Medical
Processing Center, Inc. ("MPC") and Wellmark, Inc. ("Wellmark").
(5) Reflects the write-down of costs relating to client lists and related
allocable goodwill obtained in the acquisition of General Computer
Corporation, subsequently renamed MEDE AMERICA Corporation of Ohio ("MEDE
OHIO").
(6) Reflects the write-off of acquired in-process research and development costs
upon the consummation of the TCS acquisition.
(7) Reflects (i) expenses recorded relating to contingent consideration paid to
former owners of acquired businesses of $538,000, $2,301,000 and $990,000 in
the fiscal years ended June 30, 1996 and 1997 and the nine months ended
March 31, 1997, respectively, (ii) expenses of $2,864,000 relating to the
spin-off of the Company by Card Establishment Services, Inc. ("CES") in the
fiscal year ended June 30, 1995 and (iii) non-cash stock compensation of
$1,280,000 relating to Stockton in the pro forma fiscal year ended June 30,
1997.
(8) Supplemental net loss per share, giving effect to the Recapitalization,
would be $(1.55) and $(0.47) for the fiscal year ended June 30, 1997 and the
nine months ended March 31, 1998, respectively.
(9) EBITDA represents net income (loss) plus provision for income taxes, net
interest expense, other (income) expense and depreciation and amortization.
EBITDA is not a measurement in accordance with generally accepted accounting
principles ("GAAP") and should not be considered an alternative to, or more
meaningful than, earnings (loss) from operations, net earnings (loss) or
cash flow from operations as defined by GAAP or as a measure of the
Company's profitability or liquidity. Not all companies calculate EBITDA in
the same manner and, accordingly, EBITDA shown herein may not be comparable
to EBITDA shown by other companies. The Company has included information
concerning EBITDA herein because management believes EBITDA provides useful
information. Adjusted EBITDA represents EBITDA plus certain other charges as
described below. The following table summarizes EBITDA and adjusted EBITDA
for all periods presented:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------------------------------
ACTUAL PRO FORMA
------------------------------------------ -----------
1995 1996 1997 1997
-------------- -------------- ------------ -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
EBITDA .................................. $ (13,347) $ (13,164) $ (5,503) $ (4,191)
Contingent consideration paid to
former owners of acquired busi-
nesses ................................ -- 538 2,301 2,301
Write-down of intangible assets ......... 8,191 9,965 -- --
Acquired in-process research and
development ........................... -- -- 4,354 4,354
Expenses related to the CES spin-
off ................................... 2,864 -- -- --
Non-cash stock compensation ............. -- -- -- 1,280
Contract and legal settlement provi-
sions ................................. -- 609 1,059 1,059
---------- ---------- -------- --------
Adjusted EBITDA ......................... $ (2,292) $ (2,052) $ 2,211 $ 4,803
========== ========== ======== ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
----------------------------------
ACTUAL PRO FORMA
----------------------- ----------
1997 1998 1998
------------ ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
EBITDA .................................. $ (4,422) $ 3,742 $ 4,641
Contingent consideration paid to
former owners of acquired busi-
nesses ................................ 990 -- --
Write-down of intangible assets ......... -- -- --
Acquired in-process research and
development ........................... 4,354 -- --
Expenses related to the CES spin-
off ................................... -- -- --
Non-cash stock compensation ............. -- -- --
Contract and legal settlement provi-
sions ................................. -- -- --
-------- ------- -------
Adjusted EBITDA ......................... $ 922 $ 3,742 $ 4,641
======== ======= =======
</TABLE>
- -----------
(10) Transaction volumes are not available for the fiscal year ended June 30,
1995.
(11) Full-time equivalents ("FTE") represents the number of full-time employees
and part-time equivalents of full-time employees as of the end of the
period shown.
8
<PAGE>
QUARTERLY FINANCIAL INFORMATION
The following table summarizes certain quarterly financial information for
all periods presented:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------------------------------------------------
9/30/96 12/31/96 3/31/97 6/30/97 9/30/97 12/31/97 3/31/98
----------- ---------- ------------- ------------- ----------- ---------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues ............................... $ 8,179 $ 7,831 $ 8,954 $ 10,315 $ 9,241 $ 9,849 $ 11,099
Income (loss) from operations .......... (1,301) (1,108) (5,515) (2,872) (850) (264) 10
Net loss ............................... (1,465) (1,324) (5,072) (3,603) (1,517) (1,191) (916)
OTHER DATA:
EBITDA (1) ............................. $ (199) $ (64) $ (4,159) $ (1,081) $ 704 $ 1,309 $ 1,729
Contingent consideration paid to former
owners of acquired businesses ........ 330 330 330 1,311 -- -- --
Acquired in-process research and devel-
opment ............................... -- -- 4,354 -- -- -- --
Contract and legal settlement provisions -- -- -- 1,059 -- -- --
-------- -------- --------- --------- -------- -------- --------
Adjusted EBITDA(1) ..................... $ 131 $ 266 $ 525 $ 1,289 $ 704 $ 1,309 $ 1,729
======== ======== ========= ========= ======== ======== ========
</TABLE>
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Quarterly Operating Results."
- -----------
(1) EBITDA represents net income (loss) plus provision for income taxes, net
interest expense, other (income) expense and depreciation and amortization.
EBITDA is not a measurement in accordance with GAAP and should not be
considered an alternative to, or more meaningful than, earnings (loss) from
operations, net earnings (loss) or cash flow from operations as defined by
GAAP or as a measure of the Company's profitability or liquidity. Not all
companies calculate EBITDA in the same manner and, accordingly, EBITDA shown
herein may not be comparable to EBITDA shown by other companies. The Company
has included information concerning EBITDA herein because management
believes EBITDA provides useful information. Adjusted EBITDA represents
EBITDA plus certain other charges as described above.
- -----------
Except as otherwise noted herein, all information in this Prospectus (i)
assumes no exercise of the Underwriters' over-allotment option, (ii) assumes no
exercise of the Medic Warrant and (iii) has been adjusted to give effect to a
one-for-4.5823 reverse stock split of all outstanding Common Stock (the "Reverse
Stock Split"). The Company's Preferred Stock, $.01 par value ("Preferred
Stock"), provides for conversion of the aggregate liquidation value of the
Preferred Stock, including accrued but unpaid dividends, into Common Stock at
the initial public offering price per share. However, cash realized by the
Company upon any exercise of the Underwriters' overallotment option would be
applied to the payment of accrued dividends in lieu of having such dividends
convert into Common Stock. Except as otherwise noted herein, each reference in
this Prospectus to Common Stock issuable upon conversion of all of the Preferred
Stock assumes a conversion price of $14.00. Based on an aggregate liquidation
preference of the Preferred Stock of $31,220,578 (including $7,224,978 of
accrued dividends) as of June 30, 1998, 2,229,982 shares of Common Stock would
be so issuable as of such date. In addition, concurrently with the consummation
of the Offering, an additional 66,375 shares of Common Stock will be issued upon
the exercise of all outstanding Common Stock purchase warrants. The Medic
Warrant to purchase 1,250,000 shares of Common Stock at the price to the public
in the Offering will remain outstanding after the Offering. 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."
9
<PAGE>
RISK FACTORS
In addition to other information contained in this Prospectus, prospective
investors should carefully consider the following risk factors before purchasing
the shares of Common Stock offered hereby. This Prospectus contains
forward-looking statements relating to future events or the future financial
performance of the Company. Prospective investors are cautioned that such
forward-looking statements are not guarantees of future performance and involve
risks and uncertainties. Actual events or results may differ materially from
those discussed in the forward-looking statements as a result of various factors
and the matters set forth in this Prospectus generally.
HISTORY OF OPERATING LOSSES; LIMITED OPERATING HISTORY
The Company has experienced substantial net losses, including net losses of
$16.6 million, $19.3 million, $11.5 million and $3.6 million for the fiscal
years ended June 30, 1995, 1996 and 1997, respectively, and the nine months
ended March 31, 1998. The Company had an accumulated deficit of approximately
$51.5 million as of March 31, 1998. In connection with its acquisitions
completed to date, the Company has incurred significant acquisition-related
charges and will record significant amortization expense related to goodwill and
other intangible assets in future periods. There can be no assurance that the
Company will be able to achieve or sustain revenue growth or profitability on a
quarterly or annual basis. See "Selected Consolidated Financial Data" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
The Company's operating history is limited. The Company's prospects must be
considered in light of the risks, expenses and difficulties frequently
encountered by companies with limited operating histories, particularly
companies in new and rapidly evolving markets such as EDI and transaction
processing. Such risks include, but are not limited to, an evolving and
unpredictable business model and the difficulties inherent in the management of
growth. To address these risks, the Company must, among other things, maintain
and increase its client base, implement and successfully execute its business
and marketing strategies, continue to develop and upgrade its technology and
transaction-processing systems, provide superior client service, respond to
competitive developments, and attract, retain and motivate qualified personnel.
There can be no assurance that the Company will be successful in addressing such
risks or in achieving profitability, and the failure to do so could have a
material adverse effect on the Company's business, financial condition and
results of operations.
ACQUISITION STRATEGY; NEED FOR ADDITIONAL CAPITAL
The Company's strategy includes acquisitions of healthcare EDI businesses
that complement or supplement the Company's business. The success of such a
strategy will depend on many factors, including the Company's ability to
identify suitable acquisition candidates, the purchase price and the
availability and terms of financing. Significant competition for acquisition
opportunities exists in the healthcare EDI industry, which may significantly
increase the costs of and decrease the opportunities for acquisitions. Although
the Company is actively pursuing possible acquisitions, there can be no
assurance that any acquisition will be consummated. No assurances can be given
that the Company will be able to operate any acquired businesses profitably or
otherwise successfully implement its expansion strategy. The Company may finance
future acquisitions through borrowings or the issuance of debt or equity
securities. There can be no assurance that future lenders will extend credit on
favorable terms, if at all. Further, any borrowings would increase the Company's
interest expense and any issuance of equity securities could have a dilutive
effect on the holders of Common Stock. The Company will not be able to account
for acquisitions under the "pooling of interests" method for at least two years
following the Offering. Accordingly, such future acquisitions may result in
significant goodwill and a corresponding increase in the amount of amortization
expense and could also result in write-downs of purchased assets, all of which
could adversely affect the Company's operating results in future periods.
INTEGRATION OF ACQUIRED BUSINESSES
The success of the Company's acquisition strategy also depends to a large
degree on the Company's ability to effectively integrate the acquired products
and services, facilities, technologies, personnel and operations into the
Company. The process of integration often requires substantial management atten-
10
<PAGE>
tion and other corporate resources, and the Company may not be able to
accurately predict the resources that will be needed to integrate acquired
operations. There can be no assurance that the Company will be able to
effectively integrate any or all acquired companies or operations. Any failure
to do so could result in operating inefficiencies, redundancies, management
distraction or technological difficulties (among other possible adverse
consequences), any of which could have a material adverse effect on the
Company's business, financial condition and results of operations.
EVOLVING INDUSTRY STANDARDS AND RAPID TECHNOLOGICAL CHANGES
The market for the Company's products and services is characterized by
rapidly changing technology, evolving industry standards and the frequent
introduction of new and enhanced services. The Company's success will depend
upon its ability to enhance its existing services, to introduce new products and
services on a timely and cost-effective basis to meet evolving client
requirements, to achieve market acceptance for new products or services and to
respond to emerging industry standards and other technological changes. There
can be no assurance that the Company will be able to respond effectively to
technological changes or new industry standards. Moreover, there can be no
assurance that other companies will not develop competitive products or
services, or that any such competitive products or services will not have an
adverse effect on the Company's business, financial condition and results of
operations.
DEPENDENCE ON CONNECTIONS TO PAYORS
The Company's business is enhanced by the substantial number of payors
(such as insurance companies, Medicare and Medicaid agencies and Blue Cross/Blue
Shield organizations) to which the Company has electronic connections. These
connections may either be made directly or through a clearinghouse or other
intermediary. The Company has attempted to enter into suitable contractual
relationships to ensure long term payor connectivity; however, there can be no
assurance that the Company will be able to maintain its links with all payors
with whom it currently has connections. In addition, there can be no assurance
that the Company will be able to develop new connections (either directly or
through clearinghouses) on satisfactory terms, if at all. Lastly, certain
third-party payors provide EDI systems directly to healthcare providers,
bypassing third-party processors such as the Company. The failure to maintain
its existing connections with payors and clearinghouses or to develop new
connections as circumstances warrant, or an increase in the utilization of
direct links between providers and payors, could have a material adverse effect
on the Company's business, financial condition and results of operations.
DEVELOPMENT OF EDI PROCESSING IN THE HEALTHCARE INDUSTRY
The Company's strategy anticipates that electronic processing of healthcare
transactions, including transactions involving clinical as well as financial
information, will become more widespread and that providers and third-party
payors increasingly will use EDI processing networks for the processing and
transmission of data. Electronic transmission of healthcare transactions is
still developing, and complexities in the nature and types of transactions which
must be processed have hindered, to some degree, the development and acceptance
of EDI processing in this market. There can be no assurance that continued
conversion from paper-based transaction processing to EDI processing in the
healthcare industry will occur or that, to the extent it does occur, healthcare
providers and payors will use independent processors such as the Company.
Furthermore, if EDI processing extensively penetrates the healthcare market or
becomes highly standardized, it is possible that competition among transaction
processors will focus increasingly on pricing. If competition causes the Company
to reduce its pricing in order to retain market share, the Company may suffer a
material adverse change in its business, financial condition and results of
operations.
POTENTIAL VARIABILITY IN QUARTERLY OPERATING RESULTS
The Company's quarterly operating results have varied significantly in the
past and are likely to vary from quarter to quarter in the future. Quarterly
revenues and operating results may fluctuate as a result of a variety of
factors, including: integration of acquired businesses; seasonal variability of
demand
11
<PAGE>
for healthcare services generally; the number, timing and significance of
announcements and releases of product enhancements and new products by the
Company and its competitors; the timing and significance of announcements
concerning the Company's present or prospective strategic alliances; the loss of
clients due to consolidation in the healthcare industry; legislation or changes
in government policies or regulations relating to healthcare EDI processing;
delays in product installation requested by clients; the length of the sales
cycle or the timing of sales; client budgeting cycles and changes in client
budgets; marketing and sales promotional activities; software defects and other
quality factors; and general economic conditions.
The Company's operating expense levels, which will increase with the
addition of acquired businesses, are relatively fixed. If revenues are below
expectations, net income is likely to be disproportionately adversely affected.
Further, in some future quarters the Company's revenues or operating results may
be below the expectations of securities analysts and investors. In such event,
the trading price of the Company's Common Stock would likely be materially
adversely affected. See "Summary -- Quarterly Financial Information" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Quarterly Operating Results."
PROPOSED HEALTHCARE DATA CONFIDENTIALITY LEGISLATION
Legislation that imposes restrictions on third-party processors' ability to
analyze certain patient data without specific patient consent has been
introduced in the U.S. Congress. Although the Company does not currently access
or analyze individually identifiable patient information, such legislation, if
adopted, could adversely affect the ability of third-party processors to
transmit information such as treatment and clinical data, and could adversely
affect the Company's ability to expand into related areas of the EDI healthcare
market. In addition, the Health Insurance Portability and Accountability Act,
passed in 1997, mandates the establishment of federal standards for the
confidentiality, format and transmission of patient data, as well as
recordkeeping and data security obligations. It is possible that the standards
so developed will necessitate changes to the Company's operations, which could
have a material adverse effect on the Company's business, financial condition
and results of operations.
COMPETITION
The Company faces significant competition from healthcare and
non-healthcare EDI processing companies. The Company also faces potential
competition from other companies, such as vendors of provider information
management systems, which have added or may add their own proprietary EDI
processing systems to existing or future products and services. Competition may
be experienced in the form of pressure to reduce per transaction prices or
eliminate per transaction pricing altogether. If EDI processing becomes the
standard for claims and information processing, a number of larger and better
capitalized entities may elect to enter the industry and further increase
competitive pricing pressures. Many of the Company's existing and potential
competitors are larger and have significantly greater financial, marketing,
technological and other resources than the Company. There can be no assurance
that increased competition will not have a material adverse effect on the
Company's business, financial condition and results of operations. See "Business
- -- Competition."
RISK OF INTERRUPTION OF DATA PROCESSING
The Company currently processes its data through its facilities in
Twinsburg, Ohio, Mitchel Field, New York, and Atlanta, Georgia. The Twinsburg
and Mitchel Field sites are designed to be redundant. Additionally, the Company
transmits data through a number of different telecommunications networks, using
a variety of different technologies. However, the occurrence of an event that
overcomes the data processing and transmission redundancies then in place could
lead to service interruptions and could have a material adverse effect on the
Company's business, financial condition and results of operations.
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are coded
to accept only two digit entries in the date code field. These date code fields
will need to accept four digit entries to distinguish 21st century dates from
20th century dates. As a result, prior to January 1, 2000, computer systems
12
<PAGE>
and/or software used by many companies (including the Company) will need to be
upgraded to comply with such "Year 2000" requirements. Significant uncertainty
exists in the software industry concerning the potential consequences of the
Year 2000 phenomenon. Although the Company currently offers software products
that are designed or have been modified to comply with the Year 2000
requirements, there can be no assurance that the Company's current software
contains all necessary date code changes. The Company believes that certain
installations of its products and certain products currently used by its clients
in conjunction with third-party vendors' products are not Year 2000 compliant.
Certain of the Company's physician benefit management clients are being migrated
from the Company's PBM system in Ohio to its PBM system acquired from Stockton.
The total revenue from such clients is expected to be $6,351,000 in fiscal 1999.
A testing and migration timetable for all such clients has been developed, with
migration activities scheduled for completion in mid-1999.
While the Company has plans to address the problems related to its own
products within the coming year, there can be no assurance that the costs of
bringing these systems into compliance will not be significantly greater than
expected or that compliance will be achieved in a timely manner. In addition,
there can be no assurance that the Company's current products do not contain
undetected errors or defects associated with Year 2000 date functions that may
result in material costs to the Company. Moreover, even if the Company's
products and services satisfy such requirements, the products and services
provided to the Company's clients by other software vendors, and the systems
used by certain payors, may not be Year 2000 compliant, thereby disrupting the
ability of the Company's clients to use the Company's software or to obtain
reimbursement in a timely manner. An adverse impact on such clients due to the
Year 2000 issue could also have a material adverse effect on the Company's
business, financial condition and results of operations. See "Business -- Year
2000 Compliance."
DEPENDENCE ON KEY PERSONNEL
The Company's performance depends in significant part on the continued
service of its executive officers, its product managers and key sales, marketing
and development personnel. The Company considers its key management personnel to
be Thomas P. Staudt, President and Chief Executive Officer, William M. McManus
and Roger L. Primeau, in charge of the pharmacy/medical and dental operations,
respectively, James T. Stinton, the Company's Chief Information Officer, and
Richard Bankosky, the Company's Chief Financial Officer. No single individual is
considered by the Company to be critical to the Company's success. The Company
does not maintain employment agreements with these officers or other employees
(with limited exceptions) and the failure to retain the services of such persons
could have a material adverse effect on the Company's business, financial
condition and results of operations.
UNCERTAINTY AND CONSOLIDATION IN THE HEALTHCARE INDUSTRY
The healthcare industry is subject to changing political, economic and
regulatory influences that may affect the procurement practices and operations
of healthcare industry participants. Federal and state legislatures periodically
consider programs to modify or amend the United States healthcare system at both
the federal and state level. These programs may contain proposals to increase
governmental involvement in healthcare, lower reimbursement rates or otherwise
change the environment in which healthcare industry participants operate.
Healthcare industry participants may react to these proposals and the
uncertainty surrounding such proposals by curtailing or deferring investments,
including investments in the Company's products and services. In addition, many
healthcare providers are consolidating to create larger healthcare delivery
organizations. This consolidation reduces the number of potential clients for
the Company's services, and the increased bargaining power of these
organizations could lead to reductions in the amounts paid for the Company's
services. Other healthcare information companies, such as billing services and
practice management vendors, which currently utilize the Company's services,
could develop or acquire transaction processing and networking capabilities and
may cease utilizing the Company's services in the future. The impact of these
developments in the healthcare industry is difficult to predict and could have a
material adverse effect on the Company's business, financial condition and
results of operations. To the extent that the current trend toward consolidation
in the industry continues, MEDE AMERICA may find it more difficult to obtain
access to payors, information provid-
13
<PAGE>
ers and practice management software vendors on whom its ability to deliver
services and enroll new clients now depends. Loss of access to these industry
participants could materially adversely affect the Company's business, financial
condition and results of operations.
DEPENDENCE ON INTELLECTUAL PROPERTY; RISK OF INFRINGEMENT
The Company's ability to compete effectively depends to a significant
extent on its ability to protect its proprietary information. The Company relies
on a combination of statutory and common law copyright, trademark and trade
secret laws, client licensing agreements, employee and third-party nondisclosure
agreements and other methods to protect its proprietary rights. The Company does
not include in its software any mechanisms to prevent or inhibit unauthorized
use, but generally enters into confidentiality agreements with its consultants,
clients and potential clients and limits access to, and distribution of, its
proprietary information. The Company has not filed any patent applications with
respect to its intellectual property. It is the Company's policy to defend its
intellectual property; however, there can be no assurance that the steps taken
by the Company to protect its proprietary information will be adequate to
prevent misappropriation of its technology or that the Company's competitors
will not independently develop technologies that are substantially equivalent or
superior to the Company's technology.
The Company is also subject to the risk of alleged infringement by it of
intellectual property rights of others. Although the Company is not currently
aware of any pending or threatened infringement claims with respect to the
Company's current or future products, there can be no assurance that third
parties will not assert such claims. Any such claims could require the Company
to enter into license arrangements or could result in protracted and costly
litigation, regardless of the merits of such claims. No assurance can be given
that any necessary licenses will be available or that, if available, such
licenses can be obtained on commercially reasonable terms. Furthermore,
litigation may be necessary to enforce the Company's intellectual property
rights, to protect the Company's trade secrets, to determine the validity and
scope of the proprietary rights of others or to defend against claims of
infringement. Such litigation could result in substantial costs and diversion of
resources and could have a material adverse effect on the Company's business,
financial condition and results of operations.
The Company expects that software developers will increasingly be subject
to such claims as the number of products and competitors providing software and
services to the healthcare industry increases and overlaps occur. Any such
claim, with or without merit, could result in costly litigation or might require
the Company to enter into royalty or licensing agreements, any of which could
have a material adverse effect on the Company's business, financial condition
and results of operations. Such royalty or licensing agreements, if required,
may not be available on terms acceptable to the Company or at all.
RISK OF PRODUCT DEFECTS
Products such as those offered by the Company may contain errors or
experience failures, especially when initially introduced or when new versions
are released. While the Company conducts extensive testing to address these
errors and failures, there can be no assurance that errors or performance
failures will not occur in products under development or in enhancements to
current products. Any such errors or failures could result in loss of revenues
and clients, delay in market acceptance, diversion of development resources,
damage to the Company's reputation or increased service costs, any of which
could have a material adverse effect on the Company's business, financial
condition and results of operations. To date, the Company has not experienced
any material product defects.
CONTROL BY EXISTING STOCKHOLDERS
After the Offering, 49.7% of the Common Stock will be owned by investment
funds affiliated with Welsh, Carson, Anderson & Stowe, a private investment firm
("WCAS") and 7.9% will be owned by investment funds affiliated with William
Blair Capital Partners L.L.C. ("WBCP"). See "Principal Shareholders" and
"Description of Capital Stock -- Recapitalization." As a result of this
concentration of ownership, these shareholders may be able to exercise control
over matters requiring shareholder ap-
14
<PAGE>
proval, including the election of directors and approval of significant
corporate transactions. Such control may have the effect of delaying or
preventing a change in control of the Company. The Company's Board of Directors
currently includes Thomas E. McInerney and Anthony J. de Nicola, designees of
WCAS, and Timothy M. Murray, a designee of WBCP. The funds affiliated with WCAS
may be deemed to be controlled by their respective general partners, the
general partners of each of which include some or all of the following
individuals: Thomas E. McInerney and Anthony J. de Nicola, directors of the
Company, Patrick J. Welsh, Russell L. Carson, Bruce K. Anderson, Richard H.
Stowe, Andrew M. Paul, Robert A. Minicucci, Paul B. Queally and Laura M.
VanBuren. The funds affiliated with WBCP may be deemed to be controlled by
their respective general partners, the general partners of which include
William Blair & Company L.L.C. and certain of its employees, including Timothy
E. Murray, a director of the Company.
NO PUBLIC MARKET FOR THE COMMON STOCK; PRICE AND MARKET VOLATILITY
Prior to this Offering, there has been no public market for the Common
Stock, and there can be no assurance that an active trading market will develop
or be sustained after this Offering or that the market price of the Common Stock
will not decline below the initial public offering price. The initial public
offering price has been determined by negotiations between the Company and the
Representatives of the Underwriters and may not be indicative of the market
price of the Common Stock in the future. See "Underwriting" for a discussion of
the factors considered in determining the initial public offering price. The
stock market has from time to time experienced extreme price and volume
fluctuations, particularly in the securities of technology companies, which have
often been unrelated to the operating performance of individual companies.
Announcements of technological innovations or new and enhanced commercial
products by the Company or its competitors, market conditions in the industry,
developments or disputes concerning proprietary rights, changes in earnings,
economic and other external factors, political and other developments and
period-to-period fluctuations in financial results of the Company may have a
significant impact on the market price and marketability of the Company's Common
Stock. Fluctuations in the trading price of the Common Stock may also adversely
affect the liquidity of the trading market for the Common Stock.
POTENTIAL ADVERSE EFFECT OF ANTI-TAKEOVER PROVISIONS
The Company's Board of Directors is authorized to issue up to 5,000,000
shares of Preferred Stock and to determine the price, rights, preferences and
privileges of those shares without any further vote or action by the Company's
stockholders. The rights of the holders of Common Stock will be subject to, and
may be adversely affected by, the rights of the holders of any shares of
Preferred Stock that may be issued in the future. While the Company has no
present intention to issue shares of Preferred Stock, any such issuance, while
providing desirable flexibility in connection with possible acquisitions and
other corporate purposes, could have the effect of making it more difficult for
a third party to acquire a majority of the outstanding voting stock of the
Company. In addition, such Preferred Stock may have other rights, including
economic rights senior to the Common Stock, and, as a result, the issuance
thereof could have a material adverse effect on the market value of the Common
Stock. Furthermore, the Company is subject to the anti-takeover provisions of
Section 203 of the Delaware General Corporation Law (the "DGCL"), which
prohibits the Company from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which such person first becomes an "interested stockholder,"
unless the business combination is approved in a prescribed manner. The
application of these provisions could have the effect of delaying or preventing
a change of control of the Company. Certain other provisions of the Amended and
Restated Certificate of Incorporation and the Company's Bylaws could also have
the effect of delaying or preventing changes of control or management of the
Company, which could adversely affect the market price of the Company's Common
Stock. See "Description of Capital Stock -- Preferred Stock" and "-- Delaware
Laws and Certain Charter and Bylaw Provisions; Anti-Takeover Measures."
SHARES ELIGIBLE FOR FUTURE SALE; POSSIBLE ADVERSE EFFECT ON FUTURE MARKET PRICE
Sales of Common Stock (including Common Stock issued upon the exercise of
outstanding stock options) in the public market after this Offering could
materially adversely affect the market price of the Common Stock. Upon the
completion of this Offering and giving effect to the Recapitalization, the
15
<PAGE>
Company will have 11,581,204 shares of Common Stock outstanding, assuming no
exercise of stock options and no exercise of the Underwriters' over-allotment
option. Of these outstanding shares of Common Stock, the 3,600,000 shares sold
in this Offering will be freely tradeable, without restriction under the
Securities Act of 1933, as amended (the "Securities Act"), unless purchased by
"affiliates" of the Company, as that term is defined in Rule 144 under the
Securities Act. The remaining 7,981,204 shares of Common Stock held by existing
stockholders are "restricted securities" as that term is defined in Rule 144
under the Securities Act and were issued and sold by the Company in reliance on
exemptions from the registration requirements of the Securities Act. These
shares may be resold in the public market only if registered or pursuant to an
exemption from registration, such as Rule 144 under the Securities Act. All
officers, directors and certain holders of Common Stock beneficially owning, in
the aggregate, approximately shares of Common Stock and options to purchase
shares of Common Stock, have agreed, pursuant to certain lock-up agreements,
that they will not sell, offer to sell, solicit an offer to purchase, contract
to sell, grant any option to sell, pledge, or otherwise transfer or dispose of,
directly or indirectly, any shares of Common Stock owned by them, or that could
be purchased by them through the exercise of options to purchase Common Stock of
the Company, for a period of 180 days after the date of this Prospectus without
the prior written consent of Smith Barney Inc. Upon expiration of the lock-up
agreements, all shares of Common Stock currently outstanding will be immediately
eligible for resale, subject to the requirements of Rule 144. The Company is
unable to predict the effect that sales may have on the then prevailing market
price of the Common Stock. See "Management -- Employee Benefit Plans,"
"Description of Capital Stock" and "Shares Eligible for Future Sale."
BENEFITS OF THE OFFERING TO CURRENT STOCKHOLDERS
Prospective investors should be aware that current holders of the Company's
Common Stock and Preferred Stock will benefit from the Offering. Approximately
$25.2 million of the net proceeds of the Offering will be used to prepay all
then outstanding principal and accrued interest on a Senior Subordinated Note
(as herein defined) held by WCAS Capital Partners II, L.P., one of the Company's
principal stockholders. In addition, approximately $17.8 million of the net
proceeds will be used to repay all then outstanding indebtedness under the
Company's current Credit Facility (as herein defined). The Credit Facility,
which is guaranteed by the Company's four principal stockholders, will be
replaced with a new facility, which will not be guaranteed by a third party. See
"Use of Proceeds" and "Certain Transactions."
After the Offering, all existing stockholders will benefit from certain
changes including the creation of a public market for the Company's Common
Stock. Moreover, the current shareholders will realize an immediate increase in
market and tangible book value. Assuming an initial public offering price of
$14.00 per share, the aggregate unrealized gain to current stockholders of the
Company, based on the difference between such public offering price of the
Common Stock and the acquisition cost of their equity, will be $82.7 million.
See "Dilution."
IMMEDIATE AND SUBSTANTIAL DILUTION
Purchasers of Common Stock in the Offering will incur immediate and
substantial dilution in the net tangible book value per share of Common Stock in
the amount of $12.98 per share, at an assumed initial public offering price of
$14.00 per share. To the extent that outstanding options to purchase Common
Stock are exercised, there will be further dilution. See "Dilution."
ABSENCE OF DIVIDENDS
No dividends have been paid on the Common Stock to date and the Company
does not anticipate paying dividends on the Common Stock in the foreseeable
future. Moreover, it is expected that the terms of the Amended Credit Facility
will prohibit the Company from paying dividends on the Common Stock. See
"Dividend Policy."
16
<PAGE>
RISKS ASSOCIATED WITH FORWARD-LOOKING STATEMENTS
This Prospectus contains certain statements that are "forward-looking
statements," which include, among other things, the discussions of the Company's
business strategy and expectations concerning developments in the healthcare EDI
industry, the Company's market position, future operations, transaction growth,
margins and profitability, and liquidity and capital resources. Investors in the
Common Stock offered hereby are cautioned that such forward-looking statement
involves risks and uncertainties, and that although the Company believes that
the assumptions on which the forward-looking statements contained herein are
reasonable, any of those assumptions could prove to be inaccurate, and as a
result, the forward-looking statements based on those assumptions also could be
incorrect. The uncertainties in this regard include, but are not limited to,
those identified in the risk factors discussed above. In light of these and
other uncertainties, the inclusion of a forward-looking statement herein should
not be regarded as a representation by the Company that the Company's plans and
objectives will be achieved.
17
<PAGE>
THE COMPANY
MEDE AMERICA is a leading provider of EDI products and services to a broad
range of providers and payors in the healthcare industry. The Company offers an
integrated suite of EDI solutions that allows hospitals, pharmacies, physicians,
dentists and other healthcare providers and provider groups to electronically
edit, process and transmit claims, eligibility and enrollment data, track claims
submissions throughout the claims payment process and obtain faster
reimbursement for their services. In addition to offering greater processing
speed, the Company's EDI products reduce processing costs, increase collection
rates and result in more accurate data interchange. The Company maintains over
540 direct connections with insurance companies, Medicare and Medicaid agencies,
Blue Cross and Blue Shield systems and other third party payors, as well as over
500 indirect connections with additional payors through claims clearinghouses.
Currently, the Company processes over 900,000 transactions per day for over
65,000 providers located in all 50 states. The Company's mission is to be the
leading provider of integrated healthcare transaction processing technology,
networks and databases, enabling its clients to improve the quality and
efficiency of their services.
The Company was formed in March 1995 through the consolidation and
subsequent spin-off of three subsidiaries of Card Establishment Services, Inc.
("CES"), in connection with the acquisition by First Data Corporation of CES'
credit card processing business. The three subsidiaries, MedE America, Inc.,
Medical Processing Center, Inc. ("MPC") and Wellmark, Inc. ("Wellmark"), which
comprised the heathcare services business of CES, historically provided EDI
services to hospitals and physicians. After the spin-off, the Company made
several strategic acquisitions to strengthen its core hospital/medical business
and to expand into the pharmaceutical and dental markets. In March 1995, the
Company acquired General Computer Corporation, subsequently renamed MEDE AMERICA
Corporation of Ohio (referred to herein as "MEDE OHIO"), a developer of EDI
systems and services for the pharmaceutical industry, and in June 1995 the
Company acquired Latpon Health Systems, Incorporated ("Latpon"), a developer of
proprietary EDI claims processing software for hospitals and physicians. These
acquisitions were followed by acquisitions of Electronic Claims and Funding,
Inc. ("EC&F"), and Premier Dental Systems, Corp. ("Premier"), in October 1995.
These companies were engaged in the EDI and management software businesses in
the dental market. The Company enhanced its presence in the pharmacy market by
acquiring Time-Share Computer Systems, Inc. ("TCS"), in February 1997 and The
Stockton Group, Inc. ("Stockton") in November 1997.
The Company's executive offices are located at 90 Merrick Avenue, Suite
501, East Meadow, New York 11554, and its telephone number is (516) 542-4500.
18
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
offered hereby, assuming an initial public offering price of $14.00 per share,
are estimated to be $45.9 million ($53.0 million if the Underwriters'
over-allotment option is exercised in full), after deducting the estimated
offering fees and expenses payable by the Company. The Company intends to use
the net proceeds from the Offering as follows: (i) approximately $25.2 million
to prepay all then outstanding principal and accrued interest on its outstanding
10% Senior Subordinated Note due February 14, 2002 (the "Senior Subordinated
Note"); (ii) approximately $17.8 million to repay all then outstanding
indebtedness under its current credit facility (the "Credit Facility"); and
(iii) the balance for general corporate and working capital purposes. Cash
realized by the Company upon any exercise of the Underwriters' overallotment
option would be applied to the payment of accrued dividends in lieu of having
such dividends convert into Common Stock. See "Certain Transactions." Pending
application to the foregoing uses, such proceeds will be invested in short-term,
investment-grade, interest-bearing obligations.
Outstanding borrowings under the Credit Facility currently bear interest at
a weighted average rate of 6.93% per annum, are guaranteed by WCAS and WBCP and
mature on October 31, 1999. The Company has received a letter from the lender
under the Credit Facility committing to provide an amended credit facility (the
"Amended Credit Facility") with total available credit of $10.0 million upon
substantially the same terms and conditions as the Credit Facility. Borrowings
under the Amended Credit Facility will not be guaranteed by any third party. It
is anticipated that the Amended Credit facility will take effect upon the
consummation of the Offering. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
DIVIDEND POLICY
The Company has never declared or paid any dividends on its Common Stock
and does not anticipate paying any cash dividends in the foreseeable future.
Moreover, it is expected that the terms of the Amended Credit Facility will
prohibit the Company from paying dividends on the Common Stock. The Company
currently intends to retain any earnings to fund future growth and the operation
of its business. See "Risk Factors -- Absence of Dividends."
19
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
March 31, 1998 on an actual basis and as adjusted to reflect the
Recapitalization and the issuance and sale by the Company of 3,600,000 shares of
Common Stock offered hereby, assuming an initial public offering price of $14.00
per share, after deducting the estimated offering fees and expenses payable by
the Company, and the application of the net proceeds thereof as described under
"Use of Proceeds." The following table should be read in conjunction with the
Consolidated Financial Statements and the notes thereto and the "Unaudited Pro
Forma Consolidated Financial Information" appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1998
-----------------------------
ACTUAL AS ADJUSTED(1)
----------- ---------------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt (including current portion)
Senior Subordinated Note(2) .................. $ 23,250 $ --
Credit Facility(2) ........................... 15,925 --
Other debt ................................... 1,324 1,324
--------- ---------
Total long-term debt ....................... 40,499 1,324
--------- ---------
Redeemable cumulative preferred stock ......... 30,623 --
--------- ---------
Stockholders' (deficit) equity
Common Stock(3) .............................. 57 116
Additional paid-in capital ................... 26,069 102,555
Accumulated deficit .......................... (51,463) (53,309)
--------- ---------
Total stockholders' (deficit) equity ......... (25,337) 49,362
--------- ---------
Total capitalization ......................... $ 45,785 $ 50,686
========= =========
</TABLE>
- ----------
(1) As adjusted to reflect the Recapitalization and the sale of 3,600,000 shares
of Common Stock offered by the Company hereby at an assumed initial public
offering price of $14.00 per share and the anticipated application of the
estimated net proceeds therefrom.
(2) As of June 30, 1998, the outstanding principal amount plus accrued interest
on the Senior Subordinated Note was approximately $25.6 million and the
outstanding indebtedness under the Credit Facility plus accrued interest was
approximately $16.9 million.
(3) Excludes (i) 1,250,000 shares of Common Stock issuable pursuant to the Medic
Warrant and (ii) 483,041 shares of Common Stock reserved for issuance upon
exercise of stock options outstanding under the Stock Plans, as of June 30,
1998, at a weighted average exercise price of $4.84 per share, of which
212,758 are exercisable. See "Prospectus Summary -- Recent Developments" and
"Management-Employee Benefit Plans." Includes 66,375 shares of Common Stock
issuable upon exercise of the Common Stock purchase warrants as contemplated
by the Recapitalization. See "Description of Capital Stock."
20
<PAGE>
DILUTION
The pro forma deficit in net tangible book value of the Company as of March
31, 1998, after giving effect to the Recapitalization, was approximately $(32.4)
million or $(4.08) per share of Common Stock. Pro forma net deficit in tangible
book value per share is determined by dividing the net tangible deficit in book
value of the Company (pro forma tangible assets less total liabilities) by the
number of shares of Common Stock outstanding. Dilution per share represents the
difference between the amount per share paid by purchasers of shares of Common
Stock in the Offering and the pro forma net tangible book value per share of
Common Stock immediately after completion of the Offering. Without taking into
account any changes in such pro forma net tangible book value after March 31,
1998, other than to give effect to (i) the sale of 3,600,000 shares of Common
Stock by the Company in this Offering at an assumed initial public offering
price of $14.00 per share and after deducting the estimated fees and offering
expenses, (ii) the application of the estimated net proceeds therefrom and (iii)
the Recapitalization, the pro forma net tangible book value of the Company as of
March 31, 1998 would have been approximately $11.7 million or $1.02 per share.
This represents an immediate increase in pro forma net tangible book value of
$5.10 per share to existing stockholders and an immediate dilution in pro forma
net tangible book value of $12.98 per share to new investors. The following
table illustrates this dilution on a per share basis.
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share ...................... $ 14.00
Pro forma net tangible book value per share before this Offering(1). $(4.08)
Increase per share attributable to new investors ................... 5.10
------
Pro forma net tangible book value per share after this Offering ...... 1.02
-------
Dilution per share to new investors(2) ............................... $ 12.98
=======
</TABLE>
- ----------
(1) Pro forma net tangible book value per share of Common Stock is determined by
dividing the Company's pro forma deficit in net tangible book value at March
31, 1998 of $(32.4) million, by the pro forma number of shares of Common
Stock outstanding, in each case after giving effect to the Recapitalization.
(2) Dilution per share to new investors is determined by subtracting pro forma
net tangible book value per share after this Offering from the initial
public offering price per share.
The following table sets forth, on a pro forma basis as of March 31, 1998,
after giving effect to the Recapitalization, the number of shares of Common
Stock purchased from the Company, the total consideration paid and the average
price per share paid by existing stockholders (excluding the fair value of
companies contributed in the March 1995 spin-off from CES) and to be paid by new
investors, based on an assumed initial public offering price of $14.00 per share
and before deducting estimated fees and expenses payable by the Company:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------------ -------------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------ --------- -------------- --------- ----------
<S> <C> <C> <C> <C> <C>
Existing stockholders ......... 7,932,917 68.8% $28,325,000 36.0% $ 3.57
New investors ................. 3,600,000 31.2 50,400,000 64.0 14.00
--------- ----- ----------- -----
Total ......................... 11,532,917 100.0% $78,725,000 100.0%
========== ===== =========== =====
</TABLE>
The foregoing tables assume no exercise of any outstanding stock options to
purchase Common Stock. At March 31, 1998 there were 488,497 shares of Common
Stock issuable upon the exercise of stock options outstanding under the
Company's Stock Plans, of which 212,083 were currently exercisable. Such options
have a weighted average exercise price of $4.83 per share. To the extent such
options are exercised, there will be further dilution to the new investors. See
"Capitalization," "Management -- Employee Benefit Plans" and "Description of
Capital Stock."
21
<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.
22
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ACTUAL
---------------------------------------
COMPANY TCS(1) STOCKTON(2)
-------------- ---------- -------------
<S> <C> <C> <C>
Revenues ...................................... $ 35,279 $ 2,743 $ 3,802
Operating expenses:
Operations ................................... 16,817 1,145 563
Sales, marketing and client services ......... 8,769 781 900
Research and development ..................... 3,278 132 103
General and administrative ................... 5,263 93 160
Depreciation and amortization ................ 5,293 90 109
Non-cash stock compensation .................. -- -- 1,280
Contingent consideration paid to former
owners of acquired businesses ............... 2,301 -- --
Acquired in-process research and
development ................................. 4,354 -- --
---------- ------- -------
Total operating expenses ...................... 46,075 2,241 3,115
---------- ------- -------
Income (loss) from operations ................. (10,796) 502 687
Other (income) expense ........................ (893) -- --
Interest expense, net ......................... 1,504 -- 100
---------- ------- -------
Income (loss) before provision for income
taxes ........................................ (11,407) 502 587
Provision for income taxes .................... 57 -- --
---------- ------- -------
Net income (loss) ............................. (11,464) 502 587
Preferred stock dividends ..................... (2,400) -- --
---------- ------- -------
Net income (loss) applicable to common
stockholders ................................. $ (13,864) $ 502 $ 587
========== ======= =======
Basic net loss per common share ............... $ (2.56)
Weighted average common shares
outstanding - Basic .......................... 5,425 -- --
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RECAPITALIZATION
AND ACQUISITIONS PRO OFFERING PRO FORMA,
ADJUSTMENTS FORMA ADJUSTMENTS AS ADJUSTED
------------------ ------------- ----------------- --------------
<S> <C> <C> <C> <C>
Revenues ...................................... $ -- $ 41,824 $ -- $ 41,824
Operating expenses:
Operations ................................... 76 (3) 18,601 -- 18,601
Sales, marketing and client services ......... -- 10,450 -- 10,450
Research and development ..................... -- 3,513 -- 3,513
General and administrative ................... -- 5,516 -- 5,516
Depreciation and amortization ................ 1,627 (4) 7,062 7,062
(57)(5)
Non-cash stock compensation .................. -- 1,280 -- 1,280
Contingent consideration paid to former
owners of acquired businesses ............... -- 2,301 -- 2,301
Acquired in-process research and
development ................................. -- 4,354 -- 4,354
--------- --------- ---------- ----------
Total operating expenses ...................... (1,646) 53,077 -- 53,077
--------- --------- ---------- ----------
Income (loss) from operations ................. (1,646) (11,253) -- (11,253)
Other (income) expense ........................ -- (893) -- (893)
Interest expense, net ......................... 1,583 (6) 3,187 (2,831)(7) 356
--------- --------- ---------- ----------
Income (loss) before provision for income
taxes ........................................ (3,229) (13,547) 2,831 (10,716)
Provision for income taxes .................... -- 57 -- 57
--------- --------- ---------- ----------
Net income (loss) ............................. (3,229) (13,604) 2,831 (8) (10,773)
Preferred stock dividends ..................... 2,400 (9) -- -- --
--------- --------- ---------- ----------
Net income (loss) applicable to common
stockholders ................................. $ (829) $ (13,604) $ 2,831 $ (10,773)
========= ========= ========== ==========
Basic net loss per common share ............... $ (1.18)
Weighted average common shares
outstanding - Basic .......................... 106 (10) 5,531 3,600 (11) 9,131
</TABLE>
23
<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 --
<CAPTION>
RECAPITALIZATION
AND ACQUISITIONS OFFERING PRO FORMA,
ADJUSTMENTS PRO FORMA ADJUSTMENTS AS ADJUSTED
------------------ ------------- ----------------- ------------
<S> <C> <C> <C> <C>
Revenues .................................. $ -- $ 31,835 $ -- $ 31,835
Operating expenses:
Operations ............................... 29 (3) 12,730 -- 12,730
Sales, marketing and client services. -- 8,067 -- 8,067
Research and development ................. -- 2,929 -- 2,929
General and administrative ............... -- 3,468 -- 3,468
Depreciation and amortization ............ 291 (4) 5,156 -- 5,156
(35)(5)
---------
Total operating expenses .................. 285 32,350 -- 32,350
--------- --------- ---------- --------
Income (loss) from operations ............. (285) (515) -- (515)
Other (income) expense .................... -- 13 -- 13
Interest expense (income), net ............ 258 (6) 2,755 (2,889)(7) (134)
--------- --------- ---------- --------
Income (loss) before provision for
income taxes ............................. (543) (3,283) 2,889 (394)
Provision for income taxes ................ -- 37 -- 37
--------- --------- ---------- --------
Net income (loss) ......................... (543) (3,320) 2,889 (8) (431)
Preferred stock dividends ................. 1,800 (9) -- -- --
--------- --------- ---------- --------
Net income (loss) applicable to
common stockholders ...................... $ 1,257 $ (3,320) $ 2,889 $ (431)
========= ========= ========== ========
Basic net loss per common share ........... $ (0.05)
Weighted average common shares
outstanding - Basic ...................... -- 5,677 3,600 (10) 9,277
</TABLE>
24
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
DESCRIPTION OF ACQUISITIONS
The acquisitions of TCS and Stockton were accounted for using the purchase
method of accounting and, accordingly, the net assets acquired have been
recorded at estimated fair value on their respective dates of acquisition
and the historical statement of operations data of the Company reflect the
results of operations of these businesses from their respective dates of
acquisition. The purchase prices and the allocation of the purchase prices
to the acquired assets are as follows:
<TABLE>
<CAPTION>
TCS STOCKTON
---------- ---------
(IN THOUSANDS)
<S> <C> <C>
Cash purchase price ......................... $11,645 $10,674
======= =======
Computer equipment .......................... $ 400 $ 260
Purchased client lists ...................... -- 742
Purchased software and technology ........... 2,619 968
Goodwill .................................... 4,092 8,704
In-process research and development ......... 4,354 --
------- -------
$11,645 $10,674
======= =======
</TABLE>
The Company is also contingently liable for additional consideration of up
to $2,600,000 (plus interest at an annual rate of 7.25%) if Stockton's
revenue during the 12-month period ending September 30, 1998 is at least
$5,000,000. No accrual has been made for the contingent liability as of
March 31, 1998. Such contingent consideration will be treated as additional
purchase price and will, therefore, be added to goodwill when and if it
becomes accruable.
The Stockton purchased client lists are being amortized on a straight-line
basis over five years. The purchased software and technology generally is
being amortized on a straight-line basis over three years for TCS and over
five years for Stockton. Goodwill is being amortized on a straight-line
basis over seven years for the TCS acquisition and over 20 years for the
Stockton acquisition. Computer equipment is being amortized on a
straight-line basis over three years.
(1) Represents the historical results of operations of TCS from July 1, 1996
through the date of acquisition by the Company in February 1997.
(2) Represents the historical results of operations of Stockton from July 1,
1996 through June 30, 1997.
(3) Represents rent expense relating to a new operating lease for the Stockton
facility.
(4) Represents adjustments for amortization expense related to the acquisitions
of TCS and Stockton as if they had occurred July 1, 1996, as follows:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
JUNE 30, 1997 MARCH 31, 1998
-------------------------------- ------------------
TCS STOCKTON TOTAL STOCKTON
------- ---------- --------- ------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Purchased client lists .................... $ -- $ 148 $ 148 $ 55
Purchased software and technology ......... 509 194 703 73
Goodwill .................................. 341 435 776 163
---- ----- ------ -----
$850 $ 777 $1,627 $ 291
==== ===== ====== =====
</TABLE>
(5) Represents the elimination of depreciation and amortization expenses
relating to assets of Stockton that were not acquired.
25
<PAGE>
(6) The interest expense adjustment relating to the TCS and Stockton
acquisitions is as follows:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
JUNE 30, 1997 MARCH 31, 1998
--------------- ------------------
(IN THOUSANDS)
<S> <C> <C>
Elimination of historical interest expense of Stockton ........... $ (111) $ (38)
Interest expense on portion of Senior Subordinated Note used
to fund TCS acquisition including amortization of discount ..... 939 --
Interest expense on borrowings under the Credit Facility used
to fund Stockton acquisition at a composite interest rate of 7.07% (The
effect of a .125% variance in the interest rate on the pro forma
adjustment for the year ended June 30, 1997 and the nine months ended
March 31, 1998 would be $14 and
$5, respectively.).............................................. 755 296
------- ------
$ 1,583 $ 258
======= ======
</TABLE>
(7) The interest expense adjustment relating to the Offering is as follows:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
JUNE 30, 1997 MARCH 31, 1998
--------------- ------------------
(IN THOUSANDS)
<S> <C> <C>
Interest expense on Senior Subordinated Note
including amortization of discount ........... $ (1,992) $ (2,125)
Interest expense on borrowings under the Credit
Facility ..................................... (839) (764)
-------- --------
$ (2,831) $ (2,889)
======== ========
</TABLE>
(8) In connection with the repayment of outstanding indebtedness under the
Credit Facility and the Senior Subordinated Note, the Company will record
an extraordinary charge relating to the elimination of deferred financing
costs associated with the Credit Facility and the write-off of the
remaining discount on the Senior Subordinated Note. Such charge would have
approximated $86,000 as of July 1, 1996, representing solely the write-off
of deferred financing costs associated with the Credit Facility. Such
charge would have approximated $1,846,000 as of March 31, 1998, consisting
of $96,000 relating to the write-off of deferred financing costs associated
with the Credit Facility and $1,750,000 relating to the write-off of the
remaining discount on the Senior Subordinated Note. Such charge has been
excluded from the pro forma statements of operations.
(9) Represents the elimination of the dividends accrued on the Preferred Stock
due to the Recapitalization.
(10) Represents the pro rata portion of Common Stock issued in connection with
the Senior Subordinated Note relating to the TCS acquisition.
(11) Represents the sale by the Company of 3,600,000 shares of Common Stock in
the Offering.
(12) Represents the historical results of operations of Stockton from July 1,
1997 through the date of acquisition by the Company in November 1997.
26
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
AS OF MARCH 31, 1998
-------------------------------
ADJUSTMENTS
RELATING TO THE
ACTUAL RECAPITALIZATION
------------ ------------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents .......................... $ 1,455 $ --
Accounts receivable, less allowance for doubt-
ful accounts ..................................... 7,463 --
Formulary receivables .............................. 1,502 --
Inventory .......................................... 240 --
Prepaid expenses and other current assets .......... 489 --
--------- -----------
Total current assets ............................. 11,149 --
Property and equipment, Net ......................... 4,944 --
Goodwill-Net ........................................ 32,408 --
Other intangible assets-Net ......................... 5,247 --
Other assets ........................................ 431 --
--------- -----------
Total ............................................... $ 54,179 $ --
========= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable ................................... $ 2,753 $ --
Accrued expenses and other current liabilities. 4,880 --
Current portion of long-term debt .................. 240 --
--------- -----------
Total current liabilities ........................ 7,873 --
Long-term debt ...................................... 40,259 --
Other long-term liabilities ......................... 761 --
Redeemable cumulative preferred stock ............... 30,623 (30,623)(1)
Stockholders' equity (deficit): .....................
Common Stock ....................................... 57 22 (1)
1 (2)
Additional paid-in capital ......................... 26,069 30,601 (1)
(1)(2)
Accumulated deficit ................................ (51,463) --
--------- -----------
Total stockholders' equity (deficit) ............. (25,337) 30,623
--------- -----------
Total ............................................... $ 54,179 $ --
========= ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1998
---------------------------------------------
ADJUSTMENTS
RELATING TO PRO FORMA,
PRO FORMA THE OFFERING AS ADJUSTED
----------- -------------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents .......................... $ 1,455 $ 4,280 (3) $ 5,735
Accounts receivable, less allowance for doubt-
ful accounts ..................................... 7,463 -- 7,463
Formulary receivables .............................. 1,502 -- 1,502
Inventory .......................................... 240 -- 240
Prepaid expenses and other current assets .......... 489 -- 489
--------- ------------ ---------
Total current assets ............................. 11,149 4,280 15,429
Property and equipment, Net ......................... 4,944 -- 4,944
Goodwill-Net ........................................ 32,408 -- 32,408
Other intangible assets-Net ......................... 5,247 -- 5,247
Other assets ........................................ 431 (96)(4) 335
--------- ------------ ---------
Total ............................................... $ 54,179 $ 4,184 $ 58,363
========= ============ =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable ................................... $ 2,753 -- $ 2,753
Accrued expenses and other current liabilities. 4,880 (717)(3) 4,163
Current portion of long-term debt .................. 240 384 (4) 624
--------- ------------ ---------
Total current liabilities ........................ 7,873 (333)(3) 7,540
Long-term debt ...................................... 40,259 (40,925)(3) 700
1,366 (4)
Other long-term liabilities ......................... 761 -- 761
Redeemable cumulative preferred stock ............... -- -- --
Stockholders' equity (deficit):
Common Stock ....................................... 80 36 (3) 116
Additional paid-in capital ......................... 56,669 45,886 (3) 102,555
Accumulated deficit ................................ (51,463) (1,846)(4) (53,309)
--------- ------------ ---------
Total stockholders' equity (deficit) ............. 5,286 44,076 49,362
--------- ------------ ---------
Total ............................................... $ 54,179 $ 4,184 $ 58,363
========= ============ =========
</TABLE>
27
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(1) Represents the conversion of outstanding Preferred Stock and $6,627,000 of
accrued dividends on the Preferred Stock into Common Stock in connection
with the Recapitalization.
(2) Represents the exercise of all Common Stock purchase warrants in connection
with the Recapitalization.
(3) Represents the sale by the Company of 3,600,000 shares of Common Stock at an
assumed public offering price of $14.00 per share and the application of the
net proceeds to the Company as follows:
<TABLE>
<S> <C>
PROCEEDS
Gross proceeds from Offering ................................. $ 50,400
Underwriting discount and commissions ........................ (3,528)
Estimated Offering expenses .................................. (950)
---------
Net proceeds ............................................... 45,922
---------
USES
Repay Senior Subordinated Note ............................... (25,000)
Repay borrowings under the Credit Facility ................... (15,925)
Repay accrued interest on Senior Subordinated Note and borrow-
ings under the Credit Facility ............................. (717)
---------
Total uses ................................................. (41,642)
---------
Excess proceeds ............................................ $ 4,280
=========
</TABLE>
(4) Represents a $96,000 decrease in other assets relating to the elimination of
deferred financing costs associated with the Credit Facility and the
write-off of the remaining discount on the Senior Subordinated Note of
$1,750,000, both of which will be recorded as extraordinary items upon the
consummation of the Offering.
28
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The statement of operations data presented below for the years ended June
30, 1995, 1996 and 1997 and the nine months ended March 31, 1998 and the balance
sheet data as of June 30, 1996 and 1997 and March 31, 1998, are derived from,
and qualified by reference to, the audited consolidated financial statements of
the Company included elsewhere herein. The balance sheet data as of June 30,
1995 and March 31, 1997 are derived from, and qualified by reference to, the
respective audited and unaudited consolidated financial statements of the
Company not included herein. The statement of operations data for the nine month
period ended March 31, 1997 is derived from the unaudited consolidated financial
statements of the Company included elsewhere herein. In the opinion of
management, the unaudited consolidated financial statements have been prepared
on the same basis as the audited consolidated financial statements and include
all adjustments, consisting only of normal recurring adjustments necessary for a
fair presentation of the financial position and results of operations for such
period. The results for the nine month period ended March 31, 1998 are not
necessarily indicative of the results to be expected for the related full fiscal
year. The selected consolidated financial data should be read in conjunction
with, and is qualified in its entirety by, the Consolidated Financial Statements
of the Company, the notes thereto and the other financial information included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------------------
1995 1996 1997
---------------- ---------------- ------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues(1) .......................................... $ 16,246 $ 31,768 $ 35,279
Operating expenses:
Operations .......................................... 9,753 19,174 16,817
Sales, marketing and client services ................ 3,615 7,064 8,769
Research and development ............................ 2,051 2,132 3,278
General and administrative .......................... 3,119 6,059 5,263
Depreciation and amortization ....................... 2,995 5,176 5,293
Write-down of intangible assets ..................... 8,191 (2) 9,965 (3) --
Acquired in-process research and development (4).. -- -- 4,354
Other charges (5) ................................... 2,864 538 2,301
--------- --------- ---------
Total operating expenses ............................. 32,588 50,108 46,075
--------- --------- ---------
Loss from operations ................................. (16,342) (18,340) (10,796)
Other (income) expense ............................... -- 313 (893)
Interest expense, net ................................ 189 584 1,504
--------- --------- ---------
Loss before provision for income taxes ............... (16,531) (19,237) (11,407)
Provision for income taxes ........................... 70 93 57
--------- --------- ---------
Net loss ............................................. (16,601) (19,330) (11,464)
Preferred stock dividends ............................ (27) (2,400) (2,400)
--------- --------- ---------
Net loss applicable to common stockholders ........... $(16,628) $(21,730) $ (13,864)
========= ========= =========
Basic net loss per common share ...................... $ (3.17) $ (4.14) $ (2.56)(6)
Weighted average common shares outstanding-Basic ..... 5,238 5,245 5,425
<CAPTION>
NINE MONTHS
ENDED MARCH 31,
-------------------------------
1997 1998
------------ ------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues(1) .......................................... $ 24,964 $ 30,189
Operating expenses:
Operations .......................................... 12,104 12,485
Sales, marketing and client services ................ 6,143 7,769
Research and development ............................ 2,455 2,886
General and administrative .......................... 3,340 3,307
Depreciation and amortization ....................... 3,502 4,846
Write-down of intangible assets ..................... -- --
Acquired in-process research and development (4).. 4,354 --
Other charges (5) ................................... 990 --
-------- ---------
Total operating expenses ............................. 32,888 31,293
-------- ---------
Loss from operations ................................. (7,924) (1,104)
Other (income) expense ............................... (885) 13
Interest expense, net ................................ 779 2,470
-------- ---------
Loss before provision for income taxes ............... (7,818) (3,587)
Provision for income taxes ........................... 43 37
-------- ---------
Net loss ............................................. (7,861) (3,624)
Preferred stock dividends ............................ (1,800) (1,800)
-------- ---------
Net loss applicable to common stockholders ........... $ (9,661) $ (5,424)
======== =========
Basic net loss per common share ...................... $ (1.81) $ (0.96)(6)
Weighted average common shares outstanding-Basic ..... 5,345 5,677
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AS OF JUNE 30, AS OF MARCH 31,
----------------------------------------- --------------------------
1995 1996 1997 1997 1998
--------- ------------- ------------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital ................................... $ 504 $ (4,207) $ (2,567) $ (546) $ 3,276
Total assets ...................................... 59,511 43,031 45,459 47,784 54,179
Long-term debt, including current portion ......... 5,805 11,601 25,161 25,278 40,499
Redeemable cumulative preferred stock ............. 24,023 26,423 28,823 28,223 30,623
Stockholders' equity (deficit) .................... 12,942 (8,472) (20,069) (15,916) (25,337)
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED JUNE 30, ENDED MARCH 31,
--------------------------------------------- ---------------------------
1995 1996 1997 1997 1998
------------- ------------- ------------- ------------- -----------
(IN THOUSANDS, EXCEPT PER TRANSACTION DATA)
<S> <C> <C> <C> <C> <C>
OTHER DATA:
EBITDA (7) ..................................... $ (13,347) $ (13,164) $ (5,503) $ (4,422) $ 3,742
Adjusted EBITDA (7) ............................ (2,292) (2,052) 2,211 922 3,742
Cash flows from operating activities ........... (3,561) (1,653) (4,020) (2,991) (3,842)
Cash flows from investing activities ........... (22,074) (4,919) (12,221) (11,630) (11,630)
Cash flows from financing activities ........... 33,434 657 15,521 15,818 15,008
Transactions processed(8)
Pharmacy ...................................... -- 107,032 126,201 88,463 136,685
Medical ....................................... -- 16,030 23,085 14,921 23,514
Dental ........................................ -- 6,021 12,188 8,759 10,767
--------- --------- --------- --------- ---------
Total transactions processed ................. -- 129,083 161,474 112,143 170,966
Transactions per FTE (8)(9) .................... -- 322 415 293 478
Revenue per FTE (9) ............................ $ 48 $ 79 $ 91 $ 65 $ 84
Operating expenses per transaction (8) ......... -- 0.39 0.29 0.29 0.18
</TABLE>
- ----------
(1) During the periods presented, the Company made a series of acquisitions and
divested certain non-core or unprofitable operations. Revenues attributable
to these divested operations, which are included in the statement of
operations data, were $1,595,000, $3,517,000, $2,252,000, $1,941,000 and
$241,000 in the fiscal years ended June 30, 1995, 1996 and 1997 and the nine
months ended March 31, 1997 and 1998, respectively.
(2) Reflects the write-off of goodwill related to the acquisitions of MPC and
Wellmark.
(3) Reflects the write-down of costs relating to client lists and related
allocable goodwill obtained in the acquisition of MEDE OHIO.
(4) Reflects the write-off of acquired in-process research and development costs
upon the consummation of the TCS acquisition.
(5) Reflects: (i) expenses recorded relating to contingent consideration paid to
former owners of acquired businesses of $538,000, $2,301,000, and $990,000
in the fiscal years ended June 30, 1996 and 1997 and the nine months ended
March 31, 1997, respectively; and (ii) expenses of $2,864,000 relating to
the spin-off of the Company by CES in the fiscal year ended June 30, 1995.
(6) Supplemental net loss per share, giving effect to the Recapitalization,
would be $(1.55) and $(0.47) for the fiscal year ended June 30, 1997 and the
nine months ended March 31, 1998, respectively.
(7) EBITDA represents net income (loss) plus provision for income taxes, net
interest expense, other (income) expense and depreciation and amortization.
EBITDA is not a measurement in accordance with GAAP and should not be
considered an alternative to, or more meaningful than, earnings (loss) from
operations, net earnings (loss) or cash flow from operations as defined by
GAAP or as a measure of the Company's profitability or liquidity. Not all
companies calculate EBITDA in the same manner and, accordingly, EBITDA shown
herein may not be comparable to EBITDA shown by other companies. The Company
has included information concerning EBITDA herein because management
believes EBITDA provides useful information. Adjusted EBITDA represents
EBITDA plus certain other charges as described below. The following table
summarizes EBITDA and adjusted EBITDA for all periods presented:
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED JUNE 30, ENDED MARCH 31,
------------------------------------------ ------------------------
1995 1996 1997 1997 1998
-------------- -------------- ------------ ------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
EBITDA ............................................... $ (13,347) $ (13,164) $ (5,503) $ (4,422) $ 3,742
Contingent consideration paid to former owners of ac-
quired businesses ................................... -- 538 2,301 990 --
Write-down of intangible assets ...................... 8,191 9,965 -- -- --
Acquired in-process research and development ......... -- -- 4,354 4,354 --
Expenses related to the CES spin-off ................. 2,864 -- --
Contract and legal settlement provisions ............. -- 609 1,059 -- --
---------- ---------- -------- --------- -------
Adjusted EBITDA ...................................... $ (2,292) $ (2,052) $ 2,211 $ 922 $ 3,742
========== ========== ======== ========= =======
</TABLE>
- ----------
(8) Transaction volumes are not available for the fiscal year ended June 30,
1995.
(9) Full-time equivalents ("FTE") represents the number of full-time employees
and part-time equivalents of full-time employees as of the end of the period
shown.
30
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the financial
statements, including the notes thereto, of the Company included elsewhere in
this Prospectus. This Prospectus contains forward-looking statements relating to
future events or future financial performance of the Company. Prospective
investors are cautioned that any such forward-looking statements are not
guarantees of future performance and involve risks and uncertainties. Actual
events or results may differ materially from those discussed in the
forward-looking statements as a result of various factors, including the risk
factors set forth under "Risk Factors" and the matters set forth in this
Prospectus generally.
OVERVIEW
MEDE AMERICA is a leading provider of EDI products and services to a broad
range of providers and payors in the healthcare industry. The Company's
integrated suite of EDI solutions and services allows hospitals, pharmacies,
physicians, dentists and other healthcare providers and provider groups to
electronically edit, process and transmit claims, eligibility and enrollment
data, track claims submissions throughout the claims payment process and obtain
faster reimbursement for their services. Currently, the Company processes over
900,000 transactions per day for over 65,000 providers located in all 50 states.
The Company was formed in March 1995 through the consolidation and
subsequent spin-off of three subsidiaries of CES, in connection with the
acquisition by First Data Corporation of CES' credit card processing business.
The three subsidiaries, MedE America, Inc., MPC and Wellmark, which comprised
the heathcare services business of CES, historically provided EDI services to
hospitals and physicians. Their combined financial results are reflected in the
fiscal 1995 financial statements on a full year basis.
Since its formation, the Company has expanded both through internal growth
and the acquisition of five healthcare transaction processing businesses. As
part of its strategy of providing an integrated suite of EDI products to a broad
range of healthcare providers, the Company has focused on acquisitions that
provided entry into new markets or expanded the Company's product suite. All
acquisitions have been accounted for under the purchase method of accounting.
The Company has actively pursued the integration of its acquisitions and, in the
process, has either divested, closed or modified various operations of the
acquired entities in order to eliminate non-core or redundant operations and
achieve cost savings and operating efficiencies. These integration activities
impacted the Company's financial results in the fiscal years ended June 30,
1995, 1996 and 1997 and the nine months ended March 31, 1998 and are ongoing.
31
<PAGE>
The following table summarizes the Company's acquisitions and divested
products and operations:
<TABLE>
<CAPTION>
PRIMARY PRODUCTS DIVESTED PRODUCTS
DATE OF FOUNDING/ OF FOUNDING/ DATE
FOUNDING COMPANIES ACQUIRED MARKET ACQUIRED COMPANY ACQUIRED COMPANY DIVESTED
<S> <C> <C> <C> <C> <C>
4/94(1) Medical Eligibility Verification, -- --
MedE America, Inc. 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 $25,814,000, consisting of $892,000 of software,
$2,527,000 of client lists and $22,395,000 of goodwill. During fiscal year 1996,
the Company wrote-down $9,965,000 of costs relating to client lists and related
allocable goodwill due to a loss of approximately 25% of the acquired MEDE OHIO
client base. The loss of this significant portion of MEDE OHIO's client base was
primarily due to problems experienced by the Company in the post-merger
integration of MEDE OHIO's operations into the Company's operations. This
post-merger integration process took place during the same general time period
in which the Company was spun-off from CES and a new management team was
installed at the Company. The Company generally is amortizing the software over
three years and the remaining value of client lists is being amortized over five
years. The goodwill is being amortized over 20 years.
In June 1995, the Company acquired substantially all of the assets of
Latpon for a cash purchase price of approximately $2,470,000, plus the
assumption of approximately $963,000 of liabilities (primarily long-term debt).
Latpon, a developer of claims processing software, provided EDI transaction
processing services to hospitals and hospital-based physician groups. Latpon
also provided electronic and manual business office administrative services. The
acquisition was accounted for under the purchase method and the Company recorded
total intangible assets of $2,291,000, consisting of $993,000 of software and
client lists and $1,298,000 of goodwill. The Company generally is amortizing the
software over five years and is amortizing the client lists and goodwill over
five years and 20 years, respectively.
32
<PAGE>
In October 1995, the Company acquired two commonly-owned companies, EC&F,
an all payor EDI dental claims processor, and Premier, a dental practice
management software vendor. The acquisitions were funded with an initial cash
payment of $4,050,000, including transaction expenses, and contingent earnout
payments based on the achievement of certain EBITDA growth targets by the EC&F
business over three one-year periods ending on September 30, 1998. The Company
recorded expenses of $538,000 during fiscal year 1996 relating to the first such
period and an aggregate $2,301,000 during fiscal year 1997 primarily relating to
the second and third such periods. The Company does not believe that any
additional amounts will be payable pursuant to this earn-out arrangement. The
acquisitions of EC&F and Premier were accounted for under the purchase method
and the Company recorded total intangible assets of $4,350,000, consisting of
$764,000 of software, and $3,586,000 of goodwill. The Company generally is
amortizing the software over three years and is amortizing the goodwill over 20
years. The Company sold Premier in January 1997 for a cash payment of $388,000.
There was no gain or loss on the sale of Premier.
In February 1997, the Company acquired TCS, a provider of pharmacy
switching and PBM transaction processing systems and services for pharmacies and
eligibility verification services for physicians, for a total cash payment of
$11,465,000, including transaction expenses. The acquisition was accounted for
under the purchase method and the Company recorded total intangible assets of
$11,065,000, consisting of $4,354,000 of in-process research and development,
$2,619,000 of software and $4,092,000 of goodwill. As of the date of the
acquisition, the Company wrote off the acquired in-process research and
development which had not reached technological feasibility and had no
alternative future use. The Company generally is amortizing the software over
three years and is amortizing the goodwill over seven years.
The in-process research and development acquired from TCS consisted of
advanced Windows software technology for PC and client server platforms for
healthcare EDI transactions. Products under development included: (1) a plan
member eligibility verification for workers compensation; (2) medical claims
processing system to meet the HCFA 1500 EDI standard; and (3) a switching system
for internet claims from retail pharmacies. At the time of the acquisition, the
Company estimated that continued development activities for six months to one
year resulting in additional estimated research and development costs of
$460,000 would be required in order to prove feasibility and bring the project
to commercial viability. It was the opinion of management that such projects had
an above average probability of successful completion and could contribute to
revenue, profit and cash flow within 18 to 24 months from the date of purchase.
At this time, all three projects are substantially complete. However, any or all
of these projects could fail to produce an economic gain. Such failure, if
encountered, would not affect the Company's current product suite and financial
results, but would decrease the Company's opportunities for growth. Estimated
costs to complete the acquired in-process research and development projects as
of the date of acquisition were as follows:
ESTIMATED RESEARCH AND DEVELOPMENT EXPENSE (IN THOUSANDS)
<TABLE>
<CAPTION>
WORKERS COMP. HCFA 1500 PHARMACY TOTAL
--------------- ----------- ---------- ------
<S> <C> <C> <C> <C>
Fiscal 1997 .......... $ 58 $ 70 $ 65 $193
Fiscal 1998 .......... 80 97 90 267
---- ---- ---- ----
Total ............... $138 $167 $155 $460
==== ==== ==== ====
</TABLE>
In November 1997, the Company acquired Stockton, a provider of PBM
transaction processing systems and related services for the pharmacy market.
Stockton was purchased for an initial cash payment of $10,674,000 including
transaction expenses, and a contingent earnout payment based upon the
achievement of certain revenue growth targets. If such revenue targets are
achieved over the 12-month period ending September 30, 1998, a maximum payment
of $2,600,000 (plus interest at an annual rate of 7.25%) will be made in
December 1998. Such additional consideration will be treated as additional
purchase price and will, therefore, be added to goodwill when and if it becomes
accruable. The acquisition was accounted for under the purchase method and the
Company recorded total intangible assets of
33
<PAGE>
$10,414,000, consisting of $1,710,000 of software and client lists and
$8,704,000 of goodwill. The Company generally is amortizing the software over
five years and is amortizing the client lists and goodwill over five years and
20 years, respectively.
Revenues
Revenues are derived from the sale of transaction processing products and
services primarily on a fee-for-transaction basis. Transaction fees vary
depending upon transaction type and service provided. The Company currently
receives fees from providers for the majority of its transactions including
claims processing, eligibility verification, claims switching, pharmacy script
processing and tracking and Medicaid enrollment. The Company also receives fees
from payors for the transmission of electronic claims and formulary payments
from pharmaceutical manufacturers relating to the Company's PBM script
processing and management reporting services. These transaction-based revenues
comprise the predominant portion of the Company's total revenues and tend to be
recurring. Other revenue is derived from one-time payments related to
installation and implementation services, software license fees and EDI systems
equipment sales. See "Business -- Suite of EDI Products and Services."
Transaction-based revenues and related formulary services revenues (if
applicable), which constitute the majority of the Company's total revenues, are
recognized at the time the transactions are processed and the services are
provided. Revenues associated with software support and implementation fees,
each constituting less than 3% of the Company's revenues for the nine months
ended March 31, 1998, are recognized ratably over the contract period or as the
service is provided. Revenue from licensing of software, which also constitutes
less than 3% of the Company's total revenues for the nine months ended March 31,
1998, is recognized upon installation if it is determined that the Company has
no significant remaining obligations and collectibility of the resulting
receivable is probable.
Operating Expenses
Operations Expense. Operations expense consists of data and voice
telecommunications expense, salaries and benefits for operations employees and
other costs associated with transaction processing and services provided to
clients, such as network and telecommunications, maintenance, computer
operations and systems administration, facilities and other additional indirect
expenses. Since 1996, operations expense as a percentage of revenues and
operations expense per transaction have declined as a result of the Company's
integration and restructuring efforts and increased operating leverage.
Restructuring charges recorded in connection with the Company's integration
activities have resulted in variability in the Company's quarterly operating
results.
Sales, Marketing and Client Services Expense. Sales, marketing and client
services expense consists primarily of salaries, benefits, commissions and
related indirect costs and expenditures for marketing programs, trade shows,
advertising, help desk software and related client communications. As the
Company continues to implement its growth strategy, sales, marketing and client
services expenses are expected to continue to increase.
Research and Development Expense. Research and development expense consists
primarily of salaries, benefits and related indirect expenses associated with
the design, research and development of new products and enhancements to
existing current products. The development of new software products and
enhancements to existing software products are expensed as incurred until
technological feasibility has been established. After technological feasibility
has been established, any additional software development costs are capitalized
in accordance with Statement of Financial Accounting Standards ("SFAS") No. 86,
"Accounting For the Cost of Computer Software To Be Sold, Leased or Otherwise
Marketed." Amortization of purchased software and technology and of capitalized
software development costs is provided on a product-by-product basis at the
greater of the amount computed using (a) the ratio of current revenues for a
product to the total of current and anticipated future revenues or (b) the
straight-line method over the remaining estimated economic life of the product.
Generally, an original estimated economic life of three to five years is
assigned to purchased software and technology and an original estimated economic
life of five years is assigned to capitalized software development costs.
Amortization begins in the period in which the related product is available for
general release to customers. During
34
<PAGE>
the nine months ended March 31, 1998, the Company capitalized $319,000 of
software development costs on a project for which technological feasibility had
been established but was not yet available for client release. Prior to July 1,
1997, the Company did not have any software development projects for which
significant development costs were incurred between the establishment of
technological feasibility and general client release of the product. The Company
believes that the development of enhanced and new product offerings are
essential to remaining competitive and it expects that development expenses will
increase in the future.
General and Administrative Expense. General and administrative expense
primarily consists of salaries, benefits and related indirect costs for the
administrative, executive, finance, legal, human resources and internal systems
personnel, as well as accounting and legal fees. As the Company implements its
growth strategy, general and administrative expenses are expected to increase.
Depreciation and Amortization Expense. The Company depreciates the cost of
its tangible capital assets on a straight-line basis over the estimated economic
life of the asset: three to five years for computer equipment, five years for
furniture and fixtures, and 20 to 25 years for buildings and improvements.
Acquisition-related intangible assets, which include the value of software and
client lists, are amortized based on the estimated useful economic life of the
asset at the time of acquisition, and therefore will vary among acquisitions.
The Company recorded amortization expense relating to goodwill and other
intangible assets of $3,541,000 and $3,389,000 during the fiscal year ended June
30, 1997 and the nine months ended March 31, 1998, respectively.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain items
from the consolidated statements of operations of the Company expressed as a
percentage of total revenues.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED JUNE 30, MARCH 31,
------------------------------ ------------------
1995 1996 1997 1997 1998
-------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
Revenues ...................................... 100% 100% 100% 100% 100%
Operating Expenses:
Operations ................................... 60 60 48 48 41
Sales, marketing and client services ......... 22 22 25 25 26
Research and development ..................... 13 7 9 10 10
General and administrative ................... 19 19 15 13 11
Depreciation and amortization ................ 18 16 15 14 16
</TABLE>
NINE MONTHS ENDED MARCH 31, 1998 COMPARED TO NINE MONTHS ENDED MARCH 31, 1997
Revenues
Revenues for the nine months ended March 31, 1998 were $30.2 million
compared to $25.0 million in the corresponding period of fiscal 1997,
representing an increase of 21%. The increase was primarily attributable to
incremental revenue from the acquisitions of TCS and Stockton in February 1997
and November 1997, respectively, partially offset by the loss of revenues from
operations that were divested. The increase was also due to the growth of the
existing business.
The Company processed 171 million transactions in the nine months ended
March 31, 1998, compared to 112 million transactions processed in the
corresponding period of fiscal 1997, representing an increase of 52%. The
increase resulted from the addition of new clients, increased transaction volume
from existing clients and the acquisitions of TCS and Stockton. The average
price per transaction received by the Company declined by 13% between such
periods, as a result of the greater proportion of transactions processed under
contracts with volume-based terms and pricing and a larger proportion of lower
priced eligibility verification transactions as a result of the acquisition of
TCS.
35
<PAGE>
Operating Expenses
Operations expense was $12.5 million for the nine months ended March 31,
1998 compared to $12.1 million in the corresponding period of fiscal 1997,
representing an increase of 3%. As a percentage of revenues, operations expense
decreased from 48% for the first nine months of fiscal 1997 to 41% in the
corresponding period of fiscal 1998. The containment of operations expense in
the nine months ended March 31, 1998 was a result of ongoing cost reduction
programs, systems consolidation for recent acquisitions and the impact of the
divested operations, which results are included in the 1997 period but not the
1998 period.
Sales, marketing and client services expense was $7.8 million for the nine
months ended March 31, 1998 compared to $6.1 million in the corresponding period
of fiscal 1997, representing an increase of 26%. As a percentage of revenues,
sales, marketing and client services expense increased from 25% for the first
nine months of fiscal 1997 to 26% in the corresponding period of fiscal 1998.
This increase was primarily due to the inclusion of TCS and Stockton in the
results of operations for the nine months ended March 31, 1998 and, to a lesser
extent, increases in expenses relating to the hiring of new employees for client
support and help desk service, the installation of help desk tracking software
and resources devoted to telesales.
Research and development expense was $2.9 million for the nine months ended
March 31, 1998 compared to $2.5 million in the corresponding period of fiscal
1997, representing an increase of 18%. As a percentage of revenues, research and
development expense was 10% for each such period. The Company capitalized
$319,000 of software development costs in the first nine months of 1998,
however, no software development costs were capitalized in the corresponding
period of fiscal 1997. Prior to July 1, 1997, the Company did not have any
software development projects for which significant development costs were
incurred between the establishment of technological feasibility and general
client release of the product.
General and administrative expense was $3.3 million for the nine months
ended March 31, 1998 and the corresponding period of fiscal 1997. As a
percentage of revenues, general and administrative expense decreased from 13%
for the first nine months of fiscal 1997 to 11% in the corresponding period of
fiscal 1998. This decrease was primarily a result of cost controls and the
consolidation and integration activities related to the Company's recent
acquisitions.
Depreciation and amortization expense was $4.8 million for the nine months
ended March 31, 1998 compared to $3.5 million in the corresponding period of
fiscal 1997, representing an increase of 38%. As a percentage of revenues,
depreciation and amortization expense increased from 14% for the first nine
months of fiscal 1997 to 16% in the corresponding period of fiscal 1998. This
increase was primarily attributable to the increased amortization expense
related to the acquisitions of TCS in February 1997 and Stockton in November
1997.
There were no acquisition-related expenses for the nine months ended March
31, 1998, as compared to $5.3 million of such expenses in the corresponding
period of fiscal 1997. Included in the amount for the prior period is a $4.4
million write-off related to in-process research and development from the
acquisition of TCS (for software that had not achieved technological feasibility
and had no alternative use), and a contingent earnout charge of $990,000
recorded by the Company in connection with the EC&F purchase agreement. In
addition, in the nine months ended March 31, 1997, the Company recorded a gain
of $885,000 from a sale of securities. See Note 12 of "Notes to Consolidated
Financial Statements."
YEAR ENDED JUNE 30, 1997 COMPARED TO JUNE 30, 1996
Revenues
Revenues for the fiscal year ended June 30, 1997 were $35.3 million
compared to $31.8 million in fiscal 1996, representing an increase of 11%. The
increase was primarily attributable to revenue from the acquisition of TCS in
February 1997, partially offset by the loss of revenues from operations that
were divested. The increase was also due to the growth of the existing business.
36
<PAGE>
The Company processed 161 million transactions in the fiscal year ended
June 30, 1997 compared to 129 million transactions processed in fiscal 1996,
representing an increase of 25%. The increase resulted from the addition of new
clients, the growth of business from existing clients and the TCS acquisition.
The average price per transaction in fiscal 1997 declined by 4% from fiscal
1996, primarily as a result of the divested operations having higher claims
pricing.
Operating Expenses
Operations expense was $16.8 million for the fiscal year ended June 30,
1997 compared to $19.2 million in fiscal 1996, representing a decrease of 12%.
As a percentage of revenues, operations expense decreased from 60% during the
first nine months of 1996 to 48% in fiscal 1996. The operations expense
improvement was a result of ongoing cost reduction programs, systems
consolidation for recent acquisitions and the divestitures of non-core or
unprofitable operations.
Sales, marketing and client services expense was $8.8 million for the
fiscal year ended June 30, 1997 compared to $7.1 million in fiscal 1996,
representing an increase of 24%. As a percentage of revenues, sales, marketing
and client service expense increased from 22% in fiscal 1996 to 25% in fiscal
1997. This increase was primarily due to the inclusion of the TCS acquisition in
the results for five months and, to a lesser extent, to the addition of client
support personnel and the increase in help desk tracking software expenses.
Research and development expense was $3.3 million for the fiscal year ended
June 30, 1997 compared to $2.1 million in fiscal 1996, representing an increase
of 54%. As a percentage of revenues, research and development expense increased
from 7% in fiscal 1996 to 9% in fiscal 1997. This increase in research and
development expense was due to the hiring of new employees and other expenses
related to the expansion of the Company's processing capacity and the
implementation of new technology processing platforms throughout its data
processing centers.
General and administrative expense was $5.3 million for the fiscal year
ended June 30, 1997 compared to $6.1 million in fiscal 1996, representing a
decrease of 13%. As a percentage of revenues, general and administrative expense
decreased from 19% in fiscal 1996 to 15% in fiscal 1997. This decrease was
primarily a result of consolidation and integration activities.
Depreciation and amortization expense was $5.3 million for fiscal year
ended June 30, 1997 compared to $5.2 million in fiscal 1996, representing an
increase of 2%. As a percentage of revenues, depreciation and amortization
expense decreased from 16% in fiscal 1996 to 15% in fiscal 1997.
Acquisition-related expenses for the fiscal year ended June 30, 1997
included a $4.4 million write-off related to in-process research and development
from the acquisition of TCS (for software that had not achieved technological
feasibility and had no alternative use), and a contingent earnout charge of $2.3
million recorded by the Company in connection with the EC&F purchase agreement.
In addition, in the nine months ended March 31, 1997, the Company recorded a
gain of $885,000 from a sale of securities. See Note 12 of "Notes to
Consolidated Financial Statements."
YEAR ENDED JUNE 30, 1996 COMPARED TO JUNE 30, 1995
Revenues
Revenues for the fiscal year ended June 30, 1996 were $31.8 million
compared to $16.2 million in fiscal 1995, representing an increase of 96%. The
increase in revenues was primarily attributable to the inclusion of MEDE OHIO
results for the full 12 months in fiscal 1996, compared to nearly four months in
fiscal 1995, the acquisition of Latpon in June 1995 and the acquisition of EC&F
and Premier in October 1995.
Operating Expenses
Operations expense was $19.2 million in the fiscal year ended June 30, 1996
compared to $9.8 million in fiscal 1995, representing an increase of 97%. As a
percentage of revenues, operations expense was 60% for both periods.
37
<PAGE>
Sales, marketing and client services expense was $7.1 million in the fiscal
year ended June 30, 1996 compared to $3.6 million in fiscal 1995, representing
an increase of 95%, reflecting the impact of acquisitions. As a percentage of
revenues, sales, marketing and client services expense was 22% for both periods.
Research and development expense was $2.1 million for each of the fiscal
years ended June 30, 1996 and 1995. As a percentage of revenues, research and
development expense decreased from 13% in fiscal 1995 to 7% in fiscal 1996. This
decrease in research and development expense as a percentage of revenues
resulted from the inclusion of MEDE OHIO and EC&F in the Company's operations.
Their products tended to be less development intensive.
General and administrative expense was $6.1 million in the fiscal year
ended June 30, 1996 compared to $3.1 million in fiscal 1995, representing an
increase of 94%, reflecting the impact of acquisitions. As a percentage of
revenues, general and administrative expense was 19% for both periods.
Depreciation and amortization expense was $5.2 million in the fiscal year
ended June 30, 1996 compared to $3.0 million in fiscal 1995, representing an
increase of 73%. As a percentage of revenues, depreciation and amortization
expense decreased from 18% in fiscal 1995 to 16% in fiscal 1996. The increase in
depreciation and amortization expense was predominantly attributable to
amortization related to three acquisitions treated under purchase accounting:
MEDE OHIO in March 1995; Latpon in June 1995 and EC&F/Premier in October 1995.
During the fiscal year ended June 30, 1996, the Company wrote down
approximately $10.0 million of costs relating to client lists and related
allocable goodwill obtained in the acquisition of MEDE OHIO. Such intangible
assets were written down to the net present value of the estimated future cash
flows to be derived from these clients as of June 30, 1996. The write-down was
required due to a loss of approximately 25% of the acquired MEDE OHIO client
base. In addition, a contingent earnout charge of $538,000 was recorded in
connection with the EC&F purchase agreement during the fiscal year ended June
30, 1996.
38
<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 370,993 shares of Common Stock from the Company for an
aggregate $25.0 million, which was used in connection with the acquisition of
TCS, to repay borrowings under the Credit Facility and for general working
capital purposes. See "Certain Transactions."
As of March 31, 1998, the Company had outstanding borrowings of $15,925,000
under the Credit Facility. Such borrowings currently bear interest at a weighted
average rate of 7.07% per annum. The total availability under the Credit
Facility is $20.0 million. See "Certain Transactions." All indebtedness under
the Credit Facility has been, and currently is, guaranteed by the Company's four
principal stockholders. The Company has received a letter from the lender under
the Credit Facility committing to provide an amended credit facility with total
available credit of $15.0 million. This facility would be comprised of a $7.5
million term loan to be used for acquisitions and a $7.5 million revolving
credit loan to be used for working capital purposes, each with a maximum term of
two years from October 31, 1998. Interest for the term and revolver loans is
computed at .25% above the bank's base rate, or 1.25% above a Eurodollar based
rate. Such borrowing rates are at the option of the Company for any particular
period during which borrowings exist. Covenants under the existing agreement
include: customary covenants and restrictions on additional liabilities and
disposition of assets, achieving year 2000 compliance by August 1999,
maintaining financial records and reporting, a maximum quarterly leverage ratio,
a minimum interest coverage ratio, as well as prior approval for acquisitions.
Borrowings under the Amended Credit Facility will not be guaranteed by any third
39
<PAGE>
party, but will be secured by substantially all the Company's assets, including
the stock of the Company's subsidiaries. The Amended Credit Facility will
contain restrictions on the payment of dividends on the Common Stock. See
"Dividend Policy." It is anticipated that the Amended Credit Facility will take
effect upon the consummation of the Offering.
As of March 31, 1998, the Company had cash and cash equivalents of $1.5
million and net working capital of $3.3 million. Net cash used in operations was
$1.7 million, $4.0 million and $3.8 million for the fiscal years ended June 30,
1996 and 1997 and the nine months ended March 31, 1998, respectively. The $3.8
million net cash used in operations for the nine months ended March 31, 1998 was
used primarily for contingent earnout charges on acquisitions made in prior
fiscal years, and other accounts payable and accrued expenses totaling $3.7
million. In addition, $1.1 million of the net cash used was attributable to an
increase in formulary accounts receivable relating to Stockton (formulary
receivables normally have a 7-12 month collection cycle).
Cash used for investment purposes was $4.9 million, $12.2 million and $11.6
million for the fiscal years ended June 30, 1996 and 1997 and the nine months
ended March 31, 1998, respectively. Cash used for investment purposes during the
nine months ended March 31, 1998 was primarily used to acquire Stockton for
$10.7 million and also to fund capital expenditures (predominantly computer and
network hardware and software) in the amount of $646,000. The Company expects to
spend at least $2.0 million per annum for the foreseeable future for capital
investment to support growth in transaction processing.
Cash provided by financing activities was $657,000, $15.5 million and $15.0
million for the fiscal years ended June 30, 1996 and 1997 and the nine months
ended March 31, 1998, respectively. Cash provided by financing activities during
the nine months ended March 31, 1998 was primarily provided from borrowings
under the Credit Facility which was partially offset by principal repayments of
debt and capital lease obligations. In the fiscal year ended June 30, 1997, cash
was provided by the issuance of a Senior Subordinated Note in the principal
amount of $25,000,000 and 370,993 shares of Common Stock for aggregate proceeds
of $25.0 million, which proceeds were partially offset by the repayment of
outstanding borrowings under the Credit Facility and principal repayments of
debt and capital lease obligations.
Approximately $43.0 million of the proceeds of the Offering will be applied
to the repayment of the Company's outstanding indebtedness under the Credit
Facility and the Senior Subordinated Note. In connection with the repayment of
outstanding indebtedness under the Credit Facility and the Senior Subordinated
Note, the Company will record an extraordinary charge of approximately $1.7
million relating to the elimination of deferred financing costs associated with
the Credit Facility and the write-off of the remaining discount on the Senior
Subordinated Note. The Company expects to use the Amended Credit Facility to
finance the Company's future acquisitions and general working capital needs. The
Company also expects to finance acquisitions through the issuance of additional
equity and debt securities. The Company believes that the proceeds of the
Offering, together with existing cash balances and cash generated by operations
in the near term, and the borrowings expected to be made available under the
Amended Credit Facility, will be sufficient to finance the Company's operations
for at least 18 months. However, future acquisitions may require funding beyond
the Company's cash resources and currently anticipated capital or operating
requirements could change, with the result that the Company may be required to
raise additional funds through the public or private sale of additional
securities. See "Risk Factors -- Acquisition Strategy; Need for Additional
Capital."
YEAR 2000 COMPLIANCE
The Company has reviewed the Year 2000 compliance of its systems and has
adopted a program intended to ensure that it achieves compliance with respect to
all products, services and internal systems in a timely manner. Under such plan,
$1,020,000 has been budgeted through December 1999, of which $160,000 has been
spent through April 30, 1998. Certain of the Company's physician benefit
management clients are being migrated from the Company's PBM system in Ohio to
its PBM system acquired from Stockton. The total revenue from such clients is
expected to be $6,351,000 in fiscal 1999. A testing and migration timetable for
all such clients has been developed, with migration activities scheduled for
completion in mid-1999. The Company believes that it does not require additional
technology to achieve
40
<PAGE>
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, "Disclosures about Segments of an
Enterprise and Related Information" and SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits." These pronouncements are not
expected to have a material impact on the Company's financial statements.
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." This statement is not required
to be adopted at this date. The Company is currently evaluating the impact of
this statement on its financial statements.
NET OPERATING LOSSES
As of March 31, 1998, the Company had net operating loss carryforwards for
federal income tax purposes of approximately $34,650,000. Such loss
carryforwards expire in the fiscal years 2005 through 2013. Because of certain
changes in ownership, as defined in the Internal Revenue Code, which occurred
during 1996 and 1995, certain of these net operating loss carryforwards are
subject to annual limitations. See Note 7 of "Notes to Consolidated Financial
Statements."
41
<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
42
<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-
43
<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.
44
<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:
45
<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>
46
<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 management.
o Reduces administrative expenses.
- ------------------------------------------------------------------------------------------------------------------------------------
PHARMACY PRACTICE
MANAGEMENT
SYSTEMS (PPM)
Solution Plus -- o Facilitates dispensing, inventory and o Expands drug pricing and coverage
Pharmacy pricing of products for hospital, outpa- capabilities.
tient and clinic pharmacies. o Improves cash flow.
o Provides on-line claims adjudication. o Improves efficiency of pharmacy
management and operations.
- ------------------------------------------------------------------------------------------------------------------------------------
OTHER PRODUCTS AND
SERVICES
Link -- o Connects physicians to pharmacies for the o Reduces costs related to manual genera-
Medical and Pharmacy transmission of prescriptions and related tion and transmission of prescriptions.
information and approvals. o Increases accuracy and transmission speed
of prescriptions.
Formulary o Administers and manages formulary pro- o Reduces drug costs and increases PBM
Management -- grams for PBMs. revenue through manufacturer incentives,
Pharmacy o Promotes the usage by healthcare plans of o Promotes compliance with payor formu-
designated drug products. laries.
Patient Statements -- o Facilitates patient statement billing. o Reduces costs and improves patient
All Markets relations.
Credit/Debit Card and o Assists patients in making co-payments or o Reduces bad debt and enhances patient
Check Guarantee -- paying other out-of-pocket charges. convenience.
All Markets
Additional EDI o Processes data relating to referrals, en- o Reduces practice expense and improves
Transactions -- counters and benefit pre-certifications. efficiency and patient relations.
All Markets
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
CLIENTS
The Company markets its products primarily to hospitals, pharmacies,
physicians, dentists and other healthcare providers and provider groups
(including HMOs, PPOs and healthcare practice management vendors). The Company
processes transactions for providers in all 50 states, with 75% of its
transactions generated by providers in 28 states. The Company believes it is one
of the largest pharmacy transaction routers in the U.S. (based on volume)
serving more than 42,000 pharmacies in various EDI capacities. MEDE AMERICA has
a strong presence in the medical market in New York, New Jersey, California,
47
<PAGE>
Florida, Minnesota, and Ohio, currently providing EDI services to more than
1,000 hospitals and clinics, and 14,000 physicians. In the dental market, MEDE
AMERICA serves more than 8,000 dental offices. No single client of the Company
accounted for more than 3% of the Company's revenues in fiscal year 1997.
SALES, MARKETING AND CLIENT SERVICES
The Company markets its products through a national sales and client
services organization consisting of 75 sales associates organized according to
market, client type and product category. The Company also has a client services
organization consisting of 57 associates dedicated to help desk and client
support functions. A significant component of compensation for all sales
personnel is performance based, although the Company bases quotas and bonuses on
a number of factors in addition to actual sales, such as client satisfaction and
collection of receivables.
MEDE AMERICA's marketing efforts include direct sales, telesales, strategic
partnerships with healthcare vendors, trade shows, direct marketing,
telemarketing, the Internet, and specific advertising and marketing campaigns
where appropriate. In the medical and pharmacy markets, the Company's current
strategic business alliances include relationships with some of the country's
largest hospitals, hospital networks, hospital information systems vendors,
practice management software vendors, pharmacy chains, healthcare organizations
and payors. The Company also maintains strategic alliances with certain state
Medicaid programs.
MEDE AMERICA's strategic alliances with vendors, distributors and dealers
of practice management software have played an important role in building
relationships with individual and small groups of physicians, pharmacies and
dentists. These companies promote MEDE AMERICA's EDI products as modular
additions to their practice management software. MEDE AMERICA has also won
endorsements from 18 state dental associations, representing nearly half of all
dentists in practice today. The Company's sales channels include targeting
dental practice management companies and payor-driven programs aimed at their
network providers. Recent significant expansion of MEDE AMERICA's direct
connectivity to dental payors has contributed to its ability to generate revenue
from this market while at the same time eliminating its dependence on other
processors and clearinghouses.
RESEARCH AND DEVELOPMENT
As of June 30, 1998, the Company employed 65 people in the areas of product
design, research and development, and 32 people in the areas of quality
assurance and technical support. The Company's product development strategy is
focused on continuous enhancement of its existing products to increase their
functionality and ease of use, and the development of new products for
additional EDI transactions and telecommunications offerings. Particular
attention is devoted to the ongoing integration of developed and acquired
systems and applications into a consolidated suite of EDI product offerings and
supporting services for the markets served by the Company.
In the Company's 1995, 1996 and 1997 fiscal years, research and development
expenditures totaled $2,051,000, $2,132,000 and $3,278,000, respectively,
representing approximately 13%, 7% and 9%, respectively, of the Company's total
revenues. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
TECHNOLOGY AND OPERATIONS
MEDE AMERICA recognizes the crucial role of technology and
telecommunications in the EDI marketplace. Since the beginning of fiscal 1996,
the Company has acquired new hardware and software and made data center
improvements costing more than $5.0 million. As a result, the Company is
currently operating at approximately one-third of its operating capacity. The
continuing use of newer emerging technologies and platforms has contributed
significantly to the Company's current operational position. Examples of such
innovations include the use of Internet technologies for data transmissions,
on-line transaction monitoring tools and development of Windows-based front-end
applications for clients.
48
<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
49
<PAGE>
healthcare EDI market evaluate the products and services of competing EDI
providers on the basis of the compatibility of the provider's software, cost,
ease of installation, the range of applications available, the quality of
service and the degree of payor connectivity. See "Risk Factors --
Competition."
GOVERNMENT REGULATION
The healthcare industry in the United States is subject to changing
political, economic and regulatory influences that may affect the procurement
practices and operations of healthcare organizations. During the past several
years, the healthcare industry has been subject to increasing levels of
governmental regulation of, among other things, reimbursement rates and certain
capital expenditures. For example, legislation has been proposed that would
mandate standards and impose restrictions on the Company's ability to transmit
healthcare data and recently, Congress has had under consideration proposals to
reform the healthcare system. While some of these proposals, if enacted, could
increase the demand for EDI products and services in the healthcare industry by
emphasizing cost containment, they might change the operating environment for
the Company's clients in ways that cannot be predicted. Healthcare organizations
could react to these proposals by curtailing or deferring investments, including
those for the Company's products and services.
The confidentiality of patient records and the circumstances under which
such records may be released for inclusion in the Company's databases are
subject to substantial regulation. State laws and regulations govern both the
disclosure and the use of confidential patient medical record information.
Although compliance with these laws and regulations is at present principally
the responsibility of the hospital, physician or other healthcare provider,
regulations governing patient confidentiality rights are evolving rapidly. The
Health Insurance Portability and Accountability Act, passed in 1997, mandates
the establishment of national standards for the confidentiality of patient data,
as well as record keeping, data format and data security obligations that will
apply to transaction processors, among others. It is possible that standards so
developed will necessitate changes to the Company's operations. Additional
legislation governing the dissemination of medical record information has been
proposed at both the federal and state levels. This legislation may require
holders of such information to implement security measures that may require
substantial expenditures by the Company. There can be no assurance that changes
to state or federal laws will not materially restrict the ability of healthcare
providers to submit information from patient records using the Company's
products. See "Risk Factors -- Proposed Healthcare Data Confidentiality
Legislation."
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are coded
to accept only two digit entries in the date code field. These date code fields
will need to accept four digit entries to distinguish 21st century dates from
20th century dates. As a result, prior to January 1, 2000, computer systems
and/or software used by many companies may need to be upgraded to comply with
such "Year 2000" requirements. Significant uncertainty exists in the software
industry concerning the potential consequences of the Year 2000 phenomenon. To
date, the Company has expended approximately $160,000 in addressing Year 2000
problems. The Company estimates that it will incur approximately $860,000 in
additional costs relating to its Year 2000 compliance program; however, there
can be no assurance that such amount will be sufficient to cover all costs
relating to Year 2000 issues. The Company believes that the majority of all
transactions being processed by it are running on Year 2000 compliant systems.
However, the Company believes that some systems with which its own computers
interact (for example, some payor and practice management systems) are not yet
Year 2000 compliant, and that the failure of these systems to be made Year 2000
compliant in a timely manner may adversely affect some of the Company's
operations. In addition, certain systems operated by MEDE AMERICA are not yet
Year 2000 compliant. The applications running on these systems are expected to
be discontinued, migrated to other systems or corrected before 2000. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Year 2000 Compliance." However, there can be no assurance that the
Company's systems will achieve Year 2000 compliance in a timely manner, if at
all. See "Risk Factors -- Year 2000 Compliance."
EMPLOYEES
As of June 30, 1998, the Company employed 364 people, including 112 in
operations, 75 in sales, 12 in marketing, 57 in client services, 65 in research
and development, 15 in finance, 18 in administration
50
<PAGE>
and ten in corporate. None of the Company's employees is represented by a union
or other collective bargaining group. The Company believes its relationship
with its employees to be satisfactory.
FACILITIES
The following chart summarizes the Company's facilities and their monthly
transaction capacities:
<TABLE>
<CAPTION>
ESTIMATED
MONTHLY
TRANSACTION OWNED/LEASE
FACILITY PERSONNEL TRANSACTION TYPE CAPACITY EXPIRATION DATE
- ------------------------------ ----------- ------------------------------ ------------- ----------------------
<S> <C> <C> <C> <C>
Ohio (Primary Medical and 152 Eligibility 2,000,000 Owned
Pharmacy Data Center) Real-Time Benefit Management 6,000,000
Switching 48,000,000
New York (Secondary Medical 33 Eligibility Enrollment 2,000,000 January 2003
and Pharmacy Data Center) 25,000
Georgia (Dental Data Center) 56 Dental Claims 1,600,000 January 2001
Corporate Headquarters, 115 Real-Time Benefit Management 2,000,000 Various dates between
Sales & Development January 1999 and Feb-
Offices (5 sites) and ruary 2003.
PBM Processing
</TABLE>
INTELLECTUAL PROPERTY
The Company considers its methodologies, computer software and many of its
databases to be proprietary. The Company relies on a combination of trade
secrets, copyright and trademark laws, contractual provisions and technical
measures to protect its rights in various methodologies, systems, products and
databases. The Company has no patents covering its software technology. Due to
the nature of its application software, the Company believes that patent and
trade secret protection are less significant than the Company's ability to
further develop, enhance and modify its current products. However, any
infringement or misappropriation of the Company's proprietary software and
databases could disadvantage the Company in its efforts to retain and attract
new clients in a highly competitive market and could cause the Company to lose
revenues or incur substantial litigation expense. The Company seeks to protect
its proprietary information through nondisclosure agreements with its
consultants, clients and potential clients, and limits access to, and
distribution of, its proprietary information. See "Risk Factors -- Dependence on
Intellectual Property; Risk of Infringement."
Substantial litigation regarding intellectual property rights exists in the
software industry, and the Company expects that software products may be
increasingly subject to third-party infringement claims as the number of
competitors in the Company's industry segment grows and the functionality of
products overlaps. Although the Company believes that its products do not
infringe on the intellectual rights of others, there can be no assurance that
such a claim will not be asserted against the Company in the future, or that a
license or similar agreement will be available on reasonable terms in the event
of an unfavorable ruling on any such claim. See "Risk Factors -- Dependence on
Intellectual Property; Risk of Infringement."
LEGAL PROCEEDINGS
In June 1995, the Company acquired substantially all of the assets of
Latpon for a purchase price of $2,470,000, plus the assumption of approximately
$963,000 of liabilities. On June 6, 1998, Curtis J. Oakley filed a complaint
with the Supreme Court of the State of New York, County of Nassau asserting
multiple causes of action against several persons, including a cause of action
naming the Company as a defendant, based on his alleged ownership of a 22%
interest in Latpon. According to the complaint, Mr. Oakley's claim against the
Company is for $2 million or such other amount as may be equivalent to the
present value of his alleged ownership interest in Latpon's predecessor. The
Company believes that it is fully indemnified by the former owners of Latpon
under the Latpon acquisition agreement against any costs or damages arising from
this claim. By letter dated July 10, 1998, one of the former owners of Latpon
confirmed that he would indemnify the Company in accordance with the terms of
the acquisition agreement.
51
<PAGE>
RECENT DEVELOPMENTS
On July 17, 1998, the Company entered into a Transaction Processing
Agreement (the "Processing Agreement") with Medic Computer Systems, Inc.
("Medic"), a subsidiary of Misys plc that develops and licenses software for
healthcare providers, principally physicians, MSOs and PPMs. Under the
Processing Agreement, the Company will undertake certain software development
obligations, and on July 1, 1999 it will be the exclusive processor (subject to
certain exceptions) for Medic's subscribers for medical reimbursement claims
submitted to payors with whom MedE has or establishes connectivity. Under the
Processing Agreement, the Company will be entitled to certain revenues to be
paid by payors as well as certain fees to be paid by Medic. The Processing
Agreement sets forth detailed performance criteria and development and
implementation timetables. The Processing Agreement is for a fixed term of five
years, with annual renewals thereafter.
Contemporaneously, to ensure a close working relationship between the
parties, on July 17, 1998 the Company granted to Medic a warrant (the "Medic
Warrant") to acquire 1,250,000 shares of the Company's Common Stock, at a per
share exercise price equal to the price of the Common Stock to the public in the
Offering. The Medic Warrant vests over a two year period and may be exercised up
to five years after issuance. The Medic Warrant contains customary weighted
average antidilution provisions. The Company and the principal stockholders
associated with WCAS and WBCP have agreed that following the completion of the
Offering and until the earlier of the termination of the Processing Agreement or
the disposition by Medic and its affilates of at least 25% of the shares of
Common Stock issuable under the Medic Warrant, Medic shall have the right to
designate one director to the Company's Board of Directors. As of the date of
this Prospectus, Medic has not named a designee.
52
<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) .......... 34 Director
Timothy M. Murray(1)(2) .......... 46 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.
53
<PAGE>
JAMES T. STINTON has been Chief Information Officer of the Company since
October 1995. He served as Release Manager at Charles Schwab & Company from
April 1992 to September 1995. In that position he was responsible for the
development, coordination, testing and implementation for the Microsoft NT and
UNIX Client Server software. Prior to joining Charles Schwab & Company, he was
POS Systems Architect and Vice President at Wells Fargo Bank from February 1982
to April 1992. Mr. Stinton holds a degree from ONC Business Studies, Coventry
Technical College, Coventry, England, and a graduate certificate from Consumer
Banking Association, Retail Banking Management, McIntire Business School of the
University of Virginia.
WILLIAM M. MCMANUS has been Senior Vice President and General Manager --
Pharmacy and Medical of the Company since May 1997 and Senior Vice President and
General Manager -- Pharmacy since February 1996. From April 1994 through
February 1996 he was head of pharmacy system sales for National Data
Corporation. In that position he had overall responsibility for sales, marketing
and product management programs. Prior to April 1994, Mr. McManus held senior
level positions at OmniSYS, Inc., Healthcare Computer Corporation, PDX, Inc.,
and the computer division of Foxmeyer Corporation. Mr. McManus holds a B.S.
degree in Health and Physical Education from the University of South Carolina
and completed postgraduate courses in education and pharmacy at the University
of South Carolina.
ROGER L. PRIMEAU has been Senior Vice President and General Manager --
Dental of the Company since October 1996. From August 1989 through June 1996 he
was Vice President, Administration and Customer Relations of National
Electronic Information Corporation ("NEIC"). Prior to joining NEIC, Mr. Primeau
worked at Columbia Life Insurance Co. and Aetna Life & Casualty in a variety of
management positions. Mr. Primeau holds a B.S. degree in Biology from Holy
Cross College.
ANTHONY J. DE NICOLA has been a director of the Company since March 1995
and has been a general partner of WCAS since April 1994. Prior to joining WCAS,
Mr. de Nicola was an associate at William Blair & Company, L.L.C., an
investment banking firm with which he had been affiliated since 1990.
Previously, Mr. de Nicola worked in the Mergers and Acquisitions Department of
Goldman Sachs & Co. and held positions at McKinsey & Company and IBM. Mr. de
Nicola holds a B.A. degree from DePauw University and an M.B.A. from Harvard
Business School. He is a director of SEER Technologies, Inc. and several
private companies.
TIMOTHY M. MURRAY has been a director of the Company since March 1995 and
is a principal of William Blair & Company, L.L.C., an investment banking firm
with which he has been associated since 1979. He has also been the managing
partner of William Blair Leveraged Capital Fund since its formation in 1988 and
is a Managing Director of WBCP. Mr. Murray holds a B.A. degree from Duke
University and an M.B.A. from the University of Chicago. He is a director of
Daisytek International Corporation and several private companies.
THE BOARD OF DIRECTORS
COMMITTEES OF THE BOARD OF DIRECTORS
The only standing committees of the Board of Directors of the Company are
the Audit Committee and the Compensation Committee. The Audit Committee reviews
the results and scope of audits and other services provided by the Company's
independent public accountants. Its members are Messrs. de Nicola and Murray. In
May 1998, the Board of Directors constituted a Compensation Committee composed
of Messrs. McInerney and Murray which will be responsible for making
recommendations concerning salaries and incentive compensation for executive
officers of the Company. Prior to May 1998, the Board of Directors had sole
responsibility for establishing executive officer compensation. Thomas E.
Staudt, the Company's President and Chief Executive Officer, participated in the
deliberations of the Board concerning executive compensation.
COMPENSATION OF DIRECTORS
Prior to the Offering, the directors of the Company received no
compensation in respect of their service on the Board of Directors. Following
the Offering, under the "New Stock Plan" (as defined in, and described more
fully under, "-- Employee Benefit Plans"), each director who is not an employee
of
54
<PAGE>
the Company or any parent, subsidiary or affiliate of the Company and is not
(and is not affiliated with) a beneficial owner of 5% or more of the voting
stock of the Company (a "non-employee director") will be paid an annual retainer
of $7,500, plus $1,000 for each Board of Directors or committee meeting
attended, and will receive annually a non-qualified stock option to purchase up
to 1,000 shares of Common Stock at the fair market value of the Common Stock on
the date of grant.
Directors are entitled to reimbursement for out-of-pocket expenses incurred
while attending meetings of the Board of Directors or committee meetings.
DESIGNATED DIRECTOR
The Company and the principal stockholders associated with WCAS and WBCP
have agreed that, following the completion of the Offering and until the earlier
of the termination of the Processing Agreement or the disposition by Medic and
its affiliates of at least 25% of the shares of Common Stock issuable under the
Medic Warrant, Medic shall have the right to designate one director to the
Company's Board of Directors. As of the date of this Prospectus, Medic has not
named a designee.
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning the
compensation paid by the Company to its Chief Executive Officer and each of the
four other most highly paid executive officers of the Company (the "Named
Executive Officers") in the 1997 fiscal year:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------------------------- ---------------
SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY($) BONUS($)(1) COMPENSATION($) OPTIONS(#)(2) COMPENSATION($)
- ------------------------------------- ----------------- ------------- ----------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
Thomas P. Staudt ...................... 180,000 50,000 -- 220,414 --
President and Chief Executive
Officer
Richard P. Bankosky ................... 135,000 20,000 -- 29,461 --
Chief Financial Officer, Treasurer
and Secretary
William M. McManus .................... 122,072 20,000 68,558 27,279 --
Senior Vice President and General
Manager -- Pharmacy and Medical
Roger L. Primeau ...................... 85,000 (3) 12,000 -- 18,113 --
Senior Vice President and General
Manager -- Dental
James T. Stinton ...................... 152,500 20,000 -- 34,917 --
Chief Information Officer ............
</TABLE>
- ----------
(1) Bonuses are granted under a bonus formula annually established by the Board
of Directors, based upon the performance (measured by EBITDA) of the Company
(or certain operating divisions thereof). Unless a specified percentage of
the EBITDA target is achieved, no bonus is paid. EBITDA targets are adjusted
to reflect accounting changes, acquisitions and other significant, one-time
events.
(2) Total number granted through June 30, 1997 (exercised and unexercised).
(3) Mr. Primeau's employment commenced in October 1996.
55
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information regarding grants of
options to purchase Common Stock in fiscal 1997 to each of the Named Executive
Officers:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK
PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM(1)
---------------------------------------------------------------- -------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS GRANTED EXERCISE
UNDERLYING OPTIONS TO EMPLOYEES IN PRICE EXPIRATION
GRANTED(#) FISCAL YEAR(2) ($/SHARE) DATE 5%($) 10%($)
-------------------- ----------------- ----------- ------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Thomas P. Staudt ............ 2,182 4.27% 5.73 2/14/07 7,863 19,926
Richard P. Bankosky ......... 2,182 4.27% 5.73 2/14/07 7,863 19,926
William M. McManus .......... 5,455 10.68% 5.73 (3) 19,657 49,816
Roger L. Primeau ............ 18,112 35.47% (4) (5) 65,268 165,401
James T. Stinton ............ 2,182 4.27% 5.73 2/14/07 7,863 19,926
</TABLE>
- ----------
(1) Potential realizable value is based on the assumption that the price per
share of Common Stock appreciates at the assumed annual rate of stock
appreciation for the option term. The assumed 5% and 10% annual rates of
appreciation (compounded annually) over the term of the option are set forth
in accordance with the rules and regulations adopted by the Securities and
Exchange Commission and do not represent the Company's estimate of stock
price appreciation.
(2) Based upon total grants of options to purchase 51,059 shares in fiscal year
1997.
(3) Of such options, 2,182 expire February 14, 2007 and 3,273 expire June 9,
2007.
(4) Of such options, 16,367 are at an exercise price of $4.58 and 1,745 are at
an exercise price of $5.73.
(5) Of such options, 16,367 expire September 16, 2006 and 1,745 expire February
14, 2007.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
JUNE 30, 1997(#) JUNE 30, 1997($)
------------------------------- ------------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
------------- --------------- ------------- --------------
<S> <C> <C> <C> <C>
Thomas P. Staudt ............ 65,469 133,120 $300,000 $612,500
Richard P. Bankosky ......... 5,455 24,005 25,000 112,500
William M. McManus .......... 7,637 19,641 38,750 92,500
Roger L. Primeau ............ 0 18,112 0 85,000
James T. Stinton ............ 6,546 28,370 30,000 132,500
</TABLE>
SEVERANCE AGREEMENTS
The Company maintains severance agreements with each of its executive
officers providing for salary continuation for a period of six months (twelve
months in the case of Mr. Staudt) if the executive is terminated for any reason
other than malfeasance, misconduct or moral turpitude.
NON-COMPETITION, NON-SOLICITATION AND CONFIDENTIALITY AGREEMENTS
Each executive officer and certain other employees of the Company have
entered into a Non-Competition, Non-Solicitation and Confidentiality Agreement
with the Company, the terms of which are as follows. For a term of 12 months
following the cessation of such employee's employment with the Company, the
employee will neither compete with the Company in the United States nor solicit
any customer or employee of the Company. In addition, the employee will not
disclose any trade secrets (as defined in the agreement) and, for a term of 12
months following the cessation of his or her employment by the Company, will not
disclose any confidential information (as defined in the agreement).
56
<PAGE>
EMPLOYEE BENEFIT PLANS
Under the MEDE AMERICA Corporation and its Subsidiaries Stock Option and
Restricted Stock Purchase Plan (the "Stock Plan"), up to 655,000 shares of
Common Stock are reserved for issuance to the officers and employees of the
Company. These shares may be issued either outright, as restricted stock awards,
or they may be issued pursuant to either "incentive stock options" under Section
422(b) of the Internal Revenue Code of 1986, as amended (the "Code"), or
"non-qualified" stock options. As of June 30, 1998, options to purchase up to an
aggregate 483,041 shares of Common Stock were outstanding, of which 212,758
options were exercisable. The weighted average exercise price for all options
granted under the Stock Plan is $4.84 per share. Following the Offering, the
Board of Directors has provided that no additional grants or awards will be made
under the Stock Plan.
Under the MEDE AMERICA Corporation and its Subsidiaries 1998 Stock Option
and Restricted Stock Purchase Plan (the "New Stock Plan"), a variety of awards,
including incentive stock options intended to qualify under Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), "non-qualified" stock
options, restricted stock awards and other stock-based awards, may be granted to
officers, employees, directors, consultants and advisors of the Company and its
subsidiaries. An aggregate, 1,500,000 shares of Common Stock are currently
reserved for issuance under the New Stock Plan. The Board of Directors will
initially administer the New Stock Plan, but may delegate such responsibility to
a committee of the Board (the "Plan Administrator").
The terms and conditions of individual awards made to employees and
consultants and, except as described below, non-employee directors, may vary,
subject to the following guidelines: (i) the exercise price of options may not
be less than 85% of the fair market value of the Common Stock on the date of
grant provided, however, that neither (a) the exercise price of incentive stock
options nor (b) the exercise price of non-qualified stock options intended to
qualify as "performance-based compensation" within the meaning of the Code may
be less than 100% of the fair market value of the Common Stock on the date of
grant (or, in the case of incentive stock options granted to a stockholder
owning in excess of 10% of the total combined voting power of all classes of
Company stock, 110% of the fair market value); (ii) the maximum number of shares
of Common Stock which may be the subject of awards granted to any employee under
the New Stock Plan during any calendar year may not exceed 300,000; (iii) the
term of incentive stock options may not exceed ten years from the date of grant;
and (iv) no awards may be granted after June 30, 2008.
Except as described below with respect to non-employee directors, the Plan
Administrator determines, within the guidelines set forth above, the amount of
each award, the conditions and limitations applicable to the exercise of an
option, the exercise price therefor and the form of payment that may be used to
exercise the award, which may include cash, check, shares of Common Stock and
promissory notes.
Each non-employee director automatically receives non-qualified stock
options to purchase up to 1,000 shares of Common Stock upon his or her initial
election to the Board of Directors and upon each anniversary thereof upon which
he or she is still serving as a director. The exercise price for each such
option is the fair market value on the date of grant. Non-employee director
options vest six months after grant and the exercise period may not exceed ten
years, provided that, subject to certain exceptions in the event of death or
disability, no non-employee director options may be exercised more than 90 days
after such director ceases to serve as a director.
The Board of Directors may grant restricted and unrestricted share awards
entitling recipients to acquire shares of Common Stock, subject to the right of
the Company to repurchase all or a part of such shares at their purchase price
from the recipient in the event that conditions specified by the Plan
Administrator are not satisfied prior to the end of the applicable restricted
period. Shares of restricted stock may not be sold, assigned, transferred,
pledged or otherwise encumbered during the applicable restricted period. The
Plan Administrator may, in its sole discretion, grant or sell (at a purchase
price per share equal to at least 85% of the fair market value) shares of Common
Stock free of any restrictions under the New Stock Plan. In the event of a
merger or sale of all or substantially all the assets of
57
<PAGE>
the Company, the Board of Directors may, in its discretion, take any one or more
of certain actions including accelerating all unvested or unrealizable awards,
terminating all unexercised options and requiring the acquiring company to
assume all outstanding awards.
While the Company currently anticipates that most grants under the New
Stock Plan will consist of stock options, the Company may also grant restricted
stock awards, which entitle recipients to acquire shares of Common Stock subject
to certain conditions. Options or other awards that are granted under the New
Stock Plan but expire unexercised are available for future grants. Vesting of
options under the New Stock Plan would be subject to acceleration at the
discretion of the Board of Directors under certain circumstances.
Under the Company's 1998 Employee Stock Purchase Plan (the "Purchase
Plan"), employees of the Company, including directors of the Company who are
employees, are eligible to participate in semi-annual plan offerings in which
payroll deductions may be used to purchase shares of Common Stock. The purchase
price of such shares is the lower of 85% of the fair market value of the Common
Stock on the day the offering commences and 85% of the fair market value of the
Common Stock on the date the offering terminates. The first offering period
under the Purchase Plan will not commence until the completion of the Offering.
In fiscal 1998, the Company has granted options to purchase an aggregate
37,095 shares of Common Stock to the Named Executive Officers, as follows:
12,001 shares for Mr. McManus, 8,729 shares for Mr. Staudt and 5,455 shares for
each of Messrs. Bankosky, Stinton and Primeau. Such options have an exercise
price of $5.73 per share of Common Stock.
In addition, on [July ], 1998, the Board the Directors determined to grant
options to purchase an aggregate 400,000 shares of Common Stock under the New
Stock Plan to certain employees of the Company (including the Named Executive
Officers) contingent upon consummation of the Offering. Such options, which
include both incentive and non-qualified stock options, will have an exercise
price equal to the price to the public in the Offering and generally will vest
ratably over four years from the date of grant except that the initial
installment of options to be granted to certain executive officers, including
the Named Executive Officers, will vest immediately upon consummation of the
Offering. The grants to be received by each of the Named Executive Officers are
as follows: 160,000 shares for Mr. Staudt, 40,000 shares for each of Messrs.
Bankosky and McManus, 16,000 shares for Mr. Primeau and 30, 000 shares for Mr.
Stinton.
58
<PAGE>
CERTAIN TRANSACTIONS
In June 1995, the Company acquired MEDE OHIO, through a merger between the
Company and the parent of MEDE OHIO ("Parent"). Parent was owned by Welsh,
Carson, Anderson & Stowe V, L.P. ("WCAS V"), which had formed Parent to acquire
MEDE OHIO in an all cash merger that was consummated in March 1995. The
acquisition price of MEDE OHIO, including amounts required to finance the merger
and to provide MEDE OHIO with working capital and pre-merger bridge financing,
was approximately $22.6 million. The exchange ratio in the merger between Parent
and the Company was based on the acquisition cost of MEDE OHIO and an
independent valuation of the Company that was performed in connection with the
spin-off of the Company by CES. In the merger and a related offering to raise
working capital for the Company, the Company issued an aggregate 1,772,354
shares of Common Stock and 171,889 shares of Preferred Stock to investment funds
and individuals affiliated with WCAS, and an aggregate 866,504 shares of Common
Stock and 28,987 shares of Preferred Stock to investment funds affiliated with
WBCP.
In October 1995, WCAS V and Welsh, Carson, Anderson & Stowe VI, L.P. ("WCAS
VI"), each advanced the Company $1.75 million as bridge financing for the
Company's acquisition of EC&F and Premier. The loan bore interest at the rate of
10% per annum and matured on December 31, 1995. The Company repaid the loan in
December 1995.
On December 18, 1995, the Company issued to its four principal
stockholders, WCAS V, WCAS VI, William Blair Capital Partners V, L.P. ("Blair
V"), and William Blair Leveraged Capital Fund, Limited Partnership ("Blair
LCF"), warrants to purchase an aggregate 52,532 shares of Common Stock at an
exercise price of $4.58 per share in connection with their agreement to
guarantee the Company's obligations under the Credit Facility.
On January 10, 1997, the Company increased the amount of available
borrowings under the Credit Facility, and in connection therewith, WCAS V, WCAS
VI, Blair V and Blair LCF, each agreed to guarantee payment of a portion of the
additional debt to be incurred under the increased credit line. In consideration
for such guarantees, the Company issued to WCAS V, WCAS VI, Blair V and Blair
LCF warrants to purchase an aggregate 18,330 shares of Common Stock. The
warrants have a ten-year term and the exercise price thereunder is $5.73 per
share.
On October 31, 1997, the Company increased the amount of available
borrowings under the Credit Facility, and in connection therewith, WCAS V, WCAS
VI, Blair V and Blair LCF each agreed to guarantee payment of a portion of the
additional debt to be incurred under the increased credit line. In consideration
for such guarantees, the Company issued to WCAS V, WCAS VI, Blair V and Blair
LCF warrants to purchase an aggregate 34,200 shares of Common Stock. The
warrants have a ten year term and the exercise price thereunder is $5.73 per
share.
On February 14, 1997 the Company issued a 10% Senior Subordinated Note due
February 14, 2002 in the principal amount of $25,000,000, plus an aggregate
370,993 shares of Common Stock, to WCAS Capital Partners II, L.P. ("WCAS CP
II"), for an aggregate purchase price of $25,000,000. WCAS CP II is an affiliate
of each of WCAS V and WCAS VI, and Thomas McInerney and Anthony de Nicola, both
directors of the Company, are general partners of the sole WCAS CP II general
partner. The Company intends to use a portion of the proceeds of the Offering to
repay in full the Credit Facility and the 10% Senior Subordinated Note. See "Use
of Proceeds." The Company does not anticipate further borrowing from or seeking
further loan guarantees from any of the entities referred to above.
In connection with the issuance and sale of its 10% Senior Subordinated
Note to WCAS CP II, the Company granted to WCAS CP II certain demand and
"piggyback" registration rights pursuant to a Registration Rights Agreement,
dated as of February 14, 1997 between the Company and WCAS CP II.
On July 17, 1998 the Company granted to Medic the Medic Warrant to acquire
1,250,000 shares of the Company's Common Stock a per share exercise price equal
to the price of the Common Stock to the public in the Offering. The Medic
Warrant vests over a two year period and may be exercised up to five years after
issuance. The Company and the principal stockholders associated with WCAS and
WBCP have agreed that, following the completion of the Offering and until the
earlier of the termination of the
59
<PAGE>
Processing Agreement or the disposition by Medic and its affiliates of at least
25% of the shares of Common Stock issuable under the Medic Warrant, Medic shall
have the right to designate one director to the Company's Board of Directors. As
of the date of this Prospectus, Medic has not named a designee.
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 V and Blair LCF are the owners of an aggregate 193,100
shares of Preferred Stock, and warrants to purchase 52,532 and 52,533 shares of
Common Stock at exercise prices of $4.58 and $5.73 per share, respectively.
Blair V and Blair LCF, and Timothy Murray, a director of the Company, are
each affiliates of William Blair & Company, L.L.C., an underwriter of the
Offering. See "Underwriting."
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of June 30, 1998, and as adjusted to
reflect the sale of Common Stock offered hereby, by (i) each person (or group of
affiliated persons) known by the Company to own beneficially more than five
percent of the outstanding shares of Common Stock, (ii) each of the Company's
directors, (iii) each of the Named Executive Officers and (iv) all directors and
executive officers of the Company as a group. The numbers of shares set forth
below (i) give effect to the Recapitalization and the Reverse Stock Split, (ii)
assume an Offering price of $14.00 per share of Common Stock, and (iii) assume a
sale of 3,600,000 shares of Common Stock in the Offering. Unless otherwise
indicated, the address for each stockholder is c/o the Company, 90 Merrick
Avenue, Suite 501, East Meadow, New York 11554.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED(1)
--------------------------------------
PERCENTAGE OWNED(2)
------------------------
BEFORE AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER OFFERING OFFERING
- --------------------------------------------- ----------- ---------- -----------
<S> <C> <C> <C>
Welsh, Carson, Anderson & Stowe (3) ......... 5,754,393 72.10% 49.69%
320 Park Avenue, 25th Floor
New York, NY 10019
William Blair & Co., L.L.C. (4) ............. 918,465 11.51% 7.93%
222 West Adams Street
Chicago, Illinois 60606
Mellon Bank, as Trustee (5) ................. 617,852 7.74% 5.33%
767 Fifth Avenue, 26th Floor
New York, NY 10153
Thomas P. Staudt (6) ........................ 166,211 2.05% 1.42%
Richard P. Bankosky ......................... 11,346 - -
James T. Stinton (7) ........................ 13,529 - -
William M. McManus (8) ...................... 16,147 - -
Roger L. Primeau (9) ........................ 6,982 - -
Thomas E. McInerney (10) .................... 5,622,136 70.44% 48.55%
320 Park Avenue, 25th Floor
New York, NY 10019
</TABLE>
60
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Anthony J. de Nicola (11) ......................... 5,598,277 70.14% 48.34%
320 Park Avenue, 25th Floor
New York, NY 10019
Timothy M. Murray (12) ............................ 915,319 11.47% 7.90%
222 West Adams Street
Chicago, Illinois 60606
All current directors and executive officers as a 6,762,026 83.15% 57.63%
group (10 persons).................................
</TABLE>
- ----------
- Represents beneficial ownership of less than 1% of the Common Stock.
(1) Gives effect to the Recapitalization and the Reverse Stock Split. Unless
otherwise indicated, the entities and individuals identified in this table
have sole voting and investment power with respect to all shares shown as
beneficially owned by them, subject to community property laws, where
applicable.
(2) The percentages shown are based on 7,981,204 shares of Common Stock
outstanding on June 30, 1998, plus, as to each entity or group listed
unless otherwise noted, the number of shares of Common Stock deemed to be
owned by such holder pursuant to Rule 13d-3 under the Exchange Act as of
such date, assuming exercise of options held by such holder that are
exercisable within 60 days of the date of this Prospectus.
(3) Includes 2,571,773 shares of Common Stock held by WCAS V, 2,587,939 shares
of Common Stock held by WCAS VI, 62,233 shares of Common Stock held by WCAS
Information Partners L.P. ("WCAS Info."), 370,993 shares of Common Stock
held by WCAS CP II, and 161,455 shares of Common Stock held by individual
partners of WCAS. Such partners are also partners of the sole general
partner of each of the foregoing limited partnerships. The respective
general partners of WCAS V, WCAS VI, WCAS Info. and WCAS CP II are WCAS V
Partners, L.P., WCAS VI Partners, L.P., WCAS INFO Partners and WCAS CP II
Partners. The individual partners of each of these partnerships include
some or all of Patrick J. Welsh, Russell L. Carson, Bruce K. Anderson,
Richard H. Stowe, Thomas E. McInerney, Andrew M. Paul, Robert A. Minicucci,
Anthony J. de Nicola, Paul B. Queally and Laura M. VanBuren. The partners
of WCAS who are also directors of the Company are Thomas E. McInerney (who
is also Chairman of the Board of Directors) and Anthony J. de Nicola. Each
of the foregoing persons may be deemed to be the beneficial owner of the
Common Stock owned by WCAS.
(4) Includes 601,489 shares of Common Stock held by Blair V, 313,830 shares of
Common Stock held by Blair LCF and 3,146 shares of Common Stock held by an
individual affiliated with WBCP. Timothy M. Murray, a partner of WBCP, is
also a director of the Company and may be deemed to be a beneficial owner
of the Company's Common Stock owned by WBCP.
(5) Includes 308,926 shares of Common Stock held by Mellon Bank as Trustee for
the General Motors Salaried Employees Pension Trust and 308,926 shares of
Common Stock held by Mellon Bank as Trustee for the General Motors Hourly
Rate Employees Pension Fund.
(6) Includes options to purchase up to 109,551 shares of Common Stock.
(7) Includes options to purchase up to 13,529 shares of Common Stock.
(8) Includes options to purchase up to 16,147 shares of Common Stock.
(9) Includes options to purchase up to 6,982 shares of Common Stock.
(10) Includes 2,571,773 shares of Common Stock held by WCAS V, 2,587,939 shares
of Common Stock held by WCAS VI, 62,233 shares of Common Stock held by WCAS
Info. and 370,993 shares of Common Stock held by WCAS CP II. Mr. McInerney
disclaims beneficial ownership of such shares.
(11) Includes 2,571,773 shares of Common Stock held by WCAS V, 2,587,939 shares
of Common Stock held by WCAS VI, 62,233 shares of Common Stock held by WCAS
Info. and 370,993 shares of Common Stock held by WCAS CP II. Mr. de Nicola
disclaims beneficial ownership of such shares.
(12) Includes 601,489 shares of Common Stock held by Blair V and 313,830 shares
of Common Stock held by Blair LCF. Mr. Murray disclaims beneficial
ownership of such shares.
61
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 30,000,000 shares of
Common Stock, and 5,000,000 shares of Preferred Stock. Upon completion of this
Offering, and after giving effect to the Recapitalization and the Reverse Stock
Split, there will be 11,581,204 shares of Common Stock (12,107,304 shares if the
Underwriters' over-allotment option is exercised) and no shares of Preferred
Stock outstanding. As of June 30, 1998, before giving effect to the
Recapitalization and the Reverse Stock Split there were 26,049,938 shares of
Common Stock outstanding and 239,956 shares of Preferred Stock outstanding, held
of record by 127 stockholders. In addition, as of June 30, 1998, before giving
effect to the Recapitalization and the Reverse Stock Split there were
outstanding options to purchase 2,213,600 shares of Common Stock and warrants to
purchase 481,440 shares of Common Stock. Pursuant to the Recapitalization, all
such warrants will be exercised (for an aggregate 66,375 post Reverse Stock
Split shares), and all shares of Preferred Stock will be converted into an
aggregate 2,229,982 shares of Common Stock (based on the aggregate liquidation
preference of the Preferred Stock as of June 30, 1998, after giving effect to
the Reverse Stock Split and assuming no exercise of the Underwriters'
over-allotment option) prior to the consummation of the Offering. On July 17,
1998, the Company issued to Medic a warrant to purchase 1,250,000 shares of the
Company's Common Stock. See "Prospectus Summary -- Recent Developments."
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of stockholders. Subject to the rights
and preferences of the holders of any outstanding Preferred Stock, the holders
of Common Stock are entitled to receive ratably such dividends as are declared
by the Board of Directors out of funds legally available therefor. In the event
of a liquidation, dissolution or winding up of the Company, holders of Common
Stock have the right to a ratable portion of assets remaining after the payment
of all debts and other liabilities, subject to the liquidation preferences of
the holders of any outstanding Preferred Stock. Holders of Common Stock have
neither preemptive rights nor rights to convert their Common Stock into any
other securities and are not subject to future calls or assessments by the
Company. There are no redemption or sinking fund provisions applicable to the
Common Stock. All outstanding shares of Common Stock are, and the shares offered
hereby upon issuance and sale will be, fully paid and non-assessable. The
rights, preferences and privileges of the holders of Common Stock are subject
to, and may be adversely affected by, the rights of the holders of shares of
Preferred Stock that the Company may designate and issue in the future.
PREFERRED STOCK
Upon the closing of this Offering and assuming no exercise of the
Underwriters' over-allotment option, all of the outstanding shares of the
Preferred Stock together with accrued but unpaid dividends thereon will be
automatically converted at the public offering price into 2,229,982 shares of
Common Stock.
The Board of Directors is authorized, subject to certain limitations
prescribed by Delaware law, without further action by the stockholders, to issue
up to 5,000,000 shares of Preferred Stock, $.01 par value, in one or more series
and to fix the rights, preferences, privileges and restrictions thereof,
including dividend rights, conversion rights, voting rights, terms of
redemption, liquidation preferences, sinking fund terms and the number of shares
constituting any series or the designation of such series. The Company believes
that the power to issue Preferred Stock will provide flexibility in connection
with possible corporate transactions. The issuance of Preferred Stock, however,
could adversely affect the voting power of holders of Common Stock and restrict
their rights to receive payments upon liquidation. It could also have the effect
of delaying, deferring or preventing a change in control of the Company. The
Company has no present plans to issue any shares of Preferred Stock.
WARRANTS
As of June 30, 1998, there were outstanding warrants to purchase 66,375
shares of Common Stock (on a "net exercise" basis) held by four investors. These
warrants will be exercised in full upon the closing of this Offering.
62
<PAGE>
On July 17, 1998 the Company granted to Medic the Medic Warrant to acquire
1,250,000 shares of the Company's Common Stock, at a per share exercise price
equal to the price of the Common Stock to the public in the Offering. The Medic
Warrant vests over a two year period and may be exercised up to five years after
issuance.
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 90 days nor more
than 120 days prior to the anniversary of the immediately preceding annual
meeting. The notice by a stockholder must contain, among other things, certain
information about the stockholder delivering the notice and a description of the
proposed business to be brought before the meeting.
Certain of the provisions of the Amended and Restated Certificate of
Incorporation and Bylaws discussed above could make more difficult or discourage
a proxy contest or other change in the management of the Company or the
acquisition or attempted acquisition of control by a holder of a substantial
block of the Company's stock. It is possible that such provisions could make it
more difficult to accomplish, or could deter, transactions which stockholders
may otherwise consider to be in their best interests.
As permitted by the DGCL, the Amended and Restated Certificate of
Incorporation provides that Directors of the Company shall not be personally
liable to the Company or its stockholders for monetary damages for breach of
their fiduciary duties as Directors, except for liability (i) for any breach of
their duty of loyalty to the Company and its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) for unlawful payments of dividends or unlawful stock
repurchases or redemptions, as provided in Section 174 or successor provisions
of the DGCL or (iv) for any transaction from which the Director derives an
improper personal benefit.
The Amended and Restated Certificate of Incorporation and Bylaws provide
that the Company shall indemnify its Directors and officers to the fullest
extent permitted by Delaware law (except in some circumstances, with respect to
suits initiated by the Director or officer) and advance expenses to such
Directors or officers to defend any action for which rights of indemnification
are provided. In addition, the Amended and Restated Certificate of Incorporation
and Bylaws also permit the Company to grant such rights to its employees and
agents. The Bylaws also provide that the Company may enter into indemnification
agreements with its Directors and officers and purchase insurance on behalf of
any person whom it is required or permitted to indemnify. The Company believes
that these provisions will assist the Company in attracting and retaining
qualified individuals to serve as Directors, officers and employees.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is ChaseMellon
Shareholder Services.
63
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this Offering there has been no market for the Common Stock of the
Company. The Company can make no prediction as to the effect, if any, that sales
of shares or the availability of shares for sale will have on the market price
prevailing from time to time. Nevertheless, sales of significant amounts of the
Common Stock in the public market, or the perception that such sales may occur,
could adversely affect prevailing market prices. See "Risk Factors -- Shares
Eligible for Future Sale."
Upon completion of this Offering, the Company expects to have 11,581,204
shares of Common Stock outstanding (excluding 483,041 shares reserved for
issuance upon the exercise of outstanding stock options and 1,250,000 shares
reserved for issuance upon the exercise of the Medic Warrant) (12,121,204 shares
of Common Stock outstanding if the Underwriters' over-allotment option is
exercised in full). Of these shares, the 3,600,000 shares offered hereby will be
freely tradable without restrictions or further registration under the
Securities Act, except for any shares purchased by "affiliates" of the Company,
as that term is defined in Rule 144 under the Securities Act, which will be
subject to the resale limitations imposed by Rule 144, as described below.
All of the remaining 7,981,204 shares of Common Stock outstanding will be
"restricted securities" within the meaning of Rule 144 and may not be resold in
the absence of registration under the Securities Act, or pursuant to exemptions
from such registration including, among others, the exemption provided by Rule
144 under the Securities Act. Of the restricted securities, 590,768 shares are
eligible for sale in the public market immediately after this Offering pursuant
to Rule 144(k) under the Securities Act. A total of 7,343,585 additional
restricted securities will be eligible for sale in the public market in
accordance with Rule 144 or 701 under the Securities Act beginning 90 days after
the date of this Prospectus. Taking into consideration the effect of the lock-up
agreements described below and the provisions of Rules 144 and 144(k),
__________ restricted shares will be eligible for sale in the public market
immediately after this Offering, restricted shares (excluding ______shares
issuable upon the exercise of outstanding stock options) will be eligible for
sale beginning 90 days after the date of this Prospectus, and the remaining
restricted shares will be eligible for sale upon the expiration of the lock-up
agreements 180 days after the date of this Prospectus, subject to the provisions
of Rule 144 under the Securities Act.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, a person (or persons whose shares are required to
be aggregated) whose restricted securities have been outstanding for at least
one year, including a person who may be deemed an "affiliate" of the Company,
may only sell a number of shares within any three-month period which does not
exceed the greater of (i) one percent of the then outstanding shares of the
Company's Common Stock (approximately 115,673 shares after this Offering) or
(ii) the average weekly trading volume in the Company's Common Stock in the four
calendar weeks immediately preceding such sale. Sales under Rule 144 are also
subject to certain requirements as to the manner of sale, notice and the
availability of current public information about the Company. A person who is
not an affiliate of the issuer, has not been an affiliate within three months
prior to the sale and has owned the restricted securities for at least two years
is entitled to sell such shares under Rule 144(k) without regard to any of the
limitations described above.
In addition, the Company has granted demand and piggyback registration
rights to WCAS CP II with respect to 370,993 shares of Common Stock and to Medic
with respect to 1,250,000 shares of Common Stock issuable upon the exercise of
the Medic Warrant. All or part of such shares may be sold in the public market
following the exercise of such rights subject to the lock-up arrangements
described below with respect to WCAS CP II and to vesting and exercise
requirements with respect to the Medic Warrant.
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
64
<PAGE>
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."
65
<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,
66
<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-
67
<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.
68
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
MEDE AMERICA CORPORATION:
Independent Auditors' Report ............................................................ F-2
Consolidated Balance Sheets as of June 30, 1996 and 1997 and March 31, 1998 ............. F-3
Consolidated Statements of Operations for the Years Ended June 30, 1995, 1996 and 1997
and the Nine Months Ended March 31, 1997 (Unaudited) and 1998 ......................... F-4
Consolidated Statements of Stockholders' Equity (Deficit) for the Years Ended June 30,
1995, 1996 and 1997 and the Nine Months Ended March 31, 1998 .......................... F-5
Consolidated Statements of Cash Flows for the Years Ended June 30, 1995, 1996 and 1997
and the Nine Months Ended March 31, 1997 (Unaudited) and 1998 ......................... F-6
Notes to Consolidated Financial Statements .............................................. F-7
THE STOCKTON GROUP, INC.:
Independent Auditors' Report ............................................................ F-21
Statements of Income for the Year Ended June 30, 1997 and the Three Months Ended
September 30, 1997 (Unaudited) ........................................................ F-22
Notes to Financial Statement ............................................................ F-23
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
MEDE America Corporation
We have audited the accompanying consolidated balance sheets of MEDE America
Corporation and subsidiaries (the "Company") as of June 30, 1996 and 1997 and
March 31, 1998, and the related consolidated statements of operations,
stockholders' equity (deficit) and cash flows for each of the three years in the
period ended June 30, 1997 and the nine months ended March 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of MEDE America Corporation and
subsidiaries as of June 30, 1996 and 1997 and March 31, 1998, and the results of
their operations and their cash flows for each of the three years in the period
ended June 30, 1997 and the nine months ended March 31, 1998 in conformity with
generally accepted accounting principles.
Jericho, New York
May 8, 1998
(July 17, 1998 as to Note 13)
The accompanying consolidated financial statements include the effects of a
reverse stock split of the Company's common stock anticipated to be approved by
the Company's Board of Directors prior to the consummation of this public
offering. The above opinion is in the form which will be signed by Deloitte &
Touche LLP upon consummation of the reverse stock split, which is described in
Note 13 of the notes to consolidated financial statements and assuming that,
from May 8, 1998 to the date of such reverse stock split, no other events will
have occurred that would affect the accompanying consolidated financial
statements and notes thereto.
DELOITTE & TOUCHE LLP
Jericho, New York
July 22, 1998
F-2
<PAGE>
MEDE AMERICA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 AND 1997 AND MARCH 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
JUNE 30, EQUITY
--------------------------- MARCH 31, MARCH 31,
1996 1997 1998 1998
------------ ------------ ----------- --------------
(UNAUDITED)
(NOTE 1.O.)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ...................................... $ 2,639 $ 1,919 $ 1,455
Accounts receivable, less allowance for doubtful accounts of
$1,400, $1,716, and $958, respectively........................ 5,989 6,318 7,463
Formulary receivables .......................................... 74 405 1,502
Inventory ...................................................... 136 172 240
Prepaid expenses and other current assets ...................... 661 486 489
--------- --------- ---------
Total current assets ......................................... 9,499 9,300 11,149
PROPERTY AND EQUIPMENT -- Net (Notes 3 and 6) ................... 5,601 5,517 4,944
GOODWILL -- Net (Notes 1 and 2) ................................. 23,059 25,177 32,408
OTHER INTANGIBLE ASSETS -- Net (Notes 1 and 4) .................. 4,340 5,014 5,247
OTHER ASSETS .................................................... 532 451 431
--------- --------- ---------
TOTAL ........................................................... $ 43,031 $ 45,459 $ 54,179
========= ========= =========
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
EQUITY
CURRENT LIABILITIES:
Accounts payable ............................................... $ 2,567 $ 2,134 $ 2,753
Accrued expenses and other current liabilities (Notes 5 and
10) .......................................................... 9,739 9,195 4,880
Current portion of long-term debt (Note 6) ..................... 1,400 538 240
--------- --------- ---------
Total current liabilities .................................... 13,706 11,867 7,873
--------- --------- ---------
LONG-TERM DEBT (Note 6) ......................................... 10,201 24,623 40,259
--------- --------- ---------
OTHER LONG-TERM LIABILITIES (Note 10) ........................... 1,173 215 761
--------- --------- ---------
REDEEMABLE CUMULATIVE PREFERRED STOCK:
$.01 par value; 250 shares authorized; 240 shares issued
and outstanding (aggregate liquidation value of $23,996 plus ac-
crued dividends) (Note 9) .................................... 26,423 28,823 30,623 $ --
--------- --------- --------- ---------
COMMITMENTS AND CONTINGENCIES (Note 11)
STOCKHOLDERS' (DEFICIT) EQUITY:
Common stock, $.01 par value; 6,329 shares authorized; 5,280,
5,671, and 5,680 shares issued and outstanding, respectively 53 57 57 79
Additional paid-in capital ..................................... 27,850 27,713 26,069 56,670
Accumulated (deficit) equity ................................... (36,375) (47,839) (51,463) (51,463)
--------- --------- --------- ---------
Total stockholders' (deficit) equity ......................... (8,472) (20,069) (25,337) $ 5,286
--------- --------- --------- ---------
TOTAL ........................................................... $ 43,031 $ 45,459 $ 54,179
========= ========= =========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
MEDE AMERICA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 1995, 1996 AND 1997 AND
NINE MONTHS ENDED MARCH 31, 1997 (UNAUDITED) AND 1998
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED JUNE 30, MARCH 31,
------------------------------------------ ---------------------------
1995 1996 1997 1997 1998
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES .......................................... $ 16,246 $ 31,768 $ 35,279 $ 24,964 $ 30,189
--------- --------- --------- -------- --------
OPERATING EXPENSES:
Operations ....................................... 9,753 19,174 16,817 12,104 12,485
Sales, marketing and client services ............. 3,615 7,064 8,769 6,143 7,769
Research and development (Note 1) ................ 2,051 2,132 3,278 2,455 2,886
General and administrative ....................... 3,119 6,059 5,263 3,340 3,307
Depreciation and amortization .................... 2,995 5,176 5,293 3,502 4,846
Contingent consideration paid to former owners of
acquired businesses (Note 2) ................... -- 538 2,301 990 --
Write-down of intangible assets (Note 1) ......... 8,191 9,965 -- -- --
Acquired in-process research and development
(Note 2) ....................................... -- -- 4,354 4,354 --
Spin-off expense (Note 10) ....................... 2,864 -- -- -- --
--------- --------- --------- -------- --------
Total operating expenses ......................... 32,588 50,108 46,075 32,888 31,293
--------- --------- --------- -------- --------
LOSS FROM OPERATIONS .............................. (16,342) (18,340) (10,796) (7,924) (1,104)
OTHER (INCOME) EXPENSE (Note 12) .................. -- 313 (893) (885) 13
INTEREST EXPENSE, Net ............................. 189 584 1,504 779 2,470
--------- --------- --------- -------- --------
LOSS BEFORE PROVISION FOR INCOME
TAXES ............................................ (16,531) (19,237) (11,407) (7,818) (3,587)
PROVISION FOR INCOME TAXES (Note 7) ............... 70 93 57 43 37
--------- --------- --------- -------- --------
NET LOSS .......................................... (16,601) (19,330) (11,464) (7,861) (3,624)
PREFERRED STOCK DIVIDENDS ......................... (27) (2,400) (2,400) (1,800) (1,800)
--------- --------- --------- -------- --------
NET LOSS APPLICABLE TO COMMON
STOCKHOLDERS ..................................... $ (16,628) $ (21,730) $ (13,864) $ (9,661) $ (5,424)
========= ========= ========= ======== ========
BASIC NET LOSS PER COMMON SHARE ................... $ (3.17) $ (4.14) $ (2.56) $ (1.81) $ (0.96)
========= ========= ========= ======== ========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING -- BASIC ............................. 5,238 5,245 5,425 5,345 5,677
========= ========= ========= ======== ========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
MEDE AMERICA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED JUNE 30, 1995, 1996 AND 1997 AND
NINE MONTHS ENDED MARCH 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
----------------- PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT EQUITY (DEFICIT)
-------- -------- ------------ ------------- -----------------
<S> <C> <C> <C> <C> <C>
BALANCE, JULY 1, 1994 (Note 1) ........................ -- $-- $ 23,540 $ (444) $ 23,096
Net loss ............................................. -- -- -- (16,601) (16,601)
Preferred stock dividends ............................ -- -- (27) -- (27)
Capital contribution by stockholders and shares issued
in connection with MEDE OHIO acquisition, and
capital reorganization (Note 8) .................... 5,237 52 3,952 -- 4,004
Capital contribution of intercompany debt owed to CES
resulting from the Spin-off (Note 10) .............. -- -- 2,470 -- 2,470
----- --- -------- --------- ---------
BALANCE, JUNE 30, 1995 ................................ 5,237 52 29,935 (17,045) 12,942
Net loss ............................................. -- -- -- (19,330) (19,330)
Preferred stock dividends ............................ -- -- (2,400) -- (2,400)
Issuance of warrants ................................. -- -- 121 -- 121
Exercise of stock options ............................ 43 1 194 -- 195
----- --- -------- --------- ---------
BALANCE, JUNE 30, 1996 ................................ 5,280 53 27,850 (36,375) (8,472)
Net loss ............................................. -- -- -- (11,464) (11,464)
Preferred stock dividends ............................ -- -- (2,400) -- (2,400)
Issuance of common stock ............................. 371 4 2,121 -- 2,125
Issuance of warrants ................................. -- -- 52 -- 52
Exercise of stock options ............................ 20 -- 90 -- 90
----- --- -------- --------- ---------
BALANCE, JUNE 30, 1997 ................................ 5,671 57 27,713 (47,839) (20,069)
Net loss ............................................. -- -- -- (3,624) (3,624)
Preferred stock dividends ............................ -- -- (1,800) -- (1,800)
Issuance of warrants ................................. -- -- 98 -- 98
Exercise of stock options ............................ 9 -- 40 -- 40
Compensation relating to grant of options ............ -- -- 18 -- 18
----- --- -------- --------- ---------
BALANCE, MARCH 31, 1998 ............................... 5,680 $57 $ 26,069 $ (51,463) $ (25,337)
===== === ======== ========= =========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
MEDE AMERICA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1995, 1996 AND 1997 AND NINE MONTHS
ENDED MARCH 31, 1997 (UNAUDITED) AND 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------------
1995 1996 1997
--------------- ------------- ----------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ..................................................... $(16,601) $ (19,330) $ (11,464)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization ............................... 2,995 5,176 5,418
Provision for doubtful accounts ............................. 518 406 316
Write-down of intangible assets ............................. 8,191 9,965 --
Acquired in-process research and development ................ -- -- 4,354
(Gain) loss on sale of assets ............................... -- 313 (8)
Non-cash compensation expense ............................... -- -- --
Changes in operating assets and liabilities net of
effects of businesses acquired:
Accounts receivable ........................................ 648 977 (861)
Formularly receivables ..................................... -- (74) (331)
Inventory .................................................. (66) 262 (45)
Prepaid expenses and other current assets .................. (85) (179) 175
Other assets ............................................... 74 243 13
Accounts payable and accrued expenses and other cur-
rent liabilities ......................................... (589) 997 (629)
Other long-term liabilities ................................ 1,354 (409) (958)
-------- --------- -----------
Net cash used in operating activities .................... (3,561) (1,653) (4,020)
-------- --------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Business acquisitions, net of cash acquired .................. (21,566) (3,648) (11,450)
Purchases of property and equipment .......................... (508) (1,271) (1,477)
Additions to goodwill and other intangible assets ............ -- -- (143)
Proceeds from sale of property and equipment ................. -- -- 461
Proceeds from sale of net assets of Premier .................. -- -- 388
-------- --------- -----------
Net cash used in investing activities .................... (22,074) (4,919) (12,221)
-------- --------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Due to stockholders .......................................... 4,484 (4,484) --
Issuance of Senior Subordinated Note ......................... -- -- 22,875
Issuance of preferred stock .................................. 23,996 -- --
Issuance of common stock ..................................... 4,004 -- 2,125
Proceeds from intercompany debt due to CES ................... 1,297 -- --
Net proceeds (repayments) under Credit Facility .............. -- 8,250 (8,250)
Principal repayments of debt ................................. (1) (2,852) (801)
Principal repayments of capital lease obligations ............ (346) (452) (518)
Exercise of stock options .................................... -- 195 90
---------- --------- -----------
Net cash provided by financing activities ................ 33,434 657 15,521
---------- --------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS .................................................. 7,799 (5,915) (720)
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD ....................................................... 755 8,554 2,639
---------- --------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD....................... $ 8,554 $ 2,639 $ 1,919
========== ========= ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Interest .................................................... $ 246 $ 394 $ 1,541
========== ========= ===========
Income taxes ................................................ $ 348 $ 69 $ 111
========== ========= ===========
Non-cash investing and financing activities:
Assets acquired under capital leases or by incurring debt..... $ 848 $ 205 $ 129
========== ========= ===========
Issuance of warrants ......................................... $ -- $ 121 $ 52
========== ========= ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
-----------------------------
1997 1998
-------------- --------------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ..................................................... $ (7,861) $ (3,624)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization ............................... 3,543 5,096
Provision for doubtful accounts ............................. 195 265
Write-down of intangible assets ............................. -- --
Acquired in-process research and development ................ 4,354 --
(Gain) loss on sale of assets ............................... (8) 13
Non-cash compensation expense ............................... -- 18
Changes in operating assets and liabilities net of
effects of businesses acquired:
Accounts receivable ........................................ 17 (1,410)
Formularly receivables ..................................... (105) (1,097)
Inventory .................................................. 9 (68)
Prepaid expenses and other current assets .................. 94 (3)
Other assets ............................................... 84 118
Accounts payable and accrued expenses and other cur-
rent liabilities ......................................... (2,368) (3,696)
Other long-term liabilities ................................ (945) 546
---------- ----------
Net cash used in operating activities .................... (2,991) (3,842)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Business acquisitions, net of cash acquired .................. (11,450) (10,674)
Purchases of property and equipment .......................... (703) (646)
Additions to goodwill and other intangible assets ............ (83) (492)
Proceeds from sale of property and equipment ................. 218 182
Proceeds from sale of net assets of Premier .................. 388 --
---------- ----------
Net cash used in investing activities .................... (11,630) (11,630)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Due to stockholders .......................................... -- --
Issuance of Senior Subordinated Note ......................... 22,875 --
Issuance of preferred stock .................................. -- --
Issuance of common stock ..................................... 2,125 --
Proceeds from intercompany debt due to CES ................... -- --
Net proceeds (repayments) under Credit Facility .............. (8,250) 15,925
Principal repayments of debt ................................. (636) (508)
Principal repayments of capital lease obligations ............ (336) (449)
Exercise of stock options .................................... 40 40
---------- ----------
Net cash provided by financing activities ................ 15,818 15,008
---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS .................................................. 1,197 (464)
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD ....................................................... 2,639 1,919
---------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD....................... $ 3,836 $ 1,455
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Interest .................................................... $ 368 $ 1,734
========== ==========
Income taxes ................................................ $ 34 $ 95
========== ==========
Non-cash investing and financing activities:
Assets acquired under capital leases or by incurring debt..... $ 14 $ 120
========== ==========
Issuance of warrants ......................................... $ 52 $ 98
========== ==========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
MEDE AMERICA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1995, 1996 AND 1997 AND
NINE MONTHS ENDED MARCH 31, 1997 AND 1998
(Information as it relates to the nine months
ended March 31, 1997 is unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Description of Business - MEDE America Corporation and subsidiaries (the
"Company") is a leading provider of electronic data interchange ("EDI")
products and services to a broad range of providers and payors in the
healthcare industry. The Company's integrated suite of EDI products and
services permits hospitals, pharmacies, physicians, dentists, and other
healthcare providers and provider groups to electronically edit, process and
transmit claims, eligibility and enrollment data, track claims submissions
through the claims payment process and obtain faster reimbursement for their
services.
The accompanying consolidated financial statements include the accounts of
MEDE America Corporation and its wholly-owned subsidiaries: MEDE America,
Inc. ("MEDE"), Medical Processing Center, Inc. ("MPC"), Wellmark Incorporated
("Wellmark"), Electronic Claims and Funding, Inc. ("EC&F"), Premier Dental
Systems Corp. ("Premier"), and MEDE America Corporation of Ohio, Inc. ("MEDE
OHIO") (formerly General Computer Corporation). MPC, Wellmark, and MEDE
formerly constituted the healthcare information services business unit of
Card Establishment Services ("CES"). On March 9, 1995, CES was acquired by
First Data Corporation. Prior to this transaction, the former owners of CES
spun off the healthcare information services business unit as a new company
with MEDE America Corporation formed to serve as the holding company (the
"Spin-off"). Because there was no change in ownership as a result of this
Spin-off, the accompanying consolidated financial statements accounted for
MEDE, MPC, and Wellmark on an historical cost basis. Effective July 1, 1997,
MEDE, MPC and EC&F were merged into MEDE America Corporation.
The Company has instituted certain cost reduction programs and anticipates
continuing improvements in its operations. The Company anticipates that these
changes, among others, should bring the Company to profitability which, when
coupled with its revolving credit facility, will enable the Company to
satisfy its short-term cash flow and working capital requirements.
Additionally, the Company has received support from certain of its
stockholders in the past and believes that continued support would be
available if necessary to meet cash flow and working capital requirements.
However, if the IPO (as herein defined) is consummated as proposed, such
stockholders may not provide continued support (see Note 13).
b. Principles of Consolidation -- All significant intercompany transactions and
balances are eliminated in consolidation.
c. Revenue Recognition -- Transaction and related formularly services revenues
(if applicable) are recognized at the time the transactions are processed and
the services are rendered. Other service revenues (including post-contract
customer support) and other revenues (including revenues relating to
insignificant obligations at the time sales are recorded) are recognized
ratably over applicable contractual periods or as service is provided.
Revenue from the licensing of software is recognized only after it is
determined that the Company has no significant remaining obligations and that
collectibility of the resulting receivable is probable. Revenue from hardware
sales is recognized when the hardware is shipped.
d. Cash and Cash Equivalents -- The Company considers all highly liquid
instruments with original maturity dates of three months or less to be
components of cash and cash equivalents.
e. Accounts Receivable -- Accounts receivable are due primarily from companies
in the healthcare industry. Credit is extended based on an evaluation of the
customer's financial condition, and generally collateral is not required.
F-7
<PAGE>
MEDE AMERICA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
f. Formularly Receivables -- Formularly receivables represent amounts due for
pharmacy related services provided to Practice Benefit Management ("PBM")
clients. Services include prescription processing from EDI transactions and
collecting and distributing pharmaceutical company fees for sponsored
programs to the PBM client. These receivables have a 7-12 month collection
cycle.
g. Inventory -- Inventory is stated at the lower of cost (first-in, first-out)
or market.
h. Property and Equipment -- Property and equipment is stated at cost less
accumulated depreciation and amortization, and is depreciated using the
straight-line method over the estimated useful lives of the related assets.
i. Goodwill -- Goodwill represents the excess of cost over the fair value of net
assets acquired and is amortized on a straight-line basis over 7 to 20 years.
Accumulated amortization amounted to $1,858,000 $3,306,000 and $4,816,000 as
of June 30, 1996 and 1997 and March 31, 1998, respectively.
j. Other Intangible Assets -- Other intangible assets include purchased client
lists, purchased software and technology, and capitalized software
development costs. Purchased client lists are amortized on a straight-line
basis over three to five years. Amortization of purchased software and
technology and of capitalized software development costs is provided on a
product-by-product basis at the greater of the amount computed using (a) the
ratio of current revenues for a product to the total of current and
anticipated future revenues or (b) the straight-line method over the
remaining estimated economic life of the product. Generally, an original
estimated economic life of three to five years is assigned to purchased
software and technology and an original estimated economic life of five years
is assigned to capitalized software development costs. Amortization begins in
the period in which the related product is available for general release to
customers.
k. Software Development Costs -- The development of new software products and
enhancements to existing software products are expensed as incurred until
technological feasibility has been established. After technological
feasibility is established, any additional costs are capitalized in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 86,
"Accounting For the Cost of Computer Software To Be Sold, Leased or Otherwise
Marketed." During the nine months ended March 31, 1998, the Company
capitalized $319,000 of software development costs on a project for which
technological feasibility had been established but was not yet available for
customer release. Prior to July 1, 1997, the Company did not have any
software development projects for which significant development costs were
incurred between the establishment of technological feasibility and general
customer release of the product.
l. Impairment of Long-Lived Assets -- In accordance with SFAS No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of," the Company continually evaluates whether events and
circumstances have occurred that indicate the remaining estimated useful life
of goodwill and/or other intangible assets may warrant revision or that all
or a portion of the remaining balance may not be recoverable.
As a result of this evaluation process, during the fiscal year ended June 30,
1995, the Company wrote-off goodwill totaling $8,191,000 related to the
acquisitions of MPC and Wellmark. Such write-off was required as a result of
losses incurred by MPC and Wellmark, the absence of new business generated by
MPC and Wellmark (which the Company's management attributed to obsolete
technology), projected operating and cash flow losses for MPC and Wellmark
and as a result of the June 1995 acquisition of Latpon (as hereinafter
defined) whose software technology was utilized to replace the systems used
by MPC and Wellmark to provide services to clients. Also, as a result of this
evaluation process, during the fiscal year ended June 30, 1996, the Company
wrote-down approximately $9,965,000 of costs relating to client lists and
related allocable goodwill obtained in the acquisition of MEDE OHIO. Such
intangible assets were written down to the net present value of the estimated
future cash flows to be derived from these clients as of June 30, 1996. The
write-down was required due to a loss of approximately 25% of the acquired
MEDE OHIO client base.
F-8
<PAGE>
MEDE AMERICA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
m. Income Taxes -- The Company accounts for income taxes under SFAS No. 109,
"Accounting For Income Taxes," which requires recognition of deferred tax
assets and liabilities for the expected future tax consequences of events
that have been included in the Company's financial statements or tax returns.
Under this method, deferred tax assets and liabilities are determined based
on the differences between the financial accounting and tax bases of assets
and liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse.
n. Use of Estimates in the Preparation of Financial Statements -- The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
o. Pro Forma Stockholders' Equity -- Pro forma stockholders' equity as of March
31, 1998 reflects the conversion of 239,956 shares of preferred stock plus
$6,627,000 of accrued preferred stock dividends at the assumed initial public
offering ("IPO") price of $14.00 per share. See Note 13.
p. Unaudited Interim Financial Statements -- In the opinion of management, the
unaudited consolidated financial statements for the nine months ended March
31, 1997 are presented on a basis consistent with the audited consolidated
financial statements and reflect all adjustments, consisting of only normal
recurring adjustments, necessary for a fair presentation of the results
thereof. The results of operation for interim periods are not necessarily
indicative of the results to be expected for the entire year.
q. Reclassifications -- Certain amounts in prior years' financial statements
have been reclassified to conform with the 1998 presentation.
2. ACQUISITIONS
a. MEDE OHIO -- In March 1995, the majority stockholder of the Company acquired
all of the outstanding shares of MEDE OHIO for a cash purchase price of
approximately $22,593,000, including transaction expenses. The majority
stockholder subsequently merged MEDE OHIO into the Company (the "Merger") and
contributed an additional $1,279,000 as part of the capital reorganization
described in Note 8a. The Merger was recorded using the purchase method of
accounting. The purchase price paid by the Company for MEDE OHIO to its
majority stockholder was equal to the purchase price paid by its majority
stockholder. Therefore, the purchase accounting adjustments relating to the
acquisition of MEDE OHIO are based upon the estimated fair values of acquired
assets and liabilities upon their acquisition by the majority stockholder of
the Company in March 1995. Purchased software and technology and client lists
were valued at $892,000 and $2,527,000, respectively. Purchased software and
technology generally is being amortized over three years and purchased client
lists are being amortized over five years (see Note 1). MEDE OHIO is a
developer of electronic systems which provide EDI services relating to
insurance claims for prescription and other medical services.
b. Latpon -- In June 1995, the Company purchased certain assets of Latpon Health
Systems, Incorporated ("Latpon") for a cash purchase price of approximately
$2,470,000, plus the assumption of approximately $963,000 of liabilities
(primarily long-term debt). Purchased software and technology and client
lists were valued at $850,000 and $143,000, respectively, and generally are
being amortized over five years. Latpon provides electronic claims processing
for hospital and hospital-based physician groups, as well as business office
services that electronically and manually manage business office
administration.
c. EC&F and Premier -- In October 1995, the Company acquired all of the
outstanding shares of EC&F and Premier, which companies had common ownership,
for a cash purchase price of approximately $4,050,000, including transaction
expenses. The transaction was financed through loans ob-
F-9
<PAGE>
MEDE AMERICA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
tained from the Company's majority stockholder. Such loans were subsequently
repaid with borrowings under the Company's Credit Facility. In addition, the
Company is contingently liable for additional consideration if certain
earnings levels are attained relating to EC&F during the three-year period
following the consummation of the transaction. At June 30, 1996, the Company
accrued $538,000 in connection with the contingent liability relating to
earnings levels attained during the first year. At June 30, 1997, the Company
accrued a settlement totaling $2,216,000 relating to the contingent liability
for the second and third years. Purchased software and technology was valued
at $764,000 and generally is being amortized over three years. EC&F and
Premier are developers of electronic systems which provide EDI services to
the dental industry. In March 1997, the Company sold the operating net assets
of Premier for $540,000, including the buyer's assumption of $152,000 of
Premier liabilities. There was no gain or loss on the sale of such net
assets.
d. TCS -- In February 1997, the Company purchased certain assets of Time-Share
Computer Systems, Inc. ("TCS") for $11,465,000, including transaction
expenses. Purchased research and development, which had not reached
technological feasibility and had no alternative future use amounted to
$4,354,000 and was charged to operations at the acquisition date. Purchased
software and technology was valued at $2,619,000 and generally is being
amortized over three years. TCS provides data processing and information
management services to healthcare providers and pharmacies through integrated
electronic data interchange systems. The acquisition was financed by a
portion of the proceeds from the Senior Subordinated Note and Share Purchase
Agreement (as hereinafter defined) (Note 6).
e. Stockton -- In November 1997, the Company purchased certain assets and
assumed certain liabilities of The Stockton Group, Inc. ("Stockton") for a
cash purchase price of $10,674,000, including transaction expenses. In
addition, the Company is contingently liable for additional consideration of
up to $2,600,000 (plus interest at an annual rate of 7.25%) if Stockton's
revenue during the 12-month period ended September 30, 1998 is at least
$5,000,000. No accrual has been made for this contingent liability as of
March 31, 1998. Such contingent consideration will be treated as additional
purchase price and will, therefore, be added to goodwill when and if it
becomes accruable. Purchased software and technology and client lists were
valued at $968,000 and $742,000, respectively, and generally are being
amortized over five years. Stockton is engaged in the business of providing
EDI and transaction processing services to the healthcare industry. The
transaction was financed through borrowings under the Company's revolving
credit facility.
These acquisitions were recorded using the purchase method of accounting and,
accordingly, the results of operations of these acquired companies are included
in the consolidated results of operations of the Company since the dates of
their respective acquisitions. The purchase price of each acquisition has been
allocated to the respective net assets acquired based upon their fair values.
Goodwill, which represents the excess of cost over the estimated fair value of
the net assets acquired, for these transactions were as follows: MEDE OHIO --
$22,395,000; Latpon -- $1,298,000; EC&F and Premier -- $3,586,000; TCS --
$4,092,000 and Stockton -- $8,704,000. Goodwill is being amortized over 20 years
except for the goodwill recorded in connection with the acquisition of TCS which
is being amortized over seven years.
F-10
<PAGE>
MEDE AMERICA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The following unaudited pro forma information for the year ended June 30, 1997
and the nine months ended March 31, 1998 includes the operations of the Company,
inclusive of the operations of both TCS and Stockton as if the acquisitions had
occurred at July 1, 1996. This pro forma information gives effect to the
amortization expense associated with goodwill and other intangible assets
acquired, adjustments related to the fair market value of the assets and
liabilities acquired, interest expense relating to financing the acquisitions,
and related income tax effects.
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
JUNE 30, 1997 MARCH 31, 1998
--------------- ------------------
(IN THOUSANDS)
<S> <C> <C>
Revenues .................................... $ 41,824 $ 31,835
========= ========
Loss from operations ........................ $ (11,253) $ (515)
========= ========
Net loss .................................... $ (13,604) $ (3,320)
========= ========
Net loss applicable to common stock ......... $ (16,004) $ (5,120)
========= ========
Basic net loss per share .................... $ (2.95) $ (0.90)
========= ========
</TABLE>
3. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
JUNE 30,
USEFUL LIVES ------------------- MARCH 31,
(IN YEARS) 1996 1997 1998
-------------- -------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Land .......................................... $ 489 $ 210 $ 104
Building and improvements ..................... 20-25 2,452 2,190 2,156
Furniture and fixtures ........................ 5 897 1,150 1,229
Computer equipment ............................ 3-5 4,077 5,696 6,442
------ ------ ------
7,915 9,246 9,931
Less accumulated depreciation and amortization. 2,314 3,729 4,987
------ ------ ------
Property and equipment -- net ................. $5,601 $5,517 $4,944
====== ====== ======
</TABLE>
4. OTHER INTANGIBLE ASSETS
Other intangible assets consist of the following:
<TABLE>
<CAPTION>
JUNE 30,
--------------------- MARCH 31,
1996 1997 1998
--------- --------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Purchased client lists .................... $2,989 $2,989 $3,732
Less, accumulated amortization ............ 925 1,518 2,016
------ ------ ------
2,064 1,471 1,716
------ ------ ------
Purchased software and technology ......... 3,727 6,494 7,544
Less, accumulated amortization ............ 1,451 2,951 4,332
------ ------ ------
2,276 3,543 3,212
------ ------ ------
Software development costs ................ -- -- 319
------ ------ ------
Other intangible assets -- net ............ $4,340 $5,014 $5,247
====== ====== ======
</TABLE>
F-11
<PAGE>
MEDE AMERICA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
5. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of the following:
<TABLE>
<CAPTION>
JUNE 30,
--------------------- MARCH 31,
1996 1997 1998
--------- --------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Accrued wages and related employee benefits ......... $1,020 $1,010 $1,554
Rebate liability .................................... 2,926 488 47
Pharmacy claims liability ........................... 91 576 798
Accrued professional fees ........................... 496 795 109
Deferred revenue .................................... 933 749 822
Accrued reorganization costs (Note 10) .............. 1,273 1,008 --
Due to former owners of acquired business ........... 538 2,216 --
Accrued litigation settlement ....................... -- 860 145
Accrued interest .................................... 22 5 717
Other ............................................... 2,440 1,488 688
------ ------ ------
Total ............................................... $9,739 $9,195 $4,880
====== ====== ======
</TABLE>
6. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
JUNE 30,
----------------------- MARCH 31,
1996 1997 1998
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Senior subordinated note less unamortized discount of $2,000,000 at
June 30, 1997 and $1,750,000 at March 31, 1998 (a).................... $ -- $23,000 $23,250
Credit Facility (b) ................................................... 8,250 -- 15,925
Obligations under capital leases (c) .................................. 1,158 769 440
Loan payable relating to an acquisition, collateralized by
$261,000 of certificates of deposits at March 31, 1998 due in
quarterly payments of $15,000 through February 2002, interest at 6.7
percent............................................................... 392 342 291
Note payable, in connection with the sale of certain assets due in
monthly installments of $6,000 through January 2000, interest at 6.8
percent .............................................................. 241 180 131
Notes payable to former shareholders of EC&F, repaid in 1998 .......... 117 95 --
Note payable, collateralized by land and building of MEDE OHIO, due in
monthly installments of $19,000 through July 2000, interest at 12.5
percent .............................................................. 730 592 462
Note payable to bank, repaid in 1997 .................................. 296 -- --
Note payable to bank, repaid in 1998 .................................. 173 173 --
Other ................................................................. 244 10 --
------- ------- -------
11,601 25,161 40,499
Less current portion .................................................. 1,400 538 240
------- ------- -------
Total ................................................................. $10,201 $24,623 $40,259
======= ======= =======
</TABLE>
F-12
<PAGE>
MEDE AMERICA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(a) On February 14, 1997, the Company entered into an agreement with an
affiliate of certain shareholders of the Company under which the Company
issued a $25,000,000 senior subordinated note (the "Senior Subordinated
Note") and 370,993 shares of its common stock valued at $2,125,000
(representing the estimated fair value of the Common Stock) for total
consideration of $25,000,000 (the "Senior Subordinated Note and Share
Purchase Agreement"). The $2,125,000 relating to the shares of common stock
was recorded as a discount on the Senior Subordinated Note and is being
amortized over the term of the Senior Subordinated Note. The Senior
Subordinated Note bears interest at the rate of 10% per annum, payable
quarterly. One half of the principal sum is due on February 14, 2001, and
the second half is due on February 14, 2002. The terms of the Senior
Subordinated Note and Share Purchase Agreement place restrictions on the
consolidation, merger, or sale of the Company, indebtedness, and the payment
of any cash dividends.
(b) The revolving line of credit from a bank (the "Credit Facility") , as
currently amended on October 30, 1997, provides for maximum borrowings of
$20,000,000 and expires on October 31, 1999. Borrowings under the agreement
bear interest at either the bank's base rate, as defined, plus .25% or an
offshore rate, as defined, plus 1.25%. The weighted average interest rate on
outstanding borrowings at March 31, 1998 was 7.07%. The Company is required
to pay a commitment fee of .375% per annum on the unused portion of the
Credit Facility. All borrowings under the agreement are guaranteed by
certain stockholders of the Company. In consideration for the granting of
such guarantees, the stockholders were issued warrants to purchase 52,530
shares (valued at $121,000), 18,330 shares (valued at $52,000) and 34,200
shares (valued at $98,000) of the Company's common stock during the years
ended June 30, 1996 and 1997 and the nine months ended March 31, 1998,
respectively. All warrants issued were valued using the Black-Scholes Option
Pricing Model. The aggregate fair value of these warrants is recorded in
other assets as deferred financing costs and is being amortized over the
life of the agreement. The terms of the agreement, among other matters,
require the Company to maintain certain leverage and interest coverage
ratios and place restrictions on additional investments, indebtedness and
the payment of any cash dividends.
(c) The Company leases certain computer and office equipment under capital lease
arrangements expiring through July 2000. The gross value of the equipment
held under capital leases was $1,980,000, $2,110,000, and $2,247,000 as of
June 30, 1996 and 1997 and March 31, 1998, respectively, and the related
accumulated amortization was $994,000, $1,524,000, and $1,848,000,
respectively.
Maturities of long-term debt as of March 31, 1998 are as follows:
<TABLE>
<CAPTION>
DISCOUNT
YEAR ENDING JUNE 30, GROSS ON NOTE NET
- -------------------------------------------------------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
1998 (three months from April 1, 1998 to June 30, 1998). $ 180 $ 92 $ 88
1999 ................................................... 580 394 186
2000 ................................................... 16,354 435 15,919
2001 ................................................... 12,591 481 12,110
2002 ................................................... 12,544 348 12,196
------- ------ -------
Total .................................................. $42,249 $1,750 $40,499
======= ====== =======
</TABLE>
Based upon the borrowing rates currently available to the Company for loans with
similar terms, the fair value of the Company's debt approximates the carrying
amounts.
7. INCOME TAXES
The provision for income taxes for the fiscal years ended June 30, 1995, 1996
and 1997 and the nine months ended March 31, 1997 and 1998 consists entirely of
current state income taxes.
F-13
<PAGE>
MEDE AMERICA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The provision for income taxes varies from the amount computed by applying the
statutory U.S. Federal income tax rate to the loss before provision for income
taxes as a result of the following:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED JUNE 30, MARCH 31,
------------------------------------------ ---------------------------
1995 1996 1997 1997 1998
------------ ------------ ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
U.S. Federal statutory rate ................... $ (5,621) $ (6,541) $ (3,878) $ (2,658) $ (1,220)
Increases (reductions) due to:
Nondeductible expenses ....................... 1,169 3,674 293 220 183
State taxes .................................. 70 93 57 43 37
Net operating losses not producing current tax
benefits ................................... 4,452 2,867 3,585 2,438 1,037
-------- -------- -------- -------- --------
Total ........................................ $ 70 $ 93 $ 57 $ 43 $ 37
======== ======== ======== ======== ========
</TABLE>
The net deferred tax asset is comprised of the following:
<TABLE>
<CAPTION>
JUNE 30,
--------------------------- MARCH 31,
1996 1997 1998
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Accounts receivable .................................... $ 607 $ 685 $ 375
Inventory .............................................. 2 -- --
Property and equipment ................................. (45) (61) 197
Goodwill ............................................... 2,024 3,540 3,619
Other intangible assets ................................ (163) 366 410
Accrued expenses and other current liabilities ......... 2,026 1,264 666
Net operating loss carryforwards ....................... 10,121 12,656 13,861
--------- --------- ---------
14,572 18,450 19,128
Less valuation allowance ............................... (14,572) (18,450) (19,128)
--------- --------- ---------
Total .................................................. $ -- $ -- $ --
========= ========= =========
</TABLE>
The valuation allowance increased during the years ended June 30, 1996 and 1997
and the nine months ended March 31, 1998 primarily as a result of additional net
operating loss carryforwards and net deductible temporary differences, for which
realization was not considered to be more likely than not. In the event that the
tax benefits relating to the valuation allowance are subsequently realized,
approximately $5,600,000 of benefits would reduce goodwill.
As of March 31, 1998, the Company had Federal net operating loss carryforwards
of approximately $34,650,000. Such loss carryforwards expire in the fiscal years
2005 through 2013. Because of the changes in ownership, as defined in the
Internal Revenue Code, which occurred during 1995 and 1996, certain net
operating loss carryforwards are subject to annual limitations.
8. STOCKHOLDERS' EQUITY
a. Capital Reorganization -- In connection with the acquisition and subsequent
merger of MEDE OHIO into the Company (Note 2), the capital structure of the
Company was adjusted such that each existing common stockholder of the
Company had the right to receive, in exchange for each common share held,
either (i) a cash payment of one dollar (the "MEDE Cash Consideration"), or
(ii) a unit consisting of one-half of one share of MEDE America Corporation
newly issued common stock and five one-thousandths of a share of MEDE America
Corporation newly issued preferred stock ("MEDE Unit"), together with cash in
lieu of fractional interests.
F-14
<PAGE>
MEDE AMERICA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The Merger agreement required that a minimum of $5,000,000 of additional
capital be contributed to the Company through the issuance of additional MedE
Units ("Additional MEDE Units"). Stockholders who elected to receive the MEDE
Units were eligible to purchase, through a subscription agreement, Additional
MEDE Units up to the number that would maintain their pre-merger ownership
percentage. The majority stockholder of the Company guaranteed, by adjusting
the number of additional units they would purchase, that the excess of cash
received from the sale of Additional MEDE Units over the MEDE Cash
Consideration would yield the minimum of $5,000,000 of additional capital.
As a result of the Merger and the related capital reorganization, the Company
issued 5,237,456 shares of newly issued common stock and 239,956 shares of
newly issued preferred stock (Note 9).
The Company distributed $4,484 of MEDE Cash Consideration during July 1995.
b. Stock Option and Restricted Stock Purchase Plan -- In March 1995, the Company
established a stock option and restricted stock purchase plan (the "Stock
Plan"). The Stock Plan permits the granting of any or all of the following
types of awards: incentive stock options ("ISOs"); nonqualified stock options
("NQSO"); or restricted stock. The Stock Plan authorizes the issuance of
655,000 shares of common stock. ISOs may not be granted at a price less than
the fair market value of the Company's common stock on the date of grant (or
110 percent of the fair market value in the case of persons holding ten
percent or more of the voting stock of the Company) and expire not more than
ten years from the date of grant (five years in the case of ISOs granted to
persons holding ten percent or more of the voting stock of the Company). The
vesting period relating to the ISOs is determined by the Option Committee of
the Board of Directors at the date of grant. The exercise price, expiration
date, and vesting period relating to NQSOs are determined by the Option
Committee of the Board of Directors at the date of grant.
The table below summarizes the activity of the Stock Plan for the years ended
June 30, 1995, 1996 and 1997 and the nine months ended March 31, 1998:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER EXERCISE AVERAGE
OF PRICE EXERCISE
SHARES RANGE PRICE
------------ --------------- -----------
<S> <C> <C> <C>
Balance July 1, 1994 ............ -- $ -- $ --
Options granted ............... 480,316 $ 4.58 $ 4.58
------- ------------ -------
Balance June 30, 1995 ........... 480,316 $ 4.58 $ 4.58
Options granted ............... 117,950 $ 4.58 $ 4.58
Options exercised ............. (42,556) $ 4.58 $ 4.58
Canceled/lapsed ............... (91,217) $ 4.58 $ 4.58
------- ------------ -------
Balance, June 30, 1996 .......... 464,493 $ 4.58 $ 4.58
Options granted ............... 51,059 $ 4.58-$5.73 $ 5.17
Options exercised ............. (19,642) $ 4.58 $ 4.58
Canceled/lapsed ............... (65,684) $ 4.58 $ 4.58
------- ------------ -------
Balance, June 30, 1997 .......... 430,226 $ 4.58-$5.73 $ 4.64
Options granted ............... 81,926 $ 5.73 $ 5.73
Options exercised ............. (8,598) $ 4.58-$5.73 $ 4.64
Canceled/lapsed ............... (15,057) $ 4.58-$5.73 $ 4.62
------- ------------ -------
Balance, March 31, 1998 ......... 488,497 $ 4.58-$5.73 $ 4.83
======= ============ =======
</TABLE>
F-15
<PAGE>
MEDE AMERICA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
During March 1998, the Company granted 47,565 options at an exercise price of
$5.73 per share. Based upon an independent valuation, the Company later
learned that the value of the Company's stock at the date of grant was $6.09.
As a result, the Company recorded compensation expense of $18,000 relating to
the granting of these options.
Significant option groups outstanding at March 31, 1998 and related weighted
average price and life information were as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICE OUTSTANDING LIFE (YEARS) PRICE EXERCISABLE PRICE
- ---------------- ------------- -------------- ---------- ------------- ---------
<S> <C> <C> <C> <C> <C>
$ 4.58 381,260 7.5 $ 4.58 201,394 $ 4.58
$ 5.73 107,237 9.6 $ 5.73 10,689 $ 5.73
------- -------
488,497 7.9 $ 4.83 212,083 $ 4.64
======= =======
</TABLE>
The Company applies APB opinion No. 25 and related interpretations in
accounting for its Option Plan. Accordingly, no compensation cost has been
recognized. If compensation cost for the Company's stock options had been
determined consistent with SFAS No. 123, "Accounting for Stock-Based
Compensation," the Company's net loss and net loss per share for the years
ended June 30, 1996 and 1997 and the nine months ended March 31, 1998 would
have been as follows:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED JUNE 30, ENDED
----------------------------- MARCH 31,
1996 1997 1998
------------- ------------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net loss -- as reported ......................... $ (19,330) $ (11,464) $ (3,624)
Net loss -- pro forma ........................... (19,345) (11,518) (3,678)
Basic net loss per share -- as reported ......... (4.14) (2.56) (0.96)
Basic net loss per share -- pro forma ........... (4.15) (2.57) (0.96)
</TABLE>
The weighted average fair value of the options granted for the years ended
June 30, 1996 and 1997, and for the nine months ended March 31, 1998 is
estimated at $1.56, $1.83, and $1.92 on the date of grant (using the minimum
value option pricing model) with the following weighted average assumptions
for the years ended June 30, 1996 and 1997, and for the nine months ended
March 31, 1998, respectively: a risk-free interest rate of 5.93%, 6.39%, and
5.86%; an expected option life of seven years and no expected volatility or
dividend yield. As required by SFAS No. 123, the impact of outstanding
nonvested stock options granted prior to July 1, 1995 has been excluded from
the pro forma calculation; accordingly, the 1996, 1997 and 1998 pro forma
adjustments are not indicative of future period pro forma adjustments when
the calculation will apply to all applicable stock options.
F-16
<PAGE>
MEDE AMERICA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
c. Net income (loss) per share -- In 1997, the Company adopted SFAS No. 128,
"Earnings Per Share." Basic income per share is determined by using the
weighted average number of shares of common stock outstanding during each
period. Diluted income per share further assumes the issuance of common
shares for all dilutive outstanding stock options and warrants as calculated
using the treasury stock method. Diluted earnings per share is not shown for
any of the periods presented because the effect of including outstanding
options and warrants would be antidilutive. The calculation for the years
ended June 30, 1995, 1996 and 1997 and the nine months ended March 31, 1997
and 1998 was as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------------------------------------
1995 1996
---------------------------------- ----------------------------------
PER-SHARE PER-SHARE
LOSS SHARES AMOUNT LOSS SHARES AMOUNT
------------- -------- ----------- ------------- -------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net loss .......................... $ (16,601) $ (19,330)
Less: Preferred dividends ......... (27) (2,400)
--------- ---------
Basic net loss per share .......... $ (16,628) 5,238 $(3.17) $ (21,730) 5,245 $(4.14)
========= ===== ====== ========= ===== ======
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------
1997
---------------------------------
PER-SHARE
LOSS SHARES AMOUNT
------------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Net loss .......................... $ (11,464)
Less: Preferred dividends ......... (2,400)
---------
Basic net loss per share .......... $ (13,864) 5,425 $(2.56)
========= ===== ======
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED MARCH 31,
----------------------------------------------------------------------------
1997 1998
------------------------------------- ------------------------------------
PER-SHARE PER-SHARE
LOSS SHARES AMOUNT LOSS SHARES AMOUNT
------------ -------- ----------- ------------ -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net loss .......................... $ (7,861) $ (3,624)
Less: Preferred dividends ......... (1,800) (1,800)
-------- --------
Basic net loss per share .......... $ (9,661) 5,345 $(1.81) $ (5,424) 5,677 $(0.96)
======== ===== ====== ======== ===== ======
</TABLE>
9. REDEEMABLE CUMULATIVE PREFERRED STOCK
As of June 30, 1996 and 1997 and March 31, 1998, the Company had outstanding
239,956 shares of preferred stock. The preferred stock is subject to mandatory
redemption in two equal installments on May 31, 2001 and 2002; however, the
Company may redeem the preferred stock in whole at any time or in part from time
to time at its option. The Company would also be required to redeem the
preferred stock should it consummate a public offering of its common stock
pursuant to which the Company receives aggregate net proceeds of at least
$15,000,000. (See Note 13).
The redemption price, as well as liquidation value, of the preferred stock is
$100 per share plus any accrued but unpaid dividends. Dividends on this
preferred stock, which are cumulative, are payable, if declared, at $10 per
share per annum. No dividends have been declared or paid. At March 31, 1998,
cumulative undeclared and unpaid dividends on this preferred stock totaled
$6,627,000.
10. SPIN-OFF TRANSACTIONS
a. Spin-Off Expenses -- As a result of the Spin-off (Note 1), the Company
recorded a charge amounting to $2,864,000. Such charge represented amounts to
be paid to former stockholders of MEDE (who remained as executives of MEDE)
pursuant to contractual agreements which required such payments to be made
upon a change in control. The net present value of remaining payments totaled
$1,420,000 and $1,005,000 as of June 30, 1996 and 1997, respectively, of
which $500,000 and $1,005,000 were included in accrued reorganization costs
as of June 30, 1996 and 1997, respectively, and $920,000 was included in
other long-term liabilities as of June 30, 1996.
b. Capital Contribution of Intercompany Debt to CES -- On March 9, 1995, the
date of the Spin-off, Wellmark and MPC owed CES $2,247,000 and $492,000,
respectively. Such balances were forgiven concurrent with the Spin-off. In
addition, the Company assumed approximately $269,000 of liabilities relating
to CES employees. The net amount was recorded as a contribution of capital to
the Company at the Spin-off date.
F-17
<PAGE>
MEDE AMERICA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
11. COMMITMENTS AND CONTINGENCIES
a. Leases -- The Company leases certain offices and equipment under operating
leases. The minimum noncancelable lease payments are as follows (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDING JUNE 30,
- -------------------
<S> <C>
1998 (three months from April 1, 1998 to June 30, 1998). $ 225
1999 ................................................... 909
2000 ................................................... 914
2001 ................................................... 809
2002 ................................................... 571
Thereafter ............................................. 381
------
Total minimum lease payments ........................... $3,809
======
</TABLE>
Rent expense for the years ended June 30, 1995, 1996 and 1997 and the nine
months ended March 31, 1997 and 1998 was $951,000, $853,000, $1,093,000,
$800,000 and $837,000, respectively.
b. Litigation -- The Company is engaged in various litigation in the ordinary
course of business. Management, based upon the advice of legal counsel, is of
the opinion that the amounts which may be awarded or assessed in connection
with these matters, if any, will not have a material effect on the
consolidated financial position or results of operations.
c. Employment Contracts -- The Company has employment contracts with certain of
its employees with annual enumeration ranging from $95,000 to $110,000.
Future minimum payments under these contracts are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING JUNE 30,
- --------------------
<S> <C>
1998 (three months from April 1, 1998 to June 30, 1998). $ 51
1999 ................................................... 205
2000 ................................................... 80
----
$336
====
</TABLE>
d. Defined Contribution Plans -- The Company maintained four defined
contribution plans (the "Plans") for all eligible employees, as defined by
the Plans until April 1, 1996. On April 1, 1996, the Company combined the
Plans into one defined contribution plan (the "New Plan"). The Company
previously made matching contributions at various percentages to three of the
Plans in accordance with the respective Plan documents and currently makes
matching contributions to the New Plan in an amount equal to fifty percent of
the employee salary deductions to a maximum of four percent of the employees
salary in accordance with the New Plan document. The Company incurred
$130,000, $197,000, $227,000, $169,000 and $148,000 for employer
contributions to the Plans/New Plan for the years ended June 30, 1995, 1996,
and 1997 and the nine months ended March 31, 1997 and 1998, respectively.
F-18
<PAGE>
MEDE AMERICA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
e. Service Agreements -- The Company has entered into service agreements with
telecommunications providers which require the Company to utilize certain
minimum monthly amounts of the services of such providers. These agreements
expire through November 2001. The Company was in compliance with the terms of
these agreements as of March 31, 1998. The minimum monthly amounts under
these agreements are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING JUNE 30,
- --------------------
<S> <C>
1998 (three months from April 1, 1998 to June 30, 1998). $ 477
1999 ................................................... 1,795
2000 ................................................... 1,497
2001 ................................................... 1,429
2002 ................................................... 543
-------
Total .................................................. $ 5,741
=======
</TABLE>
12. OTHER INCOME
In February 1997, the Company exercised 26,712 options to purchase common shares
of First Data Corporation and subsequently sold the common shares resulting in a
pre-tax gain of $885,000. Such options were issued to former employees of the
Company prior to the Spin-off but reverted to the Company upon the termination
of these employees.
13. SUBSEQUENT EVENTS
a. Proposed Public Offering -- In 1998, the Company determined to work towards
an IPO of the Company's common stock on a firm commitment basis. The proposed
IPO contemplates that a total of 3,600,000 shares of common stock will be
offered at a price between $13.00 and $15.00 per share. The net proceeds of
the IPO will be used to retire all outstanding balances under its Senior
Subordinated Note and its Credit Facility plus any related accrued interest
(Note 6) and for other general corporate purposes including working capital.
b. Reverse Stock Split and Increase in Authorized Common Stock and Preferred
Stock -- In conjunction with the proposed IPO, the Company intends to
authorize a reverse stock split of all issued and outstanding common shares
at the rate of 1 for 4.5823, which will decrease the number of issued and
outstanding shares as of March 31, 1998 from approximately 26,025,000 to
approximately 5,680,000. This intended stock split has been retroactively
reflected in the accompanying financial statements for all periods presented.
The Company also intends to increase the number of shares of authorized
common stock to 30,000,000 and the number of shares of authorized preferred
stock to 5,000,000.
c. Recapitalization -- In conjunction with the proposed IPO, the Company
contemplates a recapitalization of its capital stock (the
"Recapitalization"). The Recapitalization involves the conversion of all
outstanding preferred stock into common stock (based upon liquidation value
as defined in Note 9) and the exercise of all outstanding warrants (Note 6).
However, cash realized by the Company upon any exercise of the underwriters'
overallotment option would be applied to the payment of accrued dividends in
lieu of having such dividends convert into common stock. To effect the
conversion of preferred stock, the Company must first amend the preferred
stock agreement to allow convertibility. The preferred stock conversion will
be effected based upon the IPO price per share. Assuming an IPO price of
$14.00 per share and no exercise of the underwriters' overallotment, the
preferred stock will be converted into approximately 2,187,000 shares of
common stock. The warrants will be converted, in a cashless exercise, into
approximately 66,000 shares of common stock.
d. Stock Purchase Plan -- In anticipation of the proposed IPO, the Board has
approved the 1998 Employee Stock Purchase Plan (the "Purchase Plan").
Employees of the Company, including direc-
F-19
<PAGE>
MEDE AMERICA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED )
tors of the Company who are employees, are eligible to participate in
quarterly plan offerings in which payroll deductions may be used to
purchase shares of common stock. The purchase price of such shares is the
lower of 85 percent of the fair market value of the common stock on the day
the offering commences and 85 percent of the fair market value of the
common stock on the date the offering terminates. The first offering period
under the Purchase Plan will not commence until the completion of the IPO.
e. New Stock Option and Restricted Stock Purchase Plan -- In anticipation of
the proposed IPO, the Board has approved the 1998 Stock Option and
Restricted Stock Purchase Plan (the "New Stock Plan"). The New Stock Plan
permits the granting of any or all of the following types of awards:
incentive stock options; nonqualified stock options; restricted stock; or
other stock-based awards, to officers, employees, directors, consultants
and advisors of the Company. To date, no options have been granted under
the New Stock Plan, however, the Board determined to grant options to
purchase an aggregate 400,000 shares of common stock pursuant to the New
Stock Plan to certain employees of the Company (including certain executive
officers) contingent upon consummation of the IPO. Such options, which
include both incentive and non-qualified stock options, will have an
exercise price equal to the price to the public in the IPO and generally
will vest ratably over four years from the date of grant except that the
initial installment of options to be granted to certain executive officers
will vest immediately upon consummation of the IPO.
f. Revolving Line of Credit -- During July 1998, the Company received a letter
from the lender under the Credit Facility committing to provide an amended
credit facility with total available credit of $15.0 million. This facility
would be comprised of a $7.5 million term loan to be used for acquisitions
and a $7.5 million revolving credit loan to be used for working capital
purposes, each with a maximum term of two years from October 31, 1998.
Interest for the term and revolver loans is computed at .25% above the
bank's base rate, or 1.25% above a Eurodollar based rate. Such borrowing
rates are at the option of the Company for any particular period during
which borrowings exist.
g. Transaction Processing Agreement -- On July 17, 1998, the Company entered
into a Transaction Processing Agreement (the "Processing Agreement") with
Medic Computer Systems, Inc. ("Medic"), a subsidiary of Misys plc that
develops and licenses software for healthcare providers, principally
physicians, MSOs and PPMs. Under the Processing Agreement, the Company will
undertake certain software development obligations, and on July 1, 1999 it
will be the exclusive processor (subject to certain exceptions) for Medic's
subscribers for medical reimbursement claims submitted to payors with whom
MedE has or establishes connectivity. Under the Processing Agreement, the
Company will be entitled to certain revenues to be paid by payors as well
as certain fees to be paid by Medic. The Processing Agreement sets forth
detailed performance criteria and development and implementation
timetables. The Processing Agreement is for a fixed term of five years,
with annual renewals thereafter.
Contemporaneously, to ensure a close working relationship between the
parties, on July 17, 1998 the Company granted to Medic a warrant (the
"Medic Warrant") to acquire 1,250,000 shares of the Company's Common Stock,
at a per share exercise price equal to the price of the Common Stock to the
public in the Offering. The Medic Warrant vests over a two year period and
may be exercised up to five years after issuance. The Medic Warrant
contains customary weighted average antidilution provisions. The Company
and the principal stockholders associated with WCAS and WBCP have agreed
that following the completion of the Offering and until the earlier of the
termination of the Processing Agreement or the disposition by Medic and its
affilates of at least 25% of the shares of Common Stock issuable under the
Medic Warrant, Medic shall have the right to designate one director to the
Company's Board of Directors. Medic has not yet named a designee.
F-20
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholder of
The Stockton Group, Inc.:
We have audited the accompanying statement of income of The Stockton Group, Inc.
(the "Company") for the year ended June 30, 1997. This financial statement is
the responsibility of the Company's management. Our responsibility is to express
an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statement of income is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the statement of income. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall statement of income presentation.
We believe that our audit of the statement of income provides a reasonable basis
for our opinion.
In our opinion, such statement of income presents fairly, in all material
respects, the results of operations of the Company for the year ended June 30,
1997 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Charlotte, North Carolina
October 7, 1997
F-21
<PAGE>
THE STOCKTON GROUP, INC.
STATEMENTS OF INCOME
YEAR ENDED JUNE 30, 1997 AND THE THREE MONTHS
ENDED SEPTEMBER 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
JUNE 30, 1997 SEPTEMBER 30, 1997
--------------- -------------------
(UNAUDITED)
<S> <C> <C>
REVENUES ....................................... $ 3,801,953 $1,056,748
OPERATING EXPENSES:
Operations .................................... (563,295) (137,495)
Sales, marketing, and client services ......... (899,366) (203,133)
Research and development ...................... (103,153) (24,405)
General and administrative .................... (159,517) (72,425)
Non-cash stock compensation (Note 4) .......... (1,280,000) --
Depreciation and amortization ................. (109,336) (37,411)
------------ ----------
Total operating expenses .................... (3,114,667) (474,869)
------------ ----------
INCOME FROM OPERATIONS ......................... 687,286 581,879
INTEREST EXPENSE ............................... (111,260) (22,574)
OTHER INCOME ................................... 11,229 8,020
------------ ----------
NET INCOME (Note 1) ............................ $ 587,255 $ 567,325
============ ==========
</TABLE>
See notes to financial statement.
F-22
<PAGE>
THE STOCKTON GROUP, INC.
NOTES TO FINANCIAL STATEMENT
YEAR ENDED JUNE 30, 1997 AND THE THREE MONTHS ENDED
SEPTEMBER 30, 1997 (UNAUDITED)
(INFORMATION AS IT RELATES TO THE THREE MONTHS ENDED
SEPTEMBER 30, 1997 IS UNAUDITED)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Description of Business -- The Stockton Group, Inc. (the "Company"), was
incorporated as an S Corporation in the State of South Carolina in July 1993.
The Company provides computer-based prescription drug claims processing to
Pharmaceutical Benefit Managers ("PBMs"), Health Maintenance Organizations
("HMOs"), Preferred Provider Organizations ("PPOs"), insurance companies,
Third-Party Administrators ("TPAs"), self-insured employers, and Taft-Hartley
Funds. The Company's services range from claims processing to full-service
program management, including eligibility verification, drug coverages and
exclusions, concurrent utilization review, drug pricing verification, supply
limitations and other applicable plan design requirements. The Company supports
a network of over 40,000 pharmacies nationwide.
In addition to claims processing fees, the Company receives rebate revenue from
drug manufacturers for prescription drug transactions that are processed through
the Company's system.
Use of Estimates in the Preparation of Financial Statements -- The preparation
of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates.
Major Customers -- For the year ended June 30, 1997, three customers accounted
for approximately 15%, 12% and 10%, respectively, of total revenues.
Revenue Recognition -- Revenue from prescription drug claims processing services
and rebates from drug manufacturers are recognized when the services are
delivered.
Property and Equipment -- Property and equipment is depreciated using the
double-declining balance method over the estimated useful lives of the related
assets. Assets under capital leases are depreciated using the straight-line
method over the lease term.
Income Taxes -- The Company has elected to be taxed as an S Corporation, and as
such its income is included in the current taxable income of its stockholder.
Accordingly, no provision has been made in the accompanying financial statements
for federal or state income taxes.
Unaudited Interim Financial Statement -- In the opinion of management, the
unaudited statement of income for the three months ended September 30, 1997 is
presented on a basis consistent with the audited statement of income and
reflects all adjustments, consisting of only normal recurring adjustments,
necessary for a fair presentation of the results thereof. The results of
operations for the three months ended September 30, 1997 is not necessarily
indicative of the results to be expected for the entire year.
2. NOTE PAYABLE TO STOCKHOLDER
The Company had a note payable to stockholder with an outstanding principal
balance of $359,621 at June 30, 1997. The note bore interest at a rate of prime
plus .25% (8.75% at June 30, 1997).
3. LEASE COMMITMENTS
The Company leased certain equipment under operating leases expiring at various
dates through April 2000. Rent expense for the year ended June 30, 1997 was
approximately $12,000.
F-23
<PAGE>
THE STOCKTON GROUP, INC.
NOTES TO FINANCIAL STATEMENT - (CONTINUED)
In addition, the Company leased its office facility and certain computer and
office equipment under capital lease arrangements with interest rates ranging
from 14.5% to 25%, expiring through July 2011. The lease arrangement for the
office facility was with a corporation in which the Company's sole stockholder
holds an ownership interest.
4. STOCK-BASED COMPENSATION ARRANGEMENTS
During 1994, the Company granted a key employee the right to acquire common
stock equivalent to a 25% equity ownership in the Company at no cost. The shares
have not yet been issued. At the date of the grant, the Company recorded
compensation cost equal to the fair market value of shares to be awarded to the
executive.
During 1997, the Company entered into an employment agreement with another new
key executive. Among other things, the agreement granted the executive the right
to acquire a 10% equity ownership in the Company at a nominal cost ($1.00) or,
if the Company is sold within one year, to receive 10% of the sales proceeds as
defined. Accordingly, the Company has recorded compensation cost in 1997, equal
to the estimated cash settlement to be paid to the executive based upon the
anticipated proceeds from the sale of the Company. (See Note 5).
5. SUBSEQUENT EVENT
In November 1997, the Company sold certain computer equipment, intangible assets
and the operations of the Company to MEDE America Corporation. All other assets
and liabilities remained with the Company. The purchase price was $10,400,000 in
cash. In addition, the purchase agreement requires additional consideration of
up to $2,600,000 (plus interest at an annual rate of 7.25%) to be paid if
Stockton's revenue during the 12-month period ended September 30, 1998 is at
least $5,000,000.
******
F-24
<PAGE>
====================================== ======================================
NO DEALER, SALESPERSON OR OTHER
PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY
REPRESENTATIONS CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS NOT
CONTAINED HEREIN MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY, ANY OF THE UNDERWRITERS OR BY 3,600,000 SHARES
ANY OTHER PERSON. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, ANY
SECURITIES OTHER THAN THE SHARES OF
COMMON STOCK OFFERED HEREBY, NOR DOES
IT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY OF [LOGO]
THE SECURITIES OFFERED HEREBY, TO ANY
PERSON IN ANY JURISDICTION IN WHICH IT
IS UNLAWFUL TO MAKE SUCH AN OFFER OR
SOLICITATION TO SUCH PERSON. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES CREATE ANY
IMPLICATION THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY MEDE AMERICA
DATE SUBSEQUENT TO THE DATE HEREOF. CORPORATION
---------------------------------
TABLE OF CONTENTS
PAGE
----
Prospectus Summary .............. 3 COMMON STOCK
Risk Factors .................... 10
Use Of Proceeds ................. 19
Dividend Policy ................. 19
Capitalization .................. 20
Dilution ........................ 21
Unaudited Pro Forma Consolidated
Financial Information ........ 22 --------------------------
Selected Financial Data ......... 29
Management's Discussion And PROSPECTUS
Analysis Of Financial
Condition And Results Of --------------------------
Operations ................... 31
Business ........................ 42
Management ...................... 53
Certain Transactions ............ 59
Principal Stockholders .......... 60
Description Of Capital Stock .... 62
Shares Eligible For Future Sale . 64
Underwriting .................... 66
Legal Matters ................... 67
Experts ......................... 67
Additional Information .......... 68 SALOMON SMITH BARNEY
Index To Financial Statements ... F-1
---------------------------------- WILLIAM BLAIR & COMPANY
UNTIL _____ , 1998 (25 DAYS AFTER
THE DATE OF THIS PROSPECTUS) ALL VOLPE BROWN WHELAN & COMPANY
DEALERS EFFECTING TRANSACTIONS IN THE
COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION,
MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS DELIVERY REQUIREMENT
IS IN ADDITION TO THE OBLIGATION OF
DEALERS TO DELIVER A PROSPECTUS WHEN JULY , 1998
ACTING AS UNDERWRITERS AND WITH
RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
====================================== ======================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the Registrant's expenses in connection with
the issuance and distribution of the securities being registered. Except for the
SEC Registration Fee and the National Association of Securities Dealers, Inc.
("NASD") Filing Fee, the amounts listed below are estimates:
<TABLE>
<S> <C>
SEC Registration Fee ......................... $ 18,320
NASD Filing Fee .............................. 6,710
Nasdaq Listing Fees .......................... *
Legal Fees and Expenses ...................... *
Blue Sky Fees and Expenses ................... 10,000
Accounting Fees and Expenses ................. *
Printing and Engraving ....................... *
Transfer Agent and Register Fees and Expenses. *
Miscellaneous ................................ $ *
---------
Total ........................................ $950,000
=========
</TABLE>
- ----------
* To be filed by Amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Amended and Restated Certificate of Incorporation (the
"Restated Certificate") and By-laws provide that the Company shall indemnify to
the fullest extent authorized by the Delaware General Corporation Law ("DGCL"),
each person who is involved in any litigation or other proceeding because such
person is or was a director or officer of the Company or is or was serving as an
officer or director of another entity at the request of the Company, against all
expense, loss or liability reasonably incurred or suffered in connection
therewith. The Restated Certificate and By-laws provide that the right to
indemnification includes the right to be paid expenses incurred in defending any
proceeding in advance of its final disposition; provided, however, that such
advance payment will only be made upon delivery to the Company of an
undertaking, by or on behalf of the director or officer, to repay all amounts so
advanced if it is ultimately determined that such director is not entitled to
indemnification. If the Company does not pay a proper claim for indemnification
in full within 60 days after a written claim for such indemnification is
received by the Company, the Restated Certificate and Restated Bylaws authorize
the claimant to bring an action against the Company and prescribe what
constitutes a defense to such action.
Section 145 of the DGCL permits a corporation to indemnify any director or
officer of the corporation against expenses (including attorney's fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
in connection with any action, suit or proceeding brought by reason of the fact
that such person is or was a director or officer of the corporation, and, with
respect to any criminal action or proceeding, if he or she had no reason to
believe his or her conduct was unlawful. In a derivative action, (i.e., one
brought by or on behalf of the corporation), indemnification may be made only
for expenses, actually and reasonably incurred by any director or officer in
connection with the defense or settlement of such an action or suit, if such
person acted in good faith and in a manner that he reasonably believed to be in,
or not opposed to, the best interests of the corporation, except that no
indemnification shall be made if such person shall have been adjudged to be
liable to the corporation, unless and only to the extent that the court in which
the action or suit was brought shall determine that the defendant is fairly and
reasonably entitled to indemnity for such expenses despite such adjudication of
liability.
II-1
<PAGE>
Pursuant to Section 102(b)(7) of the DGCL, the Restated Certificate
eliminates the liability of a director to the corporation or its stockholders
for monetary damages for such breach of fiduciary duty as a director, except for
liabilities arising (i) from any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) from acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (iii)
under Section 174 of the DGCL, or (iv) from any transaction from which the
director derived an improper personal benefit.
The Company expects to obtain primary and excess insurance policies
insuring the directors and officers of the Company against certain liabilities
that they may incur in their capacity as directors and officers. Under such
policies, the insurers, on behalf of the Company, may also pay amounts for which
the Company has granted indemnification to the directors or officers.
Additionally, reference is made to the Underwriting Agreement filed as
Exhibit 1.1 hereto, which provides for indemnification by the Underwriters of
the Company, its directors and officers who sign the Registration Statement and
persons who control the Company, under certain circumstances.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In the three years preceding the filing of this Registration Statement, the
Corporation has sold the following securities that were not registered under the
Securities Act:
(a) Issuances of Capital Stock
On June 27, 1995, in connection with the acquisition by the Registrant of
MEDE Ohio and a related offering, the Registrant issued an aggregate 239,956
shares of Preferred Stock and 13,999,538 shares of Common Stock to the
stockholders of the parent company of MEDE Ohio and stockholders of the
Registrant.
On December 18, 1995, in connection with their agreement to guarantee the
Registrant's obligations under a credit agreement between the Registrant and
Bank of America Illinois (the "Credit Facility"), the Registrant issued to WCAS
V, WCAS VI, Blair V and Blair LCF warrants to purchase an aggregate 240,720
shares of Common Stock at an exercise price of $1.00 per share.
On July 18, 1996, the Company issued 500 shares of Common Stock to Sharon
Hallberg, an employee of the Company, as a performance bonus.
On January 10, 1997, in connection with their agreement to guarantee
additional obligations of the Registrant under and amendment to the Credit
Facility, the Company issued to WCAS V, WCAS VI, Blair V and Blair LCF warrants
to purchase an aggregate 84,000 shares, of Common Stock at an exercise price of
$1.25 per share.
On February 14, 1997, the Company issued to WCAS CP II, for a purchase
price of $25 million, (i) a 10% Senior Subordinated Note due February 14, 2002
in the aggregate principal amount of $25,000,000 and (ii) 1,700,000 shares of
Common Stock.
On September 9, 1997, the Company issued 500 shares of Common Stock to Ed
Feltner, an employee of the Company, as a performance bonus.
On October 31, 1997, in connection with their agreement to guarantee
additional obligations of the Registrant under the amended Credit Agreement, the
Company issued to WCAS VI and Blair V warrants to purchase an aggregate 156,720
shares, of Common Stock at an exercise price of $1.25 per share.
On July 17, 1998, the Company granted to Medic the Medic Warrant to acquire
1,250,000 shares of the Company's Common Stock, at a per share exercise price
equal to the price of the Common Stock to the public in the Offering. The Medic
Warrant vests over a two year period and may be exercised up to five years after
issuance.
(b) Certain Grants and Exercises of Stock Options
The MEDE America Corporation and its Subsidiaries Stock Option and
Restricted Stock Purchase Plan was adopted by the Registrant's Board of
Directors on March 22, 1995. As of May 29, 1998, options to purchase up to an
aggregate 3,349,000 shares of Common Stock, had been granted to employees of the
II-2
<PAGE>
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
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C> <C>
1.1+ -- Form of Underwriting Agreement.
2.1+ -- Asset Purchase Agreement among MEDE AMERICA Corporation, General
Computer Corporation, Time-Share Computer Systems, et al, dated as
of February 3, 1997.
2.2+ -- Asset Purchase Agreement among MEDE AMERICA Corporation, General
Computer Corporation, The Stockton Group, et al, dated as of October
20, 1997.
3.1+ -- Certificate of Incorporation of the Registrant as amended.
3.2+ -- Form of Registrant's Amended and Restated Certificate of
Incorporation.
3.3+ -- Amended Bylaws of the Registrant.
3.4+ -- Agreement and Plan of Merger, dated as of May 17, 1995, between
MEDE AMERICA Corporation and GENCC Holdings Corporation.
4.1* -- Specimen certificate for shares of Common Stock.
4.2+ -- Note and Share Purchase Agreement between MEDE AMERICA
Corporation and WCAS Capital Partners II, L.P., dated as of February
14, 1997.
4.3+ -- Warrant Agreement dated as of October 31, 1997 among MEDE AMERICA
Corporation, Welsh, Carson, Anderson & Stowe V, L.P., Welsh, Carson
Anderson & Stowe VI, L.P., William Blair Leveraged Capital Fund
Limited Partnership and William Blair Capital Part- ners V, L.P.,
and Warrants issued thereunder.
4.4+ -- Warrant Agreement dated as of January 10, 1997 among MEDE AMERICA
Corporation, Welsh, Carson, Anderson & Stowe V, L.P., Welsh, Carson
Anderson & Stowe VI, L.P., William Blair Leveraged Capital Fund
Limited Partnership and William Blair Capital Part- ners V, L.P.,
and Warrants issued thereunder.
4.5+ -- Warrant Agreement dated as of December 18, 1995 among MEDE
AMERICA Corpora- tion, Welsh, Carson, Anderson & Stowe V, L.P.,
Welsh, Carson Anderson & Stowe VI, L.P., William Blair Leveraged
Capital Fund Limited Partnership and William Blair Capital Partners
V, L.P., and Warrants issued thereunder.
4.6 -- Registration Rights Agreement, dated as of February 14, 1997
between MEDE AMERICA Corporation and WCAS Capital Partners II, L.P.
4.7 -- Warrant, dated as of July 17, 1998, issued by MEDE AMERICA
Corporation to Medic Computer Systems, Inc.
4.8 -- Registration Rights Agreement, dated as of July 17, 1998 between
MEDE AMERICA Cor- poration and Medic Computer Systems, Inc.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C> <C>
4.9 -- Stockholders Agreement, dated as of July 17, 1998 among Medic
Computer Systems, Inc., Welsh, Carson, Anderson & Stowe V, L.P.,
Welsh, Carson, Anderson & Stowe VI, L.P., William Blair Capital
Partners V, L.P., WCAS Capital Partners II, L.P., and William Blair
Leveraged Capital Fund Limited Partnership.
4.10 -- Investment Agreement, dated as of July 17, 1998 between MEDE
AMERICA Corporation and Medic Computer Systems, Inc.
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 Enter- prises, LLC and Electronic Claims & Funding,
Inc.
10.6+ -- Commitment Letter dated July 15, 1998 from Bank of America
National Trust & Savings Association to MEDE AMERICA Corporation,
regarding amendment to Credit Facility.
10.7+ -- Form of Non-Competition, Non-Solicitation and Confidentiality
Agreement between MEDE AMERICA Corporation and Employees.
10.8+ -- MEDE AMERICA Corporation and Its Subsidiaries 1998 Stock Option
and Restricted Stock Purchase Plan.
10.9**-- Transaction Processing Agreement, dated as of July 17, 1998
between MEDE AMERICA Cor- poration and Medic Computer Systems, Inc.
10.10 -- MEDE AMERICA Corporation 1998 Employee Stock Purchase Plan.
21.1+ -- Subsidiaries of the Company.
23.1 -- Consent of Deloitte & Touche LLP, independent accountants.
23.2 -- Consent of Deloitte & Touche LLP, independent accountants.
23.3* -- Consent of Reboul, MacMurray, Hewitt, Maynard & Kristol (see
Exhibit 5.1).
24.1+ -- Power of Attorney.
27.1+ -- Financial Data Schedule.
</TABLE>
- ----------
* To be filed by amendment.
** Confidential treatment requested.
+ Previously filed.
(b) Financial Statement Schedules
Schedule II -- Valuation and Qualifying Accounts
ITEM 17. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the provisions described under "Item
14-Indemnification of Directors and Officers" above, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-4
<PAGE>
(b) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(c) The undersigned Registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting agreements,
certificates in such denominations and registered in such names as required by
the underwriter to permit prompt delivery to each purchaser.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to the Registration Statement to be signed on its
behalf by the undersigned thereunto duly authorized, on July 22, 1998.
MEDE AMERICA CORPORATION
By: THOMAS P. STAUDT
------------------------------
Thomas P. Staudt
President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities held on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
THOMAS P. STAUDT President and Chief Executive July 22, 1998
- ------------------------- Officer (Principal executive officer);
Thomas P. Staudt Director
THOMAS P. STAUDT Chief Financial Officer (Principal July 22, 1998
- ------------------------- financial and accounting officer)
Richard P. Bankosky
THOMAS P. STAUDT Director July 22, 1998
- -------------------------
Thomas E. McInerney
THOMAS P. STAUDT Director July 22, 1998
- -------------------------
Anthony J. de Nicola
THOMAS P. STAUDT Director July 22, 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 Part- ners V, L.P.,
and Warrants issued thereunder.
4.4+ -- Warrant Agreement dated as of January 10, 1997 among MEDE AMERICA
Corporation, Welsh, Carson, Anderson & Stowe V, L.P., Welsh, Carson
Anderson & Stowe VI, L.P., William Blair Leveraged Capital Fund
Limited Partnership and William Blair Capital Part- ners V, L.P.,
and Warrants issued thereunder.
4.5+ -- Warrant Agreement dated as of December 18, 1995 among MEDE
AMERICA Corpora- tion, Welsh, Carson, Anderson & Stowe V, L.P.,
Welsh, Carson Anderson & Stowe VI, L.P., William Blair Leveraged
Capital Fund Limited Partnership and William Blair Capital Partners
V, L.P., and Warrants issued thereunder.
4.6 -- Registration Rights Agreement, dated as of February 14, 1997
between MEDE AMERICA Corporation and WCAS Capital Partners II, L.P.
4.7 -- Warrant, dated as of July 17, 1998, issued by MEDE AMERICA
Corporation to Medic Computer Systems, Inc.
4.8 -- Registration Rights Agreement, dated as of July 17, 1998 between
MEDE AMERICA Cor- poration and Medic Computer Systems, Inc.
4.9 -- Stockholders Agreement, dated as of July 17, 1998 among Medic
Computer Systems, Inc., Welsh, Carson, Anderson & Stowe V, L.P.,
Welsh, Carson, Anderson & Stowe VI, L.P., William Blair Capital
Partners V, L.P., WCAS Capital Partners II, L.P., and William Blair
Leveraged Capital Fund Limited Partnership.
4.10 -- Investment Agreement, dated as of July 17, 1998 between MEDE
AMERICA Corporation and Medic Computer Systems, Inc.
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 Enter- prises, LLC and Electronic Claims & Funding,
Inc.
10.6+ -- Commitment Letter dated July 15, 1998 from Bank of America
National Trust & Savings Association to MEDE AMERICA Corporation,
regarding amendment to Credit Facility.
10.7+ -- Form of Non-Competition, Non-Solicitation and Confidentiality
Agreement between MEDE AMERICA Corporation and Employees.
10.8+ -- MEDE AMERICA Corporation and Its Subsidiaries 1998 Stock Option
and Restricted Stock Purchase Plan.
10.9**-- Transaction Processing Agreement, dated as of July 17, 1998
between MEDE AMERICA Cor- poration and Medic Computer Systems, Inc.
10.10 -- MEDE AMERICA Ciroiratuib 1998 Employee Stock Purchase Plan.
21.1+ -- Subsidiaries of the Company.
23.1 -- Consent of Deloitte & Touche LLP, independent accountants.
23.2 -- Consent of Deloitte & Touche LLP, independent accountants.
23.3* -- Consent of Reboul, MacMurray, Hewitt, Maynard & Kristol (see
Exhibit 5.1).
24.1+ -- Power of Attorney.
27.1+ -- Financial Data Schedule.
- ----------
* To be filed by amendment.
** Confidential treatment requested.
+ Previously filed.
EXHIBIT 4.6
REGISTRATION RIGHTS AGREEMENT
February 14, 1997
WCAS Capital Partners, II, L.P.
c/o Walsh, Carson, Anderson & Stowe
320 Park Avenue, Suite 2500
New York, New York 10022
Dear Sirs:
This will confirm that, in consideration of your commitment to purchase
an aggregate 1,700,000 shares (the "Shares") of Common Stock (as defined
herein), of MedE America Corporation, a Delaware corporation (the "Company"),
pursuant to the Note and Share Purchase Agreement, dated the date hereof (the
"Purchase Agreement"), between the Company and you ( the "Purchaser"), and as an
inducement to you to consummate the transactions contemplated by the Purchase
Agreement, the Company hereby covenants and agrees with you, and with each
subsequent holder of Restricted Stock (as such term is defined herein), as
follows:
1. Certain Definitions. As used herein, the following terms shall have
the following respective meanings:
"Commission" shall mean the Securities and Exchange Commission, or any
other Federal agency at the tie administering the Securities Act.
"Common Stock" shall mean the Common Stock, $.01 par value, of the
Company, as constituted as of the date of this Agreement.
"Registration Expenses" shall mean the expenses so described in Section
8 hereof.
"Restricted Stock" shall mean the Shares and any shares of capital
stock of the Company issued in respect of such securities by way of stock
split, stock dividend, combination or reclassification, or through merger,
consolidation, reorganization or recapitalization.
"Securities Act" shall mean the Securities Act of 1933 or any similar
Federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
<PAGE>
"Selling Expenses" shall mean the expenses so described in Section 8
hereof.
2. Restrictive Legend. Each certificate representing Restricted Stock
and, except as otherwise provided in Section 3 hereof, each certificate issued
upon exchange or transfer of any such securities shall be stamped or otherwise
imprinted with a legend substantially in the following form:
"THE SECURTITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 NOR UNDDER APPLICABLE STATE SECURITIES LAWS AND MAY
NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS THEY HAVE BEEN
REGISTERED UNDER SUCH LAWS OR AN EXEMPTION FROM REGISTRATION IS AVAILABLE."
3. Notice of Proposed Transfer. Prior to any proposed transfer of any
Restricted Stock (other than under the circumstances described in Section 4,
Section 5 or Section 5 hereof), the holder thereof shall give written notice to
the Company or its transfer agent of its intention to effect such transfer. Each
such notice shall describe the manner of the proposed transfer and, if requested
by the Company, except as provided below, shall be accompanied by an opinion of
counsel reasonably satisfactory to the Company, to the effect that the proposed
transfer may be effected without registration under the Securities Act,
whereupon such holder shall be entitled to transfer such securities in
accordance with the terms of its notice; provided, however, that, if such
transfer is a private sale, such transferee agrees, in a writing delivered to
the Company. To be bound by the terms hereof to the same extent as if an
original party hereto. Such shares may be distributed by the Purchaser to its
partners and may be sold in accordance with Rules 144 or 144A under the
Securities Act without an opinion of counsel; provided that, in the case of a
sale, the Company shall have received such information as the Company may
request to provide it with reasonable assurance that the provisions of Rules 144
or 144A have been satisfied. Each certificate for shares of Restricted Stock
transferred as above provided shall bear the legend set forth in Section 2,
except that such certificate shall not hear such legend if (i) such transfer is
in accordance with the provisions of Rule 144 (or any other rule permitting
public sale without registration under the Securities Act) or (ii) the opinion
of counsel referred to above is to the further effect that the transferees and
any subsequent transferee (other than an affiliate of the Company) would be
entitled to transfer such securities in a public sale without registration under
the Securities Act.
4. Required Registration. (a) At any time the holders of a majority of
the outstanding Restricted Stock may
2
<PAGE>
request the Company to register under the Securities Act all or any portion of
the shares of Restricted Stock held by such holders for sale in the manner
specified in such notice. Notwithstanding anything to the contrary contained
herein, non request may be made under this Section 4 within 180 days after the
effective date of a registration statement filed by the Company covering a firm
commitment underwritten public offering in which the holders of Restricted Stock
shall have been entitled to join pursuant to this Section 4, Section 5 or
Section 6 hereof and in which there shall have been effectively registered all
shares of Restricted Stock as to which registration shall have been so
requested.
(b) Promptly following receipt of any notice under this Section 4 from
holders of Restricted Stock, the Company shall immediately notify any holders of
Restricted Stock from whom notice has not been received and shall use its best
efforts to register under the Securities Act for public sale in accordance with
the method of disposition specified in such notice from requesting holders the
number of shares of Restricted Stock specified in such notice (and in any notice
received from other holders within 20 days after receipt of such notice from the
Company). If such method of disposition shall be an underwritten public
offering, the Company may designate the managing underwriter of such offering,
subject to the approval of a majority in interest of the selling holders of
Restricted Stock, which be obligated to register Restricted Stock pursuant to
this Section 4, on one occasion only; provided that such obligation shall be
deemed satisfied only when a registration statement covering all shares of
Restricted Stock specified in the notices received as aforesaid, for sale in
accordance with the method of disposition specified by the requesting holders,
shall have become effective and, if such method of disposition is a firm
commitment underwritten public offering, all such shares shall have been sold
pursuant thereto.
(c) The Company shall be entitled to include in any registration
statement referred to in this Section 4, for sale in accordance with the method
of disposition specified by the requesting holders, shares of Common Stock to be
sold by the Company for its own account r for the account of any stockholder of
the Company having registration rights with respect to such stock, except as and
to the extent that, in the opinion of the managing underwriter (if such method
of disposition shall be an underwritten public offering), such inclusion would
materially adversely affect the marketing of the Restricted Stock to be sold.
Except as provided in this paragraph (c), the Company will not file with the
Commission any other registration statement with respect to its Common Stock
(other than a registration
3
<PAGE>
statement on Form S-4 or S-8), whether for its own account or that of other
security holders, from the date of receipt of a notice from requesting holders
pursuant to this Section 4 until the completion of the period of distribution of
the registration contemplated thereby.
(d) The Company may postpone the filing of any registration statement
otherwise required to be prepared and filed by it under this Section 4 if, at
the time it receives a request from the holders of Restricted Stock, the Board
of Directors of the Company determines in its good faith judgment that such
registration would adversely interfere with any material financing, acquisition,
corporate reorganization or other material corporate transaction involving the
Company that is pending or imminent at the time to the material detriment of the
interests of the Company and its stockholders; provided, however, that, if the
Board of Directors does not make a determination to utilize this right within 30
days of the date of receipt of such request, this right shall be deemed waived
with respect to such request and the Company may exercise its right to postpone
a registration statement to be filed under this Section 4 only once in any
period of twelve consecutive months. The postponement will be for the minimum
period reasonably required but in any event such postponement shall not exceed
90 days. The Company will promptly give the holders of Restricted Stock written
notice of any such postponement and will use all reasonable best efforts to
minimize the length of the postponement. If the Company shall so postpone the
filing of a registration statement, the holders of Restricted Stock shall have
the right to withdraw any request ynder this Section 4 by giving written notice
of such postponement and, in the event of such withdrawal, the request that was
withdrawn shall not be deemed to have been made.
5. Form S-3 Registration
(a) If, at any time after the Company becomes eligible to register
securities on Form S- 3, the Company shall receive from any holder or holders of
Restricted Stock, a written request or requests that the Company effect a
registration on Form S-3 with respect to Restricted Stock owned by such holder
or holders, the reasonably anticipated aggregate price to the public of which
would exceed $1,000,000, the Company (i) shall promptly give written notice of
the proposed registration to all other holders of Restricted Stock and (ii)
shall as soon as practicable, effect such registration (including, without
limitation, the execution of an undertaking to file post-effective amendments,
to approve appropriate qualifications under applicable blue sky or other state
securities laws and to comply with applicable regulations issued under the
Securities Act and any other government
4
<PAGE>
requirements or regulations as would permit or facilitate the requested sale and
distribution) of all or such portion of such holder's and holders' Restricted
Stock as are specified in such requrest, together with all or such portion of
the Restricted Stock of any holder or holders joining in such request as are
specified in a written request given within 20 days after receipt of such
written notice from the Company; provided that the Company shall not be
obligated to effect any such registration pursuant to this Section 5 more than
once in any 180-day period.
6. Incidental Registration. If the Company at any time proposes to
register any of its equity securities under the Securities Act for sale to the
public, whether for its own account or for the account of other security holders
or both (except with respect to registration statements on Form S-4 or S-8 or
another form not available for registering Restricted Stock for sale to the
public), each such time it will give written notice to all holders of Restricted
Stock of its intention so to do. Upon the written request of any such holder,
given within 20 days after any such notice, to register any of its Restricted
Stock (which request shall state the intended method of disposition thereof),
the Company will use its best efforts to cause the Restricted Stock as to which
registration shall have been so requested to be included in the securities to be
covered by the registration statement proposed to be filed by the Company, all
to the extent requisite to permit the sale or other disposition by the holder
(in accordance with its written request) of such Restricted Stock. In the event
that any registration pursuant to this Section 6 shall be, in whole or in part,
an underwritten public offering of Common Stock, any request by a holder
pursuant to this Section 6 to register Restricted Stock shall specify that
either (i) such Restricted Stock is to be included in the underwriting on the
same terms and conditions as the shares of Common Stock otherwise being sold
through underwriters undet such registration or (ii) such Restricted Stock is to
be sold in the open market without any underwriting. The number of shares of
Restricted Stock to be included in such an underwriting may be reduced (pro rata
among the holders if Restricted Stock requesting that their shares of Restricted
Stock be registered pursuant to this Section 6, based upon the number of share
of stock which they desire to include in such registration), if and to the
extent that the managing underwriter shall be of the opinion that such inclusion
would adversely affect the marketing of the securities ti be sold by the
Company; provided, however, that, if any shares are to be included in such
underwriting for the account of any person other than the Company or the holders
of Restricted Stock, the number of shares to be included by any such person
shall be reduced first. Notwithstanding anything to the contrary contained in
this Section 6, in the event that there is a firm commitment underwritten
offering
5
<PAGE>
of securities of the Company pursuant to a registration covering Restricted
Stock and a selling holder of Restricted Stock does not elect to sell his
Restricted Stock to the underwriters of the Company's securities in connection
with such offering, such holder shall refrain from selling such Restricted Stock
so registered pursuant to this section 6 during the period of distribution of
the Company's securities by such underwriters and the period in which the
underwriting syndicate participates in the after market; provided, however, that
such holder shall, in any event, be entitled to sell its Restricted Stock in
connection with such registration commencing on the 90th day after the effective
date of such registration statement.
7. Registration Procedures. If and whenever the Company is
required by the provisions of Section 4, Section 5 or Section 6 hereof to use
its best efforts to effect the registration of any shares of Restricted Stock
under the Securities Act the Company will, as expeditiously as possible:
(a) prepare and file with the Commission a registration
statement (which, in the case of an underwritten public offering
pursuant to Section 4 hereof, shall be on Form S-1 or other form
of general applicability satisfactory to the managing underwriter
selected as therein provided) with respect to such securities and
use its best efforts to cause such registration statement to
become and remain effective for the period of the distribution
contemplated thereby (determined as hereinafter provided):
( b) prepare and file with the Commission such amendments
and supplements to such registration statement and the prospectus
used in connection therewith as may be necessary to keep such
registration statement effective for the period specified in
paragraph (a) above and as comply with the provisions of the
Securities Act with respect to the disposition of all Restricted
Stock covered by such registration statement in accordance with
the sellers' intended method of disposition set forth in such
registration statement for such period;
(c) furnish to each seller and to each underwriter such
number of copies of the registration statement and the prospectus
included therein (including each preliminary prospectus) as such
persons my reasonably request in order to facilitate the public
sale or other disposition of the Restricted Stock covered by such
registration statement;
(d) use it best efforts to register or qualify the
Restricted Stock covered by such registration statement under the
securities or blue sky laws of such jurisdictions
6
<PAGE>
as the sellers of Restricted Stock or, in the case of an
underwritten public offering, the managing underwriter shall
reasonably request;
(e) immediately notify each seller under such registration
statement and each underwriter, at any time when a prospectus
relating thereto is required to be delivered under the Securities
Act, of the happening of any event as a result of which the
prospectus contained in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits
to state any material fact required to be stated therein or
necessary to make the statements therein not misleading in the
light of the circumstances then existing:
(f) use its best efforts (if the offering is underwritten to
furnish, at the request of any seller, on the date that
Restricted Stock is delivered to the underwriters for sale
pursuant to such registration: (i) an opinion dated such date of
counsel representing the Company for the purposes of such
registration, addressed to the underwriters and to such seller,
stating that such registration statement has become effective
under the Securities Act and that (A) to the best knowledge of
such counsel, no stop order suspending the effectiveness thereof
has been issued and no proceedings for that purpose have been
instituted or are pending or contemplated under the Securities
Act, (B) the registration statement, the related prospectus, and
each amendment or supplement thereof, comply ad to form in all
material respects with the requirements of the Securities Act and
the applicable rules and regulations of the Commission thereunder
(except that such counsel need not express any opinion as to
financial statements or other financial data contained herein)
and (C) to such other effects as may reasonably be requested by
counsel, for the underwriters or by such selller or its counsel,
based on their customary practices, and (ii) a letter dated such
date from the independent public accountants retained by the
Company, addressed to the underwritiers and to such seller,
stating that they are independent public accountants within the
meaning of the Securities Act and that, in the opinion of such
accountants, the financial statements of the Company included in
the registration statement or the related prospectus, or any
amendment or supplement thereof, comply as to form in all
materials respects with the applicable accounting requirements of
the Securities Act and such letter shall additionally cover such
other financial matters (including information as to the period
ending no more than five business days prior to the data of such
letter) with respect to the registration in respect of which such
letter is being
7
<PAGE>
given as such underwriters or such seller may reasonably request,
based on their customary practices:
(g) Make available for inspection by each seller, any
underwriter participanting in any distribution pursuant to such
registration statement, and any attorney, accountant or other
agent retained by such seller or underwriter, all financial and
other records, pertinent corporate documents and properties of
the Company, and cause the Company's officers, directors and
employees to supply all information reasonably requested by any
such seller, underwriter, attorney, accountant or agent in
connection with such registration statement: and
(h) use its best efforts to list the shares of Restricted
Stock so registered upon the principal national securities
exchange, if any, upon which the outstanding Common Stock is
listed at the time of such registration.
For purposes of paragraphs (a) and (b) above and of Section
4 (d) hereof, the period of distribution of Restricted Stock in a firm
commitment underwritten public offering shall extend until each underwriter has
completed the distribution of all securities purchased by it, and the period of
distribution of Restricted Stock in any other registration shall extend until
the earlier of the sale of all Restricted Stock covered thereby abd one year
after the effective date thereof.
In connection with each registration hereunder, the selling
holders of Restricted Stock will furnish to the Company in writing such
information with respect to themselves and the proposed distribution by them as
shall be reasonably necessary in order to assure compliance with Federal and
applicable state securities laws. No such selling holder of Restricted Stock
shall be required to make any representation in any underwriting agreement other
than a representation as to the ownership of the shares to be registered by such
selling holder in the offering.
In connection eith each registration pursuant to Sections 4,
5 and 6 hereof covering an underwritten public offering, the Company agrees to
enter into a written agreement with the managing underwriter selected in the
manner herein provided in such form and containing such provisions as are
customary in the securities business for such an arrangement between major
underwriters and companies of the Company's size and investment stature;
provided that such agreement shall not contain any such provision applicable to
the Company that is inconsistent with the provisions hereof.
8
<PAGE>
8. Expenses. All expenses incurred by the Company in complying with
Sectiond 4, 5 and 6 hereof, including, without limitation, all registration and
filing fees, printing expenses, fees and disbursements of its counsel and of
independent public accountants for the Company, reasonable fes and disbursements
of one counsel chosen to represent all selling holders of Restricted Stock, fees
of the National Association of Securities Dealers, Inc., transfer taxes, and
fees of transfer agents and registrars, but excluding any Selling Expenses, are
herein called "Registration Expenses." All underwriting discounts and selling
commissions applicable to the sale of Restricted Stock are herein called
"Selling Expenses."
The Company will pay all Registration Expenses in connection with each
registration statement filed pursuant hereto. All Selling Expenses in connection
with any registration statement filed pursuant to Section 4, Section 5 or
Section 6 hereof shall be borne by participating sellers in proportion to the
number of shares sold by each, or by such persons other than the Company (except
to the extent the Company shall be a seller) as they may agree.
9. Indemnification. In the event of a registration of any of the
Restricted Stock under the Securities Act pursuant to Section 4, Section 5 or
Section 6 hereof, the Company will indemnify and hold harmless each seller of
such Restricted Stock thereunder and each other person, if any, who controls
such seller or underwriter within the meaning of the Securities Act, against any
and all losses, claims, damages or liabilities, joint or several, to which such
seller or underwriter or controlling person may become subject under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
any registration statement under which such Restricted Stock was registered
under the Securities Act pursuant to Section 4, Section 5 or Section 6, any
preliminary prospectus or final prospectus contained therein, or any amendment
or supplement thereof, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse each
such seller, each such underwriter and each such controlling person for any
legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action,
provided, however, that the Company will not be liable in any such case if and
to the extent that any such loss, claim, damage or liability arises out of or is
based upon an untrue statement or alleged untrue statement or mission or
9
<PAGE>
alleged omission so made in conformity with information furnished by such
seller, such underwriter or such controlling person in writing specifically for
use in such registration statement or prospectus; and provided further, however,
that the Company will not be liable in any such case if and to the extent that
any such loss, claim, damage, or liability arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in (i) any preliminary prospectus if such seller, underwriter or
controlling person failed to send or deliver a copy of the final prospectus
prior to or concurrently with the delivery of written confirmation of the sale
of Restricted Stock and the final prospectus would have completely corrected
such untrue statement or omission or (ii) the prospectus if such untrue
statement or alleged untrue statement ot omission or alleged omission is
completely corrected in an amendment or supplement to the prospectus and if,
having previously been furnished by or on behalf of the Company with copies of
the prospectus, as so amended or supplemented, such seller, underwriter or
controlling person thereafter fails to deliver such prospectus, as so amended or
supplemented, prior to or concurrently with the delivery of written confirmation
of the sale of Restricted Stock to the person asserting such loss, claim,
damage, liability or expense.
In the event of a registration of any of the Restricted Stock under the
Securities Act pursuant to Section 4, Section 5 or Section 6 hereof, each seller
of such Restricted Stock thereunder, severally and not jointly, will indemnify
and hold harmless the Company and each person, if any, who controls the Company
within the meaning of the Securities Act, each officer of the Company who signs
the registration statement, each director of the Company, each underwriter and
each person who controls any underwriter within the meaning of the Securities
Act, against any and all losses, claims, damages or liabilities, joint or
several, to which the Company or such officer or director or underwriter or
controlling person may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the registration statement of any
material fact contained in the registration statement under which such
Restricted Stock was registered under the Securities Act pursuant to Section 4,
Section 5 or Section 6, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereof, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and will reimburse the Company and each such officer, director, underwriter and
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim,
10
<PAGE>
damage, liability or action; provided, however, that such seller will be liable
hereunder in any such case if and only to the extent that any such loss, claim,
damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in conformity with
information pertaining to such seller furnished in writing to the Company by
such seller specifically for use in such registration statement or prospectus;
and provided further, however, that (x) the liability of each seller hereunder
shall be limited to the proceeds received by such seller from the sale of
Restricted Stock covered by such registration statement and (y) the seller will
not be liable in any such case if and to the extent that any such loss, claim,
damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in (i) any
preliminary prospectus if the Company, such officer, director or underwriter or
controlling person failed to send or deliver a copy of the final prospectus
prior to or concurrently with the delivery of written confirmation of the sale
of Restricted Stock (or, with respect to the company, shares of Common Stock
included in such registration) and the final prospectus would have completely
corrected such untrue statement or omission or (ii) the prospectus if such
alleged omission is completely corrected in an amendment or supplement to the
prospectus and if the Company, such officer, director, underwriter or
controlling person fails to deliver such prospectus, as so amended or
supplemented, prior to or concurrently with the delivery of written confirmation
of the sale of Restricted Stock (or, the case of the Company, shares of Common
Stock included in such registration) to the person asserting such loss, claim,
damage, liability or expense.
Promptly after receipt by an indemnified party hereunder of notice of
the commencement of any action, such indemnified party shall, if a claim in
respect thereof is to be made against the indemnifying party hereunder, notify
the indemnifying party in writing thereof, but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
any indemnified party other than under this Section 9. In case any such action
shall be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate in and, to the extent it shall wish, to assume and
undertake the defense thereof with counsel reasonably satisfactory to such
indemnified party, and, after notice from the indemnifying party to such
indemnified party of its election so to assume and undertake the defense
thereof, the indemnifying party shall not undertake the defense thereof, the
indemnifying party shall not be leable to such indemnified party under this
Section 9 for any legal expenses subsequently incurred by such indemnified party
in connection with the defense thereof other than reasonable costs of
investigation; provided, however, that if the defendants in
11
<PAGE>
any such action include both the indemnified party and the indemnifying party
and counsel to the indemnified party shall have reasonably concluded that there
may be reasonable defenses available to it which are different from or
additional to those available to the indemnifying party or if the interests of
the indemnified party reasonably may be deemed to conflict with the interests of
the indemnifying party, the indemnified party shall have the right to select a
separate counsel and to assume such legal defenses and otherwise to participate
in the defense of such action, with the expenses and fees of such separate
counsel and other expenses related to such participation to be reimbursed by the
indemnifying party as incurred.
The indemnifying party shall not be liable to indemnify any indemnified
party for any settlement of any such action effected without the indemnifying
party's consent. Furthermore, the indemnifying party shall not, except with the
approval of each indemnified party, consent to entry of any judgment or enter
into any settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to each indemnified party of a release from
all liability in respect to such claim or litigation without any payment or
consideration provided by each such indemnified party.
If the indemnification provided for in this Section 9 is unavailable to
an indemnified party under the first or second paragraphs hereof in respect of
any losses, claims, damages or liabilities referred therein, then each
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages or liabilities (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company on the one
hand and the sellers of Restricted Stock and any other sellers participating in
the registration statement on the other from the sale of shares pursuant to the
registered offering of securities as to which indemnity is sought or (ii) if the
allocation provided by clause (i) above is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Company on
the one hand and of the sellers of Restricted Stock and any other sellers
participating in the registration statement on the other in connection with the
statement or omissions that resulted in such losses, claims, damages or
liabilities, as well as any other relevant equitable considerations. The
relative benefits received by the Company on the one hand and the sellers of
Restricted Stock and any other sellers participating in the registration
statement on the other shall be deemed to be in the same proportion as the total
net proceeds from the offering (before deducting expenses), if any, to the
12
<PAGE>
Company bear to the total net proceeds from the offering (before deducting
expenses) to the sellers of the Restricted Stock and any other sellers
participating in the registration statement. The relative fault of the Company
on the hand and of the sellers of Restricted Stock and any other sellers
participating in the registration statement on the other shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company or by the sellers of Restricted
Stock or other sellers participating in the registration statement and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission.
The Company and the sellers of Restricted Stock agree that it would not be
just and equitable if contribution pursuant to this Section 9 were determined by
pro rata allocation (even if the sellers of Restricted Stock were treated as one
entity for such purpose) or by any other method of allocation that does not take
account of the equitable considerations referred to in the immediately preceding
paragraph. The amount paid or payable by an indemnified party as a result of the
losses, claims, damages and liabilities referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses reasonably incurred by such indemnified party
in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 9, no seller of Restricted Stock
shall be required to contribute any amount in excess of the proceeds received by
such seller from the sale of Restricted Stock covered by the registration
statement filed pursuant hereto. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
10. Changes in Common Stock. If, any as often as, there are any changes in
the Common Stock by way of stock split, stock dividend, combination r
reclassification, or through merger, consolidation, reorganization or
recapitalization (including any three-party transaction in which the holders of
Common Stock receive securities of the parent or affiliate of a merging or
acquiring entity), or by any other means, appropriate adjustment shall be made
in the provisions hereof, as may be required, so that the rights and privileges
granted hereby shall continue with respect to the Common Stock as so changed.
11. Availability of Rule 144. So long as there is Restricted Stock
outstanding, the Company will file the reports required to be filed by it under
the Securities Act and the
13
<PAGE>
Securities Exchange Act of 1934 and the rules and regulations adopted by the
Commission thereunder, to the extent required form time to time to enable any
holder of Restricted Stock to sell such Restricted Stock without registration
under the Securities Act within the limitations of the exemption provided by
Rule 144 under the Securities Act or any similar rule or regulation allowing
such holders to sell without registration under the Securities Act, as such Rule
may be amended from time to time; provided; however, that so long as there is
Restricted Stock outstanding, the Company shall continue to file such reports as
outstanding, the Company shall continue to file such reports as may be required
to satisfy the requirements of Rule 144(c) even if not required to do so
pursuant to the Securities Exchange Act of 1934.
12. Subsequent Registration Rights Agreements. After the date hereof, so
long as there is any Restricted Stock outstanding, the Company shall not enter
into any registration rights agreement that would materially adversely affect
the rights of the holder or holders of such Restricted Stock under this
Agreement without the consent of holders of 66 2/3% of the Restricted Stock then
outstanding.
13. Miscellaneous. (a) All covenants and agreements contained in this
Agreement by or on behalf of any of the parties hereto shall bind the inure to
the benefits of the respective successors , assigns and transferees of the
parties hereto whether so expressed or not. Without limiting the generality of
the foregoing, the registration rights conferred herein on the holders of
Restricted Stock shall inure to the benefit of any and all subsequent holders
from time to time of the Restricted Stock.
(b) All notices, requests, consents and other communications hereunder
shall be in writing and shall be sent by telecopier, national overnight courier
service or certified mail, return receipt requested, in each case with postage
prepaid, addressed as follows:
if to the Company, to it at its offices at 90 Merrick Avenue, Suite 501,
East Meadow, New York 11554, attention: President;
if to the Purchaser, to it at the address set forth in the Purchase
Agreement;
if to any subsequent holder of Restricted Stock, to it at such address
as may have been furnished to the Company in writing by such holder;
or, in any case, at such other address or addresses as shall have been
furnished in writing to the Company (in the case of a holder
14
<PAGE>
of Restricted Stock) or to the holders of Restricted Stock (in the case of
the Company).
(c) This Agreement shall be governed by and construed in accordance with
the laws of the State of New York.
(d) 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.
(e) 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.
Please indicate your acceptance of the foregoing by signing and returning
the enclosed counterpart of this letter, whereupon this letter (herein sometimes
called "this Agreement") shall be a binding agreement between the Company and
you.
Very truly yours,
MEDE AMERICA CORPORATION
By /s/ Thomas P. Staudt
------------------
Thomas P. Staudt
President and Chief
Executive Officer
AGREED TO AND ACCEPTED
as of the date first
above written.
WCAS CAPITAL PARTNERS II, L.P.
By WCAS CP II Partners, General
By /s/
------------------------------
EXHIBIT 4.7
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
EITHER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"), OR APPLICABLE
STATE SECURITIES LAWS (THE "STATE ACTS") , AND SHALL NOT BE SOLD, PLEDGED,
HYPOTHECATED, DONATED OR OTHERWISE TRANSFERRED (WHETHER OR NOT FOR
CONSIDERATION) BY THE HOLDER EXCEPT BY REGISTRATION OR PURSUANT TO AN EXEMPTION
FROM REGISTRATION UPON THE ISSUANCE TO THE ISSUER OF A FAVORABLE OPINION OF
COUNSEL OR OTHER EVIDENCE REASONABLY SATISFACTORY TO THE ISSUER TO THE EFFECT
THAT ANY SUCH TRANSFER SHALL NOT BE A VIOLATION OF THE 1933 ACT AND THE STATE
ACTS.
New York, N.Y.
July 17, 1998
WARRANT
to Purchase
1,250,000
Shares
of
Common Stock (par value $0.01 per share)
of
MEDE AMERICA CORPORATION
at a price per share equal to the Warrant Price (as defined herein)
<PAGE>
MEDE AMERICA CORPORATION., a Delaware corporation (the
"Issuer"), certifies that, for value received, MEDIC COMPUTER SYSTEMS, INC., a
North Carolina corporation, or an affiliated entity (collectively, the
"Investor"), is entitled to purchase, until the close of business on the
Termination Date (as defined in Section 1) 1,250,000 shares of common stock, par
value $0.01 per share, of the Issuer (the "Common Stock") at a price per share
equal to the Warrant Price (as defined in Section 1); subject, however, to the
provisions and upon the terms and conditions hereinafter set forth.
1. Definitions. Capitalized terms used and not otherwise
defined herein shall have the respective meanings ascribed to such terms in the
Investment Agreement, dated as of July 17, 1998, between the Issuer and the
Investor (the "Investment Agreement"). The following terms shall have the
following meanings:
"affiliate" shall have the meaning ascribed to it in
Rule 12b-2 under the Securities Exchange Act of 1934, as
amended.
"Average Market Price" shall mean the average of the
daily reported closing sales prices, regular way, per share of
the Common Stock on the Nasdaq National Market ("Nasdaq"), or
if the Common Stock is not principally traded on Nasdaq, such
other market on which the Common Stock is listed or
principally traded, for the ten (10) days prior to the date of
determination; provided that if the Common Stock is not traded
on any market or exchange, the "Average Market Price" shall
mean the fair market value of the Common Stock as determined
by an independent investment banking firm mutually acceptable
to the Issuer and the Investor, the costs of which
determination shall be borne equally by the Issuer and the
Investor.
"Change of Control" shall have occurred when (a) any
person or group of affiliated persons shall have acquired,
directly or indirectly, beneficial ownership of thirty-five
percent (35%) or more of the then outstanding voting shares or
share equivalents of the Issuer, provided that none of such
persons and no combination of such persons and their
respective affiliates beneficially owns thirty-five percent
(35%) or more of the outstanding voting shares or share
equivalents of the Issuer as of the date of this Warrant; or
(b) any person or group of affiliated persons[2]
2
<PAGE>
commences a tender offer or an exchange offer for thirty-five
percent (35%) or more of the outstanding voting shares or
share equivalents.
"Final Date" shall mean March 31, 1999.
"IPO" shall mean an initial public offering by the
Issuer of the Common Stock.
"Processing Agreement" shall mean the Transaction
Processing Agreement, dated the date hereof, between the
Issuer and the Investor.
"Termination Date" shall mean (a) in the event that
the IPO has been completed by the Final Date, July 17, 2003,
and (b) in the event that the IPO has not been completed by
the Final Date, July 17, 2005; provided, that in the event
that the Processing Agreement is terminated by the Issuer
pursuant to clause (iv), (vi) or (viii) of Section 18(a)
thereof, then notwithstanding anything to the contrary
contained herein, the "Termination Date" shall be the date of
termination of the Processing Agreement, and thereafter this
Warrant shall be void and of no effect..
"Transaction" shall mean a merger, consolidation,
sale of all or substantially all of the Issuer's assets,
recapitalization of the Common Stock or other similar
transaction, in each case if the previously outstanding Common
Stock is acquired for cash or changed into or exchanged for
different securities of the Issuer or changed into or
exchanged for common stock or other securities of another
corporation or interests in a non-corporate entity or other
property (including cash) or any combination of any of the
foregoing.
"Warrant Price" shall mean (a) in the event that the
IPO has been completed by the Final Date, the price per share
at which the Issuer's shares were sold to the public pursuant
to such IPO, and (b) in the event that the IPO has not been
completed by the Final Date, $8.00, subject in either case to
the adjustments set forth in Section 6 hereof.
2. Exercisability of Warrant. (a) Subject to the terms and
conditions set forth herein, this Warrant may be exercised (i) with respect to
up to 50% of the shares
3
<PAGE>
of Common Stock subject to this Warrant, at any time on or after July 17, 1999,
and before the Termination Date, and (ii) with respect to the remaining shares
of Common Stock subject to this Warrant, at any time on or after July 17, 2000,
and before the Termination Date, by presentation and surrender of this Warrant
as specified in Section 3 below.
(b) Notwithstanding anything in this Warrant to the
contrary, in the event of a Change of Control, this Warrant shall be immediately
exercisable with respect to all of the shares of Common Stock subject to this
Warrant, and shall be exercisable at any time before the Termination Date;
provided that in the event of a Change of Control specified in clause (b) of the
definition of "Change of Control," if the tender or exchange offer is not
consummated, the Issuer and the Investor will take such action that is
reasonably necessary (including, without limitation, refunding to the Investor
an amount equal to the payment made pursuant to Section 3(a)(i)) to exchange the
shares of Common Stock issued upon exercise of the Warrant pursuant to this
Section 2(b) for a warrant identical to this Warrant.
3. Method of Exercise; Payment; Issuance of New Warrant.
(a) This Warrant may be exercised by the Investor, in
whole or in part, subject to the provisions of Section 2, by the surrender of
this Warrant, with the form of subscription at the end hereof (or a reasonable
facsimile thereof) (the "Subscription Notice") duly executed by the Investor, to
the Issuer at its principal office, and by (i) the payment to the Issuer of the
then applicable Warrant Price of the Common Stock being purchased or (ii)
notification of Cashless Exercise by the Investor as provided in Section 3(d)
below.
(b) Each exercise of this Warrant shall be deemed to
have been effected immediately prior to the close of business on the business
day on which this Warrant shall have been surrendered to the Issuer as provided
in this Section 3, and at such time the Investor shall be deemed to have become
the holder of record thereof.
4
<PAGE>
(c) In the event of any exercise of the rights
represented by this Warrant, certificates for the shares of Common Stock so
purchased shall be delivered at the Issuer's expense (including the payment by
the Issuer of any applicable issuance taxes) to the Investor within five (5)
business days after the rights represented by this Warrant shall have been so
exercised, and unless this Warrant has expired, a new Warrant of like tenor
representing the number of shares of Common Stock, if any, with respect to which
this Warrant shall not then have been exercised, shall also be issued to the
Investor within such time.
(d) Upon any exercise of this Warrant, the Investor
may, at its option, instruct the Issuer, by appropriate designation in the Form
of Subscription accompanying the surrender of this Warrant at the time of such
exercise, to apply to the payment of the aggregate Warrant Price to be paid upon
such exercise such number of shares of Common Stock otherwise issuable to the
Investor upon such exercise as shall be specified in such Form of Subscription,
in which case an amount equal to the excess of the aggregate Average Market
Price of such specified number of shares of Common Stock on the date of such
exercise over the portion of the aggregate Warrant Price to be paid upon such
exercise which is attributable to such specified number of shares of Common
Stock shall be deemed to have been paid to the Issuer and the number of shares
of Common Stock issuable upon such exercise shall be reduced by such specified
number (a "Cashless Exercise").
4. Stock Fully Paid; Reservation of Shares. The Issuer
covenants and agrees that all shares which may be issued upon the exercise of
the rights represented by this Warrant will, upon issuance, be duly authorized,
validly issued, fully paid and nonassessable and free from all liens. The Issuer
further covenants and agrees that during the period within which the rights
represented by this Warrant may be exercised, the Issuer will at all times have
authorized, and reserved for the purpose of the issue upon exercise of the
purchase rights evidenced by this Warrant, at least the maximum number of shares
of its Common Stock as are then issuable upon the exercise of the rights
represented by this Warrant. The Issuer further agrees that it will not, by
amendment of its Certificate of Incorporation or through reorganization,
consolidation, merger, dissolution or sale of assets, or by any other voluntary
act, avoid or seek to avoid the observance or performance of any of the
covenants, stipulations or conditions to be observed or performed hereunder by
the Issuer. Without limiting the generality of the foregoing, the Issuer agrees
that before taking any action that would cause an adjustment reducing the
Warrant Price below the then par value of Common Stock issuable upon
5
<PAGE>
exercise hereof, the Issuer will from time to time take all such action
necessary in order that the Issuer may validly and legally issue fully paid and
nonassessable shares of such Common Stock at the Warrant Price as so adjusted.
5. Fractional Shares. No fractional shares of Common Stock
will be issued in connection with any exercise hereunder, but in lieu of such
fractional shares, the Issuer shall make a cash payment therefor upon the basis
of the Average Market Price of the Common Stock.
6. Antidilution Provisions. The number and price of shares of
Common Stock receivable upon the exercise of this Warrant is subject to
adjustment upon the happening of certain events specified in this Section 6. The
holder of this Warrant shall, upon exercise hereof, be entitled to receive the
number of shares of Common Stock determined by multiplying the number of shares
of Common Stock which would otherwise (but for the provisions of this Section 6)
be issuable upon such exercise by a fraction of which (A) the numerator is the
Warrant Price specified in Section 1 (but without giving effect to any
adjustments) and (B) the denominator is the Warrant Price in effect at the time
of such exercise. The price to be paid for each such share of Common Stock by
the Investor shall be the Warrant Price as adjusted pursuant to this Section 6,
provided that the price paid by the holder for any shares of Common Stock upon
exercise of this Warrant shall never be less than the par value per share of the
Common Stock, and provided further that in no event will any adjustments made
pursuant to this Section 6 cause any increase or decrease the aggregate price to
be paid for all shares of Common Stock subject to this Warrant. The Warrant
Price shall be subject to adjustment as follows:
(a) Stock Dividends, Stock Splits, Etc. If the Issuer
at any time or from time to time after the date hereof shall issue additional
shares of Common Stock as a result of the declaration or payment of a dividend
on the Common Stock payable in Common Stock, or as a distribution to holders of
Common Stock, or as a result of a subdivision of the outstanding shares of
Common Stock into a greater number of shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Common
Stock), then, and in each such case, the Warrant Price then in effect shall be
reduced, concurrently with the issuance of such shares, to a price (calculated
to the nearest cent) determined by multiplying such Warrant Price by a fraction
(i) the numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to such issuance of additional shares of Common
Stock, and (ii) the denominator of which shall be the number of shares of Common
Stock outstanding immediately after such issuance, provided that, for purposes
of this Section 6(a), (x) additional shares of Common Stock shall be deemed to
have been issued (A) in the case of any such dividend or distribution,
immediately after the close of business on
6
<PAGE>
and (ii) the denominator of which shall be the number of shares of Common Stock
outstanding immediately after such issuance, provided that, for purposes of this
Section 6(a), (x) additional shares of Common Stock shall be deemed to have been
issued (A) in the case of any such dividend or distribution, immediately after
the close of business on the record date for the determination of holders of any
class of securities entitled to receive such dividend or distribution or (B) in
the case of any such subdivision, at the close of business on the date
immediately prior to the day upon which such corporate action becomes effective,
(y) immediately after any additional shares of Common Stock are deemed to have
been issued, such additional shares of Common Stock shall be deemed to be
outstanding, and (z) treasury shares shall be deemed not to be outstanding.
(b) Extraordinary Dividends and Distributions. If the
Issuer shall distribute to all holders of its outstanding Common Stock evidences
of indebtedness of the Issuer, cash (other than a cash distribution made as a
dividend payable or to be payable at regularly scheduled intervals and payable
out of earnings or earned surplus legally available for the payment of dividends
under the laws of the State of Delaware, but only to the extent that the
aggregate of all such dividends paid or declared after the date hereof does not
exceed the consolidated net income of the Issuer earned subsequent to the date
hereof, as determined in accordance with generally accepted accounting
principles, consistently applied) or assets or securities other than its Common
Stock (including stock of a subsidiary or securities convertible into or
exercisable for such stock but excluding dividends or distributions referred to
in Section 6(a) above) (any such evidences of indebtedness, cash, assets or
securities, the "assets or securities"), then, in each case, the Warrant Price
shall be adjusted by subtracting from the Warrant Price then in effect the value
of the assets or securities that the holder would have been entitled to receive
as a result of such distribution had the Warrant been exercised and the relevant
shares of Common Stock issued in the name of the holder immediately prior to the
record date for such distribution; provided that if, after giving effect to such
adjustment, the Warrant Price would be less than the then par value of the
Common Stock, the Issuer shall distribute such assets or securities to the
holder as if the holder had exercised the Warrant and the shares of Common Stock
had been issued in the name of the holder immediately prior to the record date
for such distribution. Any adjustment required by this Section 6(b) shall be
made whenever any such distribution is made, and shall become effective on the
date of distribution retroactive to the record date for the determination of
stockholders entitled to receive such distribution.
7
<PAGE>
(c) Combinations, Etc. If the Issuer at any time or
from time to time after the date hereof shall combine or consolidate the
outstanding shares of Common Stock, by reclassification or otherwise, into a
lesser number of shares of Common Stock, then, and in each such case, the
Warrant Price then in effect shall be increased, concurrently with the
effectiveness of such combination or consolidation, to a price (calculated to
the nearest one cent) determined by multiplying such Warrant Price by a fraction
(i) the numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to the effectiveness of such combination or
consolidation and (ii) the denominator of which shall be the number of shares of
Common Stock outstanding immediately after such effectiveness, provided that,
for purposes of this Section 6(c), (x) such combination or consolidation shall
be deemed to have occurred at the close of business on the date immediately
prior to the day upon which such combination or consolidation becomes effective
and (y) treasury shares shall be deemed not to be outstanding.
(d) Issuance of Additional Shares of Common Stock. In
case the Issuer at any time or from time to time after the date hereof shall
issue or sell additional shares of Common Stock ("Additional Shares") for a
consideration per share less than 90% of the Average Market Price (or if the IPO
has not occurred by the time of determination, less than the Warrant Price) in
effect on the earlier of (i) the date on which the Issuer enters into a firm
contract for the issuance and sale of such Additional Shares (unless such
contract specifies that the sale price for such Additional Shares will be
determined at a later date, then such later date shall apply to this clause (i))
or (ii) the date of actual issuance or sale of such Additional Shares, then, in
each such case, the Warrant Price in effect immediately prior to such date shall
be reduced, concurrently with such issuance or sale, to a price (calculated to
the nearest one cent) determined by multiplying such Warrant Price by a fraction
(x) the numerator of which shall be the sum of (A) the number of shares of
Common Stock outstanding immediately prior to such issue or sale, plus (B) the
number of shares of Common Stock which the aggregate consideration received by
the Issuer for the total number of such Additional Shares so issued or sold
would purchase at such Average Market Price or Warrant Price, as the case may
be, and (y) the denominator of which shall be the number of shares of Common
Stock outstanding immediately after such issue or sale, provided that (a)
treasury shares shall not be deemed to be outstanding for purposes of this
Section 6(d) and (b) the shares of Common Stock then issuable pursuant to the
terms of this Warrant shall be deemed to be outstanding immediately prior to and
after such issue or sale. Notwithstanding anything contained herein to the
contrary, no adjustment to the Warrant Price shall be
8
<PAGE>
made pursuant to this Section 6(d) following the issuance of Additional Shares
pursuant to (I) Section 6(a) hereof, (II) the exercise of any options or
issuance of any shares under any options or purchase or other rights that are
outstanding on or prior to the date hereof and that were issued pursuant to any
of the Issuer's employee stock option, appreciation or purchase right plans,
(III) the exercise of any options or purchase or other rights or the issuance of
any shares under any options or rights that are granted after the date hereof,
whether in accordance with the terms of any of the Issuer's employee stock
option, appreciation or purchase right plans or otherwise, so long as the
exercise price of any such option, warrant, subscription or purchase right is
not less than the Average Market Price on the date that such grant is approved
by the Issuer's Board of Directors or a duly authorized committee thereof or, if
later, the date that such exercise price is established, (IV) the exercise of
any other options, warrants or other subscription or purchase rights outstanding
on or prior to the date hereof, including without limitation, this Warrant, (V)
the exercise of any conversion or exchange rights outstanding on or prior to the
date hereof issued by the Issuer, (VI) the exercise of any conversion or
exchange rights issued by the Issuer after the date hereof, so long as the
conversion or exchange price is not less than the Average Market Price on the
date that such issuance is approved by the Board of Directors or a duly
authorized committee thereof or, if later, the date that such conversion or
exchange price is established or (VII) the issuance or sale of Additional Shares
pursuant to a firmly underwritten public offering of such shares.
(e) Accountants' Report as to Adjustments. In each
case of any adjustment or readjustment in the Warrant Price, the Issuer at its
expense will promptly compute such adjustment or readjustment in accordance with
the terms hereof and, upon the reasonable request of the holder of this Warrant,
cause independent public accountants of recognized national standing selected by
the Issuer (which may be the regular auditors of the Issuer) to verify such
computation and prepare a calculation setting forth such adjustment or
readjustment and showing in reasonable detail the method of calculation thereof
and the facts upon which such adjustment or readjustment is based, including a
statement of (i) the number of shares of Common Stock outstanding or deemed to
be outstanding and (ii) the Warrant Price in effect immediately prior to such
adjustment or readjustment and as adjusted and readjusted (if required by
Section 6) on account thereof. The Issuer will forthwith mail a copy of each
such report to the holder of this Warrant. The Issuer will also keep copies of
all such reports at its principal office, and will cause the same to be
available for inspection at such office during normal business hours by any
holder of this Warrant.
9
<PAGE>
(f) No Dilution or Impairment. The Issuer will not,
by amendment of its Certificate of Incorporation or through any consolidation,
merger, reorganization, transfer of assets, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms hereof, but will at all times in good faith
assist in the carrying out of all such terms and in the taking of all such
action as may be necessary or appropriate in order to protect the rights of the
Investor against dilution, or to accord to the Investor the protections against
dilution, as provided herein. Without limiting the generality of the foregoing,
the Issuer (i) will not permit the par value of any shares of Common Stock
receivable upon the exercise of any Warrant to be increased to an amount that
exceeds the amount payable therefor upon such exercise, (ii) will take all such
action as may be necessary or appropriate in order that the Issuer may validly
and legally issue fully paid and nonassessable shares upon the exercise of this
Warrant from time to time and (iii) will not take any action which results in
any adjustment of the Warrant Price if the total number of shares of Common
Stock issuable after such action upon the exercise of this Warrant would exceed
the total number of shares of Common Stock then authorized by the Issuer's
Certificate of Incorporation and available for the purpose of issue upon such
exercise.
(g) Additional Reductions. The Issuer may make such
reductions in the Warrant Price, in addition to those required by Sections 6(a),
(b), (c) and (d) hereof, as it considers to be advisable in order that any event
treated for Federal income tax purposes as a dividend of stock or stock rights
shall not be taxable to the recipients.
7. Preemptive Rights. If at any time after the date of this
Warrant but prior to the IPO the Issuer shall propose to sell or issue for cash
in a transaction, the principal purpose of which is to raise capital, any equity
securities or options, warrants (other than the Warrant being issued on the date
hereof), rights or other securities exercisable for or convertible into equity
securities of the Issuer, the Issuer shall offer to sell or issue to the holder
of this Warrant, on the same terms and condi tions as the proposed sale or
issuance, the respective numbers of such securities which, if all such
securities were purchased, would result in the holder of this Warrant and its
affiliates holding that percentage of such securities equal to the percentage of
Common Stock on a fully diluted basis owned by such holder and its affiliates
immediately prior to such sale or issuance. In the event the Issuer proposes to
issue two or more securities as a unit, the preemptive rights available under
this Section 7 may only be
10
<PAGE>
exercised to purchase such units. The Issuer shall deliver to the holder of this
Warrant a written notice (a "Purchase Notice") of a proposed sale pursuant to
this Section 7 no later than 10 days prior to the proposed closing thereof. Such
notice shall make reference to the holders' rights hereunder and shall describe
in reasonable detail (i) the total amount of equity securities to be sold and
(ii) the terms and conditions of the purchase, including the consideration to be
paid therefor. The holder of this Warrant shall exercise its right to
participate in the purchase of equity securities pursuant to this Section 7 by
delivering to the Issuer a written notice (a "Subscription Response") stating
its election to do so and specifying the amount of equity securities it will
purchase no later than 30 days after receipt of the Purchase Notice. Failure to
provide a Subscription Response in such 30-day period shall be deemed to
constitute an election by such holder not to participate, and the holder's right
to elect to purchase equity securities in connection with the proposed sale
shall terminate at the end of the thirtieth day.
8. Exercise of Warrant in the Event of a Consolidation,
Merger, Sale of Assets, Reorganization, Etc.
(a) In case at any time the Issuer shall be a party to any
Transaction, then (i) upon the consummation thereof this Warrant shall become
exercisable with respect to all shares of Common Stock covered hereby (whether
or not it has otherwise become exercisable with respect to such shares pursuant
to Section 2) and shall be deemed to have been exercised by the Investor without
any act on the part of the Investor and without any obligation on the part of
the Investor to pay the exercise price until presentation of this Warrant
pursuant to clause (ii) below, and (ii) this Warrant shall represent the right
of the Investor to receive (upon presentation of this Warrant on or within
twenty (20) days after the date of such consummation together with payment of
the aggregate exercise price payable at the time of such consummation in
accordance with Section 3 for all shares of Common Stock issuable upon such
exercise immediately prior to such consummation), in lieu of the Common Stock
issuable upon exercise of this Warrant prior to such consummation, the cash,
securities and other property to which the Investor would have been entitled
upon the consummation of the Transaction if the Investor had exercised this
Warrant immediately prior thereto.
(b) The Issuer will not effect any Transaction unless, prior
to the consummation thereof, each corporation or entity (other than the Issuer)
which may be required to deliver any cash, securities or other property upon the
exercise of this
11
<PAGE>
Warrant as provided herein shall assume, by written instrument delivered to the
Investor, the obligation to deliver to the Investor such cash, securities or
other property as, in accordance with the foregoing provision, the Investor may
be entitled to receive.
9. Notices of Corporate Action. In the event of any
anticipated (i) taking by the Issuer 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 on such securities, or (ii)
Transaction, or (iii) voluntary or involuntary dissolution, liquidation or
winding-up of the Issuer, the Issuer will mail to the holder of this Warrant a
notice specifying (A) the date or expected date on which any such record is to
be taken for the purpose of such dividend or distribution or (B) the date or
expected date on which any such Transaction, dissolution, liquidation or
winding-up is to take place and the time, if any such time is to be fixed, as of
which the holders of record of Common Stock shall be entitled to exchange their
shares of Common Stock for the securities or other property deliverable upon
such Transaction, dissolution, liquidation or winding-up. Such notice shall be
mailed at least twenty (20) days prior to the date therein specified, in the
case of any date referred to in the foregoing clause (A), and at least ten (10)
days prior to the date therein specified, in the case of the date referred to in
the foregoing clause (B).
10. Amendments and Waivers. Any term of this Warrant may be
amended or modified or the observance of any term of this Warrant may be waived
(either generally or in a particular instance) only with the written consent of
the Issuer and the holder of this Warrant.
11. Successors and Assigns; Transfers. The provisions of this
Warrant shall be binding upon and inure to the benefit of the original holder
hereof, its successors and assigns by way of merger, consolidation or operation
of law, and any affiliate of the Investor to whom this Warrant is transferred.
This Warrant shall not be transferable by the Investor except to any affiliate
of the original holder hereof, or otherwise by way of merger, consolidation or
operation of law.
12. Exchange of Warrant. Upon surrender for exchange of this
Warrant, properly endorsed, for registration of transfer or for exchange at the
principal office of the Issuer, the Issuer at its expense will issue and deliver
to or upon the order of the Investor a new Warrant or Warrants of like tenor, in
the name of the Investor or, subject to Section 11 above, as the Investor (upon
payment by the Investor of any
12
<PAGE>
applicable transfer taxes) may direct, calling in the aggregate on the face or
faces thereof for the number of shares of Common Stock called for on the face of
this Warrant.
13. Replacement of Warrant. Upon receipt of evidence
reasonably satisfactory to the Issuer of the loss, theft, destruction or
mutilation of any Warrant and, in the case of any such loss, theft or
destruction of any Warrant, upon delivery of an indemnity bond in such
reasonable amount as the Issuer may determine (or, in the case of any Warrant
held by the original holder hereof or any affiliate thereof, of an affidavit of
an authorized officer of such holder, setting forth the fact of such loss, theft
or destruction, which shall be satisfactory evidence thereof and no further
indemnity shall be required as a condition of the execution and delivery of a
new Warrant), or, in the case of any such mutilation, upon the surrender of such
Warrant for cancellation to the Issuer at its principal office, the Issuer at
its expense will execute and deliver, in lieu thereof, a new Warrant, of like
tenor. Any Warrant in lieu of which any such new Warrant has been so executed
and delivered by the Issuer shall not be deemed to be an outstanding Warrant for
any purpose.
14. Remedies. The Issuer stipulates that the remedies at law
of the holder of this Warrant in the event of any default by the Issuer in the
performance of or in compliance with any of the terms of this Warrant are not
and will not be adequate, and that such terms may be specifically enforced by a
decree for the specific performance of any agreement contained herein or by an
injunction against a violation of any of the terms hereof or otherwise without
the requirement of the posting of a bond.
15. No Rights or Liabilities as Stockholder. Nothing contained
in this Warrant shall be construed as conferring upon the holder hereof any
rights as a stockholder of the Issuer (except to the extent that shares of
Common Stock are issued to such holder pursuant to this Warrant) or as imposing
any liabilities on such holder to purchase any securities or as a stockholder of
the Issuer, whether such liabilities are asserted by the Issuer or by creditors
or stockholders of the Issuer or otherwise.
16. Notices. All notices and other communications under this
Warrant shall be in writing and shall be mailed by registered or certified mail,
return receipt requested, or by facsimile transmission, addressed (a) if to the
holder, at the registered address or the facsimile number of such holder as set
forth in the register kept at the principal office of the Issuer, and (b) if to
the Issuer, to the attention of the Secretary at
13
<PAGE>
its principal office, or to its facsimile number, Attention: Secretary, provided
that the exercise of any Warrant shall be effected in the manner provided in
Section 2.
17. Legends. The shares of Common Stock issuable pursuant to
the terms of this Warrant shall contain the legend set forth in Section 3.4(d)
of the Investment Agreement.
18. Miscellaneous. THIS WARRANT SHALL BE CONSTRUED AND
ENFORCED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF DELAWARE.
The headings in this Warrant are for purposes of reference only and shall not
limit or otherwise affect the meaning hereof.
DATED as of July 17, 1998.
MEDE AMERICA CORPORATION
By:
--------------------------
Name:
---------------------
Title:
---------------------
14
<PAGE>
FORM OF SUBSCRIPTION
[To be signed only upon exercise of the Warrant]
TO MEDE AMERICA CORPORATION
The undersigned, the holder of the within Warrant, hereby
irrevocably elects to exercise the purchase right represented by such Warrant
for, and to purchase thereunder, _________* shares of Common Stock of MEDE
AMERICA CORPORATION and herewith makes payment of $______ therefor or elects a
Cashless Exercise **, and requests that the certificates for such shares be
issued in the name of, and delivered to, ________________________________, whose
address is ________________________________________________________________.
Dated: _________________
-----------------------------
(Signature must conform in all
respects to name of holder as
specified on the face of the
Warrant)
-----------------------------
(Address)
- --------------------
* Insert here the number of shares called for on the face of the Warrant
(or, in the case of a partial exercise, the portion thereof as to which
the Warrant is being exercised), in either case without making any
adjustment for additional shares of the Common Stock or any other stock
or other securities or property or cash which, pursuant to the
adjustment provisions referred to in the Warrant, may be deliverable
upon exercise. In the case of a partial exercise, a new Warrant or
15
<PAGE>
Warrants will be issued and delivered, representing the unexercised
portion of such Warrant, all as provided in the Warrant.
** Indicate here the election of a Cashless Exercise of the Warrant
pursuant to _______.
16
<PAGE>
FORM OF ASSIGNMENT
[To be signed only upon transfer of the Warrant]
For value received, the undersigned hereby sells, assigns and
transfers unto _____________________________________ the rights represented by
the within Warrant to purchase _______ shares of Common Stock of MEDE AMERICA
CORP. to which the within Warrant relates, and appoints
__________________________________ Attorney to transfer such rights on the books
of MEDE AMERICA CORP. with full power of substitution in the premises.
Dated: _________________
------------------------------
(Signature must conform in all
respects to name of holder as
specified on the face of the
Warrant)
------------------------------
(Address)
Signed in the presence of:
- -------------------------------
17
EXHIBIT 4.8
================================================================================
REGISTRATION RIGHTS AGREEMENT
between
MEDE AMERICA CORPORATION
and
MEDIC COMPUTER SYSTEMS, INC.
Dated as of July 17, 1998
================================================================================
<PAGE>
TABLE OF CONTENTS
(Not Part of Agreement)
<TABLE>
<CAPTION>
Page
<S> <C>
1. Background....................................................................1
2. Definitions...................................................................1
3. Registration..................................................................5
3.1 Demand Registration...................................................5
(a) Requests......................................................5
(b) Obligation to Effect Registration.............................5
(c) Shelf Registration............................................6
(d) Effective Registration Statement..............................6
(e) Pro Rata Allocation...........................................6
(f) Inclusion of Other Securities in Demand Registration..........6
3.2 Piggyback Registration................................................7
3.3 Registration Procedures...............................................9
3.4 Underwritten Offerings...............................................15
(a) Underwritten Offerings Exclusive.............................15
(b) Underwriting Agreement.......................................15
(c) Selection of Underwriters....................................15
3.5 Lock-Up Agreements...................................................16
3.6 Preparation; Reasonable Investigation................................16
3.7 Other Registrations..................................................17
3.8 Indemnification......................................................17
(a) Indemnification by the Issuer................................17
(b) Indemnification by the Seller................................18
(c) Notices of Claims, etc.......................................18
(d) Other Indemnification........................................19
(e) Other Remedies...............................................20
(f) Officers and Directors.......................................20
3.9 Expenses..............................................................20
4. Miscellaneous................................................................20
4.1 Rule 144; Legended Securities; etc...................................20
4.2 Amendments and Waivers...............................................21
4.4 Successors, Assigns and Transferees..................................21
4.5 Notices..............................................................22
4.6 No Inconsistent Agreements...........................................22
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
4.7 Enforcement of Agreement............................................22
4.8 Severability........................................................23
4.9. Headings............................................................23
4.10. Counterparts........................................................23
4.11. Governing Law.......................................................23
4.12 No Third Party Beneficiaries........................................23
</TABLE>
ii
<PAGE>
================================================================================
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (the "Agreement"), dated as of
July 17, 1998, among MEDE AMERICA CORPORATION, a Delaware corporation (the
"Issuer"), and MEDIC COMPUTER SYSTEMS, INC. a North Carolina corporation (the
"Investor").
1. Background. (a) Concurrently with the execution and
delivery of this Agreement, the Investor is receiving a Warrant (the "Warrant")
to purchase an aggregate of 1,250,000 shares (the "Shares") of Common Stock of
the Issuer, pursuant to an Investment Agreement dated the date hereof (the
"Investment Agreement").
(b) This Agreement shall become effective with respect to any
Registrable Securities upon the issuance or sale of Registrable Securities
pursuant to the Warrant, provided that any holder of the Warrant may exercise
its rights hereunder to demand or request registration of Registrable Securities
prior to the exercise of such Warrant. This Agreement shall remain in effect
upon the assignment or transfer of Registrable Securities by the Investor or a
Holder to an Affiliate of the Investor or such Holder or to any successor,
assign or transferee by merger or consolidation or otherwise by operation of
law, in each case pursuant to Section 4.4.
2. Definitions. For purposes of this Agreement, the following
terms have the following respective meanings:
"Additional Shares" means shares of Common Stock acquired by
the Investor other than by the exercise of the Warrant initially issued pursuant
to the Investment Agreement, provided such shares of Common Stock are, at the
time of such acquisition, "restricted securities" as such term is defined in
Rule 144.
"Affiliate" means, with respect to any Person, any other
Person directly or indirectly Controlling, Controlled by or under common Control
with such first Person. "Control" means the power to direct or cause the
direction of management or policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise.
Any director, member of management or other employee of the Issuer or any of its
Subsidiaries who would not otherwise be an Affiliate of the Investor shall not
be deemed to be an Affiliate of the Investor.
"Agreement" is defined in the first paragraph of this
Agreement.
"Business Day" means a day other than a Saturday, Sunday or
other day on which commercial banks in New York City are authorized or required
to close.
<PAGE>
"Closing Date" means the date hereof.
"Common Stock" means the common stock, par value $.01 per
share, of the Issuer.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, or any successor federal statute, and the rules and regulations
thereunder which shall be in effect at the time. Any reference to a particular
section thereof shall include a reference to the corresponding section, if any,
of any such successor federal statute, and the rules and regulations thereunder.
"Holder" means any holder of Registrable Securities or the
Warrant, including an Affiliate of the Investor or a Holder (or to any
successor, assign or transferee by merger or consolidation or otherwise by
operation of law) that has received Registrable Securities pursuant to Section
4.4.
"Investment Agreement" is defined in Section 1(a).
"Investor" is defined in the first paragraph of this
Agreement.
"Issuer" is defined in the introduction to this Agreement.
"Majority Holders" means, initially, the Investor, and
subsequent to any transfer, shall mean Holders of a majority of the then
outstanding Registrable Securities.
"NASD" means the National Association of Securities Dealers,
Inc.
"Person" means any natural person, firm, partnership,
association, corporation, company, trust, business trust, governmental entity or
other entity.
"Prospectus" means the prospectus included in any Registration
Statement (including, without limitation, a prospectus that discloses
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A), as amended or supplemented
by any prospectus supplement, with respect to the terms of the offering of any
portion of the Registrable Securities covered by such Registration Statement and
all other amendments and supplements to the prospectus, including post-effective
amendments, and all material incorporated by reference or deemed to be
incorporated by reference in such prospectus.
2
<PAGE>
"Registrable Securities" means (a) the Shares, (b) the
Additional Shares, (c) any securities issued or issuable with respect to any
Shares or Additional Shares referred to in the foregoing clauses (a) and (b),
(i) upon any conversion or exchange thereof, (ii) by way of stock dividend or
other distribution, stock split or reverse stock split, or (iii) in connection
with a combination of shares, recapitalization, merger, consolidation, exchange
offer or other reorganization. As to any particular Registrable Securities, once
issued such securities shall cease to be Registrable Securities when (A) a
Registration Statement with respect to the sale of such securities shall have
become effective under the Securities Act and such securities shall have been
disposed of in accordance with such Registration Statement, (B) such securities
shall have been distributed to the public in reliance upon Rule 144, (C) subject
to the provisions of Sec tion 4.1(b)(ii), such securities shall have been
otherwise transferred, new certificates for such securities not bearing a legend
restricting further transfer shall have been delivered by the Issuer and
subsequent disposition of such securities shall not require registration or
qualification of such securities under the Securities Act or any similar state
law then in force or (D) such securities shall have been acquired by the Issuer.
In determining the number of Registrable Securities outstanding at any time or
whether the Holders of the requisite number of Registrable Securities have taken
any action hereunder and in calculating the number of Registrable Securities for
all other purposes under this Agreement, the Warrant shall be deemed to have
been exercised (to the fullest extent then determinable without a cashless
exercise) and such calculation shall include the number of shares of Common
Stock then deliverable upon the exercise of such Warrant (to the fullest extent
then determinable without a cashless exercise).
"Registration Expenses" All fees and expenses incident to the
performance of or compliance with the provisions of this Agreement, whether or
not any registration statement is filed or becomes effective, including, without
limitation, all (i) registration and filing fees (including, without limitation,
(A) fees with respect to filings required to be made with the NASD in connection
with an underwritten offering, (B) fees and expenses of compliance with state
securities or blue sky laws (including, without limitation, fees and
disbursements of counsel for the underwriter or underwriters in connection with
blue sky qualifications of the Registrable Securities and determination of the
eligibility of the Registrable Securities for investment under the laws of such
jurisdictions as provided in Section 3.3(e)), and (C) fees and other expenses
associated with the listing of the Shares and any Additional Shares on the
Nasdaq National Market and any other applicable exchange, (ii) printing expenses
(including, without limitation, expenses of printing certificates for
Registrable Securities and of printing prospectuses), (iii) fees and
disbursements of all independent certified public accountants referred to in
Section 3.3 (including, without limitation, the reasonable expenses of any
special audit and "cold comfort" letters required by or incident to such
performance), (iv) the fees and expenses of any "qualified independent
3
<PAGE>
underwriter" or other independent appraiser participating in an offering
pursuant to Rule 2720 of the NASD Rules of Conduct, (v) fees and expenses of all
attorneys, advisers, appraisers and other persons retained by the Issuer or any
Subsidiary of the Issuer, (vi) the expenses relating to printing, word
processing and distributing all registration statements, underwriting
agreements, securities sales agreements, indentures and any other documents
necessary in order to comply with this Agreement and (vii) the reasonable
out-of-pocket expenses of the Holders of the Registrable Securities being
registered in such registration incurred in connection therewith including,
without limitation, the reasonable fees and disbursements of not more than one
counsel (together with appropriate local counsel) chosen by the Holders of a
majority of the Registrable Securities to be included in such Registration
Statement. "Registration Expenses" shall not include any underwriting discounts
or commissions or any transfer taxes payable in respect of the sale of
Registrable Securities by the Holders thereof.
"Registration Statement" means any registration statement of
the Issuer that covers any of the Registrable Securities pursuant to the
provisions of this Agreement, and all amendments and supplements to any such
registration statement, including post-effective amendments, in each case
including the Prospectus, all exhibits and all material incorporated by
reference or deemed to be incorporated by reference in such registration
statement.
"Rule 144" means Rule 144 (or any successor provision) under
the Securities Act.
"Rule 145" means Rule 145 (or any successor provision) under
the Securities Act.
"Securities Act" means the Securities Act of 1933, as amended,
or any successor federal statute, and the rules and regulations thereunder which
shall be in effect at the time. Any reference to a particular section thereof
shall include a reference to the corresponding section, if any, of any such
successor federal statute, and the rules and regulations thereunder.
"SEC" means the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act or the
Exchange Act.
"Shares" is defined in Section 1(a).
"Special Registration" means the registration of shares of
equity securities and/or options or other rights in respect thereof to be
offered solely to
4
<PAGE>
directors, members of management, employees, consultants or sales agents,
distributors or similar representatives of the Issuer or its direct or indirect
Subsidiaries, solely on Form S-8 or any successor form.
"Subsidiary" means, with respect to any Person, any
corporation or Person, a majority of the outstanding voting stock or other
equity interests of which is owned, directly or indirectly, by that Person.
"underwritten registration" or "underwritten offering" means a
registration in which securities of the Issuer (including Registrable
Securities) are sold to an underwriter for reoffering to the public.
"Warrant" means the warrant issued pursuant to the Investment
Agreement.
3. Registration.
3.1 Demand Registration.
(a) Requests. Subject to the provisions of Section 3.7, at any
time or from time to time after 180 days following the initial public offering
of the Common Stock, the Majority Holders shall have the right to make written
requests that the Issuer effect up to three registrations under the Securities
Act of all or part of the Registrable Securities of the Holders making such
request, which requests shall specify the intended method of disposition thereof
by such Holders, including whether the registration requested is for an
underwritten offering. The Issuer shall not be required to effect more than
three registrations under this Section 3.1. Nothing in this Agreement shall
prevent any Holder from making a request under this Section 3.1 prior to
exercising the Warrant.
(b) Obligation to Effect Registration. Within 10 days after
receipt by the Issuer of any request for registration pursuant to Section
3.1(a), the Issuer shall promptly give written notice of such requested
registration to all Holders, and there upon will use its best efforts to effect
the registration under the Securities Act of
(i) the Registrable Securities which the Issuer has been so
requested to register pursuant to Section 3.1(a), and
(ii) all other Registrable Securities which the Issuer has
been requested to register by the Holders thereof by written request
given to the Issuer within 10 days after the Issuer has given such
written notice (which request shall
5
<PAGE>
specify the intended method of disposition of such Registrable
Securities), all to the extent required to permit the disposition (in
accordance with the intended methods thereof as aforesaid) of the
Registrable Securities so to be registered.
(c) Shelf Registration. If requested by Holders of a majority
of the Registrable Securities as to which registration has been requested
pursuant to this Section 3.1, and if the Issuer is eligible to file such
Registration Statement on Form S- 3, the Registration Statement covering such
Registrable Securities shall provide for the sale by the Holders thereof of the
Registrable Securities from time to time on a delayed or a continuous basis
under Rule 415 under the Securities Act. If more than one underwritten offering
is requested under any particular shelf registration, each such additional
underwritten offering shall constitute a separate "demand" registration for
purposes of Section 3.1(a).
(d) Effective Registration Statement. A registration requested
pursuant to Section 3.1(a) shall not be deemed to have been effected unless it
is declared effective by the SEC and remains effective for the period specified
in Section 3.3(b). Notwithstanding the preceding sentence, a registration
requested pursuant to Section 3.1(a) that does not become effective after the
Issuer has filed a Registration Statement with respect thereto by reason of the
refusal to proceed of the Holders of Registrable Securities requesting the
registration, or by reason of a request by the Holders of a majority of the
Registrable Securities for which registration is being requested that such
registration be withdrawn, shall be deemed to have been effected by the Issuer
at the request of such Holders.
(e) Pro Rata Allocation. If the Holders of a majority of the
Registrable Securities for which registration is being requested pursuant to
Section 3.1(a) deter mine, based on consultation with the managing underwriters
or, in an offering which is not underwritten, with an investment banker, that
the number of securities to be sold in any such offering should be limited due
to market conditions or otherwise, Holders of Registrable Securities proposing
to sell their securities in such registration shall share pro rata in the number
of securities being offered (as determined by the Holders holding a majority of
the Registrable Securities for which registration is being re quested in
consultation with the managing underwriters or investment banker, as the case
may be) and registered for their account, such sharing to be based on the number
of Registrable Securities as to which registration was requested by such
Holders.
(f) Inclusion of Other Securities in Demand Registration.
(i) The Issuer may, subject to the remainder of this Section
3.1(f), elect to include in any Registration Statement made pursuant to Section
3.1(a), authorized
6
<PAGE>
but unissued shares of Common Stock or shares of Common Stock held as treasury
stock.
(ii) Notwithstanding any other provision of this Section 3(f),
the Issuer shall not register securities (other than Registrable Securities) for
sale for the account of any Person (other than the Issuer and WCAS Capital
Partners II, L.P. to the extent that it exercises its piggyback registration
rights granted by the Issuer as of the date hereof) in any registration
requested pursuant to Section 3.1(a) unless permitted to do so by the written
consent of the Holders holding at least a majority of the Registrable Securities
proposed to be sold in such registration.
(iii) If any Registration Statement made pursuant to Section
3.1(a) involves an underwritten offering and the managing underwriter of such
offering (or, in connection with an offering that is not underwritten, an
investment banker) shall advise the Issuer that, in its view, the number of
securities requested to be included in such registration exceeds the largest
number that can be sold in an orderly manner in such offering within a price
range acceptable to the selling Holders, the Issuer shall include in such
registration.
(A) first, all shares of Common Stock requested to be
included in such registration by the selling Holders as provided in Section
3.1(e); and
(B) second, to the extent that the number of
securities to be registered pursuant to clause (A) is less than the largest
number that can be sold in an orderly manner in such offering within a price
range acceptable to the selling Holders, securities that the Issuer proposes to
register; and
(C) third, to the extent that the number of shares
registered pursuant to clauses (A) and (B) is less than the largest number that
can be sold in an orderly manner in such offering within a price range
acceptable to the selling Holders, the securities requested to be included by
any other holders (if permitted by the Holders or otherwise pursuant to Section
3.1(f)(ii)).
The securities to be included in any such registration pursuant to clause (C)
shall be allocated on a pro rata basis among all holders requesting that
securities be included in such registration pursuant to such clause on the basis
of the number of securities requested to be included by such holders.
3.2 Piggyback Registration. If the Issuer at any time proposes
to register any Common Stock under the Securities Act (other than pursuant to a
Registration Statement relating solely to the sale of securities to participants
in a Issuer
7
<PAGE>
stock plan, on Form S-4 with respect to any merger, consolidation or
acquisition, pursuant to Section 3.1 or pursuant to a Special Registration),
whether or not for sale for its own account, and the registration form to be
used may be used for the registration of Registrable Securities, it shall each
such time give prompt written notice to all Holders of Registrable Securities of
its intention to do so and, upon the written request of any Holder of
Registrable Securities given to the Issuer within 10 days after the Issuer has
given any such notice (which request shall specify the Registrable Securities
intended to be disposed of by such Holder and the intended method of disposition
thereof), the Issuer will use its best efforts to effect the registration under
the Securities Act of all Registrable Securities which the Issuer has been so
requested to register by the Holders thereof, to the extent required to permit
the disposition (in accordance with the intended methods thereof as aforesaid)
of the Registrable Securities so to be registered, provided that:
(a) if, at any time after giving written notice of its
intention to register any securities and prior to the effective date of
the Registration Statement filed in connection with such registration,
the Issuer shall determine for any reason not to register such
securities, the Issuer may, at its election, give written notice of
such determination to each Holder that was previously notified of such
registration and, thereupon, shall not register any Registrable
Securities in connection with such registration (but shall nevertheless
pay the Registration Expenses in connection therewith), without
prejudice, however, to the rights of any Holders to request that a
registration be effected under Section 3.1; and
(b) if the Issuer shall be advised in writing by the managing
underwriters (or, in connection with an offering which is not
underwritten, by an investment banker) that in their or its opinion the
number of securities requested to be included in such registration
(whether by the Issuer, pursuant to this Section 3.2 or pursuant to any
other rights granted by the Issuer to a holder or holders of its
securities to request or demand such registration or inclusion of any
such securities in any such registration) exceeds the number of such
securities which can be sold in such offering in an orderly manner
within a price range that is acceptable to the Issuer, the Issuer shall
include in such registration:
(i) first, all shares requested to be registered by
WCAS Capital Partners II pursuant to its demand registration rights
granted by the Issuer as of the date hereof; and
(ii) second, all shares of Common Stock that the
Issuer proposes to register for its own account; and
8
<PAGE>
(iii) third, to the extent that the number of shares
registered pursuant to clauses (i) and (ii) is less than the
largest number that can be sold in an orderly manner in such
offering within a price range acceptable to the Issuer, (x)
the Registrable Securities requested to be included by the
Holders and (y) in the case of a registration initially
requested or demanded by a holder or holders of securities
other than the Registrable Securities (other than WCAS Capital
Partners II), the securities requested or demanded to be
registered by such other holders; and
(iv) fourth, to the extent that the number of shares
registered pursuant to clauses (i), (ii) and (iii) is less
than the largest number that can be sold in an orderly manner
in such offering within a price range acceptable to the
Issuer, the securities requested to be included by any other
holders,
and the Issuer shall so provide in any registration agreement
hereinafter entered into with respect to any of its securities.
The securities to be included in any such registration
pursuant to clause (iii) or (iv) shall be allocated on a pro rata basis among
all holders requesting that securities be included in such registration pursuant
to such clause on the basis of the number of securities requested to be included
by such holders.
No registration effected under this Section 3.2 shall relieve
the Issuer from its obligation to effect registrations upon request under
Section 3.1. The Issuer shall not be obligated to cause any "piggyback"
registration to be underwritten. Nothing in this Agreement shall prevent any
Holder from making a request under this Section 3.2 prior to exercising the
Warrant.
3.3 Registration Procedures. If and whenever the Issuer is
required to use its best efforts to effect the registration of any Registrable
Securities under the Securities Act as provided in Sections 3.1 and 3.2, the
Issuer shall:
(a) prepare and file with the SEC, as soon as practicable, a
Registration Statement with respect to such securities, make all
required filings with the NASD and use best efforts to cause such
Registration Statement to become effective at the earliest possible
date;
9
<PAGE>
(b) prepare and file with the SEC such amendments and
supplements to such Registration Statement and the Prospectus used in
connection therewith and such other documents as may be necessary to
keep such Registration Statement effective until the earlier of (i) 30
days after the effective date of such Registration Statement (360 days
in the case of a shelf registration pursuant to Section 3.1(c)) or (ii)
the consummation of the disposition by the Holders of all the
Registrable Securities covered by such Registration Statement and
otherwise comply with the provisions of the Securities Act with respect
to the disposition of all securities covered by such Registration
Statement;
(c) furnish to counsel (if any) selected by the Holders of a
majority of the Registrable Securities covered by such Registration
Statement and to counsel for the underwriters in any underwritten
offering copies of all documents proposed to be filed with the SEC in
connection with such registration a reasonable time prior to the
proposed filing thereof and give reasonable consideration in good faith
to any comments of such Holders, counsel and underwriters. The Issuer
shall not file any Registration Statement or Prospectus or any
amendments or supplements thereto pursuant to a registration under
Section 3.1(a) if the Holders of a majority of the Registrable
Securities covered by such Registration Statement, their counsel, or
the underwriters, if any, shall reasonably object in writing;
(d) furnish to each seller of Registrable Securities, without
charge, such reasonable number of conformed copies of such Registration
Statement and of each such amendment and supplement thereto (in each
case, including all exhib its (including exhibits incorporated by
reference), financial statements, schedules and all documents
incorporated therein, deemed to be incorporated therein by reference or
filed therewith, except that the Issuer shall not be obligated to
furnish any seller of securities with more than two copies of such
exhibits and documents), such number of copies of the Prospectus
included in such Registration Statement (including each preliminary
prospectus and any summary prospectus) in conformity with the
requirements of the Securities Act, and such other documents, as such
seller may reasonably request in order to facilitate the disposition of
the securities owned by such seller;
(e) use its best efforts to register or qualify and cooperate
with the Holders of Registrable Securities, the underwriters and their
respective counsels in connection with the registration or
qualification (or exemption from such registration or qualification) of
the securities covered by such Registration Statement under such other
securities or blue sky laws of such jurisdictions as each seller shall
request; provided, however, that where Registrable Securities
10
<PAGE>
are offered other than through an underwritten offering, the Issuer
agrees to cause its counsel to perform blue sky investigations and file
registrations and qualifications required to be filed pursuant to this
Section 3.3(e); keep each such registration or qualification (or
exemption therefrom) effective during the period such Registration
Statement is required to be effective hereunder and do any and all
other acts and things which may be necessary or advisable to enable
such seller to consummate the disposition in such jurisdictions of the
securities owned by such seller, except that the Issuer shall not for
any such purpose be required to qualify generally to do business as a
foreign corporation in any jurisdiction wherein it is not so qualified,
subject itself to taxation in any jurisdiction wherein it is not so
subject, or take any action which would subject it to general service
of process in any jurisdiction wherein it is not so subject;
(f) in connection with an underwritten public offering only,
(i) furnish to each seller of Registrable Securities
a signed coun terpart, addressed to the sellers, of an opinion
of counsel for the Issuer experienced in securities law
matters, dated the effective date of the Registration
Statement, and
(ii) if and to the extent permitted by applicable
accounting standards, use its reasonable efforts to furnish to
each seller of Registrable Securities, addressed to them, a
"cold comfort" letter signed by the independent public
accountants who have certified the Issuer's financial
statements included in such Registration Statement, covering
substantially the same matters with respect to such
Registration Statement (and the Prospectus included therein),
and with respect to events subsequent to the date of such
financial statements, as are customarily covered in
accountants' letters delivered to underwriters in underwritten
public offerings of securities and such other matters as the
Investors may reasonable request;
(g) (i) notify each Holder of Registrable Securities subject
to such Registration Statement if such Registration Statement, at the
time it or any amendment thereto became effective, (x) contained an
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading upon discovery by the Issuer of such material
misstatement or omission or (y) upon discovery by the Issuer of the
happening of any event as a result of which the Issuer believes there
would be such a material misstatement or omission, and, as promptly as
practicable, prepare and file with the SEC a post-effective amendment
to such
11
<PAGE>
registration statement and use best efforts to cause such
post-effective amend ment to become effective such that such
registration statement, as so amended, shall not contain an untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading, and (ii) notify each Holder of Registrable Securities
subject to such Registration Statement, at any time when a Prospectus
relating thereto is required to be delivered under the Securities Act,
if the Prospectus in cluded in such Registration Statement, as then in
effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which
they were made, not misleading upon discovery by the Issuer of such
material misstatement or omission or upon discovery by the Issuer of
the happening of any event as a result of which the Issuer believes
there would be such a material misstatement or omission, and, as
promptly as is practicable, prepare and furnish to such Holder a
reasonable number of copies of a sup plement to or an amendment of such
Prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such securities, such Prospectus shall not include an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading;
(h) otherwise use its best efforts to comply with all
applicable rules and regulations of the SEC, and make available to its
security holders, as soon as reasonably practicable, an earnings
statement of the Issuer complying with the provisions of Section 11(a)
of the Securities Act and Rule 158 promulgated under the Securities Act
(or any similar rule promulgated under the Securities Act) no later
than 45 days after the end of any 12-month period (or 90 days after the
end of any 12-month period if such period is a fiscal year) (i)
commencing at the end of any fiscal quarter in which Registrable
Securities are sold to an underwriter or to underwriters in a firm
commitment or best efforts underwritten offering and (ii) if not sold
to an underwriter or to underwriters in such an offering, commencing on
the first day of the first fiscal quarter of the Issuer after the
effective date of the relevant Registration Statement, which statements
shall cover said 12-month periods;
(i) promptly notify each Holder of any Registrable Securities
covered by such Registration Statement, their counsel and the
underwriters (i) when such Registration Statement, or any
post-effective amendment to such Registration Statement, shall have
become effective, or any amendment of or supplement to the Prospectus
used in connection therewith shall have been filed, (ii) of any request
by the SEC to amend such Registration Statement or to amend or
12
<PAGE>
supplement such Prospectus or for additional information, (iii) of the
issuance by the SEC of any stop order suspending the effectiveness of
such Registration Statement or of any order preventing or suspending
the use of any preliminary prospectus or the initiation or threatening
of any proceedings for any of such purposes, (iv) of the suspension of
the qualification of such securities for offering or sale in any
jurisdiction, or of the institution of any proceedings for any of such
purposes and (v) if at any time when a Prospectus is to be required by
the Securities Act to be delivered in connection with the sale of the
Registrable Securities, the representations and warranties of the
Issuer contained in any agreement (including the underwriting agreement
contemplated in Section 3.4(b) below), to the knowledge of the Issuer,
cease to be true and correct in any material respect;
(j) use its best efforts to prevent the issuance of any order
suspending the effectiveness of the Registration Statement or of any
order preventing or suspending the use of a Prospectus or suspending
the qualification (or exemption from qualification) of any of the
Registrable Securities covered thereby for sale in any jurisdiction,
and, if any such order is issued, to obtain the withdrawal of any such
order at the earliest possible moment;
(k) prior to the effective date of the Registration Statement,
(i) provide the registrar for the Common Stock or such other
Registrable Securities with printed certificates for such securities in
a form eligible for deposit with DTC and (ii) provide a CUSIP number
for such securities;
(l) have the right, if the Board of Directors of the Issuer,
in its good faith judgment, determines that any registration of shares
of Common Stock should not be made or continued because (x) it would
materially interfere with any material financing, acquisition,
corporation reorganization, merger, or other transaction involving the
Issuer or any of its Subsidiaries or (y) it would require the
disclosure of material nonpublic information, which disclosure would
have a material adverse effect on the Issuer's business (each a "Valid
Business Reason"), (i) to postpone filing a Registration Statement
until such Valid Business Reason no longer exists, but in no event for
more than 90 days, and (ii) to cause any Registration Statement that
has already been filed to be withdrawn and its effectiveness terminated
or to postpone amending or supplementing such Registration Statement
until such Valid Business Reason no longer exists, but in no event for
more than 90 days (the "Postponement Period"); provided, however, that
in no event shall the Issuer be permitted to postpone or withdraw a
Registration Statement within 180 days after the expiration of the
Postponement Period; and
13
<PAGE>
(m) participate in marketing any Registrable Securities in
connection with the registration of such securities under this
Agreement (including, but not limited to, making available reasonably
necessary personnel and participating in a road show) as would be
customary for public offerings of this nature.
The Issuer may require each Holder of any Registrable
Securities as to which any registration is being effected to furnish to the
Issuer such information regarding such Holder and the distribution of such
securities as the Issuer may from time to time reasonably request in writing and
as shall be required by law in connection therewith. Each such Holder agrees to
furnish promptly to the Issuer all information required to be disclosed in order
to make the information previously furnished to the Issuer by such Holder not
materially misleading.
The Issuer agrees not to file or make any amendment to any
Registration Statement with respect to any Registrable Securities, or any
amendment of or supple ment to the Prospectus used in connection therewith,
which refers to any seller of any securities covered thereby by name, or
otherwise identifies such seller as the holder of any securities of the Issuer,
without the consent of such seller, such consent not to be unreasonably
withheld, except that no such consent shall be required for any disclosure that
is required by law.
By the acquisition of Registrable Securities, each Holder
shall be deemed to have agreed that upon receipt of any notice from the Issuer
pursuant to Sec tion 3.3(g) or (l), such Holder will promptly discontinue such
Holder's disposition of Registrable Securities pursuant to the Registration
Statement covering such Registrable Securities until such Holder shall have
received, in the case of clause (i) of Section 3.3(g), notice from the Issuer
that such Registration Statement has been amended, as contemplated by Section
3.3(g); in the case of clause (ii) of Section 3.3(g), copies of the supplemented
or amended Prospectus contemplated by Section 3.3(g); or, in the case of Section
3.3(l), the time period specified has elapsed or such Holder has received notice
from the Issuer that the Postponement Period has been terminated. If so directed
by the Issuer, each Holder will deliver to the Issuer (at the Issuer's expense)
all copies, other than permanent file copies, in such Holder's possession of the
Prospectus covering such Registrable Securities at the time of receipt of such
notice. In the event that the Issuer shall give any such notice, the period
mentioned in Section 3.3(b) shall be extended by the number of days during the
period from and including the date of the giving of such notice to and including
the date when each seller of any Registrable Securities covered by such
Registration Statement shall have received the copies of the supplemented or
amended Prospectus contemplated by Sec tion 3.3(g).
14
<PAGE>
3.4 Underwritten Offerings. The provisions of this Section 3.4
do not establish additional registration rights but instead set forth procedures
applicable, in addition to those set forth in Sections 3.1 through 3.3, to any
registration that is an underwritten offering.
(a) Underwritten Offerings Exclusive. Whenever a registration
requested pursuant to Section 3.1 is for an underwritten offering, only
securities that are to be distributed by the underwriters may be included in the
registration.
(b) Underwriting Agreement. If requested by the underwriters
for any underwritten offering by Holders pursuant to a registration requested
under Section 3.1, the Issuer shall enter into an underwriting agreement with
such underwriters for such offering, such agreement to be reasonably
satisfactory in substance and form to the Holders of a majority of the
Registrable Securities to be covered by such registration and to the
underwriters and to contain such representations and warranties by the Issuer
and such other terms and provisions as are customarily contained in agreements
of this type, including, but not limited to, indemnities to the effect and to
the extent provided in Section 3.8, provisions for the delivery of officers'
certificates, opinions of counsel and accountants' "cold comfort" letters, and
lock-up arrangements. The Holders of Registrable Securities to be distributed by
such underwriters shall be parties to such underwriting agreement and may, at
their option, require that any or all of the representations and warranties by,
and the agreements on the part of, the Issuer to and for the benefit of such
underwriters be made to and for the benefit of such Holders and that any or all
of the conditions precedent to the obligations of such underwriters under such
underwriting agreement shall also be conditions precedent to the obligations of
such Holders. No such Holder shall be required by the Issuer to make any
representa tions or warranties to, or agreements with, the Issuer or the
underwriters other than as set forth in Section 3.8(d) and representations,
warranties or agreements regarding such Holder and such Holder's intended method
of distribution.
(c) Selection of Underwriters. Whenever a registration
requested pursuant to Section 3.1 is for an underwritten offering, the Issuer
shall have the right to select one or more underwriters to administer the
offering, subject to the consent of the Holders of a majority of the Registrable
Securities to be registered pursuant to such offering, which shall not be
unreasonably withheld. If the Issuer at any time proposes to register any of its
securities under the Securities Act for sale for its own account and such
securities are to be distributed by or through one or more underwriters, the
Issuer shall have the right to select one or more underwriters to administer the
offering, subject, in the event the Registrable Securities to be registered
pursuant to such offering represent at least 10% of the total number of shares
to be so registered (not including any over-allotment options), to the consent
of the Holders of a majority of Registrable
15
<PAGE>
Securities to be registered pursuant to such offering, which consent shall not
be unreasonably withheld. In all cases in this Section 3.4(c), at least one of
the underwriters chosen by the Issuer shall be an underwriter of nationally
recognized standing.
3.5 Lock-Up Agreements. If and whenever the Issuer proposes to
register any of its equity securities under the Securities Act, whether or not
for its own account (other than pursuant to a Special Registration), or is
required to use its best efforts to effect the registration of any Registrable
Securities under the Securities Act pursuant to Section 3.1 or 3.2, each of the
Holders, if required by the managing underwriter in an underwritten offering,
agrees by acquisition of such Registrable Securities not to effect (other than
pursuant to such registration) any public sale or dis tribution, including, but
not limited to, any sale pursuant to Rule 144, of any Regist rable Securities,
any other equity securities of the Issuer or any securities convertible into or
exchangeable or exercisable for any equity securities of the Issuer during the
10 days prior to, and for 90 days (or 180 days in the case of an initial public
offering) after, the effective date of such registration, to the extent timely
notified in writing by the Issuer or the managing underwriter, and the Issuer
agrees to use its best efforts to cause each holder of any equity security, or
of any security convertible into or exchangeable or exercisable for any equity
security, of the Issuer purchased from the Issuer at any time other than in a
public offering to enter into a similar agreement with the Issuer. If and
whenever the Issuer is required to use its best efforts to effect the
registration of any Registrable Securities under the Securities Act pursuant to
Sections 3.1 or 3.2, the Issuer, if required by the managing underwriter in an
underwritten offering, shall not effect (other than pursuant to such
registration or a Special Registration) any public sale or distribution of any
other equity securities of the Issuer or any securities convertible into or
exchangeable or exercisable for any equity securi ties of the Issuer during the
10 days prior to, and for 90 days (or 180 days in the case of an initial public
offering) after, the effective date of such registration, to the extent timely
notified in writing by the managing underwriter. In addition, in such
circumstances, the Issuer shall use its best efforts to cause its directors and
officers and all holders of 5% or more of its equity securities (other than the
Holders) not to effect (other than pursuant to such registration) any public
sale or distribution, including, but not limited to, any sale pursuant to Rule
144, of any equity securities of the Issuer or any securities convertible into
or exchangeable or exercisable for any equity securities of the Issuer during
the 10 days prior to, and for 90 days (or 180 days in the case of an initial
public offering) after, the effective date of such registration, to the extent
timely notified in writing by the managing underwriter
3.6 Preparation; Reasonable Investigation. In connection with
the preparation and filing of each Registration Statement registering
Registrable Securities
16
<PAGE>
under the Securities Act, the Issuer shall give the Holders of such Registrable
Securities so to be registered and their underwriters, if any, and their
respective counsel and accountants, the opportunity to participate in the
preparation of such Registration Statement, each Prospectus included therein or
filed with the SEC, and each amendment thereof or supplement thereto, and shall
give each of them such access to all pertinent financial, corporate and other
documents and properties of the Issuer and its Subsidiaries, and such
opportunities to discuss the business of the Issuer with its officers,
directors, employees and the independent public accountants who have issued
audit reports on its financial statements as shall be necessary, in the opinion
of such Holders' and such underwriters' respective counsel, to conduct a
reasonable investigation within the meaning of the Securities Act.
3.7 Other Registrations. If and whenever the Issuer is
required to use its best efforts to effect the registration of any Registrable
Securities under the Securi ties Act pursuant to Section 3.1 or 3.2, and if such
registration shall not have been withdrawn or abandoned, the Issuer shall not be
obligated to and shall not file any Registration Statement with respect to any
of its securities (including Registrable Securities) under the Securities Act
(other than a Special Registration), whether of its own accord or at the request
or demand of any holder or holders of such securities, until a period of 90 days
shall have elapsed from the effective date of such previous registration,
provided that the Issuer shall not be prohibited from filing a registration
statement by virtue of this Section 3.7 more than once in a 360 day period.
3.8 Indemnification.
(a) Indemnification by the Issuer. In the event of any
registration of any Registrable Securities under the Securities Act pursuant to
Section 3.1 or 3.2, the Issuer shall indemnify and hold harmless the seller of
such securities, its directors, officers, and employees, each other person who
participates as an underwriter, broker or dealer in the offering or sale of such
securities and each other person, if any, who controls such seller or any such
participating person within the meaning of either Sec tion 15 of the Securities
Act or Section 20 of the Exchange Act, against any and all losses, claims,
damages or liabilities, joint or several, to which such seller or any such
director, officer, employee, participating person or controlling person may
become subject under the Securities Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions or proceedings in respect thereof)
arise out of or are based upon (i) any untrue statement or alleged untrue
statement of a material fact contained in any Registration Statement under which
such securities were registered under the Securities Act, any Prospectus or
preliminary prospectus included therein, or any amendment or supplement thereto,
or (ii) any omission or alleged omission to state a material fact required to be
stated in any such Registration Statement, Prospectus, preliminary
17
<PAGE>
prospectus, amendment or supplement or necessary to make the statements therein
not misleading; and the Issuer shall reimburse such seller and each such
director, officer, employee, participating person and controlling person for any
legal or any other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, liability, action or proceeding
as such expenses are incurred; provided that the Issuer shall not be liable in
any such case to the extent that any such loss, claim, damage, liability or
expense arises out of or is based upon an untrue statement or omission made in
any such Registration Statement, Prospectus, preliminary prospectus, amendment
or supplement in reliance upon and in conformity with written information
furnished to the Issuer by such seller or participating person expressly for use
in the preparation thereof.
(b) Indemnification by the Seller. In the event of any
registration of any Registrable Securities under the Securities Act pursuant to
Section 3.1 or 3.2, each of the prospective sellers of such securities, will
indemnify and hold harmless the Issuer, each director of the Issuer, each
officer of the Issuer who shall sign such Registration Statement, and each other
person, if any, who controls the Issuer or any such participating person within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act, against any and all losses, claims, damages or liabilities, joint or
several, to which the Issuer or any such director, officer, employee,
participating person or controlling person may become subject under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) arise out of or are
based upon any untrue statement or alleged untrue statement of a material fact
contained in any Registration Statement under which such securities were
registered under the Securities Act, any Prospectus or preliminary prospectus
included therein, or any amendment or supplement thereto, or any omission or
alleged omission to state a material fact with respect to such seller required
to be stated in any such Registration Statement, Prospectus, preliminary
prospectus, amendment or supplement or necessary to make the statements therein
not misleading if such statement or omission was made in reliance upon and in
conformity with written information furnished to the Issuer by such seller
expressly for use in the preparation of any such Registration Statement,
Prospectus, preliminary prospectus, amendment or supplement; provided that the
liability of each such seller shall be in proportion to and limited to the net
amount received by such seller (after deducting any underwriting discount and
expenses) from the sale of Registrable Securities pursuant to such Registration
Statement.
(c) Notices of Claims, etc. Promptly after receipt by an
indemnified party of notice of the commencement of any action or proceeding
involving a claim re ferred to in the preceding paragraphs of this Section 3.8,
such indemnified party shall, if a claim in respect thereof is to be made
against an indemnifying party hereunder,
18
<PAGE>
give prompt written notice to the latter of the commencement of such action,
provided that the failure of any indemnified party to give notice as provided
therein shall not relieve the indemnifying party of its obligations under the
preceding paragraphs of this Section 3.8 unless the failure to provide prompt
written notice shall cause actual prejudice to the indemnifying party. In case
any such action is brought against an indemnified party and it notifies the
indemnifying party of the commencement thereof, the indemnifying party shall
have the right to retain counsel reasonably satisfactory to such indemnified
party to defend against such proceeding and shall pay the reasonable fees and
disbursements of such counsel related to such proceeding. In any such
proceeding, any indemnified party shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such indemnified party unless (i) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel and the
payment of such fees by the indemnifying party or (ii) the named parties to any
such proceeding (including any impleaded parties) include both the indemnifying
party and the indemnified party and representation of both parties by the same
counsel would be inappropriate due to actual or potential differing interests
between them or (iii) the indemnifying party has not retained counsel to defend
such proceeding, in which case (under any of such clauses (i), (ii) or (iii)) it
is understood that (x) the indemnifying party shall not, in connection with any
proceeding or related proceedings in the same jurisdiction, be liable for the
reasonable fees and expenses of more than one separate firm for all such
indemnified parties and (y) such firm shall be designated in writing by the
Holders of a majority of the Registrable Securities included in such
Registration Statement in the case of parties indemnified pursuant to Section
3.8(a) and by the Issuer in the case of parties indemnified pursuant to Section
3.8(b). No indemnifying party, in the defense of any such claim or litigation,
shall, except with the consent of such indemnified party, which consent shall
not be unreasonably withheld, consent to entry of any judgment or enter into any
settlement of any pending or threatened action in respect of which any
indemnified party is or could have been a party and indemnity could have been
sought hereunder by such indemnified party unless such judgment or settlement
includes as an unconditional term thereof the giving by the claimant or
plaintiff to such indemnified party of a release from all liability in respect
to such claim or litigation.
(d) Other Indemnification. Indemnification similar to that
specified in the preceding paragraphs of this Section 3.8 (with appropriate
modifications) shall be given by the Issuer and each seller of Registrable
Securities with respect to any required registration or other qualification of
such Registrable Securities under any federal or state law or regulation of
governmental authority other than the Securities Act.
19
<PAGE>
(e) Other Remedies. If for any reason the foregoing indemnity
is unavailable, or is insufficient to hold harmless an indemnified party, other
than by reason of the exceptions provided therein, then the indemnifying party
shall contribute to the amount paid or payable by the indemnified party as a
result of such losses, claims, damages, liabilities or expenses in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party on the one hand and of the indemnified party on the other in connection
with the statements or omissions which resulted in such losses, claims, damages
or liabilities, as well as any other relevant equitable considerations. The
relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
Issuer or the Holders of Registrable Securities covered by the Registration
Statement in question and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Issuer and the Holders agree that it would not be just and
equitable if contribution pursuant to this Section 3.8 were determined by pro
rata allocation or by any other method of allocation which does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. The amount paid or payable by an indemnified party as a result of the
losses, claims, damages and liabilities referred to in the immediately preceding
paragraph of this Section 3.8 shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any such
action or claim. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. No party shall be liable for contribution under this Section
3.8(e) except to the extent and under such circumstances as such party would
have been liable to indemnify under this Section 3.8 if such indemnification
were enforceable under applicable law.
(f) Officers and Directors. As used in this Section 3.8, the
terms "officers" and "directors" shall include the partners of Holders which are
partnerships and the members of Holders which are limited liability companies.
3.9 Expenses. The Issuer shall pay all Registration Expenses
in connection with each registration of Registrable Securities pursuant to this
Section 3.
4. Miscellaneous.
4.1 Rule 144; Legended Securities; etc. (a) The Issuer shall
file the reports required to be filed by it under the Securities Act and the
Exchange Act and the
20
<PAGE>
rules and regulations adopted by the SEC thereunder (or, if the Issuer is not
required to file such reports, it shall, upon the request of any Holder, make
publicly available such information as necessary to permit sales pursuant to
Rule 144 or Rule 145), and shall take such further action as any Holder may
reasonably request, all to the extent required from time to time to enable such
holder to sell shares of Registrable Securities without registration under the
Securities Act within the limitation of the exemptions provided by Rule 144 or
Rule 145. Upon the request of any Holder, the Issuer shall deliver to such
Holder a written statement as to whether it has complied with such requirements.
(b) The Issuer shall issue new certificates for Registrable
Securities without a legend restricting further transfer if (i) such securities
have been sold to the public pursuant to an effective Registration Statement
under the Securities Act (other than Form S-8 if the Holder of such Registrable
Securities is an Affiliate) or Rule 144, or (ii) (x) such issuance is otherwise
permitted under the Securities Act, (y) the Holder of such shares has delivered
to the Issuer an opinion of counsel, which opinion and counsel shall be
reasonably satisfactory to the Issuer, to such effect and (z) the Holder of such
shares expressly requests the issuance of such certificates in writing.
4.2 Amendments and Waivers. This Agreement may be amended,
modified or supplemented, and the Issuer may take any action herein prohibited,
or omit to perform any act herein required to be performed by it, only if the
Issuer shall have obtained the written consent to such amendment, action or
omission to act, of the Holders of at least a majority of the Registrable
Securities. Notwithstanding the foregoing, a waiver or consent to depart from
the provisions hereof with respect to a matter that relates exclusively to the
rights of Holders whose securities are being sold pursuant to a Registration
Statement and that does not directly or indirectly affect, impair, limit or
compromise the rights of other Holders may be given by Holders of at least a
majority of the Registrable Securities being sold by such Holders pursuant to
such Registration Statement; provided, however, that the provisions of this
sentence may not be amended, modified or supplemented except in accordance with
the provisions of the immediately preceding sentence. No amendment, modification
or dis charge of this Agreement, and no waiver hereunder, shall be valid or
binding unless set forth in writing. Any such waiver shall constitute a waiver
only with respect to the specific matter described in such writing and shall in
no way impair the rights of the party or parties granting such waiver in any
other respect or at any other time.
4.3 [Reserved]
4.4 Successors, Assigns and Transferees. This Agreement shall
be binding upon and shall inure to the benefit of the parties hereto and their
respective
21
<PAGE>
permitted successors, assigns and transferees. Any Holder may assign its rights
hereunder to an Affiliate or to other successors, assigns and transferees by
merger or consolidation or otherwise by operation of law of such Holder. This
Agreement shall survive any transfer of Registrable Securities to and shall
inure to the benefit of an Affiliate or such other successors, assigns and
transferees by merger or consolidation or otherwise by operation of law of
Investor or such Holder. In addition, and whether or not any express assignment
shall have been made, the provisions of this Agreement which are for the benefit
of the parties hereto other than the Issuer shall also be for the benefit of and
enforceable by any subsequent Holder of Registrable Securities, subject to the
provisions respecting the minimum numbers or percentages of shares of Regis
trable Securities required in order to be entitled to certain rights, or take
certain actions, contained herein, and subject to the provisions in the second
preceding sentence.
4.5 Notices. Any notice required to be given hereunder shall
be sufficient if in writing, and sent by facsimile transmission (with a
confirmatory copy sent by overnight courier), by courier service (with proof of
service), hand delivery or certified or registered mail (return receipt
requested and first-class postage prepaid), addressed as indicated in Exhibit I.
Any party may give any notice or other communication in connection herewith
using any other means (including, but not limited to, messenger service, telex
or ordinary mail), but no such notice or other communication shall be deemed to
have been duly given unless and until it is actually received by the individual
for whom it is intended.
4.6 No Inconsistent Agreements. The Issuer shall not hereafter
enter into any agreement, or amend any existing agreement, with respect to its
securities if such agreement would be inconsistent with the rights granted to
the Holders by this Agreement.
4.7 Enforcement of Agreement.
(a) The parties hereto agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were
not performed in accordance with its specific terms or was otherwise
breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement
and to enforce specifically the terms and provisions hereof in any New
York Court, this being in addition to any other remedy to which they
are entitled at law or in equity.
22
<PAGE>
(b) The prevailing party in any judicial action shall be
entitled to receive from the other party reimbursement for the
prevailing party's reasonable attorneys' fees and disbursements, and
court costs.
4.8 Severability. Any term or provision of this Agreement
which is invalid or unenforceable in any jurisdiction shall, as to that
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the remaining terms
and provisions of this Agreement or affecting the validity or enforceability of
any of the terms or provisions of this Agreement in any other jurisdiction. If
any provision of this Agreement is so broad as to be unenforceable, the
provision shall be interpreted to be only so broad as is enforceable.
4.9. Headings. Headings of the Articles and Sections of this
Agreement are for the convenience of the parties only, and shall be given no
substantive or interpretive effect whatsoever.
4.10. Counterparts. This Agreement may be executed by the
parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute one and the same instrument. Each counterpart may consist of a number
of copies hereof each signed by less than all, but together signed by all, of
the parties hereto.
4.11. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York without regard to
its rules of conflict of laws. Each of the Issuer and the Investor hereby
irrevocably and unconditionally consents to submit to the exclusive jurisdiction
of the courts of the State of New York and of the United States of America
located in the State of New York (the "New York Courts") for any litigation
arising out of or relating to this Agreement and the transactions contemplated
hereby (and agrees not to commence any litigation relating thereto except in
such courts), waives any objection to the laying of venue of any such litigation
in the New York Courts and agrees not to plead or claim in any New York Court
that such litigation brought therein has been brought in an inconvenient forum.
4.12 No Third Party Beneficiaries. Except as provided in
Section 3.8, nothing in this Agreement shall confer any rights upon any person
or entity other than the parties hereto, each such party's respective successors
and permitted assigns.
23
<PAGE>
IN WITNESS WHEREOF, each of the undersigned has executed this
Agreement or caused this Agreement to be executed on its behalf as of the date
first written above.
MEDE AMERICA CORPORATION
By:
-----------------------------
Name:
Title:
MEDIC COMPUTER SYSTEMS, INC.
By:
-----------------------------
Name:
Title:
24
<PAGE>
EXHIBIT I
Designated Addresses for Notices
If to the Issuer: If to the Investor:
Mede America Corporation Medic Computer Systems, Inc.
90 Merrick Avenue 8601 Six Forks Road
Suite 501 Suite 300
East Meadow, New York 11554 Raleigh, North Carolina 27615
Telephone: (516) 542-4500 Telephone: (919) 847-8102
Facsimile: (516) 542-4508 Facsimile: (919) 847-7110
Attention: David M. Goldwin, Esq. Attention: Alan Winchester
General Counsel
With a copy to: With a copy to:
Reboul, MacMurray, Hewitt, Maynard & Kristol Misys plc
45 Rockefeller Plaza Burleigh House
New York, New York 10111 Chapel Oak
Telephone: (212) 841-5700 Salford Priors, England
Facsimile: (212) 841-5725 Worcs WR11 5SH
Attention: Mark J. Tannenbaum, Esq.
Tel: 011 44 1386 871-373
Fax: 011 44 1386 871-045
Attention: Ross Graham
and
Debevoise & Plimpton
875 Third Avenue
New York, New York 10022
Telephone: (212) 909-6000
Facsimile: (212) 909-6836
Attention: Paul H.Wilson,Jr.,Esq.
EXHIBIT 4.9
STOCKHOLDERS AGREEMENT
STOCKHOLDERS AGREEMENT, dated as of July 17, 1998, between
MEDIC COMPUTER SYSTEMS, INC., a North Carolina corporation (together with its
affiliates, the "Investor"), 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"), WCAS CAPITAL PARTNERS II, L.P., a
Delaware limited partnership ("WCAS CP II"), WILLIAM BLAIR CAPITAL PARTNERS V,
L.P., a Delaware limited partnership ("WBCP V"), and WILLIAM BLAIR LEVERAGED
CAPITAL FUND LIMITED PARTNERSHIP, a Delaware limited partnership ("WBLCF") (WCAS
V, WCAS VI, WCAS CP II, WBCP V and WBLCF each a "Stockholder" and together, the
"Stockholders"). Capitalized terms are defined in the text or in Section 12.
RECITALS
WHEREAS, the Issuer desires that the Investor enter into an
ongoing commercial relationship with the Issuer and that the Investor
participate in the development of the Issuer's business on an ongoing basis.
WHEREAS, the Issuer wishes to issue to the Investor, and the
Investor wishes to accept, the Warrant.
WHEREAS, the Stockholders are existing stockholders of the
Issuer.
WHEREAS, the Investor and each of the Stockholders desire to
make certain arrangements among themselves and to declare their mutual
intentions with respect to the matters set forth herein.
NOW THEREFORE, in consideration of the foregoing and the
respective representations, warranties, covenants and agreements hereinafter set
forth, and for other good and valuable consideration the receipt and sufficiency
of which are hereby acknowledged by the parties hereto, the parties hereto,
intending to be legally bound hereby, agree as follows:
1. Representations and Warranties of the Stockholders. Each of
the Stockholders severally represents and warrants to the Investor as of the
date hereof as follows:
<PAGE>
(a) Authority. Such Stockholder has the power and authority to
execute, deliver and perform its obligations under, and to consummate
the transactions contemplated by, this Agreement, and has taken all
necessary action to authorize the execution, delivery and performance
by such Stockholder of, and consummation by such Stockholder of the
transactions contemplated by, this Agreement. This Agreement has been
duly and validly executed and delivered by such Stockholder and
constitutes the valid and binding obligation of such Stockholder,
enforceable against such Stockholder in accordance with its terms,
subject, as to enforcement of remedies, to applicable bankruptcy,
insolvency, moratorium and other similar laws and to general principles
of equity.
(b) No Conflicts. Neither the execution, delivery nor
performance by such Stockholder of this Agreement, nor compliance by
such Stockholder with the terms and provisions hereof, nor the
consummation by such Stockholder of the transactions contemplated
herein, will (a) contravene any applicable provision of any law,
statute, rule or regulation. or any applicable order, writ, injunction
or decree of any court or governmental instrumentality, (b) conflict
with or result in any material breach of any term, covenant, condition
or other provision of, or constitute a material default under the terms
of any contractual obligation to which such Stockholder is a party or
by which it or any of its properties or assets are bound or to which
they may be subject, or (c) violate or conflict with any provision of
the constituent documents of such Stockholder.
(c) The Subject Shares. Such Stockholder is the record and
beneficial owner of the shares (the "Existing Shares") of common stock
of the Issuer, par value $0.01 per share (the "Common Stock"), set
forth opposite the name of such Stockholder on Schedule I hereto and,
upon the consummation of the initial public offering of the Common
Stock, will be the record and beneficial owner of the shares (the
"Convertible Preferred Shares", and together with the Existing Shares,
the "Shares") of Common Stock set forth opposite the name of such
Stockholder on Schedule I hereto under the caption "Shares Underlying
Convertible Preferred." Each Stockholder has (or in the case of the
Convertible Preferred Shares, will have) good and marketable title to
the Shares owned (or to be owned) by it, free and clear of any claims,
liens, encumbrances and security interests whatsoever, and has (or will
have) the sole right to vote such Shares, and none of such Shares is
(or will be) subject to any voting trust or other agreement,
arrangement or restrictions with respect to the voting of such Shares,
except as contemplated by this Agreement.
2
<PAGE>
2. Representations and Warranties of the Investor. The Investor
represents and warrants to the Stockholders as of the date hereof as follows:
(a) Authority. The Investor has the corporate power and
authority to execute, deliver and perform its obligations under, and to
consummate the transactions contemplated by, this Agreement, and has
taken all necessary corporate action to authorize the execution,
delivery and performance by the Investor of, and consummation by the
Investor of the transactions contemplated by, this Agreement. This
Agreement has been duly and validly executed and delivered by the
Investor, and constitutes the valid and binding obligation of the
Investor, enforceable against the Investor in accordance with its
terms, subject, as to enforcement of remedies, to applicable
bankruptcy, insolvency, moratorium and other similar laws and to
general principles of equity.
(b) No Conflicts. Neither the execution, delivery nor
performance by the Investor of this Agreement, nor compliance by the
Investor with the terms and provisions hereof, nor the consummation by
it of the transactions contemplated herein, will (a) contravene any
applicable provision of any law, statute, rule or regulation. or any
applicable order, writ, injunction or decree of any court or
governmental instrumentality, (b) conflict with or result in any
material breach of any term, covenant, condition or other provision of,
or constitute a material default under the terms of any contractual
obligation to which the Investor is a party or by which it or any of
its properties or assets are bound or to which it may be subject, or
(c) violate or conflict with any provision of the constituent documents
of the Investor.
3. Board Designee. In the event that the Issuer has nominated
an Investor Designee to the Board pursuant to Section 4.1 of the Investment
Agreement, or a stockholder vote is otherwise required to elect an Investor
Designee to the Board in accordance with the terms of Section 4.1 of the
Investment Agreement, each Stockholder shall, and, if applicable, shall use its
best efforts to cause its affiliates to, vote all Shares then held by it (and
its affiliates) in favor of the election of such Investor Designee. Any vote
cast in accordance with this Section 3 shall be cast in such manner as will
insure that such vote is duly counted for purposes of determining whether a
quorum is present and for purposes of determining the result of such vote.
3
<PAGE>
4. Optional Participation in Stock Sales.
(a) If any Stockholder or Stockholders (for purposes of this
Section 4, the "Selling Stockholders") shall at any time desire to
transfer any Shares, the Investor shall be permitted, subject to
subsection (e) of this Section 4, to participate in such transfer on
the same terms and conditions applicable to such Selling Stockholders,
at a price per share equal to the quotient obtained by dividing (x) the
total consideration that a purchaser provides to purchase all of the
Subject Shares that it is purchasing by (y) the total number of Shares
(the "Subject Shares") being sold by the Selling Stockholders and the
Investor. The terms of such transfer shall provide that the liability
of the Investor and the Selling Stockholders shall be several, and not
joint, in proportion to the proceeds received by each, and limited in
the aggregate to the proceeds received by the Investor and each Selling
Stockholder, respectively, in the transfer.
(b) The Selling Stockholders intending to transfer Shares
shall deliver to the Investor a written notice (a "Transfer Notice") of
a proposed transfer subject to this Section 4 no later than 30 days
prior to the proposed closing thereof. Such notice shall make reference
to the Investor's rights hereunder and shall describe in reasonable
detail (i) the total number of Subject Shares to be transferred by the
Selling Stockholders, (ii) the person to whom such Subject Shares are
proposed to be transferred and (iii) the terms and conditions of the
transfer, including the con sideration to be paid therefor.
(c) The Investor shall exercise its right to participate in a
transfer of Shares pursuant to this Section 4 by delivering to the
Selling Stockholders a written notice (a "Participation Notice")
stating its election to do so and specifying the number of Shares held
by it to be transferred no later than 15 days after receipt of the
Transfer Notice. Failure to provide a Participation Notice within such
15-day period shall be deemed to constitute an election by the Investor
not to exercise its rights pursuant to this Section 4, and the Selling
Stockholders shall have 60 days following the expiration of such 15-day
period in which to sell or otherwise dispose of not more than the
number of Subject Shares described in the Transfer Notice, on terms not
more favorable to such Selling Stockholders than were set forth in the
Transfer Notice. If, at the end of the 60- day period following the
expiration of such 15-day period, such Selling Stockholders have not
completed the proposed transfer, such Selling Stockholders may not
transfer such Subject Shares without again fully complying with the
provisions of this Section 4. At any closing pursuant to this Section
4, the Investor shall be required to deliver the certificate or
certificates representing the
4
<PAGE>
Shares to be transferred by it, duly endorsed for transfer, and shall
be entitled to receive the net proceeds allocable to the sale thereof,
after deduction of the Investor's proportionate share of the reasonable
expenses of sale, which share shall not exceed an amount proportionate
to the amount of such expenses allocated to the Selling Stockholders.
(d) The Investor shall have the right to sell an aggregate
number of Shares in the same proportion to the total number of Shares
being transferred as (i) the total number of Shares then beneficially
owned by the Investor or subject to issuance upon exercise of the
Warrant bears to (ii) the total number of Shares then owned by the
Investor and the Stockholders or issuable upon the immediate exercise
of the Warrant then owned by the Investor. If the Investor in its
capacity as Warrantholder elects to exercise its right under this
Section 4 to sell Shares, it shall only be required to exercise its
Warrant upon, and only upon, the actual sale or disposition of the
Shares to the buyer of such Shares.
(e) The obligations of each Stockholder and the rights of the
Investor pursuant to this Section 4 shall not apply (i) in the event
that a Stockholder that is a limited partnership transfers Shares to
its limited partners, (ii) to any transfer of Shares by a Stockholder
to an affiliate and (iii) to any transfer of Shares pursuant to a
registered public offering or a public distribution under Rule 144
under the Securities Act.
5. Mandatory Participation in Stock Sales.
(a) In the event that any Stockholder proposes to transfer
Shares in an arms'-length transaction, the Stockholder intending to
transfer Shares shall have the right, subject to subsection (d) of this
Section 5, to require the participation by the Investor in such
transfer, in the manner set forth in this Section 5, on the same terms
and conditions applicable to such Stockholder. The terms of such sale
shall provide that the liability of the Investor and such Stockholder
(or Stockholders, as the case may be) shall be several, and not joint,
in proportion to the proceeds received by each, and limited in the
aggregate to the proceeds received by the Investor and each
Stockholder, respectively, in the sale.
(b) The relevant Stockholder shall exercise its rights
pursuant to this Section 5 by delivering to the Investor a written
notice of such proposed transfer no later than 30 days prior to the
proposed closing thereof. Such notice shall make reference to the
obligations of the Investor hereunder and shall describe in reasonable
detail (i) the number of Shares to be transferred by such Stockholder
5
<PAGE>
(or Stockholders, as the case may be), (ii) the person to whom or which
such Shares are proposed to be transferred, (iii) the terms and
conditions of the transfer, including the consideration to be paid
therefor, and (iv) the proposed date, time and location of the closing
of the transfer. The Investor shall thereupon be required to deliver at
such closing the certificate or certificates representing the Shares to
be transferred by it, duly endorsed for transfer, and shall be entitled
to receive the net proceeds allocable to the sale thereof, after
deduction of the Investor's proportionate share of the reasonable
expenses of sale, which share shall not exceed an amount proportionate
to the amount of such expenses allocated to the Stockholders selling
Shares pursuant to this Section 5.
(c) The Investor shall be obligated to sell in a transfer
subject to this Section 5 an aggregate number of Shares equal to the
product of (i) the total number of Shares then beneficially owned by
the Investor or subject to issuance upon exercise of the Warrant
multiplied by (ii) a fraction, the numerator of which equals the number
of Shares being sold by the Stockholders and the denominator of which
equals the total number of Shares then owned by the Stockholders. The
foregoing obligation shall include requiring the Investor in its
capacity as a Warrantholder to exercise the Warrant. Notwithstanding
the foregoing, the Investor shall in no event be obligated under this
Section 5 to sell Shares in excess of the number of Shares owned by the
Investor plus the number of Shares for which the Warrant is then
exercisable, taking into account the application of the cashless
exercise provisions of the Warrant.
(d) The obligations of the Investor and the rights of each
Stockholder pursuant to this Section 5 shall not apply (i) in the event
that a Stockholder that is a limited partnership transfers Shares to
its limited partners, or to a Competitor, (ii) to any transfer of
Shares by a Stockholder to an affiliate and (iii) to any transfer of
Shares pursuant to a registered public offering or a public
distribution under Rule 144 under the Securities Act.
6. Further Assurances.
(a) Each Stockholder will, from time to time, execute and
deliver, or cause to be executed and delivered, such additional or
further consents, documents and other instruments as the Investor may
reasonably request for the purpose of effectively carrying out the
transactions contemplated by this Agreement.
6
<PAGE>
(b) The obligations of the Issuer contained in Section 3.5 of
the Registration Rights Agreement shall apply equally to the
Stockholders, mutatis mutandis.
(c) In the event that a Stockholder, on the one hand, or the
Investor, on the other hand, intends to transfer a 5% or greater equity
interest in the Issuer (in a single transaction or a series of
transactions), the Stockholder intending to effect such transfer or the
Investor, as the case may be, shall use its best efforts to notify the
Investor or the Stockholders, as the case may be, of such proposed
transfer as soon as practicable.
7. Limited Right to Repurchase Shares. In the event the
Transaction Processing Agreement is terminated by the Issuer pursuant to clause
(iv), (vi) or (viii) of Section 18(a) thereof, then the Issuer shall have the
right, exercisable within 30 days after the date of such termination, to
repurchase all (but not less than all) shares of Common Stock issued to the
Investor upon any prior exercises of the Warrant, to the extent that the
Investor continues to hold such shares of Common Stock as of the date of
termination. The per share purchase price for any such shares shall be the
Warrant Price (as defined in the Warrant) at which such shares were purchased by
the Investor. Upon delivery by the Issuer of the aggregate purchase price for
such shares to the Investor, (i) the Investor will promptly return the
certificate or certificates evidencing such shares, duly endorsed for transfer
and (ii) regardless of whether or not such certificates are so returned, such
shares shall be deemed to be no longer issued and outstanding.
8. Termination. This Agreement, and all rights and obligations
of the parties hereunder shall terminate on the earlier to occur of (a) the
mutual written consent of each of the Stockholders and the Investor, and (b) the
date on which the Investor and its affiliates collectively no longer own any
Registrable Securities (as defined in the Registration Rights Agreement).
Further, this Agreement, and all rights and obligations of the parties hereunder
shall terminate (x) with respect to WCAS V, WCAS VI and WCAS CP II (the "Welsh
Carson Group") on the date on which the Welsh Carson Group no longer owns at
least twenty percent (20%) of the fully diluted equity of the Issuer that it
held as of the date hereof, and (y) with respect to WBCP V and WBLCF (the
"William Blair Group") on the date on which the William Blair Group no longer
owns at least twenty percent (20%) of the fully diluted equity of the Issuer
that it held as of the date hereof.
7
<PAGE>
9. General Provisions.
(a) Amendments. This Agreement may not be amended except by an
instrument in writing signed by each of the parties hereto.
(b) Notice. All notices and other communications hereunder
shall be in writing and shall be deemed given if hand delivered or sent
by overnight courier (providing proof of delivery) to the Stockholders
or the Investor at their respective addresses set forth below (or at
such other address for a party as shall be specified by like notice):
If to the Stockholders: If to the Investor:
Welsh, Carson, Anderson & Stowe Medic Computer Systems, Inc.
320 Park Avenue 8601 Six Forks Road
Suite 2500 Suite 300
New York, New York 10022-6815 Raleigh, North Carolina 27615
Telephone: (212) 893-9500
Facsimile: (212) 893-9575 Telephone: (919) 847-8102
Attention: Anthony de Nicola Facsimile: (919) 847-7110
Attention: Alan Winchester
With a copy to: With a copy to:
Reboul, MacMurray, Hewitt, Maynard & Kristol Misys plc
45 Rockefeller Plaza Burleigh House
New York, New York 10111 Chapel Oak
Telephone: (212) 841-5700 Salford Priors, England
Facsimile: (212) 841-5725 Worcs WR11 5SH
Attention: Mark J. Tannenbaum, Esq. Telephone: 011 44 1386 871-373
Facsimile: 011 44 1386 871-045
Attention: Ross Graham
and: and:
8
<PAGE>
William Blair & Company Debevoise & Plimpton
22 West Adams Street 875 Third Avenue
Chicago, Illinois 60606 New York, New York 10022
Telephone: (312) 364-8250 Telephone: (212) 909-6000
Facsimile: (312) 236-1042 Facsimile: (212) 909-6836
Attention: Timothy M. Murray Attention: Paul H.Wilson,Jr.,Esq.
(c) Interpretation. When a reference is made in this Agreement
to Sections, such reference shall be to a Section to this Agreement
unless otherwise indicated. The headings contained in this Agreement
are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. Wherever the words
"include", "includes" or "including" are used in this Agreement, they
shall be deemed to be followed by the words "without limitation".
(d) Counterparts. This Agreement may be executed in one or
more counterparts, all of which shall be considered one and the same
agreement, and shall become effective when one or more of the
counterparts have been signed by each of the parties and delivered to
the other party, it being understood that each party need not sign the
same counterpart.
(e) Entire Agreement; No Third-Party Beneficiaries. This
Agreement (including the documents and instruments referred to herein)
(i) constitutes the entire agreement and supersedes all prior
agreements and understandings, both written and oral, among the parties
with respect to the subject matter hereof and (ii) is not intended to
confer upon any person other than the parties hereto any rights or
remedies hereunder.
(f) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York without
regard to its rules of conflict of laws. Each of the Issuer and the
Investor hereby irrevocably and unconditionally consents to submit to
the exclusive jurisdiction of the courts of the State of New York and
of the United States of America located in the State of New York (the
"New York Courts") for any litigation arising out of or relating to
this Agreement and the transactions contemplated hereby (and agrees not
to commence any litigation relating thereto except in such courts),
waives any objection to the laying of venue of any such litigation in
the New York Courts and agrees not to plead or claim in any New York
Court that such litigation brought therein has been brought in an
inconvenient forum.
9
<PAGE>
10. Assignability. The Investor may transfer its rights
hereunder to any affiliate to which all or any portion of the Warrant has been
transferred.
11. Enforcement. The parties agree that irreparable damage
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any New York Court, this being in
addition to any other remedy to which they are entitled at law or in equity.
12. Definitions
"Competitor" means (a) any entity that engages in any line of
business, or is affiliated with any entity that engages in any line of business,
that is in competition with the Investor's core business or (b) any entity that
has publicly announced its intention, or is affiliated with any entity that has
publicly announced its intention, to engage in any line of business that is in
competition with the Investor's core business.
"Investment Agreement" means that the Investment Agreement,
dated as of the date hereof, between the Issuer and the Investor.
"Investor" is defined in the first paragraph of this
Agreement.
"Issuer" means MedE American Corporation, a Delaware
Corporation.
"New York Courts" is defined in Section 10(f).
"Participation Notice" is defined in Section 4(c).
"Registrable Securities" is defined in the Registration Rights
Agreement.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the date hereof, between the Issuer and the Investor.
"Securities Act" means the Securities Act of 1933, as amended.
"Selling Stockholders" is defined in Section 4.
"Shares" is defined in Section 1(c).
10
<PAGE>
"Stockholders" is defined in the first paragraph of this
Agreement.
"Subject Shares" is defined in Section 4(a).
"Transaction Processing Agreement" means the Transaction
Processing Agreement between the Issuer and the Investor, dated as of the date
hereof.
"Transfer Notice" is defined in Section 4(b).
"Warrant" means the warrant issued by the Issuer to purchase
1,250,000 Shares, identical to the form attached as Exhibit C to the Investment
Agreement.
"WBCP V" is defined in the first paragraph of this Agreement.
"WBLCF V" is defined in the first paragraph of this Agreement.
"WCAS V" is defined in the first paragraph of this Agreement.
"WCAS VI" is defined in the first paragraph of this Agreement.
"WCAS CP II" is defined in the first paragraph of this
Agreement.
11
<PAGE>
IN WITNESS WHEREOF, this Stockholders Agreement has been duly
executed and delivered as of the day and year first written above.
MEDIC COMPUTER SYSTEMS, INC.
By:
-------------------------------------
Name:
Title:
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
WCAS CAPITAL PARTNERS II, L.P.
By: WCAS CP II Partners, L.P., General
Partner
By:
-------------------------------------
General Partner
12
<PAGE>
WILLIAM BLAIR CAPITAL PARTNERS
V, L.P.
By: William Blair Capital Partners, LLC,
General Partner
By:
-------------------------------------
Timothy M. Murray
WILLIAM BLAIR LEVERAGED
CAPITAL FUND LIMITED
PARTNERSHIP
By: William Blair & Company, LLC,
General Partner
By:
-------------------------------------
Timothy M. Murray
Acknowledged and confirmed
with respect to Section 7 hereof,
MEDE AMERICA CORPORATION
By:
-----------------------------
Name:
Title:
13
<PAGE>
STOCKHOLDERS AGREEMENT - SCHEDULE I
<TABLE>
<CAPTION>
Stockholder Pre-Split Common Post Split Shares
- ----------- ---------------- ---------- ------
Common Underlying
------ ----------
Convertible
-----------
Preferred
---------
<S> <C> <C> <C>
Welsh, Carson, Anderson & Stowe V 8,205,728 1,790,748 762,600
Welsh, Carson, Anderson & Stowe VI, L.P. 8,205,728 1,790,748 762,600
WCAS Capital Partners II, L.P. 1,700,000 370,993
William Blair Capital Partners V, L.P. 1,900,000 414,639 176,577
William Blair Leveraged Capital Fund Limited Partnership 998,662 217,939 92,805
</TABLE>
NOTE: The Issuer expects to approve a one-for-4.5823 reverse stock split of its
Common Stock. Accordingly, this Schedule reflects shares of Common Stock now
owned by the Stockholders on a pre-split and post-split basis. The Shares
underlying convertible preferred column reflects the post-split figures.
14
EXHIBIT 4.10
INVESTMENT AGREEMENT
INVESTMENT AGREEMENT, dated as of July 17, 1998, between MEDIC
COMPUTER SYSTEMS, INC., a North Carolina corporation ("Medic"; and together with
its affiliates, the "Investor"), and MEDE AMERICA CORPORATION, a Delaware
corporation (the "Issuer"). Capitalized terms are defined in the text or in
Section 6.7, and a cross-reference table of defined terms is provided
immediately preceding the signature page hereto.
RECITALS
WHEREAS, the Issuer desires that the Investor enter into an
ongoing commercial relationship with the Issuer and that the Investor
participate in the development of the Issuer's business on an ongoing basis.
WHEREAS, the Issuer wishes to issue to the Investor, and the
Investor wishes to accept, the Warrant.
NOW THEREFORE, in consideration of the foregoing and the
respective representations, warranties, covenants and agreements hereinafter set
forth, and for other good and valuable consideration the receipt and sufficiency
of which are hereby acknowledged by the parties hereto, the parties hereto,
intending to be legally bound hereby, agree as follows:
ARTICLE I
ISSUANCE OF WARRANTS; CLOSING
1.1. Investment. Upon the terms set forth in this Agreement,
and in reliance upon the representations and warranties contained herein, the
Issuer is issuing to the Investor, and the Investor is accepting from the
Issuer, the Warrant (the "Issuance").
1.2. Closing. Subject to the terms and conditions of this
Agreement, the closing of the Issuance (the "Closing") is taking place
concurrently with the execution and delivery hereof at the offices of Debevoise
& Plimpton, 875 Third Avenue, New York, New York. The date on which the Closing
is occurring is hereinafter referred to as the "Closing Date".
<PAGE>
1.3. Deliveries at Closing. At the Closing, (a) the Investor
is delivering to the Issuer the Registration Rights Agreement duly executed and
any certificates or other instruments required by this Agreement, and (b) the
Issuer is delivering to the Investor (i) a duly executed Warrant, registered in
the name of the Investor, (ii) the Registration Rights Agreement duly executed
and (iii) any other certificates or other instruments required by this
Agreement. The Stockholders Agreement has been, or concurrently herewith is
being, executed and delivered by the parties thereto.
ARTICLE II
REPRESENTATIONS OF THE ISSUER
The Issuer hereby represents and warrants to the Investor as
follows:
2.1. Corporate Organization. The Issuer is a duly incorporated
and validly existing corporation in good standing under the laws of the State of
Delaware.
2.2. Authorization; Validity.
(a) The Issuer has the corporate power and authority to
execute, deliver and perform its obligations under, and to consummate the
transactions contemplated by, this Agreement and the Other Agreements, and has
taken all necessary corporate action to authorize the execution, delivery and
performance by the Issuer of, and consummation by the Issuer of the transactions
contemplated by, this Agreement and the Other Agreements. This Agreement and the
Other Agreements have been duly and validly executed and delivered by the
Issuer, and this Agreement and the Other Agreements constitute valid and binding
obligations of the Issuer, enforceable against the Issuer in accordance with
their respective terms, subject, as to enforcement of remedies, to applicable
bankruptcy, insolvency, moratorium and other similar laws and to general
principles of equity, and, in the case of the Registration Rights Agreement,
except as rights to indemnity or contribution thereunder may be limited by law
or public policy.
(b) The issuance, sale and delivery of the Warrant in
accordance with this Agreement and the issuance, sale and delivery of Shares
upon exercise of the Warrant have been duly authorized by all requisite
corporate action on the part of the Issuer, and, when issued, sold and delivered
in accordance with this Agreement or the Warrant, as applicable, will be duly
and validly issued and, in the case of the Shares, fully paid and nonassessable,
and such issuance, sale and delivery will not give rise to any preemptive rights
on the part of any person.
2
<PAGE>
2.3. No Violation. Neither the execution, delivery nor
performance by the Issuer of this Agreement and the Other Agreements, nor
compliance by the Issuer with the terms and provisions hereof and thereof, nor
the consummation by the Issuer of the transactions contemplated herein or
therein, will (a) contravene any applicable provision of any law, statute, rule
or regulation. or any applicable order, writ, injunction or decree of any court
or governmental instrumentality, (b) conflict with or result in any material
breach of any term, covenant, condition or other provision of, or constitute a
material default under the terms of any contractual obligation to which the
Issuer is a party or by which it or any of its properties or assets are bound or
to which it may be subject, or (c) violate or conflict with any provision of the
constituent documents of the Issuer.
2.4. Registration Statement. The Registration Statement on
Form S-1 of the Issuer (No. 333-55977) (the "Registration Statement") does not,
in the form filed with the Securities and Exchange Commission (the "SEC") as of
the date hereof, contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, provided, that no representation is being made hereby as to the
disclosure in the Registration Statement regarding the transactions contemplated
by this Agreement, the Other Agreements, the Stockholders Agreement or the
Transaction Processing Agreement.
ARTICLE III
REPRESENTATIONS OF THE INVESTOR
The Investor represents and warrants to the Issuer as follows:
3.1. Organization. The Investor is duly organized, validly
existing and in good standing under the laws of the State of North Carolina.
3.2. Authorization; Validity. The Investor has full power and
authority to execute, deliver and perform its obligations under, and to
consummate the transactions contemplated by, this Agreement and the Registration
Rights Agreement. The execution, delivery and performance by the Investor of
this Agreement and the Registration Rights Agreement, and the consummation by
the Investor of the transactions contemplated hereby and thereby have been duly
authorized by the Investor. This Agreement and the Registration Rights Agreement
have been duly and validly executed and delivered by the Investor, and this
Agreement and the Registration Rights Agreement constitute valid and
3
<PAGE>
binding obligations of the Investor, enforceable against the Investor in
accordance with their respective terms, subject, as to enforcement of remedies,
to applicable bankruptcy, insolvency, moratorium and other similar laws and to
general principles of equity, and, in the case of the Registration Rights
Agreement, except as rights to indemnity or contribution thereunder may be
limited by law or public policy.
3.3. No Violation. Neither the execution, delivery nor
performance by the Investor of this Agreement or the Registration Rights
Agreement, nor compliance by the Investor with the terms and provisions hereof
and thereof, nor the consummation by the Investor of the transactions
contemplated herein or therein, will (a) contravene any applicable provision of
any law, statute, rule or regulation, or any applicable order, writ, injunction
or decree of any court or governmental instrumentality, (b) conflict with or
result in any material breach of any term, covenant, condition or other
provision of, or constitute a material default under, the terms of any
contractual obligation to which the Investor is a party or by which the Investor
or any of its properties or assets are bound or to which the Investor may be
subject, or (c) violate or conflict with any provision of the constituent
documents of the Investor.
3.4. Investment Representations, Etc.
(a) Purchase for Investment. The Warrant being acquired by the
Investor pursuant to this Agreement and the Shares to be purchased by
the Investor upon exercise of the Warrant is being and will be acquired
for investment only and not with a view to any public distribution
thereof in violation of any of the requirements of the Securities Act
of 1933, as amended (the "Securities Act"), or the rules and
regulations thereunder.
(b) Securities Not Registered. The Investor understands that
the Warrant and the Shares to be purchased upon exercise of the Warrant
have not been registered under the Securities Act in reliance upon
exemptions contained in the Securities Act and applicable regulations
promulgated thereunder or interpretations thereof, and cannot be
offered for sale, sold or otherwise transferred unless such sale or
transfer is so registered or qualifies for exemption from registration
under the Securities Act.
(c) Sophistication. The Investor has such knowledge and
experience in financial and business matters that it is capable of
evaluating the merits and risks of its investment in the Warrant and
the Shares to be purchased upon exercise of the Warrant, and the
Investor understands and is able to bear any economic risks associated
with such investment (including the necessity of holding such
4
<PAGE>
securities for an indefinite period of time, inasmuch as such
securities have not been, and may not in the foreseeable future be,
registered under the Securities Act), including the risk of the loss of
the Investor's entire investment in the Warrant and the Shares to be
purchased upon exercise of the Warrant.
(d) Legends. The Investor understands and agrees that
certificates representing the Warrant and the Shares to be purchased
upon exercise of the Warrant will bear conspicuous legends in
substantially the form set forth below (in addition to any other legend
required by law):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER EITHER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"),
OR APPLICABLE STATE SECURITIES LAWS (THE "STATE ACTS"), AND SHALL NOT
BE SOLD, PLEDGED, HYPOTHECATED, DONATED OR OTHERWISE TRANSFERRED
(WHETHER OR NOT FOR CONSIDERATION) BY THE HOLDER EXCEPT BY REGISTRATION
OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UPON THE ISSUANCE TO THE
COMPANY OF A FAVORABLE OPINION OF COUNSEL OR OTHER EVIDENCE REASONABLY
SATISFACTORY TO THE COMPANY TO THE EFFECT THAT ANY SUCH TRANSFER SHALL
NOT BE A VIOLATION OF THE 1933 ACT AND THE STATE ACTS.
Notwithstanding the foregoing, the certificate(s) representing the Warrant or
the Shares to be purchased upon exercise of the Warrant need not continue to
bear such legend (and the Issuer agrees to cause such legend to be removed from
such certificate(s) at the request of the holder thereof) if (i) the sale or
other transfer of such securities referred to in such legend is in accordance
with the provisions of Rule 144 under the Securities Act (or any other rule
permitting public sale without registration under the Securities Act) or (ii)
the opinion of counsel referred to above is to the effect that the Investor and
any subsequent transferee (other than an affiliate of the Issuer) would be
entitled to transfer such securities in a public sale without registration under
the Securities Act.
ARTICLE IV
BOARD REPRESENTATION
4.1. Board Membership. The Board of Directors of the Issuer
(the "Board") shall take such action as is necessary to appoint to the Board,
effective as of the earlier of the closing of the initial public offering of
common stock of the Issuer and
5
<PAGE>
March 31, 1999 (such earlier date, the "Appointment Date"), one person
designated by the Investor (the "Investor Designee"). From the Appointment Date
through the Termination Date, (a) the Issuer shall, upon the written request of
the Investor, nominate and recommend to the holders of the Issuer's voting
securities for election to the Board, one Investor Designee and (b) the Investor
may require that an Investor Designee who is a member of the Board be removed
and replaced by another Investor Designee, in which case, (i) if any action to
effect the foregoing is required on the part of the holders of the Issuer's
voting securities, the Issuer shall take the actions set forth in clause (a)
above, and (ii) in the case of the replacement of an Investor Designee in
connection with his death, resignation or removal, the Issuer, by action of the
Board, shall cause a replacement Investor Designee to be appointed to the Board
to fill the vacancy caused by such death, resignation or removal.
Notwithstanding the foregoing, the Issuer shall not be required to take any
action that would result in more than one Investor Designee being elected to the
Board at the same time. For purposes of this Agreement, the "Termination Date"
shall mean the earlier to occur of (x) the date on which the Investor
collectively own less than seventy-five percent (75%) (based on the number of
Shares owned plus the number of Shares subject to the Warrant) of the number of
Shares subject to the Warrant on the Closing Date (subject to anti-dilution
adjustments) and (y) the termination of the Transaction Processing Agreement.
4.2. Observer and Monitoring Rights. From and after the
Appointment Date and until the Termination Date, the Issuer will permit a
representative designated by the Investor to attend as an observer any meeting
from which the Investor Designee will be absent. The Issuer may require that any
representative designated pursuant to this Section 4.2 execute a confidentiality
agreement in customary form and reasonably acceptable to such representative
with respect to confidential information of the Issuer made available to such
representative pursuant to this Section 4.2, which agreement shall include an
acknowledgment of such representative that in such capacity such representative
may obtain material non-public information concerning the Issuer, and,
accordingly, will be subject to any applicable restrictions pursuant to Rule
10b-5 under the Securities Exchange Act of 1934, as amended, in connection with
such representative's possession of such information. The Investor acknowledges
that the provisions of this Section 4.2 shall not be construed to provide the
Investor with the right to participate in meetings of the Board or to exercise
any control over the affairs of the Issuer.
6
<PAGE>
ARTICLE V
TERMINATION; AMENDMENT
5.1. Termination. This Agreement may be terminated at any time
by mutual written consent of the Investor and the Issuer.
5.2. Effect of Termination. If this Agreement is terminated
pursuant to Section 5.1 hereof, this Agreement, except for the provisions of
Sections 5.2, 6.1, 6.4 and 6.5, shall terminate, without any liability on the
part of any party or its directors, officers or stockholders. Nothing herein
shall relieve any party to this Agreement of liability for breach of this
Agreement or prejudice the ability of the non-breaching party to seek damages
from any other party for any breach of this Agreement, including without
limitation, attorneys' fees and the right to pursue any remedy at law or in
equity.
5.3. Amendment. This Agreement may not be amended except by
an instrument in writing signed on behalf of both of the parties.
ARTICLE VII
MISCELLANEOUS
6.1. Notices. Any notice required to be given hereunder shall
be sufficient if in writing, and sent by facsimile transmission (with a
confirmatory copy sent by overnight courier), by courier service (with proof of
service), hand delivery or certified or registered mail (return receipt
requested and first-class postage prepaid), addressed as follows:
If to the Issuer: If to the Investor:
Mede America Corporation Medic Computer Systems, Inc.
90 Merrick Avenue 8601 Six Forks Road
Suite 501 Suite 300
East Meadow, New York 11554 Raleigh, North Carolina 27615
Telephone: (516) 542-4500 Telephone: (919) 847-8102
Facsimile: (516) 542-4508 Facsimile: (919) 847-7110
Attention: David M. Goldwin, Esq. Attention: Alan Winchester
General Counsel
With a copy to: With a copy to:
7
<PAGE>
Reboul, MacMurray, Hewitt, Maynard & Kristol Misys plc
45 Rockefeller Plaza Burleigh House
New York, New York 10111 Chapel Oak
Telephone: (212) 841-5700 Salford Priors, England
Facsimile: (212) 841-5725 Worcs WR11 5SH
Attention: Mark J. Tannenbaum, Esq.
Tel: 011 44 1386 871-373
Fax: 011 44 1386 871-045
Attention: Ross Graham
and
Debevoise & Plimpton
875 Third Avenue
New York, New York 10022
Telephone: (212) 909-6000
Facsimile: (212) 909-6836
Attention: Paul H.Wilson, Jr., Esq.
or to such other address as any party shall specify by written notice so given,
and such notice shall be deemed to have been delivered as of the date so
telecommunicated, personally delivered or mailed.
6.2. Assignment; Binding Effect; Third Party Beneficiaries.
Neither this Agreement nor any of the rights, interests or obligations hereunder
shall be assigned by any party hereto (whether by operation of law or otherwise)
without the prior written consent of the other party provided that Medic may
assign its rights hereunder to an affiliate, but nothing shall relieve the
assignor from its obligations hereunder. Subject to the preceding sentence, this
Agreement shall be binding upon and shall inure to the benefit of 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 heirs, successors, executors, administrators and
assigns any rights, remedies, obligations or liabilities under or by reason of
this Agreement.
6.3. Entire Agreement. This Agreement, the Registration Rights
Agreement, the Warrant, and the Transaction Processing Agreement constitute the
entire agreement among the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings among the parties with respect
thereto.
8
<PAGE>
6.4. Fees and Expenses. Each party will bear its own legal and
other expenses with respect to this Agreement and the transactions contemplated
hereby.
6.5. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York without regard to
its rules of conflict of laws. Each of the Issuer and the Investor hereby
irrevocably and unconditionally consents to submit to the exclusive jurisdiction
of the courts of the State of New York and of the United States of America
located in the State of New York (the "New York Courts") for any litigation
arising out of or relating to this Agreement and the transactions contemplated
hereby (and agrees not to commence any litigation relating thereto except in
such courts), waives any objection to the laying of venue of any such litigation
in the New York Courts and agrees not to plead or claim in any New York Court
that such litigation brought therein has been brought in an inconvenient forum.
6.6. Headings. Headings of the Articles and Sections of this
Agreement are for the convenience of the parties only, and shall be given no
substantive or interpretive effect whatsoever.
6.7. Interpretation; Certain Definitions. In this Agreement,
unless the context otherwise requires, words describing the singular number
shall include the plural and vice versa, and words denoting any gender shall
include all genders and words denoting natural persons shall include
corporations and partnerships and vice versa. Whenever the words "include,"
"includes" or "including" are used in this Agreement, they shall be deemed to be
followed by the words "without limitation." As used in this Agreement, the words
"Subsidiary" and "affiliate" shall have the meanings ascribed thereto in Rule
12b-2 under the Securities Exchange Act of 1934, as amended. The following terms
shall have the following meanings ascribed to them:
"Other Agreements" means the Warrant and the Registration
Rights Agreements.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the date hereof, between the Issuer and the
Investor, in the form attached hereto as Exhibit A.
"Share" means a share of common stock of the Issuer, $0.01 par
value per share.
"Stockholders Agreement" means the Stockholders Agreement
between the Investor, Welsh, Carson, Anderson & Stowe V, L.P., Welsh
Carson,
9
<PAGE>
Anderson & Stowe VI, L.P., WCAS Capital Partners II, L.P., William
Blair Capital Parners V, L.P. and William Blair Leveraged Capital Fund
Limited Partnership, dated as of the date hereof, in the form attached
hereto as Exhibit B.
"Transaction Processing Agreement" means the Transaction
Processing Agreement between the Issuer and the Investor, dated as of
the date hereof.
"Warrant" means the warrant issued by the Issuer to purchase
1,250,000 Shares, identical to the form attached hereto as Exhibit C.
6.8. Severability. Any term or provision of this Agreement
which is invalid or unenforceable in any jurisdiction shall, as to that
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the remaining terms
and provisions of this Agreement or affecting the validity or enforceability of
any of the terms or provisions of this Agreement in any other jurisdiction. If
any provision of this Agreement is so broad as to be unenforceable, the
provision shall be interpreted to be only so broad as is enforceable.
6.9. Enforcement of Agreement.
(a) The parties hereto agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were
not performed in accordance with its specific terms or was otherwise
breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement
and to enforce specifically the terms and provisions hereof in any New
York Court, this being in addition to any other remedy to which they
are entitled at law or in equity.
(b) The prevailing party in any judicial action shall be
entitled to receive from the other party reimbursement for the
prevailing party's reasonable attorneys' fees and disbursements, and
court costs.
6.10. Issuer Acknowledgment. The Issuer hereby acknowledges
that nothing in this Agreement, the Other Agreements, the Stockholders
Agreement, the Transaction Processing Agreement or any other agreement
contemplated hereby or thereby shall in any way restrict the right of the
Investor from purchasing any securities of the Issuer from third parties, in the
market, or otherwise.
6.11. Counterparts. This Agreement may be executed by the
parties hereto in separate counterparts, each of which when so executed and
delivered shall be an
10
<PAGE>
original, but all such counterparts shall together constitute one and the same
instrument. Each counterpart may consist of a number of copies hereof each
signed by less than all, but together signed by all, of the parties hereto.
11
<PAGE>
DEFINITIONS
<TABLE>
<CAPTION>
Defined Term Section Reference
------------ -----------------
<S> <C>
"Affiliate" Section 6.7
---------
"Appointment Date" Section 4.1
----------------
"Board" Section 4.1
-----
"Closing" Section 1.2
-------
"Closing Date" Section 1.2
------------
"Investor" First Paragraph
--------
"Investor Designee" Section 4.1
-----------------
"Issuance" Section 1.1
--------
"Issuer" First Paragraph
------
"Medic" First Paragraph
-----
"New York Courts" Section 6.5
---------------
"Registration Rights Agreement" Section 6.7
-----------------------------
"Registration Statement" Section 2.4
----------------------
"Securities Act" Section 3.4
--------------
"SEC" Section 2.4
---
"Share" Section 6.7
-----
"Software Development Agreement" Section 6.7
------------------------------
"Stockholder Agreement" Section 6.7
---------------------
"Termination Date" Section 4.1
----------------
"Transaction Processing Agreement" Section 6.7
--------------------------------
"Warrant" Section 6.7
-------
</TABLE>
12
<PAGE>
IN WITNESS WHEREOF, this Investment Agreement has been duly
executed and delivered as of the day and year first written above.
MEDIC COMPUTER SYSTEMS, INC.
By:
------------------------------
Name:
Title:
MEDE AMERICA CORPORATION
By:
------------------------------
Name:
Title:
13
Exhibit 10.4
AGREEMENT OF LEASE, made as of this 15th day of October, 1991, between
HMCC ASSOCIATES, a limited partnership, having its principal office at 255
Broadhollow Road, Suite 212 W, CS 5341, Melville, New York 11747-0983
(hereinafter referred to as "Landlord"), and MEDE AMERICA, INC., a corporation,
having its principal place of business at 377 Oak Street, Garden City, NY 11530
(hereinafter referred to as "tenant").
WITNESSETH: Landlord and Tenant hereby covenant and agree as follows:
SPACE
1. Landlord hereby leases to Tenant and Tenant hereby hires from
Landlord the space substantially as shown on the Rental Plan initialed by the
parties and made part of hereof as Exhibit "1" ("Demised Premises" or
"Premises") in the building known as Nassau West Omni, located at Earl Ovington
Boulevard, Mitchel Field, New York (hereinafter referred to as the "Building")
which the parties agreed contains 8,255 square feet in a Building containing
555,816 square feet which constitutes 1.48 per cent of the rentable area of the
Building.
TERM
2. The term "term" or "Demised Term" of this lease shall commence on
February 1, 1992, hereinafter referred to as the "Term Commencement Date and
shall terminate on January 31, 2003, hereinafter referred to as the "Expiration
Date", unless the Term shall sooner terminate pursuant to any of the terms,
covenants or conditions of this lease pursuant to law.
If on the foregoing data specified for the Term Commencement Datethe
Demised Premises shall not be "substantially completed" in accordance with
Schedule A annexed hereto, then the Term Commencement Date shall be postponed
until the date on which the Demised Premises shall be "substantially completed"
and the Term of this lease shall be extended so that the Expiration Date shall
be eleven (11) years after the last day of the month in which the Term
Commencement Date occurs. "Substantially completed" as used herein is defined to
mean the only items to be completed are those which do not interfere with the
Tenant's occupancy substantially full enjoyment of the Demised Premises; but is
Landlord shall be delayed in such "substantial completion" as a result of (i)
Tenant's failure to furnish plans and specifications; (ii) Tenant's request for
materials, finishes or installations other than Landlord's standard; (iii)
Tenant's changes in said plans; (iv) the performance or completion of any work,
labor or services by a party employed by Tenant; (v) Tenant's failure to approve
final plans, working drawings or reflective ceiling plans (collectively "Tenant
Delays"), the commencement of the term of said lease and the payment of rent
thereunder shall be accelerated by the number of
<PAGE>
days of such delay. Tenant waives any right to rescind this lease under Section
223-a of the New York Real Property Law or any successor statute of similar
import then in force and further waives the right to recover any damages which
may result from Landlord's failure to deliver possession of the Premises on the
Term Commencement Date.
RENT
3. The annual rental rate ("Rent") is as follows:
2/1/92 During the first year of the term of this lease the Rent shall be
$18,506.28, payable $1,542.19 in equal monthly installments.
2/1/93 During the second year the Rent shall be $279,519.76, payable
$43,003.04 for the first month and $21,501.52 for each of the second
through twelfth months.
2/1/94 During the third year the Rent shall be $267,230.28, payable
$22,269.19 in equal monthly installments.
2/1/95 During the fourth year the Rent shall be $276,360.00, payable
$23,030.00 in equal monthly installments.
2/1/96 During the fifth year the Rent shall be $285,654.24, payable
$23,804.52 in equal monthly installments.
2/1/97 During the sixth year the Rent shall be $294,866.28, payable
$24,572.19 in equal monthly installments.
2/1/98 During the seventh year the Rent shall be $304,078.20, payable
$25,339.85 in equal monthly installments.
2/1/99 During the eighth year the Rent shall be $313,502.28, payable
$26,107.52 in equal monthly installments.
2/1/00 During the ninth year the Rent shall be $322,502.28, payable
$26,875.19 in equal monthly installments.
2/1/01 During the tenth year the Rent shall be $331, 714.20, payable
$27,642.85 in equal monthly installments.
2/1/02 During the eleventh year the Rent shall be $319,424.72, payable
$28,410.52 for each of the first through eleventh months and $6,909.00
for the twelfth month, which Tenant agrees to pay Landlord, without
legal notice or demand, in lawful money of the United States which
shall be legal tender in payment of the debts and dues, public and
private, at the time of payment in advance on the first day of each
calendar month during the Demised Term at the office of the Landlord,
or at such other place as Landlord shall designate, except that
<PAGE>
Tenant shall pay the first monthly installment on the execution hereof. Tenant
shall pay the rent as above and as hereinafter provided, without any set off or
deduction whatsoever. Should the Term Commencement Date be a date other than the
first day of a calendar month, the Tenant shall pay a pro rata portion of the
rent on a per diem basis, based upon the second month of the Term from such date
to the first day of the following month, and Landlord shall credit the excess
amount paid toward the payment of rent for the next succeeding calendar month.
USE
4. (A) The Tenant shall use and occupy the Demised Premises only for
executive and administrative offices and training of personnel, furnishing of
information, utilizing computerized support and communications networks,
provided the same is in an office context, and for no other purpose.
(B) Tenant shall not use or occupy, suffer or permit the Premises,
or any part thereof, to be used in any manner which would in any way, in the
reasonable judgement of Landlord, (i) violate any laws or regulations of public
authorities; (ii) make void or voidable any insurance policy then in force with
respect to the Building; (iii) impair the appearance, character or reputation of
the Building; (iv) discharge objectionable fumes, vapors or odors into the
Building, air-conditioning systems or Building flues or vents in such a manner
as to offend other occupants. The provisions of this Section shall not be deemed
to be limited in any way to or by the provisions of any other Section or any
Rule or Regulation.
(C) The emplacement of any equipment which will impose an evenly
distributed floor in excess of 100 pounds per square foot shall be done only
after written permission is received from the Landlord. Landlord represents that
the floor load is 100 pounds per square foot. Such permission will be granted
only after adequate proof if furnished by a professional engineer that such
floor loading will not endanger the structure. Business machines and mechanical
equipment in the Premises shall be placed and maintained by Tenant, at Tenant's
expense, in such a manner as shall be sufficient in Landlord's judgement to
absorb vibration and noise and prevent annoyance or inconvenience to Landlord or
any other tenants or occupants of the Building.
(D) Tenant will not at any time use or occupy the Demised Premises
in violation of the certificate of occupancy (temporary or permanent) issued for
the Building or portion thereof of which the Demised Premises form a part.
LANDLORD ALTERATION
5. Landlord, at its expense, will perform the work and make the
installations, as set forth in Schedule A annexed hereto, which is sometimes
hereinafter referred to as the "Landlord's Initial Construction".
<PAGE>
SERVICES
6. (A) As long as Tenant is not in default under any material covenants
of this lease, Landlord, during the hours of 8:00 A.M. to 7:00 P.M. on weekdays
and on Saturdays from 8:00 A.M. to 1:00 P.M., excluding legal holidays, shall
provide normal services to the "Common Area" of the Building.
(B) Landlord shall provide to the Demised Premises, heat and air
conditioning in the respective seasons and provide the Demised Premises with
electricity for lighting and usual office equipment for a total of 60 hours per
week, as selected by the Tenant (WORKING HOURS). For the purposes of computing
the hours, all times selected by the tenant shall be rounded to the nearest half
hour.
(C) At any hours other than the aforementioned, such services will
be provided at Tenant's expense in accordance with Schedule C.
LANDLORD'S REPAIRS
7. Landlord, at its expense, will make all the repairs to and provide
the maintenance for the Demised Premises (excluding painting and decorating) and
for all public areas and facilities as set forth in Schedule B, except such
repairs and maintenance as may be necessitated by the negligence, improper care
or use of such premises and facilities by Tenant, its agents, employees,
licensees or invitees, which will be made by Landlord at Tenant's expense, after
notice of Tenant, with the right of Tenant to dispute. Landlord agrees that at
it will diligently and expeditiously make all required repairs.
WATER SUPPLY
8. Landlord, at its expense, shall furnish hot and cold or tempered
water for lavatory purposes as per plan.
PARKING FIELD
9. Tenant shall have the right to use thirty-two (32) parking spaces
for the parking of automobiles of the Tenant, its employees and invitees, in the
parking area reserved for tenants of the Building, four (4) of said spaces shall
be marked "Reserved" for Tenant (hereinafter sometimes referred to as "Building
Parking Area") in covered garage subject to the Rules and Regulations now or
hereafter adopted by the Landlord. Tenant shall us its best efforts not to use
nor permit any of its officers, agents or employees to use any parking space in
excess of Tenant's allotted number of spaces therein.
<PAGE>
DIRECTORY
10. Landlord, will furnish in the lobby of the Building a directory
which will contain listings requested by Tenant, not to exceed five (5)
listings. The initial listings will be made at Landlord's expense and any
subsequent changes by Tenant shall be made at Tenant's expense. Landlord's
acceptance of any name for listing on the directory, will not be deemed, not
will it substitute for Landlord's consent, as required by this lease, to any
sublease, assignment or other occupancy of the Premises.
TAXES AND OTHER CHARGES
11. (A) As used in and for the purposes of the Article 11, the
following definitions shall apply:
(i)"Taxes" shall be and amount of real estate taxes, assessments,
special or otherwise, sewer rents, rates and charges, general, specific,
ordinary or extraordinary, foreseen or unforseen levied on a calendar or fiscal
basis against the Real Property. If at any time during the Term the method of
taxation prevailing at the date hereof shall be altered so that in lieu of, or
as in addition to, or as a substitute for, the whole or any part of the taxes,
levies, impositions or charges now levied, assessed or imposed on all or any
part of the Real Property and imposed on Landlord, or (c)a license fee measured
by the rent payable by Tenant to Landlord, or (d) any other tax levy, taxes,
levies, impositions, charges or license fee or any part thereof, so measured or
based, shall be deemed to be Taxes. Excluded shall be ground lease rental
increases, Landlord's inheritance tax, Landlord's income tax and Landlord's
franchise tax.
(ii) "Base Year Taxes" shall be the taxes actually paid by the
Landlord in the first year that the Building is assessed as a fully completed
Building.
(iii) "Escalation Year" shall mean each calendar year which
shall include any part of the Demised Term.
(iv) "Real Property" shall be the land upon which the Building
stands and any part or parts thereof utilized for parking and the Building and
other facilities utilized for the purposes required in the operation of the
Building.
(B) The Tenant shall pay the Landlord increases in Taxes levied against
the Real Property as follows: If the Taxes paid by the Landlord in any
Escalation Year shall be increased above the Base Year Taxes, then the Tenant
-5-
<PAGE>
shall pay to the Landlord, as additional rent for such Escalation Year, a sum
equal to Tenant's percentage of the rentable area of the Building, as set forth
in Paragraph 1 of this Lease multiplied by the amount of the said increase.
(C) Landlord shall render to Tenant a statement containing a
computation of additional rent due under this Article ("Landlord's Statement")
for the preceding year. Within fifteen (15) days after the rendition of the
Landlord's Statement which shows additional rent to be payable, Tenant shall pay
to Landlord the amount of such additional rent. On the first day of each month
following the rendition of each Landlord's Statement, Tenant shall pay to
Landlord, on account of the potential additional rent, a sum equal to
one-twelfth (1/12th) of the additional rent last paid by Tenant, which sum shall
be subject to increase in Taxes effective prior thereto.
(D) Landlord's failure to render a Landlord's Statement with respect to
any Escalation Year shall not prejudice Landlord's right to render a Landlord's
Statement with respect to any Escalation Year. The obligation of Landlord and
Tenant under the provisions of this Article with respect to any additional rent
for any Escalation Year shall survive the expiration date or any sooner
termination of the Demised Term.
TENANT'S REPAIRS
12. Tenant shall take good care of the Demised Premises and, subject to
the provisions of Article 7 hereof, Landlord at the expense of Tenant shall make
as and when needed as a result of misuse or neglect by Tenant or Tenant's
servants, employees, agents or licensees, all repairs in and about Demised
Premises necessary to preserve them in good order and condition to, at most, the
condition at the commencement of the term. Except as provided in Article 24
hereof, there shall be no allowance to Tenant for a diminution of rental value
and no liability on the part of Landlord by reason of inconvenience, annoyance
or injury to business arising from Landlord, Tenant or others making any
repairs, alterations, additions or improvements in or to any portion of the
Building or of Demised Premises, or in or to the fixtures, appurtenances or
equipment thereof, and no liability upon Landlord for failure of Landlord or
others to make any repairs, alterations, additions or improvements in or to any
portion of the Building or of the Demised Premises, or in or to the fixtures,
appurtenances or equipment thereof.
FIXTURES & INSTALLATIONS
13. All appurtenances, fixtures, improvements, additions and other
property attached to or built into the Demised Premises, whether by Landlord or
Tenant or others, and whether at Landlord's expense, or Tenant's expense, or the
joint expense of Landlord and Tenant, shall be and remain the property of
Landlord, except that any such fixtures, improvements, additions and other
property installed at the sole expense of Tenant with respect to which Tenant
-6-
<PAGE>
has not been granted any credit or allowance by Landlord, whether pursuant to
Schedule A or otherwise, and which are removable without material damage to the
said Premises may be removed by Tenant on condition that Tenant shall repair at
its expense any damage to the Demised Premises or the Building resulting from
such removal. All the outside walls of the Demised Premises including corridor
walls and the outside entrance doors to the Demised Premises, any balconies,
terraces or roofs adjacent to the Demised Premises, any balconies, terraces or
roofs adjacent to the Demised Premises, and any space in the Demised Premises
used for shafts, stacks, pipes, conduits, ducts or other building facilities,
and the use thereof, as well as access thereto in and through the Demised
Premises for the Purpose of operation, maintenance, decoration and repair, are
expressly reserved to the Landlord, and Landlord does not convey any rights to
Tenant therein. Notwithstanding the foregoing, Tenant shall enjoy full right of
access to the Demised Premises through the public entrances, public corridors
and public areas within the Building.
ALTERATIONS
14. (A) After completion of the Demised Premises, Tenant shall make no
alterations, construction, additions or improvements (hereinafter collectively
referred to as "Improvements") in or to the Demised Premises without Landlord's
prior written consent, which consent Landlord covenants shall not be
unreasonably withheld or delayed, and then only by contractors or mechanics
approved by Landlord and at such times and in such manner as Landlord may from
time to time designate. Landlord's consent shall not be required for modular
furniture, phone system or computer equipment installation.
(B) All Improvements by Tenant shall at all times comply with (i)
laws, rules, orders and regulations of governmental authorities having
jurisdiction thereof, and (ii) rules and regulations of the Landlord attached as
Schedule D.
(C) Plans and specifications prepared by and at the expense of
Tenant shall be submitted to Landlord for its prior written approval, which
approval Landlord covenants it will not unreasonably withhold or delay; no
installations or work shall be undertaken, started, or begun by Tenant, its
agents, servants or employees, until Landlord has approved such plans and
specifications; and no amendments or additions to such plans and specifications
shall be made without the prior written consent of Landlord, which approval
Landlord covenants will not unreasonably withhold or delay, and shall be subject
to Landlord's supervisory fee charge of five (5%) percent of the cost thereof,
said supervisory fee shall not be applicable to floor covering or decoration or
computer equipment. Tenant agrees that it will not, either directly or
indirectly, use any contractors and/or labor and/or materials if the use of such
contractors and/or labor and/or materials would or will create any difficulty
with other contractors and/or labor engaged by Tenant or Landlord or others in
the construction, maintenance and/or operation of the Building or any part
thereof.
(D) Tenant's right to make Improvements shall be subject to the
following additional requirements: (i) the Improvements will not results in a
violation of, or require a change in, any Certificate of Occupancy applicable to
the Premises in the Building; (ii) the outside appearance, character or use of
the Building shall not be affected; (iii) no part of the Building outside of
-7-
<PAGE>
the Premises shall be physically affected; and (iv) the proper functioning of
any air-conditioning, elevator, plumbing, electrical, sanitary, mechanical and
other service or utility system of the Building shall not be affected.
(E) Tenant shall defend, indemnify and save harmless Landlord
against any and all mechanics' and other liens filed in connection with its
Improvements, repairs or installations, including the liens of any conditional
sales of, or chattel mortgages upon, any materials, fixture or articles so
installed in and constituting part of the Premises and against any loss, cost,
liability, claim, damage and expense, including reasonable counsel fees,
penalties and fines incurred in connection with any such lien, conditional sale
or chattel mortgage or any action or proceeding brought thereon.
Tenant, at its expense, shall procure the satisfaction or
discharge of all such liens within twenty (20) days of the filing of such lien
against the Premises or the Building. If Tenant shall fail to cause such lien to
be discharged within the period aforesaid, then, in addition to any other right
or remedy, Landlord, may, but shall not be obligated to, discharge the same
either by paying the amount claimed to be due or by procuring the discharge of
such lien by deposit or by bonding proceedings, and in any such event Landlord
shall be entitled, if Landlord so elects, to compel the prosecution of an action
for the foreclosure of such lien by the lienor and to pay the amount of the
judgement in favor of the lienor with interest, costs and allowances. Any amount
so paid by Landlord, and all costs and expenses incurred by Landlord in
connection therewith, together with interest thereon at the maximum legal rate
then prevailing from the respective dates of Landlord's making of the payments
or incurring of the cost and expense, shall constitute Additional Rent and shall
be paid on demand.
REQUIREMENTS OF LAW
15. (A) Tenant, at Tenant's sole cost and expense shall comply with all
statutes, laws, ordinances, orders, regulations and notices of Federal, State,
County and Municipal authorities, and with all directions, pursuant to law, of
all public officers, which shall impose any duty upon Landlord or Tenant with
respect to the Demised Premises or the use or occupation thereof, except that
Tenant shall not be required to make any structural alterations in order so to
comply unless such alterations shall be necessitated or occasioned, in whole or
in part by the acts, omissions, or negligence of Tenant or any person claiming
through or under Tenant or any of their servants, employees, contractors,
agents, visitors or licensees, or by the use or occupancy or manner of use or
occupancy of Demised Premises by Tenant, or any such person. Tenant shall not be
required to comply with any statute or law that requires Tenant to improve the
Premises to a condition greater than at the commencement of the term. Landlord
will comply with all order and laws relating to the Building, but unrelated to
Tenant's use.
-8-
<PAGE>
(B) The parties acknowledge that there are certain Federal, state
and local laws, regulations and guidelines now in effect and that additional
laws, regulations and guidelines may hereafter be enacted, relating to or
affecting the Premises, the Building, and the land of which the Premises and the
Building may be a part, concerning the impact on the environment of
construction, land use, the maintenance and operation of structures and the
conduct of business. Tenant will not cause, or permit to be caused, any act or
practice, by negligence, omission, or otherwise, that would adversely affect the
environment or do anything or permit anything to be done that would violate any
of said laws, regulations, or guidelines. Any violation of the covenant shall be
an Event of Default under this Lease.
END OF TERM
16. (A) Upon the expiration or other termination of the Term of this
lease, Tenant shall, at its own expense, quit and surrender to Landlord the
Demised Premises, broom clean, in good order and condition, ordinary wear, tear
and damage by fire or other insured casualty excepted, and Tenant shall remove
all of its property and shall pay the cost of repair all damage to the Demised
Premises or the Building occasioned by such removal. Any restoration required by
Tenant shall not be to a condition greater than the original construction. Any
property not removed from the Premises shall be deemed abandonment by Tenant and
may be retained by Landlord, as its property, or disposed of in any manner
deemed appropriate by the Landlord. Any air conditioning unit installed by
Tenant may be removed by the Tenant at the end of the term, except for those
items for which Tenant has received a credit from Landlord. Any expenses
incurred by Landlord in removing or disposing of such Tenant's property shall be
reimbursed to Landlord by Tenant on demand. Tenant expressly waives, for itself
and for any person claiming through or under Tenant, any rights which Tenant or
any such person may have under the provisions of Section 2201 of the New York
Civil Practice Law and Rules of successor law of like import then in force, in
connection with any holdover or summary proceeding which Landlord may institute
to enforce the foregoing provisions of this Article. Tenant's obligation to
observe or perform this covenant shall survive the expiration or other
termination of the Term of this lease. If the last day of the term of this lease
or any renewal hereof falls on Sunday or a legal holiday, this lease shall
expire on the business day immediately preceding. Tenant's obligations under
this Article 16 shall survive the Expiration Date or sooner termination of this
lease.
(B) If Tenant shall hold over after the end of the Term, such
holding over shall be unlawful and in no manner constitute a renewal or an
extension of the lease and no notice of any kind shall be required prior to any
commencement of summary proceeding and Tenant hereby waives any such right.
However, during such hold over time Tenant shall have all of the obligations of
this lease, including payment of rent as a monthly rate equal to double the
amount due during the first month of the last year of occupancy before the end
of the expired term, plus any escalations or additional rent provided for in
this lease.
-9-
<PAGE>
QUIET ENJOYMENT
17. Landlord covenants and agrees with Tenant that upon Tenant paying
the Rent and additional rent and observing and performing all the terms,
covenants and conditions on Tenant's part to be observed and performed, Tenant
may peaceably and quietly enjoy the Demised Premises during the term of this
lease without hindrance or molestation by anyone claiming by or through
Landlord, subject, nevertheless, to the terms, covenants and conditions of this
lease including, but not limited to Article 22.
SIGNS
18. No signs or lettering of any nature may be put on or in any window
now on the exterior of the Building or elsewhere within the Demised Premises
such as will be visible from the street. No sign or lettering in the public
corridors or on the doors are permitted except Landlords standard name plaque.
RULES AND REGULATIONS
19. Tenant and Tenant's agents, employees, visitors and licensees shall
faithfully observe and strictly comply with, and shall not permit violation of
the Rules and Regulations set forth on Schedule D annexed hereto and made part
hereof, and with such further reasonable Rules and Regulations as Landlord at
any time may make and communicate in writing to Tenant which, in Landlord's
judgement shall be necessary for the reputation, safety, care of appearance of
the Building and the land allocated to it or the preservation of good order
therein, or the operation or maintenance of the Building, and such land, its
equipment, or the more useful occupancy of the comfort of the tenants or others
in the Building. Landlord shall not be liable to Tenant for the violation of any
said Rules and Regulations, or the breach of any covenant or condition in any
lease by any other tenant in the Building. Landlord agrees to apply the Rules
and Regulations in a nondiscriminating manner.
RIGHT TO SUBLET OR ASSIGN
20. (A) The Tenant covenants that it shall not assign this lease nor
sublet the Demised Premises or any part thereof without the prior written
consent of Landlord in each instance, except on the conditions hereinafter
stated. The Tenant may assign this Lease or sublet the Demised Premises with
Landlord's written consent, which consent Landlord covenants will not be
unreasonably withheld, or delay consent beyond fifteen (15) days, providing:
(i) That such assignment or sublease is for a use which is in
compliance with the then existing zoning regulations and the Certificate of
Occupancy;
-10-
<PAGE>
(ii) That at the time of such assignment or subletting, there is no
default under the material terms of this lease on the Tenant's part;
(iii) That in the event of an assignment, the assignee assume in
writing the performance of all of the terms and obligations of the within lease;
(iv) That a duplicate original of said assignment or sublease be
delivered by registered mail to the Landlord at the address herein set forth
within ten (10) days from the said assignment or sublease and within ninety (90)
days of the date that Tenant first advises Landlord of the name and address of
the proposed subtenant or assignee as required, pursuant to subparagraph (B)
hereof;
(v) Such assignment or subletting shall not, however, release the
within Tenant from its liability for the full and faithful performance of all of
the terms and conditions of this lease;
(vi) If this lease be assigned, or if the Demised Premises or any
part thereof be under let or occupied by anybody other than Tenant, Landlord may
after default by Tenant collect rent from the assignee, undertenant or occupant,
and apply the net amount collected to the rent herein reserved;
(B) Notwithstanding anything contained in this Article 20 to the
contrary, no assignment or underletting shall be made by Tenant in any event
until Tenant has offered to terminate this lease as of the last day of any
calendar month during the term hereof and to vacate and surrender the Demised
Premises to Landlord on the date fixed in the notice served by Tenant upon
Landlord (which date shall be prior to the date of such proposed assignment or
the commencement date of such proposed lease). Simultaneously with said offer to
terminate this lease, Tenant shall advise the Landlord, in writing, of the name
and address of the proposed assignee or subtenant, a reasonably detailed
statement of the proposed subtenant/assignee's business, reasonably detailed
financial references, and all the terms, covenants, and conditions of the
proposed sublease or assignment. Landlord shall, within fifteen (15) days either
accept or reject Tenant's offer to terminate this lease. In the event Landlord
rejects the offer to terminate, the provisions of Subsection (A) shall be
applicable.
(C) Tenant may, without the consent of Landlord, assign this lease
to an affiliated (i.e. a corporation 20% or more of whose capital stock is owned
by the same stockholders owning 20% of Tenant's capital stock or more), parent
or subsidiary corporation of Tenant or to a corporation to which it sells or
assigns all or substantially all of its assets or with which it may be
consolidated or merged, provided such purchasing, consolidated, merged
affiliated or subsidiary corporation shall, in writing assume and agree to
perform all of the obligations of Tenant under this lease and it shall deliver
such assumption with a copy of such assignment to Landlord within ten (10) days
thereafter, and provided further that Tenant shall not be released or discharged
from any liability under his lease by reason of such assignment.
(D) Whenever Tenant shall claim under this Article or any
other part of this lease that Landlord has unreasonably withheld or delayed its
consent to some request of Tenant, provided the Landlord does not act in bad
faith, Tenant shall have no claim for damages by reason of such alleged
withholding or delay,
-11-
<PAGE>
and Tenant's sole remedy thereof shall be a right to obtain specific performance
or injunction but in no event with recovery of damages.
LANDLORD'S ACCESS TO PREMISES
21. (A) Landlord or Landlord's agents shall have the right to enter
and/or pass through the Demised Premises at all reasonable times on reasonable
notice, except in an emergency, to examine the same, and to show them to ground
lessors, prospective purchasers or lessees or mortgagees of the Building, and to
make such repairs, improvements or additions as Landlord may deem necessary or
desirable and Landlord shall be allowed to take all material into and upon
and/or through said Demised Premises that may be required therefor. During the
year prior to the expiration of the Term of this lease, or any renewal term,
Landlord may exhibit the Demised Premises to prospective tenants or purchasers
at all reasonable hours and without unreasonably interfering with Tenant's
business. If Tenant shall not be personally present to open and permit an entry
into said premises at any time, in an emergency, when for any reason an entry
therein shall be necessary or permissible, Landlord or Landlord's agents may
enter the same by a master key or forcibly, without rendering Landlord or such
agent liable therefor (if during such entry Landlord or Landlord's agents shall
accord reasonable care to Tenant's property).
(B) Landlord shall also have the right at any time, to change the
arrangement and/or location of entrances or passageways, doors and doorways, and
corridors, elevators, stairs, toilets, or other public parts of the Building,
provided, however, that Landlord shall make no change in the arrangement and/or
location of entrances or passageways or other public parts of the Building which
will adversely affect in any material manner Tenant's use and enjoyment of the
Demised Premises. Landlord shall also have the right, at any time, to name the
Building, including, but not limited to, appropriate signs and/or lettering on
any or all entrances to the Building, and to change the name, number or
designation by which the Building is commonly known.
(C) Neither this lease nor any use by Tenant shall give Tenant any
right or easement to the use of any door or passage or concourse connecting with
any other building or to any public conveniences, and the use of such doors and
passages and concourse and of such conveniences may be regulated and/or
discontinued at any time and from time to time by Landlord without notice to
Tenant, provided the same does not interfere with Tenant's access to Premises.
(D) The reasonable exercise by Landlord or its agents of any right
reserved to Landlord in this Article shall not constitute an actual or
constructive eviction, in whole or in part, or entitle Tenant to any abatement
or diminution of rent, or relieve Tenant from any of its obligations under this
lease, or impose any liability upon Landlord, or its agents, or upon any lessor
under any ground or underlying lease, by reason of inconvenience or annoyance to
Tenant, or injury to or interruption of Tenant's business, or otherwise,
provided the same does not substantially interfere with Tenant's use and
occupancy of the Premises.
-12-
<PAGE>
SUBORDINATION
22. (A) This lease and all rights of Tenant hereunder are, and shall
be, subject and subordinate in all respects to all ground leases and/or
underlying leases and to all first mortgages and building loan agreements which
may now or hereafter be placed on or affect such leases and/or the Real Property
of which the Demised Premises form a part, or any part or parts of such Real
Property, and/or Landlord's interest or estate therein, and to each advance made
and/or hereafter to be made under any such mortgages, and to all renewals,
modifications, consolidations, replacements and extensions thereof and all
substitutions therefor. This Section A shall be self-operative and no further
instrument of subordination shall be required. In confirmation of such
subordination, Tenant shall execute and deliver promptly any certificate that
Landlord and/or any mortgagee and/or the lessor under any ground or underlying
lease and/or their respective successors in interest may request, at no cost to
Tenant.
(B) Without limitation of any of the provisions of this lease, in
the event that any mortgagee or its assigns shall succeed to the interest of
Landlord or of any successor-Landlord and/or shall have become lessee under a
new ground or underlying lease, then, at the option of such mortgagee, this
lease shall nevertheless continue in full force and effect and Tenant shall and
does hereby agree to attorn to such mortgage or its assigns and to recognize
such mortgagee or its respective assigns as its Landlord.
(C) Tenant shall, at any time and from time to time upon not less
that five days' prior notice by Landlord, execute, acknowledge and deliver to
Landlord a statement in writing certifying that this lease is unmodified and in
full force and effect (or if there have been modifications, that the same is in
full force and effect as modified and stating the modification) and the dates to
which the Rent, additional rent and other charges have been paid in advance, if
any, and stating whether or not to the best knowledge of the signer of such
certificate Landlord is in default in performance of any covenant, agreement,
term, provision or condition contained in this lease, and if so, specifying each
such default of which the signer may have knowledge, it being intended that any
such statement delivered pursuant hereto may be relied upon by any prospective
purchaser or lessee of said real property or any interest or estate therein, any
mortgagee or prospective mortgagee thereof or any prospective assignee of any
mortgage thereof. If, in connection with obtaining financing for the Building
and the land allocated to it, a banking, insurance or other recognized
institutional lender shall request reasonable modifications in this lease as a
condition to such financing, Tenant will not unreasonably withhold, delay or
defer its consent thereof, provided that such modifications do not increase the
obligations of Tenant hereunder or materially adversely affect the leasehold
interest hereby created.
(D) The Tenant covenants and agrees that if by reason of a default
under any underlying lease (including an underlying lease through which the
Landlord derives its leasehold estate of the Landlord in the premises), such
underlying lease and the leasehold estate of the Landlord in the premises
demised hereby is terminated, providing notice has been given to the Tenant and
leasehold
-13-
<PAGE>
mortgagee, the Tenant will attorn to the then holder of the reversionary
interest in the premises demised by this Lease or to anyone who shall succeed to
the interest of the Landlord or to the lessee of a new underlying lease entered
into pursuant to the provisions of such underlying lease, and will recognize
such holder and/or such lessee as the Tenant's landlord of this Lease. The
Tenant agrees to execute and deliver, at any time and from time to time, upon
the request of the Landlord or of the lessor under any such underlying lease,
any instrument which may be necessary or appropriate to evidence such
attornment. The Tenant further waives the provision of any statute or rule of
law now or hereafter in effect which may give or purport to give the Tenant any
right of election to terminate this Lease or to surrender possession of the
premises hereby in the event any proceeding is brought by the lessor under any
underlying lease to terminate the same, and agrees that unless and until any
such lessor, in connection with any such proceeding, shall elect to terminate
this Lease and the rights of the Tenant hereunder, this Lease shall not be
affected in any way whatsoever by any such proceeding, shall elect to terminate
this Lease and the rights of the Tenant hereunder, this Lease shall not be
affected in any way whatsoever by any such proceeding. Nothing herein contained
shall diminish any rights derived by reason of Nondisturbance Agreements granted
to Tenant by lessor under the terms of their underlying lease.
(E) Landlord agrees to use good efforts to obtain a nondisturbance,
subordination and attornment agreement from its mortgagee. Tenant agrees to sign
said agreement on the form of the mortgagee.
PROPERTY LOSS, DAMAGE REIMBURSEMENT
23. (A) Landlord or its agents shall not be liable for any damage to
property of Tenant or of others entrusted to employees of the Building, nor for
the loss of or damage to any property of Tenant by theft or otherwise. Landlord
or its agents shall not be liable for any injury or damage to persons or
property resulting from fire, explosion, falling plaster, steam, gas,
electricity, electrical disturbance, water, rain or snow or leaks from any part
of the Building or from the pipes, appliances or plumbing works or from the
roof, street or subsurface or from any other place or by dampness or by any
other cause of whatsoever nature, unless caused by or due to the negligence of
Landlord, its agents, servants or employees; nor shall Landlord or its agents be
liable for any such damage caused by other tenants or persons in the Building or
caused by operations in construction of any private, public or quasi-public
work; nor shall Landlord be liable for any latent defect in the Demised Premises
or in the Building. If at any time any windows of the Demised premises are
temporarily closed or darkened incident to or for the purpose of repairs,
replacements, maintenance and/or cleaning in, on, to or about the Building or
any part or parts thereof, Landlord shall liable for any damage Tenant may
sustain thereby and Tenant shall not be entitled to any compensation therefor
nor abatement of rent shall the same release Tenant from its obligations
hereunder nor constitute an eviction. Tenant shall reimburse and compensate
Landlord as additional rent for all expenditures made by, or damages or fines
sustained or incurred by Landlord due to non-performance or non-compliance with
or breach or failure to observe any term, covenants or condition of this lease
upon Tenant's part to be kept, observed, performed or complied with. Tenant
shall give immediate notice to Landlord in case of fire or accidents in the
Demised Premises or in the Building or of defects therein or in any fixtures or
equipment.
-14-
<PAGE>
TENANT'S INDEMNITY
(B) Except for any claim that may be covered by any insurance
provided by the Tenant to Landlord, as provided in Article 25(D) or any other
insurance provided by Tenant, Tenant shall indemnify and save harmless Landlord
against and from any and all claims by or on behalf of any person or persons,
firm or firms, corporation or corporations arising from the conduct or
management of or from any work or thing whatsoever done (other than by Landlord
or its contractors or the agents or employees of either) in and on the Demised
Premises during the term of this lease and during the period of time, if any
prior to the specified commencement date that Tenant may have been given access
to the Demised Premises for the purpose of making installations, and will
further indemnify and save harmless Landlord against and from any and all claims
arising from any condition of the Demised Premises due to or arising from any
act or omissions or negligence of Tenant or any of its agents, contractors,
servants, employees, licensees or invitees and against and from all costs,
expenses, and liabilities incurred in connection with any such claim or claims
or action or proceeding brought thereon; and in case any action or proceeding be
brought against Landlord by reason of any such claim, Tenant, upon notice from
Landlord, agrees that Tenant, at Tenant's expense, will resist or defend such
action or proceeding and will employ counsel therefor reasonably satisfactory to
Landlord.
DESTRUCTION -- FIRE OR OTHER CASUALTY
24. (A) If the Premises or any part thereof shall be damaged by fire or
other casualty and Tenant gives prompt notice thereof to Landlord, Landlord
shall proceed with reasonable diligence to repair or cause to be repaired such
damage. The Rent shall be abated to the extent that the Premises shall have been
rendered untenantable, such abatement to be from the date of such damage or
destruction to the date the Premises shall be substantially repaired or rebuilt,
in proportion which the area of the part of the Premises so rendered
untenantable bears to the total area of the Premises.
(B) If the Premises shall be totally damaged or rendered wholly
untenantable by fire or other casualty, and Landlord has not terminated this
lease pursuant of Subsection (C) and Landlord has not completed the making of
the required repairs and restored and rebuilt the Premises and/or access thereto
within nine (9) months from the date of such damage or destruction, and such
additional time after such date (but in no event to exceed six (6) months), as
shall equal the aggregate period Landlord may have been delayed in doing so by
unavoidable delays or adjustment of insurance, Tenant may serve notice on
Landlord of its intention to terminate this lease, and within thirty (30) days
thereafter Landlord shall not have completed the making of the required repairs
and restored and rebuilt the Premises, this lease shall terminate on the
expiration of such thirty (30) day period as if such termination date were the
Expiration Date, and the Rent and additional rent shall be refunded by Landlord
to Tenant.
-15-
<PAGE>
(C) If the premises shall be totally damaged or rendered wholly
untenantable by fire or other casualty or if the Building shall be so damaged by
fire or other casualty that substantial alteration or reconstruction of the
Building shall, in Landlord's opinion, be required (whether or not the Premises
shall been damaged by such fire or other casualty), then in any of such events
Landlord may, at its option, terminate this lease and the Term and estate hereby
granted, by giving Tenant thirty (30) days notice of said termination within
thirty (30) days after the date of such damage. In the event that such notice of
termination shall be given, this lease and the term and estate hereby granted,
shall terminate as of the date provided in such notice of termination (whether
or not the Term shall have commenced) with the same effect as if that were the
Expiration Date, and the Rent and additional rent shall be apportioned as of the
date of the fire or destruction or sooner termination, and any prepaid portion
of Rent and additional rent for any period after such date shall be refunded by
Landlord to Tenant.
(D) Landlord shall not be liable for any inconvenience or
annoyance to Tenant or injury to the business of Tenant resulting in any way
from such damage by fire or other casualty or the repair thereof. Landlord will
not carry insurance of any kind on Tenant's property, and Landlord shall not be
obligated to repair any damage thereto or replace the same.
(E) This lease shall be considered an express agreement governing
any case of damage to or destruction of the Building or any part thereof by fire
or other casualty, and Section 227 of the Real Property Law of the State of New
York providing for such a contingency in the absence of such express agreement,
and any other law of like import nor or hereafter enacted, shall have no
application in such case.
(F) Notwithstanding anything to the contrary elsewhere contained
herein, if the Premises or the building containing the same are so damaged or
rendered untenantable by fire or other casualty that the Landlord, in the
Landlord's good faith estimate, cannot complete repairs or rebuild the Premises
to a condition to restore possession of the same so that the Tenant may resume
its business therein within one hundred twenty (120) days of the damage or
destruction, then the Tenant is hereby given an option to cancel this lease
without penalty, within fifteen (15) days of receipt of Landlord's Notice by
written notice to Landlord. The Landlord shall deliver the aforesaid good faith
estimate of repairs or rebuilding time within thirty (30) days from the date of
damage or destruction.
INSURANCE
25. (A) Tenant shall not do anything, or suffer or permit anything to
do done in or about the Premises which shall (a) subject Landlord to any
liability or responsibility for injury to any person or property by reason of
any activity being conducted in the Premises or (b) cause any increase in the
fire insurance rates applicable to the Building or equipment or other property
located therein at the beginning of the Term or at any time thereafter. Tenant,
at Tenant's expense, shall comply with all rules, orders, regulations or
requirements of the New York Board of Fire Underwriters and the New York Fire
Insurance Rating Organization or any similar body.
(B) If, by reason of any act or omission on the part of the
Tenant, the rate of fire insurance with extended coverage on the Building or
equipment or other property of Landlord or another tenant or occupant of the
Building shall be higher than it otherwise would be, Tenant shall reimburse
Landlord and all such other tenants or occupants on demand, for that part of the
premises for fire insurance and extended coverage paid by Landlord and such
other tenants or occupants because of an act or omission on the part of Tenant.
-16-
<PAGE>
(C) In the event that any dispute should arise between Landlord
and Tenant concerning insurance rates, a schedule or make up or insurance rates
for the Building or the Premises, as the case may be, issued by the New York
Fire Insurance Rating Organization or other similar body making rates for fire
insurance and extended coverage for the Premises concerned, shall be conclusive
evidence of the facts therein stated and of the several items and charges in the
fire insurance rates with extended coverage then applicable to such Premises.
(D) Tenant shall obtain and keep in full force and effect during
Term, at its own cost and expense, (a) Public Liability Insurance, such
insurance to afford protection in an amount of not less than Three Million
($3,000, 000) Dollars for injury or death arising out of any one occurrence, and
Five Hundred Thousand ($500,000) Dollars for damage to property, protecting
Landlord and Tenant as named insureds against any and all claim for personal
injury, death or property damage occurring in, upon, adjacent to, or connected
with the Premises or any part thereof; and (b) insurance against loss or damage
by fire, and such other risks and hazards as are insurable under present and
future standard forms of fire and extended coverage insurance policies, to
Tenant's property for the full insurable value thereof, protecting Landlord and
Tenant as named insured.
(E) Said insurance is to be written in form and substance
reasonably satisfactory to Landlord by a good and solvent insurance company of
recognized standing, admitted to do business in the State of New York and rated
as "good" in Bests Insurance Rating Manual. Tenant shall procure, maintain and
place such insurance and pay all premiums and charges therefor and upon failure
to do so Landlord may, but shall not be obligated to, procure, maintain and
place such insurance or make such payments, and in such event the Tenant agrees
to pay the amount thereof, plus interest at the legal rate then prevailing, to
Landlord on demand and said sum shall be in each instance collectible as
Additional Rent on the first day of the month following the date of payment by
Landlord. Tenant shall cause to be included in all such insurance policies a
provision to the effect that the same will be non-cancellable except upon twenty
(20) days written notice to Landlord. On the Commencement Date the original
insurance policies or appropriate certificates shall be deposited with Landlord.
Any renewals, replacements or endorsements thereto shall also be deposited with
Landlord to the end that said insurance shall be in full force and effect during
the Term.
(F) Each party agrees to use its best efforts to include in each
of its insurance policies (insuring the Building and Landlord's property
therein, in the case of Landlord, and insuring Tenant's property, in the case of
Tenant, against loss, damage or destruction by fire or other casualty) a waiver
of the insurer's right of subrogation against the other party, or if such waiver
should be unobtainable or unenforceable (a) an express agreement that such
policy shall not be invalidated if the assured waives or has waived before the
casualty the right of recovery against any party responsible for a casualty
covered by the policy, or (b) any other form of permission for the release of
covered by the policy, or (b) any other form of permission or the release of the
other party, or (c) the inclusion of the other party as an additional
-17-
<PAGE>
insured, but not a party to whom any loss shall be payable. If such waiver,
agreement or permission shall not be, or shall cease to be, obtainable without
additional charge or at all, the insured party shall so notify the other party
promptly after learning thereof. In such case, if the other party shall agree in
writing to pay the insurer's additional charge therefor, such waiver, agreement
or permission shall be included in the policy, or the other party shall be named
as an additional assured in the policy, but not a party to whom any loss shall
be payable. Each such policy which shall so name a party hereto as an additional
assured shall contain, if obtainable, agreements by the insurer that the policy
will not be cancelled without a least twenty (20) days prior notice to both
assured and that the act or omission of one assured will not invalidate the
policy as to the other assured.
(G) As long as Landlord's fire insurance policies then in force
include the waiver of subrogation or agreement or permission to release
liability referred to in Subsection (F) or name the Tenant as an additional
assured, Landlord hereby waives (a) any obligation on the part of Tenant to make
repairs to the Premises necessitated or occasioned by fire or other casualty
that is an insured risk under such policies, and (b) any right of recovery
against Tenant, any other permitted occupant of the Premises, and any of their
servants, employees, agents or contractors, for any loss occasioned by fire or
other casualty that is an insured risk under such policies. In the event that at
any time Landlord's fire insurance carriers shall not include such or similar
provisions in Landlord's fire insurance policies, the waivers set forth in the
foregoing sentence shall be deemed of no further force or effect.
(H) As long as Tenant's fire insurance policies then in force
include the waiver of subrogation or agreement or permission to release
liability referred to in Subsection (F), or name the Landlord as an additional
assured Tenant hereby waives (and agrees to cause any other permitted occupants
of the Premises to execute and deliver to Landlord written instruments waiving)
any right of recovery against Landlord, any other tenants or occupants of the
Building, and any servants, employees, agents or contractors of Landlord or of
any such other tenants or occupants, for any loss occasioned by fire or other
casualty which is an insured risk under such polices. In the event that at any
time Tenant's fire insurance carriers shall not include such or similar
provisions in Tenant's fire insurance policies, the waiver set forth in the
foregoing sentence shall, upon notice given by Tenant to Landlord, be deemed of
no further force or effect with respect to any insured risks under such policy
from and after the giving of such notice. During any period while the foregoing
waiver of right of recovery is in effect, Tenant, or any other permitted
occupant of the Premises, as the case maybe, shall look solely to the proceeds
of such policies to compensate Tenant or such other permitted occupant of the
Premises, as the case may be,shall look solely to the proceeds of such policies
to compensate Tenant or such other permitted occupant for any loss occasioned by
fire or other casualty which is an insured risk under such policies.
-18-
<PAGE>
EMINENT DOMAIN
26. (A) In the event that the whole of the Demised Premises shall be
lawfully condemned or taken in any manner for any public or quasi-public use,
this lease and the Term and estate hereby granted shall forthwith cease and
terminate as of the date of vesting of title. In the event that only a part of
the Demised Premises shall be so condemned or taken, then effective as of the
date of vesting of title, the Rent hereunder shall be abated in an amount
thereof apportioned according to the area of the Demised Premises so condemned
or taken. In the event that only a part of the Building shall be so condemned or
taken, then (a) Landlord (whether or not the Demised Premised be affected) may,
at its option, terminate this lease and the Term and estate hereby granted as of
the date of such vesting of title by notifying Tenant in writing of such
termination within sixty (60) days following the date on which Landlord shall
have received notice of vesting of title, and (b) if such condemnation or taking
shall be of a substantial part of the Demised Premises or a substantial part of
the means of access thereof, Tenant shall have the right by delivery of notice
in writing to Landlord within sixty (60) days following the date on which Tenant
shall have received notice of vesting of title to terminate this lease and the
Term and estate hereby granted as of the date of vesting of title, or (c) if
neither Landlord nor Tenant elect to terminate this lease, as aforesaid, this
lease shall be and remain unaffected by such condemnation or taking, except that
the Rent shall be and remain unaffected by such condemnation or taking, except
that the Rent shall be abated to the extent, if any, hereinabove provided in
this Article 26. In the event that only a part of the Demised Premised shall be
so condemned or taken and this lease and the Term and estate hereby granted are
not terminated as hereinbefore provided Landlord will at its expense, restore
the remaining portion of the Demised Premises as nearly as practicable to the
same condition as it was in prior to such condemnation or taking.
(B) In the event of a termination in any of the cases hereinabove
provided, this lease and the Term and estate granted shall expire as of the date
of such termination with the same effect as if that were the date hereinbefore
set for the expiration of the Term of this lease, and the rent hereunder shall
be apportioned as of such date.
(C) In the event of any condemnation or taking hereinabove
mentioned of all or a part of the Building, Landlord shall be entitled to
receive the entire award in the condemnation proceeding, including any award
made for the value of the estate vested by this lease in Tenant, and Tenant
hereby expressly assigns to Landlord any and all right, title and interest of
Tenant now or hereafter arising in or to any such award or any part thereof, and
Tenant shall be entitled to receive no part of such award, except that the
Tenant may file a claim for any taking of nonmovable fixtures owned by Tenant
and for moving expenses incurred by Tenant. It is expressly understood and
agreed that the provisions of this Article 26 shall not be applicable to any
condemnation or taking for governmental occupancy for a limited period.
-19-
<PAGE>
NONLIABILITY OF LANDLORD
27. (A) If Landlord or a successor in interest is an individual (which
term as used herein includes aggregates of individuals, such as joint ventures,
general or limited partnerships or associations) such individual shall be under
no personal liability with respect to any of the provisions of this Lease, and
if such individual hereto is in breach or default with respect to its
obligations under this lease, Tenant shall look solely to the equity of such
individual in the land and Building of which the Demised Premises form a part
for the satisfaction of Tenant's remedies and in no event shall Tenant attempt
to secure any personal judgment against any partner, employee or agent of
Landlord by reason of such default by Landlord.
(B) The word "Landlord" as used herein means only the owner in
fee for the time being of the land and Building (or the owners of a lease of the
Building or of the land and Building) of which the Premises form a part, and in
the event of any sale of the Building and land of which the Demised Premises
form a part, Landlord shall be and hereby is entirely freed and relieved of all
covenants and obligations of Landlord hereunder and it shall be deemed and
construed without further agreement between the parties or between the parties
and the purchaser of the Premises, that such purchaser has assumed and agreed to
carry out any and all covenants and obligations of Landlord hereunder.
DEFAULT
28. (A) Upon the occurrence, at any time prior to or during the Demised
Term, of any one or more of the following events (referred to as "Events of
Default"):
(i) If Tenant shall default in the payment when due of any
installment of Rent or in the payment when due of any additional rent, and such
default shall continue for a period of (5) days after notice by Landlord to
Tenant of such default; or
(ii) If Tenant shall materially default in the observance or
performance of any term, covenant or condition of this lease on Tenant's part to
be observed or performed (other than the covenants for the payment of Rent and
additional rent) and Tenant shall fail to remedy such default within ten (10)
days after notice by Landlord to Tenant specifying such default, or if such
default is of such a nature that it cannot be completely remedied within said
period of ten (10) days and Tenant shall not commence within said period of ten
(10) days, or shall not thereafter diligently prosecute to completion, all steps
necessary to remedy such default; or
(iii) If Tenant shall file a voluntary petition in bankruptcy
or insolvency, or shall be adjudicated a bankrupt or become insolvent, or shall
file any petition or answer seeking any reorganization, arrangement,
-20-
<PAGE>
composition, readjustment, liquidation, dissolution or similar relief under the
present or any future federal bankruptcy act or any other present or future
applicable federal, state or other statute of law, or shall make an assignment
for the benefit of creditors or shall seek or consent to or make an assignment
for the benefit of creditors or shall seek or consent to or acquiesce in the
appointment of any trustee, receiver or liquidator of Tenant or of all or any
part of Tenant's property; or
(iv) If, within sixty (60) days after the commencement of any
proceeding against Tenant, whether by the filing of a petition or otherwise
seeking any reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief under the present or any future federal bankruptcy
act or any other present or future applicable federal, state or other statute or
law, such proceedings shall not have been dismissed, or if, within sixty (60)
days after the appointment or any trustee, receiver or liquidator of Tenant, or
of all or any part of Tenant's property, without the consent or acquiescence of
Tenant, such appointment shall not have been vacated or otherwise discharged, or
if any execution or attachment shall be issued against Tenant or any of Tenant's
property pursuant to which the Demised Premises shall be taken or occupied or
attempted to be taken or occupied; or
(v) If the Demised Premises shall become vacant, deserted or abandoned
for a period of ten (10) consecutive days; or
(vi) If Tenant's interest in this lease shall devolve upon or pass to
any person, whether by operation of law or otherwise, except as expressly
permitted under Article 20.
Then , upon the occurrence, at any time prior to or during the Demised Term, of
any one or more of such Events of Default, Landlord, at any time thereafter, at
Landlord's option, may give to Tenant a five (5) days' notice of termination of
this lease and, in the event such notice is given, this lease and the Term shall
come to an end and expire (whether or not said term shall have commenced) upon
the expiration of said five(5) days with the same effect as if the date of
expiration of said five (5) days were the Expiration Date, but Tenant shall
remain liable for damages as provided in Article 30.
(B) If, at any time (i) Tenant shall be comprised of two (2) or more
persons, or (ii) Tenant's obligations under this lease shall have been
guaranteed by any person other than Tenant, or (iii) Tenant's interest in this
lease shall have been assigned, the word "Tenant", as used in subsection (iii)
and (iv) of section 28A, shall be deemed to mean any one or more of the persons
primarily or secondarily liable for Tenant's obligations under this lease. Any
monies received by Landlord from or on behalf of Tenant during the pendency of
-21-
<PAGE>
any proceeding of the types referred to in said subsections (iii) and (iv) shall
be deemed paid as compensation for the use and occupation of the Demised
Premises and the acceptance of any such compensation by Landlord shall not be
deemed an acceptance of Rent or a waiver on the part of Landlord of any rights
under section 28(A).
TERMINATION ON DEFAULT
29. (A) If Tenant shall default in the payment when due of any
installment of rent or in the payment when due of any additional rent and such
default shall continue for a period of five (5)days after notice by Landlord to
Tenant of such default, or if this lease and the demised term shall expire and
come to an end as provided in Article 28:
(i) Landlord and its agents and servants may immediately, or at
any time after such default or after the date upon which this lease and the
Demised Term shall expire and come to an end, re-enter the Demised Premises or
any part thereof, without notice, either by summary proceedings or by any other
applicable action or proceeding, or by force or otherwise (without being liable
to indictment, prosecution or damages therefor), and may repossess the Demised
Premises and dispossess tenant and any other persons from the Demised Premises
and remove any and all of their property and effects from the Demised Premises;
and
(ii) Landlord, at Landlord's option, may relet the whole or any
part or parts of the Demised Premises from time to time, either in the mane of
Landlord or otherwise, to such tenant or tenants, for such term or terms ending
before, on or after the Expiration Date, at such rental or rentals and upon such
other conditions, which may include concessions and free rent periods, as
Landlord, in its sole discretion, may determine. Landlord shall have no
obligation to relet the Demises Premises or any part thereof and shall in no
event be liable for refusal or failure to relet the Demised Premises or any part
thereof, or in the event of any such reletting, and no such refusal or failure
shall operate to relieve Tenant of any liability under this lease or otherwise
to affect any such liability; Landlord, at Landlord's option, may make such
repairs, replacements, alterations, additions, improvements, decoration and
other physical changes in and to the Demised Premises as Landlord, in its sole
discretion, considers advisable or necessary in connection with any such
reletting or proposed reletting, without relieving Tenant of any liability under
this lease or otherwise affecting any such liability.
(B) Tenant, on its own behalf and on behalf of all persons
claiming through or under Tenant, including all creditors, does hereby waive any
and all rights which Tenant and all such persons might otherwise have under any
present or future law to redeem the Demised Premises, or to re-enter or
repossess the Demised Premises, or to restore the operation of this lease, after
(i) Tenant shall have been dispossessed by a judgment or by warrant of any court
or judge,
-22-
<PAGE>
or (ii) any re-entry by Landlord, or (iii) any expiration or termination of this
lease and the Demised term, whether such dispossess, re-entry, expiration or
termination shall be by operation of law or pursuant to the provisions of this
lease. In the event of a breach or threatened breach by Tenant or any persons
claiming through or under Tenant, of any term, covenants or condition of this
lease on Tenant's part to be observed or performed, Landlord shall have the
right to enjoin such breach and the right to invoke any other remedy allowed by
law or in equity as if re-entry, summary proceedings and other special remedies
were not provided in this lease for such breach. The rights to invoke the
remedies hereinbefore set forth are cumulative and shall not preclude Landlord
from invoking any other remedy allowed at law or in equity.
DAMAGES
30. (A) If this lease and the demised term shall expire and come to an
end as provided in Article 28 or by or under any summary proceeding, or any
other action or proceeding or if Landlord shall re-enter the Demised Premises as
provided in Article 29 or by or under any summary proceedings or any other
action or proceeding, then, in any of said events:
(i) Tenant shall pay to Landlord all Rent, additional rent and
other charges payable under this lease by Tenant to Landlord to the date upon
which this lease and the Demised Term shall have expired and come to an end or
to the date of re-entry upon the Demised Premises by Landlord, as the case may
be; and
(ii)Tenant shall also be liable for and shall pay to Landlord,
as damages, any deficiency (referred to as "Deficiency") between the rent and
additional rent reserved in this lease for the period which otherwise would have
constituted the unexpired portion of the Demised Term and the net amount, if
any, of rents collected under any reletting effected pursuant to the provisions
of section 29(A) for any part of such period (first deducting from the rents
collected under any such reletting all of Landlord's expenses in connection with
the termination of this lease or Landlord's re-entry upon the Demised Premises
and with such reletting including, but not limited to, all repossession costs,
brokerage commissions for the balance of the Demised Term, for the balance of
the Demised Term, legal expenses, attorney's fees, alteration costs and other
expenses of preparing the Demised Premises for such reletting). Any such
Deficiency shall be paid in monthly installments by tenant on the days specified
in this lease for payment of installments of Rent, Landlord shall be entitled to
recover form Tenant each monthly Deficiency as the same shall arise, and no suit
to collect the amount of the Deficiency for any month shall prejudice Landlord's
rights to collect the Deficiency for any subsequent month by a similar
proceeding; and
(iii) At any time after the Demised Term shall have expired and
come to an end or Landlord shall have re-entered upon the Demised Premises, as
the case may be, whether or not Landlord shall have collected any monthly
Deficiencies as aforesaid, Landlord shall be entitled to recover from Tenant,
-23-
<PAGE>
and Tenant shall pay to Landlord, on demand, as and for liquidated and agreed
final damages, a sum equal to the amount by which the rent and additional Rent
reserved in this lease for the period which otherwise would have constituted the
unexpired portion of the Demised Term exceeds the then fair and reasonable
rental value of the Demised Premises for the same period, both discounted to
present worth at the rate of four (4%) per cent per annum. If, before
presentation of proof of such liquidated damages to any court, commission, or
tribunal, the Demised Premises, or any part thereof, shall have been relet by
Landlord for the period which otherwise would have constituted the unexpired
portion of the Demised Term, or any part thereof, the amount of Rent reserved
upon such reletting shall be deemed, prima facie, to be the fair and reasonable
rental value for the part of the whole of the Demised Premises so relet during
the time of the reletting.
(B) If the demised Premises, or any part thereof, shall be relet
together with other space in the Building, the rents collected or reserved under
any such reletting and the expenses of any such reletting shall be equitably
apportioned for the purposes of this Article 30. Tenant shall in no event be
entitled to any rents collected or payable under any reletting, whether or not
such rents shall exceed the rent reserved in this lease. Solely for the purposes
of this Article, the term "Rent" as used in Section 30(A) shall mean the rent in
effect immediately prior to the date upon which this lease and the Demised Term
shall have expired and come to an end or the date of re-entry upon the Demised
Premises by Landlord, as the case may be, plus any additional rent payable
pursuant to the provisions of Article 11 of the Escalation Year (as defined in
Article 11) immediately preceding such event. Nothing contained in Article 28
and 29 of this Lease shall be deemed to limit or preclude the recovery by
Landlord from Tenant of the maximum amount allowed to be obtained as damages by
any statute or rule of law, or of any sums or damages to which Landlord may be
entitled in addition to the damages set forth in Section 30(A).
SUMS DUE LANDLORD
31. In any case in which the Rent or additional rent is not paid within
ten (10) days of the day when same is due, tenant shall pay a late charge equal
to 6 cent for each dollar so due, and in addition thereto, the sum of $100.00
for the purpose of defraying expenses incident to the handling of such
delinquent account. The provisions for payment of late charges shall be forgiven
once in every calendar year. Tenant further agrees that the late charge imposed
is fair and reasonable, complies with all laws, regulations and statutes, and
constitutes an agreement between Landlord and Tenant as to the
-24-
<PAGE>
compensation for costs and administrative expenses incurred by Landlord due to
the late payment of rent to Landlord by tenant. Tenant further agrees that the
late charge assessed pursuant to this lease is not interest, and the late charge
assessed does not constitute a lender or borrower/creditor relationship between
Landlord and Tenant.
NO WAIVER
32. No act or thing done by Landlord or Landlord's agents during the
term hereby Demised shall be deemed an acceptance of a surrender of said demised
Premises, and no agreement to accept such surrender shall be valid unless in
writing signed by Landlord. No employee of Landlord or of Landlord's agent shall
have any power to accept the keys of said Demised Premises prior to the
termination of this lease. The delivery of keys to any employee of Landlord or
of Landlord's agents shall not operate as a termination of this lease or a
surrender of the Demise Premises. In the event of Tenant at any time desiring to
have Landlord underlet the demised Premises for Tenant's account, Landlord or
Landlord's agents are authorized to received said keys for such purposes without
releasing Tenant from any of the obligations under this lease, and Tenant hereby
relieves Landlord of any liability for loss of or damage to any of Tenants
effects in connections with such underletting. The failure of Landlord to seek
redress for violation of, or to insist upon the strict performance of, any
covenants or conditions of this lease, or any of the Rules and Regulations
annexed hereto and made a part hereof or hereafter adopted by Landlord, shall
not prevent a subsequent act, which would have originally constituted a
violation, from having all the force and effect of an original violation. The
receipt by Landlord of rent with knowledge of the breach of any covenant of this
lease shall not be deemed a waiver of such breach. The failure of Landlord to
enforce any of the Rules and Regulations annexed hereto and made a part hereof,
or hereafter adopted, against Tenant and/or any other tenant in the Building
shall not be deemed a waiver of any such Rules and Regulations. No provision of
this lease shall be deemed to have been waived by Landlord, unless such waiver
be in writing signed by Landlord. No payment by Tenant or receipt by Landlord of
a lesser amount then the monthly Rent herein stipulated shall be deemed to be
other than on account of the earliest stipulated Rent nor shall any endorsement
or statement on any check or any letter accompanying any check or payment as
Rent be deemed an accord and satisfaction, and Landlord may accept such check or
payment without prejudice to Landlords' right to recover the balance of such
Rent or pursue any other remedy in this lease provided.
-25-
<PAGE>
33. To the extent such waiver is permitted by law, Landlord and Tenant
hereby waive trial by jury in any action, proceeding or counterclaim brought by
Landlord or Tenant against the other on any matter whatsoever arising out of or
in any way connected with this lease, the relationship of landlord and tenant,
the use or occupancy of the Demised Premises by Tenant or any person claiming
through or under Tenant, any claim of injury or damage, and any emergency or
other statutory remedy. The provisions of the foregoing sentence shall survive
the expiration or any sooner termination of the Demised Term. If Landlord
commences any summary proceeding for nonpayment of Rent, Tenant agrees not to
interpose any counterclaim of whatever nature or description in any such
proceeding.
Tenant hereby expressly waives any and all rights of redemption granted
by or under any present or future laws in the event of Tenant being evicted or
dispossessed for any cause, or in the event of Landlord's obtaining possession
of the Demised Premises, by reason of the violation by Tenant of any of the
covenants and conditions of this Lease or otherwise.
BILL AND NOTICES
34. Except as otherwise expressly provided in this lease, any bills,
statements, notices, demands, requests or other communications given or required
to be given under this lease shall be effective only if rendered or given in
writing, sent by registered or certified mail (return receipt requested),
addressed (A) to Tenant (i) at Tenant's address set forth in this lease if
mailed prior to Tenant's taking possession of the Demised Premises, or (ii) at
the Building if mailed subsequent to Tenant's taking possession of the Demised
Premises, or (iii) at any place where Tenant or any agent or employee of Tenant
may be found if mailed subsequent to Tenant's vacating, deserting, abandoning or
surrendering the Demised Premises, or (B) to Landlord at Landlord's address set
forth in this lease, or (C) addressed to such other address as either Landlord
or Tenant may designate as its new address for such purpose by notice given to
the other in accordance with the provisions of this Article. Any such bills,
statements, notices, demands, requests or other communications shall be deemed
to have been rendered or given on the date when it shall have been mailed as
provided in this Article.
INABILITY TO PERFORM
35. (A) If, by reason of strikes or other labor disputes, fire or other
casualty (or reasonable delays in adjustments of insurance), accidents, orders
-26-
<PAGE>
or regulations of any Federal, State, County or Municipal authority, or any
other cause beyond Landlord's reasonable control, whether or not such other
cause shall be similar in nature to those hereinbefore enumerated, Landlord is
unable to furnish or is delayed in furnishing any utility or service required to
be furnished by Landlord under the provisions of this lease or any collateral
instrument, or is unable to perform or make or is delayed in performing or
making any installations, decorations, repairs, alterations, additions or
improvements, whether or not required to be performed or made under this lease,
or under any collateral instrument, or is unable to fulfill or is delayed in
fulfilling any of Landlord's other obligations under this lease, or any
collateral instrument, no such inability or delay shall constitute an actual or
constructive eviction, in whole or in part or entitle Tenant to any abatement or
diminution of rent, or relieve Tenant from any of its obligations under this
lease, or impose any liability upon Landlord or its agents by reason of
inconvenience or annoyance to Tenant, or injury to or interruption of Tenant's
business, or otherwise. Notwithstanding anything to the contrary elsewhere
contained herein, the Landlord covenants that it will use its best efforts to
restore service to the Premises or remedy the conditions as soon as is
reasonably possible.
INTERRUPTION OF SERVICE
(B) Landlord reserves the right to stop the services of the air
conditioning, elevator, plumbing, electrical or other mechanical systems or
facilities in the building when necessary by reason of accident or emergency, or
for repairs, alterations, replacements or improvements, which, in the judgement
of Landlord are desirable or necessary, until said repairs, alterations,
replacements or improvements shall have been completed. Landlord agrees to give
Tenant reasonable notice of any interruption of service, except in an emergency.
The exercise of such rights by Landlord shall not constitute an actual or
constructive eviction, in whole or in part, or entitle Tenant to any abatement
or diminution or rent, or relieve Tenant from any of its obligations under this
lease, or impose any liability upon Landlord or its agents by reason of
inconvenience or annoyance to Tenant, or injury to or interruption of Tenant's
business or otherwise.
CONDITIONS OF LANDLORD'S LIABILITY
(C) (i) Tenant shall not be entitled to claim a constructive eviction
from the Demised Premises unless Tenant Shall have first notified Landlord of
the condition or conditions giving rise thereto, and if the complaints be
justified, unless Landlord shall have failed to remedy such conditions within a
reasonable time after receipt of such notice.
(ii) If Landlord shall be unable to give possession of the Demised
Premises on any date specified for the commencement of the term by
-27-
reason of the fact that the Premises have not been sufficiently completed to
make the premises ready for occupancy, or for any other reason, Landlord shall
not be subject to any liability for the failure to give possession on said date,
nor shall such failure in any way affect the validity of this lease or the
obligations of Tenant hereunder.
TENANT'S TAKING POSSESSION
(D) (i) Tenant by entering into occupancy of the Premises shall be
conclusively deemed to have agreed that Landlord up to the time of such
occupancy had performed all of its obligations hereunder and that the Premises
were in satisfactory condition as of the date of such occupancy, unless within
thirty (30) days after such date Tenant shall have given written notice to
Landlord specifying the respects in which the same were not in such condition.
(ii) If Tenant shall use or occupy all or any part of the
Demised Premises for the conduct of business prior to the Term Commencement
Date, such use or occupancy shall be deemed to be under all of the terms,
covenants and conditions of this lease, including the covenant to pay rent for
the period from the commencement of said use or occupancy to the Term
Commencement Date.
(iii) In the event Landlord does not substantially complete
the Premises by March 30, 1992, plus such additional time caused by Tenant
Delays, Tenant shall have the right to serve a fifteen (15) day notice of
termination. In the event the Premises are not substantially completed within
said fifteen (15) days, this lease shall be null and void and neither party
shall have any further rights or obligations to the other.
ENTIRE AGREEMENT
36. This lease (including the Schedules and Exhibits annexed hereto)
contains the entire agreement between the parties and all prior negotiations and
agreements are merged herein. Neither Landlord nor Landlord's agent or
representative has made any representations or statements, or promises, upon
which Tenant has relied regarding any matter or thing relating to the Building,
the land allocated to it (including the parking area) or the Demised Premises,
or any other matter whatsoever, except as is expressly set forth in this lease,
including but without limiting the generality of the foregoing, any statement,
representation or promise as to the fitness of the Demised Premises for any
particular use, the services to be rendered to the Demised Premises or the
prospective amount of any item of additional rent. No oral or written statement,
representation or promise whatsoever with respect to the foregoing or any other
matter made by Landlord, its agents or any broker, whether contained in an
affidavit, information circular, or otherwise shall be binding upon the Landlord
unless expressly set forth in this lease. No rights, easements or licenses are
or shall be acquired by Tenant by implication or otherwise unless expressly set
forth in this lease. This lease may not be changed, modified or discharged, in
whole or in part, orally and no executory agreement shall be effective to
change, modify or discharge, in whole or in part, this lease or any obligations
under this lease, unless such agreement is set forth in a written instrument
executed by the party against whom enforcement of the change, modification or
discharge is sought. All references in this lease to the consent or approval of
Landlord shall be deemed to mean
-28-
<PAGE>
the written consent of Landlord, or the written approval of Landlord, as the
case may be, and no consent or approval of Landlord shall be effective for any
purpose unless such consent or approval is set forth in a written instrument
executed by Landlord.
DEFINITIONS
37. The words "re-enter', "re-entry", and "re-entered" as used in this
lease are not restricted to their technical legal meanings. The term "business
days" as used in this lease shall exclude Saturdays (except such portion thereof
as is covered by specific hours in Article 6 hereof), Sundays and all days
observed by the State or Federal Government as legal holidays. The term "person"
and "persons" as used in this lease shall be deemed to include natural persons,
firms, corporations, associations and any other private or public entities,
whether any of the foregoing are acting on their behalf or in a representative
capacity. The various terms which are defined in other Articles of this lease or
are defined in Schedules or Exhibits annexed hereto, shall have the meanings
specified in such other Articles, Exhibits and Schedules for all purposes of
this lease and all agreements supplemental thereto, unless the context clearly
indicates the contrary.
PARTNERSHIP TENANT
38. If Tenant is a partnership (or is comprised of two (2) or more
persons, individually and as co-partners of a partnership) or if Tenant's
interest in this lease shall be assigned to a partnership (or to two (2) or more
persons, individually and as co-partners of a partnership) pursuant to Article
20 (any such partnership and such persons are referred to in this Section as
"Partnership Tenant"), the following provisions of this Section as shall apply
to such Partnership Tenant: (a) the liability of each of the parties comprising
Partnership Tenant shall be joint and several, and (b) each of the parties
comprising Partnership Tenant hereby consents in advance to, and agrees to be
bound by, any modifications of this lease which may hereafter be made and by any
notices, demands, requests or other communications which may hereafter be given
by Partnership Tenant or by any of the parties comprising Partnership Tenant,
and (c) any bills, statements, notices, demands, requests and other
communications given or rendered to Partnership Tenant or to any of the parties
comprising Partnership Tenant shall be deemed given or rendered to Partnership
Tenant and to all such parties and shall be binding upon Partnership Tenant and
all such parties, and (d) if Partnership Tenant shall admit new partners, all of
such new partners shall, by their admission to Partnership Tenant, be deemed to
have assumed performance of all of the terms, covenants and conditions of this
lease in Tenant's part to be observed and performed, and (e) Partnership Tenant
shall give prompt notice to Landlord of the admission of any such new partners,
and upon demand of Landlord shall cause each such new partner to execute and
deliver to Landlord and agreement in form
-29-
<PAGE>
satisfactory to Landlord, wherein each such new partner shall assume performance
of all of the terms, covenants and conditions of this lease on Tenant's part to
be observed and performed (but neither Landlord's failure to request any such
agreement nor the failure of any such new partner to execute or deliver any such
agreement to Landlord shall vitiate the provisions of subdivision (d) of this
Section).
SUCCESSORS, ASSIGNS, ETC.
39. The terms, covenants, conditions and agreements contained in this
lease shall bind and inure to the benefit of Landlord and Tenant and their
respective heirs, distributees, executors, administrators, successors, and,
except as otherwise provided in this lease, their respective assigns.
BROKER
40. Tenant represents that this lease was brought about by Commercial
Industrial Associates Inc., as broker and all negotiations with respect to this
Lease were conducted exclusively with said broker. Tenant agrees that if any
claim is made for commissions by any other broker through or on account of any
acts of Tenant, Tenant will hold Landlord free and harmless from any and all
liabilities and expenses in connection therewith including Landlord's reasonable
attorney's fees.
CAPTIONS
41. The captions are included only as a matter of convenience and for
reference, and in no way define, limit or describe the scope of this lease nor
the intent of any provisions thereof.
RENEWAL OPTION
42. The Tenant shall have the right to be exercised as hereinafter
provided, to extend the term of this Lease for one period of five (5) years upon
the following terms and conditions:
(A) That at the time of the exercise of such right the Tenant
shall not be in default in the performance of any of the material terms,
covenants or conditions herein contained with respect to a matter as to which
notice of default has been given hereunder and which has not been remedied
within the time limited in this Lease.
-30-
<PAGE>
(B) That said extension shall be upon the same terms,
covenants and conditions as in this lease provided, except that (a) there shall
be no further privilege or extension for the term of this Lease beyond the one
period referred to above; (b) during the said extension period the basic annual
rent shall be ninety (90%) percent of the then market rental being charged by
Landlord for comparable space in the Building, but in no event less than the
Rent, plus escalations paid by Tenant in the last year of the term.
(C) Notwithstanding anything in this paragraph "42" contained
to the contrary, the Tenant shall not be entitled to said extension if at the
time of the commencement of the extended period the Tenant shall be in default
under any of the material terms, covenants or conditions of this Lease with
respect to a matter as to which notice of default has been hereunder and which
has not been remedied within the time limited in this Lease, or if this Lease
shall have terminated prior to the commencement of said period.
(D) The Tenant shall exercise its rights to said extension of
the term of this Lease by notifying the Landlord of the Tenant's election to
exercise such right at least nine (9) months prior to the expiration of the term
of this Lease. Upon the giving of any such notice, this Lease shall be deemed
extended for the specified period, subject to the provisions of this paragraph
"42" without execution of any further instrument.
(E) This option is personal to the Tenant named herein only.
In the event of an assignment of the lease to the Premises by the Tenant named
herein, this option shall be null and void and have no force and effect.
(F) This option shall be null and void in the event the option
for Additional Space or Second Additional Space, as Article "43" and "44".
ADDITIONAL SPACE
43. A. After January 1, 1996, if the Lease shall be in full force and
effect and tenant shall not be in default beyond the applicable cure period, in
the payment of Rent, Additional Rent or any other sums or charges provided to be
paid by Tenant under this Lease, Tenant shall have the right to lease
approximately 12,00 square feet ("Additional Space") in place and instead of the
Premises under this Lease for a term to commence on "Substantial Completion" of
the Additional Space, and expire on the last day of the month which is ten (10)
years after Substantial Completion of the Additional Space, unless such term
shall sooner cease and expire pursuant to any of the terms, covenants or
conditions of this Lease or pursuant to law. Subject to the foregoing, the exact
location and exact size of the Additional Space shall be at Landlord sole
discretion. Such right to lease the Additional Space shall be exercised, if at
all, by Tenant's notice to Landlord ("Tenant's Notice") on or before December
31, 2001, and Tenant's failure duly to give the Tenant's Notice shall be deemed
a waiver of such right to lease the Additional Space.
-31-
<PAGE>
B. If Tenant shall effectively exercise its right to lease the
Additional Space as set forth in Section A hereof, then, effective on and after
"Substantial Completion" of all leasehold improvements within the Additional
Space, this Lease shall be amended as follows:
(i) the Additional Space shall be deemed to be the Premises
demised under the Lease with the same force and effect as if originally demised
under the Lease, and the terms "Premises", "premises", and "demised premises" as
used in the Lease shall be the Additional Space;
(ii) the Rent shall be an amount equal to the product of the
number of rentable square feet of Additional Space, multiplied by the per square
foot rental rate being paid by Tenant to Landlord on the date of the
Commencement of the Term of the Additional Space; and the Rent as shall
thereafter be further subject to increase at the rate of $1.12 per year for each
year thereafter for the balance of the term; and
(iii) Article (1A) shall be amended to reflect the new square
footage leased to Tenant and the Tenant's proportionate share shall be adjusted
to the new proportion.
(iv) Article 9 shall be amended to reflect that new parking
spaces shall be at the rate of four (4) spaces per 1,000 square feet of rentable
area of Additional Space.
C. If Tenant shall effectively exercise its right to lease the
Additional Space, as set forth in Section (A) of this Article, Tenant shall
accept the Additional Space and Landlord shall perform the work therein in
accordance with the specifications set forth in Schedule "A". All such work
shall be substantially completed prior to the commencement of Rent for such
space.
D. If Landlord is unable to give possession of the Additional Space,
Landlord shall not be subject to any liability for failure to give possession on
said date and the validity of the Lease shall not be impaired under any
circumstances, nor shall the same be construed in any wise to extend the term of
the Lease, but the rent payable hereunder for the Additional Space shall be
abated (provided Tenant is not responsible for the delay) until after Landlord
shall have given Tenant written notice that the Additional Space is
substantially ready for Tenant's occupancy.
E. The provisions of this Article are intended to constitute "an
express provision to the contrary" within the meaning of Section 223-a of the
New York Real Property Law.
F. In the event Tenant exercises its option for Second Additional
Space, pursuant to Article "44" of this Lease, the provisions of this Article
"43" shall be null and void.
-32-
<PAGE>
SECOND ADDITIONAL SPACE
44. A. Provided the Lease shall be in full force and effect and Tenant
shall not be in default beyond the applicable cure period in the payment of Rent
or Additional Rent, or any other sums or charges provided to be paid by Tenant
under this Lease after January 1, 1997, Tenant shall have the right to lease
approximately 24,000 square feet ("Second Additional Space") in place and
instead of the Premises under this Lease for a term to commence on "Substantial
Completion" and expire on the last day of the month which is ten (10) years
after completion of the Second Additional Space, unless such term shall sooner
cease and expire pursuant to any of the terms, covenants or conditions of this
Lease or pursuant to law. The exact location and exact size of the Second
Additional Space shall be at Landlord's sole discretion. Such right to lease the
Additional Space shall be exercised, if at all, by Tenant's notice to Landlord
("Tenant's Notice") prior to December 31, 2001 and Tenant's failure duly to give
the Tenant's Notice shall be deemed a waiver of such right to lease the Second
Additional Space.
B. If Tenant shall effectively exercise its right to lease the Second
Additional Space as set forth in Section A hereof, then, effective on and after
"Substantial Completion" of all leasehold improvements within the Additional
Space, this Lease shall be amended as follows:
(i) the Second Additional Space shall be deemed to be the Premises
demised under the Lease with the same force and effect as if originally
demised under the Lease, and the terms "Premises", "premises", and demised
premises" as used in the Lease shall be the Second Additional Space;
(ii) the Rent shall be an amount equal to the product of the number of
rentable square feet of Second Additional Space, multiplied by the square
foot rental rate being paid by Tenant to Landlord on the date of the
Commencement of the Term of the Second Additional Space and the Rent as shall
thereafter be further subject to increase at the rate of $1.12 per year for
each year thereafter for the balance of the term.
(iii) Article (1A) shall be amended to reflect the new square footage
leased to Tenant and the Tenant's proportionate share shall be adjusted to
the new proportion.
(iv) Article 9 shall be amended to reflect that new parking spaces shall
be at the rate of four (4) spaces per 1,000 square feet of rentable area of
Second Additional Space.
C. If Tenant shall effectively exercise its right to lease the Second
Additional Space, as set forth in Section (A) of this Article, Tenant shall
accept the Second Additional Space and Landlord shall perform the work therein
in accordance with the specifications set forth in Schedule "A". All such work
shall be substantially completed prior to the commencement of Rent for such
space.
D. If Landlord is unable to give possession of the Second Additional Space,
Landlord shall not be subject to any liability for failure to give possession on
said date and the validity of the Lease shall not be impaired under any
circumstances, nor shall the same be construed in any wise to extend the term of
the Lease, but the rent payable hereunder for the Second Additional Space shall
be abated (provided Tenant is not responsible for the inability to obtain
possession or complete construction) until after Landlord shall have given
Tenant written notice that the Second Additional Space is substantially ready
for Tenant's occupancy.
E. The provisions of this Article are intended to constitute "an express
provision to the contrary" within the meaning of Section 223-a of the New York
Real Property Law.
F. In the event Tenant exercises its option for Additional Space, pursuant
to Article "43" of this Lease, the provisions of this Article "44" shall be null
and void.
THIRD ADDITIONAL SPACE
45. A. Provided the Lease shall be in full force and effect and Tenant
shall not be in default beyond the applicable cure period in the payment of Rent
or Additional Rent, or any other sums or charges provided to be paid by Tenant
under this Lease after February 1, 1992, Tenant shall have the right to lease
approximately 5,017 square feet ("Third Additional Space") for a term to
commence on "Substantial Completion" and expire on the last day of the month
which is ten (10) years after completion of the Third Additional Space, unless
such term shall sooner cease and expire pursuant to any of the terms, covenants
or conditions of this Lease or pursuant to law. The exact location and exact
size of the Third Additional Space shall be adjacent. Such right to lease the
Additional Space shall be exercised, if at all, by Tenant's notice to Landlord
("Tenant's Notice") prior to February 1, 1992 and Tenant's failure duly to give
the Tenant's Notice shall be deemed a waiver of such right to lease the Third
Additional Space.
B. If Tenant shall effectively exercise its right to lease the Third
Additional Space as set forth in Section A hereof, then, effective on and after
"Substantial Completion" of all leasehold improvements within the Additional
Space, this Lease shall be amended as follows:
(i) the Third Additional Space shall be deemed to be the Premises demised
under the Lease with the same force and effect as if originally demised under
the Lease, and the terms "Premises", "premises", and demised premises" as
used in the Lease shall be the Third Additional Space;
(ii) the Rent shall be an amount equal to the product of the number of
rentable square feet of Third Additional Space, multiplied by the
-34-
<PAGE>
square foot rental rate being paid by Tenant to Landlord on the date of the
Commencement of the Term of the Third Additional Space and the Rent as shall
thereafter be further subject to increase at the rate of $1.12 per year for
each year thereafter for the balance of the term.
(iii) Article (1A) shall be amended to reflect the new square footage
leased to Tenant and the Tenant's proportionate share shall be adjusted to
the new proportion.
(iv) Article 9 shall be amended to reflect that new parking spaces shall
be at the rate of four (4) spaces per 1,000 square feet of rentable area of
Third Additional Space.
C. If Tenant shall effectively exercise its right to lease the Third
Additional Space, as set forth in Section (A) of this Article, Tenant shall
accept the Third Additional Space and Landlord shall perform the work therein in
accordance with the specifications set forth in Schedule "A". All such work
shall be substantially completed prior to the commencement of Rent for such
space.
D. If Landlord is unable to give possession of the Third Additional Space,
Landlord shall not be subject to any liability for failure to give possession on
said date and the validity of the Lease shall not be impaired under any
circumstances, nor shall the same be construed in any wise to extend the term of
the Lease, but the rent payable hereunder for the Third Additional Space shall
be abated (provided Tenant is not responsible for the inability to obtain
possession or complete construction) until after Landlord shall have given
Tenant written notice that the Third Additional Space is substantially ready for
Tenant's occupancy.
E. The provisions of this Article are intended to constitute "an express
provision to the contrary" within the meaning of Section 223-a of the New York
Real Property Law.
IN WITNESS WHEREOF, Landlord and Tenant have respectively signed and
-35-
<PAGE>
sealed this lease as of the day and year first above written.
Witness for Landlord: HMCC ASSOCIATES by
RECKSON ASSOCIATES
_________________________________ By: _________________________________
Partner
Witness for Tenant: MEDE AMERICA, INC.
_________________________________ By: _________________________________
STATE OF NEW YORK)
ss.:)
COUNTY OF SUFFOLK)
On the 15th day of October, 1991, before me personally came Mitchell
Rerhler, to me known, who, being by me duly sworn, did depose and say that he is
a general partner of RECKSON ASSOCIATES which is a general partner of HMCC
ASSOCIATES the limited partnership described in, and which executed the
foregoing instrument; that he signed his names thereto and executed said
instrument for and on behalf of and with the authority of said partnership for
the uses and purposes therein mentioned.
/s/__________________________________
Notary Public
STATE OF NEW YORK)
ss.:)
COUNTY OF NASSAU)
On this 15th day of October, 1991, before me personally came Mitchell
Di|Diamond to me known, who being by me duly sworn, did depose and say that he
resides at 377 Oak St. Garden City, NY 11530 that he is the President of MEDE
AMERICA, INC., the corporation described in and which executed the foregoing
instrument as "Tenant"; that he knows the seal of said corporation; that the
seal affixed to said instrument is such corporate seal; that it was so affixed
by order of the Board of Directors of said corporation, and that he signed his
name thereto by like order.
/s/________________________________
Notary Public
Reg# 4958822
Exp: 11/13/91
-35A-
<PAGE>
SCHEDULE "A"
LANDLORD'S INITIAL CONSTRUCTION
1. Initial Office Finishing Schedule
At the Tenant's option, Landlord will design or follow Tenant's plans annexed
hereto in preparing Tenant's office area at Landlord's cost to the following
specifications:
Erect the necessary demising walls constructed of metal stud, 5/8" Fire X gypsum
board, with batts of 3" fiberglass for sound attenuation. Finish exterior walls
with 1/2" sheetrock. Erect per approved plan dry-wall participating of 2 1/2"
metal studs with 1/2" gypsum board on each side to underside of hung ceiling.
Spackle and tape walls three coats to a smooth and true finish. Paint walls two
coats flat latex and doors and trim coats matching enamel.
Install in executive offices, main conference room and reception area, over
padding, executive grade 30 ounce cut pile carpet. Balance of space shall be
carpeted with building standing 22 ounce loop pile carpet installed glued down.
Building standard vinyl reinforced tile may be installed in place of carpet.
Install a 2'0" x 2'0" Armstrong Cortege Minatone acoustical tile ceiling with a
Donn Fineline DXF-29 Suspension System.
Provide interior 3'0" x 8'0" stain grade solid core birch wood doors with hollow
metal bucks.
2. Lavatory Area -- Public Spaces
a) Separate male and female toilet facilities. 3. Landscaping
The building will be extensively landscaped with trees, plantings and other
materials. An underground sprinkler system will be provided with a time clock to
maintain proper watering.
4. Electrical Specifications
All electrical work shall be installed in accordance with the National
Electrical Code, and the local building code. A "Certificate of Compliance
-36-
<PAGE>
shall be obtained from the New York Board of Fire Underwriters at the completion
of the project.
Lighting throughout the entire finished office area shall be obtained by the use
of recessed 2'0" by 4'0" fluorescent fixtures with parabolic lenses, not to
exceed one (l) fixture for each eighty (80) square feet of usable space. Local
wall switches shall be provided for control of lighting. Toilet, corridor, lobby
and other similar areas shall be lit to 50 foot candles.
Exit light lighting for all paths of egress shall be provided in accordance with
local building department regulations, if required.
All branch circuit wiring shall be above hung ceiling or within dry-wall
construction in finished areas and shall be type BX. All exposed conduits in
non-finished areas shall be thin-walled "EMT".
Wall mounted duplex convenience outlets shall be provided on the basis of one
duplex outlet for each 120 square feet of rentable area. This formula shall be
used to establish the quantity of outlets. However, the exact location of each
outlet shall be coordinated with the Tenant's furniture layout. All duplex
outlets are to be considered as normal convenience outlets and shall be wired up
with an average of 5 to 8 outlets on one 20 ampere, 120 volt circuit. Panel
capacity shall be adequate to handle all tenant lighting and equipment load,
providing such equipment load does not exceed 2 watts per square foot of usable
area.
No credits given for installation less than standard installation.
5. Heating, Ventilation and Air Conditioning Specifications
GENERAL
The intent of this specification is to define a design concept for the subject
area.
DESIGN CRITERIA
Central air conditioning with modular systems with individual zone control shall
be capable of the following performance when the criteria noted are not
exceeded;
A) Between September 1 and June 1, the "heating system" shall be operative and
maintain a minimum of 70|SD FDB when the outdoor temperature is 0|SD FDB and the
prevailing wind velocity does not exceed 15 mph.
B) Between April 15 and October 14, the "cooling system" shall be operative and
maintain a maximum of 78|SD FDB and 55% relative humidity when the outdoor
temperature is 95|SD FDB and 75|SD FDB with the prevailing wind velocity not
exceeding 13 mph.
-37-
<PAGE>
C) During the overlapping seasons (April 15 - June 1 and September 1 - October
15) both systems shall be operative (cooling and heating).
D) Zoning temperature and balancing controls shall be operated solely by the
Landlord to assure the conditions above.
E) Maintenance of the foregoing temperature conditions is conditioned upon the
following criteria, which shall not be exceeded by the Tenant in any room, or
area, within the demised premises:
<TABLE>
<S> <C>
a) Population Density ........................... 1 person per 150 square feet
b) Lighting and Electrical Load Density ......... 4 watts per square foot
c) Exhaust and Ventilation Load ................. 5 cfm per person
</TABLE>
6. Ventilation
Bathroom and similar areas to be ventilated per code using rooftop fans.
7. System Design
Exterior Perimeter Zones
Heating/cooling of exterior offices and areas provided by variable air volume
terminals with integrated thermostats to meet Tenant's requirements for
individual control.
Interior Zones
Heating/cooling provided by variable air volume system terminals with integrated
thermostats for areas 2,000 square feet.
SCHEDULE "B"
LANDLORD'S CLEANING SERVICES AND MAINTENANCE OF PREMISES
(to be performed on all business days except those which are union holidays of
the employees performing cleaning services and maintenance in the Building and
grounds or on days on which the building is closed)
-38-
<PAGE>
I. CLEANING SERVICE - PUBLIC SPACES:
A. Floor of entrance lobby and public corridors will be vacuumed or swept and
washed nightly and waxed as necessary.
B. Entranceway glass and metal work will be washed and rubbed down daily.
C. Wall surfaces and elevator cabs will be kept in polished condition.
D. Lighting fixtures will be cleaned and polished annually. Bulbs will be
replaced as needed.
E. Elevators and restrooms will be washed and disinfected once a day. The floors
will be mopped as many times as required. All brightwork and mirrors will be
kept in polished condition. Dispensers will be continuously checked and
receptacles continuously emptied.
F. Exterior surfaces and all windows of the building will be cleaned quarterly.
II. CLEANING SERVICES - TENANT SPACES:
A. Floors will be swept and spot cleaned nightly. Carpets will be swept daily
and carpet sweeper and vacuumed weekly.
B. Office equipment, telephones, etc, will be dusted nightly.
C. Normal office waste in receptacles and ashtrays will be emptied nightly.
D. Interior surface of windows and sills will be washed and blinds dusted
quarterly.
E. There shall be regularly scheduled visits by a qualified exterminator.
III. EXTERIOR SERVICES:
A. Parking fields will be regularly swept, cleared of snow in excess of two
inches and generally maintained so as to be well drained, properly surfaced and
striped.
B. All landscaping, gardening, exterior lighting and irrigation systems will
have regular care and servicing.
IV. EQUIPMENT SERVICE:
A. All air-conditioning and heating equipment and elevators will be regularly
serviced and maintained.
-39-
<PAGE>
B. Plumbing and electrical facilities, doors, hinges and locks will be repaired
as necessary.
C. All appurtenances, such as rails, stairs, etc. will be maintained in a safe
condition.
V - EXTRA CLEANING SERVICES
Tenant shall pay to Landlord, on demand, Landlord's charges for (a) cleaning
work in the Premises required because of (i) misuse or neglect on the part of
Tenant or its employees or visitors, (ii) use of portions of the Premises for
preparation, serving or consumption of food or beverages, or other special
purposes requiring greater or more difficult cleaning work than office areas;
(iii) unusual quantity of interior glass surfaces; or (iv) non-building standard
materials or finishes installed by Tenant or at its request; (v) increases in
frequency or scope in any item set forth in Schedule B as shall have been
requested by Tenant; and (b) removal from the Premises and Building of (i) so
much of any refuse and rubbish of Tenant as shall exceed that normally
accumulated daily in the routine of ordinary business office activity and (ii)
all of the refuse and rubbish of any eating facility requiring special handling
(wet garbage).
SCHEDULE "C"
1. Landlord shall provide at the rates hereinafter set forth and Tenant
shall purchase from Landlord "energy service" for Tenant's requirements. There
shall be the following categories of energy service:
A) NORMAL SERVICE: NORMAL SERVICE is energy consumed during Working Hours
as defined in Article 6 whose power demands do not exceed 4 watts per rentable
square foot of the Demised Premises, or part thereof, per Working Hour. Of this
amount, two watts are allocated to Landlord supplied lighting. Two watts are
allocated for Tenant's usual office equipment ("TENANT'S ALLOWABLE USE").
B) EXCESS SERVICE: EXCESS SERVICE is energy demanded, regardless of hours,
in excess of ALLOWABLE USE.
C) OVERTIME SERVICE; OVERTIME SERVICE is energy consumed at all other hours
than WORKING HOURS ("OVERTIME HOURS"). For the purpose of OVERTIME SERVICE, the
Demised Premises may be separated into zones of use. The minimum practical size
of these zones is 2500 square feet. Zones less than 2500 square feet will be
billed at the rate applicable to 2500 square feet.
-40-
<PAGE>
2. Charges for NORMAL SERVICE: The charge for NORMAL SERVICE is payable at
the rate of $2.25 per annum per rentable square foot of the Demised Premises and
is subject to escalation as hereinafter provided. The charged for NORMAL SERVICE
is included in the monthly rent set forth in Article 3. Any escalation shall be
payable as additional rent. After this, the charge to change "WORKING HOURS"
shall be $25.00 per zone.
3. Charges for OVERTIME SERVICE: Subject to escalation as hereinafter
provided the Landlord's monthly charge for Tenant's OVERTIME SERVICE, payable in
addition to any additional charges for NORMAL SERVICE and EXCESS SERVICE if
applicable, shall be derived as follows:
A) Full Energy OVERTIME SERVICE: An amount equal to the number of OVERTIME
HOURS in the month, multiplied by rentable square feet of the zones in use,
multiplied by $.0022.
B) OVERTIME charges shall be increased by the same percentage the EXCESS
SERVICE (if applicable) exceeds the ALLOWABLE USE for NORMAL SERVICE.
C) Equipment Energy: Any energy use in the Tenant's space, outside of
NORMAL SERVICE and OVERTIME SERVICE, shall be charged an amount equal to $1.28
per year, multiplied by the connected watts (or part thereof), computed and
adjusted to the nearest 100th).
These amounts shall be billed at least once every three months and shall be
payable during the month in which billed as additional rent
4. Charges for EXCESS SERVICE: The Landlord's monthly charges for Tenant's
EXCESS SERVICE payable in addition to any charges for NORMAL SERVICE and
OVERTIME SERVICE, if applicable, shall be an amount derived as follows: The
excess above the TENANT'S ALLOWABLE USE shall be charged to tenant at the rate
of $0.625 per square foot per year, for each excess watt (or part thereof,
computed and adjusted to the nearest 100th).
-41-
<PAGE>
5. Escalation of Charges for NORMAL SERVICE, EXCESS SERVICE AND OVERTIME
SERVICE AND TWENTY-FOUR HOUR SERVICE: The rates referred to in this Schedule "C"
are based upon current rates promulgated by the utility company during the month
prior to the "Commencement Date." All of the rates, fuel and adjustment costs,
state and local government taxes, and all other component parts of the utility
company charges referred to in this Schedule "C" are subject to increase to
reflect changes in rate or classification or other component parts of the bill
employed by the utility company providing services to the building. Tenant
agrees to pay such increase in utility company charges. Landlord shall give due
notice to Tenant of any such increase or change in charge. Tenant shall not be
or become entitled to a reduction in rent, additional rent or to other
reimbursement in the event it uses less energy than contemplated by this
Schedule "C".
6. Landlord's energy management system will be conclusive evidence of the
computation of Normal Service, Excess Service, Overtime Service and Twenty-four
Hour Service. However, Landlord hereby reserves to itself the right, from time
to time, to cause a reputable electric engineering company (the "Engineer") to
make a survey of Tenant's energy usage requirements to determine whether the
Tenant's Allowable Use limitation has been exceeded and, if so, to what extent.
If these surveys indicate at the time that the cost to Landlord by reason
thereof, computed on an annual basis at rates which would be charged by a public
utility company servicing the Building for such purposes, is in excess of the
initial cost similarly computed, then the additional rent provided for in this
Schedule shall be increased as provided for herein, commencing with the first
day of the month immediately following the computation of such survey and the
submission of a copy thereof to Tenant.
7. Landlord shall have full and unrestricted access to all air-conditioning
and heating equipment, and to all other utility installations servicing the
Building and the Demised Premises. Landlord reserves the right temporarily to
interrupt, curtail, stop or suspend air-conditioning and heating service, and
all other utility, or other services, because of Landlord's inability to obtain,
or difficulty or delay in obtaining, labor or materials necessary therefor, or
in order to comply with governmental restrictions in connection therewith, or
for any other cause beyond Landlord's reasonable control. No diminution or
abatement of Basic Rent, Additional Rent, or other compensation shall or will be
claimed by Tenant, nor shall this Lease or any of the obligations of Tenant
hereunder be affected or reduced by reason of such interruptions, stoppages or
curtailments, the causes of which are herein above enumerated, nor shall the
same give rise to a claim in Tenant's favor that such failure constitutes actual
or constructive, total or partial eviction from the Demised Premises, unless
such interruptions, stoppages or curtailments have been due to the arbitrary,
willful or negligent act, or failure to act, of Landlord.
8. Telephone and service shall be the responsibility of Tenant. Tenant
shall make all arrangements for telephone service with the company supplying
-42-
<PAGE>
said service, including the deposit requirement for the furnishing of service.
Landlord shall not be responsible for any delays occasioned by failure of the
telephone company to furnish service.
SCHEDULE "D"
1. The sidewalk, entrances, driveways, passages, courts, elevators,
vestibules, stairways, corridors or halls shall not be obstructed or encumbered
by any Tenant or used for any purpose other than for ingress to and egress from
the Demised Premises and for delivery of merchandise and equipment in a prompt
and efficient manner using elevators and passageways designated for such
delivery by Landlord. There shall not be used in any space, or in the public
hall of the building, either by any Tenant or by jobbers or other in the
delivery or receipt of merchandise, any hand trucks, except those equipped with
rubber tires and safeguards.
2. The water and wash closets and plumbing fixtures shall not be used or
any purpose other than those for which they were designed or constructed and no
sweepings, rubbish, rags, acids or other substances shall be deposited therein,
and the expense of any breakage, stoppage, or damage resulting from the
violation of this rule shall be borne by the Tenant who, or whose clerks,
agents, employees or visitors, shall have caused it.
3. No Tenant shall sweep or throw or permit to be swept or thrown from the
Premises any dirt or other substances into any of the corridors or halls,
elevators, or out of the doors or windows or stairways of the building, and
Tenant shall not use, keep or permit to be used or keep any vending machine,
burner, microwave oven, or oven, or noxious gas or substance in the Demised
Premises, or permit or suffer the Demised Premises to be occupied or used in a
manner offensive or objectionable to Landlord or other occupants of the Building
by reason of noise, odors and/or vibrations, or interfere in any way with other
tenants or those having business therein, not shall any animals or birds be kept
in or about the building. Smoking or carrying lighted cigars or cigarettes in
the elevators of the building is prohibited.
4. No awnings or other projections shall be attached to the outside walls
of the building without the prior written consent of the Landlord.
5. No sign, advertisement, notice or other lettering and/or window
treatment shall be exhibited, inscribed, painted or affixed by any Tenant on
-43-
<PAGE>
any part of the outside of the Demised Premises or the Building or on the inside
of the Demised Premises if the same is visible from the outside of the Demised
Premises without the prior written consent of Landlord. In the event of the
violation of the foregoing by any Tenant, Landlord may remove same without any
liability, and may charge the expense incurred by such removal to Tenant or
Tenants violating this rule. Interior signs on doors and directory tables shall
be inscribed, painted or affixed for each Tenant by Landlord at the expense of
such Tenant, and shall be of a size, color and style acceptable to Landlord.
6. No Tenant shall mark, paint, drill into, or in any way deface any part
of the Demised Premises or the Building of which they form a part. No boring,
cutting or stringing of wires shall be permitted, except with the prior written
consent of Landlord, and as Landlord may direct. No Tenant shall lay linoleum,
other similar floor covering so that the same shall come in direct contact with
the floor of the Demised Premises, and, if linoleum or other similar floor
covering is desired to be used an interlining of builder's deadening felt shall
be first affixed to the floor, by a paste or other material, soluble in water,
the use of cement or other similar adhesive material being expressly prohibited.
7. No additional locks or bolts of any kind shall be placed upon any of the
doors or windows by any Tenant, nor shall any changes be made in existing locks
or mechanism thereof. Each Tenant must, upon the termination of his Tenancy,
restore to Landlord all keys of stores, offices and toilet rooms, either
furnished to, or otherwise procured by, such Tenant, and in the event of the
loss of any keys, so furnished, such Tenant shall pay to Landlord the cost
thereof. Landlord consents to Tenant installing a lock on the computer room
door. Landlord shall have no obligation to clean said room.
8. Freight, furniture, business equipment, merchandise and bulky matter of
any description shall be delivered to and removed from the premises only through
the service entrances and corridors, and only during hours and in a manner
approved by Landlord. Landlord reserves the right to inspect all freight to be
brought into the Building and to exclude from the Building all freight which
violates any of these Rules and Regulations or the lease of which these Rules
and Regulations are a part.
9. Canvassing, soliciting and peddling in the building is prohibited and
each Tenant shall co-operate to prevent the same.
10. Landlord reserves the right to exclude from the building between the
hours of 6:00 P.M. and 8:00 A.M. and at all hours on Sundays, and legal holidays
all persons who do not present a pass to the Building signed by Landlord.
Landlord will furnish passes to persons for whom any Tenant requires
-44-
<PAGE>
same in writing. Each Tenant shall be responsible for all persons for whom he
requests such a pass and shall be liable to Landlord for all acts of such
persons.
11. Landlord shall have the right to prohibit any advertising by any Tenant
which, in Landlord's opinion, tends to impair the reputation of the Building or
its desirability as an office building, and upon written notice from Landlord,
Tenant shall refrain from or discontinue such advertising.
12. Tenant shall not bring or permit to be brought or kept in or on the
Premises, any inflammable, combustible or explosive fluid, material, chemical or
substance, or cause or permit any odors of cooking or other processes, or any
unusual or other objectionable odors to permeate in or emanate from the
Premises.
13. Tenant agrees to keep all entry doors closed at all times and to abide
by all rules and regulations issued by the Landlord with respect to such
services.
-45-
EXHIBIT 10.9
TRANSACTION PROCESSING AND DEVELOPMENT AGREEMENT
AGREEMENT (the "Agreement"), dated as of July 21, 1998, by and between MedE
America Corporation, a Delaware corporation ("MedE"), and Medic Computer
Systems, Inc., a North Carolina corporation ("Medic").
WHEREAS, Medic provides electronic data interchange ("EDI") services to
certain hospitals, physicians and other health care service providers; and
WHEREAS, Medic wishes to engage MedE to provide transaction or claims
processing services via EDI for transmitting claims to insurance carriers;
NOW, THEREFORE, in consideration of the promises and the mutual
covenants herein contained, and other good and valuable consideration, the
parties hereto hereby agree as follows:
Section 1. Definitions.
"Medic/MedE System" shall mean the system currently used by MedE to
process transactions with Payors and other entities providing claims coverage
via EDI on behalf of its customers as such system shall be customized and
otherwise altered and modified in accordance with the terms of this Agreement
for use by MedE, Medic and the Payors in connection with the MedE Services under
this Agreement, and used on communications and data server hardware (existing or
newly acquired), together with separate data storage systems, that are
server-integrated into MedE's network, all as further defined in Schedule 1
(Medic/MedE System).
"Medic Subscribers" shall mean any individuals or group "providers" or
other organizations that have licensed Medic software products for submission of
claims or other transactions to Payors. The term "Medic Subscribers" shall not
include any third party claims clearinghouses.
***** This material has been omitted pursuant to a request for confidential
treatment and filed separately with the Securities and Exchange Commission.
<PAGE>
"Payor" shall mean any insurance company or other organization
providing health care coverage, including Blue Cross/Blue Shield, Medicare,
Medicaid, HMOs and commercial health insurance companies.
Section 2. MedE Services; Transaction Information. (a) Subject to and
in accordance with the terms and conditions of this Agreement, MedE will provide
claims and transaction processing services (the "MedE Services") to Medic in
accordance with Schedule 2(a) (Medic/MedE Transaction Processing Relationship
Guidelines).
(b) Medic and MedE shall transmit claims, remittance, transaction and
other information to each other in the standard data format (the "Data Format")
set forth on Schedule 2(b) (Standard Data Format). MedE shall be responsible for
configuring the Medic/MedE System, including the electronic link with Medic's
system, to the Data Format and updating the Medic/MedE System to accommodate any
changes in such Data Format that the parties may mutually agree upon. Medic
shall be responsible for configuring its own system to the Data Format.
(c) MedE shall have no responsibility to verify, check or otherwise
inspect any claims, transaction or other information transmitted by Medic,
except as may be necessary to keep an accounting of the number of records, the
number of claims and transactions and the total dollar amount of the claims and
transactions transmitted for processing.
(d) Medic shall use all reasonable efforts to ensure that any data
submitted to MedE shall be correct and complete, and in the Data Format (as set
forth in Schedule 2(b)). MedE shall notify Medic promptly of any claims or
transactions that are rejected by any Payor or if MedE discovers or learns of
any errors in any claims, transaction or other data transmitted by Medic. If any
data supplied by Medic is in error because it is not correct or complete or in
the proper format, Medic shall have sole authority to make any corrections of
such errors and, upon making any such corrections, shall retransmit such
corrected data to MedE unless, upon Medic's written request, Medic engages MedE
to correct any such data, such as in the case of formatting errors, for a
reasonable service charge as MedE may propose and the parties may agree upon.
Section 3. Payor Arrangements. (a) MedE shall add and integrate Payors
to the MedE Services by (i) using its best efforts to enter into agreements with
each of the Payors listed on Schedule 3(a) (Payor Schedule) for the submission
of claims and other transactions via EDI (each such agreement, a "Payor
Agreement") and (ii) upon entering into any such Payor Agreement, establishing
electronic links, in accordance with Section 4, with each such Payor. MedE shall
furnish to Medic copies of its standard form(s) of "payor agreement," including
any revised versions thereof.
2
<PAGE>
(b) MedE shall have primary responsibility for negotiating such Payor
Agreements. MedE shall use its best efforts to negotiate with each Payor the
most favorable terms possible, including as to the amount of revenues per claim
or transaction (the "Revenue Rates") to be paid by such Payor, subject to
Schedule 3(b) (Revenue Rates) in respect of any Revenue Rates in the amounts
described therein. MedE shall consult with Medic regarding any terms proposed to
be included in such Payor Agreements which differ from any of MedE's standard
form(s) of "payor agreement" as previously furnished to Medic. Medic shall use
its best efforts to cooperate with MedE in establishing agreements with Payors.
(c) MedE shall use its best efforts to cause each Payor with whom MedE
enters into a Payor Agreement to enter into a Recognition and Nondisturbance
Agreement substantially in the form of Exhibit A. MedE shall not enter into any
Payor Agreement with any Payor which refuses to enter into such Recognition and
Nondisturbance Agreement simultaneously with such Payor Agreement without
Medic's prior written consent (which consent shall not be unreasonably
withheld).
Section 4. Development Milestones. MedE shall perform its obligations
under Section 3(a) in accordance with the development milestones (each, a
"Development Milestone") set forth in Schedule 4 (Development Milestones). If,
upon reaching the date on which any Development Milestone is scheduled to be
met, the aggregate transaction volumes represented by any Payors that have been
added to date is ***** then Medic shall have the right to terminate the
Agreement without further obligation to MedE, provided, however, that in order
to avoid termination, MedE may propose, for Medic's approval (which approval
shall not be unreasonably withheld), a plan of action for prompt cure of its
failure to achieve such Development Milestones within a commercially reasonable
period of time, provided, further, that Medic may condition its acceptance of
such plan of action and waiver of its right to terminate upon payment of a
reasonable estimate of what is likely to be the shortfall at July 1, 1999 into
escrow, to be released (x) to Medic in the event of any failure to meet the July
1, 1999 Processing Milestone or, if earlier, upon the termination by Medic as a
result of any Termination Event set forth in clauses (i), (ii), (iii), (v),
(vii) or (ix) of Section 18(a) or (y) to MedE if the July 1, 1999 Processing
Milestone is met or, if earlier, upon any termination by MedE due solely to any
Termination Event set forth in clauses (iv), (vi) or (viii) of Section 18(a).
For the purposes of this Section 4, the "aggregate transaction volumes" of any
Payors shall be calculated by reference to the transaction volumes set forth in
Schedule 3(a) with respect to each of the Payors.
3
<PAGE>
Section 5. Medic/MedE System; Development. (a) MedE will, in a
professional and diligent manner, develop, operate, maintain and support the
Medic/MedE System (including but not limited to any and all electronic links to
Medic or any of the Payors) in accordance with the development specifications
set forth in Schedule 5(a) (Development Specifications). Without limiting the
foregoing, MedE shall be responsible for any and all development, maintenance
and support of any electronic links to Medic and each Payor to ensure that any
and all transactions processed via EDI over any such electronic links are, and
shall continue to be, processed in a timely, accurate and error free manner.
Medic shall provide all reasonably necessary cooperation to enable MedE to
perform its duties hereunder.
(b) Any electronic links established with any Payor shall be
established in accordance with the procedures set forth in Schedule 5(b) (Payor
Implementation Guide).
(c) Medic and MedE acknowledge that the Medic/MedE System, including
any electronic links to Medic and to each Payor, shall be tested by Medic and
MedE in accordance with Section 6 to the satisfaction of both MedE and Medic.
(d) MedE shall ensure that the Medic/MedE System shall conform with the
performance and scalability criteria set forth in Schedule 5(d) (Medic/MedE
System Performance and Scalabilty Criteria) throughout the Term.
(e) Medic and MedE acknowledge that MedE shall have no responsibility
for, and shall be provided no access to, any of Medic's systems or the systems
of any Medic Subscriber.
(f) Medic may request in writing from time to time (the "Medic
Request") that MedE provide a service not heretofore provided or proposed to be
provided by MedE to Medic of establishing an electronic link to a Payor not
covered by Schedule 3(a) with whom Medic may want to have a link to process
commercial claims (each an "Additional Service"). ***** Any such Additional
Service to be provided by MedE pursuant to this Section 5(f) shall be deemed to
be a part of the
4
<PAGE>
"MedE Services" and shall be developed, commercially implemented, tested and
provided by MedE in accordance with and subject to the terms of this
Agreement*****
Section 6. Testing. Upon completing any stage of development of the
Medic/MedE System, establishing any electronic link to Medic or any Payor or
commencing live operation of the Medic/MedE System or upon the reasonable
request of MedE or Medic at any time, MedE and Medic shall run, as and when
appropriate, such in-house tests, live tests or client tests set forth in
Schedule 5(b) or such other tests as either Medic or MedE may deem reasonably
necessary or appropriate to determine if the Medic/MedE System operates without
any material incorrect functioning, material incorrect results or other material
errors (each, an "Error"). If upon running such tests Medic or MedE determines
that the Medic/MedE System contains Errors, MedE shall, as soon as commercially
reasonable (but in any event within five (5) business days), correct any and all
such Errors. Medic and MedE shall conduct further tests on any corrected
Medic/MedE System. Medic shall, as soon as commercially reasonable (but in any
event within five (5) business days), correct any Errors caused by Medic or
within Medic's control.
Section 7. Processing Milestones. (a) MedE shall perform the MedE
Services in accordance with each of the claims and transaction processing
milestones (each, a "Processing Milestone") set forth on Schedule 7(a)
(Processing Milestones).
(b) If MedE exceeds any Processing Milestone, Medic shall pay MedE
***** .
(c) If MedE fails to meet any Processing Milestone, as a result of its
failure (i) to enter into agreements with or connect to Payors or (ii) to
perform MedE Services to standard, MedE will pay such damages to Medic as
provided in Schedule 7(c) (Damages Relating to Processing Milestones).
Section 8. Payments. (a) Each party shall pay the other party, in
5
<PAGE>
accordance with Section 8(b), any and all amounts owing to such other party as
set forth in Schedule 8(a) (Payment Schedule).
(b) Within twenty (20) days after the end of each month during the Term
(each such month, a "Commission Period"), MedE shall
(i) provide Medic with (A) a statement of accounting (each, a
"Statement of Accounting") of all transactions and claims processed through
the MedE Services for Medic Subscribers during, and through the end of,
such Commission Period just completed and (B) an invoice (each, an
"Invoice") of any and all transactions processed by the MedE Services
during, and through the end of, such Commission Period in respect of which
Medic owes MedE any transaction fees in accordance with Schedule 8(a) or as
otherwise agreed in writing by the parties; and
(ii) pay to Medic, by wire transfer to an account or accounts
designated by Medic from time to time, the amount equal to (A) Medic's
commissions owing or payable by any Payors, in accordance with the relevant
Revenue Rates, for any and all transactions and claims required to be set
forth in the Statement of Accounting for Medic Subscribers, less (B) any
amounts retained by MedE as payment for any undisputed and unpaid
transaction fees for which an Invoice has been submitted to Medic pursuant
to Section 8(b)(i)(B); provided that, notwithstanding the foregoing, if
MedE manages the cash flow from Payors such that significant revenues are
received from any Payors prior to such twentieth day following the end of
each Commission Period, MedE shall make reasonable arrangements to pay to
Medic such commissions owing to Medic in a timely manner.
Section 9. Medic/MedE System; Use and Maintenance. (a) MedE shall
grant, and hereby grants, to Medic a nonexclusive, non-transferable (except as
provided in Section 28), worldwide, perpetual (subject to the terms hereof),
irrevocable, royalty-free, fully paid-up right and license to use (i) the
software comprising the Medic/MedE System and (ii) upon any Termination Event
(other than any termination due solely to any Termination Event set forth in
Sections 18(a)(iv) and 18(a)(vi)), the source code of the Medic/MedE System and
any other Escrowed Materials relating to the Medic/MedE System, solely for the
purpose of enabling Medic to provide claims and transaction processing services
directly to the Medic Subscribers (in the case of any source code, such use
shall include the creation of derivative works thereof to be used solely for the
aforementioned purpose). In certain circumstances, as provided in Section
18(b)(i),
6
<PAGE>
Medic shall pay an additional one-time fee upon delivery of such Escrowed
Materials
(b) MedE shall make any upgrade, update, correction or other
modification to the Medic/MedE System that becomes necessary or appropriate due
to (i) any changes in applicable laws, rules or regulations, (ii) any changes in
a Payor's system or interface, (iii) any change in the preferred data
communications medium used by MedE or any Payor or (iv) any corrections of any
Errors, provided that in the case of clause (iv), MedE shall use its best
efforts to correct any Errors which impact the ability to accurately process
claims as promptly as possible (but in any event within two (2) business days)
after becoming aware of such Error. Prior to undertaking any such upgrade,
update, correction or other modification, MedE shall consult with Medic. If
Medic wishes to modify the preferred data communications medium used by it, or
wishes for MedE to otherwise modify the Medic/MedE System, Medic shall so inform
MedE. If such modification does not require that MedE implement any unique or
proprietary operating methods, and can be effected without unreasonable cost,
MedE shall use its best efforts to accommodate such requests. MedE shall respond
to any other requests for modifications by providing in good faith an estimate
of the time and cost involved in such modifications (which costs, if the
modifications are undertaken, shall be borne as MedE and Medic shall in good
faith agree).
(c) Except for (and only to the extent of) the limited license to use
the software comprising the Medic/MedE system set forth in Section 9(a) above,
Medic acknowledges and agrees that MedE owns and retains all right, title and
interest of any sort whatsoever in and to the Medic/MedE System and all elements
thereof (excluding, however, the "Medic Data" (as defined herein)), including
the software and hardware used in the system. Medic further confirms its
understanding that the Medic/MedE System and all specifications, manuals, other
documentation and materials (other than the Medic Data), and all improvements,
corrections and modifications related thereto to the extent developed by MedE
(or its developers), are and shall remain the sole substantial proprietary
interests and valuable trade secrets of MedE.
(d) MedE shall be solely responsible for any and all internal and
external costs, expenses and disbursements incurred in connection with
development, operation, support and maintenance of the Medic/MedE System.
Without limiting the foregoing, MedE shall be responsible for any and all
license fees, royalties and other payments to third parties for development
platforms or software used in connection with or incorporated in the Medic/MedE
System.
(e) Medic shall pay to MedE a service fee in the amount of *****
7
<PAGE>
provided that, without limiting Medic's rights under Section 9(a), upon any
termination of this Agreement prior to September 30, 2000 (except a termination
due solely to a Termination Event set forth in Section 18(a)(iv)), there shall
be no further obligation on the part of Medic to pay any subsequent installment.
(f) During the Term, Medic shall not attempt to obtain the source code
to the Medic/MedE System except as expressly permitted under Section 9(a)
hereof, including without limitation by means of decompilation, disassembly or
other means, and shall make no copies of the software other than archival or
back-up copies or as otherwise specifically authorized.
(g) Medic may export any part of the software comprising the Medic/MedE
System, directly or indirectly, to any country outside the United States or
Canada so long as Medic complies with all applicable laws (including the
International Traffic in Arms Regulations (ITAR 22 CFR 1-130) of the U.S.
State Department, Office of the Defense Trade Controls as and to the extent
applicable).
Section 10. Medic Subscriber Database. (a) All right, title and
interest in and to any and all information relating to Medic Subscribers
(including any claims, transactions and other information submitted by Medic for
processing by the MedE Services and any claims remittances and other information
provided by any Payors upon adjudication of any claims and transactions)
(collectively, the "Medic Data") are and shall be owned exclusively by Medic.
MedE shall not have the right to use, license, rent, sell or otherwise make
available any such information for any purpose (other than to the relevant Payor
or otherwise for the benefit of Medic as specifically provided in this
Agreement).
(b) MedE shall develop and maintain a database of the Medic Data (to be
built on an Informix database platform or such other platform as the parties may
mutually agree) (the "Medic Database") that shall at all times be segregated and
secure from any database or information of any other vendors and customers of
MedE. MedE will give Medic direct electronic remote access as may be reasonably
necessary or desired to conduct searches, queries and generate reports of the
Medic Data between the hours of 7 A.M. and 9 P.M. (EST) for database queries and
reporting. If Medic requires access outside these hours, MedE and Medic will
cooperate in good faith to work out a mutually agreeable solution to provide
Medic with additional access. Further, at the end of each quarter during the
Term, MedE shall provide Medic with a complete copy, in its entirety, of the
Medic Database. From time to time, upon Medic's request, MedE will provide
documentation of the schema details in a format indicating both table structures
and
8
<PAGE>
relationships, including updates as and when changes to the schema are made.
(c) MedE shall provide, at MedE's cost, for ten (10) concurrent users
licenses of the Medic Database as is currently permitted by the Informix
licenses between Informix and MedE. Should Medic need to increase the number of
concurrent users, MedE will acquire any additional Informix licenses as needed
to accommodate the additional number of concurrent users specified by Medic,
provided, however, that MedE shall only be responsible to pay any costs thereof
up to $15,000 in the aggregate (i.e., for the ten concurrent user licenses
provided above plus any additional concurrent user licenses) and if such costs
exceed $15,000, Medic and MedE shall negotiate in good faith to determine which
party shall bear any additional costs in excess of $15,000. Medic and MedE shall
work together to negotiate appropriate license fee rates with Informix.
Section 11. Resources; Project Manager. (a) MedE will commit adequate
resources (including technically competent personnel) to ensure timely and
satisfactory performance of its obligations hereunder. *******
(b) MedE will designate one member of its personnel to serve as the
project manager for the performance of the MedE Services and MedE's other
obligations hereunder (the "Project Manager"). Such Project Manager will serve
as the primary contact person at MedE for Medic. MedE shall in good faith take
into account any comments raised by Medic in the event that Medic is
dissatisfied with such Project Manager's performance.
(c) Medic will designate one member of its personnel to serve as the
project manager to be the primary contact for MedE in relation to the
performance of the MedE Services (the "Medic Project Manager").
Section 12. Responsibilities of Medic. (a) Medic represents and agrees
that it will not use the Medic/MedE System as a conduit to provide services to
any third party clearinghouse or company engaged in a business substantially
similar to that of MedE absent the express prior written consent of MedE.
9
<PAGE>
(b) Medic represents and agrees that it will use the Medic/MedE System
in accordance with the reasonable conditions, rules, and regulations which are
established or specified by MedE in writing from time to time for all of MedE's
customers and as are set forth in any manuals, materials, documents, or
instructions furnished by MedE in advance of their effectiveness to its
customers (including Medic), provided that Medic shall not be required to comply
with any conditions, rules or regulations that conflict with any provisions of
this Agreement or materially adversely affect the ability of Medic to use the
Medic/MedE System as contemplated herein.
Section 13. Training; Customer Service. (a) MedE shall provide training
to Medic personnel in the use of the Medic/MedE System and the Medic Database
(including operation of any electronic access, as well as use of any search,
query and reporting functions). The duration and nature of this training shall
be pursuant to terms to be mutually agreed upon.
(b) MedE and Medic acknowledge that MedE shall not provide customer
service directly to any Medic Subscriber (including any customer of any Medic
Subscriber). MedE shall provide first-line support (e.g., telephone, on-site and
other support) to the Payors and second-line support to Medic, who shall be
responsible for providing first-line support to Medic Subscribers (including
their customers). In order to insure that Medic will be able to provide customer
service to Medic Subscribers and their customers, MedE will provide the support
services set forth on Schedule 13(b) (Customer Service).
Section 14. Disaster Recovery. Within forty-five (45) days prior to the
date that MedE commences processing transactions hereunder, MedE shall
establish, purchase or lease, and thereafter maintain at its own expense and to
the satisfaction of Medic, a fully redundant system which may be in the form of
MedE's main non-Medic server and system, coupled with a geographically-remote
secondary fully redundant system, as well as daily off-site back-up of the Medic
Database (the "Disaster Recovery System") to be made available to Medic in event
of a natural disaster, hardware failure, data communications problem or other
unplanned interruption of, or inaccessibility to, the Medic/MedE System, such
that MedE will be able to process 100% of Medic's then current EDI transaction
volume within twenty-four (24) hours of such disaster or problem. MedE shall be
responsible for, subject to Medic's approval, the development, testing and
implementation of a viable contingency plan for accessing and using the Disaster
Recovery System in the event of a disaster.
10
<PAGE>
Section 15. Representations and Warranties. (a) Each of MedE and Medic
represents and warrants to the other party that it has full legal right and
authority to enter into this Agreement and perform its respective obligations
contained herein, and that no agreement or understanding with any other person
or entity exists or will exist which would interfere with such party's
respective obligations hereunder.
(b) Further, MedE hereby represents and warrants and covenants to Medic
that:
(i) the Medic/MedE System (which includes any communications
and data servers and other hardware installed and any software portions
used by MedE and any software portions delivered by MedE for use by Medic
or any of the Payors) is, and will be, capable of performing in all
material respects the functions for which the Medic/MedE System is
intended as contemplated herein;
(ii) the Medic/MedE System has been screened for, and does not
contain any virus, back door, drop lock or similar or other programming
code or instruction that is intentionally constructed to (x) damage,
interfere or otherwise adversely affect the operations of the Medic/MedE
System or any systems of Medic, any of the Payors or any of the Medic
Subscribers or (y) permit unauthorized electronic, remote or other access
by any person or entity through modem or other means or medium, in each
case without the consent or intent of the party utilizing any portion of
such Medic/MedE System;
(iii) except for such third party software or other rights
disclosed by MedE on Schedule 15(b)(iii) (Third Party Software and Other
Rights), (x) MedE owns or will own the entire Medic/MedE System,
including any modification, upgrade, enhancement and customization
thereof or thereto, (y) no license or other right to use any third party
software or other intellectual property is or will be required to
develop, operate, maintain or support the Medic/MedE System, and (z) the
delivery, installation and use of the Medic/MedE System as a whole does
not and will not infringe or otherwise conflict with the rights of any
other person or entity;
(iv) the Medic/MedE System, together with the rest of MedE's
network system, or any part thereof that contains or calls on a calendar
function, including but not limited to any function that is indexed to a
computer processing unit clock, provides specific dates or calculates
spans of dates, is and will be able to
11
<PAGE>
record, store, process and provide true and accurate dates and
calculations for dates and spans of dates including and following January
1, 2000; and
(v) assuming the assignment or sublicense of the third party
software listed on Schedule 15(b)(iii) in accordance with Section
18(b)(i) and when used in connection with any telecommunications and data
lines used by MedE to make any physical links with Medic and the Payors
(which are being retained by MedE), the software portions of the
Medic/MedE System and the other Escrowed Materials, together with the
data and communications servers included in the Medic/MedE System,
comprise all of the software and hardware necessary to operate the MedE
Services, including without limitation on a standalone basis, in the
manner contemplated by this Agreement.
(c) THE FOREGOING WARRANTIES ARE EXCLUSIVE AND ARE IN LIEU OF ALL OTHER
WARRANTIES, AND MEDIC HEREBY WAIVES ALL OTHER WARRANTIES, EXPRESSED, IMPLIED, OR
STATUTORY, INCLUDING ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE, RELATING TO MEDIC/MEDE SYSTEM AND THE PROVISION OF THE MEDE
SERVICES.
Section 16. Escrow. Within sixty (60) days after the date hereof, Medic
and MedE, together with an escrow agent located in the United States to be
selected by Medic, shall negotiate in good faith to agree upon an escrow
agreement (the "Escrow Agreement") containing commercially reasonable terms and
conditions that are standard in the industry. Such Escrow Agreement shall
provide for deposit of the materials relating to the Medic/MedE System that are
described on Schedule 16 (Escrowed Materials) and ------ shall provide for the
release of such Escrowed Materials upon the occurrence of a Termination Event in
accordance with Section 18, other than a Termination Event solely declared by
MedE pursuant to clause (iv) or (vi) of Section 18(a).
Section 17. Term. The term (the "Term") of this Agreement shall
commence upon the date hereof and, unless terminated sooner pursuant to Section
18, shall continue in effect until June 30, 2003 (the "Initial Term"), provided
that the Term shall continue for additional one-year periods (each, a "Renewal
Period") unless either party notifies the other party in writing at least twelve
(12) months prior to the expiration of the Initial Term or any Renewal Period,
as applicable, of such party's desire to terminate the Agreement.
12
<PAGE>
Section 18. Termination. (a) This Agreement may be terminated upon
written notice upon the occurrence of any of the following (each, a "Termination
Event"):
(i) upon mutual agreement of Medic and MedE;
(ii) by MedE, upon not less than six (6) months prior written
notice, if for reasons beyond MedE's control, the project fails to meet the
Processing Milestones and MedE processes in any year less than ***** of the
total transaction volume that would have been processed had the timetable
been met;
(iii) by Medic, upon any failure by MedE (through no fault of
Medic) to meet any Processing Milestone by ***** or more of the transaction
volumes corresponding to such Processing Milestone;
(iv) by MedE, upon a material breach of any representation,
warranty, covenant or agreement by Medic (other than as provided by Section
18(a)(viii)), which breach is not cured within thirty (30) days after
receipt of notice of such breach, provided that for the purposes of this
Agreement, a "material breach" shall include, but shall not be limited to,
(x) Medic fails or refuses to pay any amount due hereunder to MedE, except
any amount which is being disputed in good faith by Medic, (y) Medic fails
to substantially perform any obligation contained herein which, by its
terms, is required to be performed by a certain deadline or within a
certain time period (notwithstanding Medic's best efforts to do so) or (z)
a series of breaches each of which individually may have been cured or are
not material, but in the aggregate, constitute a material breach or
indicate a pattern of breaches;
(v) by Medic, upon a material breach of any representation,
warranty, covenant or agreement by the other party which is not cured
within thirty (30) days after receipt of notice of such breach, provided
that for the purposes of this Agreement, a "material breach" shall have
occurred if, without limitation, (w) MedE fails or refuses to pay any
amount due hereunder to Medic, except any amount which is being disputed in
good faith by MedE, (x) the Medic/MedE System or any material component
thereof continues to exhibit Errors, or the Medic Database continues to be
unable to be accessed or searched, in either case causing disruptions in or
repeated periods of downtime of the MedE Services or customer service of
Medic or Medic Subscribers (notwithstanding MedE's remedial or maintenance
efforts) during any 45-day period (which shall include the 30-day notice
period), (y) MedE fails to substantially perform any
13
<PAGE>
obligation contained herein which, by its terms, is required to be
performed by a certain deadline or within a certain time period
(notwithstanding MedE's best efforts to do so) or (z) a series of breaches
each of which individually may have been cured or are not material, but in
the aggregate, constitute a material breach or indicate a pattern of
breaches;
(vi) by MedE, if Medic becomes insolvent, makes a general
assignment for the benefit of creditors, suffers or permits the appointment
of a receiver for its business or assets, becomes subject to any proceeding
under any bankruptcy or insolvency law, whether domestic or foreign, or has
wound up or liquidated, voluntarily or otherwise;
(vii) by Medic, if MedE becomes insolvent, makes a general
assignment for the benefit of creditors, suffers or permits the appointment
of a receiver for its business or assets, becomes subject to any proceeding
under any bankruptcy or insolvency law, whether domestic or foreign, or has
wound up or liquidated, voluntarily or otherwise;
(viii) by MedE, if Medic materially breaches its obligations
contained in Section 20, unless Medic cures such breach within thirty (30)
days after receipt of notice thereof; or
(ix) by Medic, upon any "change of control" of MedE, which
shall be defined to have occurred if a non-financial buyer acquires,
directly or indirectly, beneficial ownership of 35% or more of the then
outstanding voting shares or share equivalents of MedE, provided that
Medic's termination right in this Section 18(a)(ix) may be exercised upon
and at any time within eight (8) months after the occurrence of such change
of control of MedE during which such non-financial buyer continues to be a
shareholder, provided, further, that prior to the occurrence of such
"change of control" event, MedE and Medic may agree upon a notice period of
such termination.
(b) Upon any termination or expiration of the Agreement (subject to
Section 18(d) below):
(i) MedE shall deliver (or allow to be delivered out of
escrow), and Medic shall receive, (x) the software portions of the
Medic/MedE System, together with good and merchantable title to, and the
manufacturers' warranties on and any support arrangements relating to, the
data and communications servers,
14
<PAGE>
and any and all Escrowed Materials (whether out of escrow or otherwise), in
each case, free and clear of any liens, security interests and other
encumbrances, provided that such software portions thereof shall be subject
to the limited license granted under Section 9(a) hereof, and (y)
assignment or sublicense of any and all third party software components
used as part of or in connection with the development, operation,
maintenance and support of the Medic/MedE System, so long as (i) the owner
of such software shall have consented to such assignment or sublicense and
(ii) Medic agrees to assume and perform any ongoing obligations in respect
of any such assigned or sublicensed third party software. If, and only to
the extent that, the Medic/MedE System relies on any third party software
to be so assigned or sublicensed, and either (i) the owner of such software
does not consent to such assignment or sublicense or (ii) Medic does not
agree to assume the ongoing obligations with respect to such software as
aforesaid, then MedE makes no representations of any nature whatsoever
relating to the Medic/MedE System and Medic accepts the Medic/MedE System
"AS-IS, WHERE-IS" in respect of those portions of such Medic/MedE System
that depend upon the use of such third party software. The delivery of the
Medic/MedE System and other Escrowed Materials to Medic in accordance with
this Section 18(b)(i) shall be at no additional cost to Medic, except that
if any such termination or expiration is due to (A) either (x) the
nonrenewal or nonextension of the Initial Term or, if applicable, any
Renewal Period or (y) a Termination Event as set forth in Section
18(a)(ix), Medic shall pay to MedE a one-time payment of ***** to be paid
upon satisfactory delivery of the items to be delivered by MedE in
accordance with this Section 18(b)(i), or (B) a Termination Event pursuant
to Section 18(a)(viii), Medic shall be required to purchase the items to be
delivered by MedE in accordance with this Section 18(b)(i) for a one-time
payment of ***** to be paid upon satisfactory delivery of such items.
(ii) MedE shall provide Medic with (x) reasonable support,
training and assistance that is mutually agreed upon in effecting a smooth
transition and assisting Medic personnel in the use of the Medic/MedE
System, for a period not to exceed six (6) months, consisting of certain
periods of support, training and assistance for free and thereafter at
rates to be agreed and (y) cooperation in conversions to new providers for
a period of six months on terms that are reasonable. - -
(iii) Any residual transactions that remain to be processed by
MedE upon the termination of this Agreement will be processed upon terms
that will be mutually agreed to, but that shall not be less favorable than
those that were
15
<PAGE>
in effect immediately prior to the termination of this Agreement.
(iv) MedE shall provide reasonable assistance at no additional
cost to Medic in connection with effecting a smooth transition to Medic or
a new provider.
(c) Notwithstanding anything to the contrary contained herein, Sections
8(b), 9(a), 9(c), 10(a), 15, 16, 18(b), 18(c), 18(d), 19, 21, 23, 24, 25, 31, 32
and 33 shall survive any expiration or termination of this Agreement.
(d) Notwithstanding anything to the contrary set forth herein, in the
event of a termination solely due to a Termination Event set forth in clause
(iv) or (vi) of Section 18(a), (1) Medic shall have no entitlement to possess or
use the Medic/MedE System for any purpose whatsoever, (2) Medic shall promptly
return to MedE and/or delete all elements of the Medic/MedE System in its
possession or control, and (3) Medic shall not be entitled to any of the
benefits set forth in Section 18(b) hereof.
Section 19. Indemnification. (a) MedE shall indemnify, defend and hold
harmless, and shall pay and reimburse, Medic, Medic Subscribers and its and
their respective employees, officers, directors, representatives, customers and
agents for any and all suits, proceedings, claims, actions, judgments,
settlements, losses, damages, liabilities, debts, costs and expenses (including
attorneys' fees and disbursements) resulting from or arising out of (i) any
alleged or actual infringement of or other conflict of the Medic/MedE System
with any third party's intellectual property, proprietary or other rights, (ii)
any breach of any representation and warranty contained in Section 15(b)(iii),
or (iii) any breach of any other representation or warranty or any covenant or
other obligation of MedE hereunder, provided, however, that MedE's
indemnification obligation hereunder shall continue during the Term and
thereafter (x) in the case of the foregoing Section 19(a)(iii), for one
additional year following any expiration or termination of the Term and (y) in
the case of the foregoing Section 19(a)(i) or Section 19(a)(ii), for five
additional years following any expiration or termination of the Term.
(b) Except as provided in Section 19(a), Medic shall indemnify, defend
and hold harmless, and shall pay and reimburse, MedE and its respective
employees, officers, directors, representatives, customers and agents for any
and all suits, proceedings, claims, actions, judgments, settlements, losses,
damages, liabilities, debts, costs and expenses (including attorneys' fees and
disbursements) resulting from or arising out of (i) any claim by any Medic
Subscriber relating to Medic's performance of its obligations to any Medic
Subscriber or (ii) any breach of any representation, warranty,
16
<PAGE>
covenant or other obligation of Medic hereunder.
Section 20. Exclusivity. (a) Scope of Exclusivity. During the Term,
subject to Section 20(b) and 20(c), MedE will be the exclusive EDI processor for
Medic in respect of claims and transactions that can be processed by the MedE
Services, including, without limitation, in respect of any Payors which have
been added and integrated into the MedE Services (i.e., a Payor with which MedE
has established a Payor Agreement and EDI link) and to which Medic shall submit
any and all claims and transactions of Medic Subscribers covered by such Payor
for processing by the MedE Services.
(b) Medic and MedE Obligations. *****
(c) Certain Exceptions to Exclusvity. Notwithstanding anything to the
contrary contained herein, the parties acknowledge that Medic shall not be bound
by, or be deemed to have breached, any obligations of exclusivity or otherwise
hereunder if: *****
Section 21. Limitation of Liability. (a) In no event shall either party
be liable for indirect, special, or consequential damages (including loss of
profits or damage to business reputation), even if such party has been advised
of the possibility of such damages, except as specifically provided in Section 4
and 7(c).
(b) During the Initial Term, such penalties and damages payable
pursuant to Sections 4 and 7(c) shall not exceed ***** in the aggregate. No such
limit on the amount of damages and penalties payable during any Renewal Period
shall apply unless mutually agreed upon by the parties.
(c) Notwithstanding anything to the contrary contained herein, each
party's total cumulative liability to the other party under this Agreement shall
be limited to ***** and each party releases the other party from any and all
obligations, liability, claims or demands in excess of such limitation.
Section 22. Compliance with Laws. Each of Medic and MedE agrees that,
with respect to its respective performance hereunder, it shall comply with any
and all applicable laws and regulations (including without limitation any
confidentiality requirements established by the Health Care Financing
Administration and any state health care authorities).
Section 23. Confidentiality. (a) Each party shall, and shall cause
their respective affiliates and any of its and their respective officers,
consultants, principals, agents, employees and directors to, use all reasonable
efforts to (a) protect the other party's confidential information and (b) not
disclose, nor permit unauthorized access to, the other party's confidential
information, without the prior written consent of such other party.
17
<PAGE>
(b) In the event that either party (the "Disclosing Party") is required
under applicable law to disclose any confidential information of the other party
(the Non-Disclosing Party"), including in connection with any filings to be made
with the Securities Exchange Commission pursuant to the U.S. Securities Act of
1933, as amended, or the U.S. Securities Exchange Act of 1934 as amended, such
Disclosing Party shall give the Non-Disclosing Party prompt written notice of
such requirement so that the Non- Disclosing Party may seek an appropriate
confidential treatment or protective order of such confidential information or
portions thereof. If in the absence of a protective order the Disclosing Party
is compelled to disclose such confidential information, such Disclosing Party
may disclose such portion of such confidential information that in the opinion
of the Disclosing Party's counsel such Disclosing Party is compelled to
disclose, without liability under this Agreement, provided, however, that such
Disclosing Party shall give such Non-Disclosing Party written notice of the
confidential information to be disclosed as far in advance of its disclosure as
is practicable and shall use reasonable efforts to obtain assurances that
confidential treatment, if available, will be accorded to such confidential
information.
(c) The parties acknowledge that the term "confidential information" as
used herein will include the terms of this Agreement (including any Schedules
hereto) and the Medic/MedE System, the Medic Data and Medic Database, and all
specifications, manuals, other documentation and materials, and all
improvements, corrections and modifications related thereto.
(d) The obligations of each party hereto under this Section 23 shall
not apply to any information that: (i) was known to such party prior to the
disclosure by the other party; (ii) is or becomes generally available to the
public (other than by a breach of this Agreement); or (iii) otherwise becomes
available on a non-confidential basis by a third party who is not under an
obligation of confidence to either party hereto. Section 24. Maintenance of
Records; Audit. (a) Each of Medic and MedE agrees that it shall maintain a copy
of this Agreement and any books, documents, records and other data of such party
as may be required to be maintained by applicable law, for such periods as such
laws may require.
(b) During the Term and for three (3) years thereafter, MedE shall
maintain on its premises all usual and proper records and books of account and
all usual and proper entries to substantiate the number of claims and
transactions processed in connection with the MedE Services. In order to verify
statements issued by MedE and MedE's compliance with the terms of this
Agreement, Medic may audit, or cause an audit to be made of, MedE's books and
records. Any audit
18
<PAGE>
shall be conducted during regular business hours at MedE's facilities upon five
(5) days' prior written notice. Any audit shall be conducted by Medic or an
independent certified public accountant selected by Medic (other than on a
contingent fee basis), provided that, if Medic elects to use an independent
certified public accountant, such accountant shall be reasonably acceptable to
MedE. MedE agrees to provide Medic or its designated auditors, as the case may
be, access to all relevant records and facilities of MedE, and Medic agrees to
take such actions as are reasonable to minimize any disruption to MedE's
business. Prompt adjustment shall be made to compensate for any errors or
omissions disclosed by such audit. Any such audit shall be paid for by Medic
unless material discrepancies are disclosed. "Material" shall mean at least 10%
(in Medic's favor) of the amount that was reported. If material discrepancies
are disclosed, MedE agrees to pay Medic for the reasonable costs associated with
the audit. In no event shall audits be made more frequently than semi-annually
unless the immediately preceding audit disclosed a material discrepancy.
Section 25. Non-Solicitation. (a) During the Term and for a period of
one (1) year following the expiration or termination of the Term, neither MedE
nor any of its affiliates, nor any of its or their employees, officers or
directors, will, directly or indirectly, solicit or endeavor to entice away from
Medic or any of its affiliates or otherwise intentionally interfere with Medic's
relationship with, any person or entity who or which (i) is at the time employed
by or otherwise engaged to perform services (other than clerical or routine
administrative services) for Medic or any of its affiliates or (ii) is, or has
been within the two-year period ending on the date of such expiration or
termination, a Medic Subscriber or other customer or client of Medic or any of
its affiliates.
(b) During the Term and for a period of one (1) year following the
expiration or termination of the Term, neither Medic nor any of its affiliates,
nor any of its or their employees, officers or directors, will, directly or
indirectly, solicit or endeavor to entice away from MedE or any of its
affiliates or otherwise intentionally interfere with Medic's relationship with,
any person or entity who or which (i) is at the time employed by or otherwise
engaged to perform services (other than clerical or routine administrative
services) for MedE or any of its affiliates or (ii) is, or has been within the
two-year period ending on the date of such expiration or termination, a customer
or client of MedE or any of its affiliates.
Section 26. Force Majeure. Neither Medic nor MedE shall be held liable
for failure to fulfill its respective obligations hereunder if such failure is
caused by strikes, acts of God, flood, extreme weather, fire, or other natural
calamity, or similar causes beyond the control of such party (each a "Force
Majeure Event"). Notwithstanding the
19
<PAGE>
foregoing, a Force Majeure Event will not excuse MedE from performance of its
obligations hereunder if and to the extent a Disaster Recovery System (as
provided in Section 14) would have mitigated any such failure on the part of
MedE to perform such obligations. During the pendency of a Force Majeure Event,
each of the parties shall take all reasonable steps to furnish the services
required hereunder by other means, and, in any event, shall, upon termination of
such Force Majeure Event, forthwith resume obligations under this Agreement.
Section 27. Relationship of Parties. Nothing contained in this
Agreement shall be construed as creating a joint venture, partnership or
employment arrangement between the parties hereto, nor shall either party have
the right, power or authority to create any obligation or duty, expressed or
implied, on behalf of the other party hereto.
Section 28. Assignment. Notwithstanding anything to the contrary
contained in this Agreement, each party hereto may assign, or provide the
benefit of, this Agreement or any rights hereunder to any parent, subsidiary,
affiliate or successor in interest (including a successor in interest to
substantially all the assets of such party). Notwithstanding anything to the
contrary contained in this Agreement, Medic may subcontract or sublicense any
rights granted to it under this Agreement to any third party person or entity
for use for the benefit of Medic or any of its affiliates (such as in an
outsourcing arrangement), except any third party person or entity who is a
direct competitor of MedE unless MedE gives its prior written consent (which
consent shall not be unreasonably withheld), provided, however, that all
obligations for performance under this Agreement shall remain with Medic
following such subcontract or sublicense. Except as provided in the foregoing,
this Agreement may not be assigned by either party without the other party's
prior written consent, which consent shall not be unreasonably withheld, and any
attempted assignment without such consent shall be null and void.
Section 29. No Waiver. No failure on the part of either party to
exercise and no delay in exercising any right or remedy hereunder shall operate
as a waiver thereof or modify the terms of this Agreement. The exercise of any
one remedy shall not be deemed to waive or preclude the exercise of any other
remedy.
Section 30. Entire Agreement, Amendments. This Agreement, including all
the Schedules hereto, constitutes the entire agreement, understanding, and
representations, express or implied, between MedE and Medic regarding the
subject matter hereof and supersedes all prior communications between the
parties including all oral or written proposals. No representation, warranty,
promise, inducement, or statement of intention has been made by either party
which is not embodied in this Agreement, and
20
<PAGE>
neither MedE, on the one hand, nor Medic, on the other hand, shall be bound by,
or be liable for, any alleged representation, warranty, promise, inducement, or
statement of intention not embodied herein. Any amendments to this Agreement
must be in writing signed by both parties hereto.
Section 31. Severability. In the event that any provision hereof is
found to be invalid or unenforceable pursuant to judicial decree or decision,
the remainder of this Agreement shall remain valid and enforceable according to
its terms. It is expressly understood and agreed that each provision of this
Agreement that provides for a disclaimer of warranties, limitation on liability,
or exclusion of damages is intended by the parties to be severable and
independent of any other provision and to be enforced as such.
Section 32. Applicable Law; Dispute Resolution. (a) This Agreement
shall be governed by and construed in accordance with the laws of the State of
New York without regard to conflicts of law principles.
(b) (i) Any dispute, controversy or claim arising out of, relating to,
or in connection with, this Agreement or any breach, termination or validity
thereof shall be finally settled by arbitration. The arbitration shall be
conducted in accordance with the Commercial Arbitration Rules of the American
Arbitration Association in effect at the time of the arbitration, except as they
may be modified herein or by mutual agreement of the parties. The seat of the
arbitration shall be New York, and it shall be conducted in the English
language.
(ii) The arbitration shall be conducted by three arbitrators. The party
initiating arbitration ("the Claimant") shall appoint its arbitrator in its
request for arbitration (the "Request"). The other party ("the Respondent")
shall appoint its arbitrator within thirty (30) days of receipt of the Request
and shall notify the Claimant of such appointment in writing. If the Respondent
fails to appoint an arbitrator within such 30-day period, the arbitrator named
in the Request shall decide the controversy or claim as a sole arbitrator.
Otherwise, the two arbitrators appointed by the parties shall appoint a third
arbitrator within thirty (30) days after the Respondent has notified Claimant of
the appointment of the Respondent's arbitrator. When the arbitrators appointed
by the Claimant and Respondent have appointed a third arbitrator and the third
arbitrator has accepted the appointment, the two arbitrators shall promptly
notify the parties of the appointment of the third arbitrator. If the two
arbitrators appointed by the parties fail or are unable so to appoint a third
arbitrator or so to notify the parties, then the appointment of the third
arbitrator shall be made by President of the American Arbitration Association
21
<PAGE>
which shall promptly notify the parties of the appointment of the third
arbitrator. The third arbitrator shall act as Chairman of the panel.
(iii) The arbitral award shall be in writing and shall be final and
binding on the parties. The award may include an award of costs, including
reasonable attorneys' fees and disbursements. Judgment upon the award may be
entered by any court having jurisdiction thereof or having jurisdiction over the
parties or their assets. This Section 32 shall in no way affect the right of
either party hereto to seek interim relief in any court of competent
jurisdiction, and a request for such interim relief shall not be deemed
incompatible with, or a waiver of, the agreement to arbitrate contained herein.
Section 33. Notices. Notices required to be given pursuant to this
Agreement shall be in writing and shall be deemed to have been duly given if
delivered personally, transmitted by confirmed fax, or sent by a nationally
recognized overnight courier service, or by registered or certified mail,
postage prepaid, as follows:
If to MedE, send to:
MedE America Corporation
90 Merrick Avenue, Suite 501
East Meadow, NY 11554
Attn: David Goldwin, Esq.
Phone (516) 542-4500 ext. 108
Fax: (516) 542-4508
If to Medic, send to:
Medic Computer Systems, Inc.
8601 Six Forks Road, Suite 300
Raleigh, North Carolina 27615
Tel: (919) 847-8102
Fax: (919) 847-7110
Attention:
with a copy to:
Misys plc
Burleigh House
Chapel Oak
22
<PAGE>
Salford Priors 23
Evesham, England WORCS
WR11 5SH
Tel: 011 44 138 687-1373
Fax: 011 44 138-687-1045
Attention: Ross K. Graham
or to such other address as either party shall have designated by notice to the
other.
Section 34. Execution in Counterparts. This Agreement may be executed
in one or more counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.
23
<PAGE>
IN WITNESS WHEREOF, MedE and Medic have duly executed and delivered this
Agreement as of the date first above written.
MEDIC COMPUTER SYSTEMS, INC.
By:
-------------------------------
Name:
Title:
MEDE AMERICA CORPORATION
By:
-------------------------------
Name:
Title:
24
<PAGE>
EXHIBIT A
RECOGNITION AND NONDISTURBANCE AGREEMENT
RECOGNITION AND NONDISTURBANCE AGREEMENT (the "Agreement"), dated as of
__________by and among MedE Corporation, a Delaware corporation ("MedE"), Medic
Computer Systems, Inc., a North Carolina corporation ("Medic") and [PAYOR], a
____________corporation ("Payor").
BACKGROUND
WHEREAS, MedE and Payor are parties to the [Payor Agreement], dated as
of [____], (the "Payor Agreement");
WHEREAS, MedE and Medic are parties to the Transaction Processing and
Development Agreement, dated as of [July _, 1998] (the "Transaction Agreement"),
whereby MedE has agreed to process, via electronic data interchange ("EDI"),
claims or other transactions of Medic's subscribers and customers (such
services, the "MedE Services"); and
WHEREAS, the parties hereto desire to assure Medic of its ability to
continue submitting claims to Payor, upon the terms and conditions substantially
similar to the Payor Agreement, irrespective of termination of the MedE Services
or Medic's arrangement with MedE;
NOW THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto hereby agree as follows:
Section 1. Recognition and Nondisturbance.
(a) Medic shall immediately notify Payor in writing upon the occurrence
of any Termination Event (as defined below).
(b) Upon occurrence of any Termination Event:
(i) The Payor Agreement will continue as a direct agreement
between the Payor and Medic upon the terms and conditions of the Payor
Agreement, but only with respect to the claims and transactions of Medic
subscribers and customers being processed with such Payor, and with such
changes as Payor and Medic may thereafter mutually agree in writing are
appropriate under the circumstances.
<PAGE>
(ii) Medic will perform all of the obligations of MedE under
the Payor Agreement from and after the date of such Termination Event, but
Medic shall have no liability to the Payor for acts or omissions of MedE
on, prior to or after the date of such Termination Event;
(iii) the Payor acknowledges that Payor shall have to
cooperate with Medic to establish an EDI electronic link between Medic's
systems and the Payor's system as promptly as commercially practicable in
accordance with and as contemplated by the terms of the Payor Agreement;
and
(iv) Payor will (i) not disturb the rights granted to Medic to
process claims and transactions of Medic subscribers and customers via an
EDI link with the Payor, (ii) grant to Medic rights and benefits
substantially similar to those granted to MedE under its Payor Agreement,
including the rate of commissions paid by Payor in connection with
processing claims and transactions via EDI and (iii) perform Payor's
obligations under the Payor Agreement from and after the date of such
Termination Event.
(c) The provisions of this Agreement shall be effective and
self-operative as of the date of such Termination Event without execution of any
further instrument on the part of MedE, Payor or Medic.
(d) Upon the reasonable written request of either Payor or Medic,
Payor, Medic and MedE shall execute and deliver promptly to the requesting party
such other documents or instruments (in recordable form, if so requested)
reasonably necessary to effectuate or evidence the intent of the parties
hereunder.
(e) For purposes of this Agreement, "Termination Event" shall mean the
occurrence of any of the following events:
(1) MedE becomes insolvent, makes a general assignment for the
benefit of creditors, suffers or permits the appointment of a receiver for
its business or assets, becomes subject to any proceeding under any
bankruptcy or insolvency law, whether domestic or foreign, or has wound up
or liquidated, voluntary or otherwise; or
(2) the receipt by Medic of any portion of the Medic/MedE
System (as the same is defined and referred to in the Transaction
Processing Agreement) to be received by it, including any of the items
deposited by MedE into escrow in accordance with the Transaction Agreement,
whether such termination is due to notice of termination by Medic or MedE
or otherwise.
2
<PAGE>
Section 2. Consent of Payor. Payor consents to, and shall give Medic
the benefit of, Medic's assumption and performance of terms and obligations
substantially similar to the duties of MedE under the Payor Agreement.
Section 3. Assignment. Notwithstanding anything to the contrary
contained in this Agreement , each party hereto may assign this Agreement or any
rights hereunder to any parent, subsidiary, affiliate or successor in interest
(including a successor in interest to substantially all the assets of such
party). Notwithstanding anything to the contrary contained in this Agreement,
Medic may subcontract or sublicense any rights granted to it under any Agreement
to any third party person or entity for use for the benefit of Medic (such as in
an outsourcing arrangement), provided, however, that all obligations for
performance under this Agreement shall remain with Medic following such
assignment. Except as provided in the foregoing, this Agreement may not be
assigned by either party without the other party's prior written consent, which
consent shall not be unreasonably withheld, and any attempted assignment without
such consent shall be null and void.
Section 4. No Waiver. No failure on the part of either party to
exercise and no delay in exercising any right or remedy hereunder shall operate
as a waiver thereof or modify the terms of this Agreement. The exercise of any
one remedy shall not be deemed to waive or preclude the exercise of any other
remedy.
Section 5. Entire Agreement, Amendments. This Agreement, together with
the Payor Agreement, constitutes the entire agreement, understanding, and
representations, express or implied, among the Payor, MedE and Medic regarding
the subject matter hereof and supersedes all prior communications between the
parties including all oral or written proposals. No representation, warranty,
promise, inducement, or statement of intention has been made by either party
which is not embodied in this Agreement, and neither MedE, on the one hand, nor
Medic, on the other hand, shall be bound by, or be liable for, any alleged
representation, warranty, promise, inducement, or statement of intention not
embodied herein. Any amendments to this Agreement must be in writing signed by
both parties hereto.
Section 6. Severability. In the event that any provision hereof is
found to be invalid or unenforceable pursuant to judicial decree or decision,
the remainder of this Agreement shall remain valid and enforceable according to
its terms. It is expressly understood and agreed that each provision of this
Agreement that provides for a disclaimer of warranties, limitation on liability,
or exclusion of damages is intended by the parties to be severable and
independent of any other provision and to be enforced as such.
3
<PAGE>
Section 7. Applicable Law; Dispute Resolution. This Agreement shall be
governed by and construed in accordance with the laws of the State of New York
without regard to conflicts of law principles.
Section 8. Notices. Notices required to be given pursuant to this
Agreement shall be in writing and shall be deemed to have been duly given if
delivered personally, transmitted by confirmed fax, or sent by a nationally
recognized overnight courier service, or by registered or certified mail,
postage prepaid, as follows:
If to Payor, send to:
If to MedE, send to:
MedE America Corporation
90 Merrick Avenue, Suite 501
East Meadow, NY 11554
Attn: David Goldwin, Esq.
Phone (516) 542-4500 ext. 108
Fax: (516) 542-4508
If to Medic, send to:
Medic Computer Systems, Inc.
8601 Six Forks Road, Suite 300
Raleigh, North Carolina 27615
Tel: (919) 847-8102
Fax: (919) 847-7110
Attention:
with a copy to:
Misys plc
Burleigh House
Salford Priors
Evesham, England WORCS
WR11 5SH
Tel: 011 44 138 687-1373
Fax: 011 44 138-687-1045
Attention: Ross K. Graham
4
<PAGE>
or to such other address as either party shall have designated by notice to the
other.
Section 9. Execution in Counterparts. This Agreement may be executed in
one or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
5
<PAGE>
IN WITNESS WHEREOF, each of MedE, Medic and the Payor have duly executed and
delivered this Agreement as of the date first above written.
[PAYOR]
By:
-----------------------------
Name:
Title:
MEDIC COMPUTER SYSTEMS, INC.
By:
------------------------------
Name:
Title:
MEDE AMERICA CORPORATION
By:
-----------------------------
Name:
Title:
6
<PAGE>
Transaction Processing Agreement
List of Schedules
-----------------
<TABLE>
<S> <C>
Schedule 1 Medic/MedE System
Schedule 2(a) Medic/MedE Transaction Processing Relationship
Guidelines
Schedule 2(b) Standard Data Format
Schedule 3(a) Payor Schedule
Schedule 3(b) Revenue Rates
Schedule 4 Development Milestones
Schedule 5(a) Development Specifications
Schedule 5(b) Payor Implementation Guide
Schedule 5(d) Medic/MedE System Performance and Scalability Criteria
Schedule 7(a) Processing Milestones
Schedule 7(c) Damages Relating to Processing Milestones
Schedule 8(a) Payment Schedule
Schedule 13(b) Customer Service
Schedule 15(b)(iii) Third Party Software and Other Rights
Schedule 16 Escrowed Materials
</TABLE>
<PAGE>
Schedule 1
Medic/MedE System
The "Medic/MedE System" shall include, but not be limited to, (a) any and all
electronic links established to Medic and to any Payors, including any software
provided and licensed thereto, (b) hardware including but not limited to
servers, equipment for receiving and transmitting data communications and any
other hardware used by MedE to provide the MedE Services, (c) any and all
documentation, third party software or other rights (whether incorporated as a
component or used in connection with development of the Medic/MedE System), and
(d) upon the occurrence of any Termination Event (other than a Termination Event
declared by MedE under clauses (iv) or (vi) of Section 18(a)), the source code
and other Escrowed Materials (as defined in Section 16).
2
<PAGE>
Schedule 2(a)
Medic/MedE Transaction Processing Relationship Guidelines
- -- Medic will make multiple transmissions throughout the day
- -- MedE will be able to receive claims 24 hours-a-day, 7 days-a-week, 365
days-a-year, except for scheduled maintenance and down times.
- -- The cutoff for claims transmission will be *****
- -- MedE will provide dial backup of claims transmission.
- -- MedE will provide daily control totals for incoming and outgoing claim
transmission
- -- MedE will forward to Medic any status or other messages from any Payor
with respect to any claims or transactions of any Medic Subscriber.
- -- Medic shall be responsible for implementing an enrollment process to
enroll any Medic Subscribers with the Payors.
- -- MedE will assign to each claim or transaction a tracking number.
- -- MedE shall have the right to change the passwords used by Medic to
access the Medic/MedE System every 90 days; provided, however, that
MedE shall inform Medic in advance of any such password changes.
- -- MedE will provide Medic with five (5) business days' prior written
notice of all scheduled down time for maintenance and system upgrade,
provided, however, that in the case of an emergency, MedE shall provide
Medic with such notice as soon as is reasonably possible.
3
<PAGE>
Schedule 2(b)
Standard Data Format
--------------------
The "Data Format" for communications for transactions between Medic and MedE
will be Medic National Standard Format (NSF) for claims and Medic NSF
remittance.
4
<PAGE>
Schedule 3(a)
Payor Schedule
--------------
June 1998 list of commercial and governmental Payors as provided to MedE on or
prior to the date hereof.
5
<PAGE>
Schedule 3(b)
Revenue Rates
-------------
*****
6
<PAGE>
Schedule 4
Development Milestones
----------------------
- *****
- MedE shall provide Medic with development services to support the
development and implementation of ***** . MedE and Medic shall mutually
agree further on the schedule for such remittance development and
implementation.
7
<PAGE>
Schedule 5(a)
Development Specifications
--------------------------
- -- The Medic/MedE System shall have the capability to transmit
transactions and claims processed by Medic via EDI to Payors, obtain a
result set for each such transaction and/or claim, act on the result
set and transmit the result set via EDI to Medic.
- -- MedE will furnish a weekly status report to the Medic Project Manager,
which report shall include the status of all active projects with
respect to each Payor and each MedE developer. These reports will also
include "Actual Project Status versus Goals," "Time Spent versus
Allocated," and potential problem areas in the development of the
Medic/MedE System.
- -- Development cycle for establishing an electronic link with any Payor
shall start with receipt of specifications, contact person information
and signed Payor Agreement with such Payor.
- -- Development does not include claim referral and eligibility.
- -- On a monthly basis MedE will furnish to the Medic Project Manager a
status report in respect of each MedE developer and any Payor then
being linked, as well as forward looking plans for the next 90 days,
claims and transaction volumes versus established goals, and projected
claims and transaction volumes for the next 90 days.
- -- Medic will supply test claims to MedE within an appropriate time frame
after signing any Payor Agreement as the parties may mutually agree
upon.
8
<PAGE>
Schedule 5(b)
Payor Implementation Guide
--------------------------
See attached "Payer Implementation Guide"
Commercial Claims
- -- Each electronic link to a Payor shall be considered completed and
tested only if it has tested in accordance with one of the following:
*****
Government Claims
- -- Each electronic link to a Payor shall be considered completed and
tested only if it has either been: *****
9
<PAGE>
Payor Implementation Guide
- - INITIAL PAYOR CONTACT
1. Obtain Contact Name and Numbers for EDI Testing, Production,
Billing, and Provider Support
2. Order Claim, Communication, Report and Remittance Specifications
3. Obtain all Vendor and Provider Enrollment Forms with Instructions
4. Negotiate and agree upon a Payor Agreement
5. Agree upon procedures to establish link
- - DEVELOPMENT
1. Fill out and submit Vendor Enrollment
2. Review specifications
3. Create Electronic Format and Map
4. Write initial Payor specific edits
5. Obtain or create test claims
- - IN-HOUSE TESTING
1. Obtain test data
2. Run test data through Payor specific edits on MedE Claim
3. Run test data through electronic format and map
4. Validate output file
10
<PAGE>
- - PAYOR TESTING
1. Set up communication (obtain modem number, submitter ID and login)
2. Transmit test claims to Payor (notify Payor of transaction)
3. Contact Payor for test results
4. Make corrections if errors are found
5. Send out a second test for claim validation (more detailed)
6. Contact Payor for test results from second file
7. Set up router for Electronic Reports (if available)
- - LIVE CLIENT TEST
1. Obtain sample of live claims for client
2. Follow up on Provider Enrollment (must be completed before first
live file is sent)
3. Set up Live Communication
4. Process and transmit claims to Payor
5. Pick up Electronic Reports
6. Route reports to Providers' directory for pick up with their next
submission
7. Review reports on a daily basis, making changes when needed until
the accept rate is ***** or above
11
<PAGE>
- - REMITTANCE (IF REQUESTED)
1. Work with Provider and Payor to set up Electronic Remittance
Advice
2. Follow up with details of the contract
3. Create Map to read input file then export the file based on the
Providers' needs
4. If applicable, test with Payor and Provider
5. Pick up Electronic Remittance from Payor
6. Run through conversion map
7. Route to Provider
12
<PAGE>
Payor Implementation Time Line
- ------------------------------
*****
13
<PAGE>
Remittance Implementation Guide
Implementation is per Payor
- - Initial Provider Contact (2-3 Days)
1. Obtain Contact Name and Numbers for EDI Testing, Production
Provider Support
2. Develop Report and Remittance Specifications with Provider
- - Initial Payor Contact
(this is done in cooperation with the claim processing development)
1. Obtain Contact Name and Numbers for EDI Testing, Production
Provider Support
2. Obtain Report and Remittance Specifications from Payor
3. Negotiate and agree upon a Payor Agreement
4. Agree upon procedures to establish link
- - Development *****
14
<PAGE>
- - In-house Testing *****
1. Obtain test remittance
2. Validate test data format
3. Run test data through maps
4. Validate output file
5. Make changes as necessary
- - Testing *****
(This time frame can vary depending on the medium used to obtain and
deliver the remittance, i e. tape, electronic, etc., and the remittance
cycle of the Payor)
1. Set up communication with Payor
(this will be in place for all but new Payors)
2. Set up communication with Provider
(this will be in place for most providers who submit claims)
3. Receive test remittance from Payor
4. Transmit remittance (in Provider format) to Provider
5. Contact Provider for test results
6. Make corrections per Provider requests
- - Automate Process *****
1. Write scripts to automate communication and processing
2. Activate automated process after testing phase is complete
15
<PAGE>
Remittance Implementation Guide
- - Initial Provider Contact - *****
- - Negotiate and agree upon a Payor Agreement
- - Agree upon procedures to establish link
- - Initial Payor Contact - ******
- - Development - *****
- - In-house Testing - *****
- - Live Testing - ongoing
- - Automate Process - *****
Total development time is *****.
16
<PAGE>
Schedule 5(d)
Medic/MedE System Performance and Scalability Criteria
------------------------------------------------------
The Medic/MedE System shall meet the following standards of performance and
scalability:
(1) Claims submitted by Medic for processing by the MedE Services must be
(i) processed within ***** of transmission of such claims, or (ii) if
such claims are not processed within ***** of transmission, such claims
must be processed *****
(2) The MedE system contains no limitations in Field Lengths, Counters,
etc. that will negatively impact the ability to efficiently handle
Medic's current and future volumes (including, without limitation,
***** .
(3) Medic intends to exercise its right to query the Medic Database for
analysis and reporting purposes on a regular basis. MedE warrants that
the production environment will provide adequate response times to the
reasonably necessary or desirable number of on-line queries without
negatively impacting the transaction processing system in violation of
(1) above. In the event that the transaction processing system does not
complete its tasks within the allotted times set forth in (1) above,
MedE agrees to enhance the environment to bring the transaction
processing times into compliance.
(4) Bandwidth provided by MedE to Medic must be sufficient to ensure that
the communication links between Medic and MedE are not a constraining
factor in the times required to process claims and other EDI
transactions.
17
<PAGE>
Schedule 7(a)
Processing Milestones
---------------------
Milestone Dates Processing Milestone
- --------------- --------------------
*****
18
<PAGE>
Schedule 7(c)
Damages Relating to Processing Milestones
-----------------------------------------
Damages for failure to meet any Processing Milestone shall be the amount equal
to ***** .
19
<PAGE>
Schedule 8(a)
Commission Payment Schedule
---------------------------
MedE Payment Obligation
- -----------------------
Medic and MedE agree to pay to Medic *****
Medic Payment Obligation
- ------------------------
Medic shall pay to MedE *****
20
<PAGE>
Schedule 13(b)
Customer Service
----------------
- - MedE will provide second-level telephone support to Medic between the
hours of 7:00 a.m. to 6:00 p.m., Eastern standard time, and will
provide an average call response time of no greater than 2 hours from
their Help Desk.
- - MedE will provide a dedicated person for Medic's questions and
inquiries
21
<PAGE>
Schedule 15(b)(iii)
Third Party Software
--------------------
The following is a list of third party software used in or in connection with
the Medic/MedE System:
Solaris Operating system
Informix database license and software
Mercator Data Mapping software
Procomm Communications software
NT Back Office
22
<PAGE>
Schedule 16
Escrowed Materials
------------------
- - Appropriate product related information for all electronic links to
Payors will be placed into escrow with an escrow agent designated by
Medic within 30 days of closing. This will include but not be limited
to:
- Data Communications Source Code and Specifications
- Business Logic
- Data Element Mapping
- End User Documentation
- Technical Specifications and Documentation
- - A backup copy of all MedE executable programs required to run the
Medic/MedE System and operate the MedE Services successfully.
- - All documentation required to effectively install, prepare, execute,
and maintain the Medic/MedE System and operate the MedE Services.
- - Escrowed Materials will be updated every 30 days until and including
July 1, 1999. After July 1, 1999, Escrowed Materials will be updated
every 60 days.
23
[MEDE AMERICA LOGO]
1998 EMPLOYEE STOCK PURCHASE PLAN
The following constitutes the provisions of the MEDE American Corporation 1998
Employee Stock Purchase Plan.
1. Purpose. The purpose of the Plan is to provide employees of the Company and
its Designated Subsidiaries with an opportunity to purchase Common Stock of
the Company through accumulated payroll deductions. It is the intention of
the Company to have the Plan qualify as an "Employee Stock Purchase Plan"
under Section 423 of the Internal Revenue Code of 1986 as amended. The
provisions of the Plan accordingly, shall be construed so as to extend and
limit participation in a manner consistent with the requirements of that
section of the Code.
2. Definitions.
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Code" shall mean the Internal Revenue Code of 1986 as amended.
(c) "Common Stock" shall mean the Common Stock of the Company.
(d) "Company" shall mean MEDE America Corporation, a Delaware
corporation, and any Designated Subsidiary of the Company.
(e) "Compensation" shall mean amounts received by an Employee during an
Offering Period for personal services rendered and which are included
as W-2 earnings.
(f)"Designated Subsidiary" shall mean any Subsidiary which has been
designated by the Board from time to time in its sole discretion as
eligible to participate in the Plan.
(g) "Employee" shall mean any individual who is an Employee of the
Company for tax purposes whose customary employment with the Company
is at least twenty (20) hours per week and more than five (5) months
in any calendar year. For purposes of the Plan, the employment
relationship shall be treated as continuing intact while the
individual is on sick leave or other leave of absence approved by the
Company. Where the period of leave exceeds 90 days and the
individual's right to reemployment is not guaranteed either by
statute or by contract, the employment is not guaranteed either by
statute or by contract, the employment relationship shall be deemed
to have terminated on the 91st day of such leave.
(h) "Enrollment Date" shall mean the first day of each Offering Period.
<PAGE>
(i) "Exercise Date" shall mean the last day of each Offering Period.
(j) "Fair Market Value" shall mean, as of any date the value of Common
Stock determined as follows:
1. If the Common Stock is listed on any established stock
exchange or a national market system, including
limitation the Nasdaq National Market or The Nasdaq
SmallCap Market of The Nasdaq Stock Market, its Fair
Market Value shall be the closing sales price for such
stock (or the closing bid, if no sales were reported)
as quoted on such exchange or system for the last
market trading day on the date of such determination,
as reported in The Wall Street Journal or such other
source as the Board deems reliable, or;
2. If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported,
its Fair Market Value shall be the mean of the closing
bid and asked prices for the Common Stock on the date
of such determination, as reported in The Wall Street
Journal or such other source as the Board deems
reliable, or;
3. In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be
determined in good faith by the Board.
(k) "Offering Period" shall mean a period of approximately six (6) months
during which an option granted pursuant to the Plan may be exercised,
commencing on the first Trading Day on or after January 1, and July
1, and terminating on the last Trading Day in the period ending the
following June 30 and December 31; provided, however, that the first
Offering Period under the Plan is after the date on which the
Securities and Exchange Commission declares the Company's
Registration Statement effective. The duration of Offering Periods
may be changed pursuant to Section 4 of this Plan.
(l) "Plan" shall mean the MEDE America Corporation 1998 Employee Stock
Purchase Plan.
(m) "Purchase Price" shall mean an amount equal to 85% of the Fair Market
Value of a share of Common Stock on the Enrollment Date or on the
Exercise Date, whichever is lower.
(n) "Reserves" shall mean the number of shares of Common Stock covered by
each option under the Plan which have not yet been exercised and the
number of shares of Common Stock which have been authorized for
issuance under the Plan but not yet placed under option.
(o) "Subsidiary" shall mean a corporation, domestic or foreign of which
not less than 50% of the voting shares are held by the Company or a
Subsidiary whether or not such corporation now exists or is hereafter
organized or acquired by the Company or a Subsidiary.
<PAGE>
(p) "Trading Day" shall mean a day on which national stock exchanges and
the Nasdaq System are open for trading.
3. Eligibility
(a) Any Employee who shall be employed by the Company on a given
Enrollment Date and who has served at least six months with the
Company or Subsidiary thereof and is at least 18 years of age.
(b) Any provisions of the Plan to the contrary notwithstanding no
Employee shall be granted an option under the Plan (i) to the extent
that immediately after the grant, such Employee (or any other person
whose stock would be attributed to such Employee pursuant to Section
424(d) of the Code) would own capital stock of the Company and/or
hold outstanding options to purchase such stock possessing five
percent (5%) or more of the total combined voting power or value of
all classes of the capital stock of the Company or of any Subsidiary
or (ii) to the extent that his or her rights to purchase stock under
all employee stock purchase plans of the Company and its subsidiaries
accrues at a rate which exceeds Twenty-Five Thousand Dollars
($25,000) worth of stock (determined at the fair market value of the
shares at the time such option is granted) for each calendar year in
which such option is outstanding at any time.
4. Offering Periods. The Plan shall be implemented by consecutive offering
Periods with a new Offering Period commencing on the first Trading Day on or
after January 1 and July 1 or on such other date as the Board shall
determine, and continuing thereafter until terminated in accordance with
Section 20 hereof provided, however, that the first Offering Period under the
Plan shall commence after the date on which the Securities and Exchange
Commission declares the Company's Registration Statement effective. The Board
shall have the power to change the duration of Offering Periods (including
the commencement dates thereof) with respect to future offerings without
stockholder approval if such change is announced at least five (5) days prior
to the scheduled beginning of the first Offering Period to be affected
thereafter.
5. Participation
(a) An eligible Employee may become a participant in the plan by
completing a subscription agreement authorizing payroll deductions in
the form of Exhibit A to this Plan and filing it with the Company's
Human Resources department prior to the applicable Enrollment Date.
Newly eligible Employee's may enter the Offering Period by filing a
subscription agreement within 30 days of their eligibility date.
(b) Payroll deductions for a participant shall commence on the first
payroll following the Enrollment Date (or, in the case of newly
eligible Employees, the next payroll after Human Resources receives
the participant's subscription agreement) and shall continue unless
terminated by the participant as provided in Section 10 hereof.
<PAGE>
(a) At the time a participant files his or her subscription agreement he
or she shall elect to have payroll deductions made on each pay day
during the Offering Period between one percent (1%) and not exceeding
ten percent (10%) of the Compensation which he or she receives on
each pay day during the Offering Period.
(b) All payroll deductions made for a participant shall be credited to
his or her account under the Plan and shall be withheld in whole
percentages only. A participant may not make any additional payments
into such account.
(c) A participant may discontinue his or her participation in the Plan as
provided in Section 10 hereof, or may increase or decrease the rate
of his or her payroll deductions by completing or filing with the
Company a new subscription agreement authorizing a change to be
effective the first payroll period after the next Enrollment Date or
after Human Resources receives the change, whichever is designated by
the participant. A participant may make only one change to his or her
contribution percentage during an Offering Period. A participant's
subscription agreement shall remain in effect for successive Offering
Periods unless terminated as provided in Section 10 hereof.
(d) Notwithstanding the foregoing, to the extent necessary to comply with
Section 423(b) or the Code and Section 3(b) hereof, a participant's
payroll deductions may be decreased to zero percent (0%) at any time
during an Offering Period. Payroll deductions shall recommence at the
rate provided in such participant's subscription agreement at the
beginning of the first Offering Period which is scheduled to end in
the following calendar year, unless terminated by the participant as
provided in Section 10 hereof.
(e) At the time the option is exercised, in whole or in part, or at the
time some or all of the Company's Common Stock issued under the Plan
is disposed of, the participant must make adequate provision for the
Company's federal, state, or other tax withholding obligations, if
any, which arise upon the exercise of the option or the disposition
of the Common Stock. At any time, the Company may, but shall not be
obligated to, withhold from the participant's compensation the amount
necessary for the Company to meet applicable withholding obligations
including any withholding required to make available to the Company
any tax deductions or benefits attributable to sale or early
disposition of Common Stock by the Employee.
7. Grant of Option. On the Enrollment Date of each Offering Period, each
eligible Employee participating in such Offering Period shall be granted an
option to purchase on the Exercise Date of such Offering Period (at the
applicable Purchase Price) up to a number of shares of the Company's Common
Stock determined by dividing such Employee's payroll deductions accumulated
prior to such Exercise Date and retained in the Participant's account as of
the Exercise Date by the applicable Purchase Price; provided that such
purchase shall be subject to the limitations set forth in Sections 3(b)
<PAGE>
and 12 hereof. Exercise of the option shall occur as provided in Section 8
hereof, unless the participant has withdrawn pursuant to Section 10 hereof.
The Option shall expire on the last day of the Offering Period.
8. Exercise of Option. Unless a participant withdraws from the Plan as provided
in Section 10 hereof, his or her option for the purchase of shares shall be
exercised automatically on the Exercise Date, and the maximum number of
shares (including fractional shares) subject to option shall be purchased for
such participant at the applicable Purchase Price with the accumulated
payroll deductions in his or her account. During a participant's lifetime, a
participant's option to purchase shares hereunder is exercisable only by him
or her.
9. Delivery. A book balance account will be established for each participant at
a financial institution approved by the Board. As promptly as practicable
after each Exercise Date on which a purchase of shares occurs, statements
will be generated and mailed to all participants evidencing ownership.
Participants will have the option of receiving a physical certificate,
selling a portion or all shares held in the account or leaving the shares in
their account.
10. Withdrawal. A participant may withdraw all but not less than all the payroll
deductions credited to his or her account and not yet used to exercise his
or her option under the Plan at any time by giving written notice to the
Company in the form of Exhibit A to the Plan. All of the participant's
payroll deductions credited to his or her account shall be paid to such
participant during the payroll period after receipt of notice of withdrawal
and such participant's option for the Offering Period shall be automatically
terminated, and no further payroll deductions for the purchase of shares
shall be made for such Offering Period. If a participant withdraws from an
Offering Period, the participant will not be allowed to resume payroll
deductions for a period of at least six (6) months following the end of the
Offering Period in which he or she withdrew their contributions. The
participant must submit a new subscription agreement when they are eligible
to resume payroll deductions.
11. Termination of Employment. Upon a participant's ceasing to be an Employee
for any reason, he or she shall be deemed to have elected to withdraw from
the Plan and the payroll deductions credited to such participant's account
during the Offering Period but not yet used to exercise the option shall be
returned to such participant or in the case of his or her death to the
person or persons entitled thereto under Section 15 hereof, and such
participant's option shall be automatically terminated. The preceding
sentence notwithstanding a participant who receives payment in lieu of
notice of termination of employment shall be treated as continuing to be an
Employee for the participant's customary number of hours per week of
employment during the period in which the participant is subject to such
payment in lieu of notice.
12. Interest. No interest shall accrue on the payroll deductions of a
participant in the Plan.
13. Stock
(a) The maximum number of shares of the Company's Common Stock which shall
be made available for sale under the Plan shall be 300,000 shares,
subject to adjustment upon changes in capitalization of the Company as
provided in Section 19 hereof. If on a
<PAGE>
given Exercise Date, the number of shares with respect to which
options are to be exercised exceeds to number of shares then available
under the Plan, the Company shall make a pro rata allocation of the
shares remaining available for purchase in as uniform a manner as
shall be practicable and as it shall determine to be equitable.
(b) The participant shall have no interest or voting right in shares
covered by his option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan shall be
registered in the name of the participant or in the name of the
participant and his or her spouse.
14. Dividends. Any dividends declared by the Company in connection with this
Plan will be reinvested in the participant's account and shall be used to
purchase shares.
15. Administration. The Plan shall be administered by the Board or a committee
of members of the Board appointed by the Board. The Board or its committee
shall have full and exclusive discretionary authority to construe, interpret
and apply the terms of the Plan, to determine eligibility and to adjudicate
all disputed claims filed under the Plan. Every finding, decision and
determination made by the Board or its committee shall, to the full extent
permitted by law, be final and binding upon all parties.
16. Designation of Beneficiary.
(a) A participant may file a written designation of a beneficiary who is
to receive any shares and cash, if any, from the participant's
account under the Plan in the event of such participant's death
subsequent to an Exercise Date on which the option is exercised but
prior to delivery to such participant of such shares and cash. In
addition, a participant may file a written designation of a
beneficiary who is to receive any cash from the participants account
under the Plan in the event of such participant's death prior to
exercise of the option. If a participant is married and the
designated beneficiary is not the spouse, spousal consent shall be
required for such designation to be effective.
(b) Such designation of beneficiary may be changed by the participant at
any time by written notice. In the event of the death of a
participant and in the absence of a beneficiary validly designated
under the Plan who is living at the time of such participant's death,
the Company shall delivery such shares and/or cash to the executor or
administrator of the estate of the participant, or if no such
executor or administrator has been appointed (to the knowledge of the
Company), the Company, in its discretion, may delivery such shares
and/or cash to the spouse or to any one or more dependents or
relatives of the participant, or if no spouse, dependent or relative
is known to the Company, then to such other person as the Company my
designate.
17. Transferability. Neither payroll deductions credited to a participant's
account nor any rights with regard to the exercise of an option or to
receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the
<PAGE>
laws of descent and distribution or as provided in Section 15 hereof) by the
participant. Any such attempt at assignment, transfer, pledge or other
disposition shall be without effect, except that the Company may treat such
act as an election to withdraw funds from an Offering Period in accordance
with Section 10 hereof.
18. Use of Funds. All payroll deductions and any interest earned on payroll
deductions that are received or held by the Company under the Plan may be
used by the Company for any corporate purpose, and the Company shall not be
obligated to segregate such payroll deductions.
19. Reports. Individual accounts shall be maintained for each participant in the
Plan. Statements of account shall be given to participating Employees at
least annually, which statements shall set forth the amounts of payroll
deductions, the Purchase Price and the number of shares purchased.
20. Adjustments. Upon Changes in Capitalization, Dissolution, Liquidation,
Merger or Asset Sale.
(a) Changes in Capitalization. Subject to any required action by the
stockholders of the Company, the Reserves, the maximum number of
shares each participant may purchase pr Offering Period (pursuant to
Section 7), as well as the price per share and the number of shares
of Common Stock covered by each option under the Plan which has not
yet been exercised shall be proportionately adjusted for any increase
or decrease in the number of issued shares of Common Stock resulting
from a stock split, reverse stock dividend, combination or
reclassification of the Common Stock, or any other increase or
decrease in the number of shares of Common Stock effected without
receipt of consideration by the Company: provided, however, that
conversion of any convertible securities of the Company shall not be
deemed to have been "effected without receipt of consideration". Such
adjustment shall be made by the Board, whose determination in that
respect shall be final, binding and conclusive. Except as expressly
provided herein, no issuance by the Company of shares of stock of any
class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares of Common Stock subject to
an option.
(b) Dissolution or Liquidation. In the event of the proposed dissolution
or liquidation of the Company, the Offering Period then in progress
shall be shortened by setting a new Exercise Date (the "New Exercise
Date"), and shall terminate immediately prior to the consummation of
such proposed dissolution or liquidation, unless provided otherwise
by the Board. The New Exercise Date shall be before the date of the
company's proposed dissolution or liquidation. The Board shall notify
each participant in writing, at least ten (10) business days prior to
the New Exercise Date, that the Exercise Date for the participant's
option has been changed to the New Exercise Date and that the
participant's option shall be exercised automatically on the New
Exercise Date,
<PAGE>
unless prior to such date the participant has withdrawn from the
Offering Period as provided in Section 10 hereof.
(c) Merger or Asset Sale. In the event of a proposed sale of all or
substantially all of the assets of the Company, or the merger of the
Company with or into another corporation, each outstanding option
shall be assumed or an equivalent option substituted by the successor
corporation or a Parent or Subsidiary of the successor corporation.
In the event that the successor corporation refuses to assume or
substitute for the option, any Purchase Periods then in progress
shall be shortened by setting a new Exercise Date (the "New Exercise
Date") and any Offering Periods then in progress shall end on the New
Exercise Date. The New Exercise Date shall be before the date of the
Company's proposed sale or merger. The Board shall notify each
participant in writing, at least ten (10) business days prior to the
New Exercise Date, that the Exercise Date for the participant's
option has been changed to the New Exercise Date and that the
participant's option shall be exercised automatically on the New
Exercise Date, unless prior to such date the participant has
withdrawn from the Offering Period as provided in Section 10 hereof.
21. Amendment or Termination.
(a) The Board of Directors of the Company may at any time and for any
reason terminate or amend the Plan. Except as provided in Section 19
hereof, no such termination can affect options previously granted,
provided that an Offering Period may be terminated by the Board of
Directors on any Exercise Date if the Board determines that the
termination of the Plan is in the best interest of the Company and
its shareholders. Except as provided in Section 19 hereof, no
amendment may make any changes in any option theretofore granted
which adversely affects the rights of any participant. To the extent
necessary to comply with Section 423 of the Code (or any successor
rule or provision or any other applicable law, regulation or stock
exchange rule, the Company shall obtain shareholder approval in such
a manner and to such a degree as required.
(b) Without shareholder consent and without regard to whether any
participant rights may be considered to have been "adversely
affected," the Board (or its committee) shall be entitled to change
the Offering Periods, limit the frequency and/or number of changes in
the amount withheld during an Offering Period, establish the exchange
ratio applicable to amounts withheld in a currency other than U.S.
dollars, permit payroll withholding in excess of the amount
designated by a participant in order to adjust for delays or mistakes
in the Company's processing of properly completed withholding
elections, establish reasonable waiting and adjustment periods and/or
accounting and crediting procedures to ensure that amounts applied
toward the purchase of Common Stock for each participant properly
correspond with amounts withheld from the participant's Compensation,
and
<PAGE>
establish such other limitations or procedures as the Board (or its
committee) determines in its sole discretion advisable which are
consistent with the Plan.
22. Notices. All notices or other communications by a participant to the Company
under or in connection with the Plan shall be deemed to have been duly given
when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
23. Conditions Upon Issuance of Shares. Shares shall not be issued with respect
to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic and foreign, including without limitation, the
Securities Act or 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the
requirements of any stock exchange upon which the shares may then be listed,
and shall be further subject to the approval of counsel for the Company with
respect to such compliance.
As a condition to the exercise of an option, the Company may require the
period exercising such option to represent and warrant at the time of any
such exercise that the shares are being purchased only for investment and
without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required by any
of the aforementioned applicable provisions of law.
24. Term of Plan. The Plan shall become effective upon the earlier to occur of
its adoption by the Board of Directors or its approval by the stockholders
of the Company. It shall continue in effect for a term of ten (10) years
unless sooner terminated under Section 20 hereof.
<PAGE>
EXHIBIT A
MEDE AMERICA
EMPLOYEE STOCK PURCHASE PLAN
ENROLLMENT/CHANGE FORM
EMPLOYEE NAME: ------------------------------------------
(Please Print)
SOCIAL SECURITY: ---------------- LOCATION: ---------------------
- --------------------------------------------------------------------------------
COMPLETE REASONS(S) FOR ENROLLMENT/CHANGE:
- ---------- New Enrollment
- ---------- Stop Deductions (This will terminate your participation in the Plan
for this Offering Period and the next Offering Period. Your existing
balance will be refunded to you as soon as administratively
possible.)
- ---------- Change: Contribution Rate ---------- Beneficiary ----------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PAYROLL DEDUCTION AUTHORIZATION
I authorized deductions from each payroll check of the following percentage of
my total compensation.
Contribution Rate: ---------------- (1-10%, whole increments)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
BENEFICIARY
- ------------------------------- ------------------ ------------------
Name Social Security # Relationship
- --------------------------------------------------------------------------------
Address
- ----------------------------------------------------
Signature of Spouse (If beneficiary other than spouse)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
By signing below, I represent that I have received and reviewed the Company's
Prospectus issued in connection with my participation in the MEDE America 1998
Employee Stock Purchase Plan. I further represent that I have carefully reviewed
and understand the terms of the Plan and such other matters as I found necessary
to understand the mechanics and risks of participation in the Plan.
- ------------------------------------------ ------------
Employee Signature Date
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(For Corporate Benefits Department Use Only)
Approved By: ----------------------------------------------
Date: ---------------- Deposit Processing Code
- --------------------------------------------------------------------------------
Fax form to confidential fax number: 330-963-3713
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULE
MEDE America Corporation
East Meadow, New York
We consent to the use in Amendment No. 2 to Registration Statement No. 333-55977
of MEDE America Corporation on Form S-1 of our report dated May 8, 1998 (July
17, 1998 as to Note 13) relating to the consolidated financial statements of
MEDE America Corporation as of June 30, 1996 and 1997 and March 31, 1998 and for
each of the three years in the period ended June 30, 1997 and the nine months
ended March 31, 1998 appearing in the Prospectus, which is a part of this
Registration Statement, and to the reference to us under the heading "Experts"
in such Prospectus.
Our audits of the consolidated financial statements of MEDE America Corporation
referred to in our aforementioned report also included the financial statement
schedule of MEDE America Corporation listed in Part II at Item 16(b). This
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion based on our audits. In our opinion
such financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
Jericho, New York
July 22, 1998
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
MEDE America Corporation
East Meadow, New York
We consent to the use in Amendment No. 2 to Registration Statement No.
333-55977 of MEDE America Corporation on Form S-1 of our report dated October
7, 1997 relating to the statement of income of The Stockton Group, Inc. for the
year ended June 30, 1997, appearing in the Prospectus, which is a part of this
Registration Statement, and to the reference to us under the heading "Experts"
in such Prospectus.
DELOITTE & TOUCHE LLP
Charlotte, North Carolina
July 22, 1998
