<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 23, 1998
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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THE MRC GROUP, INC.
(Exact name of Registrant as specified in its charter)
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<S> <C> <C>
DELAWARE 7374 52-2105800
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
23240 CHAGRIN BLVD., SUITE 400
CLEVELAND, OHIO 44122
(216) 464-2244
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
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EDWARD L. SAMEK, CHAIRMAN OF THE BOARD
THE MRC GROUP, INC.
23240 CHAGRIN BLVD., SUITE 400
CLEVELAND, OHIO 44122
(216) 464-2244
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
COPIES TO:
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<S> <C>
JOHN M. GHERLEIN RUFUS C. KING
BAKER & HOSTETLER LLP TESTA, HURWITZ & THIBEAULT, LLP
3200 NATIONAL CITY CENTER HIGH STREET TOWER
1900 EAST NINTH STREET 125 HIGH STREET
CLEVELAND, OHIO 44114 BOSTON, MA 02110
(216) 621-0200 (617) 248-7000
</TABLE>
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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. [ ]
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CALCULATION OF REGISTRATION FEE
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PROPOSED
TITLE OF EACH CLASS OF MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
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<S> <C> <C>
Common Stock, $.01 par value........................ $69,000,000 $20,355
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</TABLE>
(1) Calculated pursuant to Rule 457(o) under the Securities Act of 1933, based
on the proposed maximum aggregate offering price.
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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 THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
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.
SUBJECT TO COMPLETION
JUNE 23, 1998
SHARES
[MRC GROUP LOGO]
COMMON STOCK
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Of the shares of Common Stock offered hereby, shares
are being sold by The MRC Group, Inc. ("MRC" or the "Company") and
shares are being sold by certain stockholders of the Company (the "Selling
Stockholders"). The Company will not receive any of the proceeds from the sale
of shares of Common Stock by the Selling Stockholders. Prior to this offering,
there has been no public market for the Common Stock. It is presently estimated
that the initial public offering price will be between $ and
$ per share. See "Underwriting" for information relating to the factors
to be considered in determining the initial public offering price. Application
has been made for the approval and trading of the Common Stock on the Nasdaq
National Market under the proposed symbol "MRCG."
------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 7.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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PRICE UNDERWRITING PROCEEDS PROCEEDS TO
TO DISCOUNTS AND TO SELLING
PUBLIC COMMISSIONS COMPANY(1) STOCKHOLDERS
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<S> <C> <C> <C> <C>
Per Share............. $ $ $ $
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Total (2)............. $ $ $ $
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</TABLE>
(1) Before deducting expenses of the offering estimated at $ , payable
by the Company.
(2) The Company has granted the Underwriters a 30-day option to purchase up to
additional shares of Common Stock solely to cover over-allotments, if
any. To the extent the option is exercised, the Underwriters will offer the
additional shares at the Price to Public shown above. If the option is
exercised in full, the total Price to Public, Underwriting Discounts and
Commissions, Proceeds to Company and Proceeds to Selling Stockholders will
be $ , $ , $ and $ , respectively. See
"Underwriting."
------------------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if delivered to and accepted by them, and subject to
the right of the Underwriters to reject any order in whole or in part. It is
expected that delivery of the shares of Common Stock will be made through the
facilities of the Depository Trust Company in New York, New York, on or about
, 1998, against payment therefor in immediately available funds.
BT Alex. Brown
Donaldson, Lufkin & Jenrette
Securities Corporation
William Blair & Company
THE DATE OF THIS PROSPECTUS IS , 1998.
<PAGE> 3
[Map of the Continental United States approximately five inches tall, showing
the locations of all of the Company's client service centers. Client service
centers are noted by dots located near: Boston, MA; Cherry Hill, NJ; Florham
Park, NJ; Washington, D.C. (Vienna, VA); Raleigh, NC; Atlanta, GA; Deerfield
Beach, FL; Ft. Lauderdale, FL; Melbourne, FL; Sarasota, FL; Tampa, FL; Vero
Beach, FL; West Palm Beach, FL; Wichita, KS; Buffalo, NY; Pittsburgh, PA;
Scranton, PA; Akron, OH; Cleveland, OH (2); Cincinnati, OH; Columbus, OH;
Detroit, MI; Arlington Heights, IL; Springfield, IL; Tinley Park, IL; Ft. Wayne,
IN; Indianapolis, IN; Bowling Green, KY; Chattanooga, TN; Memphis, TN;
Nashville, TN; Dallas, TX; Houston, TX; San Antonio, TX; Kansas City, MO; St.
Louis, MO; Denver, CO; Tulsa, OK; Phoenix, AZ; Tucson, AZ; Las Vegas, NV;
Orange, CA; Pleasant Hill, CA; Riverside, CA (2); Sacramento, CA; San Diego, CA;
Portland, OR; Seattle, WA; Tacoma, WA. The Company's corporate office near
Cleveland, OH is indicated by a star.]
o CLIENT SERVICE CENTER LOCATIONS
* CORPORATE OFFICE (CLEVELAND, OHIO)
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK, INCLUDING
OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS IN SUCH SECURITIES,
AND THE IMPOSITION OF A PENALTY BID, IN CONNECTION WITH THE OFFERING. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
THE COMPANY'S LOGO, THE NAME "THE MRC GROUP" AND "ACCESS+" ARE TRADEMARKS OF THE
MRC GROUP, INC. "POWERSCRIBE" IS A TRADEMARK OF ARTICULATE SYSTEMS, INC. ALL
OTHER TRADEMARKS, TRADE NAMES OR SERVICE MARKS APPEARING IN THIS PROSPECTUS ARE
THE PROPERTY OF THEIR RESPECTIVE OWNERS AND ARE NOT THE PROPERTY OF THE COMPANY.
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<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and the Consolidated
Financial Statements and the related Notes thereto appearing elsewhere in this
Prospectus.
THE COMPANY
The MRC Group, Inc. is a leading national provider of electronic medical
transcription and document management services to the health care industry. The
Company currently operates more than 50 client service centers in 24 states and
employs more than 2,200 experienced medical transcriptionists, approximately 70%
of whom work from their homes. The Company serves more than 500 clients,
primarily hospitals and medical centers, as well as other non-hospital health
care providers, such as managed care providers, surgical centers, outpatient
clinics and physician groups. Within hospitals and medical centers, the Company
primarily serves the health information management departments, also known as
medical records departments. Increasingly, the Company is providing its services
to other hospital departments that seek to outsource their medical transcription
needs, including radiology, emergency medicine, pathology and cardiology
departments and outpatient surgical units.
After most patient encounters or hospital admissions, a health care
provider is required to create or update the patient's medical record. Medical
transcription and document management is the process by which clinical and
medical information is dictated by a health care provider, transcribed by a
medical transcriptionist and returned to the health care provider for
verification, signing and incorporation into the patient's medical record.
Various sources estimate that the United States health care industry spends in
excess of $6.6 billion on medical transcription services annually. The Company
believes that a substantial majority of this amount is spent by health care
providers for in-house medical transcription. Industry sources estimate that
there are more than 1,500 providers of outsourced medical transcription
services, the vast majority of which serve a small number of clients on a local
basis.
The medical transcription industry is evolving from a relatively
low-technology, locally provided business to a technology-driven, document
management business, increasingly providing services on a nationwide basis. The
Company believes that it is one of the few firms in the industry that has fully
embraced these changes and is positioned to benefit from economies of scale and
the changing industry. The Company believes a number of significant trends will
support continued growth of the medical transcription industry and growth in the
segment of the industry that is outsourced, including: demand for increased
documentation; increased outsourcing in the health care industry generally;
demand for faster, more consistent and reliable turnaround of dictated medical
reports; creation of integrated health care delivery systems; and a growing
trend toward comprehensive computerized patient records.
The Company's objective is to capitalize on the health care industry's
trend toward increased dictation of medical reports and outsourcing of medical
transcription and document management services and to enhance its position as a
leading provider of such services. The principal elements of the Company's
strategy are to (i) accelerate internal growth through superior client
retention, deeper penetration of existing clients and increased sales to new
clients; (ii) expand operating margins by further standardizing operations,
taking advantage of economies of scale and executing disciplined pricing
strategies; (iii) apply state-of-the-art technology to expand services, enhance
client satisfaction and lower costs; and (iv) identify and complete strategic
acquisitions.
The Company believes its large size, technical resources and other
capabilities differentiate it from its competitors and enable it to better
retain existing clients and attract new clients. The Company's customized
electronic medical transcription and document management services provide
clients with lower costs, improved accuracy of transcribed medical reports,
reduced report
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turnaround times, shortened billing cycles and reduced capital investment. The
Company develops long-term client relationships through high quality service,
technological expertise and an experienced, service-oriented management team.
The Company applies state-of-the-art technology and proprietary software
applications, protocols and procedures to create customized systems tailored to
meet specific client requirements and to enhance client satisfaction. The
Company's national network of more than 50 client service centers enables it to
respond to its clients on a local basis and use its national resources to
balance workloads among client service centers without delay or disruption in
service.
The Company's electronic medical transcription revenues tend to be
recurring as a result of the multi-year nature of its client contracts and its
high client retention rate. For the 12-month period ended March 31, 1998, the
Company retained 98% of its 50 largest clients.
The Company's principal executive offices are located at 23240 Chagrin
Boulevard, Suite 400, Cleveland, Ohio 44122, and its telephone number is (216)
464-2244.
RISK FACTORS
The Common Stock offered hereby involves a high degree of risk. See "Risk
Factors."
THE OFFERING
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Common Stock offered by the Company................ shares
Common Stock offered by the Selling Stockholders... shares
Common Stock to be outstanding after the
offering......................................... shares (1)
Use of proceeds.................................... Repay certain indebtedness, working
capital and general corporate purposes.
See "Use of Proceeds."
Proposed Nasdaq National Market symbol............. MRCG
</TABLE>
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(1) Includes 262,629 shares of Common Stock issued upon exercise of warrants
after March 31, 1998. Excludes 2,215,474 shares of Common Stock issuable
upon the exercise of stock options outstanding as of June 15, 1998 at a
weighted average price of $7.16, of which options for 1,048,823 shares of
Common Stock are currently exercisable. See "Capitalization" and "Principal
and Selling Stockholders."
Unless otherwise indicated or the context otherwise requires, all
references in this Prospectus to the "Company" or "MRC" include The MRC Group,
Inc., a Delaware corporation and the issuer of the Common Stock offered hereby,
and its predecessor and subsidiaries. Unless otherwise indicated or unless the
context otherwise requires, all information in this Prospectus (i) assumes no
exercise of the Underwriters' over-allotment option; (ii) assumes the conversion
of all outstanding shares of Series IV Preferred Stock, Series V Preferred Stock
and Series VI Preferred Stock into Common Stock; and (iii) gives effect to the
Reincorporation Merger described below, including a 0.7-for-1.0 reverse stock
split. See "The Company," "Description of Capital Stock" and "Underwriting."
4
<PAGE> 6
SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AND STATISTICAL DATA)
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THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
--------------------------------- -------------------------
1995 1996 (1) 1997 (2) 1997 (2) 1998 (2)
--------- --------- --------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues............................ $ 49,180 $ 71,700 $ 108,117 $ 26,095 $ 29,410
Gross profit............................ 9,026 14,370 21,142 5,055 5,790
Operating income (loss) (3)............. 420 (934) (703) 142 1,057
Interest income (expense), net.......... (539) (382) (310) (78) (63)
Income (loss) before income taxes....... (119) (1,316) (1,013) 64 994
Net income (loss)....................... $ (126) $ (1,316) $ (1,013) $ (43) $ 563
Basic weighted average common shares
outstanding........................... 1,272 2,578 4,106 4,106 4,106
Diluted weighted average common shares
outstanding........................... -- -- -- -- 12,049
Basic earnings per share................ $ (0.10) $ (0.51) $ (0.25) $ (0.01) $ 0.14
Diluted earnings per share.............. $ (0.10) $ (0.51) $ (0.25) $ (0.01) $ 0.05
PRO FORMA DATA, AS ADJUSTED: (4)
Basic weighted average common shares outstanding...............
Diluted weighted average common shares outstanding.............
Basic earnings per share.......................................
Diluted earnings per share.....................................
OTHER DATA:
EBITDA (5).............................. $ 4,327 $ 5,398 $ 9,324 $ 2,434 $ 3,167
EBITDA margin (5)....................... 8.8% 7.5% 8.6% 9.3% 10.8%
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1998
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PRO FORMA
ACTUAL PRO FORMA (6) AS ADJUSTED (4)
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BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments....... $ 5,940 $ 5,940
Working capital......................................... 9,410 9,410
Total assets............................................ 76,851 76,851
Long-term debt, including current portion............... 7,868 7,868
Stockholders' equity.................................... 3,305 50,798
</TABLE>
See accompanying footnotes on the following page.
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(1) In July 1996, the Company acquired all the outstanding stock of Medical
Records Corp. The acquisition has been accounted for as a purchase, and the
results of Medical Records Corp., a wholly owned subsidiary of the Company,
were included in the accompanying Consolidated Financial Statements from the
date of the acquisition. In connection with the acquisition, the Company
assumed certain acquisition-related liabilities from Medical Records Corp.
The cost of the acquisition has been allocated on the basis of the estimated
fair market value of the assets acquired and liabilities assumed.
(2) During 1997, the Company acquired the assets of two entities and the stock
of one entity for cash of approximately $1.9 million plus the assumption of
certain liabilities. Each of the 1997 acquisitions was accounted for as a
purchase, and the results of operations are included in the accompanying
Consolidated Financial Statements from the date of acquisition. The above
results also include a full period of activity related to the acquisition
discussed in Note 1 above.
(3) The Company's results of operations have been adversely affected in 1995,
1996 and 1997 by restructuring charges associated with the closure and
consolidation of redundant and less profitable client service centers and
related costs and other non-recurring acquisition and integration costs in
1997 in connection with the acquisition of Medical Records Corp. These
corresponding expenses of $347, $644 and $2,075 are included in operating
income (loss) for the years ended December 31, 1995, 1996 and 1997,
respectively.
(4) Gives effect to the conversion of all outstanding shares of the Series IV
Preferred Stock, Series V Preferred Stock and Series VI Preferred Stock into
7,262,107 shares of Common Stock upon completion of this offering, as
discussed in Note 6, and the issuance by the Company of shares
of Common Stock in this offering and the application of the net proceeds
therefrom as described in "Use of Proceeds."
(5) Earnings before interest, taxes, depreciation and amortization ("EBITDA")
represents operating income (loss) plus depreciation and amortization.
EBITDA should not be considered as an alternative measure of net income or
cash provided by operating activities (both as determined in accordance with
generally accepted accounting principles), but is presented to provide
additional information related to the Company's debt service capability.
EBITDA should not be considered in isolation or as a substitute for other
measures of financial performance or liquidity.
(6) Gives effect to the conversion of Series IV Preferred Stock, Series V
Preferred Stock and Series VI Preferred Stock into 7,262,107 shares of
Common Stock upon completion of this offering. See Notes 11 and 12 of Notes
to Consolidated Financial Statements.
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<PAGE> 8
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating an investment in the Common
Stock offered by this Prospectus. Statements in this Prospectus that are not
statements of historical fact, including statements concerning the Company's
strategy and plans for the future, are forward-looking statements. 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 such
forward-looking statements as a result of various factors, including the risk
factors set forth below and other matters set forth in this Prospectus
generally.
HISTORY OF LOSSES
The Company has experienced net losses of $126,000, $1.3 million and $1.0
million for the years ended December 31, 1995, 1996 and 1997, respectively.
Although the Company was profitable in the first quarter of 1998, there can be
no assurance that the Company will be able to sustain profitable operations.
DEPENDENCE ON SINGLE LINE OF BUSINESS; DEMAND FOR SERVICES
The Company's revenues are derived primarily from the provision of
electronic medical transcription and document management services to hospitals
and other health care organizations on an outsourced basis. The Company's future
success will depend on the continued market acceptance of its electronic medical
transcription services and the continued demand for outsourced medical
transcription services. A reduction in demand, whether because of technical
developments or otherwise, or an increase in competition in the market for its
electronic medical transcription services, could have a material adverse effect
on the Company's business, financial condition and results of operations.
POTENTIAL FOR SIGNIFICANT FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
The Company has experienced, and may in the future experience, significant
quarter-to-quarter fluctuations in its results of operations. Such fluctuations
may result in volatility in the price of the Common Stock. Quarterly results of
operations may fluctuate as a result of a variety of factors, including demand
for the Company's services and products, the opening of new client service
centers, the timing of the commencement of services for clients, the inability
of the Company to immediately pass on increased labor costs due to inflationary
factors, the timing of introduction of new services and products by the Company
or its competitors, the market acceptance of new services and products, the size
and timing of client contracts, changes in client budgets, the size and timing
of acquisitions, the integration of acquired businesses into the Company's
operations, the number and timing of new hires, competitive conditions in the
industry and general economic conditions. Further, the Company's contracts
generally involve significant client commitments and may require time-consuming
authorization procedures within the client's organization. For these and other
reasons, the sales cycles for the Company's services and products may be lengthy
and are subject to a number of factors outside of the Company's control. In
addition, the Company's medical transcription business has experienced
substantial growth in recent periods and there can be no assurance that such
rate of growth in revenues and profits can be maintained in the future. Due to
the foregoing factors, it is possible that in future quarters the Company's
operating results will be below the expectations of investors or securities
analysts. Such an event could adversely affect the market price of the Company's
Common Stock.
RAPID TECHNOLOGICAL CHANGE
The health care information services industry is characterized by rapid
technological change, evolving client needs and emerging technical standards.
The introduction of competing services or
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products incorporating new technologies and the emergence of new technical
standards could render some or all of the Company's services or products less
competitive or unmarketable or could require the Company to make substantial
capital investments. The Company believes that its future success depends on its
ability to enhance its current services and products and to develop new services
or products that address the increasingly sophisticated needs of its clients.
The failure of the Company to develop and introduce service or product
enhancements and new services or products in a timely and cost-effective manner
in response to changing technologies or client requirements could have a
material adverse effect on the Company's business, financial condition and
results of operations.
ABILITY TO EXPAND
To date, the Company's services have been provided primarily to the health
information management departments of hospitals. However, health care services
are increasingly being provided in health care settings other than hospitals,
such as outpatient clinics and physician offices. As part of its strategy, the
Company intends to continue to increase its presence in these new markets and to
expand its services and products to direct patient care departments within
hospitals. The Company's business, financial condition and results of operations
may be materially and adversely affected if its efforts to expand into new
markets and departments are not successful.
CHANGES IN THE HEALTH CARE INDUSTRY
The health care industry is subject to changing political, economic and
regulatory influences that may affect the outsourcing arrangements of health
care providers. Federal and state legislators have from time to time proposed
programs to reform the United States health care system and other proposals may
be made in the future. In general, these programs and proposals tend to
emphasize managed care, seek to lower reimbursement rates and otherwise attempt
to control the environment in which health care providers operate. Health care
providers may react to these proposals and the uncertainty surrounding such
proposals by curtailing outsourcing arrangements or deferring decisions
regarding the use of outsourced services. Many health care providers are
consolidating to create larger health care delivery organizations. This
consolidation and the resulting centralization in decision making may reduce the
number of potential clients for the Company's services and products and increase
the bargaining power of these organizations, which could lead to reductions in
the amount paid for the Company's services or products. In addition, as the
health care industry moves toward the use of computerized patient records, there
is a risk that alternative data entry methods (other than medical transcription)
into a computerized patient record could replace the Company's services and
products. The impact of these developments in the health care industry is
difficult to predict and could have a material adverse effect on the Company's
business, financial condition and results of operations.
ACQUISITION RISKS
A substantial portion of the Company's growth in sales and earnings has
been generated from acquisitions. The Company expects to continue a strategy of
identifying and selectively acquiring medical transcription businesses. There
can be no assurance that the Company will be able to (i) capitalize on the
consolidation trend occurring in the medical transcription industry, (ii)
continue to identify suitable acquisition candidates, (iii) obtain financing
that may be necessary to complete and support such acquisitions, or (iv) acquire
businesses on satisfactory terms. Further, there can be no assurance that any
business acquired by the Company will be successfully or efficiently integrated
into the Company's operations or prove to be profitable. The Company could incur
substantial indebtedness in connection with its acquisition strategy. Any
failure to achieve successful integration of such acquisitions could have a
material adverse effect on the Company's business, financial condition and
results of operations.
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<PAGE> 10
ABILITY TO ATTRACT AND RETAIN QUALIFIED MEDICAL TRANSCRIPTIONISTS
The Company's future success depends, in part, upon its ability to attract
and retain qualified medical transcriptionists. Competition for medical
transcriptionists is strong, and no assurance can be given that the Company will
be successful in attracting and retaining the personnel necessary to conduct its
business successfully. The inability of the Company to attract, hire and retain
a sufficient number of qualified medical transcriptionists could have a material
adverse effect upon the Company's business, financial condition and results of
operations.
COMPETITION
The medical transcription services industry is highly fragmented and
primarily consists of small regional or local companies and a limited number of
national companies, with which the Company currently competes directly. The
Company also competes against health care providers that perform medical
transcription in-house. The Company believes that its ability to compete
successfully depends upon many factors within and outside of its control,
including the Company's reputation for quality service and turnaround time
performance, its size and resources, its technical capabilities, price
competition, and the timing and market acceptance of new services, products and
enhancements developed by the Company and its competitors. In addition, a number
of companies, which may or may not currently be in the medical transcription
business, possess substantially greater financial, technical and marketing
resources than the Company. Such companies, if they were to introduce competing
services or products incorporating new technology may be able to respond more
quickly than the Company to changing client needs or emerging technical
standards, or could devote greater resources to the development, marketing and
sale of their services or products. Competition may increase due to
consolidation of medical transcription companies, and current and potential
competitors may establish cooperative relationships among themselves or with
third parties to increase their ability to address the needs of the Company's
current and prospective clients. In addition, price competition could intensify
if competitors establish access to labor resources at a substantially lower
cost. There can be no assurance that the Company will be able to compete
successfully against current or future competitors or that competitive pressures
will not have a material adverse effect on the Company's business, financial
condition and results of operations.
DEPENDENCE ON PROPRIETARY RIGHTS
The Company's success is partially dependent upon its proprietary software
applications, protocols and procedures. Existing trade secrets and copyright
laws afford the Company limited protection. Despite the Company's efforts to
protect its proprietary rights, unauthorized parties may attempt to copy aspects
of the Company's software applications or to obtain and use information that the
Company regards as proprietary. Policing unauthorized use of the Company's
software applications is difficult. There can be no assurance that efforts to
maintain the confidentiality of the Company's trade secrets and proprietary
information will effectively prevent disclosure of the Company's confidential
information or provide meaningful protection for the Company's confidential
information, or that the Company's trade secrets or proprietary information will
not be independently developed by the Company's competitors.
DEPENDENCE ON THIRD-PARTY LICENSED TECHNOLOGY
Certain components of the software and other technology used in the
Company's systems and products are licensed from third parties. Should any of
these components become unavailable to the Company or should the third-party
licensors fail to support the licensed technology, the Company believes that it
would be able to obtain alternative suppliers. However, any failure to obtain
such components on a timely basis at an affordable cost, or any significant
delays or interruptions in the supply of such components, could have a material
adverse effect on the Company's business, financial condition and results of
operations.
9
<PAGE> 11
DEPENDENCE ON KEY PERSONNEL
The Company's future success depends upon its ability to attract and retain
its key managerial personnel. The loss of services of certain of the Company's
executive officers or the inability of the Company to attract additional
management personnel could have a material adverse effect on the Company's
business, financial condition and results of operations. The Company does not
maintain "key-man" life insurance policies on its management.
RISKS ASSOCIATED WITH AN AT-HOME WORKFORCE
Approximately 70% of the Company's medical transcriptionists work from
their homes. The Company has policies and procedures covering its at-home
employees. However, because of their at-home work environment, the Company is
not able to supervise and monitor at-home employees to the same extent the
Company is able to supervise and monitor employees working in the Company's
client service centers. Any failure to successfully manage its at-home workforce
or to enforce its policies and procedures with respect to, among other things,
health and safety, wage and hour, and other governmental regulations, could have
a material adverse effect on the Company's business, financial condition and
results of operations.
CONFIDENTIALITY REQUIREMENTS
The medical information transcribed by the Company is extremely
confidential. In providing its services, the Company is subject to certain
contractual, statutory, regulatory and common law requirements regarding the
confidentiality of medical information. Failure to comply with such
confidentiality requirements could result in material liability to the Company.
DEPENDENCE ON TECHNOLOGICAL INFRASTRUCTURE
Although the Company has backup systems and procedures to handle technical
problems and system breakdowns, there is a risk that a significant failure or
breakdown of the Company's systems could occur as a result of such things as a
natural disaster or computer "virus." The Company's backup systems and
procedures could prove to be inadequate, which could cause an extended
disruption of service and, as a result, could cause the Company to sustain a
loss of clients or revenues, which could have a material adverse effect on the
Company's business, financial condition and results of operations.
YEAR 2000 COMPLIANCE
The Company uses a significant number of computer software programs and
operating systems in its internal operations, including applications used in
medical transcription systems and various administrative functions. To the
extent that these software applications contain source codes that are unable to
appropriately interpret the upcoming calendar year 2000, some level of
modification or even possibly replacement of such source codes or applications
will be necessary. The Company is in the process of identifying the software
applications that are not "Year 2000" compliant. Given the information known at
this time about its systems, coupled with the Company's ongoing efforts to
upgrade or replace business critical systems as necessary, the Company does not
currently anticipate that the costs of ensuring that its systems will be Year
2000 compliant will have a material adverse effect on its business, financial
condition and results of operations. However, the Company is still analyzing its
software applications and, to the extent they may not be fully Year 2000
compliant, there can be no assurance that the costs necessary to update software
or potential systems interruptions would not have a material adverse effect on
its business, financial condition and results of operations. In addition, the
Company could be adversely affected by the Year 2000 problem if computer systems
of its clients, suppliers or other third parties with which the Company does
business fail to address the Year 2000 problem successfully. There can be no
assurance that the Year 2000 problem, if experienced by such third parties,
would not have a material adverse effect on the Company's business, financial
condition and results of operations.
10
<PAGE> 12
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, substantially all of the shares of Common
Stock that were outstanding prior to this offering will be eligible for sale in
the public market under Rule 144 beginning 90 days after the date of this
Prospectus. Approximately 10,963,000 shares are subject to lock-up agreements
for a period of 180 days from the date of this Prospectus.
Sales of substantial amounts of Common Stock in the public market following
this offering, or the perception that such sales could occur, could adversely
affect prevailing market prices of the Common Stock and could impair the future
ability of the Company to raise capital through the sale of its equity
securities. The Company is unable to predict the effect, if any, that future
sales of Common Stock or the availability of Common Stock for sale may have on
the market price of the Common Stock prevailing from time to time. Certain
existing stockholders have the right to require the Company to register their
Common Stock from time to time. See "Description of Capital Stock" and "Shares
Eligible for Future Sale."
NO PRIOR PUBLIC MARKET; DETERMINATION OF OFFERING PRICE; POSSIBLE VOLATILITY OF
STOCK PRICE
Prior to the offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price will be determined by
negotiation among the Company and the Representatives of the Underwriters based
upon factors described under the caption "Underwriting." The stock market has
experienced, and is likely to experience in the future, significant price and
volume fluctuations that could adversely affect the market price of the Common
Stock without regard to the operating performance of the Company. In addition,
the Company believes that factors such as changes in earnings estimates by
analysts, quarterly fluctuations in the financial results of the Company or its
competitors and general conditions in the industry, the overall economy and the
financial markets could cause the price of the Common Stock to fluctuate
substantially. There can be no assurance that an active trading market in the
Common Stock will develop subsequent to the offering or, if developed, that it
will be sustained. See "Underwriting."
DILUTION
The initial public offering price is substantially higher than the net
tangible book value per share of the Common Stock. Accordingly, purchasers of
the Common Stock offered hereby will incur immediate and substantial dilution in
tangible book value per share of the Common Stock of $ , assuming an
initial public offering price of $ per share of Common Stock.
Additional dilution is likely to occur upon the exercise of options granted by
the Company. See "Dilution."
ANTI-TAKEOVER EFFECT OF CHARTER AND BY-LAW PROVISIONS; AVAILABILITY OF PREFERRED
STOCK FOR ISSUANCE
The Company's Amended and Restated Certificate of Incorporation and By-Laws
contain provisions that could discourage a proxy contest or make more difficult
the acquisition of a substantial block of the Company's Common Stock. Such
provisions could limit the price that investors might be willing to pay in the
future for shares of the Company's Common Stock. The Board of Directors is
authorized to issue, without stockholder approval, up to 300,000 shares of
Preferred Stock, $.01 par value, of the Company (the "Undesignated Preferred
Stock") with voting, conversion and other rights and preferences that may be
superior to the Common Stock and that could adversely affect the voting power or
other rights of the holders of Common Stock. The issuance of Undesignated
Preferred Stock or of rights to purchase Undesignated Preferred Stock could be
used to discourage an unsolicited acquisition proposal. See "Description of
Capital Stock -- Preferred Stock," " -- Certain Provisions of Certificate of
Incorporation and By-Laws" and "-- Certain Provisions of Delaware Law."
11
<PAGE> 13
THE COMPANY
The Company was formed as MEDIFAX, Inc., a Missouri corporation, in 1981.
In December 1994, the Company acquired all of the outstanding stock of
SecrePhone Ltd., a Pennsylvania corporation. In July 1996, the Company acquired
all of the outstanding stock of Medical Records Corp., an Ohio corporation. In
February 1998, the Company changed its name to The MRC Group, Inc. ("MRC
Missouri") and in July 1998, in order to change its jurisdiction of
incorporation, MRC Missouri created and merged into The MRC Group, Inc., a
Delaware corporation and the issuer of the Common Stock offered hereby (the
"Reincorporation Merger"). In connection with the Reincorporation Merger, the
holders of MRC Missouri common stock received an aggregate of 4,106,364 shares
of the Company's Common Stock, giving effect to a 0.7-for-1.0 reverse stock
split, and the holders of Series IV Preferred Stock, Series V Preferred Stock
and Series VI Preferred Stock of MRC Missouri each received one share of Series
IV Preferred Stock, Series V Preferred Stock and Series VI Preferred Stock in
the Company for each share of Series IV Preferred Stock, Series V Preferred
Stock, and Series VI Preferred Stock, respectively, of MRC Missouri. All of the
shares of Series IV Preferred Stock, Series V Preferred Stock and Series VI
Preferred Stock of the Company will convert into an aggregate 7,262,107 shares
of Common Stock upon completion of this offering. See Notes 11 and 12 of Notes
to Consolidated Financial Statements.
USE OF PROCEEDS
The net proceeds to the Company from the sale of shares of Common
Stock being offered by the Company hereby are estimated to be approximately
$ million (approximately $ million if the Underwriters' over-allotment
option is exercised in full), assuming an initial public offering price of
$ per share and after deducting the underwriting discounts and
commissions and estimated offering expenses. The Company intends to use
approximately $6.7 million of the net proceeds to repay a bank loan and
outstanding indebtedness incurred in connection with the Company's acquisition
of Medical Records Corp. in July 1996 to former shareholders thereof (the
"Acquisition Debt"). The Company's bank loan bears interest at a rate of LIBOR
plus 1.65% per annum and matures in September 2001. The Acquisition Debt bears
interest at the rate of 8% and matures in July 2003. See "Certain Transactions."
The remaining net proceeds will be used by the Company for working capital and
general corporate purposes. The Company may also use a portion of the net
proceeds for the acquisition of businesses, products and technologies, although
no material acquisition is the subject of a letter of intent or binding
agreement and no portion of the net proceeds has been allocated for any specific
acquisition. The Company will not receive any proceeds from the sale of Common
Stock by the Selling Stockholders.
DIVIDEND POLICY
The Company has never paid cash dividends on its Common Stock. The Company
does not anticipate paying any cash dividends on its Common Stock in the
foreseeable future. The payment of future dividends will be at the sole
discretion of the Company's Board of Directors and will depend on, among other
things, future earnings, capital requirements, contractual restrictions, the
general financial condition of the Company and general business conditions.
12
<PAGE> 14
CAPITALIZATION
The following table sets forth as of March 31, 1998: (i) the capitalization
of the Company; (ii) the capitalization of the Company on a pro forma basis to
reflect the conversion of the outstanding Series IV Preferred Stock, Series V
Preferred Stock and Series VI Preferred Stock into Common Stock upon completion
of this offering; and (iii) the capitalization of the Company on a pro forma as
adjusted basis to reflect the conversion of outstanding Preferred Stock
discussed in (ii), the sale by the Company of shares of Common
Stock offered hereby (at an assumed initial public offering price of $ per
share) and the application of the estimated net proceeds therefrom all as if
they occurred on March 31, 1998. This table should be read in conjunction with
the historical Consolidated Financial Statements of the Company and the Notes
thereto which are included elsewhere in the Prospectus. See "Use of Proceeds,"
"Selected Consolidated Financial Data," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Description of Capital
Stock."
<TABLE>
<CAPTION>
MARCH 31, 1998
-----------------------------------------
PRO FORMA
ACTUAL PRO FORMA (1) AS ADJUSTED (2)
------- ------------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash, cash equivalents and short-term investments........... $ 5,940 $ 5,940 $
======= ======= =======
Current maturities of long-term obligations................. $ 2,228 $ 2,228 $ 824
======= ======= =======
Long-term obligations, less current maturities.............. $ 5,639 $ 5,639 $ 144
Mandatorily redeemable preferred stock:
Preferred stock, $.01 par value; 345,902 shares authorized
--
Series V convertible and mandatorily redeemable
preferred stock, 45,902 shares issued and outstanding
(liquidation preference $17,493,252), no shares pro
forma and pro forma as adjusted....................... 17,493 -- --
Series VI convertible and mandatorily redeemable
preferred stock, 300,000 shares issued and outstanding
(liquidation preference $30,000,000), no shares pro
forma and pro forma as adjusted....................... 30,000 -- --
------- ------- -------
Total mandatorily redeemable preferred stock....... 47,493 -- --
Stockholders' equity (deficit):
Convertible preferred stock, $.01 par value; 10,362 shares
authorized --
Series IV convertible preferred stock, 10,362 shares
issued and outstanding, no shares pro forma and pro
forma as adjusted..................................... -- -- --
Preferred Stock, $.01 par value; 300,000 shares
authorized, none issued and outstanding................. -- -- --
Common Stock, $.01 par value; 100,000,000 shares
authorized, 4,106,364 issued and outstanding, 11,368,471
shares pro forma and shares pro forma as adjusted... 41 114
Additional paid-in capital................................ 11,774 59,194
Accumulated deficit....................................... (8,510) (8,510) (8,510)
------- ------- -------
Total stockholders' equity......................... 3,305 50,798
------- ------- -------
Total capitalization........................... $56,437 $56,437
======= ======= =======
</TABLE>
- ---------------
(1) For information regarding the conversion of all outstanding shares of
Preferred Stock, see Notes 11 and 12 of Notes to Consolidated Financial
Statements. Does not include 262,629 shares of Common Stock issued upon
exercise of warrants after March 31, 1998.
(2) Gives effect to the conversion of all outstanding shares of Preferred Stock
into 7,262,107 shares of Common Stock discussed in Notes 11 and 12 of Notes
to Consolidated Financial Statements and the issuance by the Company of
shares of Common Stock in this offering and the application of
the net proceeds therefrom as described in "Use of Proceeds."
13
<PAGE> 15
DILUTION
The net tangible book value of the Company at March 31, 1998 was
approximately $14.8 million, or $1.31 per share of Common Stock, after giving
effect to the conversion of the Series IV Preferred Stock, Series V Preferred
Stock and Series VI Preferred Stock into 7,262,107 shares of Common Stock upon
completion of the offering. Net tangible book value per share represents the
amount of total assets less total liabilities and intangible assets, divided by
the number of shares of Common Stock outstanding at March 31, 1998. After giving
effect to the sale by the Company of shares of Common Stock offered
hereby (at an assumed initial public offering price of $ per share) and
the application of the estimated net proceeds as set forth under "Use of
Proceeds," the pro forma net tangible book value of the Company at March 31,
1998 would have been $ , or $ per share of Common Stock. This
represents an immediate increase in net tangible book value of $ per
share to existing stockholders and an immediate dilution of $ per share
to new investors purchasing Common Stock in the offering, as illustrated by the
following table:
<TABLE>
<S> <C> <C>
Assumed initial public offering price....................... $
------
Pro forma net tangible book value per common share prior
to the offering (1)....................................
Increase per common share attributable to new investors...
-------
Pro forma net tangible book value per common share after the
offering..................................................
------
Dilution per common share to new investors (2).............. $
======
</TABLE>
The following table summarizes certain differences between existing
stockholders (including the holders of 7,262,107 shares of Common Stock to be
issued upon conversion of the Series IV Preferred Stock, Series V Preferred
Stock and Series VI Preferred Stock upon completion of the offering) and the new
investors with respect to the number of shares of Common Stock purchased from
the Company, the total consideration paid and the average price per share paid
to the Company by the existing stockholders and new investors (based on an
assumed initial public offering price of $ per share):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ------------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing investors (1).............. % $ % $
New investors....................... $
---------- ----- ------------ ----- ------
Total..................... 100.0% $ 100.0%
========== ===== ============ =====
</TABLE>
- ---------------
(1) Excludes 262,629 shares of Common Stock issued upon the exercise of warrants
after March 31, 1998 and Common Stock issuable upon the exercise of
outstanding options to purchase 2,215,474 shares of Common Stock at a
weighted average exercise price of $7.16 per share. To the extent these
options are exercised or additional shares of Common Stock are issued in
connection with future transactions, there will be further dilution to new
investors.
(2) Dilution is determined by subtracting pro forma net tangible book value per
common share after giving effect to this offering (at an assumed initial
public offering price of $ per share) from the initial public offering
price per share. Dilution to new investors will be $ if the
Underwriters' over-allotment option is exercised in full.
14
<PAGE> 16
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data of the
Company: (i) as of and for each of the five fiscal years ended December 31,
1997, which information has been derived from the audited Consolidated Financial
Statements of the Company; and (ii) as of and for the three-month periods ended
March 31, 1997 and 1998, which information has been derived from Consolidated
Financial Statements of the Company which are unaudited but which, in the
opinion of management, have been prepared on the same basis as the audited
Consolidated Financial Statements and include all adjustments necessary
(consisting of normal recurring adjustments) for a fair presentation of the
results for such periods. The selected consolidated financial data are qualified
by, and should be read in conjunction with, "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Consolidated
Financial Statements and Notes thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------------------------------- -------------------
1993 1994 (1) 1995 (1) 1996 (2) 1997 (3) 1997 (3) 1998 (3)
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT SHARE, PER SHARE AND STATISTICAL DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues............................. $ 21,127 $ 22,719 $ 49,180 $ 71,700 $108,117 $ 26,095 $ 29,410
Cost of revenues......................... 17,416 18,864 40,154 57,330 86,975 21,040 23,620
-------- -------- -------- -------- -------- -------- --------
Gross profit............................. 3,711 3,855 9,026 14,370 21,142 5,055 5,790
Selling, general and administrative
expenses............................... 3,511 3,076 4,352 8,328 9,743 2,621 2,623
Depreciation and amortization............ 2,755 1,582 3,907 6,332 10,027 2,292 2,110
Restructuring charges (4)................ -- -- 347 644 2,075 -- --
-------- -------- -------- -------- -------- -------- --------
Operating income (loss).................. (2,555) (803) 420 (934) (703) 142 1,057
Interest income (expense), net........... (203) 146 (539) (382) (310) (78) (63)
-------- -------- -------- -------- -------- -------- --------
Income (loss) before income taxes........ (2,758) (657) (119) (1,316) (1,013) 64 994
Benefit (provision) from income taxes.... -- 532 (7) -- -- (107) (431)
-------- -------- -------- -------- -------- -------- --------
Net income (loss)........................ $ (2,758) $ (125) $ (126) $ (1,316) $ (1,013) $ (43) $ 563
======== ======== ======== ======== ======== ======== ========
Basic weighted average common shares
outstanding............................ 803,466 1,105,201 1,272,048 2,578,421 4,106,364 4,106,364 4,106,364
Diluted weighted average common shares
outstanding............................ -- -- -- -- -- -- 12,048,948
Basic earnings per share................. $ (3.43) $ (0.11) $ (0.10) $ (0.51) $ (0.25) $ (0.01) $ 0.14
Diluted earnings per share............... $ (3.43) $ (0.11) $ (0.10) $ (0.51) $ (0.25) $ (0.01) $ 0.05
PRO FORMA DATA, AS ADJUSTED (5):
Basic weighted average common shares outstanding....................................
Diluted weighted average common shares outstanding..................................
Basic earnings per share............................................................
Diluted earnings per share..........................................................
OTHER DATA:
EBITDA (6)............................... $ 200 $ 779 $ 4,327 $ 5,398 $ 9,324 $ 2,434 $ 3,167
EBITDA margin (6)........................ 0.9% 3.4% 8.8% 7.5% 8.6% 9.3% 10.8%
BALANCE SHEET DATA:
Cash, cash equivalents and short-term
investments............................ $ 5,320 $ 5,141 $ 4,017 $ 8,053 $ 5,196 $ 6,101 $ 5,940
Working capital.......................... 7,614 4,398 6,475 12,118 10,264 10,214 9,410
Total assets............................. 18,094 31,285 28,538 78,416 75,469 77,002 76,851
Long-term debt, including current
portion................................ 185 8,686 7,164 11,903 9,036 10,807 7,868
Stockholders' equity..................... (1,189) (420) (250) 3,620 2,607 3,577 3,305
</TABLE>
See accompanying footnotes on the following page.
15
<PAGE> 17
- ---------------
(1) In December 1994, the Company acquired all the outstanding common stock of
SecrePhone Ltd. This acquisition was accounted for as a purchase, and the
results of SecrePhone Ltd. were included in the accompanying Consolidated
Financial Statements from the date of the acquisition. The cost of the
acquisition has been allocated on the basis of the estimated fair market
value of the assets acquired and liabilities assumed.
(2) In July 1996, the Company acquired all the outstanding stock of Medical
Records Corp. The acquisition has been accounted for as a purchase, and the
results of Medical Records Corp., a wholly owned subsidiary of the Company,
were included in the accompanying Consolidated Financial Statements from the
date of the acquisition. In connection with the acquisition, the Company
assumed certain acquisition-related liabilities from Medical Records Corp.
The cost of the acquisition has been allocated on the basis of the estimated
fair market value of the assets acquired and liabilities assumed.
(3) During 1997, the Company acquired the assets of two entities and the stock
of one entity for cash of approximately $1.9 million plus the assumption of
certain liabilities. Each of the 1997 acquisitions was accounted for as a
purchase, and the results of operations are included in the accompanying
Consolidated Financial Statements from the date of acquisition. The above
results also include a full period of activity related to the acquisition
discussed in Note 2 above.
(4) The Company's results of operations have been adversely affected in 1995,
1996 and 1997 by restructuring charges associated with the closure and
consolidation of redundant and less profitable client service centers and
related costs and other non-recurring acquisition and integration costs in
1997 in connection with the acquisition of Medical Records Corp. These
corresponding expenses of $347, $644 and $2,075 are included in operating
income (loss) for the years ended December 31, 1995, 1996 and 1997,
respectively.
(5) Gives effect to the conversion of Series IV Preferred Stock, Series V
Preferred Stock and Series VI Preferred Stock into 7,262,107 shares of
Common Stock upon completion of this offering (see Notes 11 and 12 of Notes
to Consolidated Financial Statements) and the issuance by the Company of
shares of Common Stock in this offering and the application of
the net proceeds therefrom as described in "Use of Proceeds."
(6) Earnings before interest, taxes, depreciation and amortization ("EBITDA")
represents operating income (loss) plus depreciation and amortization.
EBITDA should not be considered as an alternative measure of net income or
cash provided by operating activities (both as determined in accordance with
generally accepted accounting principles), but is presented to provide
additional information related to the Company's debt service capability.
EBITDA should not be considered in isolation or as a substitute for other
measures of financial performance or liquidity.
16
<PAGE> 18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion is qualified in its entirety by the more detailed
information and the Consolidated Financial Statements and the related Notes
thereto appearing elsewhere in this Prospectus.
OVERVIEW
The MRC Group, Inc. is a leading national provider of electronic medical
transcription and document management services to the health care industry. The
Company currently operates more than 50 client service centers in 24 states and
employs more than 2,200 experienced medical transcriptionists, approximately 70%
of whom work from their homes. The Company serves more than 500 clients,
primarily hospitals and medical centers, as well as other non-hospital health
care providers, such as managed care providers, surgical centers, outpatient
clinics and physician practice groups. Within hospitals and medical centers, the
Company primarily serves the health information management departments, also
known as medical records departments. Increasingly, the Company is providing its
services to other hospital departments that seek to outsource their medical
transcription needs, including radiology, emergency medicine, pathology and
cardiology departments and outpatient surgical units.
The significant growth in the Company's revenues has resulted from
acquisitions, increased penetration of its large base of medical institutions
and the addition of new clients. The Company became one of the country's largest
providers of medical transcription services in July 1996 when it acquired
Medical Records Corp., a national medical transcription service company. The
consummation of this acquisition by the Company resulted in the consolidation
into The MRC Group of two of the three largest providers of electronic medical
transcription services in the nation.
Operating results for 1996 and 1997 were adversely impacted as the Company
allocated a significant amount of resources toward the integration of the
technical, operational and administrative infrastructures of the Company and
Medical Records Corp. Additionally, the Company had restructuring charges
associated with the closure and consolidation of less profitable or redundant
client service centers and other non-recurring acquisition and integration costs
in 1996 and 1997 in connection with the acquisition of Medical Records Corp. The
Company believes it has substantially completed this process and does not
anticipate significant additional client service center closures.
The Company has continued to acquire additional medical transcription
companies in 1997 and 1998. In 1997, the Company acquired three medical
transcription companies with combined annual revenues of approximately $4.6
million. In 1998, the Company acquired one medical transcription company with
annual revenues of approximately $1.2 million. The four companies were acquired
for an aggregate consideration of approximately $3.3 million, excluding earn-out
provisions, and were accounted for as purchases.
In 1996, the Company began funding a portion of the development costs of
PowerScribe, a speech recognition product distributed by the Company. Although
PowerScribe is generating revenues, current revenues are insufficient to cover
overhead costs related to PowerScribe.
In 1998, the Company has increased revenues and capitalized on the
integration and restructuring of 1996 and 1997. As a result, operating margins
have improved as the Company leveraged its infrastructure of client service
centers and other predominantly fixed operational, technical and administrative
costs against the increased revenue base.
SOURCES OF REVENUE
The Company's electronic medical transcription revenues tend to be
recurring as a result of the multi-year nature of its client contracts. Revenues
per individual client vary based upon individual
17
<PAGE> 19
client demands for the Company's services. The Company charges its clients on a
per-unit basis (most commonly for each line or word transcribed). These services
are provided primarily to hospitals and medical centers and other health care
providers that outsource all or part of their medical transcription needs.
Although the Company's net revenues are derived primarily from electronic
medical transcription services provided to hospital health information
management departments (approximately 80% of revenues), the Company also
provides its services to other hospital departments. Radiology (approximately 9%
of revenues) and emergency medicine (approximately 9% of revenues) also
significantly contribute to the Company's revenues. PowerScribe, the speech
recognition software product distributed by the Company, currently generates
less than 1% of the Company's revenues.
RESULTS OF OPERATIONS
The following table presents, for the periods indicated, certain financial
information expressed as a percentage of net revenues. Such information has been
derived from the Consolidated Financial Statements and the Notes thereto of the
Company included elsewhere in this Prospectus:
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED ENDED
DECEMBER 31, MARCH 31,
------------------------- ---------------
1995 1996 1997 1997 1998
----- ----- ----- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenues..................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues............................... 81.6 80.0 80.4 80.6 80.3
----- ----- ----- ----- -----
Gross profit..................................... 18.4 20.0 19.6 19.4 19.7
Selling, general and administrative expenses... 8.9 11.6 9.0 10.1 8.9
Depreciation and amortization.................. 7.9 8.8 9.3 8.8 7.2
Restructuring charges.......................... 0.7 0.9 1.9 -- --
----- ----- ----- ----- -----
Operating income (loss).......................... 0.9 (1.3) (0.6) 0.5 3.6
Interest income (expense), net................. (1.1) (0.5) (0.3) (0.3) (0.2)
----- ----- ----- ----- -----
Income (loss) before income taxes................ (0.2) (1.8) (0.9) 0.2 3.4
(Provision) for income taxes................... (0.1) -- -- (0.4) (1.5)
----- ----- ----- ----- -----
Net income (loss)................................ (0.3)% (1.8)% (0.9)% (0.2)% 1.9%
===== ===== ===== ===== =====
</TABLE>
Revenues derived from the Company's services and products are net of
customary client adjustments and credits, which historically have not been
significant as a percentage of revenues.
Cost of revenues include client service related costs, such as payroll,
associated taxes and benefits and telecommunications costs. Medical
transcriptionist payroll, the Company's largest single cost, is variable because
transcriptionists are paid based upon the amount of transcription they generate
(on a per unit basis). Additionally, a significant portion of the Company's
telecommunication costs is variable.
Selling, general and administrative costs include payroll, associated taxes
and benefits and other costs related to the sales and marketing, finance, human
resources and administrative functions of the Company. Depreciation expense
relates to the depreciation of fixed assets used at client service centers and
corporate locations. Amortization expense relates to the amortization of
acquired intangible assets, including the customer base and employee lists of
acquired companies, and goodwill.
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
Net Revenues. Net revenues for the three months ended March 31, 1998 were
$29.4 million, an increase of $3.3 million, or approximately 12.7%, over net
revenues of $26.1 million for the three months ended March 31, 1997. Of the
increase, $1.5 million resulted from revenues generated from four acquisitions,
three in 1997 and one in the first quarter of 1998. The remaining $1.8 million
of
18
<PAGE> 20
increased net revenues resulted from increasing revenues from the existing
client base and revenues from new clients.
Gross Profit. Gross profit during the three months ended March 31, 1998 was
$5.8 million, an increase of $700,000, or approximately 14.6%, over gross profit
of $5.1 million for the three months ended March 31, 1997. Gross profit as a
percentage of net revenues increased from approximately 19.4% in the first three
months of 1997 to approximately 19.7% in the first three months of 1998. The
0.3% increase in gross profit as a percentage of net revenues is primarily a
result of leveraging fixed costs incurred at the client service centers against
increasing client revenues.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses in the three months ended March 31, 1998 remained
relatively unchanged compared to the three months ended March 31, 1997 and
decreased as a percentage of net revenues from approximately 10.1% in the three
months ended March 31, 1997 to approximately 8.9% in the three months ended
March 31, 1998. This 1.2% decrease as a percentage of net revenues primarily
relates to management controlling expenses to historical levels while client
revenues increased.
Depreciation and Amortization. Depreciation and amortization expenses in
the three months ended March 31, 1998 were $2.1 million, a decrease of $200,000
or approximately 8.0%, from $2.3 million in the three months ended March 31,
1997. This decrease is a result of certain intangible assets becoming fully
amortized in 1997.
Operating Income. Principally as a result of the above, operating income in
the three months ended March 31, 1998 was $1.1 million, an increase of $915,000,
or approximately 645%, over operating income of $142,000 for the first three
months of 1997. Operating income as a percentage of net revenues increased to
approximately 3.6% in the first three months of 1998 from approximately 0.5% in
the prior year period.
Income Taxes. The Company's effective tax rate was approximately 43% in the
first three months of 1998. The provision for income taxes was $432,000 compared
to $107,000 in the first three months of 1997. The effective tax rate for 1997
was not meaningful, as the Company's pre-tax income was essentially breakeven.
The effective tax rate exceeds the statutory rate due primarily to
non-deductible goodwill amortization.
Net Income (Loss). As a result of the above, the Company recorded net
income in the three months ended March 31, 1998 of $563,000, as compared to a
net loss of $43,000 in the three months ended March 31, 1997. Net income as a
percentage of net revenues increased to approximately 1.9% in the first three
months of 1998.
YEARS ENDED DECEMBER 31, 1997 AND 1996
Net Revenues. Net revenues for the year ended December 31, 1997 were $108.1
million, an increase of $36.4 million, or approximately 50.8%, over net revenues
of $71.7 million for the year ended December 31, 1996. The increase was
primarily a result of an increase of $27.6 million attributable to a full year
of revenues from the acquired Medical Records Corp. clients, an increase of $2.7
million attributable to revenues from other businesses acquired in 1997, and an
increase of $6.1 million attributable to net additional revenues from existing
and new clients.
Gross Profit. Gross profit in 1997 was $21.1 million, an increase of $6.7
million, or approximately 47.1%, over gross profit of $14.4 million in 1996. The
increase in gross profit is a result of increased revenues, primarily related to
the acquisitions and internal growth outlined in net revenues above. Gross
profit as a percentage of net revenues remained relatively stable at
approximately 20.0% in 1996 and approximately 19.6% in 1997.
19
<PAGE> 21
Selling, General and Administrative Expenses. Selling, general and
administrative expenses in 1997 were $9.7 million, an increase of $1.4 million,
or approximately 17.0%, compared to $8.3 million in 1996. The increase in
selling, general and administrative expenses was primarily related to additional
non-recurring costs of approximately $764,000. Selling, general and
administrative expenses as a percentage of net revenues decreased to
approximately 9.0% in 1997 from approximately 11.6% in 1996. The decrease as a
percentage of net revenues is a result of leveraging its sales and marketing,
finance, human resources and other administrative costs against increasing
revenues.
Depreciation and Amortization. Depreciation and amortization expenses in
1997 were $10.0 million, an increase of $3.7 million or approximately 58.4%,
from $6.3 million in 1996. This increase was a result of a $1.6 million increase
in depreciation of fixed assets and a $2.1 million increase in amortization of
intangible assets, primarily attributable to a full year's costs related to the
acquisition of Medical Records Corp.
Restructuring Charges. The Company incurred restructuring charges of $2.1
million in 1997 and $644,000 in 1996 related to the closure and consolidation of
less profitable or redundant client service centers in 1997 and 1996 and other
non-recurring acquisition and integration costs incurred in 1997 in connection
with the acquisition of Medical Records Corp.
Operating Loss. Principally as a result of the above, the loss from
operations in 1997 totaled $703,000, a decrease in losses of $232,000 over the
1996 level of $935,000. The loss from operations as a percentage of net revenues
decreased to approximately 0.6% in 1997 from approximately 1.3% in 1996.
Income Taxes. The Company did not provide for income taxes in 1996 and 1997
as a result of reporting net losses for these years.
Net Loss. As a result of the above, the Company recorded a net loss in 1997
of $1.0 million compared to a net loss of $1.3 million in 1996.
YEARS ENDED DECEMBER 31, 1996 AND 1995
Net Revenues. Net revenues for the year ended December 31, 1996 were $71.7
million, an increase of $22.5 million, or approximately 45.8%, over net revenues
of $49.2 million for the year ended December 31, 1995. The increase was
primarily a result of additional revenues from the acquisition of Medical
Records Corp. in July 1996.
Gross Profit. Gross profit in 1996 increased by $5.4 million to $14.4
million, or approximately 59.2%, over the 1995 level of $9.0 million. The
increase in gross profit is a result of increased revenues, primarily related to
the acquisition of Medical Records Corp. Gross profit as a percentage of net
revenues increased from approximately 18.4% in 1995 to approximately 20.0% in
1996 as a result of higher gross profit margins provided by the Medical Records
Corp. client service centers.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses in 1996 increased $3.9 million to $8.3 million, or
approximately 91.4%, compared to approximately $4.4 million in 1995. Selling,
general and administrative expense as a percentage of net revenues increased to
approximately 11.6% in 1996 from approximately 8.9% in 1995. The increase in
expense was primarily a result of additional overhead and assumed expenses
incurred as a result of the acquisition of Medical Records Corp.
Depreciation and Amortization. Depreciation and amortization expenses in
1996 were $6.3 million, an increase of 62.1%, from $3.9 million in 1995. This
increase is primarily related to fixed assets and intangible assets acquired
related to the acquisition of Medical Records Corp.
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<PAGE> 22
Operating Income (Loss). Principally as a result of the above, loss from
operations in 1996 totaled $935,000, compared to income from operations of
$420,000 in 1995. As a percentage of net revenues, there was an approximate 1.3%
operating loss in 1996, compared to an approximate 0.9% operating income in
1995.
Income Taxes. The Company effectively did not provide for income taxes in
1996 and 1995 as a result of reporting net losses for these years.
Net Loss. As a result of the above, the Company recorded a net loss in 1996
of $1.3 million, compared to a net loss of $126,000 in 1995.
SELECTED QUARTERLY OPERATING RESULTS
The following table sets forth unaudited quarterly results of operations of
the Company for each of the quarters in the year ended December 31, 1997 and for
the three months ended March 31, 1998. This information has been prepared on the
same basis as the consolidated financial statements and, in the opinion of
Company's management, reflects all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the information for
the periods presented. The unaudited quarterly operating results are not
necessarily indicative of future results of operation. This data should be read
in conjunction with the Consolidated Financial Statements and the Notes thereto
included elsewhere in this Prospectus:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------
1997 1998
--------------------------------------- --------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31 MARCH 31
-------- ------- -------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net revenues................................. $26,095 $27,172 $27,259 $27,591 $29,410
Cost of revenues........................... 21,040 21,646 21,995 22,294 23,620
------- ------- ------- ------- -------
Gross profit................................. 5,055 5,526 5,264 5,297 5,790
Selling, general and administrative
expenses................................ 2,621 2,163 1,940 3,019 2,623
Depreciation and amortization.............. 2,292 2,450 2,517 2,768 2,110
Restructuring charges...................... -- -- -- 2,075 --
------- ------- ------- ------- -------
Operating income (loss)...................... 142 913 807 (2,565) 1,057
Interest income (expense), net............. (78) (72) (73) (87) (63)
------- ------- ------- ------- -------
Income (loss) before income taxes............ 64 841 734 (2,652) 994
(Provision) benefit for income taxes....... (107) (415) (374) 896 (431)
------- ------- ------- ------- -------
Net income (loss)............................ $ (43) $ 426 $ 360 $(1,756) $ 563
======= ======= ======= ======= =======
</TABLE>
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<PAGE> 23
The following table sets forth certain unaudited consolidated quarterly
statement of operations data expressed as a percentage of net revenue:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------
1997 1998
--------------------------------------- --------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31 MARCH 31
-------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
Net revenues.................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues.............................. 80.6 79.7 80.7 80.8 80.3
----- ----- ----- ----- -----
Gross profit.................................... 19.4 20.3 19.3 19.2 19.7
Selling, general and administrative
expenses................................... 10.1 7.9 7.1 11.0 8.9
Depreciation and amortization................. 8.8 9.0 9.2 10.0 7.2
Restructuring charges......................... -- -- -- 7.5 --
----- ----- ----- ----- -----
Operating income (loss)......................... 0.5 3.4 3.0 (9.3) 3.6
Interest income (expense), net................ (0.3) (0.3) (0.3) (0.3) (0.2)
----- ----- ----- ----- -----
Income (loss) before income taxes............... 0.2 3.1 2.7 (9.6) 3.4
(Provision) benefit for income taxes.......... (0.4) (1.5) (1.4) 3.2 (1.5)
----- ----- ----- ----- -----
Net income (loss)............................... (0.2)% 1.6% 1.3% (6.4)% 1.9%
===== ===== ===== ===== =====
</TABLE>
Selling, general and administrative expenses for the three months ended
December 31, 1997 increased primarily as a result of non-recurring charges of
approximately $514,000.
LIQUIDITY AND CAPITAL RESOURCES
The Company's consolidated working capital at March 31, 1998 was $9.4
million, and cash and short-term investments were approximately $5.9 million.
The Company's cash resources and available borrowings were satisfactory to meet
its obligations during the year ended December 31, 1997, and the three months
ended March 31, 1998. It is anticipated that the Company's cash from operations,
cash resources and available borrowings after the offering will meet the
Company's capital requirements for at least the next 18 months.
The Company's total debt at March 31, 1998, including a current portion of
$2.2 million, was $7.9 million. Such indebtedness included $4.9 million of a
term note payable to a bank, $2.1 million of seller notes from acquisitions and
$900,000 of capital lease obligations.
The bank term note is being amortized in monthly principal amounts of
$117,000 plus interest at LIBOR plus 1.65% and will mature September 2001. This
facility is collateralized by substantially all of the Company's assets. The
agreement relating to the note contains various financial covenants. All or a
portion of the outstanding loan balance may be repaid at any time and
commitments may be terminated in whole or in part at the option of the Company
without premium or penalty, at the end of the applicable 90-day interest period.
The Company intends to prepay this note with the proceeds of the offering. See
"Use of Proceeds."
In connection with the acquisition of Medical Records Corp. by the Company
in July 1996, the Company issued seven-year, 8% unsecured notes payable to
former shareholders in the aggregate principal amount of $2.0 million. The notes
require the Company to pay interest quarterly with annual principal payments of
$500,000 beginning in July 2000. As required by the terms of the notes, the
Company will repay these notes with the proceeds of the offering. There are also
other seller notes outstanding in the aggregate principal amount of
approximately $100,000. See "Use of Proceeds."
The Company also has a line of credit agreement with a bank under which it
can borrow up to $10.0 million with an interest rate of LIBOR plus 1.25%. The
line of credit is secured by substantially all of the Company's assets. This
line, which expires June 30, 1998, is currently in process of renewal. The
Company utilizes this line of credit on a periodic basis for working capital. No
amounts were outstanding at March 31, 1998.
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<PAGE> 24
For the years ended December 31, 1995, 1996 and 1997, cash flows provided
by operating activities were $3.6, $4.0 and $7.3 million, respectively. Cash
from operating activities are generated primarily from non-cash depreciation and
amortization added back to the Company's operating results which has increased
as a result of the acquisition of Medical Records Corp. in 1996, and
depreciation on increased capital expenditures necessary to support increased
revenues.
For the years ended December 31, 1995, 1996 and 1997, cash flows used for
investing activities were $2.5, $30.1 and $8.5 million, respectively. The
increases were a result of increased capital expenditures for computer and
digital recording equipment necessary to upgrade systems to the Company's
standard platforms and support increased revenues. Additionally in 1996, $21.4
million of cash flows were used for the acquisition of Medical Records Corp.
For the years ended December 31, 1995, 1996 and 1997, cash flows provided
by (used for) financing activities were $0.2, $27.1 and $(2.7) million,
respectively. The fluctuation in cash flows from financing activities is
reflective of normal borrowing trends and the net proceeds of $29.3 million
related to the sale of Series VI Preferred Stock in 1996 used to consummate the
acquisition of Medical Records Corp. and to provide working capital.
OTHER
Inflation has not had a significant effect on the Company's historical
operations, as increased costs to the Company have generally been offset by
increased prices of services provided to its clients.
YEAR 2000
The Company is assessing its computer systems to determine their compliance
with the Year 2000. Based on this assessment, the Company has upgraded or
replaced certain of its internal information systems and is in the process of
upgrading or replacing other systems with Year 2000 compliant systems. The
Company will use internal and external resources to replace, reprogram and test
software and hardware, where necessary, to ensure Year 2000 compliance. The
Company is also communicating with its customers, suppliers and others to
coordinate the Year 2000 conversion. Given the information known at this time
about its systems, coupled with the Company's ongoing efforts to upgrade or
replace business critical systems as necessary, the total cost of the project is
not expected to have a material effect on the Company's business, financial
condition or results of operations. See "Risk Factors -- Year 2000 Compliance."
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board (the "FASB") issued
Statements of Financial Accounting Standards ("SFAS") No. 130, Reporting
Comprehensive Income. This Statement is not expected to impact the Company's
financial statements at this time.
In June 1997, the FASB issued SFAS No. 131, Disclosures About Segments of
an Enterprise and Related Information. The Company currently operates in two
business segments, electronic medical transcription services and PowerScribe.
PowerScribe currently generates less than 1% of the Company's revenues and does
not warrant financial statement segmentation at this time.
In November 1997, the American Institute of Certified Public Accountants
(the "AICPA") issued Statement of Position ("SOP") No. 97-2, Software Revenue
Recognition. The Company believes its current accounting policies are materially
compliant with this SOP.
In March 1998, the AICPA issued SOP No. 98-1, Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use. The Company believes
its current accounting policies are materially compliant with this SOP.
In April 1998, the AICPA issued SOP No. 98-5 Reporting on the Cost of
Start-up Activities. The Company believes its current accounting policies are
materially compliant with this SOP.
23
<PAGE> 25
BUSINESS
OVERVIEW
The MRC Group, Inc. is a leading national provider of electronic medical
transcription and document management services to the health care industry. The
Company currently operates more than 50 service client service centers in 24
states and employs more than 2,200 experienced medical transcriptionists,
approximately 70% of whom work from their homes. The Company serves more than
500 clients, primarily hospitals and medical centers, as well as other
non-hospital health care providers, such as managed care providers, surgical
centers, outpatient clinics and physician groups. Within hospitals and medical
centers, the Company primarily serves the health information management
departments, also known as medical records departments. Increasingly, the
Company is providing its services to other hospital departments that seek to
outsource their medical transcription needs, including radiology, emergency
medicine, pathology and cardiology departments and outpatient surgical units.
The Company's objective is to capitalize on the health care industry's
trend toward increased dictation of medical reports and outsourcing of medical
transcription and document management services and to enhance its position as a
leading provider of such services. The principal elements of the Company's
strategy are to (i) accelerate internal growth through superior client
retention, deeper penetration of existing clients and increased sales to new
clients; (ii) expand operating margins by further standardizing operations,
taking advantage of economies of scale and executing disciplined pricing
strategies; (iii) apply state-of-the-art technology to expand services, enhance
client satisfaction and lower costs; and (iv) identify and complete strategic
acquisitions.
The Company believes its large size, technical resources and other
capabilities differentiate it from its competitors and enable it to better
retain existing clients and attract new clients. The Company's customized
electronic medical transcription and document management services provide
clients with lower costs, improved accuracy of transcribed medical reports,
reduced report turnaround times, shortened billing cycles and reduced capital
investment. The Company develops long-term client relationships through high
quality service, technological expertise and an experienced, service-oriented
management team. The Company applies state-of-the-art technology and proprietary
software applications, protocols and procedures to create customized systems
tailored to meet specific client requirements and to enhance client
satisfaction. The Company's national network of more than 50 client service
centers enables it to respond to its clients on a local basis and use its
national resources to balance workloads among client service centers without
delay or disruption in service.
INDUSTRY BACKGROUND
Medical transcription and document management is the process by which
clinical and medical information is dictated by a health care provider,
transcribed by a medical transcriptionist and returned to the health care
provider for verification, signing and incorporation into the patient's medical
record. These services are generally utilized by health information management,
also known as medical records departments, radiology, emergency medicine,
pathology and cardiology departments. The most commonly transcribed reports for
health information management departments are history and physical reports,
consultations, surgical reports and discharge summaries. Specialized reports for
the radiology, pathology, emergency medicine and cardiology departments are also
commonly transcribed. Various sources estimate that the United States health
care industry spends in excess of $6.6 billion on medical transcription services
annually. The Company believes that a substantial majority of this amount is
spent by health care providers for in-house medical transcription. Industry
sources estimate that there are more than 1,500 providers of outsourced medical
transcription services, the vast majority of which serve a small number of
clients on a local basis.
24
<PAGE> 26
The medical transcription industry is evolving from a relatively
low-technology, locally provided business to a technology-driven, document
management business, increasingly providing services on a nationwide basis. This
evolution over the last 20 years is a result of changes in the health care
industry and advances in technology. Through the 1970s and into the early 1980s,
most medical reports were transcribed in-house or outsourced to individual
medical transcriptionists or small companies using cassette recorders and
typewriters. Couriers shuttled tapes and reports between medical facilities and
medical transcriptionists. Turnaround time and the utilization of technology
were not critical factors. In the 1980s, the advent of personal computers, word
processing and digital recording technology, together with the many changes in
the health care industry, transformed the medical transcription industry into
one driven by technology and the demand for faster, more reliable turnaround
time, customized services and consistent quality. In the 1990s, the formation of
integrated health care delivery systems and the increased focus on the
computerized patient record have further accelerated the importance of
technology and the communication among disparate systems in the medical
transcription industry. These factors are also permitting the Company to take
advantage of economies of scale through the application of leading technology
and the acquisition of smaller firms that are generally ill-equipped to operate
in this changing environment. The Company believes that it is one of the few
firms in the industry that has fully embraced these changes and is positioned to
benefit from economies of scale and the changing industry.
The Company believes a number of significant trends will support continued
growth of the medical transcription industry, as well as growth in the segment
of the industry that is outsourced. These trends include the following:
Demand for greater documentation. Government regulations and third-party
requirements for reimbursement are increasingly requiring higher levels of
documentation. In addition, concerns by health care providers over issues
of risk management are resulting in increases in the amount of information
and data included in medical records.
Increased outsourcing in the health care industry. Health care
organizations are increasingly outsourcing non-core functions to reduce
costs and concentrate on providing medical care. Health care providers are
seeking to reallocate their resources to improve the delivery of patient
care and increase profitability. By outsourcing medical transcription,
health care providers and organizations can reduce costs, employee
headcounts and the capital investment required for state-of-the-art medical
transcription technology.
Demand for faster, more consistent and reliable turnaround of medical
reports. The Company believes many in-house medical transcription
departments are not well equipped to handle the increasing workload and
pressure for faster, more consistent and reliable turnaround of transcribed
medical reports. In order to meet these increased demands, in-house medical
transcription departments must be staffed to handle levels of peak demands,
which creates inefficiencies and increases costs. The Company believes that
as a result of its large scale of operations, strong management skills,
expertise and effective utilization of advanced technology, it can
generally provide consistently faster turnaround time more economically and
reliably than in-house medical transcription departments.
Creation of integrated delivery systems. The shift from traditional
fee-for-service to managed care is leading to the creation of integrated
health care delivery systems, which often include various combinations of
hospitals, health maintenance organizations, outpatient clinics, surgical
centers and physician practice networks. The formation of these integrated
delivery systems has been one of several important drivers of the need for
clinical and medical information to be captured electronically so that it
can be shared more easily and quickly throughout the health care
enterprise.
Growing trend toward computerized patient records. The growing
information needs of hospitals and other health care organizations are
increasing the demand for the electronic input of medical information as
the first step in the implementation of the computer-based patient
25
<PAGE> 27
record and the ability to perform data mining and outcomes analysis.
Consequently, a significant amount of data, which was previously
handwritten, such as emergency medicine department encounters and clinical
notes, must now be electronically captured, transcribed and integrated into
the computerized patient record.
BUSINESS STRATEGY
The Company's objective is to capitalize on the health care industry's
growing trend toward increased dictation of medical reports and outsourcing of
medical transcription and document management services and to enhance its market
position as a leading provider of such services. The principal elements of the
Company's strategy are to (i) accelerate internal growth through superior client
retention, deeper penetration of existing clients and increased sales to new
clients; (ii) expand operating margins by further standardizing operations,
taking advantage of economies of scale and executing disciplined pricing
strategies; (iii) apply state-of-the-art technology to expand services, enhance
client satisfaction and lower costs; and (iv) identify and complete strategic
acquisitions.
ACCELERATE INTERNAL GROWTH
The Company intends to accelerate its internal growth by aggressively
pursuing new customers and cross-selling within its existing client base. The
Company focuses on maintaining high levels of client satisfaction and believes
that client satisfaction leads to high client retention, deeper penetration of
existing clients and increased referral sales to new clients. Numerous
cross-selling opportunities exist as many of the Company's clients currently
outsource to the Company only the medical transcription for their health
information systems departments and rely on small transcription providers or
in-house medical transcription for radiology, pathology, cardiology, emergency
and other departments. The Company will continue to focus on maintaining high
levels of client satisfaction, aggressively pursue new customers, and leverage
relationships across departments within the same hospital, medical center or
other health care provider.
The Company targets as new clients larger health care providers, primarily
in markets already served by its existing client service centers in order to
leverage fixed costs. The Company believes larger health care providers offer
better cross-selling opportunities. The Company also believes it is one of the
few medical transcription companies capable of managing the complex needs of
larger clients, particularly integrated delivery networks, because of its
national network and its technical resources.
EXPAND OPERATING MARGINS
The Company believes it can continue to expand its operating margins by
further standardizing operations, taking advantage of economies of scale and
executing disciplined pricing strategies. The Company recently implemented a
standardized platform including, among other features, automated transmission
procedures ("The Model Office") at substantially all of its client service
centers. The Model Office infrastructure enables the Company to conduct its
nationwide operations more efficiently and generate economies of scale. The
Company has also implemented pricing and cost procedures that are designed to
price client contracts in a manner that takes into account all costs necessary
to provide the services for those contracts. As a result of these initiatives,
the Company's operating margin has increased to 3.6% in the quarter ended March
31, 1998 from 0.5% in the quarter ended March 31, 1997.
APPLY STATE-OF-THE-ART TECHNOLOGY TO EXPAND SERVICES AND LOWER COSTS
The Company applies state-of-the-art technology and proprietary software
applications, protocols and procedures to create customized systems tailored to
meet specific client requirements and to enhance client satisfaction. The
Company intends to maintain its technological leadership by leveraging
technology and technological advances to standardize further its internal
systems, lower costs and expand the breadth and functionality of its services.
The Company believes that its
26
<PAGE> 28
technical personnel and capabilities differentiate it from most of its
competitors, enabling the Company to meet demanding client requests. The Company
has an advanced technical infrastructure that allows for the transfer of work
among client service centers and a Technical Call Center that provides for
around-the-clock technical support. These capabilities enable the Company to
manage fluctuations in demand, and provide prompt turnaround services on a
cost-effective, 24-hours-a-day, seven-days-a-week basis. In addition, the
Company has entered into strategic alliances with third parties to develop new
technologies, including one relating to PowerScribe, the Company's speech
recognition product.
IDENTIFY AND COMPLETE STRATEGIC ACQUISITIONS
The Company seeks to capitalize on the highly fragmented medical
transcription industry by acquiring businesses that will enhance its competitive
position, reputation and profitability. The Company believes that numerous
acquisition opportunities exist, with over 1,500 medical transcription companies
existing in the industry. Since January 1997, the Company has completed four
acquisitions with annualized revenues of $5.8 million and intends to identify
and selectively acquire additional businesses that it can integrate into
existing client service centers or use to establish new client service centers
in attractive markets. The Company seeks to acquire firms that have a reputation
for quality service, strong management, a solid client base, established
infrastructure and profitable operations.
OPERATIONS
OVERVIEW
The Company's operational infrastructure is designed to ensure client
satisfaction while minimizing costs. The four critical performance measures that
clients use to evaluate the performance of medical transcription services on a
daily basis are reliability, turnaround time, quality and responsiveness. To
ensure high service levels in each of these four critical measures, the Company
has developed a state-of-the-art technical platform, along with an
organizational structure which focuses and motivates its managers to maintain
close relationships with clients.
The Company's proprietary technical platform, ACCESS+, was specifically
developed to ensure reliability and facilitate prompt turnaround time and
quality reports. ACCESS+, which operates in an open architecture environment,
automates demographic input, document tracking, transmission, reporting and
storage. ACCESS+ allows the Company to control and monitor the entire medical
transcription process from dictation through the delivery of the transcribed
medical report to the client. The ACCESS+ platform has benefited from numerous
enhancements based on the Company's years of experience. The ACCESS+ software
package includes a state-of-the-art local area network, a commercially available
document management package developed specifically for medical transcription, a
customized menu system, and a variety of proprietary transmission protocols
which integrate the Company's systems with its clients' systems. The hardware
components of this system include computers and servers, high-speed modems and
laser printers.
The Company's client service centers allow the Company's client management
teams to provide sales, client services and technical services to the Company's
clients in an efficient and personalized manner. These teams share common goals
and objectives to effectively meet clients' needs.
ELECTRONIC MEDICAL TRANSCRIPTION AND DOCUMENT MANAGEMENT SERVICES PROCESS
The emergence of computerized patient records and the evolution of
computerized digital dictation systems, among other factors driving client
expectations, have increased the complexity and technological sophistication of
the medical transcription process. The entire process may take as short as one
hour or as long as 72 hours depending on the length of the dictation and the
type of report. The following diagram illustrates the eight basic steps in the
Company's electronic medical transcription and document management services
process. The text immediately following the diagram describes these steps.
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[Flow-chart diagram, approximately five inches tall, depicting the eight steps
in the Company's electronic medical transcription and document management
services process, which are described in the text below.]
Step 1. Capture of Dictated Reports and Patient Demographics. The Company
provides a state-of-the-art digital dictation system with features specifically
oriented to provide the physicians both reliability and turn-key operability.
Physicians are able to dictate 24 hours a day, seven days a week. To provide
this reliability, the Company's client service centers are equipped with fault
tolerant dictation systems and temporary electrical backup systems. The Company
also maintains a national backup dictation system that allows dictation and
transcription even if a client service center experiences a complete and
extended loss of power or telephone service. The Company also electronically
captures demographic information (such as hospital name, patient name and
physician identification), which requires an interface with the client's health
information system. Given the complexities of interface development, clients are
especially interested in outsourcing to medical transcription companies, such as
the Company, that have substantial technical expertise. The Company's Interface
Department has developed interfaces for virtually all major health information
systems. Since ACCESS+ has an open architecture, it can accept a wide variety of
client data formats and structures.
Step 2. Transmission of Voice and Demographics to Medical
Transcriptionists. After the physician has completed the dictation, the digital
voice file and the appropriate patient
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demographic data are transmitted using ACCESS+. Medical transcriptionists in the
Company's client service centers access demographic data directly from the
ACCESS+ network and the Company's at-home medical transcriptionists
automatically receive demographic data through a proprietary transmission
protocol. The protocol is designed to ensure that all medical transcriptionists
have up-to-date information. This is important for both clients and medical
transcriptionists since it minimizes the chance of demographic errors. The
transmission protocol also allows the Company to update executable files
automatically, thereby allowing the Company to disseminate software enhancements
and format changes quickly and efficiently to all its medical transcriptionists.
Step 3. Creating the Transcribed Report and Populating the Medical Report's
Demographic Fields. The Company's standard operating platform allows medical
transcriptionists to create medical reports using commercially available
third-party software specifically developed or modified for medical
transcription. This software allows the Company's medical transcriptionists to
create customized glossaries that automatically expand abbreviated text and
correct common typographical errors. In addition, the medical transcriptionists
can access and automatically populate the report with critical information,
including patient demographics and report routing and distribution preferences.
The automation of this feature improves the quality of the document, minimizes
the number of errors that occur when the document is uploaded into the client's
health information system, and improves medical transcriptionists' productivity.
Step 4. Transmitting the Transcribed Report to Quality Assurance. After the
medical transcriptionist has completed transcribing reports, the reports are
transmitted to quality assurance. For at-home medical transcriptionists, this
transfer of reports is accomplished through a proprietary transmission protocol
which virtually eliminates the possibility of lost reports even if a telephone
connection is interrupted. This system also generates verification reports to
assist both the Company and its clients with document tracking and monitoring
(see Step 7).
Step 5. Quality Assurance. Before reports are transmitted to the client,
they must pass through the Company's quality assurance program. The program
provides the capability for both the content and the demographic data in the
reports to be checked for accuracy by client service center managers or quality
service personnel. New medical transcriptionists have 100% of their work checked
for at least two weeks and more seasoned medical transcriptionists have a
sampling of their reports checked. In addition, ACCESS+ allows medical
transcriptionists to flag reports with any problems or questions and will not
allow flagged reports to be sent to the client until they have been reviewed and
released by the Company's quality assurance personnel.
Step 6. Transmission and Uploading of Report. After reports have cleared
the Company's quality assurance program, they are automatically batched and
transmitted to the client. The Company uses proprietary transmission protocols,
which, if necessary, recover from disconnected phone lines without the loss of
information and which facilitate the transmission and verification process.
Reports are usually sent to the client's health information management
department where they are stored electronically and can then be uploaded into
the client's computerized patient record system.
Step 7. Tracking and Verification. Clients can review the status of
particular patient data and transcribed reports at any point in time and can use
the Company's systems as an internal management tool to monitor timeliness of
physicians' dictation. ACCESS+ also allows the Company to verify the
transmission of all reports and allows the client and the Company to monitor the
Company's on-time performance.
Step 8. Report Management. ACCESS+ provides report management capabilities
for the Company and its clients. Users can search for reports based on any
fields maintained in the system database or any words contained in a report. For
example, every report during a defined time period with the word "cardiac" can
be recalled in a matter of seconds. Summary information is also available on
ACCESS+ system for clients' internal management purposes. These reports can be
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<PAGE> 31
printed on a prearranged schedule to meet the client's reporting needs. In
addition, users can easily edit or append reports after they have been
transcribed.
CRITICAL PERFORMANCE MEASURES
The Company's organizational structure and technical platform are tailored
to maximize efficiency within the process flow described above and ensure
consistency in meeting the four critical performance measures described below.
Reliability. In today's competitive environment, it is increasingly
important that medical transcription systems work 24 hours a day, seven days a
week. Physicians and patients cannot afford to have procedures delayed or
hospital stays extended due to late reports or system failures. The Company has
developed an infrastructure designed to ensure system reliability. Over the past
15 months, the Company has upgraded most of its file servers, enabling the local
area network to function without loss of data in the event of a disk drive
failure. Critical systems in the client service center have temporary backup
power systems available, and backup tapes are made on a daily basis. If a client
service center encounters a power, telecommunication or system failure, at-home
medical transcriptionists can continue working for the client using the
Company's national backup dictation system. In the unlikely event that a client
service center is shut down for an extended period of time, the Company can
quickly shift work to other client service centers.
The Company has approximately 100 experienced technical personnel at the
local, regional and national levels. The Company's national Technical Call
Center works in conjunction with the client service centers to ensure rapid
response and resolution of technical issues. If a technical problem arises, the
Technical Call Center is available 24 hours a day, seven days a week.
Turnaround Time. Turnaround time requirements, which typically range from
one to 48 hours, are specified in the Company's contracts and vary by client and
report type. Meeting turnaround requirements is crucial for timely patient care
because the transcribed report is often required for physicians to make
subsequent medical decisions regarding surgery, other treatment options or
discharge. Timely turnaround is also important to clients for prompt coding and
billing. To meet these turnaround requirements, the client service centers
continually monitor the pipeline of reports to be transcribed and schedule
medical transcriptionists to align these resources with demand. The ACCESS+
system allows the Company to shift work to a backup client service center during
unexpected periods of increased transcription volume.
Quality. The Company is able to maintain consistently high quality
standards through a continuous quality monitoring process, effective employment
practices and standardized procedures and software applications. The Company's
continuous quality monitoring process ensures the delivery of a quality product
to the client and provides valuable feedback to the Company's medical
transcriptionists. Through a variety of sampling techniques, selected reports
can be electronically flagged and automatically routed to quality assurance.
Medical transcriptionists can also flag problematic reports. The flagged reports
are corrected by quality assurance personnel or a client service center manager
before transmission to the client. The results of the quality monitoring process
are reviewed regularly with each medical transcriptionist so that any issues can
be addressed promptly.
Through its employment practices, the Company hires, trains and retains
high quality, experienced medical transcriptionists. All prospective employees
must pass a series of comprehensive tests to document their medical
transcription abilities. Once hired, it is the Company's policy that all medical
transcriptionists receive extensive training on the Company's systems and that
100% of their work is reviewed for at least two weeks. The Company encourages
its medical transcriptionists to attend continuing education programs that cover
such topics as new medical terminology for drugs, instruments and procedures.
Finally, the Company uses a compensation plan and flexible work environment
geared toward retaining high quality medical transcriptionists. Medical
transcriptionists are rewarded for both accuracy and speed, as well as
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<PAGE> 32
volume. The Company can accommodate extremely flexible work hours, and its
technical infrastructure permits most of its medical transcriptionists to work
from their homes.
Standardized procedures and software applications help the Company's
medical transcriptionists to create high quality reports. Medical
transcriptionists are most productive and produce their highest quality work
when they can focus on a limited number of clients and gain comprehensive
knowledge of specific clients' needs. ACCESS+ allows the Company to create
virtual pools of medical transcriptionists, thereby permitting this
specialization without sacrificing the flexibility required to manage changing
client volumes. The Company also utilizes a customized spell check program with
medical terminology and a glossary that converts abbreviations into words and
phrases. Finally, the Company's electronic interfaces minimize opportunities for
transcriptionist errors by automatically populating reports with demographic
information. This electronic link is critical for achieving a successful match
when uploading transcribed reports into health information systems.
Responsiveness. The Company utilizes client management teams to address the
needs of its clients. Each team consists of a regional manager, regional sales
manager, regional technical manager and the local client service manager. Each
member of this team has the skills and resources to address different aspects of
a client's needs. The regional organization of these teams permits frequent
client visits and is conducive to building strong client relationships. Through
geographic proximity and strong relationships, the client management teams can
also address client needs and deal with problems and issues as they arise.
The Company's systems and standards also enable it to respond to client
technical issues in a timely manner. The Company's Technical Call Center is
available 24 hours a day, seven days a week. All contact with the Technical Call
Center is logged and tracked to monitor the Company's responsiveness and to help
address systemic issues preemptively.
Finally, the Company has instituted a compensation package for its
employees that is based on meeting a number of targets, including client
retention.
TECHNOLOGY STRATEGY
The Company's technology strategy focuses on supporting the Company's
growth objectives while applying leading edge technologies to enhance client
service, reduce costs and improve medical transcriptionist productivity. The
Company has translated this strategy into a focused action plan by dividing its
technological priorities into three groupings: technical support and
maintenance, systems enhancements, and product development.
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[Triangle diagram, divided into three sections, depicting the technical
priorities of the Company and textual bullet points to the right of the triangle
elaborating on each section. The section in the base of the pyramid reads
"Technical Support & Maintenance" and the accompanying text reads "O Provide
superior client service by responding to daily issues." The section in the
center of the pyramid reads "Systems Enhancements" and the accompanying text
reads "O Standardize existing technical platform and operating processes (The
Model Office); O Reduce telecommunications expenses." The section in the top of
the pyramid reads "Product Development" and the accompanying text reads "O
Utilize the Internet and advanced telecommunications technologies to lower costs
and improve client service; O Utilize speech recognition to develop stand-alone
products and improve medical transcriptionists' productivity."]
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TECHNICAL SUPPORT AND MAINTENANCE
On a day-to-day basis, the most important component of the Company's
technology strategy is technical support and maintenance, which keep its client
service centers operational and its clients satisfied. Technical support is
available at the local, regional and national level. The Company's Technical
Call Center serves as "mission control" for receiving, assigning and monitoring
calls for technical support. Because the Company strongly believes in the
economic benefits of preventive maintenance, the Company has invested in a
national training center. This facility allows the Company to provide ongoing
training for all of its technical and nontechnical employees. Given the
technical nature of the electronic medical transcription business, the Company
believes that professional training is crucial for preventing operational
problems.
SYSTEM ENHANCEMENTS
System enhancements involve evolutionary changes to existing technology
with the goal of enhancing client service, reducing costs and improving medical
transcriptionist productivity. These changes are generally based on existing
technology and tend to be relatively quick and inexpensive to implement.
The Model Office. During the last 12 months, the Company completed the
first of two phases of The Model Office, a program focused on standardizing the
Company's operational and technical platform throughout its network of client
service centers. The rollout of this program affected virtually every employee
and every ACCESS+ client in the country and has provided a level of consistency
and automated many clerical tasks. The Company believes that developing,
implementing and supporting such a broad-based standardized technical platform
would be difficult for most of its competitors to replicate, primarily due to
intensive capital requirements and significant technical challenges. The
objective of the first phase of The Model Office was to provide superior client
service through enhanced reliability, faster turnaround time and better quality.
This objective has been achieved through a number of technological enhancements
including:
- The automation of the transmission processes, increasing reliability
and ensuring that documents arrive on time at the client;
- The standardization and documentation of transmission protocols and
procedures, eliminating or minimizing the possibility of operator
error and improving overall system reliability; and
- The automation of the distribution of databases, templates, and
executable files, improving report quality and ensuring that all
medical transcriptionists are always working with up-to-date
information. This automation also facilitates the efficient shifting
of work among the Company's client service centers, thereby allowing
the Company to leverage its national network more effectively.
The first phase of The Model Office contributed to a 9% decrease in client
service center personnel over the last three fiscal quarters. Those client
service centers which implemented The Model Office in 1997 have experienced a
significant reduction in calls for unscheduled maintenance. The Model Office has
helped to increase medical transcriptionist productivity through reduced
downtime, automatic updating of demographic information, and upgrades to higher
speed personal computers.
The second phase of The Model Office program involves the conversion of
non-radiology clients not yet on ACCESS+ to the Company's standard platform.
Because of some of the unique demands of radiology, radiology reports are
usually transcribed directly on the client's radiology information system. The
Company already experiences considerable economies of scale because clients
representing approximately 77% of revenues generated by non-radiology clients
are processed on ACCESS+. By supporting only one system, training costs are
reduced, fewer technical personnel are required and only one set of billing and
payroll procedures is needed. The Company expects to gain
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further operating efficiencies as it continues to transfer its remaining clients
onto its standard operating platform.
Telecommunication costs currently are the second largest component of the
Company's cost of revenues after labor costs. The Company believes that it has a
number of opportunities to reduce per-unit telecommunication costs. The Company
intends to restructure, where appropriate, its telecommunications to maximize
use of lower cost product offerings, such as toll-free numbers and dedicated
lines. In addition, the Company is negotiating its long-distance and local
telecommunication contracts to reduce per-unit costs. The benefit of these
savings may be offset, however, because the Company may experience increased
long-distance volume in connection with the hiring of additional medical
transcriptionists that are not local to its client service centers.
PRODUCT DEVELOPMENT
Product development focuses on the application of state-of-the-art
technology to the Company's core business or to opportunities closely related to
its core business. Investments in product development often involve alliances
with carefully selected technology partners. These third parties provide
critical technological skills and minimize the Company's up-front investments.
The Internet and Advances in Telecommunications. The Company believes that
the Internet and recent advances in telecommunications offer a variety of
opportunities to reduce costs, improve economies of scale, increase medical
transcriptionist productivity, and provide value-added services. Additionally,
by reducing telecommunication costs, these advances may allow the Company to
grow faster since the economics of servicing remote clients and of recruiting
remote medical transcriptionists should improve. The Company has completed an
analysis of the potential applications of Internet technologies and expects to
test an enhanced workflow application during the second half of 1998. The
Company also believes that the complexity and scope of these technologies, which
will increase the economies of scale in the medical transcription industry,
benefit large national transcription providers and encourage further
consolidation in the medical transcription industry.
Speech Recognition. PowerScribe is a continuous speech recognition product
combining medical lexicons, language models and customized interfaces and
workflow applications. The Company has jointly funded the development and
obtained a right to use and distribute in the United States and Canada certain
PowerScribe continuous speech recognition software applications for the medical
transcription service business for radiology, emergency medicine and one other
field to be agreed upon. PowerScribe for Radiology has been available since the
fourth quarter of 1997 and, as of June 22, 1998, the Company has licensed
PowerScribe at 17 sites, of which nine are fully operational. An emergency
medicine module is scheduled for release by the end of 1998. The Company
believes that radiology and emergency medicine are particularly appropriate for
speech recognition applications because these practices typically have limited
lexicons or a small number of physicians who have high dictation levels,
practice in confined areas and require extraordinarily fast turnaround times.
The Company also believes, with further product development, that speech
recognition may be appropriate for other departments. The Company does not
believe that speech recognition poses a serious threat to its core business in
the foreseeable future because of technical, economic and behavioral issues. In
fact, PowerScribe could boost overall Company profitability by enhancing
productivity. More specifically, PowerScribe may be able to increase medical
transcriptionists' output by making an initial attempt at transcribing the
dictated report and then passing its work on to a medical transcriptionist.
SALES AND MARKETING
The Company's sales staff consists of 14 sales personnel, with an average
of 13 years of experience in the medical transcription or medical equipment
industry. The Company's sales and marketing force is structured to promote
internal growth by cross-selling to the Company's existing
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client base and by attracting new clients. Consistent with the Company's growth
strategy, sales personnel target their efforts on new business within existing
customers and larger potential clients in regions where client service centers
are already located.
The Company's sales personnel are responsible for ensuring that all of the
proposed new business and service requirements are properly identified and
priced in accordance with the Company's gross margin goals. The Company has
implemented a comprehensive program for ensuring that pricing decisions are made
in a manner in which costs and other relevant considerations (e.g., turnaround
time and systems requirements) are taken into account. This program incorporates
commission rates based on profit margins for sales to a particular client over a
period of time. Additionally, the Company offers incentives for entering into
new contracts with larger institutions and for penetrating additional
departments within existing clients.
Quality service and superior client relations are an important part of
executing the Company's sales and marketing strategy. Many new clients contract
with the Company in large part because of previous experience with the Company
or because of recommendations and references by the Company's existing client
base. The Company believes that references from the existing client base will
continue to be an important part of the Company's sales and marketing strategy.
The Company's sales personnel use a consultative sales and marketing
approach by establishing working relationships with the Company's prospective
clients through a series of direct meetings with the health information manager
or medical records director, chief financial officer, chief information officer
and other key individuals at the client's organization and establishing a clear
dialogue regarding the Company's and the client's shared expectations. In this
manner, the Company obtains information concerning the particular needs of the
client and educates the client as to how the Company's services can be
customized to meet those needs. The sales process typically averages from
several weeks to six months, depending on technology requirements and whether
medical transcription is being outsourced for the first time or the potential
client is changing medical transcription service providers.
As part of its marketing efforts, the Company advertises in national health
care trade publications (including those sponsored by the American Health
Information Management Association), participates in industry conventions, and
sends direct mail solicitations to potential clients.
CLIENTS
The Company's diversified client base includes more than 500 hospitals and
other health care organizations, such as outpatient clinics and physician
practice groups. Approximately 80% of the Company's revenues are derived from
the health information management departments of hospitals, including large
metropolitan hospitals and major teaching hospitals. Radiology and emergency
departments each account for approximately 9% of the Company's revenues. The
Company's clients are located throughout the United States.
The Company's ten largest clients accounted for approximately 13% of the
Company's revenue for the first quarter of 1998. None of the Company's clients
accounts for more than 3% of the Company's revenue. However, 33 Columbia/HCA
Healthcare hospitals, each of which has a separate contract with the Company,
accounted in the aggregate for less than 8% of the Company's revenues for the
first quarter of 1998. See "Risk Factors -- Changes in the Health Care
Industry."
The typical term of the Company's contracts with its clients for medical
transcription services ranges from three to five years. Client contracts specify
the services to be performed by the Company, the price thereof, and the
particular requirements of the client, such as turnaround times and technical
services to be provided. Revenues per individual client vary based upon
individual client demands for the Company's services.
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COMPETITION
The Company competes in markets that are competitive and highly fragmented.
The industry is predominately populated by small regional or local companies,
with a limited number of national companies. There are more than 1,500 providers
of medical transcription services in the United States. The Company also
competes against approximately a dozen national and regional firms, the largest
of which is MedQuist, Inc. The Company believes that except for MedQuist, each
of its competitors has less than 50% of the Company's revenues. The market
available to the Company is limited by health care organizations that currently
maintain in-house transcription departments. See "Risk Factors -- Competition."
For new clients that currently outsource, the Company competes on the basis
of its reputation for quality and turnaround time performance, size and
resources, technical capabilities, personal client attention and relationships
and price. The Company believes that its size and its technical resources have
diminished the importance of price as a competitive factor. The basis for
competition for transcription business that is currently being performed
in-house includes additional factors, such as the ability to provide a smooth
transition toward outsourcing and the willingness of the medical transcription
service provider to hire in-house transcriptionists.
EMPLOYEES
As of May 31, 1998, the Company employed approximately 2,825 persons,
consisting of approximately 2,230 trained, professional medical
transcriptionists (approximately 70% of whom work out of their homes and
approximately 30% of whom work at client service centers), approximately 455
managers and clerical staff at the Company's client service centers, and
approximately 140 corporate employees. None of the Company's employees is
represented by a labor union. The Company considers its relations with its
employees to be good. In addition, as a result of an acquisition, the Company
retains 55 medical transcriptionists as independent contractors at one of its
client service centers.
The Company believes that its ability to employ at-home transcriptionists
enables it to compete more effectively for the limited number of experienced,
skilled medical transcriptionists. By being able to work out of their homes, the
Company's at-home medical transcriptionists can work hours other than the
standard workday and can eliminate commuting time and costs.
GOVERNMENT REGULATIONS
The health care industry is subject to changing political, economic and
regulatory influences that may affect the outsourcing arrangements of health
care providers. Federal and state legislators have from time to time proposed
programs to reform the United States health care system and other proposals may
be made in the future. In general, these programs and proposals tend to
emphasize managed care, seek to lower reimbursement rates and otherwise attempt
to control the environment in which health care providers operate. In providing
its services, the Company is subject to certain contractual, statutory,
regulatory and common law requirements regarding the confidentiality of medical
information. The Company requires its personnel to agree to keep all medical
information confidential and monitors compliance with applicable confidentiality
requirements. Federal and state regulators are making increasing efforts to
investigate claims of false billing for government reimbursement and have
obtained substantial payments from health care providers to resolve these
claims. Because these claims often result from a lack of appropriate
documentation to support billing, these government efforts may stimulate a need
for more comprehensive transcription services. Additionally, health care
accreditation organizations and governmental authorities have begun to require
more extensive transcription of patient medical records as part of the
requirements for hospitals or other health care providers to receive and
maintain accreditation. It presently cannot be determined if any additional
health care legislation or self-regulatory proposals (whether relating to
reimbursement, accreditation, billing practices, confidentiality, the health
care industry in
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general or otherwise) will be introduced, the form that any such legislation or
proposals would take, whether such legislation or proposals would be enacted or
adopted and, if enacted or adopted, what effect, if any, such legislation or
proposals would have on the health care industry in general and the Company in
particular. See "Risk Factors -- Changes in the Health Care Industry" and
" -- Confidentiality Requirements."
The Company is also subject to numerous federal, state and local laws
relating to such matters as safe working conditions and wages and hours. There
can be no assurance that the Company will not be required to incur significant
costs to comply with such laws and regulations in the future or that such laws
or regulations will not have a material adverse effect upon the Company's
business, financial condition and results of operations. See "Risk
Factors -- Risks Associated with an At-Home Workforce."
INTELLECTUAL PROPERTY
The Company considers the name "MRC" and the Company logo to be important
to the operation of its business and the marketing of its services. The Company
regards the application of its ACCESS+ software underlying its services as
proprietary, and relies primarily on a combination of contract, copyright and
trademark law, trade secrets, confidentiality agreements and contractual
provisions to protect its proprietary rights. The Company has no patents or
patent applications pending, and relies on existing trade secrets and copyright
laws to afford it protection against unauthorized use. The Company is not aware
that any of its software, trademarks or other proprietary rights infringe the
proprietary rights of third parties. See "Risk Factors -- Dependence on
Proprietary Rights."
PROPERTIES
The Company leases all of its client service centers and its corporate
headquarters. The client service centers range in size from 624 square feet to
6,569 square feet, and its corporate headquarters, located in Cleveland, Ohio,
consists of 11,297 square feet. See "Certain Transactions."
LEGAL PROCEEDINGS
Although the Company from time to time is involved in various legal
proceedings or claims arising in the ordinary course of its business, the
Company is not currently a party to any material pending legal proceeding nor,
to the knowledge of the Company, is any material legal proceeding currently
threatened.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information concerning the Company's
executive officers and directors as of June 15, 1998:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Edward L. Samek.................. 61 Chairman of the Board, Chief Executive Officer and a
Director
Dennis R. Byerly................. 51 President and Chief Operating Officer
Steven Bell...................... 40 Senior Vice President, Chief Financial Officer,
Secretary and Treasurer
Ethan H. Cohen................... 34 Senior Vice President and Chief Technology Officer
Philip M. Cohen.................. 36 Senior Vice President, Corporate Development
Robert A. Meadors................ 54 Senior Vice President, Client Service
James W. Mills................... 54 Senior Vice President, Client Service
David A. Plummer................. 37 Senior Vice President, Client Service
Bruce K. Anderson................ 58 Director(1)(2)
Martin H. Marcus................. 65 Director
Timothy M. Murray................ 45 Director(1)
Richard H. Stowe................. 54 Director(1)(2)
</TABLE>
- ---------------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
Mr. Samek has been a director of the Company since 1994 and Chairman of the
Board and Chief Executive Officer of the Company since June 1998. From October
1995 to June 1998, Mr. Samek served as the Chief Executive Officer of the
Company. From July 1996 until June 1998, Mr. Samek also served as President of
the Company, and from July 1996 until February 1997, as a member of the Office
of Chief Executive of the Company. From October 1995 until July 1996, Mr. Samek
also served as Chairman of the Board and President of the Company and, from
December 1994 until October 1995, as Vice Chairman of the Board and Executive
Vice President of the Company. From July 1982 through December 1994, Mr. Samek
served as Chairman of the Board, President and Chief Executive Officer of
SecrePhone Ltd., a provider of medical transcription services. SecrePhone Ltd.
was acquired by the Company in December 1994. Mr. Samek has been President of
The Medical Transcription Industry Alliance since 1996.
Mr. Byerly has been President and Chief Operating Officer of the Company
since June 1998. From July 1997 until June 1998, Mr. Byerly served as Chief
Operating Officer of the Company. From 1989 until 1996, Mr. Byerly was President
and Chief Executive Officer of ARTRAC Corp., Medaphis Hospital Services Corp.,
and Medaphis Services Corp., wholly owned subsidiaries of Medaphis Corporation,
a provider of business management services to physicians and hospitals.
Mr. Bell has been Senior Vice President, Chief Financial Officer and
Secretary of the Company since July 1996 and Treasurer since September 1997.
From August 1995 through July 1996, Mr. Bell served as a financial advisor to
Laneko Engineering Co., an auto parts manufacturer. From December 1993 through
August 1995, Mr. Bell served as Chief Financial Officer of SecrePhone Ltd. From
September 1983 to December 1993, Mr. Bell was a certified public accountant with
Zelenkofske Axelrod & Co., a regional certified public accounting and consulting
firm, and was a director and shareholder of the firm from 1988 to 1993.
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Mr. Ethan Cohen has been Senior Vice President and Chief Technology Officer
of the Company since April 1997. From September 1991 through March 1997, Mr.
Cohen was a consultant for McKinsey & Company, a management consulting firm. At
McKinsey & Company, Mr. Cohen was promoted to the position of Senior Engagement
Manager in December 1995. Mr. Cohen is not related to Mr. Philip Cohen, Senior
Vice President, Corporate Development of the Company.
Mr. Philip Cohen has been Senior Vice President, Corporate Development of
the Company since July 1996. From October 1992 until July 1996, Mr. Cohen served
as a Vice President of Medical Records Corp. Mr. Cohen is not related to Mr.
Ethan Cohen, Senior Vice President and Chief Technology Officer of the Company.
Mr. Cohen is the son-in-law of Mr. Martin Marcus, a director of the Company.
Mr. Meadors has been Senior Vice President, Client Service of the Company,
since January 1998. From August 1997 through December 1997, Mr. Meadors served
as Executive Director, Client Services of the Company. From October 1996 to
August 1997, Mr. Meadors served as an independent consultant to health care
clients. Prior to that, Mr. Meadors was Executive Vice President/Chief Operating
Officer -- Central Health Care Services (1995-96) and Executive Vice
President/Business Development (1993-95) of Medaphis Corporation.
Mr. Mills has been Senior Vice President, Client Service of the Company,
since January 1998. From July 1996 through December 1997, Mr. Mills served as
Senior Corporate Vice President of the Company with responsibilities for the
Operations, Sales and Technical Divisions. Mr. Mills served as President of the
Northern Region of the Company (from December 1994 through July 1996), and as
Vice President of SecrePhone Ltd. (from June 1994 through December 1994). From
January 1968 through December 1993, Mr. Mills served as President, Vice
President, sales manager and sales representative of Electronic Dictation
Systems.
Mr. Plummer has been Senior Vice President, Client Service of the Company,
since January 1998. From April 1997 through December 1997, Mr. Plummer was
National Sales Manager of the Company and, from August 1994 through March 1997,
he was Regional Sales Manager of the Company with responsibilities in the
Mid-Atlantic states. From February 1992 until August 1994, Mr. Plummer was a
Regional Sales Manager of VDI Technologies, a national digital dictation vendor.
Mr. Anderson has been a director of the Company since July 1993. Since
1979, Mr. Anderson has been a partner of Welsh, Carson, Anderson & Stowe, a
general partnership, an investment firm specializing in the acquisition of
companies in the information services and health care industries. Mr. Anderson
is also Chairman, Chief Executive Officer and a director of AMDOCS Ltd, a
software and services company focused on the telephony industry, and a director
of SEER Technologies, Inc., a software development company.
Mr. Marcus has been a director of the Company since July 1996 and served as
Chairman of the Board of the Company from July 1996 until June 1998. Mr. Marcus
also served as a member of the Office of Chief Executive of the Company from
July 1996 through February 1997. Mr. Marcus was the founder and President of
Medical Records Corp. from 1967 until July 1996.
Mr. Murray has been a director of the Company since July 1996. Since 1983
Mr. Murray has been a principal of William Blair & Company, L.L.C. Since 1988
Mr. Murray has been a general partner of William Blair Leveraged Capital Fund,
and since 1995 a Managing Director of William Blair Capital Partners V, L.P. Mr.
Murray serves on the Board of Directors of Daisytek International Corporation, a
wholesale distributor of non-paper computer and office automation supplies and
accessories. See "Certain Transactions."
Mr. Stowe has been a director of the Company since July 1993. Mr. Stowe has
been a partner of Welsh, Carson, Anderson & Stowe since 1979. Mr. Stowe serves
on the Board of Directors of The Cerplex Group, Inc., which provides repair and
parts distribution services for electronic equipment, and Health Management
Services, Inc., a provider of revenue enhancement services to health care
providers and payors.
39
<PAGE> 41
The Board of Directors of the Company currently consists of five members
divided into three classes, with each class elected to serve a staggered
three-year term. The Class I directors, whose terms will expire at the 1999
annual meeting of stockholders, are Messrs. Samek and Anderson. The Class II
directors, whose terms will expire at the 2000 annual meeting of stockholders,
are Messrs. Marcus and Stowe. The Class III director, whose term will expire at
the 2001 annual meeting of stockholders, is Mr. Murray. Executive officers serve
at the pleasure of the Board of Directors.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company's Board of Directors has appointed an Audit Committee and a
Compensation Committee. Members of each committee serve at the pleasure of the
Board of Directors.
Audit Committee. The Company's Audit Committee, which consists of Messrs.
Anderson (Chairman), Murray and Stowe, makes recommendations concerning the
engagement of independent public accountants, reviews with the independent
public accountants the plans and results of the audit engagement, approves
professional services provided by the independent public accountants, reviews
the independence of the independent public accountants, considers the range of
audit and nonaudit fees, reviews the independent public accountants' letter of
comments and management's responses, reviews the adequacy of the Company's
internal accounting controls and reviews major accounting or reporting changes
contemplated or made.
Compensation Committee. The Compensation Committee, which consists of
Messrs. Stowe (Chairman) and Anderson, reviews employment, development,
reassignment and compensation matters involving corporate officers and other
executive level employees as may be appropriate, including, without limitation,
issues relating to salary, bonus and incentive arrangements and administers the
Company's Amended and Restated Stock Option Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Edward Samek served as a member of the Compensation Committee until
July 1998. During 1997, Mr. Samek was a director, President and Chief Executive
Officer of the Company.
No member of the Compensation Committee nor any executive officer of the
Company serves as a member of a board of directors or compensation committee of
any entity that has one or more executive officers serving as a member of the
Company's Board of Directors or Compensation Committee.
INDEMNIFICATION
As permitted by the Delaware General Corporation Law, the Company's Amended
and Restated Certificate of Incorporation eliminates the personal liability of
directors to the Company for monetary damages for breach of fiduciary duty of
care as a director. Liability is not eliminated for (i) any breach of the
director's duty of loyalty to the Company or its stockholders, (ii) acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) unlawful payment of dividends or stock purchases or
redemptions pursuant to Section 174 of the Delaware General Corporation Law, or
(iv) any transaction from which the director derived an improper personal
benefit. In addition, the Company's By-laws provide for the indemnification of
directors and officers of the Company to the maximum extent permitted by
Delaware law as authorized by the Board of Directors of the Company, and for the
advancement of expenses incurred in connection with the defense of any action,
suit or proceeding that he was a party to by reason of the fact that he is or
was a director of the Company upon the receipt of an undertaking to repay such
amount unless it is ultimately determined that the director is entitled to
indemnification.
The Company maintains a directors' and officers' insurance policy which
insures the officers and directors of the Company from any claim arising out of
an alleged wrongful act by such persons in their respective capacities as
officers and directors of the Company.
40
<PAGE> 42
DIRECTORS COMPENSATION
Members of the Company's Board of Directors do not receive any compensation
for serving as directors of the Company. The Company reimburses out-of-pocket
expenses incurred by all directors in connection with attending Board and
committee meetings.
EXECUTIVE COMPENSATION
The following table summarizes the compensation paid by the Company in 1997
to (i) the Company's chief executive officer and (ii) the Company's four other
most highly compensated executive officers at December 31, 1997 (collectively,
"Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
-------------------- ------------
SECURITIES
UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITIONS SALARY BONUS OPTIONS(#) COMPENSATION
---------------------------- -------- -------- ------------ ---------------
<S> <C> <C> <C> <C>
Edward L. Samek............................. $200,000 $50,000 -- --
President and Chief Executive Officer(1)
Martin H. Marcus............................ $175,000 -- -- --
Chairman of the Board(1)
Herbert L. Marcus........................... $175,000 -- -- $235,000(3)
Vice Chairman of the Board(1)(2)
Philip M. Cohen............................. $165,000 $33,000 -- --
Senior Vice President, Corporate
Development
Steven Bell................................. $150,000 $30,000 -- --
Senior Vice President and Chief Financial
Officer
</TABLE>
- ---------------
(1) Messrs. Samek, Martin Marcus and Herbert Marcus served as members of the
Office of the Chief Executive until February 1997.
(2) Mr. Herbert Marcus retired from the Company, effective December 31, 1997.
(3) Represents pre-paid retirement payments made to Mr. Herbert Marcus in
December 1997.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth information concerning each exercise of
options during 1997 by each of the Named Executive Officers and the fiscal
year-end value of unexercised in-the-money options:
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
SHARES 1997 YEAR-END(#) 1997 YEAR-END($)(1)
ACQUIRED ON VALUE ------------------------- -------------------------
NAME EXERCISE(#) REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ----------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Edward L. Samek................ -- -- 490,711/348,250(2)
Martin H. Marcus............... -- -- -- --
Herbert L. Marcus.............. -- -- -- --
Philip M. Cohen................ -- -- 7,000/28,000
Steven Bell.................... -- -- 12,600/50,400
</TABLE>
- ---------------
(1) Represents the total gain which would be realized if all in-the-money
options held at December 31, 1997 were exercised, determined by multiplying
the number of shares underlying the options by the difference between the
per share option exercise price and the assumed initial public offering
price of $ per share. An option is in-the-money if the per market
value of the underlying shares exceeds the exercise price of the option.
(2) Includes options to purchase 754,961 shares of Common Stock granted outside
the Company's Amended and Restated 1992 Employee Stock Option Plan.
41
<PAGE> 43
EMPLOYMENT AND SEVERANCE AGREEMENTS.
Each of Mr. Samek, Chairman of the Board and Chief Executive Officer of the
Company, Mr. Martin Marcus, a director of the Company, and Mr. Herbert Marcus,
formerly Vice Chairman of the Company, is a party to a Covenant Not to Compete
and Severance Agreement with the Company dated July 19, 1996, which sets forth
the Company's obligations upon a termination of employment. Pursuant to the
agreements, if the respective executive's employment is terminated "without
cause" (as defined in the agreements) or if such executive resigns or retires,
the Company must pay him severance compensation equal to the sum of one year's
base salary at his then current rate of compensation, plus an amount equal to
any performance bonus paid or accrued during the immediately preceding 12
months, payable in 12 equal installments. If such executive accepts other
employment or provides services to another person or entity within one year of
his termination, the Company will be entitled to a reduction in an amount equal
to the amount payable to such executive in the amount of his other earnings.
Mr. Philip Cohen, Senior Vice President, Corporate Development of the
Company, is a party to a Covenant Not to Compete and Severance Agreement with
the Company, effective as of July 19, 1996. The agreement sets forth the
Company's obligations upon termination of Mr. Cohen's employment. If Mr. Cohen's
employment is terminated "without cause" (as defined in the agreement), the
Company must pay him severance compensation equal to the sum of one year's base
salary at his then current rate of compensation, plus an amount equal to any
performance bonus paid or accrued during the immediately preceding 12 months,
payable in 12 equal installments. If Mr. Cohen accepts other employment or
otherwise provides services to another person or entity within one year of his
termination, the Company will be entitled to a reduction in any amount equal to
the amount payable to him in the amount of his other earnings.
Mr. Bell, Senior Vice President and Chief Financial Officer of the Company,
is a party to an employment agreement with the Company dated July 2, 1996. Mr.
Bell receives salary, bonus and benefits under the agreement. Pursuant to Mr.
Bell's employment agreement, if Mr. Bell dies or becomes disabled or his
employment is terminated by the Company other than for "cause" (as defined in
the agreement), the Company must pay Mr. Bell severance compensation equal to
his monthly base salary plus minimum bonus in effect on the date his employment
terminates, payable semi-monthly for a period of 12 months, and continuation of
health insurance benefits for Mr. Bell and his then-covered dependents for the
same period. The benefits payable to Mr. Bell are contingent upon Mr. Bell's
compliance with the noncompetition and nondisclosure provisions contained in his
agreement and his execution of a release of the Company and its officers of any
and all liability arising out of his employment or separation from employment
(other than those obligations arising under the employment agreement).
STOCK OPTION PLAN
The Company has outstanding options to purchase an aggregate of 2,215,474
shares of Common Stock granted to employees at option exercise prices ranging
from $6.04 to $9.19 pursuant to the Company's Amended and Restated 1992 Employee
Stock Option Plan (the "Plan"). Options under the Plan may be nonqualified or
incentive stock options. All of the outstanding options under the Plan are
nonqualified options. Under the Plan, incentive options may be granted to
full-time employees of the Company or any parent or subsidiary corporation and
nonqualified options may be granted to officers, full-time employees, directors
of and consultants to the Company or any parent or subsidiary corporation. The
exercise prices of options granted under the Plan will be set by the
Compensation Committee of the Board of Directors, but the exercise prices of
incentive stock options must be at least equal to 100% of the fair market value
of the Common Stock at the time the option is granted or 110% of the fair market
value in the case of an option granted to an individual who at the time of the
grant owns shares possessing more than 10% of the total combined voting power of
all classes of stock of the Company. No options were granted to the Named
Executive Officers in 1997. In addition to options granted under the Plan, the
Company has granted Mr. Samek options to purchase 754,961 shares of Common
Stock.
42
<PAGE> 44
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of June 15, 1998 (assuming the
conversion of all outstanding shares of Preferred Stock to Common Stock and the
consummation of the Reincorporation Merger) and immediately following the
offering by: (i) each person who is known by the Company to own beneficially 5%
or more of the Common Stock, (ii) each of the Company's directors and Named
Executive Officers, (iii) each Selling Stockholder, and (iv) all of the
Company's directors and executive officers as a group:
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES SHARES BENEFICIALLY
OWNED PRIOR TO BE OWNED AFTER
NAME TO OFFERING OFFERED OFFERING(1)
---- ----------------------- ---------- -----------------------
NUMBER PERCENT NUMBER PERCENT
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Bruce K. Anderson(2).......................... 4,467,150 38.4%
Richard H. Stowe(3)........................... 4,449,380 38.3
Welsh, Carson, Anderson & Stowe(4)............ 4,441,440 38.2
Timothy M. Murray(5).......................... 1,521,313 13.1
William Blair Capital Partners V, L.P.(6)..... 1,521,313 13.1
M. and L. Marcus Family
Limited Partnership(7)...................... 1,490,299 12.8
Martin H. Marcus(8)........................... 1,490,299 12.8
H. and R. Marcus Family
Limited Partnership(9)...................... 881,217 7.6
Herbert L. Marcus(10)......................... 881,217 7.6
John H. Dayani(11)............................ 839,095 7.1
Edward L. Samek(12)........................... 780,167 6.4
National City Capital
Corporation(13)............................. 647,230 5.6
Philip M. Cohen(14)........................... 356,640 3.1
Steven Bell(15)............................... 51,800 *
All executive officers and directors of the
Company as a group (12 persons)............. 8,769,576 71.1%
</TABLE>
- ---------------
* Less than 1%.
(1) Unless otherwise indicated, the listed beneficial owner has sole voting and
investment power over such shares.
(2) Includes 4,441,440 shares held by Welsh, Carson, Anderson & Stowe VI, L.P.
("WCAS VI"), over which Mr. Anderson may be deemed to share voting and
investment power. Mr. Anderson disclaims beneficial ownership of such
shares except to the extent of his pecuniary interest therein. Mr.
Anderson's address is 320 Park Avenue, Suite 2500, New York, New York
10022.
(3) Includes 4,441,440 shares held by WCAS VI, over which Mr. Stowe may be
deemed to share voting and investment power. Mr. Stowe disclaims beneficial
ownership of such shares except to the extent of his pecuniary interest
therein. Includes 5,312 shares held in trust for the benefit of Mr. Stowe,
over which he may be deemed to have voting and investment power. Mr.
Stowe's address is 320 Park Avenue, Suite 2500, New York, New York 10022.
(4) Consists of 4,441,440 shares held by WCAS VI. The address of Welsh, Carson,
Anderson & Stowe is 320 Park Avenue, Suite 2500, New York, New York 10022.
(5) Consists of 1,521,313 shares held by William Blair Capital Partners V,
L.P., over which Mr. Murray may be deemed to share voting and investment
power. Mr. Murray disclaims beneficial ownership of such shares except to
the extent of his pecuniary interest therein. Mr. Murray's address is 222
West Adams Street, Chicago, Illinois, 60606.
(6) Consists of 1,521,313 shares held by William Blair Capital Partners V, L.P.
The address of William Blair Capital Partners V, L.P. is 222 West Adams
Street, Chicago, Illinois, 60606.
(7) The address of the M. and L. Marcus Family Limited Partnership is 23240
Chagrin Boulevard, Suite 400, Cleveland, Ohio 44122.
(8) Consists of 1,490,299 shares held by M. and L. Marcus Family Limited
Partnership of which Martin H. Marcus Living Trust is the general partner.
Martin H. Marcus is the sole trustee of the Martin H. Marcus Living Trust.
Mr. Marcus' address is 23240 Chagrin Boulevard, Suite 400, Cleveland, Ohio
44122.
(9) The address of the H. and R. Marcus Family Limited Partnership is 3637
Green Road, Cleveland, Ohio 44122.
(10) Consists of 881,217 shares of Common Stock held by H. and R. Marcus Family
Limited Partnership of which Herbert L. Marcus Living Trust is the general
partner. Herbert L. Marcus is the sole trustee of the Herbert L. Marcus
Living Trust. Mr. Marcus' address is 3637 Green Road, Cleveland, Ohio
44122.
(11) Includes 122,500 shares of Common Stock issuable pursuant to options which
are presently exercisable. Mr. Dayani's address is 1029 Manley Lane,
Brentwood, Tennessee 57027.
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<PAGE> 45
(12) Includes 555,461 shares of Common Stock issuable pursuant to options that
have vested or will vest within the next 60 days. Excludes 283,500 shares
of Common Stock subject to unvested options. Mr. Samek's address is 23240
Chagrin Boulevard, Suite 400, Cleveland, Ohio 44122.
(13) The address of National City Capital Corporation is 1965 East 6th Street,
Cleveland, Ohio 44114.
(14) Includes 7,000 shares of Common Stock issuable pursuant to options that
have vested or will vest within the next 60 days. Excludes 45,500 shares of
Common Stock subject to unvested options. Mr. Cohen's address is 23240
Chagrin Boulevard, Suite 400, Cleveland, Ohio 44122.
(15) Consists of 51,800 shares issuable pursuant to options which are presently
exercisable. Excludes 18,200 shares of Common Stock subject to unvested
options. Mr. Bell's address is 23240 Chagrin Boulevard, Suite 400,
Cleveland, Ohio 44122.
CERTAIN TRANSACTIONS
In connection with the acquisition of Medical Records Corp. by the Company
on July 19, 1996, the Company issued promissory notes in the aggregate principal
amount of $2.0 million (the "Notes") as a portion of the consideration paid to
the shareholders of Medical Records Corp. Interest on the Notes is payable
quarterly at a rate of 8% per annum. Principal payments under the Notes are
payable in four substantially equal annual installments commencing July 19,
2000. Mr. Philip Cohen, Senior Vice President, Corporate Development of the
Company, and his wife hold a portion of the Notes in the aggregate principal
amount of $608,548. Mr. Martin Marcus, who is Mr. Cohen's father-in-law and a
director of the Company, and members of his immediate family (other than Mr. and
Mrs. Philip Cohen) hold a portion of the Notes in the aggregate principal amount
of $691,452. The Notes may be prepaid at any time without penalty. The Company
intends to repay all of the Notes from the net proceeds of this offering.
Mr. Murray, a director of the Company, is a principal of William Blair &
Company, L.L.C., one of the Underwriters of this offering. See "Underwriting."
The Company leases office space in Beachwood, Ohio from 3637 Green Road
Co., Ltd. Mr. Martin Marcus, a director of the Company, and his brother, Herbert
Marcus, own 10% and 15% general partnership interests, respectively, in 3637
Green Road Co., Ltd., which owns the building housing the Company's technical
department staff. In 1995, 1996 and 1997, respectively, the Company paid
$70,007, $85,214 and $81,066 in rent to 3637 Green Road Co., Ltd. In 1998, the
Company will continue to pay rent to 3637 Green Road Co., Ltd.
The Company and certain of the Company's pre-offering stockholders (the
"Rights Holders") are parties to an Amended and Restated Registration Rights
Agreement dated July 19, 1996 (the "Registration Rights Agreement"), pursuant to
which certain of the Rights Holders have the right, subject to certain
restrictions, to cause the Company to effect a registration of their shares of
Common Stock under the Securities Act of 1933, as amended (the "Securities
Act"). All of the Rights Holders also have certain "piggy back" registration
rights in the event the Company registers any of its securities for either
itself or for security holders exercising their registration rights. The Rights
Holders have waived their registration rights in connection with this offering.
DESCRIPTION OF CAPITAL STOCK
Upon completion of the offering, the authorized capital stock of the
Company will consist of 100,000,000 shares of Common Stock, $.01 par value, and
300,000 shares of authorized but unissued preferred stock, $.01 par value (the
"Preferred Stock"). As of June 15, 1998, there were 11,368,471 shares of Common
Stock issued and outstanding (giving effect to the conversion of the Series IV
Preferred Stock, Series V Preferred Stock and Series VI Preferred Stock into
7,262,107 shares of Common Stock upon completion of this offering) and held by
approximately 85 holders of record. See "Capitalization."
44
<PAGE> 46
COMMON STOCK
The holders of shares of Common Stock are entitled to one vote per share
for the election of directors and on all other matters submitted to a vote of
stockholders. Holders of Common Stock are not entitled to preemptive rights or
to cumulative voting in the election of directors. Subject to any senior rights
of the Preferred Stock which may from time to time be outstanding, holders of
Common Stock are entitled to receive such dividends as may be declared by the
Board of Directors out of funds legally available therefor. See "Dividend
Policy." Upon dissolution and liquidation of the Company, holders of the Common
Stock are entitled to a ratable share of the net assets of the Company remaining
after payments to creditors of the Company and to the holders of any Preferred
Stock of the full preferential amounts to which they may be entitled. All
outstanding shares of Common Stock are, and the shares of Common Stock offered
hereby will be, validly issued, fully paid and nonassessable.
PREFERRED STOCK
Upon consummation of the offering, the Company will have authorized but
unissued 300,000 shares of Preferred Stock which may be issued in one or more
series as determined by the Board of Directors without further stockholder
approval, and the Board of Directors is authorized to fix and determine the
terms, limitations, and relative rights and preferences of the Preferred Stock,
and to fix and determine the variations among series of the Preferred Stock. If
any Preferred Stock is issued following the offering, such Preferred Stock could
have priority over the Common Stock with respect to dividends and to other
distributions, including the distribution of assets upon liquidation and
dissolution. The Preferred Stock may be subject to repurchase or redemption by
the Company. The Board of Directors, without stockholder approval, could issue
Preferred Stock with voting and conversion rights that could adversely affect
the voting power of the holders of Common Stock and the issuance of which could
be used by the Board of Directors in defense of a hostile takeover of the
Company. The Company has no present intention to issue Preferred Stock. See
"Risk Factors -- Anti-Takeover Effect of Charter and By-Law Provisions;
Availability of Preferred Stock for Issuance."
CERTAIN PROVISIONS OF CERTIFICATE OF INCORPORATION AND BY-LAWS
The Amended and Restated Certificate of Incorporation (the "Certificate of
Incorporation") and By-Laws of the Company provide that directors may not be
removed from office by the stockholders except by the affirmative vote of
stockholders exercising at least two-thirds of the voting power in the election
of directors, except that if two-thirds of the entire Board of Directors
recommend to the stockholders that a director be removed, then such director may
be removed by the stockholders exercising at least a majority of the voting
power in the election of directors. The Certificate of Incorporation requires
all actions by stockholders to be taken at annual or special meetings. The By-
Laws divide the Board of Directors into three classes, each with a term of three
years, with the term of one class expiring each year. No provision of the
Certificate of Incorporation nor certain provisions of the By-Laws, including
those relating to indemnification and election and removal of directors, may be
altered, amended or repealed nor may any inconsistent provision be adopted
except by the affirmative vote of stockholders exercising at least two-thirds of
the voting power of the Company, except that if any such action was previously
approved by at least two-thirds of the directors, then such action may be taken
by the stockholders exercising a majority of the voting power. The foregoing
provisions could have an anti-takeover effect by delaying, averting or
preventing a change in control or management of the Company, unless such
takeover or change in control is approved by the Board.
CERTAIN PROVISIONS OF DELAWARE LAW
The Company is subject to Section 203 of the Delaware General Corporation
Law which, with certain exceptions, prohibits a Delaware corporation from
engaging in any of a broad range of business combinations with any "interested
stockholder" for a period of three years following the
45
<PAGE> 47
date that such stockholder became an interested stockholder, unless: (i) prior
to such time, the Board of Directors of the corporation approved either the
business combination or the transaction which resulted in the stockholder
becoming an interested stockholder; (ii) upon consummation of the transaction
which resulted in the stockholder becoming an interested stockholder, the
interested stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced, excluding for purposes of
determining the number of shares outstanding those shares owned (a) by persons
who are directors and officers and (b) by employee stock plans in which employee
participants do not have the right to determine confidentially whether shares
held subject to the plan will be tendered in a tender or exchange offer; or
(iii) on or after such time, the business combination is approved by the Board
of Directors and authorized at an annual or special meeting of stockholders by
the affirmative vote of at least two-thirds of the outstanding voting stock
which is not owned by the interested stockholder. An "interested stockholder" is
defined as any person that is (i) the owner of 15% or more of the outstanding
voting stock of the corporation or (ii) an affiliate or associate of the
corporation and was the owner of 15% or more of the outstanding voting stock of
the corporation at any time within the three-year period immediately prior to
the date on which it is sought to be determined whether such person is an
interested stockholder.
REGISTRAR AND TRANSFER AGENT
The Company has selected National City Bank, Cleveland, Ohio as the
transfer agent and registrar for its Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the offering, there has been no public market for the Common Stock
and no predictions can be made of the effect, if any, that the sale or
availability for sale of shares of additional Common Stock will have on the
market price of the Common Stock. Sales of substantial amounts of such shares in
the public market, or the perception that such sales could occur, could
materially and adversely affect the market price of the Common Stock and could
impair the Company's future ability to raise capital through an offering of its
equity securities. See "Risk Factors -- Shares Eligible for Future Sale."
SALES OF RESTRICTED SHARES
Upon completion of this offering, the Company will have a total of
shares of Common Stock outstanding (assuming no exercise of the
Underwriters' over-allotment option). Of these shares, the shares of
Common Stock offered hereby will be freely tradable without restriction or
registration under the Securities Act by persons other than "affiliates" of the
Company, as defined in the Securities Act, who would be required to sell such
shares under Rule 144 under the Securities Act. The remaining
outstanding shares of Common Stock will be "restricted securities" as that term
is defined by Rule 144 (the "Restricted Shares"). The Restricted Shares were
issued and sold by the Company in private transactions in reliance upon
exemptions from registration under the Securities Act.
The Company believes that substantially all of the Restricted Shares will
be eligible for sale in the public market pursuant to Rule 144 beginning 90 days
after the date of this Prospectus, shares of which will be held by
affiliates. Substantially all such shares are subject to the lock-up agreements
described below. In general, under Rule 144 as currently in effect, a person (or
persons whose shares are aggregated) who has beneficially owned restricted
securities for at least one year, including persons who may be deemed
"affiliates" of the Company, would be entitled to sell within any three-month
period a number of shares that does not exceed the greater of (i) 1% of the
number of shares of Common Stock then outstanding (approximately
shares upon completion of this offering) or (ii) the average weekly trading
volume of the Common Stock during
46
<PAGE> 48
the four calendar weeks preceding the filing of a Form 144 with respect to such
sale. Sales under Rule 144 are also subject to certain manner-of-sale provisions
and notice requirements, and to the availability of current public information
about the Company. In addition, a person who is not deemed to have been an
affiliate of the Company at the time during the 90 days preceding a sale, and
who has beneficially owned the shares proposed to be sold for at least two years
(including the holding period of any prior owner except an affiliate), would be
entitled to sell such shares under Rule 144(k) without regard to the
requirements described above. Rule 144 also provides that affiliates who are
selling shares that are not Restricted Shares must nonetheless comply with the
same restrictions applicable to Restricted Shares with the exception of the
holding period requirement. As defined in Rule 144, an "affiliate" of an issuer
is a person who directly, or indirectly through the use of one or more
intermediaries, controls, or is controlled by, or is under common control with,
that issuer.
LOCK-UP AGREEMENTS
Certain of the stockholders of the Company, including the executive
officers and directors, who will own in the aggregate approximately 10,963,000
shares of Common Stock after the offering, have agreed that they will not,
directly or indirectly, sell, offer, contract to sell, transfer the economic
risk of ownership in, make any short sale, pledge or otherwise dispose of any
shares of Common Stock or any securities convertible into or exchangeable or
exercisable for or any other rights to purchase or acquire Common Stock
beneficially owned by them during the 180-day period following the date of this
Prospectus, except for certain permitted transfers or with the prior written
consent of BT Alex. Brown Incorporated.
STOCK OPTION PLAN
Upon completion of the offering, 4,000,000 shares of Common Stock will be
reserved for issuance under the Plan, which includes 2,215,474 shares subject to
outstanding options. See "Management -- Stock Option Plan." The Company intends
to file a registration statement on Form S-8 under the Securities Act after this
offering to register all Common Stock issuable pursuant to stock options. Shares
covered by the registration statement will thereupon be eligible for sale in the
public markets, subject to Rule 144 limitations applicable to affiliates and the
lock-up agreements described above.
REGISTRATION RIGHTS
The holders of approximately 6,970,000 shares of Common Stock have the
right under certain circumstances to require the Company to register their
shares under the Securities Act for resale to the public on Form S-1 on no more
than two occasions. Holders of approximately 11,870,000 shares have the right,
under certain circumstances, to require the Company to register their shares
under the Securities Act for resale to the public if the Company is eligible to
use Form S-3 and the reasonably anticipated price to the public in the aggregate
will exceed $2.0 million. See "Certain Transactions."
47
<PAGE> 49
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below (the "Underwriters"), through their Representatives, BT
Alex. Brown Incorporated, Donaldson, Lufkin & Jenrette Securities Corporation
and William Blair & Company, L.L.C., have severally agreed to purchase from the
Company and the Selling Stockholders the following respective numbers of shares
of Common Stock at the initial public offering price less the underwriting
discounts and commissions set forth on the cover page of this Prospectus:
<TABLE>
<CAPTION>
NUMBER
OF
UNDERWRITER SHARES
----------- -----------
<S> <C>
BT Alex. Brown Incorporated.................................
Donaldson, Lufkin & Jenrette Securities Corporation.........
William Blair & Company, L.L.C..............................
-----------
Total.............................................
===========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will purchase all shares of the Common Stock offered hereby if any
of such shares are purchased.
The Company and the Selling Stockholders have been advised by the
Representatives of the Underwriters that the Underwriters propose to offer the
shares of Common Stock to the public at the initial public offering price set
forth on the cover page of this Prospectus and to certain dealers at such price
less a concession not in excess of $ per share. The Underwriters may
allow, and such dealers may reallow, a concession not in excess of $
per share to certain other dealers. After the initial public offering, the
public offering price and other selling terms may be changed by the
Representatives of the Underwriters.
The Company has granted to the Underwriters an option, exercisable not
later than 30 days after the date of this Prospectus, to purchase up to
additional shares of Common Stock at the public offering price less
the underwriting discounts and commissions set forth on the cover page of this
Prospectus. To the extent that the Underwriters exercise such option, each of
the Underwriters will have a firm commitment to purchase approximately the same
percentage thereof that the number of shares of Common Stock to be purchased by
it shown in the above table bears to , and the Company will be obligated,
pursuant to the option, to sell such shares to the Underwriters. The
Underwriters may exercise such option only to cover over-allotments made in
connection with the sale of Common Stock offered hereby. If purchased, the
Underwriters will offer such additional shares on the same terms as those on
which the shares are being offered.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act.
Stockholders of the Company, holding in the aggregate approximately
10,963,000 shares of Common Stock, have agreed, subject to certain exceptions,
not to offer, sell, or otherwise dispose of any of such Common Stock for a
period of 180 days after the date of this Prospectus without the prior written
consent of BT Alex. Brown Incorporated. See "Shares Eligible for Future Sale."
William Blair Capital Partners V, L.P., a beneficial holder of
approximately 13.1% of the Common Stock prior to this offering, is an affiliate
of William Blair & Company, L.L.C., one of the Representatives. Timothy M.
Murray, a director of the Company is a principal of William Blair & Company,
L.L.C. and Managing Director of William Blair Capital Partners V, L.P. See
"Management -- Executive Officers and Directors." The Conduct Rules of the
National Association of Securities Dealers, Inc. (the "NASD Conduct Rules") do
not permit such Representative to participate in this offering unless the
initial public offering price is no higher than that recommended by a qualified
independent underwriter, as defined in Section 2720 of the NASD
48
<PAGE> 50
Conduct Rules. BT Alex. Brown Incorporated, one of the Representatives of the
Underwriters, will serve as the qualified independent underwriter and has
assumed the responsibilities of acting as qualified independent underwriter in
pricing the Common Stock offered hereby and conducting "due diligence" in
respect thereto.
In connection with this offering, the Underwriters may purchase and sell
the Common Stock in the open market in accordance with Regulation M under the
Securities Exchange Act of 1934, as amended. These transactions may include
over-allotment and stabilizing transactions and purchases to cover syndicate
short positions created in connection with the offering. Stabilizing
transactions consist of certain bids or purchases for the purpose of preventing
or retarding a decline in the market price of the Common Stock; and syndicate
short positions involve the sale by the Underwriters of a greater number of
shares of Common Stock than they are required to purchase from the Company and
the Selling Stockholders in the offering. The Underwriters may also impose a
penalty bid, whereby selling concessions allowed to syndicate members or other
broker-dealers in respect of the securities sold in this offering for their
account may be reclaimed by the syndicate if such securities are repurchased by
the syndicate in stabilizing or covering transactions. These activities may
stabilize, maintain or otherwise affect the market price of the Common Stock,
which may be higher than the price that might otherwise prevail in the open
market. The Underwriters are not required to engage in these activities, and may
end any of these activities at any time. These transactions may be effected in
the over-the-counter market or otherwise.
The Representatives of the Underwriters have advised the Company that the
Underwriters do not intend to confirm sales to any accounts over which they
exercise discretionary authority.
Prior to this offering, there has been no public market for the Common
Stock of the Company. Consequently, the initial public offering price for the
Common Stock will be determined by negotiation between the Company and the
Representatives of the Underwriters. Among the factors to be considered in such
negotiations are prevailing market conditions, the results of operations of the
Company in recent periods, the market capitalizations and stages of development
of other companies that the Company and the Representatives of the Underwriters
believe to be comparable to the Company, estimates of the business potential of
the Company, the present state of the Company's development and other factors
deemed relevant. The estimated initial public offering price range set forth on
the cover page of this preliminary prospectus is subject to change as a result
of market conditions and other factors.
EXPERTS
The audited consolidated financial statements and schedules of the Company,
included in this Prospectus and elsewhere in the Registration Statement of which
this Prospectus is a part, to the extent and for the periods indicated in their
reports, have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto, and are included
herein in reliance upon the authority of said firm as experts in giving said
reports.
The combined restated financial statements of Medical Records Corp. and
Affiliate, included in this Prospectus and elsewhere in the Registration
Statement of which this Prospectus is a part, have been audited by Skoda,
Minotti, Reeves & Co., independent public accountants, as indicated in their
report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
LEGAL MATTERS
The validity of the issuance of the Common Stock offered hereby will be
passed upon for the Company by Baker & Hostetler LLP, Cleveland, Ohio. Certain
legal matters will be passed upon for the Underwriters by Testa, Hurwitz &
Thibeault, LLP, Boston, Massachusetts.
49
<PAGE> 51
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (of which this Prospectus is
a part) under the Securities Act with respect to the Common Stock offered
hereby. This Prospectus does not contain all of the information set forth in the
Registration Statement (certain portions of which have been omitted as permitted
by the rules and regulations of the Commission), and reference is made to the
Registration Statement and the exhibits thereto for further information with
respect to the Company and the Common Stock to which this Prospectus relates.
Statements contained herein concerning the provisions of any contract, agreement
or other document are not necessarily complete, and, in each instance, reference
is made to the copy of such document filed as an exhibit to the Registration
Statement for a more complete description of the matter involved, and each such
statement is qualified in its entirety by such reference. The Registration
Statement, including the exhibits and schedules filed therewith, may be
inspected at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549 and at the regional offices of the
Commission located at 7 World Trade Center, New York, New York 10048 and
Citicorp Center, 500 West Madison Street, Chicago, Illinois 60606. You can
request copies of these documents, upon payment of a duplication fee, by writing
to the Commission. Please call the Commission at 1-800-SEC-0330 for further
information on the operation of the public reference rooms. The Commission also
maintains a Web site (address http://www.sec.gov) that contains reports, proxy
and information statements and other information regarding registrants that file
electronically with the Commission.
The Company intends to furnish its shareholders with annual reports
containing financial statements audited by its independent certified public
accountants and with quarterly reports containing unaudited condensed financial
statements for each of the first three quarters of each fiscal year.
50
<PAGE> 52
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
THE MRC GROUP, INC. AND SUBSIDIARY -- CONSOLIDATED FINANCIAL
STATEMENTS
Report of Independent Public Accountants.................... F-2
Consolidated Balance Sheets, December 31, 1996 and 1997..... F-3
Consolidated Statements of Operations for the Years Ended
December 31, 1995, 1996 and 1997.......................... F-4
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1995, 1996 and 1997.............. F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1995, 1996 and 1997.......................... F-6
Notes to Consolidated Financial Statements, December 31,
1995, 1996 and 1997....................................... F-7
Report of Independent Public Accountants.................... F-19
Schedule II-Valuation and Qualifying Accounts............... F-20
THE MRC GROUP, INC. AND SUBSIDIARY -- CONSOLIDATED FINANCIAL
STATEMENTS
Consolidated Balance Sheets, December 31, 1997 and March 31,
1998 (Unaudited).......................................... F-21
Unaudited Consolidated Statements of Operations for the
Three Months Ended March 31, 1997 and 1998................ F-22
Consolidated Statements of Stockholders' Equity for the Year
Ended December 31, 1997 and the Three Months Ended March
31, 1998 (Unaudited)...................................... F-23
Unaudited Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1997 and 1998................ F-24
Notes to Condensed Consolidated Financial Statements, March
31, 1997 and 1998 (Unaudited)............................. F-25
MEDICAL RECORDS CORP. AND AFFILIATE -- COMBINED FINANCIAL
STATEMENTS
Independent Auditors' Report................................ F-27
Combined Statement of Income (As Restated) for the Year
Ended December 31, 1995................................... F-28
Combined Statement of Stockholders' Equity (As Restated) for
the Year Ended December 31, 1995.......................... F-29
Combined Statement of Cash Flows (As Restated) for the Year
Ended December 31, 1995................................... F-30
Notes to Combined Financial Statements for the Year Ended
December 31, 1995......................................... F-31
MEDICAL RECORDS CORP. -- FINANCIAL STATEMENTS
Report of Independent Public Accountants.................... F-34
Statement of Operations for the Period January 1, 1996 to
July 19, 1996............................................. F-35
Statement of Stockholders' Equity for the Period January 1,
1996 to July 19, 1996..................................... F-36
Statement of Cash Flows for the Period January 1, 1996 to
July 19, 1996............................................. F-37
Notes to Financial Statements for the Period January 1, 1996
to July 19, 1996.......................................... F-38
</TABLE>
F-1
<PAGE> 53
After the reorganization transaction discussed in Note 12 to The MRC Group,
Inc. and Subsidiary's consolidated financial statements is effected, we expect
to be in a position to render the following audit report.
Arthur Andersen LLP
Cleveland, Ohio,
June 23, 1998.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and
Stockholders of The MRC Group, Inc.:
We have audited the accompanying consolidated balance sheets of The MRC
Group, Inc. (a Delaware corporation) and Subsidiary as of December 31, 1996 and
1997 and the related consolidated statements of operations, stockholders' equity
and cash flows for the three years in the period ended December 31, 1997. 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, the financial statements referred to above present fairly,
in all material respects, the financial position of The MRC Group, Inc. and
Subsidiary as of December 31, 1996 and 1997 and the results of their operations
and their cash flows for the three years in the period ended December 31, 1997
in conformity with generally accepted accounting principles.
Cleveland, Ohio,
, 1998 (except with respect to the matters discussed in Notes 11 and
12,
as to which the date is , 1998).
F-2
<PAGE> 54
THE MRC GROUP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 5,050,856 $ 1,192,959
Short-term investments.................................... 3,001,737 4,003,094
Trade accounts receivable, less allowance for doubtful
accounts of $714,370 and $819,218 in 1996 and 1997,
respectively............................................ 15,374,391 18,305,630
Deferred tax asset........................................ 2,248,936 1,792,176
Prepaid expenses and other current assets................. 441,702 91,435
----------- -----------
Total current assets............................... 26,117,622 25,385,294
----------- -----------
Property and equipment, net................................. 11,708,170 13,306,013
----------- -----------
Other assets:
Goodwill and other intangible assets, net................. 37,203,549 35,214,857
Long-term investments..................................... 2,973,517 --
Preferred stock investment................................ -- 1,200,000
Other..................................................... 413,133 362,972
----------- -----------
Total other assets................................. 40,590,199 36,777,829
----------- -----------
Total assets....................................... $78,415,991 $75,469,136
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt......................... $ 3,694,254 $ 2,852,198
Accounts payable.......................................... 3,616,075 4,288,695
Accrued liabilities....................................... 6,688,996 7,980,270
----------- -----------
Total current liabilities.......................... 13,999,325 15,121,163
----------- -----------
Long-term liabilities:
Long-term debt............................................ 8,208,841 6,184,212
Deferred tax liability.................................... 4,505,921 3,478,161
Other..................................................... 588,167 585,000
----------- -----------
Total long-term liabilities........................ 13,302,929 10,247,373
----------- -----------
Commitments and contingencies
Mandatorily redeemable preferred stock:
Convertible preferred stock, $.01 par value; 345,902
shares authorized in 1996 and 1997:
Series V convertible and mandatorily redeemable
preferred stock, 45,902 shares issued and outstanding
(liquidation preference $17,493,252)................... 17,493,252 17,493,252
Series VI convertible and mandatorily redeemable
preferred stock, 300,000 shares issued and outstanding
(liquidation preference $30,000,000)................... 30,000,000 30,000,000
Stockholders' equity:
Convertible preferred stock, $.01 par value; 10,362 shares
authorized in 1996 and 1997:
Series IV convertible preferred stock, 10,362 shares
issued and outstanding (liquidation preference
$3,948,958)............................................ 104 104
Preferred stock, $.01 par value; 300,000 shares
authorized, none issued and outstanding................. -- --
Common stock, $.01 par value; 100,000,000 shares
authorized, 4,106,364 shares issued and outstanding in
1996 and 1997........................................... 41,064 41,064
Additional paid-in capital................................ 11,639,316 11,639,316
Accumulated deficit....................................... (8,059,999) (9,073,136)
----------- -----------
Total stockholders' equity......................... 3,620,485 2,607,348
----------- -----------
Total liabilities and stockholders' equity......... $78,415,991 $75,469,136
=========== ===========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated balance sheets.
F-3
<PAGE> 55
THE MRC GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
1995 1996 1997
----------- ----------- ------------
<S> <C> <C> <C>
Net revenues.................................. $49,179,660 $71,699,888 $108,117,494
Cost of revenues.............................. 40,153,549 57,329,739 86,975,531
----------- ----------- ------------
Gross profit.................................. 9,026,111 14,370,149 21,141,963
Selling, general and administrative
expenses.................................... 4,352,860 8,329,470 9,742,462
Depreciation and amortization................. 3,906,758 6,331,680 10,027,192
Restructuring charges......................... 346,877 643,724 2,075,458
----------- ----------- ------------
Operating income (loss)....................... 419,616 (934,725) (703,149)
----------- ----------- ------------
Other income (expense):
Investment income........................... 167,826 422,679 465,714
Interest expense............................ (706,473) (804,399) (775,702)
----------- ----------- ------------
Total other (expense)............... (538,647) (381,720) (309,988)
----------- ----------- ------------
Loss before provision for income taxes........ (119,031) (1,316,445) (1,013,137)
Provision for income taxes.................... (7,160) -- --
----------- ----------- ------------
Net loss...................................... $ (126,191) $(1,316,445) $ (1,013,137)
=========== =========== ============
Basic and diluted net loss per share.......... $ (0.10) $ (0.51) $ (0.25)
=========== =========== ============
Weighted average common shares outstanding.... 1,272,048 2,578,421 4,106,364
=========== =========== ============
Unaudited pro forma data (note 11):
Basic and diluted net loss per share....................................
============
Weighted average common shares outstanding..............................
============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
F-4
<PAGE> 56
THE MRC GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK
SERIES IV $.01 PAR VALUE COMMON STOCK ADDITIONAL
---------------- ------------------- -------------------- PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT
------- ------ -------- -------- ---------- ------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994.. 10,362 $104 -- $ -- 1,251,632 $12,516 $ 6,185,088 $(6,617,363)
Common stock issued for
exercise of stock
options................. -- -- -- -- 49,000 490 295,310 --
Net loss.................. -- -- -- -- -- -- -- (126,191)
------- ---- -------- -------- ---------- ------- ----------- -----------
Balance, December 31, 1995.. 10,362 104 -- -- 1,300,632 13,006 6,480,398 (6,743,554)
Issuance costs of Series
VI convertible and
mandatorily redeemable
preferred stock......... -- -- -- -- -- -- (228,252) --
Common stock issued for
acquisitions............ -- -- -- -- 2,854,732 28,548 5,682,480 --
Common stock repurchased
and retired............. -- -- -- -- (49,000) (490) (295,310) --
Net loss.................. -- -- -- -- -- -- -- (1,316,445)
------- ---- -------- -------- ---------- ------- ----------- -----------
Balance, December 31, 1996.. 10,362 104 -- -- 4,106,364 41,064 11,639,316 (8,059,999)
Net loss.................. -- -- -- -- -- -- -- (1,013,137)
------- ---- -------- -------- ---------- ------- ----------- -----------
Balance, December 31, 1997.. 10,362 $104 -- $ -- 4,106,364 $41,064 $11,639,316 $(9,073,136)
======= ==== ======== ======== ========== ======= =========== ===========
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
-------------
<S> <C>
Balance, December 31, 1994.. $ (419,655)
Common stock issued for
exercise of stock
options................. 295,800
Net loss.................. (126,191)
-----------
Balance, December 31, 1995.. (250,046)
Issuance costs of Series
VI convertible and
mandatorily redeemable
preferred stock......... (228,252)
Common stock issued for
acquisitions............ 5,711,028
Common stock repurchased
and retired............. (295,800)
Net loss.................. (1,316,445)
-----------
Balance, December 31, 1996.. 3,620,485
Net loss.................. (1,013,137)
-----------
Balance, December 31, 1997.. $ 2,607,348
===========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
F-5
<PAGE> 57
THE MRC GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss............................................... $ (126,191) $(1,316,445) $(1,013,137)
Adjustments to reconcile net loss to net cash from
operating activities:
Depreciation and amortization..................... 3,906,758 6,331,680 10,027,192
Deferred tax provision (benefit).................. 7,160 (40,855) (571,000)
(Gain) loss on disposal of property............... (871) -- 222,950
Changes in operating assets and liabilities, net
of acquisitions:
Trade accounts receivable..................... 1,366,169 (498,438) (2,291,426)
Prepaid expenses and other assets............. (217,430) 696,325 400,428
Accounts payable.............................. (441,968) (645,485) 545,912
Accrued and other liabilities................. (960,339) (585,607) 177,180
Other......................................... 104,384 69,686 (178,846)
----------- ----------- -----------
Total adjustments.......................... 3,763,863 5,327,306 8,332,390
----------- ----------- -----------
Net cash from operating activities......... 3,637,672 4,010,861 7,319,253
----------- ----------- -----------
Cash flows from investing activities:
Capital expenditures................................... (3,174,985) (2,779,615) (7,547,628)
Proceeds from sale of property......................... 68,410 -- --
Sale (purchase) of investments, net.................... 2,399,928 (5,893,458) 2,173,006
Preferred stock investment............................. -- -- (1,200,000)
Acquisition of businesses, net of stock issued and
acquired............................................. (1,825,000) (21,394,551) (1,921,389)
----------- ----------- -----------
Net cash from investing activities......... (2,531,647) (30,067,624) (8,496,011)
----------- ----------- -----------
Cash flows from financing activities:
Repayments of short-term borrowings, net............... (2,290,000) -- --
Common stock repurchased............................... -- (295,800) --
Proceeds from sale of mandatorily redeemable preferred
stock................................................ -- 29,271,748 --
Proceeds from exercise of stock options................ 295,800 -- --
Proceeds from (repayments of) long-term debt, net...... 2,177,879 (1,885,086) (2,681,139)
----------- ----------- -----------
Net cash from financing activities......... 183,679 27,090,862 (2,681,139)
----------- ----------- -----------
Net change in cash and cash equivalents.................. 1,289,704 1,034,099 (3,857,897)
Cash and cash equivalents, beginning of year............. 2,727,053 4,016,757 5,050,856
----------- ----------- -----------
Cash and cash equivalents, end of year................... $ 4,016,757 $ 5,050,856 $ 1,192,959
=========== =========== ===========
Supplemental cash flow information:
Cash paid for interest................................. $ 650,165 $ 688,034 $ 830,485
=========== =========== ===========
Cash paid for income taxes............................. $ 42,665 $ -- $ 631,856
=========== =========== ===========
Supplemental disclosures of noncash investing and
financing activities:
Common stock issued in connection with acquisitions.... $ -- $ 5,711,028 $ --
=========== =========== ===========
Notes issued in connection with acquisition............ $ -- $ 2,000,000 $ --
=========== =========== ===========
Exchange of debt for preferred stock................... $ -- $ 500,000 $ --
=========== =========== ===========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
F-6
<PAGE> 58
THE MRC GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1996 AND 1997
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The MRC Group, Inc., formerly MEDIFAX, Inc., and Subsidiary (collectively,
the "Company") provides electronic medical transcription and document management
services to the health care industry. The primary customers are hospitals,
medical centers and other health care providers across the United States.
Significant accounting and reporting policies are described below.
The Company operates in an environment with many financial and operational
risks including, but not limited to, a history of losses, intense competition,
rapid technology changes, dependence on the health care industry and the ability
to attract and retain qualified personnel.
Basis of Presentation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiary from the date of acquisition. All
significant intercompany transactions and balances have been eliminated.
Use of Estimates
The preparation of the 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. Since actual results could differ from those estimates,
revisions to estimates are made as better information becomes available.
Cash Equivalents
The Company considers all highly liquid short-term investments, including
money market funds, with an original maturity of three months or less to be cash
equivalents. Cash equivalents are stated at cost, which approximates fair value.
Investments
Investments held by the Company at December 31, 1996 and 1997 consisted
primarily of investments in high-quality, fixed-income bonds with varying
maturities and rates. At December 31, 1996 and 1997, these investments totaled
$5,975,254, and $4,003,094, respectively, and are included in short-term and
long-term investments in the accompanying consolidated balance sheets. In
accordance with Statement of Financial Accounting Standards No. 115, "Accounting
for Certain Investments in Debt and Equity Securities," debt securities that the
Company has both the intent and ability to hold to maturity are carried at
amortized cost.
Financial Instruments
Financial instruments held by the Company include cash and cash
equivalents, accounts receivable, accounts payable and long-term debt. The book
value of cash and cash equivalents, accounts receivable and accounts payable are
considered to be representative of fair value because of the short maturity of
these instruments. The fair values of the borrowings of long-term debt
approximate book value based on the contractual fixed interest rates currently
in effect and due to a considerable portion of the debt being subject to
fluctuating market interest rates.
F-7
<PAGE> 59
THE MRC GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation.
Depreciation is computed using the straight-line method over the following
estimated useful lives of the assets:
<TABLE>
<S> <C>
Equipment Two to five years
Leasehold improvements Lesser of lease term or useful life of asset
Furniture and fixtures Five to seven years
Automobiles Three to five years
</TABLE>
Depreciation expense for the years ended December 31, 1995, 1996 and 1997
was approximately $3,507,000, $4,467,000 and $6,104,000, respectively.
Goodwill and Other Intangibles
The Company has capitalized certain costs associated with various
acquisitions, including goodwill, non-compete agreements and other intangible
assets. Management regularly evaluates its accounting for goodwill. Impairment
of goodwill would be recognized when events or changes in circumstances indicate
that the carrying amount of the asset may not be recoverable. As of December 31,
1997, no revision to the remaining useful lives or write-down of intangible
assets has been recorded.
Preferred Stock Investment
During 1997, the Company invested $1,200,000 for an approximate 10%
preferred stock equity interest in Articulate Systems, Inc. The investment has
been accounted for under the cost method of accounting.
Stock-Based Compensation Plans
The Company accounts for its stock-based compensation plans under
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees." In 1996, the Company adopted the disclosure option of Statement
of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for
Stock-Based Compensation."
Revenue Recognition
Fees for transcription-related services are based on contract rates, and
revenue is recognized upon the rendering of services.
Research and Development Costs
Research and development costs are expensed as incurred. There were no
research and development costs in 1995. Total research and development costs
were approximately $450,000 and $550,000 in 1996 and 1997, respectively.
Income Taxes
The Company accounts for income taxes, using the provisions of Statement of
Financial Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income
Taxes." Deferred income taxes reflect the tax consequences on future years of
differences between the tax bases of assets and
F-8
<PAGE> 60
THE MRC GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
liabilities and their financial reporting amounts. Future tax benefits are
recognized to the extent that realization of such benefits is more likely than
not.
Per Share Data
The Company adopted Statement of Financial Accounting Standards No. 128
("SFAS 128") "Earnings per Share" in 1997. SFAS 128 requires the presentation of
basic earnings per share and diluted earnings per share. Basic earnings per
share is computed by dividing net income by the weighted average number of
common shares outstanding. Diluted earnings per share is calculated by dividing
net income by all potential dilutive common shares that were outstanding during
the period. Refer to Note 11 for discussion of pro forma basic and diluted
earnings per share.
For the purposes of the Company's diluted per share calculation, the
effects of stock options, warrants, and convertible preferred stock are
antidilutive and have been excluded. Weighted average common shares outstanding
for the years ended December 31, 1995, 1996, and 1997 were 1,272,048, 2,578,421,
and 4,106,364, respectively.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current
year presentation.
2. ACQUISITIONS
In July 1996, the Company acquired all the outstanding stock of Medical
Records Corp. The total purchase price of approximately $27,700,000 was financed
with cash from debt, the issuance of Series VI Preferred Stock and the issuance
of Common Stock. The acquisition has been accounted for as a purchase, and the
results of Medical Records Corp., a wholly owned subsidiary of the Company, were
included in the accompanying consolidated financial statements from the date of
the acquisition. In connection with the acquisition, the Company assumed certain
acquisition-related liabilities from Medical Records Corp. The cost of the
acquisition has been allocated on the basis of the estimated fair market value
of the assets acquired and liabilities assumed. The allocation resulted in
goodwill and other intangible assets of approximately $33,014,800, which are
being amortized over lives of 1.5 to 40 years.
The unaudited results of operations of the Company for the year ended
December 31, 1996 on a pro forma basis as though Medical Records Corp. had been
acquired as of the beginning of 1996 are as follows:
<TABLE>
<S> <C>
Revenues.................................... $99,273,800
Operating loss.............................. (3,948,600)
Net loss.................................... (4,675,700)
Net loss per share.......................... $ (1.13)
</TABLE>
During 1997, the Company acquired the assets of two entities and the stock
of one entity for cash of approximately $1.9 million plus the assumption of
certain liabilities.
Each of the 1997 acquisitions was accounted for as a purchase, and the
results of operations are included in the accompanying consolidated financial
statements from the date of acquisition. The allocation of the purchase prices
resulted in approximately $1,797,600 of intangibles, primarily non-
F-9
<PAGE> 61
THE MRC GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
compete covenants, customer lists and goodwill. The intangibles are being
amortized over periods ranging from four to 40 years.
All of these acquisitions contain certain contingent purchase price
agreements which are payable based upon the results of the operations of the
Company. Pro forma information is not presented for the 1997 acquisitions, as
these acquisitions are not significant.
3. PROPERTY AND EQUIPMENT
Property and equipment and related accumulated depreciation are summarized
as follows:
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Equipment...................................... $20,149,055 $22,624,014
Leasehold improvements......................... 754,643 1,005,699
Furniture and fixtures......................... 802,233 1,399,557
Automobiles.................................... 49,415 56,451
----------- -----------
21,755,346 25,085,721
Less accumulated depreciation.................. (10,047,176) (11,779,708)
----------- -----------
$11,708,170 $13,306,013
=========== ===========
</TABLE>
Included in equipment is property under capital leases of $2,377,786 at
December 31, 1996 and 1997 with accumulated depreciation of $496,391 and
$1,607,476 at December 31, 1996 and 1997, respectively.
In 1995, the Company evaluated the remaining estimated useful lives of
certain equipment, including dictation equipment and related software. As a
result, the remaining lives of these assets were shortened which resulted in an
increase in depreciation expense of $740,735 in 1995.
Maintenance and repair expenditures which are not considered betterments
and do not extend the useful life of the property are charged to expense as
incurred.
4. GOODWILL AND OTHER INTANGIBLE ASSETS
In connection with the acquisitions discussed in Note 2, the Company
recorded goodwill and other intangible assets. The components of these amounts
at December 31, 1996 and 1997 are as follows:
<TABLE>
<CAPTION>
LIVES 1996 1997
----- ----------- -----------
(IN YEARS)
<S> <C> <C> <C>
Noncompete agreements.................... 1.5-4 $ 3,305,000 $ 3,405,000
Software................................. 3 37,800 37,800
Employee base............................ 5 2,439,000 2,514,000
Customer lists........................... 10-20 4,908,300 5,033,300
Goodwill................................. 40 28,778,152 30,413,259
----------- -----------
Total.................................... 39,468,252 41,403,359
Less accumulated amortization............ (2,264,703) (6,188,502)
----------- -----------
$37,203,549 $35,214,857
=========== ===========
</TABLE>
F-10
<PAGE> 62
THE MRC GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
Amortization expense totaled approximately $400,000, $1,865,000 and
$3,923,000 in 1995, 1996 and 1997, respectively.
5. ACCRUED LIABILITIES
Accrued liabilities at December 31, 1996 and 1997 consists of the
following:
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
Accrued payroll and related taxes................ $3,310,546 $3,693,813
Acquisition and accrued restructuring costs...... 3,006,071 3,027,981
Other............................................ 372,379 1,258,476
---------- ----------
$6,688,996 $7,980,270
========== ==========
</TABLE>
6. LONG-TERM DEBT AND LINE OF CREDIT
Total long-term debt at December 31, 1996 and 1997 consists of the
following:
<TABLE>
<CAPTION>
1996 1997
----------- ----------
<S> <C> <C>
Note payable repaid in January 1998............. $ 979,375 $ 500,000
Note payable to bank (a)........................ 6,650,000 5,250,000
Capital lease obligations (Note 8).............. 2,138,045 1,210,163
Note payable to former shareholders of Medical
Records Corp. (b)............................. 2,000,000 2,000,000
Other........................................... 135,675 76,247
----------- ----------
11,903,095 9,036,410
Less current portion............................ 3,694,254 2,852,198
----------- ----------
$ 8,208,841 $6,184,212
=========== ==========
</TABLE>
- ---------------
(a) In connection with the acquisition of Medical Records Corp., the Company
entered into a note agreement with a bank. The note was for $7,000,000 with
an interest rate of LIBOR plus 1.65%, which totals approximately 7.3% at
December 31, 1997. The note is secured by substantially all of the Company's
assets. The agreement requires that the Company pay interest quarterly along
with equal monthly principal payments of $117,000 through September 2001.
The note requires the Company to maintain certain financial covenants,
including a minimum net income covenant. The Company was either in
compliance or had obtained the necessary waivers relating to the restrictive
covenants at December 31, 1997.
(b) In connection with the acquisition of Medical Records Corp., the Company
issued seven year, 8% unsecured notes to former shareholders of Medical
Records Corp. for $2,000,000. The notes require the Company to pay interest
quarterly, with annual principal payments of $500,000 beginning in July
2000.
F-11
<PAGE> 63
THE MRC GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
Future maturities of long-term debt as of December 31, 1997 are as follows:
<TABLE>
<S> <C>
1998......................................... $2,852,198
1999......................................... 1,636,541
2000......................................... 1,964,004
2001......................................... 1,576,758
2002......................................... 506,909
2003......................................... 500,000
----------
$9,036,410
==========
</TABLE>
At December 31, 1997, the Company has a line of credit agreement which
expires on June 30, 1998 with the same bank under which it can borrow up to
$10,000,000 with an interest rate of LIBOR plus 1.25%. The line of credit is
secured by substantially all of the Company's assets. No amounts were
outstanding under the line of credit at December 31, 1996 and 1997.
7. MANDATORILY REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
Convertible and Mandatorily Redeemable Preferred Stock
The Company has authorized 345,902 shares of $.01 par value, convertible
and mandatorily redeemable preferred stock.
Series V Convertible and Mandatorily Redeemable Preferred Stock
The Company has issued 45,902 shares of Series V Preferred Stock at $381.10
per share to an investment limited partnership and several related purchasers.
Each share is convertible into 63.128653 shares of Common Stock.
If not previously converted, the Company is required to redeem one-fourth
of the shares of the Series V Preferred Stock in July 2001, one-third of the
remaining outstanding shares in July 2002, one-half of the remaining shares in
July 2003, and all remaining outstanding shares in July 2004. However, the
Company may redeem any or all Series V Preferred Stock at any time after July 1,
2000 by paying $381.10 per share.
The holders of Series V Preferred Stock vote together with the holders of
all series of preferred stock and Common Stock and are entitled to one vote for
each share of Common Stock which would be issuable upon conversion.
In the event of liquidation, the Series V Preferred Stockholders are
entitled to receive $381.10 for each share on parity with the Series IV and
Series VI Preferred Stockholders.
In the event of a sale of the Company or a merger in which the present
shareholders control less than 50% of the resulting company, the Company is
required to redeem the shares of any Series V Preferred Stockholders so
requesting at a redemption price of $381.10 per share.
In the event of any initial public offering with gross proceeds to the
Company in excess of $10,000,000 and a per share initial public offering price
in excess of five times the Series V conversion price (or proceeds in excess of
$25,000,000 and a per share initial public offering price in excess of 1.333
times the Series V conversion price if the initial public offering occurs on or
F-12
<PAGE> 64
THE MRC GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
before June 30, 1999), or based on other defined criteria, the Company may
require the conversion of all Series V Preferred Stock at the conversion ratio
then in effect.
Series VI Convertible and Mandatorily Redeemable Preferred Stock
The Company has issued 300,000 shares of Series VI Preferred Stock at $100
per share. Each share is convertible into 12.944589 shares of Common Stock.
If not previously converted, the Company is required to redeem one-fourth
of the shares of the Series VI Preferred Stock in July 2001, one-third of the
remaining outstanding shares in July 2002, one-half of the remaining shares in
July 2003, and all remaining outstanding shares in July 2004. However, the
Company may redeem any or all Series VI Preferred Stock at any time after July
1, 2000 by paying $100 per share.
The holders of Series VI Preferred Stock vote together with the holders of
all series of preferred stock and Common Stock and are entitled to one vote for
each share of Common Stock which would be issuable upon conversion.
In the event of liquidation, the Series VI Preferred Stockholders are
entitled to receive $100 for each share on parity with the Series IV and Series
V Preferred Stockholders.
In the event of a sale of the Company or a merger in which the present
shareholders control less than 50% of the resulting company, the Company is
required to redeem the shares of any Series VI Preferred Stockholders so
requesting at a redemption price of $100 per share.
In the event of any initial public offering with gross proceeds to the
Company in excess of $25,000,000 and a per share initial public offering price
in excess of 3.733 times the Series VI conversion price (or proceeds in excess
of $25,000,000 and a per share initial public offering price in excess of 1.333
times the Series VI conversion price if the initial public offering occurs on or
before June 30, 1999), or based on other defined criteria, the Company may
require the conversion of all Series VI Preferred Stock at the conversion ratio
then in effect.
Convertible Preferred Stock
The Company has authorized 10,362 shares of $.01 par value convertible
preferred stock.
Series IV Convertible Preferred Stock
The Company has issued 10,362 shares of Series IV Preferred Stock. Each
outstanding share of this preferred stock issue is convertible into 46.419387
shares of Common Stock.
The holders of Series IV Preferred Stock vote together with holders of all
series of preferred stock and Common Stock and are entitled to one vote for each
share of Common Stock which would be issuable upon conversion.
In the event of liquidation, the Series IV Preferred Stockholders are
entitled to receive $381.10 for each share on parity with the Series V and
Series VI Preferred Stockholders.
In the event of a sale of the Company or a merger in which the present
shareholders control less than 50% of the resulting company, the Company is
required to redeem the shares of any Series IV Preferred Stockholders so
requesting at a redemption price of $381.10 per share.
The Company may redeem any or all Series IV Preferred Stock at any time
after July 1, 2000 by paying $381.10 per share.
F-13
<PAGE> 65
THE MRC GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
In the event of an initial public offering with gross proceeds to the
Company in excess of $10,000,000 and a per share initial public offering price
in excess of five times the Series IV conversion price (or proceeds in excess of
$25,000,000 and a per share initial public offering price in excess of 1.333
times the Series IV conversion price if the initial public offering occurs on or
before June 30, 1999), or based on other defined criteria, the Company may
require the conversion of all Series IV Preferred Stock at the conversion ratio
then in effect.
Common Stock
During 1996, the Company issued 2,854,293 shares of Common Stock as part of
the acquisition of Medical Records Corp. and repurchased 49,000 shares at $6.04
per share from a stockholder under an agreement reached in 1995. The purchase
price was at the estimated fair value at the time of the agreement. Under the
provisions of the agreement for a previous acquisition, 439 shares were also
issued to the former sole shareholder of the acquired company during 1996.
Common Stock Warrants
During 1996, 5,596 warrants to purchase 157,395 shares of Common Stock
expired and no new warrants were issued. On December 31, 1997, warrants
exercisable for up to 262,629 shares of Common Stock at exercise prices from
$9.07 to $10.00 remain outstanding and expire in July 1998.
Common Stock Options
The Company has reserved 4,000,000 shares of Common Stock for issuance
under its Amended and Restated 1992 Employee Stock Option Plan (the "Plan"). The
options have been granted at amounts equal to or in excess of the fair market
value of the Company's Common Stock as determined by the board of directors. The
options vest over periods ranging from the date of grant to five years as
determined by the board of directors at the date of grant. As of December 31,
1997, the Company had 1,049,611 shares outstanding under the Plan and 2,901,389
shares available for grant.
The board of directors also has issued options in addition to those issued
under the Plan. The number of shares that may be granted under this arrangement
has not been limited. These options have been granted at amounts equal to or in
excess of the fair market value of the Company's Common Stock as determined by
the board of directors. The options vest over periods ranging from the date of
grant to ten years as determined by the board of directors at the date of grant.
As of December 31, 1997, the board of directors had granted 877,462 shares under
this arrangement.
F-14
<PAGE> 66
THE MRC GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
Information relating to the Company's outstanding option plans is as
follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
TOTAL OPTION EXERCISE
OPTIONS PRICE PRICE
--------- ------------ --------
<S> <C> <C> <C>
Shares under option at December 31, 1994........ 885,896 $6.04-$10.00 $9.41
Granted......................................... 893,382 6.04-9.19 6.41
Forfeited/canceled.............................. (855,446) 9.19-10.00 9.20
Exercised....................................... (49,000) 6.04 6.04
---------
Shares under option at December 31, 1995........ 874,832 6.04-9.19 6.37
Granted......................................... 961,451 6.13-7.73 7.44
Forfeited/canceled.............................. (89,075) 6.13-9.19 6.23
---------
Shares under option at December 31, 1996........ 1,747,208 6.04-9.19 6.97
Granted......................................... 314,020 7.73 7.73
Forfeited/canceled.............................. (134,155) 6.13-9.19 6.91
---------
Shares under option at December 31, 1997........ 1,927,073 6.04-9.19 7.07
=========
Options exercisable at December 31, 1997........ 1,004,438 $ 6.04-$9.19 $6.71
=========
</TABLE>
During 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based
Compensation," which defines a fair value-based method of accounting for an
employee stock option plan or similar equity instrument. However, it also allows
an entity to continue to measure compensation cost for those plans using the
method of accounting prescribed by APB Opinion No. 25, "Accounting for Stock
Issued to Employees." Entities electing to remain with the accounting in APB
Opinion No. 25 must make pro forma disclosures of net income and earnings per
share, as if the fair value-based method of accounting defined in the statement
had been applied.
The Company has elected to account for its stock-based compensation plan
under APB Opinion No. 25. The Company has computed for pro forma disclosure
purposes the value of all options granted during 1995 to 1997 using the
Black-Scholes option pricing model using the following weighted average
assumptions for grants in 1996 and 1997:
<TABLE>
<S> <C>
Risk-free interest rate 5.5%-7.0%
Expected dividend yield 0%
Expected lives 7-10 years
Expected volatility 0%
</TABLE>
The total value of the options granted during the years ended December 31,
1995, 1996, and 1997 was computed as approximately $792,000, $2,203,600 and
$704,000 respectively, which would be amortized over the vesting period of the
options. If the Company had accounted for these plans
F-15
<PAGE> 67
THE MRC GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
in accordance with SFAS 123, the Company's reported pro forma net loss and pro
forma net loss per share for the years ended December 31, 1995, 1996 and 1997
would have been as follows:
<TABLE>
<CAPTION>
1995 1996 1997
--------- ----------- -----------
<S> <C> <C> <C>
Pro forma net loss:
As reported in the financial
statements.................. $(126,191) $(1,316,445) $(1,013,137)
In accordance with SFAS 123.... (646,919) (2,291,289) (1,838,650)
Pro forma basic and diluted net
loss per share:
As reported in the financial
statements.................. $ (0.10) $ (0.51) $ (0.25)
In accordance with SFAS 123.... (0.51) (0.89) (0.45)
</TABLE>
8. COMMITMENTS AND CONTINGENCIES
Leases
The Company is obligated under noncancellable operating leases for office
space and equipment. Total rental expense under operating leases was
approximately $1,542,000, $3,612,000 and $2,768,000 for the years ended December
31, 1995, 1996 and 1997, respectively. The Company also has certain equipment
under capital leases with initial terms ranging from 46 to 60 months. Future
minimum payments under capital and operating leases are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
---------- ----------
<S> <C> <C>
Year ending December 31:
1998........................................... $1,011,000 $2,991,000
1999........................................... 241,000 2,586,000
2000........................................... 52,000 1,952,000
2001........................................... 7,163 1,104,000
2002........................................... -- 435,000
2003 and thereafter............................ -- 10,000
---------- ----------
Total minimum lease payments..................... 1,311,163 $9,078,000
==========
Less-Portion representing interest............. 101,000
----------
Present value of future minimum lease payments... $1,210,163
==========
</TABLE>
Litigation Contingencies
The Company is subject to legal proceedings and claims which have arisen in
the ordinary course of business. The amount of potential liability with respect
to these actions is not expected to materially affect the financial position or
results of operations of the Company.
9. INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income
Taxes." SFAS 109 requires, among other things, the determination of deferred
income taxes using the liability method, under which deferred tax assets and
liabilities are determined based on the differences between the financial
accounting
F-16
<PAGE> 68
THE MRC GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
and tax bases of assets and liabilities. Deferred tax assets or liabilities at
the end of each period are determined using the currently enacted tax rates to
apply to taxable income in the period in which the deferred tax asset or
liability is expected to be settled or realized.
The Company's net operating loss carryforwards for tax purposes total
approximately $441,200 at December 31, 1997 and expire through 2011 unless
utilized. The Company also has alternative minimum tax credit carryforwards of
$161,855 at December 31, 1997.
The net deferred taxes recorded in the consolidated balance sheets are as
follows at December 31, 1996 and 1997:
<TABLE>
<CAPTION>
1996 1997
------------------------- -------------------------
CURRENT NONCURRENT CURRENT NONCURRENT
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Deferred tax assets:
Restructuring and acquisition
costs....................... $ 119,354 $ -- $ 602,365 $ --
Accruals not currently
deductible.................. 763,874 -- 1,068,872 196,708
Net operating loss
carryforwards............... 1,000,000 964,204 176,494 --
Alternative minimum tax credit
carry-forwards.............. 40,855 -- 161,855 --
Other.......................... 324,853 146,437 120,590 109,270
---------- ----------- ---------- -----------
Subtotal.................. 2,248,936 1,110,641 2,130,176 305,978
---------- ----------- ---------- -----------
Deferred tax liabilities:
Depreciation................... -- (499,773) -- (315,434)
Intangible amortization........ -- (3,424,200) -- (2,297,651)
Other.......................... -- (1,253,589) -- (1,171,054)
---------- ----------- ---------- -----------
Subtotal.................. -- (5,177,562) -- (3,784,139)
---------- ----------- ---------- -----------
Net deferred tax assets
(liabilities) before valuation
allowance...................... 2,248,936 (4,066,921) 2,130,176 (3,478,161)
Valuation allowance.............. -- (439,000) (338,000) --
---------- ----------- ---------- -----------
Net deferred tax assets.......... $2,248,936 $(4,505,921) $1,792,176 $(3,478,161)
========== =========== ========== ===========
</TABLE>
The Company's provision (benefit) for income taxes for the years ended
December 31, 1995, 1996 and 1997 is as follows:
<TABLE>
<CAPTION>
1995 1996 1997
------ -------- ---------
<S> <C> <C> <C>
Federal -- current............................. $ -- $ 40,855 $ 116,000
-- deferred........................... 7,160 (40,855) (571,000)
State and local................................ -- -- 455,000
------ -------- ---------
$7,160 $ -- $ --
====== ======== =========
</TABLE>
F-17
<PAGE> 69
THE MRC GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
The Company's consolidated income tax provision (benefit) for the years
ended December 31, 1995, 1996 and 1997 differs from that computed based strictly
on the statutory federal income tax rate as follows:
<TABLE>
<CAPTION>
1995 1996 1997
-------- --------- ---------
<S> <C> <C> <C>
Income tax benefit at federal statutory income tax
rate............................................... $(40,471) $(447,591) $(344,353)
State income taxes, net of federal income tax
benefit............................................ (4,761) (52,658) (50,640)
Permanent differences and other...................... 52,392 134,790 495,993
Change in valuation allowance........................ -- 365,459 (101,000)
-------- --------- ---------
Income tax provision................................. $ 7,160 $ -- $ --
======== ========= =========
</TABLE>
10. EMPLOYEE BENEFIT PLANS
The Company has two defined contribution 401(k) plans, covering
substantially all employees. Eligible employees of the Company may contribute
certain amounts of their annual compensation. During 1995, 1996 and 1997 the
Company made matching contributions to the plans of $142,000, $171,000 and
$117,000 respectively.
The Company does not provide any other retirement, postretirement or
postemployment benefits to its employees.
11. UNAUDITED PRO FORMA DATA
The unaudited pro forma data set forth in the consolidated statements of
operations present pro forma basic and diluted earnings per share, and pro forma
weighted average common shares outstanding for 1997 assuming (i) all of the
Company's Series IV Preferred Stock, Series V Preferred Stock and Series VI
Preferred Stock had been converted to Common Stock based on the conversion
ratios outlined in Note 7 as of the beginning of the stated period presented;
(ii) the issuance of Common Stock by the Company in the Offering discussed in
Note 12 as of the beginning of the stated period presented; and (iii) the
application of net proceeds to reduce interest expense on debt expected to be
repaid with the proceeds of the Offering.
12. SUBSEQUENT EVENTS
In March 1998, the Company acquired the assets and assumed certain
liabilities of Transcription Concepts, Inc. for an aggregate consideration of
$1,420,000 which was funded from operations. The acquisition was accounted for
as a purchase.
In June 1998, the Company filed a Registration Statement relating to the
initial public offering of its Common Stock (the "Offering"). The net proceeds
to the Company will be used to pay debt and for working capital and general
corporate purposes. Prior to the Offering, the Company intends to reincorporate
in the State of Delaware and to change its capital structure. The significant
changes include: (i) a reverse Common Stock split based on a 0.7 to 1.0 ratio,
and a corresponding adjustment to all option shares and prices, warrant shares
and prices and preferred stock conversion rates; (ii) an increase in its
authorized Common Stock to 100,000,000; (iii) creation of 300,000 newly
authorized, undesignated Preferred Stock, $.01 par value; and (iv) an increase
in the number of shares of Common Stock reserved for issuance upon exercise of
options granted under the Plan discussed in Note 7 to 4,000,000 shares. The
accompanying Consolidated Financial Statements reflect these changes. Effective
upon closing of the Offering, all issued preferred stock will be converted into
Common Stock under the terms set forth in Note 7.
F-18
<PAGE> 70
After the reorganization transaction discussed in Note 12 to The MRC Group,
Inc. and Subsidiary's consolidated financial statements is effected, we expect
to be in a position to render the following audit report.
Arthur Andersen LLP
Cleveland, Ohio,
June 23, 1998.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
The MRC Group, Inc.:
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements of The MRC Group, Inc. and Subsidiary
included in this Form S-1 Registration Statement, and have issued our report
thereon dated March 3, 1998. Our audits were made for the purpose of forming an
opinion on those financial statements taken as a whole. The schedule on page
F-20 is the responsibility of the Company's management and is presented for
purposes of complying with the Securities and Exchange Commission's rules and is
not part of the basic financial statements. This schedule has been subjected to
the auditing procedures applied in the audits of the basic financial statements
and, in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
Cleveland, Ohio,
, 1998
F-19
<PAGE> 71
THE MRC GROUP, INC. AND SUBSIDIARY
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND CHARGED TO END OF
OF PERIOD EXPENSES OTHER ACCOUNTS WRITE-OFFS PERIOD
---------- ---------- -------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful
accounts
Year ended December 31,
1995................ $321,934 $425,082 $ -- $297,268 $449,748
Year ended December 31,
1996................ 449,748 364,812 64,000(a) 164,190 714,370
Year ended December 31,
1997................ 714,370 539,000 -- 434,152 819,218
</TABLE>
- ---------------
(a) Related to purchase accounting adjustment in connection with the Medical
Records Corp. acquisition.
F-20
<PAGE> 72
THE MRC GROUP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND MARCH 31, 1998
<TABLE>
<CAPTION>
ACTUAL ACTUAL PRO FORMA
DEC. 31, 1997 MARCH 31, 1998 MARCH 31, 1998
------------- -------------- --------------
(NOTE 3)
(AUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 1,192,959 $ 2,963,682 $ 2,963,682
Short-term investments.................................... 4,003,094 2,976,749 2,976,749
Trade accounts receivable, less allowance for doubtful
accounts of $819,218 and $906,032 in 1997 and 1998,
respectively............................................ 18,305,630 18,086,313 18,086,313
Deferred tax asset........................................ 1,792,176 1,779,562 1,779,562
Prepaid expenses and other current assets................. 91,435 203,043 203,043
----------- ----------- -----------
Total current assets............................... 25,385,294 26,009,349 26,009,349
----------- ----------- -----------
Property and equipment, net................................. 13,306,013 13,403,661 13,403,661
Other assets:
Goodwill and other intangible assets, net................. 35,214,857 35,959,053 35,959,053
Preferred stock investment................................ 1,200,000 1,200,000 1,200,000
Other..................................................... 362,972 278,993 278,993
----------- ----------- -----------
Total other assets................................. 36,777,829 37,438,046 37,438,046
----------- ----------- -----------
Total assets....................................... $75,469,136 $76,851,056 $76,851,056
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt......................... $ 2,852,198 $ 2,228,361 $ 2,228,361
Accounts payable 4,288,695 3,682,648 3,682,648
Accrued liabilities....................................... 7,980,270 10,688,291 10,688,291
----------- ----------- -----------
Total current liabilities.......................... 15,121,163 16,599,300 16,599,300
----------- ----------- -----------
Long-term liabilities:
Long-term debt............................................ 6,184,212 5,639,468 5,639,468
Deferred tax liability.................................... 3,478,161 3,375,547 3,375,547
Other..................................................... 585,000 438,750 438,750
----------- ----------- -----------
Total long-term liabilities........................ 10,247,373 9,453,765 9,453,765
----------- ----------- -----------
Commitments and contingencies
Mandatorily redeemable preferred stock:
Convertible preferred stock, $.01 par value; 345,902
shares authorized in 1997 and 1998:
Series V convertible and mandatorily redeemable
preferred stock, 45,902 shares issued and outstanding
(liquidation preference $17,493,252); none issued, pro
forma................................................. 17,493,252 17,493,252 --
Series VI convertible and mandatorily redeemable
preferred stock, 300,000 shares issued and outstanding
(liquidation preference $30,000,000); none issued, pro
forma................................................. 30,000,000 30,000,000 --
Stockholders' equity:
Convertible preferred stock, $.01 par value; 10,362 shares
authorized in 1997 and 1998:
Series IV convertible preferred stock, 10,362 shares
issued and outstanding (liquidation preference
$3,948,958); none issued, pro forma................... 104 104 --
Preferred Stock, $.01 par value; 300,000 shares
authorized, none issued and outstanding................. -- -- --
Common Stock, $.01 par value; 100,000,000 shares
authorized 4,106,364 issued and outstanding in 1997 and
1998; 11,368,471 issued pro forma....................... 41,064 41,064 113,685
Additional paid-in capital................................ 11,639,316 11,774,069 59,194,804
Accumulated deficit....................................... (9,073,136) (8,510,498) (8,510,498)
----------- ----------- -----------
Total stockholders' equity......................... 2,607,348 3,304,739 50,797,991
----------- ----------- -----------
Total liabilities and stockholders' equity......... $75,469,136 $76,851,056 $76,851,056
=========== =========== ===========
</TABLE>
The accompanying notes to condensed consolidated financial statements
are an integral part of these balance sheets.
F-21
<PAGE> 73
THE MRC GROUP, INC. AND SUBSIDIARY
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998
<TABLE>
<CAPTION>
1997 1998
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Net revenues................................................ $26,094,553 $29,410,469
Cost of revenues............................................ 21,040,049 23,620,237
----------- -----------
Gross profit................................................ 5,054,504 5,790,232
Selling, general and administrative expenses................ 2,620,119 2,623,192
Depreciation and amortization............................... 2,292,492 2,110,211
----------- -----------
Operating income............................................ 141,893 1,056,829
Other (expense):
Interest (expense), net................................... (77,956) (62,653)
----------- -----------
Total other (expense)............................. (77,956) (62,653)
----------- -----------
Income before provision for income taxes.................... 63,937 994,176
Provision for income taxes.................................. 107,265 431,538
----------- -----------
Net income (loss)........................................... $ (43,328) $ 562,638
=========== ===========
Basic net income (loss) per share........................... $ (0.01) $ 0.14
=========== ===========
Diluted net income (loss) per share......................... $ (0.01) $ 0.05
=========== ===========
Basic weighted average common shares outstanding............ 4,106,364 4,106,364
=========== ===========
Diluted weighted average common shares outstanding.......... -- 12,048,948
=========== ===========
Unaudited pro forma data (note 3):
Basic net income (loss) per share.........................
Diluted net income (loss) per share.......................
Basic weighted average common shares outstanding..........
Diluted weighted average common shares outstanding........
</TABLE>
The accompanying notes to condensed consolidated financial statements
are an integral part of these statements.
F-22
<PAGE> 74
THE MRC GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1997 AND
THE THREE MONTHS ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK
SERIES IV $.01 PAR VALUE COMMON STOCK ADDITIONAL TOTAL
---------------- ---------------- ------------------- PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT EQUITY
------ ------- ------ ------- --------- ------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1996............... 10,362 $ 104 -- $ -- 4,106,364 $41,064 $11,639,316 $(8,059,999) $ 3,620,485
Net loss........... -- -- -- -- -- -- -- (1,013,137) (1,013,137)
------ ------- ------ ------- --------- ------- ----------- ----------- -----------
Balance, December 31,
1997............... 10,362 104 -- -- 4,106,364 41,064 11,639,316 (9,073,136) 2,607,348
Compensation
expense for stock
options
(unaudited)...... -- -- -- -- -- -- 134,753 -- 134,753
Net income
(unaudited)...... -- -- -- -- -- -- -- 562,638 562,638
------ ------- ------ ------- --------- ------- ----------- ----------- -----------
Balance, March 31,
1998 (unaudited)... 10,362 $ 104 -- $ -- 4,106,364 $41,064 $11,774,069 $(8,510,498) $ 3,304,739
====== ======= ====== ======= ========= ======= =========== =========== ===========
</TABLE>
The accompanying notes to condensed consolidated financial statements
are an integral part of these statements.
F-23
<PAGE> 75
THE MRC GROUP, INC. AND SUBSIDIARY
UNAUDITED CONSOLDIATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998
<TABLE>
<CAPTION>
1997 1998
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $ (43,328) $ 562,638
Adjustments to reconcile net income (loss) to net cash
from operating activities:
Depreciation and amortization........................ 2,292,492 2,110,211
Compensation expense for stock options............... -- 134,753
Deferred tax provision (benefit)..................... 767,736 (90,000)
Loss on disposal of property......................... 29,938 --
Changes in operating assets and liabilities, net of
acquisitions:
Trade accounts receivable......................... (1,771,187) 334,781
Prepaid expenses and other assets................. 142,684 (9,447)
Accounts payable.................................. 400,348 (606,047)
Accrued and other liabilities..................... (517,232) 2,461,771
----------- -----------
Total adjustments............................... 1,344,779 4,336,022
----------- -----------
Net cash from operating activities.............. 1,301,451 4,898,660
----------- -----------
Cash flows from investing activities:
Capital expenditures...................................... (1,908,479) (1,661,628)
Sale of investments, net.................................. 1,984,235 1,026,345
Acquisition of businesses, net of stock issued and
acquired............................................... (1,725,676) (1,820,324)
----------- -----------
Net cash from investing activities.............. (1,649,920) (2,455,607)
----------- -----------
Cash flows from financing activities:
Repayments of long-term debt, net......................... (596,182) (672,330)
----------- -----------
Net cash from financing activities.............. (596,182) (672,330)
----------- -----------
Net change in cash and cash equivalents..................... (944,651) 1,770,723
Cash and cash equivalents, beginning of year................ 5,050,856 1,192,959
----------- -----------
Cash and cash equivalents, end of year...................... $ 4,106,205 $ 2,963,682
=========== ===========
Supplemental cash flow information:
Cash paid for interest.................................... $ 210,671 $ 158,264
=========== ===========
Cash paid for income taxes................................ $ 20,500 $ 139,806
=========== ===========
</TABLE>
The accompanying notes to condensed consolidated financial statements
are an integral part of these statements.
F-24
<PAGE> 76
THE MRC GROUP, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997 AND 1998
(UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The MRC Group, Inc., formerly MEDIFAX, Inc. and Subsidiary (collectively,
the "Company") provides electronic medical transcription and document management
services to the health care industry. The primary customers are hospitals,
medical centers across the United States. Significant accounting and reporting
policies are described below.
Basis of Presentation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiary. All significant intercompany
transactions and balances have been eliminated.
The accompanying interim consolidated financial statements included herein
have been prepared in accordance with generally accepted accounting principles.
In the opinion of management, the accompanying consolidated financial statements
have been prepared on the same basis as the audited consolidated financial
statements and all adjustments (consisting of normal recurring adjustments)
necessary for a fair presentation have been incorporated herein.
For purposes of these interim consolidated financial statements, certain
information and disclosures normally included in annual consolidated financial
statements have been omitted. These unaudited consolidated financial statements
should be read in conjunction with the audited Consolidated Financial Statements
and Notes thereto at December 31, 1995, 1996 and 1997.
2. ACQUISITIONS
During 1997, the Company acquired the assets of two entities and the stock
of one entity for cash of approximately $1.9 million plus the assumption of
certain liabilities.
In March 1998, the Company acquired the assets and assumed certain
liabilities of Transcription Concepts, Inc. for an aggregate consideration of
approximately $1.4 million, which was funded from operations.
All of the above acquisitions were accounted for as purchases, and the
results of operations are included in the accompanying consolidated financial
statements from the date of acquisition.
All of these acquisitions, excluding the 1998 acquisition, contain certain
contingent purchase price agreements which are payable based upon the results of
the operations of the Company.
3. UNAUDITED PRO FORMA DATA
The unaudited pro forma data set forth in the consolidated balance sheet
and consolidated statements of operations presents pro forma basic and diluted
earnings per share, and pro forma weighted average common shares outstanding
assuming all of the Company's Series IV Preferred Stock, Series V Preferred
Stock and Series VI Preferred Stock had been converted to Common Stock based on
specified conversion ratios as of the beginning of the stated periods presented.
For earnings per share pro forma calculation purposes, it also assumes the
issuance of Common Stock in the Offering discussed in Note 4 as of the beginning
of the stated periods presented and the application of net proceeds to reduce
interest expense on debt to be repaid with the proceeds of the Offering.
F-25
<PAGE> 77
THE MRC GROUP, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1997 AND 1998
(UNAUDITED)
4. SIGNIFICANT SUBSEQUENT EVENTS
In June 1998, the Company filed a Registration Statement relating to the
initial public offering of its Common Stock (the "Offering"). The net proceeds
to the Company will be used to pay debt and for working capital and general
corporate purposes. Prior to the Offering, the Company intends to reincorporate
in the State of Delaware and to change its capital structure. The significant
changes include (i) a reverse Common Stock split based on a 0.7 to 1.0 ratio,
and a corresponding adjustment to all option shares and prices, warrant shares
and prices and preferred stock conversion rates; (ii) an increase in its
authorized Common Stock to 100,000,000 shares; (iii) creation of 300,000 shares
of newly authorized, undesignated preferred stock, $.01 par value; and (iv) an
increase in the number of shares of Common Stock reserved for issuance upon
exercise of options granted under the Company's stock option plan to 4,000,000
shares. The accompanying consolidated financial statements reflect these
changes. Effective upon closing of the Offering, all issued preferred stock will
be converted into Common Stock under its specified terms.
F-26
<PAGE> 78
INDEPENDENT AUDITORS' REPORT
TO MEDICAL RECORDS CORP. AND AFFILIATE
We have audited the accompanying restated combined statements of income,
stockholders' equity, and cash flows of Medical Records Corp. and Affiliate for
the year ended December 31, 1995. These combined financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these combined financial statements 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 combined financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the combined 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 audit provides a reasonable basis
for our opinion.
In our opinion, the accompanying restated combined financial statements
referred to above present fairly, in all material respects, the results of
operations, stockholders' equity, and cash flows for Medical Records Corp. and
Affiliate for the year ended December 31, 1995, in conformity with generally
accepted accounting principles.
SKODA, MINOTTI, REEVES & CO.
February 16, 1996
(except for Note 2, as to which the date is May 26, 1998)
F-27
<PAGE> 79
MEDICAL RECORDS CORP. AND AFFILIATE
COMBINED STATEMENT OF INCOME (AS RESTATED)
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C>
Net revenues................................................ $42,602,194
Cost of revenues............................................ 27,191,643
-----------
Gross profit................................................ 15,410,551
Selling, general and administrative expenses................ 13,024,066
Depreciation and amortization............................... 1,765,625
-----------
Operating income............................................ 620,860
Interest expense (net of interest income of $9,544)......... 307,679
-----------
Net income.................................................. $ 313,181
===========
</TABLE>
The accompanying notes are an integral part of these combined statements.
F-28
<PAGE> 80
MEDICAL RECORDS CORP. AND AFFILIATE
COMBINED STATEMENT OF STOCKHOLDERS' EQUITY (AS RESTATED)
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
NO PAR VOTING NO PAR NON-VOTING
COMMON STOCK, COMMON STOCK,
STATED AT STATED AT ADDITIONAL TOTAL
--------------- ----------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS EQUITY
------ ------ ------- ------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1,
1995.................. 278.45 $1,432 -- $ -- $178,840 $4,598,936 $4,779,208
Capital contributions... -- -- -- -- 400,000 -- 400,000
Issuance of shares...... -- -- 5290.55 -- -- -- --
Stockholders'
distributions......... -- -- -- -- -- (409,121) (409,121)
Net income.............. -- -- -- -- -- 313,181 313,181
------ ------ ------- ------- -------- ---------- ----------
Balance, December 31,
1995.................. 278.45 $1,432 5290.55 $ -- $578,840 $4,502,996 $5,083,268
====== ====== ======= ======= ======== ========== ==========
</TABLE>
The accompanying notes are an integral part of these combined statements.
F-29
<PAGE> 81
MEDICAL RECORDS CORP. AND AFFILIATE
COMBINED STATEMENT OF CASH FLOWS (AS RESTATED)
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income................................................ $ 313,181
Adjustments to reconcile net income to net cash from
operating activities:
Addback: Items not affecting cash
Depreciation and amortization........................ $ 1,765,625
Write-off of software development costs.............. 307,500
Cash provided from (used in) changes in the following
items:
Increase in accounts receivable...................... (1,995,002)
Decrease in prepaid expenses......................... 31,018
Increase in deposits................................. (6,652)
Increase in accounts payable - trade................. 917,106
Increase in accrued and other liabilities............ 183,783
-----------
Total Adjustments............................... 1,203,378
-----------
Net cash from operating activities.............. 1,516,559
Cash flows from investing activities:
Acquisitions of businesses................................ $ (795,653)
Additional amounts paid for business acquisitions......... (643,988)
Acquisitions of property and equipment.................... (613,633)
-----------
Net cash from investing activities.............. (2,053,274)
Cash flows from financing activities:
Proceeds from note payable -- bank........................ $ 1,350,000
Proceeds from long-term obligations....................... 580,583
Repayment of long-term obligations principal.............. (649,974)
Stockholders' distributions............................... (659,121)
-----------
Net cash from financing activities.............. 621,488
-----------
Net increase in cash and cash equivalents................... 84,773
Cash and cash equivalents -- beginning of year.............. 156,302
-----------
Cash and cash equivalents -- end of year.................... $ 241,075
===========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest............................................. $ 316,239
===========
Income taxes......................................... $ 26,611
===========
</TABLE>
NON-CASH INVESTING AND FINANCING ACTIVITIES:
During 1995, the Company acquired $2,442,040 of equipment through capital
lease obligations. In addition, during 1995, certain stockholders contributed
$400,000 of loans to additional paid-in capital.
The accompanying notes are an integral part of these combined statements.
F-30
<PAGE> 82
MEDICAL RECORDS CORP. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
Combined in these financial statements is Transcription Specialists, Inc.,
an affiliate through common ownership of Medical Records Corp. Management
believes this inclusion of the five branches of Transcription Specialists, Inc.
is useful for the clear reflection of the Company's combined results of
operations.
Nature of Business
Medical Records Corp. and Transcription Specialists, Inc. transcribe
medical records for hospitals throughout the United States.
Depreciation and Amortization
Depreciation and amortization of property and equipment, including assets
held under capital leases, are provided by the use of accelerated and
straight-line methods over the estimated useful lives of the assets as follows:
<TABLE>
<S> <C>
Equipment five years
Equipment held under capital leases three years
Computer software three to five years
Furniture and fixtures seven years
Automobiles five years
</TABLE>
Depreciation expense for the year ended December 31, 1995, was $1,476,165.
In addition, during 1995, the Company wrote off software development costs.
Revenue Recognition
Fees for transcription-related services are based on contract rates, and
revenue is recognized upon the rendering of services.
Income Taxes
The Companies, with the consent of their stockholders, have elected under
the Internal Revenue Code to be taxed as S Corporations. In lieu of corporation
income and franchise taxes, the stockholders of an S Corporation are taxed on
their proportionate share of each Company's taxable income. Therefore, no
provision or liability for federal or state income taxes has been included in
these combined financial statements.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures. Accordingly,
actual results could differ from those estimates.
Combined Statement of Cash Flows
For purposes of the combined statement of cash flows, the Company considers
all highly liquid debt instruments purchased with a maturity of three months or
less to be cash equivalents.
F-31
<PAGE> 83
MEDICAL RECORDS CORP. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1995
2. CHANGE IN METHOD OF ACCOUNTING FOR BUSINESS COMBINATIONS
The 1995 statements of income, stockholders' equity, and cash flows have
been restated to capitalize costs related to non-compete agreements and payments
related to revenues generated by certain acquired companies, incurred in
connection with business combinations. These costs were recorded as period
expenses in previously issued financial statements. The Company has recorded
these non-compete and revenue-related costs as identifiable intangible assets
and goodwill, which are being amortized over 7 and 40 years, respectively. The
new method of accounting for business combinations was adopted in order for the
Company to be consistent in its accounting policies with a company with whom
they merged on July 19, 1996. The effects of the accounting change are an
increase to retained earnings at January 1, 1995 of $1,255,952 and an increase
to net income for the year ended December 31, 1995 of $696,888.
3. RELATED PARTY TRANSACTIONS
During 1995, administrative service fees of $440,969 were paid to a
partnership owned by certain officers/stockholders of the Company.
4. BUSINESS COMBINATIONS
During the year ended December 31, 1995, the Company acquired certain
assets of Stat Transcription Services, Inc., Medi-Transcriptions, LTD. and
Transcribe, Inc. in business combinations accounted for as purchases. These
companies transcribe medical records. The results of operations are included in
the accompanying financial statements since the dates of acquisition. The total
purchase price of these acquisitions was $1,086,441, including $795,653 of cash
paid and $290,788 of liabilities assumed.
In connection with the acquisition of certain businesses, the Company has
capitalized additional obligations related to covenants not to compete and
obligations based on revenues generated by the acquired businesses. These
obligations have been recorded as identifiable intangible assets and goodwill
and are amortized over 7 and 40 years, respectively. The obligations are
recorded in the year they are incurred and amortized over their remaining
respective lives, based on the original acquisition date.
Amortization expense, related principally to goodwill, for the year ended
December 31, 1995, was $289,460.
Management regularly evaluates its accounting for goodwill. Impairment of
goodwill would be recognized when events or changes in circumstances indicate
that the carrying amount of the asset may not be recoverable. As of December 31,
1995, no revision to the remaining useful lives or write-down of intangible
assets has been recorded.
5. FINANCING ARRANGEMENTS
At December 31, 1995, the Company has a line of credit agreement with a
bank, due April 1996 that bears interest at the bank's prime rate (8.5% at
December 31, 1995). Borrowings under the line are secured by accounts receivable
and equipment.
Under the terms of specific loan agreements with a bank, the Company is
required to maintain and meet certain loan covenant requirements pertaining to
such items as net worth, debt to net worth ratio, cash flow coverage and minimum
working capital levels. At December 31, 1995, the Company was in compliance with
or received bank waivers for the above mentioned covenants.
F-32
<PAGE> 84
MEDICAL RECORDS CORP. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1995
6. LEASING ARRANGEMENTS
The Company leases its facilities under operating leases which expire
through October 2000. The Company also leases equipment under capital and
operating leases which expire through September 1999. Total rental expense under
operating leases was $1,424,390 for the year ended December 31, 1995.
7. PROFIT SHARING PLAN
The Company sponsors the Medical Records Corp. Profit Sharing and Savings
Plan and Trust, which covers substantially all employees. Participating
employees may elect to contribute, on a tax-deferred basis, a portion of their
compensation, in accordance with Section 401(k) of the Internal Revenue Code.
The Company matches 20% of employee contributions for participants with less
than 10 years of service and 40% for those participants with 10 or more years of
service. Additional contributions may be made to the plan at the discretion of
the employer. Company matching contributions for the year ended December 31,
1995 were $231,778.
8. COMMON STOCK AND ADDITIONAL PAID-IN CAPITAL
There are 178.45 shares of Common Stock of Medical Records Corp. and 100
shares of Common Stock of Transcription Specialists, Inc. issued and outstanding
at December 31, 1995, with a combined stated value of $1,432. During 1995, each
of the Companies issued shares of Class B Common Non-Voting Stock by way of a
stock dividend. There are 3,390.55 shares of Common Non-Voting Stock of Medical
Records Corp. and 1,900 shares of Common Non-Voting Stock of Transcription
Specialists, Inc. issued and outstanding at December 31, 1995. The total
authorized shares are 500 shares of Common Stock for both Medical Records Corp.
and Transcription Specialists, Inc., and 3,400 and 1,900 shares of Class B
Common Non-Voting Stock, respectively. Additional paid-in capital is for Medical
Records Corp. only, and at December 31, 1995, totaled $578,840, which includes
$400,000 of loans from stockholders which were contributed to capital during
1995.
F-33
<PAGE> 85
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
The MRC Group, Inc.:
We have audited the accompanying statements of operations, stockholders'
equity and cash flows of the Medical Records Corp. (the "Acquired Company"), as
described in Note 1, for the period January 1, 1996 to July 19, 1996. These
financial statements are the responsibility of the Acquired Company's
management. Our responsibility is to express an opinion on these financial
statements 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 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 audit provides a reasonable basis for our opinion.
The statements of operations, stockholders' equity and cash flows of the
Acquired Company were prepared for the purpose of complying with the rules and
regulations of the Securities and Exchange Commission as described in Note 1.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the operations and cash flows of the Acquired Company,
for the period January 1, 1996 to July 19, 1996 in conformity with generally
accepted accounting principles.
Arthur Andersen LLP
Cleveland, Ohio,
May 1, 1998.
F-34
<PAGE> 86
MEDICAL RECORDS CORP.
STATEMENT OF OPERATIONS
FOR THE PERIOD JANUARY 1, 1996 TO JULY 19, 1996
<TABLE>
<S> <C>
Net revenues................................................ $27,573,883
Cost of revenues............................................ 21,053,795
-----------
Gross profit................................................ 6,520,088
Selling, general and administrative expenses................ 5,391,300
Depreciation and amortization............................... 1,259,311
Compensation expense from stock issuance.................... 3,912,047
-----------
Operating loss.............................................. (4,042,570)
-----------
Other expense:
Interest expense.......................................... (250,716)
Other..................................................... (5,527)
-----------
Total other expense............................... (256,243)
-----------
Net loss.................................................... $(4,298,813)
===========
</TABLE>
The accompanying notes to financial statements are an integral part of this
statement.
F-35
<PAGE> 87
MEDICAL RECORDS CORP.
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD JANUARY 1, 1996 TO JULY 19, 1996
<TABLE>
<CAPTION>
NO PAR VOTING NO PAR NON-VOTING
COMMON STOCK, COMMON STOCK,
STATED AT STATED AT ADDITIONAL RETAINED TOTAL
---------------- ------------------ PAID-IN EARNINGS STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL (DEFICIT) EQUITY
------ ------ -------- ------ ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1995................... 278.45 $1,432 5290.55 $ -- $ 578,840 $ 4,502,996 $5,083,268
Capital
contributions...... -- -- -- -- 1,250,000 -- 1,250,000
Issuance of shares,
including
compensation
expense from stock
issuance (Note 2).. -- -- 916.00 -- 3,912,047 -- 3,912,047
Stockholders'
distributions...... -- -- -- -- -- (1,225,898) (1,225,898)
Net loss............. -- -- -- -- -- (4,298,813) (4,298,813)
------ ------ -------- ---- ---------- ----------- ----------
Balance, July 19, 1996... 278.45 $1,432 6,206.55 $ -- $5,740,887 $(1,021,715) $4,720,604
====== ====== ======== ==== ========== =========== ==========
</TABLE>
The accompanying notes to financial statements are an integral part of this
statement.
F-36
<PAGE> 88
MEDICAL RECORDS CORP.
STATEMENT OF CASH FLOWS
FOR THE PERIOD JANUARY 1, 1996 TO JULY 19, 1996
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss.................................................. $(4,298,813)
Adjustments to reconcile net loss to net cash from
operating activities:
Depreciation and amortization.......................... 1,259,311
Compensation expense for stock issuance................ 3,912,047
Changes in operating assets and liabilities:
Trade accounts receivable............................ (778,768)
Prepaid expenses..................................... (123,661)
Other assets......................................... (1,915,350)
Accounts payable..................................... 1,460,133
Accrued and other liabilities........................ 953,001
-----------
Total adjustments................................. 4,766,713
-----------
Net cash from operating activities................ 467,900
-----------
Cash flows from investing activities:
Capital expenditures...................................... (310,451)
-----------
Net cash from investing activities................ (310,451)
-----------
Cash flows from financing activities:
Repayments of long-term debt, net......................... (422,626)
Stockholders' distributions............................... (1,225,898)
Capital contributions..................................... 1,250,000
-----------
Net cash from financing activities................ (398,524)
-----------
Net change in cash and cash equivalents..................... (241,075)
Cash and cash equivalents, beginning of year................ 241,075
-----------
Cash and cash equivalents, end of year...................... $ --
===========
Supplemental cash flow information:
Cash paid for interest.................................... $ 257,211
===========
Cash paid for taxes....................................... $ --
===========
Supplemental statement of non-cash investing and financing
activities:
The Acquired Company entered into equipment lease
obligations totaling $560,872, which were accounted for
as capital leases.
</TABLE>
The accompanying notes to financial statements are an integral part of this
statement.
F-37
<PAGE> 89
MEDICAL RECORDS CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD JANUARY 1, 1996 TO JULY 19, 1996
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Medical Records Corp., an Ohio corporation, transcribes medical records for
hospitals throughout the United States.
Organization
Effective May 28, 1996, Transcription Specialists, Inc., was merged into
Medical Records Corp. Since Medical Records Corp. and Transcription Specialists,
Inc. shared common ownership, the merger of these entities was accounted for as
a related party pooling-of-interests. The accompanying financial statements
include the results of both entities.
Effective July 19, 1996, all of the outstanding stock of Medical Records
Corp. (the "Acquired Company") was acquired by The MRC Group, Inc. (formerly
MEDIFAX, Inc.) for a total purchase price of approximately $27,700,000.
Basis of Presentation
The accompanying statements of operations, stockholders' equity and cash
flows are presented to comply with the requirements under Rule 3-05 of
Securities and Exchange Commission Regulation S-X.
Depreciation and Amortization
Depreciation and amortization of property and equipment, including assets
held under capital leases, are provided by the use of accelerated and
straight-line methods over the estimated useful lives of the assets as follows:
<TABLE>
<S> <C>
Equipment five years
Equipment held under capital leases three years
Computer software three to five years
Furniture and fixtures seven years
Automobiles five years
</TABLE>
Depreciation expense for the period January 1, 1996 to July 19, 1996 was
$1,030,138.
Goodwill and Other Intangibles
The Acquired Company has capitalized certain costs associated with various
acquisitions including goodwill and non-compete agreements. Management regularly
evaluates its accounting for goodwill and other intangible assets. Impairment of
goodwill and other intangible assets would be recognized when events or changes
in circumstances indicate that the carrying amount of the asset may not be
recoverable. As of July 19, 1996, no revision to the remaining useful lives or
write-down of intangible assets has been recorded.
Goodwill is being amortized on the straight-line method over 40 years.
Other intangible assets are being amortized over the seven year life of the
non-compete agreements. Amortization expense for the period of January 1, 1996
to July 19, 1996 was $229,173.
F-38
<PAGE> 90
MEDICAL RECORDS CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE PERIOD JANUARY 1, 1996 TO JULY 19, 1996
Income Taxes
The Acquired Company, with the consent of their stockholders, elected under
the Internal Revenue Code to be taxed as an S Corporation. In lieu of
corporation income and franchise taxes, the stockholders of an S Corporation are
taxed on their proportionate share of the Acquired Company's taxable income.
Therefore, no provision or liability for federal or state income taxes has been
included in these financial statements.
Revenue Recognition
Fees for transcription-related services are based on contract rates, and
revenue is recognized upon the rendering of services.
Research and Development Costs
Research and development costs are expensed as incurred. There were no
research and development costs during the period January 1, 1996 to July 19,
1996.
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of revenues and expenses during the
reporting period. Since actual results could differ from those estimates,
revisions to estimates are made as better information becomes available.
2. RELATED PARTY TRANSACTIONS
Administrative service fees of $244,350 were paid to a partnership owned by
certain officers and shareholders of the Acquired Company. These fees are
included in other operating expenses in the accompanying statement of
operations.
Stock compensation expense of $3,912,047 was recognized in 1996 for the
issuance of 916 shares of non-voting common stock to several employees for past
services. These shares were issued at no cost to these employees. The offset to
the charge was recorded as additional paid-in capital.
A special cash bonus in the amount of $350,000 was paid in 1996 to a
director and the expense is included as a part of other operating expenses in
the accompanying statement of operations.
3. COMMITMENTS AND CONTINGENCIES
The Acquired Company entered into various non-compete and consulting
agreements with stockholders of its acquired companies. The following is a
summary of these agreements:
Non-Competition Agreements
The Acquired Company has entered into non-competition agreements with
former stockholders of acquired entities for terms ending October 1997 through
July 2000. These costs are being amortized on a straight-line basis over the
life of the agreements and are included in amortization expense.
F-39
<PAGE> 91
MEDICAL RECORDS CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE PERIOD JANUARY 1, 1996 TO JULY 19, 1996
Consulting Fees
The Acquired Company has entered into consulting agreements with former
stockholders of acquired entities for terms ending November 1996 through
February 2000. Expense is charged in the year services are rendered. Total costs
for the period January 1, 1996 to July 19, 1996 was $143,818.
4. LEASING ARRANGEMENTS
The Acquired Company leases certain of its facilities under operating
leases, which expire through October 2000. The Acquired Company also leases
certain equipment under capital and operating leases, which expire through
September 1999.
Total rental expense under operating leases was $1,044,667 for the period
January 1, 1996 to July 19, 1996.
5. PROFIT SHARING PLAN
The Acquired Company sponsors the Medical Records Corp. Profit Sharing and
Savings Plan and Trust, which covers substantially all employees. Participating
employees may elect to contribute, on a tax-deferred basis, a portion of their
compensation, in accordance with Section 401(k) of the Internal Revenue Code.
The Company matches 20% of employee contributions for participants with less
than 10 years of service and 40% for those participants with 10 or more years of
service. Additional contributions may be made to the plan at the discretion of
the employer. Total matching contributions for the period January 1, 1996 to
July 19, 1996 were $144,127.
F-40
<PAGE> 92
======================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THIS OFFERING OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR ANY UNDERWRITER. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE
DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR
SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES OTHER THAN THE REGISTERED
SECURITIES TO WHICH IT RELATES, OR AN OFFER TO BUY, OR SOLICITATION OF, ANY
PERSON IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 7
The Company........................... 12
Use of Proceeds....................... 12
Dividend Policy....................... 12
Capitalization........................ 13
Dilution.............................. 14
Selected Consolidated Financial
Data................................ 15
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 17
Business.............................. 24
Management............................ 38
Principal and Selling Stockholders.... 43
Certain Transactions.................. 44
Description of Capital Stock.......... 44
Shares Eligible for Future Sale....... 46
Underwriting.......................... 48
Experts............................... 49
Legal Matters......................... 49
Additional Information................ 50
Index to Financial Statements......... F-1
</TABLE>
---------------------
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK OFFERED HEREBY, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
======================================================
======================================================
SHARES
[MRC LOGO]
COMMON STOCK
-------------------
PROSPECTUS
-------------------
BT Alex. Brown
Donaldson, Lufkin & Jenrette
Securities Corporation
William Blair & Company
, 1998
======================================================
<PAGE> 93
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the fees and expenses in connection with the
issuance and distribution of the securities being registered hereunder. Except
for the Commission registration fee, the NASD filing fee and the Nasdaq National
Market listing fee, all amounts are estimates.
<TABLE>
<S> <C>
SEC registration fee........................................ $ 20,355
NASD filing fee............................................. 7,400
Nasdaq National Market listing fee.......................... 95,000
Accounting fees and expenses................................ *
Legal fees and expenses..................................... *
Blue Sky fees and expenses (including counsel fees)......... 5,000
Printing and engraving expenses............................. *
Transfer agent's and registrar's fees and expenses.......... *
Miscellaneous expenses...................................... *
Initial public offering directors' and officers' liability
insurance................................................. *
--------
TOTAL..................................................... $ *
========
</TABLE>
- ---------------
* To be completed by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law, as amended (the
"DGCL"), provides that a corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful.
Section 145 further provides that a corporation similarly may indemnify any such
person serving in any such capacity who was or is a party or is threatened to be
made a party to any threatened, pending or completed action or suit by or in the
right of the corporation to procure a judgment in its favor, against expenses
actually and reasonably incurred in connection with the defense or settlement of
such action or suit if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the corporation and
except that no indemnification shall be made in respect to any claim, issue or
matter as to which such person shall have been adjudged to be liable to the
corporation unless and only to the extent that the Delaware Court of Chancery or
such other court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
The By-Laws of the Company, a copy of which is filed as Exhibit 3.2,
contain certain indemnification provisions adopted pursuant to authority
contained in Section 145 of the DGCL. The By-Laws provide for the
indemnification of its officers, directors, employees, and agents against all
II-1
<PAGE> 94
expenses with respect to any judgments, fines, and amounts paid in settlement,
or with respect to any threatened, pending, or completed action, suit, or
proceeding to which they were or are parties or are threatened to be made
parties by reason of acting in such capacities, provided that it is determined,
either by a majority vote of a quorum of disinterested directors of the Company
or by the stockholders of the Company or otherwise as provided in the By-Laws,
that: (i) they acted in good faith and in a manner they reasonably believed to
be in or not opposed to the best interests of the Company; (ii) in any action,
suit, or proceeding by or in the right of the Company, they were not, and have
not been adjudicated to have been liable to the Company; and (iii) with respect
to any criminal action or proceeding, that they had no reasonable cause to
believe that their conduct was unlawful. The By-Laws provide that to the extent
a director, officer, employee, or agent has been successful on the merits or
otherwise in defense of any such action, suit, or proceeding, he shall be
indemnified against expenses actually and reasonably incurred in connection
therewith.
Section 102(b)(7) of the DGCL permits a corporation to include in its
certificate of incorporation a provision eliminating or limiting the personal
liability of a director to the corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director, provided that such provision
shall not eliminate or limit the liability of a director (i) for any breach of
the director's duty of loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the DGCL (relating to
unlawful payment of dividends and unlawful stock purchase and redemption) or
(iv) for any transaction from which the director derived an improper personal
benefit. The Certificate of Incorporation of the Company, a copy of which is
filed as Exhibit 3.1, eliminates personal liability of a director to the Company
and its stockholders for monetary damages for breach of fiduciary as a director
to the maximum extent permitted by Section 102(b)(7) of the DGCL.
The Registrant maintains a directors' and officers' insurance policy which
insures the officers and directors of the Registrant from any claim arising out
of an alleged wrongful act by such persons in their respective capacities as
officers and directors of the Registrant.
Reference is made to Section 8 of the Underwriting Agreement, a copy of
which is filed herewith as Exhibit 1.1, for information concerning
indemnification arrangements among the Registrant, Selling Stockholders and the
Underwriters.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In June 1998, in connection with the formation of the Registrant for the
purposes of the Reincorporation Merger, the Registrant issued 100 shares of
Common Stock to the Company's predecessor, The MRC Group, Inc., a Missouri
corporation, for $1,000.00 in cash. This transaction was exempt from
registration pursuant to Section 4(2) of the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS -- The following is a list of exhibits in this Registration
Statement.
<TABLE>
EXHIBIT
NO. DESCRIPTION
- ------- ------------------------------------------------------------
<C> <S>
1.1 Proposed Form of Underwriting Agreement
*3.1 Amended and Restated Certificate of Incorporation of the
Company
*3.2 By-Laws of the Company
*4.1 Specimen Share Certificate
*5.1 Opinion of Baker & Hostetler LLP regarding the legality of
the shares of Common Stock being registered
</TABLE>
II-2
<PAGE> 95
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
10.1 Second Amended and Restated Loan and Security Agreement by
and between MEDIFAX, Inc., Medical Records Corp. and Summit
Bank dated July 30,1996
*10.2 Development and Marketing Agreement dated as of October 25,
1996 by and between Articulate Systems, Inc. and MEDIFAX,
Inc. d/b/a MRC Group
*10.3 Amended and Restated 1992 Employee Stock Option Plan
10.4 Amended and Restated Registration Rights Agreement dated
July 19, 1996
10.5 Covenant Not to Compete and Severance Agreement by and
between the Company and Edward L. Samek dated July 19, 1996
10.6 Covenant Not to Compete and Severance Agreement by and
between the Company and Martin H. Marcus dated July 19, 1996
10.7 Covenant Not to Compete and Severance Agreement by and
between the Company and Herbert L. Marcus dated July 19,
1996
10.8 Employment Agreement by and between the Company and Dennis
R. Byerly dated July 7, 1997
10.9 Employment Agreement by and between the Company and Steven
Bell dated July 2, 1996
10.10 Employment Agreement by and between the Company and Ethan H.
Cohen dated March 19, 1997
10.11 Covenant Not to Compete and Severance Agreement by and
between the Company and Philip M. Cohen dated July 19, 1996
10.12 Covenant Not to Compete and Severance Agreement by and
between the Company and James W. Mills October 22, 1996
10.13 MEDIFAX, Inc. Stock Option Agreement with Edward L. Samek
dated April 1, 1995
10.14 MEDIFAX, Inc. Stock Option Agreements with Edward L. Samek
dated July 19, 1996 (Option I, II and III)
10.15 Form of Promissory Note dated July 19, 1996
10.16 Contract for License of Medwrite Software and Support
Arrangements dated February 1, 1994.
10.17 Green Park Building Lease dated January 1, 1998
10.18 1998 Incentive Compensation Plan
11.1 Statement re Computation of Earnings Per Share
21.1 Subsidiaries
*23.1 Consent of Baker & Hostetler LLP (to be contained in Exhibit
5.1)
23.2 Consent of Arthur Andersen LLP
23.3 Consent of Skoda, Minotti, Reeves & Co.
24.1 Powers of Attorney (contained in the signature pages)
27.1 Financial Data Schedule
27.2 Financial Data Schedule
</TABLE>
- ---------------
* To be filed by Amendment.
(b) FINANCIAL STATEMENT SCHEDULES
See page F-1 of the Prospectus for a list of the financial statements
schedules included as part of the Prospectus.
II-3
<PAGE> 96
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the 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.
The undersigned Registrant hereby undertakes that:
(a) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(b) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 97
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Cleveland, State of Ohio,
on the 23rd day of June, 1998.
THE MRC GROUP, INC.
By /s/ EDWARD L. SAMEK
------------------------------------
Edward L. Samek, Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Edward L. Samek, Steven Bell and Ellen
Norton, or any one of them, his true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution, for him and in his name,
place, and stead, in any and all capacities, to sign any and all amendments to
the Registration Statement, including post-effective amendments, and
registration statements filed pursuant to Rule 462 under the Securities Act of
1933, and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, and does
hereby grant unto said attorneys-in-fact and agents, and each of them, full
power and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or any of them, or their or his
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated on the 23rd day of June, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ EDWARD L. SAMEK Chairman and Chief Executive Officer (principal
- ------------------------------------------ executive officer)
Edward L. Samek
/s/ STEVEN BELL Senior Vice President and Chief Financial Officer
- ------------------------------------------ (principal financial officer and principal accounting
Steven Bell officer)
/s/ BRUCE K. ANDERSON Director
- ------------------------------------------
Bruce K. Anderson
/s/ MARTIN H. MARCUS Director
- ------------------------------------------
Martin H. Marcus
/s/ TIMOTHY M. MURRAY Director
- ------------------------------------------
Timothy M. Murray
/s/ RICHARD H. STOWE Director
- ------------------------------------------
Richard H. Stowe
</TABLE>
II-5
<PAGE> 1
Exhibit 1.1
_______________ Shares
THE MRC GROUP, INC.
Common Stock
($_____ Par Value)
FORM OF
EQUITY UNDERWRITING AGREEMENT
-----------------------------
_____________, 1998
BT Alex. Brown Incorporated
Donaldson, Lufkin & Jenrette Securities Corporation
William Blair & Company, L.L.C.
As Representatives of the
Several Underwriters
c/o BT Alex. Brown Incorporated
One South Street
Baltimore, Maryland 21202
Ladies and Gentlemen:
The MRC Group, Inc., a Delaware corporation (the "Company"), and
certain shareholders of the Company (the "Selling Shareholders") propose to sell
to the several underwriters (the "Underwriters") named in Schedule I hereto for
whom you are acting as representatives (the "Representatives") an aggregate of
__________ shares of the Company's Common Stock, $_____ par value (the "Firm
Shares"), of which __________ shares will be sold by the Company and __________
shares will be sold by the Selling Shareholders. The respective amounts of the
Firm Shares to be so purchased by the several Underwriters are set forth
opposite their names in SCHEDULE I hereto, and the respective amounts to be sold
by the Selling Shareholders are set forth opposite their names in SCHEDULE II
hereto. The Company and the Selling Shareholders are sometimes referred to
herein collectively as the "Sellers." [The Company and the certain Selling
Shareholders also propose to sell at the Underwriters' option an aggregate of up
to __________ additional shares of the Company's Common Stock (the "Option
Shares") as set forth on SCHEDULE II hereto.]
As the Representatives, you have advised the Company and the Selling
Shareholders (a) that you are authorized to enter into this Agreement on behalf
of the several Underwriters, and
<PAGE> 2
-2-
(b) that the several Underwriters are willing, acting severally and not jointly,
to purchase the numbers of Firm Shares set forth opposite their respective names
in SCHEDULE I, plus their pro rata portion of the Option Shares if you elect to
exercise the over-allotment option in whole or in part for the accounts of the
several Underwriters. The Firm Shares and the Option Shares (to the extent the
aforementioned option is exercised) are herein collectively called the "Shares."
In consideration of the mutual agreements contained herein and of the
interests of the parties in the transactions contemplated hereby, the parties
hereto agree as follows:
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SELLING
-------------------------------------------------------------
SHAREHOLDERS.
- -------------
(a) The Company represents and warrants to each of the
Underwriters as follows:
(i) A registration statement on Form S-1 (File No. 333-______)
with respect to the Shares has been prepared by the Company in conformity with
the requirements of the Securities Act of 1933, as amended (the "Act"), and the
Rules and Regulations (the "Rules and Regulations") of the Securities and
Exchange Commission (the "Commission") thereunder and has been filed with the
Commission. Copies of such registration statement, including any amendments
thereto, the preliminary prospectuses (meeting the requirements of the Rules and
Regulations) contained therein and the exhibits, financial statements and
schedules, as finally amended and revised, have heretofore been delivered by the
Company to you and to the extent applicable, were identical to the
electronically transmitted copies thereof filed with the Commission pursuant to
the Commission's Electronic Data Gathering, Analysis and Retrieval System
("EDGAR"), except to the extent permitted by Regulation S-T. Such registration
statement, together with any registration statement filed by the Company
pursuant to Rule 462 (b) of the Act, herein referred to as the "Registration
Statement," which shall be deemed to include all information omitted therefrom
in reliance upon Rule 430A and contained in the Prospectus referred to below,
has become effective under the Act and no post-effective amendment to the
Registration Statement has been filed as of the date of this Agreement.
"Prospectus" means the form of prospectus first filed with the Commission
pursuant to Rule 424(b). Each preliminary prospectus included in the
Registration Statement prior to the time it becomes effective is herein referred
to as a "Preliminary Prospectus." Any reference herein to the Registration
Statement, any Preliminary Prospectus or to the Prospectus shall be deemed to
refer to and include any supplements or amendments thereto, filed with the
Commission after the date of filing of the Prospectus under Rules 424(b) or
430A, and prior to the termination of the offering of the Shares by the
Underwriters. For purposes of this Agreement, all references to the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement to any of the foregoing, shall be deemed to include the respective
copies thereof filed with the Commission pursuant to EDGAR.
(ii) The Company has been duly organized and is validly
existing as a corporation in good standing under the laws of the State of
Delaware, with corporate power and authority to own or lease its properties
and conduct its business as described in the Registration Statement. Each of
the subsidiaries of the Company as listed in Exhibit 21 to Item 16(a) of the
Registration Statement (collectively, the "Subsidiaries") has been duly
organized and is validly existing as a
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corporation in good standing under the laws of the jurisdiction of its
incorporation, with corporate power and authority to own or lease its properties
and conduct its business as described in the Registration Statement. The
Subsidiaries are the only subsidiaries, direct or indirect, of the Company. The
Company and each of the Subsidiaries are duly qualified to transact business in
all jurisdictions in which the conduct of their business requires such
qualification. The outstanding shares of capital stock of each of the
Subsidiaries have been duly authorized and validly issued, are fully paid and
non-assessable and are owned by the Company free and clear of all liens,
encumbrances and equities and claims; and no options, warrants or other rights
to purchase, agreements or other obligations to issue or other rights to convert
any obligations into shares of capital stock or ownership interests in the
Subsidiaries are outstanding.
(iii) The outstanding shares of Common Stock of the Company,
including all shares to be sold by the Selling Shareholders, have been duly
authorized and validly issued and are fully paid and non-assessable; the portion
of the Shares to be issued and sold by the Company have been duly authorized and
when issued and paid for as contemplated herein will be validly issued, fully
paid and non-assessable; and no preemptive rights of stockholders exist with
respect to any of the Shares or the issue and sale thereof. Neither the filing
of the Registration Statement nor the offering or sale of the Shares as
contemplated by this Agreement gives rise to any rights, other than those which
have been waived or satisfied, for or relating to the registration of any shares
of Common Stock.
(iv) The information set forth under the caption
"Capitalization" in the Prospectus is true and correct. All of the Shares
conform to the description thereof contained in the Registration Statement. The
form of certificates for the Shares conforms to the corporate law of the
jurisdiction of the Company's incorporation.
(v) The Commission has not issued an order preventing or
suspending the use of any Prospectus relating to the proposed offering of the
Shares nor instituted proceedings for that purpose. The Registration Statement
contains, and the Prospectus and any amendments or supplements thereto will
contain, all statements which are required to be stated therein by, and will
conform, to the requirements of the Act and the Rules and Regulations. The
Registration Statement and any amendment thereto do not contain, and will not
contain, any untrue statement of a material fact and do not omit, and will not
omit, to state any material fact required to be stated therein or necessary to
make the statements therein not misleading. The Prospectus and any amendments
and supplements thereto do not contain, and will not contain, any untrue
statement of material fact; and do not omit, and will not omit, to state any
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; provided, however, that the Company makes no representations or
warranties as to information contained in or omitted from the Registration
Statement or the Prospectus, or any such amendment or supplement, in reliance
upon, and in conformity with, written information furnished to the Company by or
on behalf of any Underwriter through the Representatives, specifically for use
in the preparation thereof.
(vi) The consolidated financial statements of the Company and
the Subsidiaries, together with related notes and schedules as set forth in the
Registration Statement, present fairly
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the financial position and the results of operations and cash flows of the
Company and the consolidated Subsidiaries, at the indicated dates and for the
indicated periods. Such financial statements and related schedules have been
prepared in accordance with generally accepted principles of accounting,
consistently applied throughout the periods involved, except as disclosed
therein, and all adjustments necessary for a fair presentation of results for
such periods have been made. The summary financial and statistical data included
in the Registration Statement presents fairly the information shown therein and
such data has been compiled on a basis consistent with the financial statements
presented therein and the books and records of the company.
(vii) Arthur Andersen LLP and Skoda, Minotti, Reeves & Co.,
who have certified certain of the financial statements filed with the
Commission as part of, or incorporated by reference in, the Registration
Statement, are independent public accountants as required by the Act and the
Rules and Regulations.
(viii) There is no action, suit, claim or proceeding pending
or, to the knowledge of the Company, threatened against the Company or any of
the Subsidiaries before any court or administrative agency or otherwise which if
determined adversely to the Company or any of its Subsidiaries might result in
any material adverse change in the earnings, business, management, properties,
assets, rights, operations, condition (financial or otherwise) or prospects of
the Company and of the Subsidiaries taken as a whole or to prevent the
consummation of the transactions contemplated hereby, except as set forth in the
Registration Statement.
(ix) The Company and the Subsidiaries have good and marketable
title to all of the properties and assets reflected in the financial statements
(or as described in the Registration Statement) hereinabove described, subject
to no lien, mortgage, pledge, charge or encumbrance of any kind except those
reflected in such financial statements (or as described in the Registration
Statement) or which are not material in amount. The Company and the Subsidiaries
occupy their leased properties under valid and binding leases conforming in all
material respects to the description thereof set forth in the Registration
Statement.
(x) The Company and the Subsidiaries have filed all Federal,
State, local and foreign tax returns which have been required to be filed and
have paid all taxes indicated by said returns and all assessments received by
them or any of them to the extent that such taxes have become due and are not
being contested in good faith and for which an adequate reserve for accrual has
been established in accordance with generally accepted accounting principles.
All tax liabilities have been adequately provided for in the financial
statements of the Company, and the Company does not know of any actual or
proposed additional material tax assessments.
(xi) Since the respective dates as of which information is
given in the Registration Statement, as it may be amended or supplemented, there
has not been any material adverse change or any development involving a
prospective material adverse change in or affecting the earnings, business,
management, properties, assets, rights, operations, condition (financial or
otherwise), or prospects of the Company and its Subsidiaries taken as a whole,
whether or not occurring in the ordinary course of business, and there has not
been any material transaction entered into or any material transaction that is
probable of being entered into by the Company or the Subsidiaries, other
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than transactions in the ordinary course of business and changes and
transactions described in the Registration Statement, as it may be amended or
supplemented. The Company and the Subsidiaries have no material contingent
obligations which are not disclosed in the Company's financial statements which
are included in the Registration Statement.
(xii) Neither the Company nor any of the Subsidiaries is or
with the giving of notice or lapse of time or both, will be, in violation of or
in default under its Charter or By-Laws or under any agreement, lease, contract,
indenture or other instrument or obligation to which it is a party or by which
it, or any of its properties, is bound and which default is of material
significance in respect of the condition, financial or otherwise of the Company
and its Subsidiaries taken as a whole or the business, management, properties,
assets, rights, operations, condition (financial or otherwise) or prospects of
the Company and the Subsidiaries taken as a whole. The execution and delivery of
this Agreement and the consummation of the transactions herein contemplated and
the fulfillment of the terms hereof will not conflict with or result in a breach
of any of the terms or provisions of, or constitute a default under, any
indenture, mortgage, deed of trust or other agreement or instrument to which the
Company or any Subsidiary is a party, or of the Charter or By-Laws of the
Company or any order, rule or regulation applicable to the Company or any
Subsidiary of any court or of any regulatory body or administrative agency or
other governmental body having jurisdiction.
(xiii) Each approval, consent, order, authorization,
designation, declaration or filing by or with any regulatory, administrative or
other governmental body necessary in connection with the execution and delivery
by the Company of this Agreement and the consummation of the transactions herein
contemplated (except such additional steps as may be required by the Commission,
the National Association of Securities Dealers, Inc. (the "NASD") or such
additional steps as may be necessary to qualify the Shares for public offering
by the Underwriters under state securities or Blue Sky laws) has been obtained
or made and is in full force and effect.
(xiv) The Company and each of the Subsidiaries holds all
material licenses, certificates and permits from governmental authorities which
are necessary to the conduct of their businesses; and neither the Company nor
any of the Subsidiaries has infringed any patents, patent rights, trade names,
trademarks or copyrights, which infringement is material to the business of the
Company and the Subsidiaries taken as a whole. The Company knows of no material
infringement by others of patents, patent rights, trade names, trademarks or
copyrights owned by or licensed to the Company.
(xv) Neither the Company, nor to the Company's knowledge, any
of its affiliates, has taken or may take, directly or indirectly, any action
designed to cause or result in, or which has constituted or which might
reasonably be expected to constitute, the stabilization or manipulation of the
price of the shares of Common Stock to facilitate the sale or resale of the
Shares. The Company acknowledges that the Underwriters may engage in passive
market making transactions in the Shares on The Nasdaq National Market in
accordance with Rule 103 under Regulation M promulgated by the Commission.
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(xvi) Neither the Company nor any Subsidiary is an "investment
company" within the meaning of such term under the Investment Company Act of
1940, (as amended, the "1940 Act") and the rules and regulations of the
Commission thereunder.
(xvii) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (i) transactions are
executed in accordance with management's general or specific authorization; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(xviii) The Company and each of its Subsidiaries carry, or are
covered by, insurance in such amounts and covering such risks as is adequate for
the conduct of their respective businesses and the value of their respective
properties and as is customary for companies engaged in similar industries.
(xviii) The Company is in compliance in all material respects
with all presently applicable provisions of the Employee Retirement Income
Security Act of 1974, as amended, including the regulations and published
interpretations thereunder ("ERISA"); no "reportable event" (as defined in
ERISA) has occurred with respect to any "pension plan" (as defined in ERISA) for
which the Company would have any liability; the Company has not incurred and
does not expect to incur liability under (i) Title IV of ERISA with respect to
termination of, or withdrawal from, any "pension plan" or (ii) Sections 412 or
4971 of the Internal Revenue Code of 1986, as amended, including the regulations
and published interpretations thereunder (the "Code"); and each "pension plan"
for which the Company would have any liability that is intended to be qualified
under Section 401(a) of the Code is so qualified in all material respects and
nothing has occurred, whether by action or by failure to act, which would cause
the loss of such qualification.
(xix) To the Company's knowledge, there are no affiliations or
associations between any member of the NASD and any of the Company's officers,
directors or securityholders, except as set forth in the Registration Statement.
(xx) As of the merger of the MRC Group, Inc., a Missouri
corporation (the "Predecessor Company"), with and into the Company at the
effective time of the Reincorporation Merger, the Company and the Predecessor
Company each had all requisite power and authority to enter into the Agreement
and Plan of Merger and to consummate the transactions contemplated thereby. The
execution and delivery of the Agreement and Plan of Merger and the consummation
of the transactions contemplated thereby have been duly authorized by all
necessary corporate action on the part of the Company and the Predecessor
Company. The Agreement and Plan of Merger has been duly executed and delivered
by the Company and constitutes a valid and binding obligation of the Company,
enforceable against the Company and the Predecessor Company in accordance with
its terms. Each stockholder of the Company has received notice of the Agreement
and Plan of Merger and the transactions contemplated thereby as required under
applicable law (the "Reincorporation Merger") as described
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in the Registration Statement, has been consummated and duly effected under
applicable law. The rights of the stockholders of the Company to dissent to the
Reincorporation Merger and to demand payment of the fair value with respect to
their shares of securities of the Company under applicable law have terminated.
(xxi) The Company is in compliance in all material respects
with all applicable laws, regulations, orders, judgments and decrees applicable
to its business. The Company is in compliance with all applicable laws,
regulations, orders, judgments and decrees relating to discrimination in
employment, employment practices, family leave, disability or occupational
health and safety in connection with its business.
(b) Each of the Selling Shareholders severally represents and
warrants as follows:
(i) Such Selling Shareholder now has and at the Closing Date
[and the Option Closing Date, as the case may be] (as such date[s] [is] [are]
hereinafter defined) will have good and marketable title to the Firm Shares [and
the Option Shares] to be sold by such Selling Shareholder, free and clear of any
liens, encumbrances, equities and claims, and full right, power and authority to
effect the sale and delivery of such Firm Shares [and Option Shares]; and upon
the delivery of, against payment for, such Firm Shares [and Option Shares]
pursuant to this Agreement, the Underwriters will acquire good and marketable
title thereto, free and clear of any liens, encumbrances, equities and claims.
(ii) Such Selling Shareholder has full right, power and
authority to execute and deliver this Agreement and the Selling Shareholder's
Power of Attorney and Custody Agreement referred to below and to perform its
obligations under such Agreements. The execution and delivery of this Agreement
and the consummation by such Selling Shareholder of the transactions herein
contemplated and the fulfillment by such Selling Shareholder of the terms hereof
will not require any consent, approval, authorization, or other order of any
court, regulatory body, administrative agency or other governmental body (except
as may be required under the Act, state securities laws or Blue Sky laws) and
will not result in a breach of any of the terms and provisions of, or constitute
a default under, organizational documents of such Selling Shareholder, if not an
individual, or any indenture, mortgage, deed of trust or other agreement or
instrument to which such Selling Shareholder is a party, or of any order, rule
or regulation applicable to such Selling Shareholder of any court or of any
regulatory body or administrative agency or other governmental body having
jurisdiction.
(iii) Such Selling Shareholder has not taken and will not
take, directly or indirectly, any action designed to, or which has constituted,
or which might reasonably be expected to cause or result in the stabilization or
manipulation of the price of the Common Stock of the Company and, other than as
permitted by the Act, the Selling Shareholder will not distribute any prospectus
or other offering material in connection with the offering of the Shares.
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(iv) Without having undertaken to determine independently the
accuracy or completeness of either the representations and warranties of the
Company contained herein or the information contained in the Registration
Statement, such Selling Shareholder has no reason to believe that the
representations and warranties of the Company contained in this Section 1 are
not true and correct, is familiar with the Registration Statement and has no
knowledge of any material fact, condition or information not disclosed in the
Registration Statement which has adversely affected or may adversely affect the
business of the Company or any of the Subsidiaries; and the sale of the Firm
Shares [and the Option Shares] by such Selling Shareholder pursuant hereto is
not prompted by any information concerning the Company or any of the
Subsidiaries which is not set forth in the Registration Statement The
information pertaining to such Selling Shareholder under the caption "Selling
Shareholders" in the Prospectus is complete and accurate in all material
respects.
2. PURCHASE, SALE AND DELIVERY OF THE FIRM SHARES.
-----------------------------------------------
(a) On the basis of the representations, warranties and
covenants herein contained, and subject to the conditions herein set forth, the
Sellers agree to sell to the Underwriters and each Underwriter agrees, severally
and not jointly, to purchase, at a price of $_____ [net price] per share, the
number of Firm Shares set forth opposite the name of each Underwriter in
SCHEDULE I hereof, subject to adjustments in accordance with Section 9 hereof.
The number of Firm Shares to be purchased by each Underwriter from each Seller
shall be as nearly as practicable in the same proportion to the total number of
Firm Shares being sold by each Seller as the number of Firm Shares being
purchased by each Underwriter bears to the total number of Firm Shares to be
sold hereunder. The obligations of the Company and of each of the Selling
Shareholders shall be several and not joint.
(b) Certificates in negotiable form for the total number of
the Shares to be sold hereunder by the Selling Shareholders have been placed in
custody with the Company as custodian (the "Custodian") pursuant to the Selling
Shareholder's Power of Attorney and Custody Agreement executed by each Selling
Shareholder for delivery of all Firm Shares [and any Option Shares] to be sold
hereunder by the Selling Shareholders. Each of the Selling Shareholders
specifically agrees that the Firm Shares [and any Option Shares] represented by
the certificates held in custody for the Selling Shareholders under the Selling
Shareholder's Power of Attorney and Custody Agreement are subject to the
interests of the Underwriters hereunder, that the arrangements made by the
Selling Shareholders for such custody are to that extent irrevocable, and that
the obligations of the Selling Shareholders hereunder shall not be terminable by
any act or deed of the Selling Shareholders (or by any other person, firm or
corporation including the Company, the Custodian or the Underwriters) or by
operation of law (including the death of an individual Selling Shareholder or
the dissolution of a corporate Selling Shareholder) or by the occurrence of any
other event or events, except as set forth in the Selling Shareholder's Power of
Attorney and Custody Agreement. If any such event should occur prior to the
delivery to the Underwriters of the Firm Shares [or the Option Shares]
hereunder, certificates for the Firm Shares [or the Options Shares, as the case
may be,] shall be delivered by the Custodian in accordance with the terms and
conditions of this
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Agreement as if such event has not occurred. The Custodian is authorized to
receive and acknowledge receipt of the proceeds of sale of the Shares held by it
against delivery of such Shares.
(c) Payment for the Firm Shares to be sold hereunder is to be
made in Federal (same day) funds to an account designated by the Company for the
shares to be sold by it and to an account designated by the Custodian for the
shares to be sold by the Selling Shareholders, in each case against delivery of
certificates therefor to the Representatives for the several accounts of the
Underwriters. Such payment and delivery are to be made through the facilities of
the Depository Trust Company at 10:00 a.m., New York time, on the third business
day after the date of this Agreement or at such other time and date not later
than five business days thereafter as you and the Company shall agree upon, such
time and date being herein referred to as the "Closing Date." (As used herein,
"business day" means a day on which the New York Stock Exchange is open for
trading and on which banks in New York are open for business and not permitted
by law or executive order to be closed.)
(d) In addition, on the basis of the representations and
warranties herein contained and subject to the terms and conditions herein set
forth, the Company and the [certain] Selling Shareholders [listed on SCHEDULE II
hereto] hereby grants an option to the several Underwriters to purchase the
Option Shares at the price per share as set forth in the first paragraph of this
Section 2. The maximum number of Option Shares to be sold by the Company and the
Selling Shareholders is set forth opposite their respective names on SCHEDULE II
hereto. The option granted hereby may be exercised in whole or in part by giving
written notice (i) at any time before the Closing Date and (ii) only once
thereafter within 30 days after the date of this Agreement, by you, as
Representatives of the several Underwriters, to the Company, the
Attorney-in-Fact, and the Custodian setting forth the number of Option Shares as
to which the several Underwriters are exercising the option, the names and
denominations in which the Option Shares are to be registered and the time and
date at which such certificates are to be delivered. If the option granted
hereby is exercised in part, the respective number of Option Shares to be sold
by the Company and each of the Selling Shareholders listed in SCHEDULE II hereto
shall be determined on a pro rata basis in accordance with the percentages set
forth opposite their names on SCHEDULE II hereto, adjusted by you in such manner
as to avoid fractional shares. The time and date at which certificates for
Option Shares are to be delivered shall be determined by the Representatives but
shall not be earlier than three nor later than 10 full business days after the
exercise of such option, nor in any event prior to the Closing Date (such time
and date being herein referred to as the "Option Closing Date"). If the date of
exercise of the option is three or more days before the Closing Date, the notice
of exercise shall set the Closing Date as the Option Closing Date. The number of
Option Shares to be purchased by each Underwriter shall be in the same
proportion to the total number of Option Shares being purchased as the number of
Firm Shares being purchased by such Underwriter bears to the total number of
Firm Shares, adjusted by you in such manner as to avoid fractional shares. The
option with respect to the Option Shares granted hereunder may be exercised only
to cover over-allotments in the sale of the Firm Shares by the Underwriters.
You, as Representatives of the several Underwriters, may cancel such option at
any time prior to its expiration by giving written notice of such cancellation
to the Company and the Attorney-in-Fact. To the extent, if any, that the option
is exercised, payment for the Option Shares shall be made on the Option Closing
Date in Federal (same day) funds drawn to the order of the Company for the
Option Shares to be sold by it and to
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the order of [["The MRC Group, Inc.], as Custodian" for the Option Shares to be
sold by the Selling Shareholders against delivery of certificates therefor
through the facilities of the Depository Trust Company, New York, New York.]
(e) If on the Closing Date [or Option Closing Date, as the
case may be,] any Selling Shareholder fails to sell the Firm Shares [or Option
Shares] which such Selling Shareholder has agreed to sell on such date as set
forth in SCHEDULE II hereto, the Company agrees that it will sell or arrange for
the sale of that number of shares of Common Stock to the Underwriters which
represents Firm Shares [or the Option Shares] which such Selling Shareholder has
failed to so sell, as set forth in SCHEDULE II hereto, or such lesser number as
may be requested by the Representatives.
3. OFFERING BY THE UNDERWRITERS.
-----------------------------
It is understood that the several Underwriters are to make a
public offering of the Firm Shares as soon as the Representatives deem it
advisable to do so. The Firm Shares are to be initially offered to the public at
the initial public offering price set forth in the Prospectus. The
Representatives may from time to time thereafter change the public offering
price and other selling terms. To the extent, if at all, that any Option Shares
are purchased pursuant to Section 2 hereof, the Underwriters will offer them to
the public on the foregoing terms.
It is further understood that you will act as the
Representatives for the Underwriters in the offering and sale of the Shares in
accordance with a Master Agreement Among Underwriters entered into by you and
the several other Underwriters.
4. COVENANTS OF THE COMPANY AND THE SELLING SHAREHOLDERS.
------------------------------------------------------
The Company covenants and agrees with the several Underwriters
that:
(i) The Company will (A) use its best efforts to cause the
Registration Statement to become effective or, if the procedure in Rule 430A of
the Rules and Regulations is followed, to prepare and timely file with the
Commission under Rule 424(b) of the Rules and Regulations a Prospectus in a form
approved by the Representatives containing information previously omitted at the
time of effectiveness of the Registration Statement in reliance on Rule 430A of
the Rules and Regulations, and (B) not file any amendment to the Registration
Statement or supplement to the Prospectus of which the Representatives shall not
previously have been advised and furnished with a copy or to which the
Representatives shall have reasonably objected in writing or which is not in
compliance with the Rules and Regulations. To the extent applicable, the copies
of the Registration Statement and each amendment thereto (including all exhibits
filed therewith), any Preliminary Prospectus or Prospectus (in each case, as
amended or supplemented) furnished to the Underwriters will be identical to the
electronically transmitted copies thereof filed with the Commission pursuant to
EDGAR, except to the extent permitted by Regulation S-T.
(ii) The Company will advise the Representatives promptly (A)
when the Registration Statement or any post-effective amendment thereto shall
have become effective, (B) of
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receipt of any comments from the Commission, (C) of any request of the
Commission for amendment of the Registration Statement or for supplement to the
Prospectus or for any additional information, and (D) of the issuance by the
Commission of any stop order suspending the effectiveness of the Registration
Statement or the use of the Prospectus or of the institution of any proceedings
for that purpose. The Company will use its best efforts to prevent the issuance
of any such stop order preventing or suspending the use of the Prospectus and to
obtain as soon as possible the lifting thereof, if issued.
(iii) The Company will cooperate with the Representatives in
endeavoring to qualify the Shares for sale under the securities laws of such
jurisdictions as the Representatives may reasonably have designated in writing
and will make such applications, file such documents, and furnish such
information as may be reasonably required for that purpose, provided the Company
shall not be required to qualify as a foreign corporation or to file a general
consent to service of process in any jurisdiction where it is not now so
qualified or required to file such a consent. The Company will, from time to
time, prepare and file such statements, reports, and other documents, as are or
may be required to continue such qualifications in effect for so long a period
as the Representatives may reasonably request for distribution of the Shares.
(iv) The Company will deliver to, or upon the order of, the
Representatives, from time to time, as many copies of any Preliminary Prospectus
as the Representatives may reasonably request. The Company will deliver to, or
upon the order of, the Representatives during the period when delivery of a
Prospectus is required under the Act, as many copies of the Prospectus in final
form, or as thereafter amended or supplemented, as the Representatives may
reasonably request. The Company will deliver to the Representatives at or before
the Closing Date, four signed copies of the Registration Statement and all
amendments thereto including all exhibits filed therewith, and will deliver to
the Representatives such number of copies of the Registration Statement
(including such number of copies of the exhibits filed therewith that may
reasonably be requested), and of all amendments thereto, as the Representatives
may reasonably request.
(v) The Company will comply with the Act and the Rules and
Regulations, and the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the rules and regulations of the Commission thereunder, so as to
permit the completion of the distribution of the Shares as contemplated in this
Agreement and the Prospectus. If during the period in which a prospectus is
required by law to be delivered by an Underwriter or dealer, any event shall
occur as a result of which, in the judgment of the Company or in the reasonable
opinion of the Underwriters, it becomes necessary to amend or supplement the
Prospectus in order to make the statements therein, in the light of the
circumstances existing at the time the Prospectus is delivered to a purchaser,
not misleading, or, if it is necessary at any time to amend or supplement the
Prospectus to comply with any law, the Company promptly will prepare and file
with the Commission an appropriate amendment to the Registration Statement or
supplement to the Prospectus so that the Prospectus as so amended or
supplemented will not, in the light of the circumstances when it is so
delivered, be misleading, or so that the Prospectus will comply with the law.
(vi) The Company will make generally available to its security
holders, as soon as it is practicable to do so, but in any event not later than
15 months after the effective date of the
<PAGE> 12
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Registration Statement, an earning statement (which need not be audited) in
reasonable detail, covering a period of at least 12 consecutive months beginning
after the effective date of the Registration Statement, which earning statement
shall satisfy the requirements of Section 11(a) of the Act and Rule 158 of the
Rules and Regulations and will advise you in writing when such statement has
been so made available.
(vii) Prior to the Closing Date, the Company will furnish to
the Underwriters, as soon as they have been prepared by or are available to the
Company, a copy of any unaudited interim financial statements of the Company for
any period subsequent to the period covered by the most recent financial
statements appearing in the Registration Statement and the Prospectus.
(viii) No offering, sale, short sale or other disposition of
any shares of Common Stock of the Company or other securities convertible into
or exchangeable or exercisable for shares of Common Stock or derivative of
Common Stock (or agreement for such) will be made for a period of 180 days after
the date of this Agreement, directly or indirectly, by the Company otherwise
than hereunder or with the prior written consent of BT Alex. Brown Incorporated.
(ix) The Company will use its best efforts to list, subject to
notice of issuance, the Shares on the Nasdaq National Market.
(x) The Company has caused each officer and director [and
specific shareholders] of the Company to furnish to you, on or prior to the date
of this agreement, a letter or letters, in form and substance satisfactory to
the Underwriters, pursuant to which each such person shall agree not to offer,
sell, sell short or otherwise dispose of any shares of Common Stock of the
Company or other capital stock of the Company, or any other securities
convertible, exchangeable or exercisable for Common Shares or derivative of
Common Shares owned by such person or request the registration for the offer or
sale of any of the foregoing (or as to which such person has the right to direct
the disposition of) for a period of 180 days after the date of this Agreement,
directly or indirectly, except with the prior written consent of BT Alex. Brown
Incorporated ("Lockup Agreements").
(xi) The Company shall apply the net proceeds of its sale of
the Shares as set forth in the Prospectus and shall include such information
with respect thereto in such reports filed with the Commission as may be
required in accordance with Rule 463 under the Act.
(xii) The Company shall not invest, or otherwise use the
proceeds received by the Company from its sale of the Shares in such a manner as
would require the Company or any of the Subsidiaries to register as an
investment company under the 1940 Act.
(xiii) The Company will maintain a transfer agent and, if
necessary under the jurisdiction of incorporation of the Company, a registrar
for the Common Stock.
(xiv) The Company will not take, directly or indirectly, any
action designed to cause or result in, or that has constituted or might
reasonably be expected to constitute, the stabilization or manipulation of the
price of any securities of the Company.
<PAGE> 13
-13-
(xv) If on the Closing Date [or any Option Closing Date] any
Selling Shareholder fails to sell the Shares which such Selling Shareholder has
agreed to sell on such date as set forth in Schedule II hereto, the Company will
sell that number of shares of Common Stock to the Underwriters which represents
the Shares which such Selling Shareholder has failed to so sell, as set forth in
Schedule II hereto, or such lesser number as may be requested by the
Representatives.
(xvi) The Company will not, for a period of 180 days after
the Closing Date, file a registration statement (on Form S-8 or otherwise)
covering the resale of Common Stock issued upon exercise of the Company's stock
options.
(b) Each of the Selling Shareholders covenants and agrees with
the several Underwriters that:
(i) No offering, sale, short sale or other disposition of any
shares of Common Stock of the Company or other capital stock of the Company or
other securities convertible, exchangeable or exercisable for Common Stock or
derivative of Common Stock owned by the Selling Shareholder or request the
registration for the offer or sale of any of the foregoing (or as to which the
Selling Shareholder has the right to direct the disposition of) will be made for
a period of 180 days after the date of this Agreement, directly or indirectly,
by such Selling Shareholder otherwise than hereunder or under a letter agreement
in form and substance satisfactory to the Underwriters and with the prior
written consent of BT Alex. Brown Incorporated.
(ii) In order to document the Underwriters' compliance with
the reporting and withholding provisions of the Tax Equity and Fiscal
Responsibility Act of 1982 and the Interest and Dividend Tax Compliance Act of
1983 with respect to the transactions herein contemplated, each of the Selling
Shareholders agrees to deliver to you prior to or at the Closing Date a properly
completed and executed United States Treasury Department Form W-8 or W-9 (or
other applicable form or statement specified by Treasury Department regulations
in lieu thereof).
(iii) Such Selling Shareholder will not take, directly or
indirectly, any action designed to cause or result in, or that has constituted
or might reasonably be expected to constitute, the stabilization or manipulation
of the price of any securities of the Company .
5. COSTS AND EXPENSES.
-------------------
The Company will pay all costs, expenses and fees incident to
the performance of the obligations of the Sellers under this Agreement,
including, without limiting the generality of the foregoing, the following:
accounting fees of the Company; the fees and disbursements of counsel for the
Company and the Selling Shareholders; the cost of printing and delivering to,
or as requested by, the Underwriters copies of the Registration Statement,
Preliminary Prospectuses, the Prospectus, this Agreement, the Underwriters'
Selling Memorandum, the Underwriters' Invitation Letter, the Listing
Application, the Blue Sky Survey and any supplements or amendments thereto; the
filing fees of the Commission; the filing fees and expenses (including legal
fees and disbursements) incident to securing any required review by the NASD of
the terms of the sale of the Shares; the Listing Fee of the Nasdaq National
Market; and the expenses, including the fees and disbursements of counsel for
the Underwriters, incurred in connection with the qualification of the Shares
under State securities or Blue Sky laws. The Selling Shareholders have agreed
with the Company to reimburse the Company for a portion of such expenses. To
the extent, if at all, that
<PAGE> 14
-14-
any of the Selling Shareholders engage special legal counsel to represent them
in connection with this offering, the fees and expenses of such counsel shall be
borne by such Selling Shareholder. Any transfer taxes imposed on the sale of the
Shares to the several Underwriters will be paid by the Sellers pro rata. The
Company agrees to pay all costs and expenses of the Underwriters, including the
fees and disbursements of counsel for the Underwriters, incident to the offer
and sale of directed shares of the Common Stock by the Underwriters to employees
and persons having business relationships with the Company and its Subsidiaries.
The Sellers shall not, however, be required to pay for any of the Underwriters'
expenses (other than those related to qualification under NASD regulation and
State securities or Blue Sky laws) except that, if this Agreement shall not be
consummated because the conditions in Section 6 hereof are not satisfied, or
because this Agreement is terminated by the Representatives pursuant to Section
11 hereof, or by reason of any failure, refusal or inability on the part of the
Company or the Selling Shareholders to perform any undertaking or satisfy any
condition of this Agreement or to comply with any of the terms hereof on their
part to be performed, unless such failure to satisfy said condition or to comply
with said terms be due to the default or omission of any Underwriter, then the
Company shall reimburse the several Underwriters for reasonable out-of-pocket
expenses, including fees and disbursements of counsel, reasonably incurred in
connection with investigating, marketing and proposing to market the Shares or
in contemplation of performing their obligations hereunder; but the Company and
the Selling Shareholders shall not in any event be liable to any of the several
Underwriters for damages on account of loss of anticipated profits from the sale
by them of the Shares.
6. CONDITIONS TO OBLIGATIONS OF THE UNDERWRITERS.
----------------------------------------------
The several obligations of the Underwriters to purchase the
Firm Shares on the Closing Date and the Option Shares, if any, on the Option
Closing Date are subject to the accuracy, as of the Closing Date or the Option
Closing Date, as the case may be, of the representations and warranties of the
Company and the Selling Shareholders contained herein, and to the performance by
the Company and the Selling Shareholders of its their covenants and obligations
hereunder and to the following additional conditions:
(a) The Registration Statement and all post-effective
amendments thereto shall have become effective and any and all filings required
by Rule 424 and Rule 430A of the Rules and Regulations shall have been made, and
any request of the Commission for additional information (to be included in the
Registration Statement or otherwise) shall have been disclosed to the
Representatives and complied with to their reasonable satisfaction. No stop
order suspending the effectiveness of the Registration Statement, as amended
from time to time, shall have been issued and no proceedings for that purpose
shall have been taken or, to the knowledge of the Company, shall be contemplated
by the Commission and no injunction, restraining order, or order of any nature
by a Federal or state court of competent jurisdiction shall have been issued as
of the Closing Date, or Option Closing Date, as the case may be, which would
prevent the issuance of the Shares.
(b) The Representatives shall have received on the Closing
Date or the Option Closing Date, as the case may be, the opinions of Baker &
Hostetler, LLP, counsel for the Company and the Selling Shareholders, dated the
Closing Date or the Option Closing Date, as the
<PAGE> 15
-15-
case may be, addressed to the Underwriters (and stating that it may be relied
upon by counsel to the Underwriters) to the effect that:
(i) The Company has been duly organized and is validly
existing as a corporation in good standing under the laws of the State of
Delaware, with corporate power and authority to own or lease its properties and
conduct its business as described in the Registration Statement; each of the
Subsidiaries has been duly organized and is validly existing as a corporation
in good standing under the laws of the jurisdiction of its incorporation, with
corporate power and authority to own or lease its properties and conduct its
business as described in the Registration Statement; the Company and each of
the Subsidiaries are duly qualified to transact business in all jurisdictions
in which the conduct of their business requires such qualification, or in which
the failure to qualify would have a materially adverse effect upon the business
of the Company and the Subsidiaries taken as a whole; and the outstanding
shares of capital stock of each of the Subsidiaries have been duly authorized
and validly issued and are fully paid and non-assessable and are owned by the
Company or a Subsidiary; and, to the best of such counsel's knowledge, the
outstanding shares of capital stock of each of the Subsidiaries is owned free
and clear of all liens, encumbrances and equities and claims, and no options,
warrants or other rights to purchase, agreements or other obligations to issue
or other rights to convert any obligations into any shares of capital stock or
of ownership interests in the Subsidiaries are outstanding.
(ii) The Company has authorized and outstanding capital stock
as set forth under the caption "Capitalization" in the Prospectus; the
authorized shares of the Company's Common Stock have been duly authorized; the
outstanding shares of the Company's Common Stock, including the Shares to be
sold by the Selling Shareholders, have been duly authorized and validly issued
and are fully paid and non-assessable; all of the Shares conform to the
description thereof contained in the Prospectus; the certificates for the
Shares, assuming they are in the form filed with the Commission, are in due and
proper form; the shares of Common Stock, including the Option Shares, if any, to
be sold by the Company pursuant to this Agreement have been duly authorized and
will be validly issued, fully paid and non-assessable when issued and paid for
as contemplated by this Agreement; and no preemptive rights of stockholders
exist with respect to any of the Shares or the issue or sale thereof.
(iii) Except as described in or contemplated by the
Prospectus, to the knowledge of such counsel, there are no outstanding
securities of the Company convertible or exchangeable into or evidencing the
right to purchase or subscribe for any shares of capital stock of the Company
and there are no outstanding or authorized options, warrants or rights of any
character obligating the Company to issue any shares of its capital stock or any
securities convertible or exchangeable into or evidencing the right to purchase
or subscribe for any shares of such stock; and except as described in the
Prospectus, to the knowledge of such counsel, no holder of any securities of the
Company or any other person has the right, contractual or otherwise, which has
not been satisfied or effectively waived, to cause the Company to sell or
otherwise issue to them, or to permit them to underwrite the sale of, any of the
Shares or the right to have any Common Shares or other securities of the Company
included in the Registration Statement or the right, as a result of the filing
of the Registration Statement, to require registration under the Act of any
shares of Common Stock or other securities of the Company.
<PAGE> 16
-16-
(iv) The Registration Statement has become effective under the
Act and, to the best of the knowledge of such counsel, no stop order proceedings
with respect thereto have been instituted or are pending or threatened under the
Act.
(v) The Registration Statement, the Prospectus and each
amendment or supplement thereto comply as to form in all material respects with
the requirements of the and the applicable rules and regulations thereunder
(except that such counsel need express no opinion as to the financial statements
and related schedules therein).
(vi) The statements under the captions "Management-Employment
and Severence Agreements," "Certain Transactions," "Description of Capital
Stock" and "Shares Eligible for Future Sale" in the Prospectus, insofar as
such statements constitute a summary of documents referred to therein or
matters of law, fairly summarize in all material respects the information
called for with respect to such documents and matters.
(vii) Such counsel does not know of any contracts or documents
required to be filed as exhibits to the Registration Statement or described in
the Registration Statement or the Prospectus which are not so filed or described
as required, and such contracts and documents as are summarized in the
Registration Statement or the Prospectus are fairly summarized in all material
respects.
(viii) Such counsel knows of no material legal or governmental
proceedings pending or threatened against the Company or any of the Subsidiaries
except as set forth in the Prospectus.
(ix) The execution and delivery of this Agreement and the
consummation of the transactions herein contemplated do not and will not
conflict with or result in a breach of any of the terms or provisions of, or
constitute a default under, the Charter or By-Laws of the Company, or any
agreement or instrument known to such counsel to which the Company or any of the
Subsidiaries is a party or by which the Company or any of the Subsidiaries may
be bound.
(x) This Agreement has been duly authorized, executed and
delivered by the Company.
(xi) No approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or other
governmental body is necessary in connection with the execution and delivery of
this Agreement and the consummation of the transactions herein contemplated
(other than as may be required by the NASD or as required by State securities
and Blue Sky laws as to which such counsel need express no opinion) except such
as have been obtained or made, specifying the same.
(xii) The Company is not, and will not become, as a result of
the consummation of the transactions contemplated by this Agreement, and
application of the net proceeds therefrom as described in the Prospectus,
required to register as an investment company under the 1940 Act.
<PAGE> 17
-17-
(xiii) This Agreement has been duly authorized, executed and
delivered on behalf of the Selling Shareholders.
(xiv) As of the merger of the MRC Group, Inc., a Missouri
corporation (the "Predecessor Company"), with and into the Company at the
effective time of the Reincorporation Merger, the Company and the Predecessor
Company each had all requisite power and authority to enter into the Agreement
and Plan of Merger and to consummate the transactions contemplated thereby. The
execution and delivery of the Agreement and Plan of Merger and the consummation
of the transactions contemplated thereby have been duly authorized by all
necessary corporate action on the part of the Company and the Predecessor
Company. The Agreement and Plan of Merger has been duly executed and delivered
by the Company and constitutes a valid and binding obligation of the Company,
enforceable against the Company and the Predecessor Company in accordance with
its terms. Each stockholder of the Company has received notice of the Agreement
and Plan of Merger and the transactions contemplated thereby as required under
applicable law (the "Reincorporation Merger") as described in the Registration
Statement, has been consummated and duly effected under applicable law. The
rights of the stockholders of the Company to dissent to the Reincorporation
Merger and to demand payment of the fair value with respect to their shares of
securities of the Company under applicable law have terminated.
(xv) Each Selling Shareholder has full legal right, power and
authority, and any approval required by law (other than as required by State
securities and Blue Sky laws as to which such counsel need express no opinion),
to sell, assign, transfer and deliver the portion of the Shares to be sold by
such Selling Shareholder.
(xvi) The Selling Shareholder's Power of Attorney and Custody
Agreement executed and delivered by each Selling Shareholder is valid and
binding.
(xvii) The Underwriters (assuming that they are bona fide
purchasers within the meaning of the Uniform Commercial Code) have acquired good
and marketable title to the Shares being sold by each Selling Shareholder on the
Closing Date, and the Option Closing Date, as the case may be, free and clear of
all liens, encumbrances, equities and claims.
In rendering such opinion Baker & Hostetler, LLP may rely as
to matters governed by the laws of states other than Delaware or Federal laws
on local counsel in such jurisdictions and as to the matters set forth in
subparagraphs (xiii), (xiv) and (xv) on opinions of other counsel representing
the respective Selling Shareholders, provided that in each case Baker &
Hostetler, LLP shall state that they believe that they and the Underwriters are
justified in relying on such other counsel. In addition to the matters set forth
above, such opinion shall also include a statement to the effect that nothing
has come to the attention of such counsel which leads them to believe that (i)
the Registration Statement, at the time it became effective under the Act (but
after giving effect to any modifications incorporated therein pursuant to Rule
430A under the Act) and as of the Closing Date or the Option Closing Date, as
the case may be, 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, and (ii) the Prospectus, or any supplement
thereto, on the date it
<PAGE> 18
-18-
was filed pursuant to the Rules and Regulations and as of the Closing Date or
the Option Closing Date, as the case may be, contained an untrue statement of a
material fact or omitted to state a material fact necessary in order to make the
statements, in the light of the circumstances under which they are made, not
misleading (except that such counsel need express no view as to financial
statements, schedules and statistical information therein). With respect to such
statement, Baker & Hostetler, LLP may state that their belief is based upon the
procedures set forth therein, but is without independent check and verification.
(c) The Representatives shall have received from Testa,
Hurwitz & Thibeault, LLP, counsel for the Underwriters, an opinion dated the
Closing Date or the Option Closing Date, as the case may be, substantially to
the effect specified in subparagraphs (ii), (iii), (iv) and (ix) of Paragraph
(b) of this Section 6, and that the Company is a duly organized and validly
existing corporation under the laws of the State of Delaware. In rendering
such opinion Testa, Hurwitz & Thibeault, LLP may rely as to all matters governed
other than by the laws of the State of Delaware or Federal laws on the opinion
of counsel referred to in Paragraph (b) of this Section 6. In addition to the
matters set forth above, such opinion shall also include a statement to the
effect that nothing has come to the attention of such counsel which leads them
to believe that (i) the Registration Statement, or any amendment thereto, as of
the time it became effective under the Act (but after giving effect to any
modifications incorporated therein pursuant to Rule 430A under the Act) as of
the Closing Date or the Option Closing Date, as the case may be, 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,
and (ii) the Prospectus, or any supplement thereto, on the date it was filed
pursuant to the Rules and Regulations and as of the Closing Date or the Option
Closing Date, as the case may be, contained an untrue statement of a material
fact or omitted to state a material fact, necessary in order to make the
statements, in the light of the circumstances under which they are made, not
misleading (except that such counsel need express no view as to financial
statements, schedules and statistical information therein). With respect to such
statement, Testa, Hurwitz & Thibeault, LLP may state that their belief is based
upon the procedures set forth therein, but is without independent check and
verification.
(d) The Representatives shall have received at or prior to
the Closing Date from Testa, Hurwitz & Thibeault, LLP a memorandum or summary,
in form and substance satisfactory to the Representatives with respect to the
qualification for offering and sale by the Underwriters of the Shares under the
State securities or Blue Sky laws of such jurisdictions as the Representatives
may reasonably have designated to the Company.
(e) You shall have received, on each of the dates hereof, the
Closing Date and the Option Closing Date, as the case may be, a letter dated the
date hereof, the Closing Date or the Option Closing Date, as the case may be,
in form and substance satisfactory to you, of Arthur Andersen LLP and Skoda,
Minotti, Reeves & Co. confirming that they are independent public accountants
within the meaning of the Act and the applicable published Rules and
Regulations thereunder and stating that in their opinion the financial
statements and schedules examined by them and included in the Registration
Statement comply in form in all material respects with the applicable
accounting requirements of the Act and the related published Rules and
Regulations. The letter of Arthur Andersen LLP shall contain such other
statements and information as is ordinarily included in
<PAGE> 19
-19-
accountants' "comfort letters" to Underwriters with respect to the financial
statements and certain financial and statistical information contained in the
Registration Statement and Prospectus.
(f) The Representatives shall have received on the Closing
Date or the Option Closing Date, as the case may be, a certificate or
certificates of the Chief Executive Officer and the Chief Financial Officer of
the Company to the effect that, as of the Closing Date or the Option Closing
Date, as the case may be, each of them severally represents as follows:
(i) The Registration Statement has become effective under the
Act and no stop order suspending the effectiveness of the Registrations
Statement has been issued, and no proceedings for such purpose have been taken
or are, to his knowledge, contemplated by the Commission;
(ii) The representations and warranties of the Company
contained in Section 1 hereof are true and correct as of the Closing Date or the
Option Closing Date, as the case may be;
(iii) All filings required to have been made pursuant to Rules
424 or 430A under the Act have been made;
(iv) He or she has carefully examined the Registration
Statement and the Prospectus and, in his or her opinion, as of the effective
date of the Registration Statement, the statements contained in the Registration
Statement were true and correct, and such Registration Statement and Prospectus
did not omit to state a material fact required to be stated therein or necessary
in order to make the statements therein not misleading, and since the effective
date of the Registration Statement, no event has occurred which should have been
set forth in a supplement to or an amendment of the Prospectus which has not
been so set forth in such supplement or amendment; and
(v) Since the respective dates as of which information is
given in the Registration Statement and Prospectus, there has not been any
material adverse change or any development involving a prospective material
adverse change in or affecting the condition, financial or otherwise, of the
Company and its Subsidiaries taken as a whole or the earnings, business,
management, properties, assets, rights, operations, condition (financial or
otherwise) or prospects of the Company and the Subsidiaries taken as a whole,
whether or not arising in the ordinary course of business.
(g) The Company and the Selling Shareholders shall have
furnished to the Representatives such further certificates and documents
confirming the representations and warranties, covenants and conditions
contained herein and related matters as the Representatives may reasonably have
requested.
(h) The Firm Shares and Option Shares, if any, have been
approved for designation upon notice of issuance on the Nasdaq National Market.
(i) The Lockup Agreements described in Section 4(x) are in
full force and effect.
<PAGE> 20
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The opinions and certificates mentioned in this Agreement
shall be deemed to be in compliance with the provisions hereof only if they are
in all material respects satisfactory to the Representatives and to Testa,
Hurwitz & Thibeault, LLP, counsel for the Underwriters.
If any of the conditions hereinabove provided for in this
Section 6 shall not have been fulfilled when and as required by this Agreement
to be fulfilled, the obligations of the Underwriters hereunder may be terminated
by the Representatives by notifying the Company of such termination in writing
or by telegram at or prior to the Closing Date or the Option Closing Date, as
the case may be.
In such event, [the Selling Shareholders,] the Company and the
Underwriters shall not be under any obligation to each other (except to the
extent provided in Sections 5 and 8 hereof).
7. CONDITIONS OF THE OBLIGATIONS OF THE SELLERS.
---------------------------------------------
The obligations of the Sellers to sell and deliver the portion
of the Shares required to be delivered as and when specified in this Agreement
are subject to the conditions that at the Closing Date or the Option Closing
Date, as the case may be, no stop order suspending the effectiveness of the
Registration Statement shall have been issued and in effect or proceedings
therefor initiated or threatened.
8. INDEMNIFICATION.
----------------
(a) The Company agrees:
(1) to indemnify and hold harmless each Underwriter and each
person, if any, who controls any Underwriter within the meaning of the
Act, against any losses, claims, damages or liabilities to which such
Underwriter or any such controlling person may become subject under the
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 any material fact contained in the Registration Statement, any
Preliminary Prospectus, the Prospectus or any amendment or supplement
thereto, (ii) 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, or (iii) any act or failure to act,
or any alleged act or failure to act, by any Underwriter in connection
with, or relating in any manner to, the Shares or the offering
contemplated hereby, and which is included as part of or referred to in
any loss, claim, damage, liability or action arising out of or based
upon matters covered by clause (i) or (ii) above (PROVIDED, that the
Company shall not be liable under this clause (iii) to the extent that
it is determined in a final judgment by a court of competent
jurisdiction that such loss, claim, damage, liability or action
resulted directly from any such acts or failures to act undertaken or
omitted to be taken by such Underwriter through its gross negligence or
willful misconduct) PROVIDED, HOWEVER, that the Company will not be
liable in any such case to the extent that any such loss, claim, damage
or liability arises out of or is based upon an untrue statement or
alleged
<PAGE> 21
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untrue statement, or omission or alleged omission made in the
Registration Statement, any Preliminary Prospectus, the Prospectus, or
such amendment or supplement, in reliance upon and in conformity with
written information furnished to the Company by or through the
Representatives specifically for use in the preparation thereof. This
indemnity obligation will be in addition to any liability which the
Company may otherwise have.
(2) to reimburse each Underwriter and each such controlling
person upon demand for any legal or other out-of-pocket expenses
reasonably incurred by such Underwriter or such controlling person in
connection with investigating or defending any such loss, claim, damage
or liability, action or proceeding or in responding to a subpoena or
governmental inquiry related to the offering of the Shares, whether or
not such Underwriter or controlling person is a party to any action or
proceeding. In the event that it is finally judicially determined that
the Underwriters were not entitled to receive payments for legal and
other expenses pursuant to this subparagraph, the Underwriters will
promptly return all sums that had been advanced pursuant hereto.
(b) The Selling Shareholders agree to indemnify the
Underwriters and each person, if any, who controls any Underwriter within the
meaning of the Act, against any losses, claims, damages or liabilities to which
such Underwriter or controlling person may become subject under the Act or
otherwise to the same extent as indemnity is provided by the Company pursuant to
Section 8(a) above. In no event, however, shall the liability of any Selling
Shareholder for indemnification under this Section 8(b) exceed the proceeds
received by such Selling Shareholder from the Underwriters in the offering. This
indemnity obligation will be in addition to any liability which the Selling
Shareholders may otherwise have.
(c) Each Underwriter severally and not jointly will indemnify
and hold harmless the Company, each of its directors, each of its officers who
have signed the Registration Statement, the Selling Shareholders, and each
person, if any, who controls the Company or the Selling Shareholders within the
meaning of the Act, against any losses, claims, damages or liabilities to which
the Company or any such director, officer, Selling Shareholder or controlling
person may become subject under the 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 any material fact contained in the Registration Statement, any
Preliminary Prospectus, the Prospectus or any amendment or supplement thereto,
or (ii) the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances under which they were made; and
will reimburse any legal or other expenses reasonably incurred by the Company or
any such director, officer, Selling Shareholder or controlling person in
connection with investigating or defending any such loss, claim, damage,
liability, action or proceeding; PROVIDED, HOWEVER, that each Underwriter will
be liable in each case to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission has been
made in the Registration Statement, any Preliminary Prospectus, the Prospectus
or such amendment or supplement, in reliance upon and in conformity with written
information furnished to the Company by or through the Representatives
specifically for use in the preparation thereof. This indemnity agreement will
be in addition to any liability which such Underwriter may otherwise have.
<PAGE> 22
-22-
(d) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of which
indemnity may be sought pursuant to this Section 8, such person (the
"indemnified party") shall promptly notify the person against whom such
indemnity may be sought (the "indemnifying party") in writing. No
indemnification provided for in Section 8(a), (b) or (c) shall be available to
any party who shall fail to give notice as provided in this Section 8(d) if the
party to whom notice was not given was unaware of the proceeding to which such
notice would have related and was materially prejudiced by the failure to give
such notice, but the failure to give such notice shall not relieve the
indemnifying party or parties from any liability which it or they may have to
the indemnified party for contribution or otherwise than on account of the
provisions of Section 8(a), (b) or (c). In case any such proceeding shall be
brought against any indemnified party and it shall notify the indemnifying party
of the commencement thereof, the indemnifying party shall be entitled to
participate therein and, to the extent that it shall wish, jointly with any
other indemnifying party similarly notified, to assume the defense thereof, with
counsel satisfactory to such indemnified party and shall pay as incurred the
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
at its own expense. Notwithstanding the foregoing, the indemnifying party shall
pay as incurred (or within 30 days of presentation) the fees and expenses of the
counsel retained by the indemnified party in the event (i) the indemnifying
party and the indemnified party shall have mutually agreed to the retention of
such counsel, (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 shall have failed to assume the defense and employ counsel
acceptable to the indemnified party within a reasonable period of time after
notice of commencement of the action. It is understood that 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. Such firm shall be
designated in writing by you in the case of parties indemnified pursuant to
Section 8(a) or (b) and by the Company and the Selling Shareholders in the case
of parties indemnified pursuant to Section 8(c). The indemnifying party shall
not be liable for any settlement of any proceeding effected without its written
consent but if settled with such consent or if there be a final judgment for the
plaintiff, the indemnifying party agrees to indemnify the indemnified party from
and against any loss or liability by reason of such settlement or judgment. In
addition, the indemnifying party will not, without the prior written consent of
the indemnified party, settle or compromise or consent to the entry of any
judgment in any pending or threatened claim, action or proceeding of which
indemnification may be sought hereunder (whether or not any indemnified party is
an actual or potential party to such claim, action or proceeding) unless such
settlement, compromise or consent includes an unconditional release of each
indemnified party from all liability arising out of such claim, action or
proceeding.
(e) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
Section 8(a), (b) or (c) above in respect of any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to therein,
then each indemnifying party shall contribute to the amount paid or payable by
such
<PAGE> 23
-23-
indemnified party as a result of such losses, claims, damages or liabilities (or
actions or proceedings in respect thereof) in such proportion as is appropriate
to reflect the relative benefits received by the Company and the Selling
Shareholders on the one hand and the Underwriters on the other from the offering
of the Shares. If, however, the allocation provided by the immediately preceding
sentence is not permitted by applicable law then each indemnifying party shall
contribute to such amount paid or payable by such indemnified party in such
proportion as is appropriate to reflect not only such relative benefits but also
the relative fault of the Company and the Selling Shareholders on the one hand
and the Underwriters on the other in connection with the statements or omissions
which resulted in such losses, claims, damages or liabilities, (or actions or
proceedings in respect thereof), as well as any other relevant equitable
considerations. The relative benefits received by the Company and the Selling
Shareholders on the one hand and the Underwriters on the other shall be deemed
to be in the same proportion as the total net proceeds from the offering (before
deducting expenses) received by the Company and the Selling Shareholders bear to
the total underwriting discounts and commissions received by the Underwriters,
in each case as set forth in the table on the cover page of the Prospectus. The
relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
Company or the Selling Shareholders on the one hand or the Underwriters on the
other and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
The Company, the Selling Shareholders and the Underwriters
agree that it would not be just and equitable if contributions pursuant to this
Section 8(e) were determined by pro rata allocation (even if the Underwriters
were treated as one entity for such purpose) or by any other method of
allocation which does not take account of the equitable considerations referred
to above in this Section 8(e). The amount paid or payable by an indemnified
party as a result of the losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) referred to above in this Section 8(e) shall be
deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this subsection (e), (i) no
Underwriter shall be required to contribute any amount in excess of the
underwriting discounts and commissions applicable to the Shares purchased by
such Underwriter, (ii) no person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation, and (iii) no
Selling Shareholder shall be required to contribute any amount in excess of the
proceeds received by such Selling Shareholder from the Underwriters in the
offering. The Underwriters' obligations in this Section 8(e) to contribute are
several in proportion to their respective underwriting obligations and not
joint.
(f) In any proceeding relating to the Registration Statement,
any Preliminary Prospectus, the Prospectus or any supplement or amendment
thereto, each party against whom contribution may be sought under this Section 8
hereby consents to the jurisdiction of any court having jurisdiction over any
other contributing party, agrees that process issuing from such court may be
served upon him or it by any other contributing party and consents to the
service of such process and agrees that any other contributing party may join
him or it as an additional defendant in any such proceeding in which such other
contributing party is a party.
<PAGE> 24
-24-
(g) Any losses, claims, damages, liabilities or expenses for
which an indemnified party is entitled to indemnification or contribution under
this Section 8 shall be paid by the indemnifying party to the indemnified party
as such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 8 and the
representations and warranties of the Company set forth in this Agreement shall
remain operative and in full force and effect, regardless of (i) any
investigation made by or on behalf of any Underwriter or any person controlling
any Underwriter, the Company, its directors or officers or any persons
controlling the Company, (ii) acceptance of any Shares and payment therefor
hereunder, and (iii) any termination of this Agreement. A successor to any
Underwriter, or to the Company, its directors or officers, Selling Shareholders,
or any person controlling the Company, shall be entitled to the benefits of the
indemnity, contribution and reimbursement agreements contained in this Section
8.
9. DEFAULT BY UNDERWRITERS.
------------------------
If on the Closing Date or the Option Closing Date, as the case
may be, any Underwriter shall fail to purchase and pay for the portion of the
Shares which such Underwriter has agreed to purchase and pay for on such date
(otherwise than by reason of any default on the part of the Company or a Selling
Shareholder), you, as Representatives of the Underwriters, shall use your
reasonable efforts to procure within 36 hours thereafter one or more of the
other Underwriters, or any others, to purchase from the Company and the Selling
Shareholders such amounts as may be agreed upon and upon the terms set forth
herein, the Firm Shares or Option Shares, as the case may be, which the
defaulting Underwriter or Underwriters failed to purchase. If during such 36
hours you, as such Representatives, shall not have procured such other
Underwriters, or any others, to purchase the Firm Shares or Option Shares, as
the case may be, agreed to be purchased by the defaulting Underwriter or
Underwriters, then (a) if the aggregate number of shares with respect to which
such default shall occur does not exceed 10% of the Firm Shares or Option
Shares, as the case may be, covered hereby, the other Underwriters shall be
obligated, severally, in proportion to the respective numbers of Firm Shares or
Option Shares, as the case may be, which they are obligated to purchase
hereunder, to purchase the Firm Shares or Option Shares, as the case may be,
which such defaulting Underwriter or Underwriters failed to purchase, or (b) if
the aggregate number of shares of Firm Shares or Option Shares, as the case may
be, with respect to which such default shall occur exceeds 10% of the Firm
Shares or Option Shares, as the case may be, covered hereby, the Company or you
as the Representatives of the Underwriters will have the right, by written
notice given within the next 36-hour period to the parties to this Agreement, to
terminate this Agreement without liability on the part of the non-defaulting
Underwriters or of the Company or of the Selling Shareholders except to the
extent provided in Section 8 hereof. In the event of a default by any
Underwriter or Underwriters, as set forth in this Section 9, the Closing Date or
Option Closing Date, as the case may be, may be postponed for such period, not
exceeding seven days, as you, as Representatives, may determine in order that
the required changes in the Registration Statement or in the Prospectus or in
any other documents or arrangements may be effected. The term "Underwriter"
includes any person substituted for a defaulting Underwriter. Any action taken
under this Section 9 shall not relieve any defaulting Underwriter from liability
in respect of any default of such Underwriter under this Agreement.
<PAGE> 25
-25-
10. NOTICES.
--------
All communications hereunder shall be in writing and, except
as otherwise provided herein, will be mailed, delivered, telecopied or
telegraphed and confirmed as follows: if to the Underwriters, to BT Alex. Brown
Incorporated, One South Street, Baltimore, Maryland 21202, Attention:
___________________; with a copy to BT Alex. Brown Incorporated, One Bankers
Trust Plaza, 130 Liberty Street, New York, New York 10006, Attention: General
Counsel; if to the Company or the Selling Shareholders, to
Steven Bell
Chief Financial Officer
The MRC Group, Inc.
23240 Chagrin Boulevard, Suite 400
Cleveland, Ohio 44122
with a copy to:
John M. Gherlein, Esq.
Baker & Hostetler LLP
3200 National City Center
1900 East 9th Street
Cleveland, Ohio 44114-3485
11. TERMINATION.
------------
(a) This Agreement may be terminated by you by notice to the
Company at any time prior to the Closing Date if any of the following has
occurred: (i) since the respective dates as of which information is given in the
Registration Statement and the Prospectus, any material adverse change or any
development involving a prospective material adverse change in or affecting the
condition, financial or otherwise, of the Company and its Subsidiaries taken as
a whole or the earnings, business, management, properties, assets, rights,
operations, condition (financial or otherwise) or prospects of the Company and
its Subsidiaries taken as a whole, whether or not arising in the ordinary course
of business, (ii) any outbreak or escalation of hostilities or declaration of
war or national emergency or other national or international calamity or crisis
or change in economic or political conditions if the effect of such outbreak,
escalation, declaration, emergency, calamity, crisis or change on the financial
markets of the United States would, in your reasonable judgment, make it
impracticable or inadvisable to market the Shares or to enforce contracts for
the sale of the Shares, or (iii) suspension of trading in securities generally
on the New York Stock Exchange or the American Stock Exchange or limitation on
prices (other than limitations on hours or numbers of days of trading) for
securities on either such Exchange, (iv) the enactment, publication, decree or
other promulgation of any statute, regulation, rule or order of any court or
other governmental authority which in your opinion materially and adversely
affects or may materially and adversely affect the business or operations of the
Company, (v) declaration of a banking moratorium by United States or New York
State authorities, (vi) any downgrading, or placement on any watch list for
possible downgrading, in the rating of the Company's debt securities by any
"nationally recognized statistical rating organization" (as defined for purposes
of Rule 436(g) under the Act); (vii) the suspension of trading of the Company's
common stock by the Nasdaq National Market, the Commission, or any other
governmental authority or, (viii) the taking of any action by any governmental
body or agency in respect of its monetary or fiscal affairs which in your
reasonable opinion has a material adverse effect on the securities markets in
the United States; or
<PAGE> 26
-26-
(b) as provided in Sections 6 and 9 of this Agreement.
12. SUCCESSORS.
-----------
This Agreement has been and is made solely for the benefit of
the Underwriters, the Company and the Selling Shareholders and their respective
successors, executors, administrators, heirs and assigns, and the officers,
directors and controlling persons referred to herein, and no other person will
have any right or obligation hereunder. No purchaser of any of the Shares from
any Underwriter shall be deemed a successor or assign merely because of such
purchase.
13. INFORMATION PROVIDED BY UNDERWRITERS.
-------------------------------------
The Company, the Selling Shareholders and the Underwriters
acknowledge and agree that the only information furnished or to be furnished by
any Underwriter to the Company for inclusion in any Prospectus or the
Registration Statement consists of the information set forth in the last
paragraph on the front cover page (insofar as such information relates to the
Underwriters), legends required by Item 502(d) of Regulation S-K under the Act
and the information under the caption "Underwriting" in the Prospectus.
14. MISCELLANEOUS.
--------------
The reimbursement, indemnification and contribution agreements
contained in this Agreement and the representations, warranties and covenants in
this Agreement shall remain in full force and effect regardless of (a) any
termination of this Agreement, (b) any investigation made by or on behalf of any
Underwriter or controlling person thereof, or by or on behalf of the Company or
its directors or officers and (c) delivery of and payment for the Shares under
this Agreement.
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.
This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Maryland.
If the foregoing letter is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement among the Selling Shareholders, the
Company and the several Underwriters in accordance with its terms.
Any person executing and delivering this Agreement as Attorney-in-Fact
for a Selling Shareholder represents by so doing that he has been duly appointed
as Attorney-in-Fact by such Selling Shareholder pursuant to a validly existing
and binding Power of Attorney which authorizes such Attorney-in-Fact to take
such action.
Very truly yours,
<PAGE> 27
-27-
THE MRC GROUP, INC.
By
------------------------------------------
Selling Shareholders listed on SCHEDULE II
By
------------------------------------------
Attorney in Fact
The foregoing Equity Underwriting Agreement
is hereby confirmed and accepted as
of the date first above written.
BT ALEX. BROWN INCORPORATED
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
WILLIAM BLAIR & COMPANY, L.L.C.
As Representatives of the several
Underwriters listed on SCHEDULE I
By: BT Alex. Brown Incorporated
By:
-----------------------------------
Authorized Officer
<PAGE> 28
-1-
SCHEDULE I
SCHEDULE OF UNDERWRITERS
Number of Firm Shares
Underwriter to be Purchased
----------- ---------------
BT Alex. Brown Incorporated
Donaldson, Lufkin & Jenrette Securities Corporation
William Blair & Company, L.L.C.
---------------------
Total
=====================
<PAGE> 29
-1-
SCHEDULE II
SCHEDULE OF SELLING SHAREHOLDERS
<TABLE>
<CAPTION>
Number of Maximum Number Percentage of
Firm Shares of Option Shares Total Number of
Selling Shareholder to be Purchased to be Sold Option Shares
- ------------------- --------------- ---------- -------------
<S> <C> <C> <C>
-------------- ------------- -------------
Total
============== ============= =============
</TABLE>
<PAGE> 1
Exhibit 10.1
SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
By and Between
MEDIFAX, INC.,
MEDICAL RECORDS CORP.
and
SUMMIT BANK
-----------------------------------
Dated: July ___, 1996
-----------------------------------
<PAGE> 2
SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
-------------------------------------------------------
THIS SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
("AGREEMENT") is made effective the day of July, 1996, by and between
MEDIFAX, INC., a Missouri corporation ("MEDIFAX"), MEDICAL RECORDS CORPORATION,
an Ohio corporation ("MRC"), and SUMMIT BANK, as successor in interest to First
Valley Bank ("BANK"). Medifax and MRC are sometimes collectively referred to
herein as the "BORROWERS" and each individually as "BORROWER".
Capitalized terms used herein without separate definition will have the
respective meanings specified therefor in ARTICLE 14 of this Agreement.
BACKGROUND
----------
A. By an Amended and Restated Loan and Security Agreement dated
December 23, 1994, by and between Medifax, Secrephone, Ltd. ("SECREPHONE") and
Bank, as amended by a First Amendment dated August 24, 1995 (collectively, the
"EXISTING LOAN AGREEMENT"), Bank agreed to extend to Medifax and Secrephone,
INTER ALIA, (i) a $5,000,000.00 line of credit (the "EXISTING LINE") as
evidenced by Medifax's and Secrephone's amended and restated promissory note
dated August 24, 1995 (the "EXISTING LINE NOTE") and (ii) a $5,000,000.00 term
loan (the "EXISTING TERM LOAN") evidenced by Medifax's and Secrephone's
promissory note dated August 24, 1995 (the "EXISTING TERM NOTE").
B. Medifax's and Secrephone's obligations under the Existing Loan
Agreement, the Existing Line Note and the Existing Term Note are secured, inter
alia, by a lien on and security interest in all Medifax's and Secrephone's
present and future tangible and intangible assets.
C. For purposes of this Agreement, the term "EXISTING LOAN DOCUMENTS"
means the Existing Loan Agreement, the Existing Line Note, the Existing Term
Note, a certain Subordination Agreement dated December 2, 1994, by and between
Medifax, Secrephone, Edward L. Samek and Bank (the "SUBORDINATION AGREEMENT")
and any and all documents related thereto, as the same have been amended,
supplemented and/or modified.
D. On December 31, 1995, Secrephone and Medifax merged, with Medifax as
the surviving corporation. Medifax continues to do business under the trade name
"Secrephone."
E. On July 19, 1996, Medifax purchased all the issued and outstanding
capital stock of MRC pursuant to the terms and conditions of a certain Transfer
Agreement and Plan of Section 351 Exchange (the "PURCHASE AGREEMENT").
F. At Borrowers' request, Bank has agreed to amend and restate the
Existing Loan Documents, INTER ALIA, to (i) make MRC a co-borrower, (ii)
increase the amount of the Existing
<PAGE> 3
Line and the Existing Term Loan, (iii) amend certain covenants including the
financial covenants, and (iv) extend the maturity of the Existing Line.
TERMS
-----
In consideration of the terms and conditions contained herein, and of
any loans or extensions of credit now or hereafter made to or for the benefit of
Borrowers by Bank, the parties hereto, intending to be legally bound hereby,
agree as follows:
1. GENERAL ACKNOWLEDGMENTS.
1.1. CONFIRMATION OF BACKGROUND. Medifax hereby ratifies, confirms and
acknowledges that the statements contained in the foregoing Background are true
and complete in all material respects and that the Existing Loan Documents are
valid, binding and in full force and effect as of the date hereof and fully
enforceable against Medifax and its assets in accordance with the terms thereof.
1.2. VALIDITY OF LIENS. All liens, security interests, rights and
remedies granted to Bank in the Existing Loan Documents are hereby renewed,
confirmed and continued, and shall also secure the performance by Borrowers of
their respective obligations hereunder.
1.3. CHALLENGE TO ENFORCEMENT. Medifax acknowledges and agrees that it
has no defense, set-off, counterclaim or challenge against the payment of any
sums owing under the Existing Loan Documents.
1.4. NO SATISFACTION. Borrowers acknowledge and agree that, except as
expressly provided herein, neither this Agreement nor any other agreement
entered in connection herewith or pursuant to the terms hereof shall be deemed
or construed to be a compromise, satisfaction, reinstatement, accord and
satisfaction, novation or release of any of the Existing Loan Documents, or any
rights or obligations thereunder, or a waiver by Bank of any of its rights under
the Existing Loan Documents or at law or in equity.
2. THE LINE; TERM LOAN; USE OF PROCEEDS. Subject to the terms and conditions of
this Agreement, Bank will make the following credit facilities available to
Borrowers:
2.1. LINE OF CREDIT. Bank will establish for Borrowers for and during
the period following the Closing and until June 30, 1998 (the "CONTRACT
PERIOD"), subject to the terms and conditions hereof, a line of credit (the
"LINE") pursuant to which Bank will from time to time make loans or extensions
of credit to Borrowers in an outstanding principal amount of up to the lesser
of: (a) an amount up to eighty percent (80%) of the amount of Borrowers'
Eligible Receivables, or (b) Ten Million Dollars ($10,000,000.00). Within the
limitations set forth above, Borrowers may borrow, repay and reborrow under the
Line. The Line shall be subject to all terms and conditions set forth in all of
the Loan Documents (as hereafter defined) which
-2-
<PAGE> 4
terms and conditions are incorporated herein. Maintenance of the Line shall be
conditioned on Borrowers' continued compliance with the terms and conditions
hereof and of the Loan Documents. Borrowers' obligation to repay the sums
advanced under the Line shall be evidenced by Borrowers' second amended and
restated promissory note (the "LINE NOTE") in the face amount of Ten Million
Dollars ($10,000,000.00) which shall be in the form attached hereto as EXHIBIT
"A". The Line Note amends and restates, but does not satisfy or repay, Medifax's
and Secrephone's obligations under the Existing Line Note. The Line shall be
subject to review and renewal for a term beyond the stated Contract Period, at
the sole discretion of Bank. In the event the Bank elects not to renew the Line,
Bank shall give Borrowers at least one hundred twenty (120) days written notice
of such election. If the Bank elects not to renew the Line, the Line shall
expire at the end of the Contract Period.
2.2. TERM LOAN. Bank will lend to Borrowers and Borrowers will borrow
from Bank Seven Million Dollars ($7,000,000.00) (the "TERM LOAN"). Borrowers'
obligation to repay the Term Loan shall be evidenced by Borrowers' amended and
restated promissory note in the face amount of Seven Million Dollars
($7,000,000.00) (the "TERM NOTE"), which shall be in the form attached hereto as
EXHIBIT "B", with the blanks appropriately filled in. The Term Note amends and
restates, but does not repay or satisfy, Borrowers' obligations under the
Existing Term Note. Hereunder, the Line Note and the Term Note are sometimes
collectively referred to as the "NOTES" and the Line and the Term Loan are
sometimes collectively referred to as the "LOANS".
2.3. USE OF PROCEEDS.
(a) LINE PROCEEDS. Borrowers agree to use the proceeds of the Line
for working capital purposes of Borrowers. Except as otherwise provided
hereunder, the Line proceeds may not be utilized to make loans, advance funds as
debt or equity to any Subsidiary, or purchase stock or a substantial portion of
the assets of any corporation, partnership or other business entity or any
division thereof. Notwithstanding the foregoing, nothing contained in the
Section shall be deemed to prohibit any inter-company advances and payments
between the Borrowers.
(b) TERM LOAN PROCEEDS. Borrowers agree to use the proceeds of the
Term Loan to (i) refinance existing indebtedness of MRC to The Huntington
National Bank and (ii) restate certain term indebtedness of Medifax to Bank.
(c) NO ADVANCES FOR MARGIN SECURITY. Borrowers shall not carry or
purchase with the proceeds of the Line or the Term Loan any "MARGIN SECURITY"
within the meaning of Regulations U, G, T or X of the Board of Governors of the
Federal Reserve System.
2.4. METHOD OF ADVANCES. Bank may make proceeds of the Line available
to a Borrower by (a) crediting such proceeds to that Borrower's deposit account
with Bank, or (b) upon receipt of written instructions from the Borrowers, by
wiring transfer to a deposit account
-3-
<PAGE> 5
maintained by any Borrower at another financial institution. Bank's records
relating to such deposit account together with Bank's records showing other
advances made to Borrowers pursuant to this Agreement (including all wire
transfers made pursuant to this Section) and all repayments hereunder shall be
conclusive evidence of the balance due under the Line, absent manifest error.
2.5. CLOSING. Execution and delivery of this Agreement and all
documents and agreements required hereunder will take place on or before July
31, 1996 or on such later date as Borrowers and Bank may agree (the "CLOSING").
2.6. INTEREST ON THE LINE. Interest will accrue on cash advances under
the Line from date of advance until final payment thereof at one or more of the
following rates as selected by Borrowers from time to time:
(a) LINE BASE RATE. The Line Base Rate in effect from time to time
(such interest rate to change immediately upon any change in the Base Rate); or
(b) LIBOR. By giving Notification, Borrowers may request to have
all or a portion of the outstanding principal of the Line as hereinafter
permitted accrue interest at a rate equal to the Line LIBOR Rate as follows: (i)
with respect to the principal amount of any advance under the Line, from the
date of such advance until the end of the Line Rate Period specified in the
Notification; and/or (ii) with respect to the principal amount of any portion of
the Line outstanding and earning interest at a Line LIBOR Rate at the time of
the Notification related to such principal amount, from the expiration of the
then current Line Rate Period related to such principal amount until the end of
the Line Rate Period specified in the Notification; and/or (iii) with respect to
all or any portion of the principal amount of the Line outstanding and earning
interest at the Line Base Rate at the time of Notification, from the date set
forth in the Notification until the end of the Line Rate Period specified in the
Notification.
(c) MULTIPLE RATES. Borrowers understand and agree that: (i)
subject to the provisions of this Agreement, the Line Base Rate and the Line
LIBOR Rate may apply simultaneously to different parts of the outstanding
principal balance of the Line, (ii) the Line LIBOR Rate applicable to any
portion of outstanding principal of the Line may be different from the Line
LIBOR Rate applicable to any other portion of outstanding principal of the Line,
(iii) portions of the Line bearing interest at the Line LIBOR Rate must be in a
minimum increment of Five Hundred Thousand Dollars ($500,000.00) and multiples
of One Hundred Thousand Dollars ($100,000.00), (iv) as of any one time or from
time to time, there will be no more than four (4) different rates of interest
applicable to advances and loans made under the Line (for example, three (3)
Line LIBOR Loans bearing different Line LIBOR Rates and all remaining
outstandings bearing interest at the Line Base Rate); and (v) Bank shall have
the right to terminate any Line Rate Period and the Line LIBOR Rate applicable
thereto, prior to maturity of such Line Rate Period (without any prepayment
penalty payable by Borrowers as a result of such termination), if Bank
determines in good faith (which determination shall be conclusive)
-4-
<PAGE> 6
that continuance of such interest rate has been made unlawful by any law,
statute, rule or regulation, to which Bank may be subject, in which event the
principal to which such terminated Line Rate Period relates thereafter shall
earn interest at the Line Base Rate.
2.7. INTEREST ON THE TERM LOAN. Interest will accrue on the outstanding
principal balance of the Term Loan from date of advance until final payment
thereof at one of the following rates as selected by Borrowers from time to
time:
(a) TERM BASE RATE. The Term Base Rate in effect from time to time
(such interest rate to change immediately upon any change in the Base Rate); or
(b) LIBOR. By giving Notification, Borrowers may request to have
the outstanding principal balance of the Term Loan as hereinafter permitted
accrue interest at a rate equal to the Term LIBOR Rate as follows: (i) with
respect to the initial advance of funds under the Term Loan, from the date of
such advance until the end of the Term Rate Period specified in the
Notification; and/or (ii) if the Term Loan is accruing interest at a Term LIBOR
Rate, from the expiration of the then current Term Rate Period until the end of
the Term Rate Period specified in the Notification; and/or (iii) if the Term
Loan is accruing interest at the Term Base Rate, from the date set forth in the
Notification until the end of the Term Rate Period specified in the
Notification.
(c) TERMINATION OF LIBOR. Bank shall have the right to terminate
any Term Rate Period and the Term LIBOR Rate applicable thereto, prior to
maturity of such Term Rate Period (without any prepayment penalty payable by
Borrowers as a result of such termination), if Bank determines in good faith
(which determination shall be conclusive) that continuance of such interest rate
has been made unlawful by any law, statute, rule or regulation, to which Bank
may be subject, in which event the principal to which such terminated Term Rate
Period relates thereafter shall earn interest at the Term Base Rate.
2.8. DEFAULT INTEREST. Interest will accrue on the principal balance of
the Loans after the occurrence of an Event of Default at a rate which is two and
one-half percent (2 1/2%) in excess of the applicable non-default rate otherwise
set forth above for the Line or the Term Loan.
2.9. POST JUDGMENT INTEREST. Any judgment obtained for sums due
hereunder or under the Loan Documents will accrue interest at the applicable
default rate set forth above until paid.
2.10. CALCULATION. Interest will be computed on the basis of a year of
365 days and paid for the actual number of days elapsed.
2.11. LIMITATION OF INTEREST TO MAXIMUM LAWFUL RATE. In no event will
the rate of interest payable hereunder exceed the maximum rate of interest
permitted to be charged by
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applicable law (including the choice of law rules) and any interest paid in
excess of the permitted rate will be refunded to Borrowers. Such refund will be
made by application of the excessive amount of interest paid against any sums
outstanding hereunder and will be applied in such order as Bank may determine.
If the excessive amount of interest paid exceeds the sums outstanding, the
portion exceeding the sums outstanding will be refunded in cash by Bank. Any
such crediting or refunding will not cure or waive any default by Borrowers.
Borrowers agree, however, that in determining whether or not any interest
payable hereunder exceeds the highest rate permitted by law, any non-principal
payment, including without limitation prepayment fees and late charges, will be
deemed to the extent permitted by law to be an expense, fee, premium or penalty
rather than interest.
2.12. LETTER OF CREDIT ADVANCES. Advances may be made under the Line,
at the discretion of Bank, by the issuance of stand-by letters of credit in form
and content satisfactory to Bank, at its sole discretion, with a term not to
exceed twelve (12) months. Notwithstanding the foregoing, (a) at no time shall
the aggregate face amount of all outstanding stand-by letters of credit issued
under the Line exceed the amount of Three Hundred Thousand Dollars
($300,000.00); and (b) at no time shall the amount advanced under the Line plus
the aggregate face amount of all outstanding stand-by letters of credit issued
under the Line exceed the amount of Ten Million Dollars ($10,000,000.00).
Borrowers shall execute a letter of credit agreement and such other documents as
may be required by the Bank in connection with the issuance of stand-by letters
of credit pursuant to the terms hereof. Issuance or renewal of standby letters
of credit pursuant to the terms hereof shall constitute an advance under the
Line.
In the event that the Line is terminated for any reason (including
the expiration of the Line) or demand is made thereunder, Borrowers shall be
obligated to deposit with Bank an amount equal to the face amount of all
stand-by letters of credit then outstanding which have been issued hereunder
plus all fees to accrue thereunder. Such funds will be held by Bank as cash
collateral in a money market account at Bank (such account shall bear interest
at the Bank's prevailing rate of interest which rate may not be the highest or
best rate of interest paid by the Bank) to secure Borrowers' obligation to
reimburse to Bank all payments made pursuant to any draws made under such
stand-by letters of credit plus all fees to accrue thereunder. In the event such
stand-by letters of credit (a) expire, or (b) are replaced and the originals
thereof returned to Bank, Bank will release the cash collateral related to such
expired or replaced letters of credit
3. PAYMENTS AND FEES.
3.1. INTEREST PAYMENTS ON THE LINE. Borrowers will pay interest on the
principal balance of the Line as follows:
(a) for advances bearing interest based on the Line Base Rate,
interest will be payable on the first day of each calendar month as billed by
Bank, and
(b) for advances bearing interest based on the Line LIBOR Rate,
interest will
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be payable at the end of the applicable Line Rate Period.
3.2. PRINCIPAL PAYMENTS ON THE LINE. Borrowers will pay the outstanding
principal balance of the Line, together with any accrued and unpaid interest
thereon, and any other sums due pursuant to the terms hereof, ON DEMAND;
provided, that no demand for payment may be made by Bank unless (a) an Event of
Default has occurred hereunder or under any of the Loan Documents; or (b) the
Line has expired. If any overadvance arises under the Line for any reason
whatsoever, including accounts becoming ineligible, Borrowers will repay such
overadvances, ON DEMAND.
3.3. INTEREST PAYMENTS ON THE TERM LOAN. Borrowers will pay interest on
the principal balance of the Term Loan as follows:
(a) while the Term Loan bears interest based on the Term Base
Rate, interest will be payable on the first day of each calendar month as billed
by Bank, and
(b) while the Term Loan bears interest based on the Term LIBOR
Rate, interest will be payable at the end of the applicable Term Rate Period.
3.4. PRINCIPAL PAYMENTS ON THE TERM LOAN. Borrowers will pay the
principal of the Term Loan in (a) fifty-nine (59) equal and consecutive monthly
installments each in the amount of One Hundred Sixteen Thousand Six Hundred
Sixty-Six Dollars and Sixty-Seven Cents ($116,666.67), commencing on October 1,
1996 and continuing on the first day of each calendar month thereafter, and (b)
one final installment of all remaining principal and accrued interest due
thereon, together with all fees and charges due hereunder, payable on September
1, 2001.
3.5. APPLICATION OF PAYMENTS. Any and all payments on account of the
Line or the Term Loan shall be applied, at the option of Bank, to accrued and
unpaid interest, outstanding principal and other sums due hereunder or under the
Loan Documents, in such order as Bank, in its sole discretion, elects. Borrowers
agree that, to the extent any Borrower makes a payment or payments and such
payment or payments, or any part thereof, are subsequently invalidated, declared
to be fraudulent or preferential, set aside or are required to be repaid to a
trustee, receiver, or any other party under any bankruptcy act, state or federal
law, common law or equitable cause, then to the extent of such payment or
payments, the obligations or part thereof hereunder intended to be satisfied
shall be revived and continued in full force and effect as if said payment or
payments had not been made.
3.6. LETTER OF CREDIT FEE. For each advance under the Line made in the
form of the issuance or renewal of a stand-by letter of credit, Borrowers shall
pay to Bank an issuance or renewal fee in an amount equal to one percent (1%) of
the face amount of such stand-by letter of credit, payable coincident with and
as a condition of the issuance or renewal of such stand-by letter of credit. In
addition, Borrowers shall pay such other fees and charges in connection with the
issuance, renewal and maintenance of such stand-by letter of credit as may be
required by
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<PAGE> 9
Bank.
3.7. COMMITMENT FEE. Contemporaneously with the execution and delivery
of this Agreement, Borrowers shall pay to Bank a commitment fee equal to Eleven
Thousand Two Hundred Fifty Thousand Dollars ($11,250.00).
3.8. LATE CHARGE. In the event that Borrowers fail to pay any principal
or interest due under the Loans for a period of at least fifteen (15) days, in
addition to paying such sums, Borrowers will pay to Bank a late charge equal to
the greater of (a) four percent (4%), of such past due payment as compensation
for the expenses incident to such past due payment, or (b) Five Dollars ($5.00).
3.9. PREPAYMENT. Except as provided in SECTIONS 2.6(c)(v) AND 2.7(c),
Borrowers may not prepay all or any part of any LIBOR Loan prior to the end of
the applicable Rate Period. The Borrowers may prepay any Base Rate Loan, in
whole or in part, at any time without penalty or premium.
3.10. PAYMENT METHOD. Unless revoked by Borrowers in writing, Borrowers
authorize Bank to debit all payments required to be made by Borrowers hereunder
or under the Loans (for which invoices have been delivered to Borrowers, whether
by telecopier or otherwise), on the date due, from any deposit account
maintained by any Borrower with Bank. Otherwise, Borrowers will be obligated to
make such payments directly to Bank. All payments are to be made in immediately
available funds. If Bank accepts payment in any other form, such payment shall
not be deemed to have been made until the funds comprising such payment have
actually been received by or made available to Bank.
3.11. LOAN ACCOUNT. Bank will open and maintain on its books a loan
account (the "LOAN ACCOUNT") with respect to advances made, repayments,
prepayments, the computation and payment of interest and fees and the
computation and final payment of all other amounts due and sums paid to Bank
under this Agreement. Except in the case of manifest error in computation, the
Loan Account will be conclusive evidence as to the amount at any time due to
Bank from Borrower under this Agreement or the Notes.
3.12. LIBOR INDEMNITY. Borrowers will indemnify Bank against any loss
or expense which Bank actually sustains or incurs as a consequence of any
prepayment by Borrowers of a LIBOR Loan prior to the end of the applicable Rate
Period. If Bank actually sustains or incurs any such loss or expense it will
within ninety (90) days of such loss or expense notify Borrowers in writing of
the amount determined in good faith by the Bank to be necessary to indemnify
Bank for the loss or expense. Such amount will be due and payable by Borrowers
to Bank within ten (10) days after presentation by Bank of a statement setting
forth a brief explanation of and Bank's calculation of such amount, which
statement shall be presumptively deemed correct absent manifest error. Any
amount payable to the Bank under this Section will bear interest at the
applicable default rate from the due date until paid, both before and after
judgment.
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<PAGE> 10
4. SECURITY.
4.1. SECURITY FOR INDEBTEDNESS. As security for the payment of all
Indebtedness of Borrowers to Bank, whether now or hereafter owing or existing
including, without limitation, all obligations hereunder and under the Loan
Documents, under the Loans, and for the payment, performance and discharge of
all other obligations or undertakings now or hereafter made by or for the
benefit of any Borrower to or for the benefit of Bank, under this Agreement or
under any other agreement, promissory note or undertaking now existing or
hereafter entered into by any Borrower with or to Bank, including any guaranty
or surety obligations of any Borrower to Bank and the undertakings of any
Borrower to immediately pay to Bank the amount of any overdraft on any deposit
account maintained with Bank (all such obligations, indebtedness and
undertakings being sometimes hereinafter referred to as the "BANK
INDEBTEDNESS"), Borrowers hereby grant, or shall cause to be granted, to Bank a
security interest in all of the following:
(a) All of Borrowers' existing and future accounts, contract
rights, chattel paper, instruments and documents and all other rights to the
payment of money whether or not yet earned, for services rendered or goods sold,
consigned, leased or furnished by Borrowers or otherwise, together with (i) all
goods (including any returned, rejected, repossessed or consigned goods), the
sale, consignment, lease or other furnishings of which shall be given or may
give rise to any of the foregoing, (ii) all of Borrowers' rights as a consignor,
consignee, unpaid vendor or other lienor in connection therewith, including
stoppage in transit, setoff, detinue, replevy and reclamation, (iii) all general
intangibles related thereto, (iv) all guaranties, mortgages, security interest,
assignments, and other encumbrances on real or personal property, leases and
other agreements or property securing or relating to any of Borrowers' accounts,
(v) choses-in-action, claims and judgments, (vi) any return or unearned
premiums, which may be due upon cancellation of any insurance policies, and
(vii) all products and proceeds of any of the foregoing.
(b) All of Borrowers' present and future inventory (including but
not limited to goods held for sale or lease or furnished or to be furnished
under contracts for service, raw materials, work-in-process, finished goods and
goods used or consumed in Borrowers' business) whether owned, consigned or held
on consignment, together with all merchandise, component materials, supplies,
packing, packaging and shipping materials, and all returned, rejected or
repossessed goods sold, consigned, leased or otherwise furnished by Borrowers
and all products and proceeds of any of the foregoing.
(c) All of Borrowers' present and future general intangibles
(including but not limited to manufacturing and processing rights, designs,
patent rights and applications therefor, trademarks and registration or
applications therefor, tradenames, brand names, logos, inventions, copyrights
and all applications and registrations therefor, software and computer programs,
license rights, royalties, trade secrets, methods, processes, knowhow, formulas,
drawings, specifications, descriptions, label designs, plans, blueprints,
patterns and all memoranda, notes and records with respect to any research and
development, and all products and proceeds of any
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<PAGE> 11
of the foregoing.
(d) All of Borrowers' present and future machinery, equipment,
furniture, fixtures, motor vehicles, tools, dies, jigs, molds and other articles
of tangible personal property of every type together with all parts,
substitutions, accretions, accessions, attachments, accessories, additions,
components and replacements thereof, and all manuals of operation, maintenance
or repair, and all products and proceeds of any of the foregoing.
(e) All of Borrowers' present and future general ledger sheets,
files, records, books of account, invoices, bills, certificates or documents of
ownership, bills of sale, business papers, correspondence, credit files, tapes,
cards, computer runs and all other data and data storage systems whether in the
possession of Borrowers or any service bureau.
(f) All letters of credit now existing or hereafter issued naming
a Borrower as a beneficiary or assigned to a Borrower, including the right to
receive payments thereafter, and all documents and records associated
thereunder.
(g) All deposits, funds, instruments, documents, policies and
certificates of insurance, securities, chattel paper and other assets of
Borrowers or in which any Borrower has an interest and all proceeds thereof, now
or at any time hereafter on deposit with or in the possession or control of Bank
or owing by Bank to any Borrower or in transit by mail or carrier to Bank or in
the possession of any other Person acting on Bank's behalf, without regard to
whether Bank received the same in pledge, for safekeeping, as agent for
collection or otherwise, or whether Bank has conditionally released the same,
and in all assets of Borrowers in which Bank now has or may at any time
hereafter obtain a lien, mortgage, or security interest for any reason.
4.2. GENERAL. The collateral described above in SECTION 4.1 and in the
Existing Loan Documents is collectively referred to herein as the "COLLATERAL".
The above-described security interests, assignments, liens shall not be rendered
void by the fact that no Bank Indebtedness exists as of any particular date, but
shall continue in full force and effect until (a) the Bank Indebtedness has been
repaid and Bank has no agreement or commitment outstanding pursuant to which
Bank may extend credit to or on behalf of Borrowers, or (b) Bank has executed
termination statements or releases with respect thereto. IT IS THE EXPRESS
INTENT OF THE BORROWERS THAT ALL OF THE COLLATERAL SHALL SECURE NOT ONLY THE
OBLIGATIONS UNDER THE LOAN DOCUMENTS, BUT ALSO ALL OTHER PRESENT AND FUTURE
OBLIGATIONS OF BORROWERS TO BANK.
5. REPRESENTATIONS AND WARRANTIES OF BORROWERS. Borrowers represent and warrant
as follows:
5.1. VALID ORGANIZATION, GOOD STANDING AND QUALIFICATION OF MRC. MRC is
a corporation duly incorporated, validly existing and in good standing under the
laws of the State
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<PAGE> 12
of Ohio, has full power and authority to carry on its business as it is now
being conducted and is duly licensed or qualified as a foreign corporation in
good standing under the laws of each jurisdiction in which the character or
location of the properties owned by it or the business transacted by it requires
such licensing or qualification, except where the failure to be so licensed or
qualified would not have a material adverse effect on the Collateral, assets,
business, operations or financial condition of the Borrowers, taken as a whole,
or the ability of MRC to perform its obligations under the Loan Documents.
5.2. VALID ORGANIZATION, GOOD STANDING AND QUALIFICATION OF MEDIFAX.
Medifax is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Missouri, has full power and authority
to carry on its business as it is now being conducted and is duly licensed or
qualified as a foreign corporation in good standing under the laws of each
jurisdiction in which the character or location of the properties owned by it or
the business transacted by it requires such licensing or qualification, except
where the failure to be so licensed or qualified would not have a material
adverse effect on the Collateral, assets, business, operations or financial
condition of the Borrowers, taken as a whole, or the ability of Medifax to
perform its obligations under the Loan Documents.
5.3. LICENSES. Each Borrower and its employees, servants and agents
have all licenses, registrations and other authority as may be necessary to
enable them to perform all services and business which they have agreed to
perform in any state, municipality or other jurisdiction, except where the
failure to be so licensed would not have a material adverse effect on the
Collateral, assets, business, operations or financial condition of the
Borrowers, taken as a whole.
5.4. OWNERSHIP INTERESTS. Medifax owns all of the issued and
outstanding stock of MRC.
5.5. SUBSIDIARIES. Except as set forth on SCHEDULE 5.5 attached hereto,
no Borrower owns any shares of stock or other equity interests in any Person,
directly or indirectly (by any Subsidiary or otherwise).
5.6. FINANCIAL STATEMENTS. Borrowers have furnished to Bank the
financial statements as described on SCHEDULE 5.6. Such financial statements of
Borrowers fairly present the financial condition and the assets and liabilities
of the applicable Borrower at such date and the results of their operations as
of the end of the period and have been prepared in accordance with GAAP
consistently applied and maintained.
5.7. NO MATERIAL ADVERSE CHANGE IN FINANCIAL CONDITION. There has been
no material adverse change in the financial condition of Borrowers, taken as a
whole, since December 31, 1995.
5.8. PENDING LITIGATION OR PROCEEDINGS. Except as set forth on SCHEDULE
5.8 attached
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<PAGE> 13
hereto, there are no judgments outstanding or actions, suits or proceedings
pending or, to the best of any Borrower's knowledge, threatened against or
affecting any Borrower, at law or in equity or before or by any federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign.
5.9. DUE AUTHORIZATION; NO LEGAL RESTRICTIONS. The execution and
delivery by Borrowers of the Loan Documents, the consummation of the
transactions contemplated by the Loan Documents and the fulfillment and
compliance with the respective terms, conditions and provisions of the Loan
Documents: (i) have been duly authorized by all requisite corporate action of
each Borrower, (ii) will not conflict with or result in a breach of, or
constitute a default (or might, upon the passage of time or the giving of notice
or both, constitute a default) under, any of the terms, conditions or provisions
of any applicable statute, law, rule, regulation or ordinance or any Borrower's
Certificate or Articles of Incorporation or By-Laws, or any indenture, mortgage,
loan or credit agreement or instrument to which any Borrower is a party or by
which any of them may be bound or affected, or any judgment or order of any
court or governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, and (iii) will not result in the creation
or imposition of any lien, charge or encumbrance of any nature whatsoever upon
any of the property or assets of any Borrower under the terms or provisions of
any such agreement or instrument, except liens in favor of Bank or the Permitted
Liens.
5.10. ENFORCEABILITY. The Loan Documents when executed by Borrowers
will constitute valid and binding obligations of Borrowers, enforceable in
accordance with their terms, except as enforceability may be limited by any
bankruptcy, insolvency, reorganization, moratorium or other laws or equitable
principles affecting creditors' rights generally.
5.11. NO DEFAULT UNDER OTHER OBLIGATIONS, ORDERS OR GOVERNMENTAL
REGULATIONS. No Borrower is in violation of its Certificate or Articles of
Incorporation or in default in the performance or observance of any of its
obligations, covenants or conditions contained in any indenture or other
agreement creating, evidencing or securing any Indebtedness or pursuant to which
any such Indebtedness is issued and no Borrower is in violation of or in default
under any other agreement or instrument or any judgment, decree, order, statute,
rule or governmental regulation, applicable to any of them or by which their
properties may be bound or affected.
5.12. GOVERNMENTAL CONSENTS. No consent, approval or authorization of
or designation, declaration or filing with any governmental authority on the
part of any Borrower is required in connection with the execution, delivery or
performance by any Borrower of the Loan Documents or the consummation of the
transactions contemplated thereby.
5.13. TAX STATUS. Except as set forth on SCHEDULE 15.13, each Borrower
has filed all tax returns which it is required to file and has paid, or made
provision for the payment of, all taxes which have or may have become due
pursuant to such returns or pursuant to any assessment received by it, except
such taxes, if any, as are being contested in good faith and as
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<PAGE> 14
to which adequate reserves have been provided. Such tax returns are complete and
accurate in all material respects. No Borrower knows of any proposed assessment
or basis for any assessment of additional taxes.
5.14. TITLE TO COLLATERAL. The Collateral is and will be owned by
Borrowers, free and clear of all liens and other encumbrances of any kind,
excepting only the rights and interests permitted under SECTION 6.6 below.
5.15. ADDRESSES. During the past five (5) years, no Borrower has been
known by any names other than those set forth in SCHEDULE 5.15 attached hereto
and has not been located at any addresses other than those set forth on SCHEDULE
5.15 attached hereto. The portions of the Collateral which are tangible property
and Borrowers' books and records pertaining thereto will at all times be located
at the addresses set forth on SCHEDULE 5.15; or such other location determined
by Borrower after prior notice to Bank and delivery to Bank of any items
requested by Bank to maintain perfection and priority of Bank's security
interests and access to Borrowers' books and records.
5.16. CURRENT COMPLIANCE. Borrowers are currently in compliance with
all of the terms and conditions of the Loan Documents.
5.17. ELIGIBLE ACCOUNT WARRANTIES. With respect to all Eligible
Receivables from time to time scheduled, listed or referred to in any
certificate, statement or report prepared by or for Borrowers and delivered to
Bank and upon which Borrowers are basing availability under the Line, Borrowers
warrant and represent that (a) the accounts are genuine, are in all respects
what they purport to be, and are not evidenced by any chattel paper, note,
instrument or judgment; (b) Borrowers have absolute title to such accounts and
the accounts represent undisputed, bona fide transactions completed in
accordance with the terms thereof and as represented to Bank; (c) there are no
material setoffs, counterclaims or disputes existing or asserted with respect
thereto and Borrowers have not made any agreement with any account debtor for
any deduction therefrom; (d) to the best of Borrowers' knowledge, there are no
facts, events or occurrences which impair the validity or enforcement thereof or
tend to reduce the amount payable thereunder as shown on any certificates,
statements or reports, prepared by or for any Borrower and delivered to Bank,
Borrowers' books and records and all invoices and statements delivered to Bank
with respect thereto; (e) to the best of Borrowers' knowledge, all account
debtors have the capacity to contract and are solvent; (f) the goods sold giving
rise thereto are not subject to any lien, claim, encumbrance or security
interest except that of Bank and the Permitted Liens; (g) to the best of
Borrowers' knowledge, there are no proceedings or actions which are threatened
or pending against any account debtor which might result in the uncollectibility
of any accounts due from that account debtor; (h) the account is not an account
with respect to which the account debtor is an affiliate of any Borrower or a
director, officer or employee of any Borrower or its affiliates; (i) the account
does not arise with respect to goods which have not been shipped or arise with
respect to services which have not been fully performed and accepted as
satisfactory by the account debtor; (j) the account is not an account with
respect to which the
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account debtor's obligation to pay the account is conditional upon the account
debtor's approval or is otherwise subject to any repurchase obligation or return
right, as with sales made on a bill- and-hold, guaranteed sale, sale-and-return,
or sale on approval basis; (k) the amounts shown on the applicable certificates,
statements, on Borrowers' books and records and all invoices and statements
which may be delivered to Bank with respect to such accounts are actually and
absolutely owing to Borrowers and are not in any way contingent; and (l) the
accounts have not been sold, assigned or transferred to any other Person and no
Person except Borrowers has any claim thereto or (with the exception of the
applicable account debtor) any claims to the goods sold, except as provided in
the Samek Security Agreement or the Marcus Security Agreements.
5.18. PENSION PLANS. Except as disclosed on SCHEDULE 5.18 hereto, (a)
no Borrower has any obligations with respect to any employee pension benefit
plan ("PLAN") (as such term is defined in the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")), (b) no events, including, without
limitation, any "Reportable Event" or "Prohibited Transaction" (as those terms
are defined under ERISA), have occurred in connection with any Plan of any
Borrower which would constitute grounds for the termination of any such Plan by
the Pension Benefit Guaranty Corporation ("PBGC") or for the appointment by any
United States District Court of a trustee to administer any such Plan, (c) all
of the Borrowers' Plans meet with the minimum funding standards of Section 302
of ERISA, and (d) no Borrower has any existing liability to the PBGC. No
Borrower is subject to or bound to make contributions to any "multi-employer
plan" as such term is defined in Section 4001(a)(3) of ERISA.
5.19. LEASES AND CONTRACTS. Borrowers have complied in all material
respects with the provisions of all material leases, contracts or commitments of
any kind (such as employment agreements, collective bargaining agreements,
powers of attorney, distribution agreements, patent license agreements,
contracts for future purchase or delivery of goods or rendering of services,
bonus, pension and retirement plans or accrued vacation pay, insurance and
welfare agreements) to which it is a party and is not in default thereunder. No
other party is in default under any such leases, contracts or other commitments
and no event has occurred which, but for the giving of notice or the passage of
time or both, would constitute an event of default thereunder.
5.20. INTELLECTUAL PROPERTY. Borrowers own or possess the irrevocable
right to use all of the patents, trademarks, service marks, trade names,
copyrights, licenses, franchises and permits and rights with respect to the
foregoing necessary to own and operate the Borrowers' properties and to carry on
their businesses as presently conducted and presently planned to be conducted
without conflict with the rights of others. SCHEDULE 5.20 sets forth an accurate
list and description of each registered patent, trademark, service mark, trade
name and copyright owned or possessed by any Borrower.
5.21. BUSINESS INTERRUPTIONS. Within five (5) years prior to the date
hereof, neither the business, Collateral nor operations of any Borrower have
been materially and adversely affected in any way by any casualty, strike,
lockout, combination of workers, order of the
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United States of America, or any state or local government, or any political
subdivision or agency thereof, directed against such Borrower. There are no
pending or threatened labor disputes, strikes, lockouts or similar occurrences
or grievances against the business being operated by Borrowers.
5.22. CONSUMMATION OF PURCHASE TRANSACTION AND STOCK OFFERING. All
material aspects of the transactions contemplated under the Purchase Agreement
have been consummated. Medifax has completed a secondary public offering of its
capital stock, which offering raised additional equity for Medifax of not less
than Thirty Million Dollars ($30,000,000.00).
5.23. ACCURACY OF REPRESENTATIONS AND WARRANTIES. No representation or
warranty by any Borrower contained herein or in any certificate or other
document furnished by any Borrower pursuant hereto or in connection herewith
fails to contain any statement of material fact necessary to make such
representation or warranty not misleading in light of the circumstances under
which it was made. There is no fact which any Borrower knows or should know and
has not disclosed to Bank, which does or may materially and adversely affect the
business or financial condition of Borrowers, taken as a whole.
6. GENERAL COVENANTS. Except with the prior written consent of Bank, Borrowers
will comply with the following:
6.1. PAYMENT OF PRINCIPAL, INTEREST AND OTHER AMOUNTS DUE. Borrowers
will pay when due all amounts of principal and interest on the Notes and all
other amounts payable by them hereunder.
6.2. LIMITATION ON SALE AND LEASEBACK. No Borrower will enter into any
arrangement whereby it will sell or transfer any real property or improvements
thereon or other fixed assets owned by it (other than automobiles) and then or
thereafter rent or lease as lessee such property, improvements or assets or any
part thereof, or other property which that Borrower shall intend to use for
substantially the same purposes as the property sold or transferred.
6.3. DISPOSITION OF ASSETS. No Borrower will sell, lease, transfer or
otherwise dispose of all, substantially all, or any material portion of its
property or assets, except for sales of inventory and equipment (including any
surplus or obsolete inventory or equipment) in the ordinary course for fair
consideration.
6.4. MERGER; CONSOLIDATION; BUSINESS ACQUISITIONS; SUBSIDIARIES. No
Borrower will merge into or consolidate with any Person, acquire any material
portion of the stock or assets or business of any Person, permit any Person to
merge into it, or form any new Subsidiaries. Notwithstanding the foregoing,
Borrowers may make acquisitions of stock and/or assets, provided the purchase
price (including cash, the market value of stock or other assets and assumption
of liabilities) of any such acquisition does not exceed Two Million Five Hundred
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Thousand Dollars ($2,500,000.00) and the aggregate purchase price (including
cash, the market value of all stock and other assets and assumption of
liabilities) for all such acquisitions does not exceed Ten Million Dollars
($10,000,000.00). Additionally, MRC may merge into Medifax, provided reasonable
notice of such merger is given to Bank. At least once in each calendar year,
Medifax shall deliver to Bank a list of its five (5) largest shareholders (by
number of voting shares held). Medifax will also promptly notify Bank if Welsh,
Carson, Anderson & Stowe VI, L.P.'s interest in Medifax is reduced or terminated
for any reason whatsoever other than as a result of the exercise of existing
stock options.
6.5. PAYMENT OF TAXES, CLAIMS FOR LABOR AND MATERIALS. Each Borrower
will pay or cause to be paid when due all taxes, assessments, governmental
charges or levies imposed upon it or its income, profits, payroll or any
property belonging to it, including without limitation all withholding taxes,
and all claims for labor, materials and supplies which, if unpaid, might become
a lien or charge upon any of its properties or assets; provided that it shall
not be required to pay any such tax, assessment, charge, levy or claim so long
as the validity thereof shall be contested in good faith by appropriate
proceedings promptly initiated and diligently conducted by it, and neither
execution nor foreclosure sale or similar proceedings shall have been commenced
in respect thereof (or such proceedings shall have been stayed pending the
disposition of such contest of validity), and it shall have set aside on its
books adequate reserves with respect thereto.
6.6. LIENS. No Borrower will create, incur or permit to exist any
mortgage, pledge, encumbrance, lien, security interest or charge of any kind
(including liens or charges upon properties acquired or to be acquired under
conditional sales agreements or other title retention devices) on its property
or assets, whether now owned or hereafter acquired, or upon any income or
profits therefrom, except:
(a) Security interests held by Bank to secure Bank Indebtedness;
(b) Liens incurred or deposits made in the ordinary course of
business (i) in connection with worker's compensation, unemployment insurance,
social security and other like laws or (ii) to secure the performance of
statutory obligations, not incurred in connection with the borrowing of money;
(c) Encumbrances consisting of zoning restrictions, easements,
restrictions on the use of real property or minor irregularities of title
thereto, none of which materially impairs the use of such property by Borrower
in the operation of its business; or
(d) The Permitted Liens.
6.7. EXISTENCE; COMPLIANCE WITH LAWS. Except as otherwise permitted
under SECTION 6.4, each Borrower (a) will obtain, preserve and keep in full
force and effect its separate corporate existence and all rights, licenses,
registrations and franchises necessary to the proper
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conduct of its business or affairs; (b) will continue to operate its business as
presently operated; and (c) will comply with the requirements of all applicable
laws and all rules, regulations (including environmental regulations) and orders
of regulatory agencies and authorities having jurisdiction over it.
6.8. INSURANCE. Each Borrower will carry adequate insurance issued by
responsible insurers in amounts (at least adequate to comply with any
coinsurance provisions) and against all such liability and hazards as are
usually carried by entities engaged in the same or a similar business similarly
situated and in the case of insurance on any of the Collateral shall carry
insurance in the full insurable value thereof and cause Bank to be named as loss
payee and additional insured thereunder, as its interests may appear with thirty
(30) days' notice to be given Bank by the insurance carrier prior to
cancellation of such insurance coverage. Each Borrower shall cause to be
delivered to Bank the insurance policies therefor and at least thirty (30)
business days prior to the expiration of any such insurance, additional policies
or duplicates thereof evidencing the renewal of such insurance and payment of
the premiums therefor. Borrowers shall direct all insurers that in the event of
any loss thereunder or the cancellation of any insurance policy, the insurers
shall make payments for such loss and pay all return or unearned premiums
directly to Bank and not to Borrowers, or either of them, and Bank jointly;
provided, however, that any payments (including unearned premiums) by insurers
for losses sustained by Borrowers may be paid directly to Borrowers if the
aggregate amount of all such losses occurring in any one year does not exceed
(x) Two Hundred Fifty Thousand Dollars ($250,000.00), and (y) no Event of
Default exists hereunder. If any insurance losses are paid by check, draft or
other instrument payable to a Borrower and Bank jointly, Bank may endorse that
Borrower's name thereon and do such other things as Bank may deem advisable to
reduce the same to cash. In the event of loss, Bank, at its option, may (i)
retain and apply all or any part of the insurance proceeds to reduce, in such
order and amounts as Bank may elect the Bank Indebtedness, or (ii) disburse all
or any part of such insurance proceeds to or for the benefit of Borrowers for
the purpose of repairing or replacing Collateral after receiving proof
satisfactory to Bank of such repair or replacement, in either case without
waiving or impairing the Bank Indebtedness or any provision of this Agreement.
Any deficiency thereon shall be paid by Borrowers to Bank upon demand. No
Borrower shall take out any insurance without having Bank named as loss payee or
additional insured thereon. Borrowers shall bear the full risk of loss from any
loss of any nature whatsoever with respect to the Collateral, except as may
result from the gross negligence or wilful misconduct of the Bank.
6.9. INSPECTIONS; AUDITS. If (a) within thirty (30) days after written
request from Bank to Borrowers, Borrowers fail to provide to Bank the financial
information specifically requested by Bank in such notice and such information
is available to Borrower, or (b) an Event of Default has occurred and is
continuing, Borrowers hereby irrevocably authorize and direct all accountants
and auditors employed by Borrowers at any time to exhibit and deliver to Bank
(x) in the case of (a) above, the specific financial information required by
Bank in its written notice, and (b) in the case of an Event of Default, copies
of any and all of Borrowers' financial statements, trial balances or other
accounting records of any sort in the accountant's or auditor's
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possession and to disclose to Bank any information they may have concerning
Borrowers' financial status and business operations. Borrowers further authorize
all federal, state and municipal authorities to furnish to Bank copies of
reports or examinations relating to Borrowers, whether made by Borrowers or
otherwise.
The officers of Bank, or such persons as any of them may
designate, may visit and inspect any of the properties of any Borrower, examine
(either by Bank's employees or by independent accountants) any of the Collateral
or other assets of Borrowers, including the books of account of Borrowers, and
discuss the affairs, finances and accounts of Borrowers with their officers and
with their independent accountants, at such times as Bank may desire. Prior to
the occurrence of an Event of Default hereunder or under any of the Loan
Documents, Bank agrees to conduct such examinations and inspections only during
normal business hours and upon reasonable notice.
6.10. CAPITAL STOCK; DIVIDENDS. Medifax will not redeem, repurchase or
otherwise make any payment or distribution to acquire any of its capital stock,
except as provided herein. Medifax will not pay dividends or make other
distributions on account of its capital stock. Notwithstanding the foregoing,
Bank hereby agrees to permit Medifax to pay dividends on account of its capital
stock; provided that (a) no Event of Default has occurred hereunder or under any
of the Loan Documents, (b) the payment of such dividend(s) shall not result in
the occurrence of any event which with the passage of time or giving of notice,
if applicable, would constitute an Event of Default hereunder or under any of
the Loan Documents, and (c) such dividends shall not exceed forty percent (40%)
in any fiscal year of Medifax's consolidated net income for that year (as
determined in accordance with GAAP). The Bank hereby agrees to permit Medifax to
redeem thirty-five thousand (35,000) shares of its capital stock from Dr. John
Dayani at Four Dollars and Twenty-Three Cents ($4.23) per share on or before
November 30, 1996.
6.11. TRANSACTIONS WITH AFFILIATES. From the date of this Agreement, no
Borrower shall enter into or conduct any transaction with any Affiliate except
on terms that would be usual and customary in a similar transaction between
persons not affiliated with each other and except as disclosed to Bank. No
Borrower will make any loans or extensions of credit to any of its Affiliates,
shareholders, directors or officers, except for the existing loans described in
SCHEDULE 6.11 attached hereto. Notwithstanding the foregoing, nothing contained
herein shall be deemed to prohibit (a) any inter-company advances and payments
between the Borrowers, or (b) advances for moving or other similar allowances
extended by Borrowers, or either of them, in the ordinary course, provided that
such advances and allowances shall not at any time exceed in the aggregate One
Hundred Fifty Thousand Dollars ($150,000.00).
6.12. RESTRICTION ON STOCK TRANSFER. MRC shall not directly or
indirectly issue, transfer, sell or otherwise dispose of, or part with control
of, or permit the transfer of, any shares of its capital stock.
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6.13. NAME OR ADDRESS CHANGE. No Borrower shall change its name or
address except upon thirty (30) days prior written notice to Bank and delivery
to Bank of any items reasonably requested by Bank to maintain perfection and
priority of Bank's security interests and access to that Borrower's books and
records.
6.14. NOTICES. Borrowers will promptly notify Bank of (i) any action or
proceeding brought against any Borrower wherein such action or proceeding would,
if determined adversely to that Borrower result in liability of that Borrower in
excess of One Hundred Thousand Dollars ($100,000.00), (ii) the occurrence of any
Event of Default, (iii) any fact, condition or event which, with the giving of
notice or the passage of time or both, could become an Event of Default, or (iv)
the failure of any Borrower to observe any of its undertakings under the Loan
Documents.
6.15. ADDITIONAL DOCUMENTS AND FUTURE ACTIONS. Borrowers will provide
Bank from time to time on request by Bank with such agreements, financing
statements and additional instruments, documents or information as the Bank may
in its discretion reasonably deem necessary or advisable to perfect, protect and
maintain the security interests in the collateral, to permit Bank to protect its
interest in the Collateral or to carry out the terms of the Loan Documents. Each
Borrower hereby irrevocably authorizes and appoints Bank as its
attorney-in-fact, with full power of substitution, to execute on that Borrower's
behalf and file at Bank's expense financing statements, and amendments thereto,
in those public offices deemed necessary or appropriate by Bank to establish,
maintain and protect a continuously perfected security interest in the
Collateral. Borrowers irrevocably authorize the filing of a carbon, photographic
or other copy of this Agreement, or of a financing statement, as a financing
statement and agree that such filing is sufficient as a financing statement.
6.16. ACCOUNTS RECEIVABLE. Unless Bank notifies Borrowers in writing
that it dispenses with any one or more of the following requirements, Borrowers
will (a) inform Bank immediately of the rejection of goods, claims made or delay
in delivery or performance in regard to any account or contract right upon which
Borrowers have based availability for advances under the Line, the disputed
amount of which account or contract right exceeds One Hundred Thousand Dollars
($100,000.00) or the aggregate amount of all such accounts or contract rights
exceeds Two Hundred Fifty Thousand Dollars ($250,000.00) at any time or from
time to time; and (b) immediately notify Bank if any of its accounts arise out
of contracts with the United States or any department, agency or instrumentality
thereof, and execute any instruments and take any steps required by Bank in
order that all monies due and to become due under such contract shall be
assigned to Bank and notice thereof given to the Government under the Federal
Assignment of Claims Act.
Borrowers will (i) upon the occurrence and during the continuation of
an Event of Default, segregate cash proceeds of Collateral so that they may be
identified readily, and deliver the same to the Bank at such time or times and
in such manner and form as the Bank may direct; (ii) use their best efforts to
obtain from any owner, encumbrancer or other person having an
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interest in the property where any Collateral is located, written consent to
Bank's removal of the Collateral therefrom, without liability on the part of the
Bank to such owner, encumbrancer or other person, or from any such owner,
encumbrancer or other person such waivers of any interest in the Collateral as
the Bank may require; and (iii) immediately pay to Bank any overadvance arising
under the Line.
6.17. SUBORDINATED INDEBTEDNESS.
(a) OWED TO SAMEK. Borrowers will not prepay or accelerate
payment of that certain note payable having an original principal balance of not
more than $3,500,000.00 from Medifax to Edward L. Samek, except as permitted in
the Samek Subordination Agreement. Borrowers agree to comply with all terms of
the Samek Subordination Agreement.
(b) OWED TO THE MARCUSES. Borrowers will not prepay or accelerate
payment of those certain notes payable having an original principal balance of
not more than $2,000,000.00, in the aggregate, from Medifax to the Marcuses,
except as permitted in the Marcus Subordination Agreements. Borrowers agree to
comply with all terms of the Marcus Subordination Agreements.
7. FINANCIAL COVENANTS. Except with the prior written consent of Bank, Borrowers
will comply with the following:
7.1. TANGIBLE NET WORTH. Borrowers shall maintain on a consolidated
basis Tangible Net Worth plus Subordinated Indebtedness of not less than
$12,500,000.00 as of the date hereof and at all times thereafter.
7.2. INDEBTEDNESS TO TANGIBLE NET WORTH RATIO. Borrowers shall maintain
on a consolidated basis a ratio of Indebtedness (not including Subordinated
Indebtedness) to Tangible Net Worth plus Subordinated Indebtedness of not more
than 1.65 to 1.0 as of the date hereof and at all times thereafter.
7.3. CURRENT RATIO. Borrowers shall maintain on a consolidated basis a
ratio of Current Assets to Current Liabilities of not less than 1.40 to 1.0 as
of the date hereof and at all times thereafter.
7.4. NET INCOME. Borrowers shall realize on a consolidated basis net
income after taxes of not less than One Million Dollars ($1,000,000.00) for each
fiscal year commencing with the fiscal year ending December 31, 1996.
8. ACCOUNTING RECORDS, REPORTS AND FINANCIAL STATEMENTS. Borrowers
shall keep proper books of record and account in which full and correct entries
will be made of all of its dealings, business and affairs, and Borrowers will
deliver or cause to be delivered to Bank the following:
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8.1. ANNUAL STATEMENTS. As soon as available and in any event within
one hundred twenty (120) days after the end of each fiscal year of Borrowers:
(a) the audited consolidated and consolidating income and retained
earnings statements of Borrowers for such fiscal year,
(b) the audited consolidated and consolidating balance sheet of
Borrowers as at the end of such fiscal year, and
(c) the audited consolidated and consolidating statement of cash
flow of Borrowers for such fiscal year,
setting forth in comparative form the corresponding figures as at the end of the
previous fiscal year, all in reasonable detail, including all supporting
schedules and comments. The foregoing statements and balance sheets shall be
prepared in accordance with GAAP and shall be audited by independent certified
public accountants of recognized standing acceptable to Bank in the reasonable
exercise of its discretion (the "ACCOUNTANT").
8.2. QUARTERLY STATEMENTS. As soon as available and in any event within
sixty (60) days after the close of each of the first three (3) fiscal quarters
of Borrowers during each fiscal year;
(a) the consolidated income and retained earnings statements of
Borrowers for such quarter,
(b) the consolidated balance sheet of Borrowers as of the end of
such quarter,
(c) the consolidated statement of cash flow of Borrowers for such
quarter,
setting forth in comparative form the corresponding figures as at the end of the
corresponding quarter of the previous fiscal year (if applicable), all in
reasonable detail, subject to year end adjustments. The foregoing statements and
balance sheets shall be internally prepared in accordance with GAAP and shall be
certified by the Chief Financial Officer of the Borrowers to be true and
complete.
8.3. ACCOUNTS RECEIVABLE STATEMENTS. As soon as available and in any
event within twenty (20) days after the end of each fiscal quarter, a schedule
of the Borrowers' accounts receivable as of the last day of the preceding fiscal
quarter, identifying all Eligible Receivables, and the aging by open invoice of
each customer of Borrowers, all certified as to accuracy by the Chief Financial
Officer of Borrowers. Borrowers shall also provide Bank with all information
requested by Bank with respect to any account debtor.
8.4. AUDIT REPORTS. Promptly upon receipt thereof, one copy of each
other report
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submitted to any Borrower, by independent accountants, including management
letters, "comment" letters, in connection with any annual, interim or special
audit report made by them of the books of that Borrower.
8.5. REQUESTED INFORMATION. With reasonable promptness, all such other
data and information in respect of the condition, operation and affairs of any
Borrower as Bank may reasonably request from time to time.
9. ENVIRONMENTAL REPRESENTATIONS AND COVENANTS.
9.1. REPRESENTATIONS. Borrowers represent and warrant to Bank that (a)
they own no real property, and (b) to the best of their knowledge, there are no
Special Materials, as hereinafter defined, presently located on any real
property leased by any Borrowers (collectively, "BORROWERS' REAL PROPERTY").
Borrowers further represent and warrant to Bank that the Borrowers' Real
Property is not now being used nor, to the best of their knowledge, has it ever
been used in the past for activities involving Special Materials, including but
not limited to the use, generation, collection, storage, treatment, or disposal
of any Special Materials. Without limiting the generality of the foregoing, the
Borrowers' Real Property is not being used nor, to the best of Borrowers'
knowledge, has it ever been used in the past for a landfill, surface impoundment
or other area for the treatment, storage or disposal of solid waste (including
solid waste such as sludge).
9.2. DEFINITIONS. For purposes of the foregoing (i) "ENVIRONMENTAL
REQUIREMENTS" means any and all federal, state or local laws, statutes,
ordinances, regulations or standards, or administrative or court orders or
decrees, or private agreements, and (ii) "SPECIAL MATERIALS" means any and all
materials which, under Environmental Requirements, require special handling in
use, generation, collection, storage, treatment or disposal, or payment of costs
associated with responding to the lawful directives of any court or agency of
competent jurisdiction or for similar economic loss. Without limiting the
foregoing, Special Materials shall include any materials which violate any
national or local contingency plan or the release or threatened release of which
may violate or create liability under any Environmental Requirement. Special
Materials shall also include, without limitation: (i) asbestos in any form; (ii)
urea formaldehyde foam insulation; (iii) paint containing lead; and (iv)
transformers or other equipment which contains dielectric fluid containing
polychlorinated biphenyls (commonly referred to as "PCB'S").
10. CONDITIONS OF CLOSING. The obligation of Bank to make available the Loans is
subject to the performance at or prior to the Closing by Borrowers of all of its
agreements theretofore to be performed by it hereunder and to the following
further conditions (any of which may be waived by Bank):
10.1. LOAN DOCUMENTS. Borrowers will have executed and delivered to
Bank the Loan Documents.
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10.2. REPRESENTATIONS AND WARRANTIES. All representations and
warranties of Borrowers set forth in the Loan Documents will be true at and as
of the date of Closing.
10.3. NO DEFAULT. No condition or event shall exist or have occurred
which would constitute an Event of Default hereunder (or would, upon the giving
of notice or the passage of time or both, constitute such an Event of Default).
10.4. PROCEEDINGS AND DOCUMENTS. All proceedings taken by Borrowers in
connection with the transactions contemplated by this Agreement and all
documents incident to such transactions shall be satisfactory in form and
substance to Bank, and Bank shall have received all documents or other evidence
which it reasonably may request in connection with such proceedings and
transactions.
10.5. DELIVERY OF OTHER DOCUMENTS. The following documents shall have
been delivered by or on behalf of Borrowers to Bank:
(a) AUTHORIZATION DOCUMENTS. Evidence of authorization of
Borrowers' execution and full performance of this Agreement, the Loan Documents
and all other documents and actions required hereunder.
(b) INSURANCE. Evidence of the insurance coverage required under
SECTION 6.8.
(c) OTHER DOCUMENTS. Such other documents as may be reasonably
required to be submitted to Bank by the terms hereof or of any Loan Document.
11. CERTAIN CONDITIONS TO SUBSEQUENT ADVANCES. Without limiting Bank's
discretion to make advances under the Line subsequent to Closing, such advances
shall be conditioned upon the following conditions and each request by Borrowers
for an advance shall constitute a representation by Borrowers to Bank that each
condition has been met or satisfied:
11.1. REPRESENTATIONS AND WARRANTIES. All representations and
warranties of Borrowers contained herein or in the Loan Documents shall be true
at and as of the date of such advance as if made on such date, and each request
for an advance shall constitute reaffirmation by Borrowers that such
representations and warranties are then true.
11.2. NO DEFAULT. No condition or event shall exist or have occurred at
or as of the date such advance which would constitute an Event of Default
hereunder (or would, upon the giving of notice or the passage of time or both,
constitute such an Event of Default).
11.3. OTHER REQUIREMENTS. Bank shall have received all certificates,
authorizations, affidavits, schedules and other documents which are provided for
hereunder or under the Loan Documents, or which Bank may reasonably request.
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12. DEFAULT AND REMEDIES.
12.1. EVENTS OF DEFAULT. The occurrence of any one or more of the
following events shall constitute an Event or Events of Default hereunder:
(a) The failure of Borrowers to pay any amount of principal or
interest on the Line Note, the Term Notes, the Existing Term Notes or any other
Bank Indebtedness on the date on which such payment is due, whether, on demand,
at the stated maturity, or due date, thereof or by reason of any requirement for
the prepayment thereof, by acceleration or otherwise.
(b) The failure of Borrowers to duly perform or observe any
obligation, covenant or agreement on its part contained herein or in any other
Loan Document.
(c) The failure of Borrowers to pay or perform any other
obligation to Bank under any other agreement or note or otherwise arising,
whether or not related to this Agreement, after the expiration of any notice
and/or grace periods permitted in such documents;
(d) The adjudication of any Borrower as a bankrupt or insolvent,
or the entry of an Order for Relief against any Borrower or the entry of an
order appointing a receiver or trustee for any Borrower of any of their property
or approving a petition seeking reorganization of it or other similar relief
under the bankruptcy or other similar laws of the United States or any state or
any other competent jurisdiction;
(e) A proceeding under any bankruptcy, reorganization,
arrangement of debt, insolvency, readjustment of debt or receivership law is
filed by or (unless dismissed within 60 days) against any Borrower or any
Borrower makes an assignment for the benefit of creditors, or any Borrower takes
any action to authorize any of the foregoing;
(f) The entry of a final judgment(s) for the payment of money in
excess of $1,000,000.00 or $2,000,000.00, in the aggregate, against any Borrower
which, within thirty (30) days after such entry, shall not have been discharged
or execution thereof stayed pending appeal or shall not have been discharged
within thirty (30) days after the expiration of any such stay; or
(g) Any representation or warranty of Borrowers in any of the
Loan Documents is discovered to be untrue in any material respect or any
statement, certificate or data furnished by any Borrower pursuant hereto is
discovered to be untrue in any material respect as of the date as of which the
facts therein set forth are stated or certified.
Notwithstanding anything to the contrary contained herein, none of the
foregoing shall constitute an Event of Default hereunder unless and until Bank
shall have given Borrowers notice of the occurrence of such event and Borrowers
shall fail to remedy such event within ten (10) days after the giving of such
notice; provided, however, that if such event is incapable of
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remedy Borrowers shall not be entitled to any notice or grace hereunder.
12.2. REMEDIES. At the option of the Bank, upon the occurrence of an
Event of Default, or at any time thereafter.
(a) The entire unpaid principal of the Line, the Term Loan, all
other Bank Indebtedness, or any part thereof, all interest accrued thereon, all
fees due hereunder and all other obligations of Borrowers, or either of them, to
Bank hereunder or under any other agreement, note or otherwise arising shall
become immediately due and payable without any further demand or notice;
(b) The Line shall immediately terminate;
(c) Bank may enter the premises occupied by Borrowers and take
possession of the Collateral and any records relating thereto; and/or
(d) Bank may exercise each and every right and remedy granted to
it under the Loan Documents, under the Uniform Commercial Code and under any
other applicable law or at equity.
12.3. SALE OR OTHER DISPOSITION OF COLLATERAL. The sale, lease or other
disposition of the Collateral, or any part thereof, by Bank after an Event of
Default may be for cash, credit or any combination thereof, and Bank may
purchase all or any part of the Collateral at public or, if permitted by law,
private sale, and in lieu of actual payment of such purchase price, may set-off
the amount of such purchase price against the Bank Indebtedness then owing. Any
sales of the Collateral may be adjourned from time to time with or without
notice. The Bank may cause the Collateral to remain on any Borrower's premises
or otherwise or to be removed and stored at premises owned by other persons, at
Borrowers' expense, pending sale or other disposition of the Collateral.
Borrowers, at Bank's request, shall assemble the Collateral consisting of
inventory and tangible assets and make such assets available to Bank at a place
to be designated by Bank. Bank shall have the right to conduct such sales on any
Borrower's premises, at Borrowers' expense, or elsewhere, on such occasion or
occasions as Bank may see fit. Any notice required to be given by Bank of a
sale, lease or other disposition or other intended action by Bank with respect
to any of the Collateral which is deposited in the United States mail, postage
prepaid and duly addressed to Borrowers at the address specified in SECTION 13.1
below, at least five (5) business days prior to such proposed action, shall
constitute fair and reasonable notice to Borrowers of any such action. The net
proceeds realized by Bank upon any such sale or other disposition, after
deduction for the expenses of retaking, holding, storing, transporting,
preparing for sale, selling or otherwise disposing of the Collateral incurred by
Bank in connection therewith and all other costs and expenses related thereto
including reasonable attorney fees, shall be applied in such order as Bank, in
its sole discretion, elects, toward satisfaction of the Bank Indebtedness. Bank
shall account to Borrowers for any surplus realized upon such sale or other
disposition, and Borrowers shall remain liable for any deficiency. The
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commencement of any action, legal or equitable, or the rendering of any judgment
or decree for any deficiency shall not affect Bank's security interest in the
Collateral. Borrowers agree that Bank has no obligation to preserve rights to
the Collateral against any other parties. Bank is hereby granted a license or
other right to use, after an Event of Default, without charge, Borrowers'
labels, general intangibles, intellectual property, equipment, real estate,
patents, copyrights, rights of use of any name, trade secrets, trade names,
trademarks, service marks and advertising matter, or any property of a similar
nature, as it pertains to the Collateral, in completing production of,
advertising for sale and selling any inventory or other Collateral and
Borrowers' rights under all contracts, licenses, leases and franchise agreements
shall inure to Bank's benefit. Bank shall be under no obligation to marshall any
assets in favor of any Borrower or any other party or against or in payment of
any or all of the Bank Indebtedness.
12.4. ACTIONS WITH RESPECT TO ACCOUNTS. Borrowers hereby jointly and
severally irrevocably make, constitute and appoint Bank (and any of Bank's
designated officers, employees or agents) as their true and lawful
attorney-in-fact with power to sign their names and to take any of the following
actions, in their names or the name of Bank, as Bank may determine, without
notice to Borrowers and at Borrowers' expense:
(a) Verify the validity and amount of or any other matter
relating to the Collateral by mail, telephone, telegraph or otherwise;
(b) Upon the occurrence of and during the continuance of an Event
of Default, notify all account debtors that the accounts have been assigned to
Bank and that Bank has a security interest therein (provided that Bank shall
have the right to notify account debtors prior to an Event of Default if such
notification is required to perfect the Bank's security interests and/or right
to collect such accounts);
(c) Upon the occurrence and during the continuance of an Event of
Default, direct all account debtors to make payment of all accounts directly to
Bank and forward invoices directly to such account debtors;
(d) Upon the occurrence and during the continuance of an Event of
Default, take control in any manner of any cash or non-cash items of payment or
proceeds of accounts;
(e) Upon the occurrence and during the continuance of an Event of
Default, notify the United States Postal Service to change the address for
delivery of mail addressed to any Borrower to such address as Bank may
designate;
(f) Upon the occurrence and during the continuance of an Event of
Default, have access to any lockbox or postal boxes into which any Borrower's
mail is deposited and receive, open and dispose of all mail addressed to any
Borrower;
(g) Upon the occurrence and during the continuance of an Event of
Default,
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take control in any manner of any rejected, returned, stopped in transit or
repossessed goods relating to accounts;
(h) Upon the occurrence of and during the continuance of an Event
of Default, enforce payment of and collect any accounts, by legal proceedings or
otherwise, and for such purpose Bank may:
(1) Demand payment of any accounts or direct any account
debtors to make payment of accounts directly to Bank;
(2) Receive and collect all monies due or to become due to
any Borrower;
(3) Exercise all of Borrowers' rights and remedies with
respect to the collection of accounts;
(4) Settle, adjust, compromise, extend, renew, discharge or
release the accounts;
(5) Sell or assign the accounts on such terms, for such
amount and at such times as Bank deems advisable;
(6) Prepare, file and sign Borrowers' name or names on any
Proof of Claim or similar document in any proceeding filed under federal or
state bankruptcy, insolvency, reorganization or other similar law as to any
account debtor;
(7) Prepare, file and sign Borrowers' name or names on any
Notice of Lien, Claim of Mechanic's Lien, Assignment or Satisfaction of Lien or
Mechanic's Lien or similar document in connection with the Collateral;
(8) Endorse the name of Borrowers upon any chattel papers,
documents, instruments, invoices, freight bills, bills of lading or similar
documents or agreements relating to the accounts or goods pertaining thereto or
upon any checks or other media of payment or evidences of a security interest
that may come into Bank's possession;
(9) Sign the name of Borrowers to verifications of accounts
and notices thereof sent by account debtors to Borrowers; or
(10) Take all other actions necessary or desirable to protect
Borrowers' or Bank's interest in the accounts.
All acts of said attorneys are hereby ratified and approved and said attorneys
shall not be liable for any acts of commission or omission, nor for any error of
judgment or mistake of fact or law,
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<PAGE> 29
except willful misconduct. This power, being coupled with an interest, is
irrevocable as long as any Bank Indebtedness remains outstanding.
12.5. SET-OFF. Without limiting the rights of Bank under applicable
law, Bank has and may exercise a right of set-off, a lien against and a security
interest in all property of Borrowers now or at any time in Bank's possession in
any capacity whatsoever, including but not limited to any balance of any
deposit, trust or agency account, or any other bank account with Bank, as
security for all obligations of Borrowers to Bank under the Loan Documents or
otherwise. At any time and from time to time following the occurrence of an
Event of Default, or an event which with the giving of notice or passage of time
or both would constitute an Event of Default, Bank may without notice or demand,
set off and apply any and all deposits (general or special, time or demand,
provisional or final) at any time held and other indebtedness at any time owing
by Bank to or for the credit of Borrowers against any or all of the Bank
Indebtedness and the Borrowers' obligations under the Loan Documents.
12.6. DELAY OR OMISSION NOT WAIVER. Neither the failure nor any delay
on the part of Bank to exercise any right, remedy, power or privilege under the
Loan Documents upon the occurrence of any Event of Default or otherwise shall
operate as a waiver thereof or impair any such right, remedy, power or
privilege. No waiver of any Event of Default shall affect any later Event of
Default or shall impair any rights of Bank. No single, partial or full exercise
of any rights, remedies, powers and privileges by the Bank shall preclude
further or other exercise thereof. No course of dealing between Bank and
Borrowers shall operate as or be deemed to constitute a waiver of Bank's rights
under the Loan Documents or affect the duties or obligations of Borrowers.
12.7. REMEDIES CUMULATIVE. The rights, remedies, powers and privileges
provided for in shall not be deemed exclusive, but shall be cumulative and shall
be in addition to all other rights, remedies, powers and privileges in Bank's
favor at law or in equity.
12.8. CERTAIN FEES, COSTS, EXPENSES AND EXPENDITURES. Borrowers will
pay all of Bank's reasonable expenses, including without limitation reasonable
fees, disbursements, expenses and disbursements of counsel retained by Bank and
all fees related to filings, recording of documents, searches and title
insurance, in connection with (a) any subsequent amendments, modifications,
increases or extensions of the Line or the Term Loan, and (b) the enforcement,
protection and preservation of Bank's rights or remedies under the Loan
Documents or any documents collateral thereto. In the event Borrowers shall fail
to pay taxes, insurance, assessments, costs or expenses which they are required
to pay hereunder, or fails to keep the Collateral free from security interests
or lien (except as expressly permitted herein), or fails to maintain or repair
the Collateral as required hereby, Bank in its discretion, may make expenditures
for such purposes and the amount so expended (including legal fees and expenses,
filing fees and other charges) shall be payable by Borrowers on demand and shall
constitute part of the Bank Indebtedness.
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<PAGE> 30
13. COMMUNICATIONS AND NOTICES.
13.1. COMMUNICATIONS AND NOTICES. All notices, requests and other
communications made or given in connection with the Loan Documents shall be in
writing and, unless receipt is stated herein to be required, shall be deemed to
have been validly given if delivered personally to the individual or division or
department to whose attention notices to a party are to be addressed, or by
private carrier, or registered or certified mail, return receipt requested,
postage prepaid, addressed as follows, until some other address (or individual
or division or department for attention) shall have been designated by notice
given by one party to the other:
To Borrowers:
Medifax, Inc.
6201 Powers Ferry Road, Suite 250
Atlanta, GA 30339
Attention: Mr. Edward L. Samek
Medical Records Corporation
3637 Green Road
Cleveland, Ohio 44122
Attention: Mr. Edward L. Samek
With a copy to:
Alston & Bird
One Atlantic Center
1201 West Peachtree Street
Atlanta, GA 30309-3424
Attention: R. Gregory Brophy, Esquire
To Bank:
Summit Bank
One Bethlehem Plaza
Bethlehem, PA 18018
Attention: Edward T. Fitzgerald, Vice President
With a copy to:
Lesser & Kaplin, P.C.
350 Sentry Parkway, Building 640
Blue Bell, Pennsylvania 19422
Attention: Sara Lee Keller-Smith, Esquire
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<PAGE> 31
14. DEFINITIONS. The following words and phrases as used in capitalized form in
this Agreement, whether in the singular or plural, shall have the meanings
indicated:
14.1. ACCOUNTING TERMS. As used in this Agreement, or any certificate,
report or other document made or delivered pursuant to this Agreement,
accounting terms not defined elsewhere in this Agreement and accounting terms
partly defined elsewhere in the Agreement to the extent not defined, shall have
the respective meanings given to them under GAAP.
14.2. "AFFILIATE", as to any Person, means each other Person that
directly or indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, the Person in question.
14.3. "BASE RATE" means the annual interest rate established from time
to time by Bank and generally known by Bank as its "BASE RATE", whether
published by it publicly or only for the internal guidance of its loan officers.
The Base Rate is used merely as a pricing index and is not and should not be
considered to represent the lowest or best rate available to a borrower.
14.4. "BUSINESS DAY" means any day except a Saturday, Sunday or other
day on which commercial banks in Philadelphia, Pennsylvania are authorized by
law to close.
14.5. "CAPITALIZED LEASES" means all lease obligations which have been
or should be, in accordance with GAAP, capitalized on the books of the lessee.
14.6. "CAPITALIZED LEASE OBLIGATIONS" means all amounts payable with
respect to a Capitalized Lease.
14.7. "CONTRACT PERIOD" shall have the meaning set forth in SECTION
2.1.
14.8. "CORPORATION" means a corporation, partnership, trust,
unincorporated organization, association or joint stock company.
14.9. "CURRENT ASSETS" at a particular date, as applied to any
Borrower, means the assets, at such date, of that Borrower that would be
included as current assets on a balance sheet of that Borrower as determined in
accordance with GAAP.
14.10. "CURRENT LIABILITIES" at a particular date, as applied to any
Borrower, means the liabilities (including tax and other proper accruals) of
that Borrower which would be included as current liabilities on a balance sheet
of that Borrower at such date, in accordance with GAAP.
14.11. "ELIGIBLE RECEIVABLES" means accounts receivable of any Borrower
which have been due no more than ninety (90) days from the invoice date, are not
subject to offsets or deductions and comply with the representations set forth
in SECTION 5.17. Ineligible accounts receivable shall include, without
limitation: (a) non-trade receivables, (b) foreign accounts
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<PAGE> 32
receivable; (c) contra-accounts; (d) inter-company accounts or accounts from
other affiliated corporations, organizations or individuals; (e) accounts
receivable from the United States government or any of its agencies which have
not been assigned to Bank under the Assignment of Claims Act; (f) finance
charges; (g) cross-aging reserves; (h) lease receivables; and (i) accounts
receivable owed by a Person if fifty percent (50%) or more of such Person's
accounts receivable owed to any Borrower are ninety (90) days or more past due.
Bank may require that certain reserves be established against certain accounts
receivable from time to time.
14.12. "EVENT OF DEFAULT" means each of the events specified in SECTION
12.1.
14.13. "GAAP" means generally accepted accounting principles in the
United States of America, in effect from time to time, consistently applied and
maintained.
14.14. "INDEBTEDNESS", as applied to a Person, means:
(a) all items (except items of capital stock or of surplus) which
in accordance with GAAP would be included in determining total liabilities as
shown on the liability side of a balance sheet of such Person as at the date as
of which Indebtedness is to be determined;
(b) to the extent not included in the foregoing, all
indebtedness, obligations, and liabilities secured by any mortgage, pledge,
lien, conditional sale or other title retention agreement or other security
interest to which any property or asset owned or held by such Person is subject,
whether or not the indebtedness, obligations or liabilities secured thereby
shall have been assumed by such Person; and
(c) to the extent not included in the foregoing, all
indebtedness, obligations and liabilities of others which such Person has
directly or indirectly guaranteed, endorsed (other than for collection or
deposit in the ordinary course of business), discounted, sold with recourse or
for less than face value or agreed (contingently or otherwise) to purchase or
repurchase or otherwise acquire or in respect of which such Person has agreed to
supply or advance funds (whether by way of loan, stock purchase, capital
contribution or otherwise) or otherwise to become directly or indirectly liable.
14.15. "LIBOR LOANS" means, at a particular date, all Line LIBOR Loans,
if any, and the Term LIBOR Loan, if any.
14.16. "LIBOR RATE" means the London Interbank Offered Rate (LIBOR) for
the Rate Period requested, as published in THE WALL STREET JOURNAL on the first
day of the Rate Period, or if such day is not a day on which THE WALL STREET
JOURNAL is published, then the last preceding Business Day before such date.
14.17. "LINE BASE RATE" means the Base Rate minus one percent (1%),
which rate shall change immediately upon any change in the Base Rate.
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14.18. "LINE LIBOR LOANS" means loans and advances extended by Bank to
Borrowers under the Line bearing interest at a Line LIBOR Rate.
14.19. "LINE LIBOR RATE" means for any day during each Line Rate Period
the per annum rate of interest (computed on a basis of a year of 365 days and
actual days elapsed) determined by Bank by adding (a) the LIBOR Rate, and (b)
one hundred twenty-five (125) basis points. In the event that the Line LIBOR
Rate is unavailable or cannot be ascertained, Bank shall have the right to
designate the Line LIBOR Rate on such basis as it shall reasonably determine.
14.20. "LINE RATE PERIOD" means for any portion of principal of the
Line for which Borrowers elect the Line LIBOR Rate, the period of time for which
such rate shall apply to such principal portion. Line Rate Periods for principal
earning interest at the Line LIBOR Rate shall be for periods of 30, 60 or 90
days, and for no other lengths of time, provided that, no Line Rate Period may
end after the Contract Period. If the last day of a Line Rate Period falls on a
day other than a Business Day, Bank, at its option, may contract or expand the
applicable Line Rate Period to cause such rate period to end on a Business Day.
14.21. "LOAN DOCUMENTS" means the Existing Loan Documents, the Line
Note, Term Notes, the Existing Term Notes and all other documents, executed or
delivered by Borrower pursuant to this Agreement.
14.22. "LONDON BUSINESS DAY" means any day except a Saturday, Sunday or
other day on which commercial banks in London, England are authorized by law to
close.
14.23. "MARCUSES" means Herbert L. Marcus, Martin H. Marcus, Philip M.
Cohen, Jeffrey S. Marcus, Lynne M. Cohen, Gregory A. Marcus, Steven I. Marcus
and Catherine R. Huser.
14.24. "MARCUS SECURITY AGREEMENT" means that certain Security
Agreement dated June 19, 1996, by and between Medifax and the Marcuses.
14.25. "MARCUS SUBORDINATION AGREEMENTS" means those certain
Subordination Agreements dated June 19, 1996, by and between the Marcuses,
Medifax, MRC and Bank.
14.26. "NOTIFICATION" means telephonic notice (which shall be
irrevocable) by Borrowers to Bank that Borrowers have requested that (a) a Line
LIBOR Rate shall apply to all or some portion of the principal amount of the
Line in accordance with the provisions of SECTION 2.6 hereof, or (b) a Term
LIBOR Rate shall apply to the outstanding principal balance of the Term Loan in
accordance with the provisions of SECTION 2.7 hereof which notice shall be given
no later than 10:00 a.m. Philadelphia time, on the day which at least two (2)
Business Days prior to the day (which shall be a day on which Bank is open for
business) on which such election is to become effective, which notice shall
specify (i) for a Line LIBOR Loan, (A) the principal
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<PAGE> 34
amount of the Line to be subject to such rate; (B) whether such amount is a new
advance, a renewal of a previous request of such rate, a conversion from one
interest rate to another, or a combination thereof; and (C) the Line Rate Period
(if required) selected; and (ii) for any LIBOR Loan, the date on which such
request is to become effective.
14.27. "PERMITTED LIENS" means those liens described on SCHEDULE 14.23
attached hereto.
14.28. "PERSON" means an individual, a Corporation or a government or
any agency or subdivision thereof.
14.29. "RATE PERIOD" means either a Line Rate Period or a Term Rate
Period.
14.30. "SAMEK SECURITY AGREEMENT" means that certain Subordinated
Security Agreement dated December 6, 1994, between Borrowers, as debtors, and
Edward L. Samek, as secured party.
14.31. "SUBORDINATED INDEBTEDNESS" means the Indebtedness described in
SECTION 6.17 above.
14.32. "SUBSIDIARY" means a Corporation (a) which is organized under
the laws of the United States or any State thereof, (b) which conducts
substantially all of its business and has substantially all of its assets within
the United States, and (c) of which more than fifty percent (50%) of its
outstanding voting stock of every class (or other voting equity interest) is
owned by Borrowers or one or more of its Subsidiaries.
14.33. "TANGIBLE NET WORTH", as applied to any Borrower means the
remainder after deducting from the sum of all assets (net of reserve for
uncollectible accounts, depreciation, amortization, obsolescence and the like)
properly appearing on a balance sheet of that Borrowers prepared in accordance
with GAAP, the following:
(a) all Indebtedness of that Borrower; and
(b) to the extent reflected as an asset in such balance sheet,
(i) the book amount of all assets which would be treated as intangibles under
generally accepted accounting principles, including without limitation such
items as organizational costs (as currently reflected on that Borrower's
financial statements), good will, trademarks, trade names, service marks, brand
names, franchises, copyrights, patents, licenses, rights with respect to the
foregoing, leasehold improvements and unamortized debt discount and expense,
(ii) all deferred charges, (iii) any write-up in the book value of any asset
resulting from a re-evaluation thereof subsequent to the acquisition thereof
(except write-ups to actual value specifically approved by Bank), (iv) the
amount, if any, at which securities (other than indebtedness in good standing)
of any Person which is not readily marketable appear on the asset side of such
balance sheet, (v) the amount,
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<PAGE> 35
if any, at which inventories or securities appearing on the asset side of such
balance sheet exceed the lower of cost or current market value thereof or the
price at which such Person has agreed to sell such inventories or securities,
(vi) the book amount of any asset which is subject to pledge, lien, encumbrance
or charge (including any escrow or similar deposit) to secure the payment of any
obligation or indemnity to the extent that the amount of such obligation or
indemnity does not constitute Indebtedness of that Borrower or to the extent
that the amount of such obligation or indemnity cannot be ascertained and (vii)
loans and notes payable due to that Borrower from affiliates, directors or
officers of that Borrower.
14.34. "TERM BASE RATE" means the Base Rate minus three-quarters of one
percent (3/4 of 1%), which rate shall change immediately upon any change in the
Base Rate.
14.35. "TERM LIBOR LOAN" means any loan extended by Bank to Borrowers
under the Term Loan bearing interest at a Term LIBOR Rate.
14.36. "TERM LIBOR RATE" means for any day during each Term Rate Period
the per annum rate of interest (computed on a basis of a year of 365 days and
actual days elapsed) determined by Bank by adding (a) the LIBOR Rate, and (b)
one hundred sixty-five (165) basis points. In the event that the Term LIBOR Rate
is unavailable or cannot be ascertained, Bank shall have the right to designate
the Term LIBOR Rate on such basis as it shall reasonably determine.
14.37. "TERM RATE PERIOD" means for any Term LIBOR Loan, the period of
time for which such rate shall apply to such loan. Term Rate Periods for
principal earning interest at the Term LIBOR Rate shall be for periods of 30, 60
or 90 days, and for no other lengths of time, provided that, no Term Rate Period
may end after the Contract Period.
15. WAIVERS.
15.1. WAIVERS. In connection with any proceedings under the Loan
Documents, including without limitation any action by Bank in replevin,
foreclosure or other court process or in connection with any other action
related to the Loan Documents or the transactions contemplated hereunder,
Borrowers waive:
(a) all errors, defects and imperfections in such proceedings;
(b) all benefits under any present or future laws exempting any
property, real or personal, or any part of any proceeds thereof from attachment,
levy or sale under execution, or providing for any stay of execution to be
issued on any judgment recovered under any of the Loan Documents or in any
replevin or foreclosure proceeding, or otherwise providing for any valuation,
appraisal or exemption;
(c) presentment for payment, demand, notice of demand, notice of
non-
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<PAGE> 36
payment, protest and notice of protest of any of the Loan Documents, including
the Notes;
(d) any requirement for bonds, security or sureties required by
statute, court rule or otherwise; and
(e) any demand for possession of Collateral prior to commencement
of any suit.
15.2. FORBEARANCE. Bank may release, compromise, forbear with respect
to, waive, suspend, extend or renew any of the terms of the Loan Documents,
without notice to Borrowers.
15.3. LIMITATION ON LIABILITY. Borrowers shall be responsible for and
Bank is hereby released from any claim or liability in connection with:
(a) Safekeeping any Collateral;
(b) Any loss or damage to any Collateral;
(c) Any diminution in value of the Collateral; or
(d) Any act or default of another Person.
Bank shall only be liable for any act or omission on its part
constituting gross negligence or wilful misconduct. In the event that Bank
breaches its required standard of conduct, Borrowers agree that Bank's liability
shall be only for direct damages suffered and shall not extend to consequential
or incidental damages.
16. SUBMISSION TO JURISDICTION.
16.1. SUBMISSION TO JURISDICTION. Borrowers hereby jointly and
severally consent to the exclusive jurisdiction of any state or federal court
located within the Commonwealth of Pennsylvania, and irrevocably agree that,
subject to the Bank's election, all actions or proceedings relating to the Loan
Documents or the transactions contemplated hereunder shall be litigated in such
courts, and Borrowers jointly and severally waive any objection which they may
have based on improper venue or FORUM NON CONVENIENS to the conduct of any
proceeding in any such court and waive personal service of any and all process
upon them, and consent that all such service of process be made by mail or
messenger directed to them at the address set forth in SECTION 13.1 and that
service so made shall be deemed to be completed upon the earlier of actual
receipt or three (3) days after the same shall have been posted to the address
of Borrowers set forth below. Nothing contained in this SECTION 16.1 shall
affect the right of Bank to serve legal process in any other manner permitted by
law or affect the right of Bank to bring any action or proceeding against
Borrowers or their property in the courts of any other jurisdiction.
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<PAGE> 37
17. MISCELLANEOUS.
17.1. SURVIVAL. All covenants, agreements, representations and
warranties made by Borrowers in the Loan Documents or made by or on their behalf
in connection with the transactions contemplated here shall be true at all times
this Agreement is in effect and shall survive the execution and delivery of the
Loan Documents, any investigation at any time made by Bank or on its behalf and
the making by Bank of the loans or advances to Borrowers. All statements
contained in any certificate, statement or other document delivered by or on
behalf of Borrowers pursuant hereto or in connection with the transactions
contemplated hereunder shall be deemed representations and warranties by
Borrowers.
17.2. NO ASSIGNMENT BY BORROWERS. No Borrower may assign any of its
rights hereunder without the prior written consent of Bank, and Bank shall not
be required to lend hereunder except to Borrowers as they presently exists.
17.3. ASSIGNMENT OR SALE BY BANK. Bank may sell or assign all or a
portion of its interest in the Loan Documents to any Affiliate of Bank and in
connection therewith may make available to any such prospective purchaser or
assignee any information relative to Borrowers in its possession.
17.4. BINDING EFFECT. This Agreement and all rights and powers granted
hereby will bind and inure to the benefit of the parties hereto and their
respective permitted successors and assigns.
17.5. SEVERABILITY. The provisions of this Agreement and all other Loan
Documents are deemed to be severable, and the invalidity or unenforceability of
any provision shall not affect or impair the remaining provisions which shall
continue in full force and effect.
17.6. NO THIRD PARTY BENEFICIARIES. The rights and benefits of this
Agreement and the Loan Documents shall not inure to the benefit of any third
party.
17.7. MODIFICATIONS. No modification of this Agreement or any of the
Loan Documents shall be binding or enforceable unless in writing and signed by
or on behalf of the party against whom enforcement is sought.
17.8. HOLIDAYS. If the day provided herein for the payment of any
amount or the taking of any action falls on a Saturday, Sunday or public holiday
at the place for payment or action, then the due date for such payment or action
will be the next succeeding business day.
17.9. LAW GOVERNING. This Agreement has been made, executed and
delivered in the Commonwealth of Pennsylvania and will be construed in
accordance with and governed by the laws of such Commonwealth.
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<PAGE> 38
17.10. INTEGRATION. The Loan Documents shall be construed as integrated
and complementary of each other, and as augmenting and not restricting Bank's
rights, powers, remedies and security. The Loan Documents contain the entire
understanding of the parties thereto with respect to the matters contained
therein and supersede all prior agreements and understandings between the
parties with respect to the subject matter thereof and do not require parol or
extrinsic evidence in order to reflect the intent of the parties. In the event
of any inconsistency between the terms of this Agreement and the terms of the
other Loan Documents, the terms of this Agreement shall prevail. Notwithstanding
the foregoing, the parties hereto acknowledge and agree that the terms and
conditions of their agreement are set forth herein and in the Line Note, the
Term Notes, the Assignment of Contracts and the Surety. Any other Loan Documents
existing as of the date hereof are specifically superseded hereby and thereby,
except that such supersession does not and shall not be deemed to terminate or
satisfy any such existing Loan Documents.
17.11. EXHIBITS AND SCHEDULES. All exhibits and schedules attached
hereto are hereby made a part of this Agreement.
17.12. HEADINGS. The headings of the Articles, Sections, paragraphs and
clauses of this Agreement are inserted for convenience only and shall not be
deemed to constitute a part of this Agreement.
17.13. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument, and any of the parties hereto may execute this Agreement by signing
any such counterpart.
17.14. WAIVER OF JURY TRIAL. BORROWERS AND BANK WAIVE ANY RIGHT TO
TRIAL BY JURY ON ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (A) ARISING UNDER
ANY OF THE LOAN DOCUMENTS OR (B) IN ANY WAY CONNECTED WITH OR RELATED OR
INCIDENTAL TO THE DEALINGS OF BORROWERS OR BANK WITH RESPECT TO ANY OF THE LOAN
DOCUMENTS OR THE TRANSACTIONS RELATED HERETO OR THERETO, IN EACH CASE WHETHER
SOUNDING IN CONTRACT OR TORT OR OTHERWISE. BORROWERS AND BANK AGREE AND CONSENT
THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT
TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL
COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE
CONSENT OF BORROWERS AND BANK TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
BORROWERS ACKNOWLEDGE THAT THEY HAVE HAD THE OPPORTUNITY TO CONSULT WITH COUNSEL
REGARDING THIS SECTION, THAT THEY FULLY UNDERSTAND ITS TERMS, CONTENT AND
EFFECT, AND THAT THEY VOLUNTARILY AND KNOWINGLY AGREE TO THE TERMS OF THIS
SECTION.
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<PAGE> 39
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
MEDIFAX, INC.
By:
---------------------------------------
[CORPORATE SEAL] Name/Title:
-------------------------------
MEDICAL RECORDS CORP.
By:
---------------------------------------
Name/Title:
-------------------------------
[CORPORATE SEAL]
SUMMIT BANK
By:
---------------------------------------
Edward T. Fitzgerald, Vice President
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<PAGE> 40
STATE OF :
: SS.
COUNTY OF :
On this, the _______ day of July, 1996, before me, a Notary Public,
personally appeared _______________, who acknowledged himself to be the
__________________ of Medifax, Inc., a Missouri corporation, and that he as such
officer being authorized to do so, executed the foregoing Agreement for the
purposes therein contained by signing the name of the corporation by himself as
_______________________.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal.
------------------------------
Notary Public
My commission expires:
STATE OF :
: SS.
COUNTY OF :
On this, the _______ day of July, 1996, before me, a Notary Public,
personally appeared _______________, who acknowledged himself to be the
__________________ of Medical Records Corp., an Ohio corporation, and that he as
such officer being authorized to do so, executed the foregoing Agreement for the
purposes therein contained by signing the name of the corporation by himself as
_______________________.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal.
------------------------------
Notary Public
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<PAGE> 41
LINE NOTE
---------
(SEE ATTACHED)
EXHIBIT "A"
-----------
TO
AMENDED AND RESTATED LOAN
AND SECURITY AGREEMENT
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<PAGE> 42
FORM OF TERM NOTE
-----------------
(SEE ATTACHED)
EXHIBIT "B"
-----------
TO
AMENDED AND RESTATED LOAN
AND SECURITY AGREEMENT
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<PAGE> 43
SECOND AMENDED AND RESTATED NOTE
--------------------------------
Blue Bell, Pennsylvania
Dated: July __, 1996
$10,000,000.00
FOR VALUE RECEIVED AND INTENDING TO BE LEGALLY BOUND, the
undersigned (collectively, the "BORROWER"), hereby promises to pay to the order
of SUMMIT BANK, as successor-in-interest to First Valley Bank, ("BANK"), ON
DEMAND after the occurrence of an Event of Default or after June 30, 1998, the
principal sum of Ten Million Dollars ($10,000,000.00), or such greater or lesser
principal amount as may be outstanding from time to time under the line of
credit established by Bank for the benefit of Borrower pursuant to the terms of
that certain Second Amended and Restated Loan and Security Agreement dated July
__, 1996 between Borrower and Bank (such Second Amended and Restated Loan and
Security Agreement, as the same may be amended, supplemented or restated from
time to time, being the "LOAN AGREEMENT"), together with interest thereon, upon
the following terms:
1. LINE NOTE. This Note is the "LINE NOTE" as defined in the Loan
Agreement and, as such, shall be construed in accordance with all terms and
conditions thereof. Capitalized terms not defined herein shall have such meaning
as provided in the Loan Agreement. This Note is entitled to all the rights and
remedies provided in the Loan Agreement and the Loan Documents and is secured by
all collateral as described therein.
2. INTEREST RATE. Interest on the unpaid principal balance hereof will
accrue from the date of advance until final payment thereof at the applicable
rate(s) per annum as selected by Borrower from time to time in accordance with
the terms of the Loan Agreement.
3. LATE CHARGE. Bank shall be entitled to receive a late fee equal to
four percent (4%), but not less than Five Dollars ($5.00), of any amounts
hereunder not paid within fifteen (15) days of the applicable due date. Late
charges assessed by Bank shall be immediately due and payable.
4. DEFAULT INTEREST. Interest will accrue on the outstanding principal
amount hereof following the occurrence of an Event of Default or the expiration
of the Contract Period until paid at a rate per annum which is two and one-half
percent (2 1/2%) in excess of the rate payable under PARAGRAPH 2 above (the
"DEFAULT RATE").
5. POST JUDGMENT INTEREST. Any judgment obtained for sums due hereunder
or under the Loan Documents will accrue interest at the Default Rate until paid.
6. COMPUTATION. Interest will be computed on the basis of a year of
three hundred sixty-five (365) days and paid for the actual number of days
elapsed.
-1-
<PAGE> 44
7. INTEREST PAYMENTS. Interest which accrues on the outstanding
principal balance hereof at the applicable rate set forth above shall be due and
payable monthly, as billed by Bank, on the first day of each calendar month,
commencing on the first day of the first calendar month following the date
hereof.
8. PLACE OF PAYMENT. Principal and interest hereunder shall be payable
as provided in the Loan Agreement, or at such other place as Bank, from time to
time, may designate in writing.
9. DEFAULT; REMEDIES. Upon the occurrence of an Event of Default or upon
demand as provided above, Bank, at its option and without notice to Borrower,
may declare immediately due and payable the entire unpaid balance of principal
and all other sums due by Borrower hereunder or under the Loan Documents,
together with interest accrued thereon at the applicable rate specified above.
Payment thereof may be enforced and recovered in whole or in part at any time
and from time to time by one or more of the remedies provided to Bank in this
Note or in the Loan Documents or as otherwise provided at law or in equity, all
of which remedies are cumulative and concurrent.
10. WAIVERS. BORROWER AND ALL ENDORSERS, JOINTLY AND SEVERALLY, WAIVE
PRESENTMENT FOR PAYMENT, DEMAND, NOTICE OF DEMAND, NOTICE OF NONPAYMENT OR
DISHONOR, PROTEST AND NOTICE OF PROTEST OF THIS NOTE, AND ALL OTHER NOTICES IN
CONNECTION WITH THE DELIVERY, ACCEPTANCE, PERFORMANCE, DEFAULT OR ENFORCEMENT OF
THE PAYMENT OF THIS NOTE, EXCEPT FOR SUCH NOTICES, IF ANY, AS ARE EXPRESSLY
REQUIRED TO BE DELIVERED BY BANK TO BORROWER UNDER THE LOAN AGREEMENT.
11. MISCELLANEOUS. If any provisions of this Note shall be held invalid
or unenforceable, such invalidity or unenforceability shall not affect any other
provision hereof. This Note has been delivered in and shall be governed by and
construed in accordance with the laws of the Commonwealth of Pennsylvania
without regard to the law of conflicts. This Note shall be binding upon Borrower
and upon Borrower's successors and assigns and shall benefit Bank and its
successors and assigns. The prompt and faithful performance of all of Borrower's
obligations hereunder, including without limitation, time of payment, is of the
essence of this Note.
12. JOINT AND SEVERAL LIABILITY. If there is more than one Borrower
executing this Note, all agreements, conditions, covenants and provisions of
this Note shall be the joint and several obligation of each Borrower.
13. NO NOVATION. This Note amends and restates, but does not satisfy or
repay, the obligations of Borrowers, or either of them, to Bank under (a) an
Amended and Restated Note dated December 22, 1992, given by Secrephone, Ltd. in
the original principal amount of $2,000,000.00, (b) a Note dated June 30, 1994
given by Secrephone, Ltd. in the original principal amount of $500,000.00, (c) a
Note dated December 23, 1994 given by Borrower in the original principal amount
of $3,500,000.00, and (d) an Amended and Restated Note dated August 24, 1995
given by Medifax, Inc. and Secrephone, Ltd. in the original principal amount of
$5,000,000.00.
-2-
<PAGE> 45
IN WITNESS WHEREOF, Borrower, intending to be legally bound hereby, has
caused this Note to be duly executed the day and year first above written.
MEDIFAX, INC.
(CORPORATE SEAL) By:
----------------------------------
Name/Title:
--------------------------
MEDICAL RECORDS CORP.
(CORPORATE SEAL) By:
----------------------------------
Name/Title:
--------------------------
THIS NOTE IS HEREBY ACCEPTED AND THE TRANSACTIONS CONTEMPLATED
HEREIN ARE DEEMED CLOSED ON THIS ____ DAY OF JULY, 1996 AT BLUE BELL,
PENNSYLVANIA.
SUMMIT BANK
By:
-----------------------------------------------
Edward Fitzgerald, Vice President
-3-
<PAGE> 46
STATE OF :
: SS.
COUNTY OF :
On this, the _______ day of July, 1996, before me, a Notary Public,
personally appeared _______________, who acknowledged himself to be the
_______________________ of Medifax, Inc., a Missouri corporation, and that he as
such officer being authorized to do so, executed the foregoing instrument for
the purposes therein contained by signing the name of the corporation by himself
as _______________________.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal.
----------------------------------
Notary Public
My commission expires:
STATE OF :
: SS.
COUNTY OF :
On this, the _______ day of July, 1996, before me, a Notary Public,
personally appeared _______________, who acknowledged himself to be the
_______________________ of Medical Records Corp., an Ohio corporation, and that
he as such officer being authorized to do so, executed the foregoing instrument
for the purposes therein contained by signing the name of the corporation by
himself as _______________________.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal.
----------------------------------
Notary Public
-4-
<PAGE> 47
AMENDED AND RESTATED TERM NOTE
------------------------------
Blue Bell, Pennsylvania
Dated: July __, 1996
$7,000,000.00
FOR VALUE RECEIVED AND INTENDING TO BE LEGALLY BOUND, the
undersigned (collectively, the "BORROWER") hereby promises to pay to the order
of SUMMIT BANK, as successor-in-interest to First Valley Bank, ("BANK"), the
principal sum of Seven Million Dollars ($7,000,000.00), together with interest
thereon upon the following terms:
1. TERM NOTE. This Note is a "TERM NOTE" as defined in that certain
Second Amended and Restated Loan and Security Agreement of even date herewith
among Borrower and Bank (such Second Amended and Restated Loan and Security
Agreement, as the same may be further amended, supplemented or restated from
time to time, being the "LOAN AGREEMENT") and, as such, shall be construed in
accordance with all terms and conditions thereof. Capitalized terms not defined
herein shall have such meaning as provided in the Loan Agreement. This Note is
entitled to all the rights and remedies provided in the Loan Agreement and the
Loan Documents and is secured by all collateral as described therein.
2. INTEREST RATE. Interest on the unpaid principal balance hereof will
accrue from the date of advance until final payment thereof at the applicable
rate(s) per annum as selected by Borrower from time to time in accordance with
the terms of the Loan Agreement.
3. LATE CHARGE. Bank shall be entitled to receive a late fee equal to
four percent (4%), but not less than Five Dollars ($5.00), of any amounts
hereunder not paid within fifteen (15) days of the applicable due date. Late
charges assessed by Bank shall be immediately due and payable.
4. DEFAULT INTEREST. Interest will accrue on the outstanding principal
amount hereof following the occurrence of an Event of Default or the final
maturity date hereof, until paid at a rate per annum which is two and one-half
percent (2 1/2%) in excess of the rate payable under PARAGRAPH 2 above (the
"DEFAULT RATE").
5. POST JUDGMENT INTEREST. Any judgment obtained for sums due hereunder
or under the Loan Documents will accrue interest at the Default Rate until paid.
6. COMPUTATION. Interest will be computed on the basis of a year of
three hundred sixty-five (365) days and paid for the actual number of days
elapsed.
7. INTEREST PAYMENTS. Borrowers will pay interest on the principal
balance of this Note as follows:
(a) for advances bearing interest based on the Term Base Rate,
interest will be payable on the first day of each calendar month as billed by
Bank, and
1
<PAGE> 48
(b) for advances bearing interest based on the Term LIBOR Rate,
interest will be payable at the end of the applicable Term Rate Period.
8. PRINCIPAL PAYMENTS. Principal is due and payable in (a) fifty-nine
(59) consecutive monthly payments each in the amount of One Hundred Sixteen
Thousand Six Hundred Sixty-Six Dollars and Sixty-Seven Cents ($116,666.67) on
the 1st day of each calendar month commencing on October 1, 1996, and (b) one
final payment of the remaining principal balance hereof plus all accrued and
unpaid interest thereon, together with all fees and charges due hereunder and
under the Loan Agreement on September 1, 2001.
9. PLACE OF PAYMENT. Principal and interest hereunder shall be payable
as provided in the Loan Agreement, or at such other place as Bank, from time to
time, may designate in writing.
10. DEFAULT; REMEDIES. Upon the occurrence of an Event of Default,
Bank, at its option and without notice to Borrower, may declare immediately due
and payable the entire unpaid balance of principal and all other sums due by
Borrower hereunder and under the other Loan Documents, together with interest
accrued thereon at the applicable rate specified above to the date of the Event
of Default and thereafter at the Default Rate. Payment thereof may be enforced
and recovered in whole or in part at any time and from time to time by one or
more of the remedies provided to Bank in this Note or in the Loan Documents or
as otherwise provided at law or in equity, all of which remedies are cumulative
and concurrent.
11. WAIVERS. BORROWER AND ALL ENDORSERS HEREBY, JOINTLY AND SEVERALLY,
WAIVE PRESENTMENT FOR PAYMENT, DEMAND, NOTICE OF DEMAND, NOTICE OF NONPAYMENT OR
DISHONOR, PROTEST AND NOTICE OF PROTEST OF THIS NOTE, AND ALL OTHER NOTICES IN
CONNECTION WITH THE DELIVERY, ACCEPTANCE, PERFORMANCE, DEFAULT OR ENFORCEMENT OF
THE PAYMENT OF THIS NOTE.
12. MISCELLANEOUS. If any provisions of this Note shall be held invalid
or unenforceable, such invalidity or unenforceability shall not affect any other
provision hereof. This Note has been delivered in and shall be governed by and
construed in accordance with the laws of the Commonwealth of Pennsylvania
without regard to the law of conflicts. This Note shall be binding upon Borrower
and upon Borrower's successors and assigns and shall benefit Bank and its
successors and assigns. The prompt and faithful performance of all of Borrower's
obligations hereunder, including without limitation, time of payment, is of the
essence of this Note.
13. JOINT AND SEVERAL LIABILITY. If there is more than one Borrower
executing this Note, all agreements, conditions, covenants and provisions of
this Note shall be the joint and several obligation of each Borrower.
14. NO NOVATION. This Note amends and restates, but does not satisfy or
repay, Borrower's obligations under a certain Term Note dated August 24, 1995
given by Medifax, Inc. and Secrephone, Ltd. in the original principal amount of
$5,000,000.00.
2
<PAGE> 49
IN WITNESS WHEREOF, Borrower, intending to be legally bound hereby, has
caused this Note to be duly executed the day and year first above written.
MEDIFAX, INC.
(CORPORATE SEAL)
By:
---------------------------------
Name/Title:
-------------------------
MEDICAL RECORDS CORP.
(CORPORATE SEAL)
By:
---------------------------------
Name/Title:
-------------------------
THIS NOTE IS HEREBY ACCEPTED AND THE TRANSACTIONS CONTEMPLATED
HEREIN ARE DEEMED CLOSED ON THIS ____ DAY OF JULY, 1996 AT BLUE BELL,
PENNSYLVANIA.
SUMMIT BANK
By:
---------------------------------
Edward T. Fitzgerald, Vice President
3
<PAGE> 50
STATE OF :
: SS.
COUNTY OF :
On this, the _______ day of July, 1996, before me, a Notary Public,
personally appeared _______________, who acknowledged himself to be the
_______________________ of Medifax, Inc., a Missouri corporation, and that he as
such officer being authorized to do so, executed the foregoing instrument for
the purposes therein contained by signing the name of the corporation by himself
as _______________________.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal.
---------------------------------
Notary Public
My commission expires:
STATE OF :
: SS.
COUNTY OF :
On this, the _______ day of July, 1996, before me, a Notary Public,
personally appeared _______________, who acknowledged himself to be the
_____________________ of Medical Records Corp., an Ohio corporation, and that he
as such officer being authorized to do so, executed the foregoing instrument for
the purposes therein contained by signing the name of the corporation by himself
as _______________________.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal.
---------------------------------
Notary Public
4
<PAGE> 1
Exhibit 10.4
EXHIBIT A
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
Amended and Restated Registration Rights Agreement, dated as
of July 19, 1996 ("Agreement"), among Medifax, Inc., a Missouri corporation (the
"Company"), and the persons listed on the signature pages hereto (the
"Purchasers").
On the date hereof the Company is consummating the
transactions contemplated by (i) a Transfer Agreement and Plan of Section 351
Exchange (the "Exchange Agreement") with the stockholders (the "MRC Holders") of
Medical Records Corp., an Ohio corporation ("MRC"), pursuant to which an
aggregate 4,077,547 shares of Common Stock, $.01 par value ("Common Stock"), of
the Company, will be issued to the MRC Holders, and (ii) a Stock Purchase
Agreement, dated as of July 19, 1996 (the "Series VI Purchase Agreement"), among
the Company and certain of the Purchasers, which Purchasers are listed on
Schedule I thereto, pursuant to which such Purchasers are purchasing from the
Company an aggregate 261,050 shares (the "First Closing Series VI Shares") of
Series VI Preferred Stock, $1.00 par value (the "Series VI Preferred Stock"), of
the Company. The Company proposes to issue an additional 38,950 shares (the
"Second Closing Series VI Shares"; and together with the First Closing Series VI
Shares, the "Series VI Shares") of Series VI Preferred Stock to certain of the
Purchasers, which Purchasers are listed on Schedule II to the Series VI Purchase
Agreement, pursuant to such Agreement.
Medifax and certain of the Purchasers (the "Original
Purchasers") entered into a Registration Rights Agreement, dated July 7, 1993,
which was amended by an Amendment to Registration Rights Agreement, dated as of
December 2, 1994 (such agreement, as so amended, being herein called the
"Original Agreement"), among Medifax, the Original Purchasers and Edward L.
Samek (who also shall be deemed an "Original Purchaser" hereunder); the Original
Agreement provides, among other things, for certain restrictions on the transfer
of Restricted Stock (as such term is defined therein) and for the registration,
under certain circumstances, of such Restricted Stock under the Securities Act
of 1933, as amended.
The Company and the Purchasers desire to amend the
<PAGE> 2
Original Agreement to include all of the Series VI Preferred Stock in the
definition of "Restricted Stock" and to provide that (i) the holders from time
to time of the shares of Common Stock issuable upon conversion of the Series VI
Shares and (ii) the MRC Holders shall have certain of the same rights and
obligations as the other holders of Restricted Stock under the Original
Agreement, as amended and restated hereby.
In consideration of the foregoing, the parties agree as
follows:
1. This will confirm that (a) in respect of Derace L.
Schaffer, M.D., IASD Health Services, Inc., FBL Ventures of South Dakota, N.F.
Nordiska Fondkommission A.B., Alfred Berg Fondkommission A.B., Edgewater Private
Equity Fund, L.P., Ventana Partnership III, L.P, Andex, Theodore Chafoulias,
James A. Chafoulias, Hoegh Invest A/S and Fredrik Schreuder (collectively, the
"Series IV Holders"), that in consideration of your agreement to accept the
provisions of this Agreement in complete satisfaction of the requirements of the
letter dated February 5, 1993 to each of you with respect to an aggregate 10,362
shares of Series IV Preferred Stock, $1.00 par value ("Series IV Preferred
Stock"), of Medifax, Inc., a Missouri corporation (the "Company"), (b) in
respect of Antone Lazos, Derace L. Schaffer, M.D. and John Pappajohn
(collectively, the "1991 Warrantholders"), that in consideration of your
agreement to accept the provisions of this Agreement in complete satisfaction of
the registration requirements of the Warrants (the "1991 Warrants") to purchase
up to an aggregate 229,775 shares of Common Stock, $1.00 par value ("Common
Stock"), of the Company, (c) in respect of the several purchasers (the "1993
Purchasers") named in Annex I to the Securities Purchase Agreement, dated as of
July 7, 1993 (the "1993 Purchase Agreement"), among the Company and the 1993
Purchasers, in consideration of the purchase by you of (i) an aggregate 45,902
shares of Series V Preferred Stock, $1.00 par value ("Series V Preferred
Stock"), of the Company, and (ii) stock purchase warrants (the "1993 Warrants"
and, collectively with the 1991 Warrants, the "Warrants") to purchase up to an
aggregate 270,187 shares of Common Stock of the Company, and as an inducement to
you to consummate the transactions contemplated by the 1993 Purchase Agreement,
(d) in respect of Douglas H. Riddell, M.D., Ben J. Alper, M.D., Benjamin Fisher,
M.D., John W. Rich, Rich Investments, Robert B. Faber, M.D., Lewis H. Conner,
Jr., Mary Ann F. Robbins, Laurence A. Grossman, M.D., Dorothy Grossman, John M.
Tudor, M.D., Thomas F. Frist, Sr., Frist Family Partners, Stanley Bernard, Jr.,
M.D., Karl E. Hofammann, M.D., Jeffrey L. Hymes, M.D., John L. Seigenthaler,
William C. Weaver, III, Anthony M. and Pamela H. Iannacio, Dr. and Mrs. Stanley
2
<PAGE> 3
Bernard, Sr., Stan E. and Elisabeth Litchman and John Hassenfeld (collectively,
the "Post-1991 Founders"), as owners of up to an aggregate 331,590 shares of
Common Stock ("Post-1991 Founders Stock"), (e) in respect of John H. Dayani,
Ph.D., as owner of up to an aggregate 964,530 shares of Common Stock (said
shares of Common Stock and Post-1991 Founders Stock being collectively referred
to herein as "Founders Stock"), in consideration of the covenants and agreements
made by Dr. Dayani in Section 5.02 of the 1993 Purchase Agreement, and as an
inducement to Dr. Dayani to consummate the transactions contemplated thereby,
(f) in respect of Edward L. Samek, in consideration of the sale by you of all of
the outstanding capital stock of SecrePhone Ltd. and as an inducement to you to
consummate the transactions contemplated by the Securities Purchase Agreement,
dated as of December 2, 1994, between the Company and you, (g) in respect of the
MRC Holders, in consideration of the transfer by you of the MRC Stock and as an
inducement to you to consummate the transactions contemplated by the Exchange
Agreement, and (h) in respect of the purchasers of the Series VI Shares, in
consideration of the purchase by you of the Series VI Shares and as an
inducement to you to consummate the transactions contemplated by the Series VI
Purchase Agreement, the Company hereby covenants and agrees with each of you,
and with each subsequent holder of Restricted Stock (as such term is defined
herein), as follows:
2. 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 time administering the
Securities Act.
"COMMON STOCK" shall mean the Common Stock, $0.01 par value,
of the Company, as constituted as of the date of this Agreement,
subject to adjustment pursuant to the provisions of Section 11 hereof.
"CONVERSION SHARES" shall mean shares of Common Stock issued
upon conversion of the Preferred Stock.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934
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.
"PREFERRED STOCK" shall mean the Series IV Preferred
Stock, the Series V Preferred Stock and the Series VI Pre-
ferred Stock.
3
<PAGE> 4
"REGISTRATION EXPENSES" shall mean the expenses so
described in Section 9 hereof.
"RESTRICTED 1991 STOCK" shall mean the 1991 Warrants and the
Warrant Shares issued upon exercise of the 1991 Warrants.
"RESTRICTED 1992 STOCK" shall mean all shares of Series IV
Preferred Stock and the Conversion Shares issued upon the conversion
thereof.
"RESTRICTED 1993 STOCK" shall mean all shares of Series V
Preferred Stock, Conversion Shares issued upon conversion of the Series
V Preferred Stock, the 1993 Warrants and Warrant Shares issued upon
exercise of the 1993 Warrants.
"RESTRICTED STOCK" shall mean any shares of capital stock of
the Company, the certificates for which are required to bear the legend
set forth in Section 3 hereof.
"SAMEK OPTIONS" shall mean the options of Edward L. Samek to
acquire Common Stock of the Company as such options exist on the date
hereof.
"SAMEK OPTION SHARES" shall mean those shares of Common Stock
issuable to Mr. Samek upon the exercise of the Samek Options.
"SAMEK SHARES" shall mean those shares of Common Stock held by
Edward L. Samek on the date hereof as well as the Samek Option Shares.
"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.
"SELLING EXPENSES" shall mean the expenses so described
in Section 9 hereof.
"SPECIAL RESTRICTED STOCK" shall mean all shares of Series V
and Series VI Preferred Stock, Conversion Shares issued upon conversion
of the Series V and Series VI Preferred Stock, the 1993 Warrants and
Warrant Shares issued
upon exercise of the 1993 Warrants.
"WARRANT SHARES" shall mean shares of Common Stock
4
<PAGE> 5
issued upon exercise of the Warrants.
3. RESTRICTIVE LEGEND. Each certificate representing the
Common Stock (including, without limitation, Founders Stock, Samek Shares and
the shares of Common Stock held by the MRC Holders), or Preferred Stock, each
certificate issued upon exchange or transfer of any Common Stock or Preferred
Stock, each certificate representing Conversion Shares or Warrant Shares or
Samek Option Shares and each certificate issued upon exchange or transfer of any
Conversion Shares or Warrant Shares or Samek Option Shares, other than in a
public sale or as otherwise permitted by the last paragraph of paragraph 3
hereof, shall be stamped or otherwise imprinted with a legend substantially in
the following form:
"THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AND MAY NOT BE
SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS THEY HAVE
BEEN REGISTERED UNDER THAT ACT OR AN EXEMPTION FROM
REGISTRATION IS AVAILABLE."
4. NOTICE OF PROPOSED TRANSFER. Prior to any proposed transfer
of any Restricted Stock (other than under the circumstances described in Section
5, 6 or 7 hereof), the holder thereof shall give written notice to the Company
of its intention to effect such transfer. Each such notice shall describe the
manner of the proposed transfer and, if requested by the Company, shall be
accompanied by an opinion of counsel reasonably satisfactory to the Company (it
being agreed that Reboul, MacMurray, Hewitt, Maynard & Kristol or Kirkland &
Ellis shall be satisfactory) to the effect that the proposed transfer of the
Restricted Stock may be effected without registration under the Securities Act,
whereupon the holder of such Restricted Stock shall be entitled to transfer such
Restricted Stock in accordance with the terms of its notice; PROVIDED, HOWEVER,
that no such opinion or other documentation shall be required if such notice
shall cover a distribution by Welsh, Carson, Anderson & Stowe VI, L.P., WCAS
Healthcare Partners, L.P. or William Blair Capital Partners V, L.P. to their
respective partners. Each certificate for Restricted Stock transferred as above
provided shall bear the legend set forth in Section 3, unless (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 transferee and
any subsequent transferee (other than an affiliate of the Company) would be
entitled to transfer such securities in a public sale without registration
5
<PAGE> 6
under the Securities Act.
The foregoing restrictions on transferability of Restricted
Stock shall terminate as to any particular shares of Restricted Stock when such
shares shall have been effectively registered under the Securities Act and sold
or otherwise disposed of in accordance with the intended method of disposition
by the seller or sellers thereof set forth in the registration statement
concerning such shares. Whenever a holder of Restricted Stock is able to
demonstrate to the Company (and its counsel) that the provisions of Rule 144(k)
of the Securities Act are available to such holder without limitation, such
holder of Restricted Stock shall be entitled to receive from the Company,
without expense, a new certificate not bearing the restrictive legend set forth
in Section 3.
5. REQUIRED REGISTRATION.
(a) At any time the holders of Special Restricted Stock
constituting at least a majority of the total Special Restricted Stock
outstanding at such time (treating for the purpose of such computation the
holders of Series V and Series VI Preferred Stock as the holders of the
Conversion Shares then issuable upon conversion of such Preferred Stock and the
holders of 1993 Warrants as holders of the Warrant Shares then issuable upon
exercise of the 1993 Warrants), may request the Company to register under the
Securities Act all or any portion of the Special Restricted Stock held by such
requesting holder or holders for sale in the manner specified in such notice;
PROVIDED, HOWEVER, that the only securities which the Company shall be required
to register pursuant hereto shall be shares of Common Stock.
(b) Promptly following receipt of any notice under this
Section 5, the Company shall immediately notify any holders of Special
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 Special Restricted Stock specified in such notice (and in
any notices received from other holders within 20 days after their receipt of
such notice from the Company); PROVIDED, HOWEVER, that if the proposed method of
disposition specified by the requesting holders shall be an underwritten public
offering, the number of shares of Special Restricted Stock to be included in
such an offering may be reduced, PRO RATA among the requesting holders of
Special Restricted Stock, based on the number of shares of Special Restricted
Stock requested to be
6
<PAGE> 7
registered, if and to the extent that the managing underwriter shall be of the
opinion that such inclusion would adversely affect the marketing of the Special
Restricted Stock to be sold. 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 the selling holders of a majority
of the Special Restricted Stock included in the offering, which approval shall
not be unreasonably withheld. The Company shall be obligated to register Special
Restricted Stock pursuant to this Section 5 on two occasions only.
Notwithstanding anything to the contrary contained herein, the obligation of the
Company under this Section 5 shall be deemed satisfied only when a registration
statement covering all shares of Special Restricted Stock specified in notices
received as aforesaid, for sale in accordance with the method of disposition
specified by the requesting holder, 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 5, 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, 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
adversely affect the marketing of the Special Restricted Stock to be sold.
Except as provided in this paragraph (c), the Company will not effect any other
registration of its Common Stock, whether for its own account or that of other
holders, from the date of receipt of a notice from requesting holders pursuant
to this Section 5 until such time as the managing underwriter shall reasonably
request. In the event that there is a firm commitment underwritten public
offering of securities of the Company pursuant to this Section 5, each holder of
Restricted Stock who shall not be selling its Restricted Stock to the
underwriters in connection with such offering shall refrain from selling such
Restricted Stock so registered for such time as the managing underwriter shall
reasonably request; PROVIDED, HOWEVER, that such holder shall, in any event, be
entitled to sell its Restricted Stock commencing on the 180th day after the
effective date of such registration statement.
6. FORM S-3 REGISTRATION.
7
<PAGE> 8
(a) If 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 and any related qualification or compliance with
respect to Restricted Stock owned by such holder or holders, the reasonably
anticipated aggregate price to the public of which would exceed $2,000,000, the
Company will:
(i) promptly give written notice of the proposed registration,
and any related qualification or compliance, to all other holders of
Restricted Stock; and
(ii) as soon as practicable, effect such registration (including,
without limitation, the execution of an undertaking to file
post-effective amendments, appropriate qualifications under applicable
blue sky or other state securities laws and appropriate compliance with
applicable regulations issued under the Securities Act and any other
government requirements or regulations) as may be so requested and as
would permit or facilitate the sale and distribution of all or such
portion of such holder's or holders' Restricted Stock as are specified
in such request, 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 thirty (30) days after receipt of
such written notice from the Company, provided that the Company
shall not be obligated to effect any such registration, qualification
or compliance pursuant to this Section 6 (A) more than once in any
180-day period, or (B) if the Company is not entitled to use Form S-3.
Subject to the foregoing, the Company shall file a registration
statement covering the Restricted Stock so requested to be registered
as soon as practicable after receipt of the request or requests of the
holders of the Restricted Stock.
(b) Registrations effected pursuant to this Section 6 shall
not be counted as requests for registration effected pursuant to Section 5.
Except as provided in the foregoing paragraph (a), the Company will not effect
any other registration of its Common Stock, whether for its own account or that
of other holders, from the date of receipt of a notice from requesting holders
pursuant to this Section 6 until such time as the managing underwriter shall
reasonably request. In the event that there is a firm commitment underwritten
public offering of securities of the Company pursuant to this Section 6, each
holder of Restricted Stock who shall not be selling its Restricted Stock to the
underwriters in connection with such offering shall refrain from selling such
Restricted Stock so registered for such
8
<PAGE> 9
time as the managing underwriter shall reasonably request; PROVIDED, HOWEVER,
that such holder shall, in any event, be entitled to sell its Restricted Stock
commencing on the 180th day after the effective date of such registration
statement.
7. INCIDENTAL REGISTRATION. (a) If the Company at any time
(other than pursuant to Section 5 or 6 hereof) proposes to register any of its
Common Stock under the Securities Act for sale to the public, whether for its
own account or for the account of other securityholders or both (except with
respect to registration statements on Form S-4 or S-8 or another form not
available for registering the Restricted Stock for sale to the public), it will
give written notice at such time to all holders of outstanding Restricted Stock
of its intention to do so. Upon the written request of any such holder, given
within 30 days after receipt of any such notice by the Company, 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 so registered; PROVIDED that nothing herein shall prevent the
Company from abandoning or delaying such registration at any time. In the event
that any registration pursuant to this Section 7 shall be, in whole or in part,
an underwritten public offering of Common Stock, any request by a holder
pursuant to this Section 7 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 under such registration or (ii) such Restricted Stock is to
be sold in the open market without any underwriting, on terms and conditions
comparable to those normally applicable to offerings of common stock in
reasonably similar circumstances. The number of shares of Restricted Stock to be
included in such an underwriting may be reduced (PRO RATA among the requesting
holders of Restricted Stock based upon the number of shares of Restricted Stock
so requested to be registered) 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 to be sold by the Company therein; PROVIDED,
HOWEVER, that the number of shares to be registered shall be reduced (i) first,
by the Company, if and only if such registration is being effected pursuant to
Section 6 hereof, (ii) then PRO RATA among the requesting holders of Founders
Stock, (iii) then PRO RATA among the requesting holders of Restricted
9
<PAGE> 10
1991 Stock, (iv) then PRO RATA among the requesting holders of Restricted 1992
Stock, (v) then PRO RATA among the requesting holders of Samek Shares, (vi) then
PRO RATA among the requesting MRC Holders and (vii) then PRO RATA among the
holders of Special Restricted Stock; PROVIDED FURTHER, HOWEVER, that such number
of shares of Restricted Stock shall not be reduced if any shares are to be
included in such underwriting for the account of any person other than the
Company or other than a holder of Restricted Stock.
(b) Notwithstanding anything to the contrary contained in this
Section 7, in the event that there is a firm commitment underwritten public
offering of securities of the Company pursuant to a registration covering
Restricted Stock and a 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 7 for such time as the managing
underwriter shall reasonably request; PROVIDED, HOWEVER, that such holder shall,
in any event, be entitled to sell its Restricted Stock commencing on the 180th
day after the effective date of such registration statement. Except as provided
in this Section 7, the Company will not effect any other registration of its
Common Stock, whether for its own account or that of other holders, from the
date of receipt of a notice from requesting holders pursuant to this Section 7
until such time as the managing underwriter shall reasonably request.
8. REGISTRATION PROCEDURES AND EXPENSES. If and whenever the
Company is required by the provisions of Section 5, 6 or 7 hereof to use its
best efforts to effect the registration of any of the Restricted Stock under the
Securities Act, the Company will, as expeditiously as possible:
(a) prepare (and afford counsel for the selling holders
reasonable opportunity to review and comment thereon) and file with the
Commission a registration statement (which, in the case of an
underwritten public offering pursuant to Section 5 hereof, shall be on
Form S-1 or another 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 afford counsel for the selling holders
reasonable opportunity to review and comment thereon)
10
<PAGE> 11
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 may
reasonably request in order to facilitate the public sale or other
disposition of the Restricted Stock covered by such registration
statement;
(d) use its best efforts to register or qualify the Restricted
Stock covered by such registration statement under the securities or
blue sky laws of such jurisdictions as the sellers of Restricted Stock
or, in the case of an underwritten public offering, the managing
underwriter, shall reasonably request (provided that the Company will
not be required to (i) qualify generally to do business in any
jurisdiction where it would not otherwise be required to qualify but
for this paragraph (d), (ii) subject itself to taxation in any such
jurisdiction or (iii) consent to general service of process in any
jurisdiction);
(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
11
<PAGE> 12
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 as 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
express no opinion as to financial statements, the notes thereto, and
the financial schedules and other financial and statistical data
contained therein) and (C) to such other effects as may reasonably be
requested by counsel for the underwriters or by such seller or its
counsel, and (ii) a letter dated such date from the independent public
accountants retained by the Company, addressed to the underwriters,
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 prospectus, or any amendment or supplement thereof,
comply as to form in all material 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
date of such letter) with respect to the registration in respect of
which such letter is being given as such underwriters or seller may
reasonably request; and
(g) make available for inspection by each seller, any
underwriter participating 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 permit such seller, attorney, accountant or agent to
participate in the preparation of such registration statement.
For purposes of paragraphs (a) and (b) above and of Section 5(c) hereof, the
period of distribution of Restricted Stock in a firm commitment underwritten
public offering shall be deemed to 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 be deemed to
extend until the earlier of the sale of all Restricted Stock covered thereby or
six months after the effective date thereof.
12
<PAGE> 13
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.
In connection with each registration pursuant to Sections 5, 6
and 7 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, HOWEVER, that such agreement shall not contain any such provision
applicable to the Company which is inconsistent with the provisions hereof and
PROVIDED, FURTHER, HOWEVER, that the time and place of the closing under said
agreement shall be as mutually agreed upon among the Company, such managing
underwriter and the selling holders of Restricted Stock.
9. EXPENSES. All expenses incurred by the Company in complying
with Sections 5, 6 and 7 hereof, including, without limitation, all registration
and filing fees, printing expenses, fees and disbursements of counsel and
independent public accountants for the Company, fees of the National Association
of Securities Dealers, Inc., transfer taxes, fees of transfer agents and
registrars and fees and expenses of counsel for the sellers of Restricted Stock
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 to Section 5, 6 or 7 hereof. All
Selling Expenses in connection with any registration statement filed pursuant to
Section 5, 6 or 7 hereof shall be borne by the 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.
10. INDEMNIFICATION. In the event of a registration of any of
the Restricted Stock under the Securities Act pursuant to Section 5, 6 or 7
hereof, the Company will indemnify and hold harmless each seller of such
Restricted Stock thereunder and each underwriter of Restricted Stock thereunder
and each other person, if any, who controls such seller or underwriter within
the
13
<PAGE> 14
meaning of the Securities Act, against any 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 5, 6 or 7, 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 omission or 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.
In the event of a registration of any of the Restricted Stock
under the Securities Act pursuant to Section 5, 6 or 7 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 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 under which such
Restricted Stock was registered under the Securities Act pursuant to Section 5,
6 or 7, 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 mislead-
14
<PAGE> 15
ing, 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, 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 reliance upon
and in conformity with information pertaining to such seller, as such, furnished
in writing to the Company by such seller specifically for use in such
registration statement or prospectus; PROVIDED, FURTHER, HOWEVER, that the
liability of each seller hereunder shall be limited to the proportion of any
such loss, claim, damage, liability or expense which is equal to the proportion
that the public offering price of shares sold by such seller under such
registration statement bears to the total public offering price of all
securities sold thereunder, but not to exceed the proceeds (net of underwriting
discounts and commissions) received by such seller from the sale of Restricted
Stock covered by such registration statement.
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 10. 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 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 be liable to such indemnified party under this Section 10 for
any legal expenses subsequently incurred by such indemnified party in connection
with the defense thereof other than reasonable costs of investigation and of
liaison with counsel so selected; PROVIDED, HOWEVER, that, if the defendants in
any such action include both the indemnified party and the indemnifying party
and 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
15
<PAGE> 16
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.
Notwithstanding the foregoing, any indemnified party shall
have the right to retain its own counsel in any such action, but the fees and
disbursements of such counsel shall be at the expense of such indemnified party
unless (i) the indemnifying party shall have failed to retain counsel for the
indemnified person as aforesaid or (ii) the indemnifying party and such
indemnified party shall have mutually agreed to the retention of such counsel.
It is understood that the indemnifying party shall not, in connection with any
action or related actions in the same jurisdiction, be liable for the fees and
disbursements of more than one separate firm qualified in such jurisdiction to
act as counsel for the indemnified party. The indemnifying party shall not be
liable for any settlement of any proceeding effected without its written
consent, but if settled with such consent or if there be a final judgment for
the plaintiff, the indemnifying party agrees to indemnify the indemnified party
from and against any loss or liability by reason of such settlement or judgment.
If the indemnification provided for in the first two
paragraphs of this Section 10 is unavailable or insufficient to hold harmless an
indemnified party under such paragraphs in respect of any losses, claims,
damages or liabilities or actions in respect thereof referred to therein, then
each indemnifying party shall in lieu of indemnifying such indemnified party
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities or actions in such proportion as
appropriate to reflect the relative fault of the Company, on the one hand, and
the underwriters and the sellers of such Restricted Stock, on the other, in
connection with the statements or omissions which resulted in such losses,
claims, damages, liabilities or actions as well as any other relevant equitable
considerations, including the failure to give any notice under the third
paragraph of this Section 10. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact relates to information supplied by the Company, on the one
hand, or the underwriters and the sellers of such Restricted Stock, on the
other, and to the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Company and
each other party hereto agrees that it would not be just and
16
<PAGE> 17
equitable if contributions pursuant to this paragraph were determined by PRO
RATA allocation (even if all of the sellers of such Restricted Stock were
treated as one entity for such purpose) or by any other method of allocation
which did not take account of the equitable considerations referred to above in
this paragraph. The amount paid or payable by an indemnified party as
a result of the losses, claims, damages, liabilities or action in respect
thereof, referred to above in this paragraph, shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this paragraph, the sellers of such Restricted
Stock shall not be required to contribute any amount in excess of the amount, if
any, by which the total price at which the Common Stock sold by each of them was
offered to the public exceeds the amount of any damages which they would have
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission. No person guilty of fraudulent misrepresentations (within
the meaning of Section 11(f) of the Securities Act), shall be entitled to
contribution from any person who is not guilty of such fraudulent
misrepresentation.
The indemnification of underwriters provided for in this
Section 10 shall be on such other terms and conditions as are at the time
customary and reasonably required by such underwriters. In that event the
indemnification of the sellers of Restricted Stock in such underwriting shall at
the sellers' request be modified to conform to such terms and conditions.
11. CHANGES IN COMMON STOCK. If, and as often as, there are
any changes in the Common Stock by way of stock split, stock dividend,
combination or reclassification, or through merger, consolidation,
reorganization or recapitalization, 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.
12. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to each holder of Restricted Stock as follows:
(a) The execution, delivery and performance of this Agreement
by the Company have been duly authorized by all requisite corporate
action and will not violate any provision of law, any order of any
court or other agency of government, the Certificate of Incorporation
or By-laws of the Company, or any provision of any indenture, agreement
or
17
<PAGE> 18
other instrument to which it or any of its properties or assets is
bound, or conflict with, result in a breach of or constitute (with due
notice or lapse of time or both) a default under any such indenture,
agreement or other instrument, or result in the creation or imposition
of any lien, charge or encumbrance of any nature whatsoever upon any of
the properties or assets of the Company.
(b) This Agreement has been duly executed and delivered by the
Company and constitutes the legal, valid and
binding obligation of the Company, enforceable in accordance with its
terms, subject to considerations of public policy in the case of the
indemnification provisions hereof.
13. RULE 144 REPORTING. The Company agrees with each holder of
Restricted Stock as follows:
(a) The Company shall make and keep public information
available, as those terms are understood and defined in Rule 144 under
the Securities Act, at all times from and after the date it is first
required to do so.
(b) The Company shall file with the Commission in a timely
manner all reports and other documents as the Commission may prescribe
under Section 13(a) or 15(d) of the Exchange Act at any time after the
Company has become subject to such reporting requirements of the
Exchange Act.
(c) The Company shall furnish to such holder of Restricted
Stock forthwith upon request (i) a written statement by the Company as
to its compliance with the reporting requirements of Rule 144 (at any
time from and after the date it first becomes subject to such reporting
requirements, and of the Securities Act and the Exchange Act (at any
time after it has become subject to such reporting requirements), (ii)
a copy of the most recent annual or quarterly report of the Company,
and (iii) such other reports and documents so filed as a holder may
reasonably request to avail itself of any rule or regulation of the
Commission allowing a holder of Restricted Stock to sell any such
securities without registration.
14. MISCELLANEOUS.
(a) All covenants and agreements contained in this Agreement
by or on behalf of any of the parties hereto shall bind and inure to
the benefit of the respective successors and assigns of the parties
hereto whether so expressed or
18
<PAGE> 19
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 for so long as the certificates representing the
Restricted Stock shall be required to bear the legend specified in
Section 3 hereof.
(b) All notices, requests, consents and other communications
hereunder shall be in writing and shall be mailed by first class
registered mail, postage prepaid, addressed as follows:
if to the Company or to any holder of Restricted Stock, to it
at the address as set forth on Annex I hereto;
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 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 by an instrument in writing executed by (i)
the holders of a majority of the Founders Stock, (ii) the holders of a
majority of the Restricted 1991 Stock, (iii) the holders of a majority
of the Restricted 1992 Stock, (iv) the holders of a majority of the
Restricted 1993 Stock, (v) the holders of a majority of the Samek
Shares, (vi) the holders of 75% of the outstanding shares of Series VI
Preferred Stock and (vii) a majority of the MRC Holders, in each such
case, outstanding at such time (treating for the purpose of such
computations the holders of Preferred Stock as the holders of the
Conversion Shares then issuable upon conversion of such Preferred Stock
and the holders of Warrants as the holders of Warrant Shares issuable
upon exercise thereof).
(e) The provisions of this Agreement pertaining to the holders
of the Founders Stock, other than John Dayani, are subject, with
respect to each such party, to the execution
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<PAGE> 20
and delivery by such party of a counterpart to this Agreement and until
such time this Agreement shall not include (i) each such party as a
party to this Agreement and (ii) to the extent that such party has
purchased shares of Restricted Stock, such party as a holder of
Restricted Stock hereunder, but this Agreement shall in all other
respects be a binding agreement of each of the other parties hereto.
(f) 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.
(g) Upon the execution and delivery of this Agreement by the
holders of (i) 85% of the Founders Stock, (ii) a majority of the
Restricted 1991 Stock, (iii) a majority of the Restricted 1992 Stock,
(iv) a majority of the Restricted 1993 Stock and (v) a majority of the
Samek Shares, in each such case, outstanding at such time (treating for
the purpose of such computations the holders of Preferred Stock as the
holders of the Conversion Shares then issuable upon conversion of such
Preferred Stock, the holders of Warrants as the holders of Warrant
Shares issuable upon exercise thereof, and the holder of the Samek
Options as the holder of the shares of Common Stock issuable upon the
exercise thereof), the Original Agreement shall be terminated and be of
no further force or effect.
(h) Any provision of this Agreement to the contrary
notwithstanding, this Agreement shall be effective as among the Company
and the holders of Restricted Stock who have executed and delivered
this Agreement upon execution and delivery of this Agreement by the
Company and any such holder. Upon the execution and delivery of this
Agreement by the holders of Restricted Stock under the Original
Agreement, the rights and obligations of such holders under the
Original Agreement shall be terminated and discharged.
20
<PAGE> 21
IN WITNESS WHEREOF, the undersigned have executed this
Registration Rights Agreement as of the date first above written.
MEDIFAX, INC.
By
----------------------------------
AGREED TO AND ACCEPTED as of the date first above written.
WELSH, CARSON, ANDERSON & STOWE VI, L.P.
By WCAS VI Partners, L.P., General Partner
By
--------------------------------
General Partner
WCAS HEALTHCARE PARTNERS, L.P.
By WCAS HP Partners, General Partner
By
--------------------------------
General Partner
- ----------------------------------
Patrick J. Welsh
- ----------------------------------
Russell L. Carson
- ----------------------------------
Bruce K. Anderson
21
<PAGE> 22
DE CHARTER TRUST CO., AS TRUSTEE
FBO THE IRA/ROLLOVER OF RICHARD H. STOWE
By
--------------------------------
- ----------------------------------
Andrew M. Paul
- ----------------------------------
Thomas E. McInerney
- ----------------------------------
Laura M. VanBuren
- ----------------------------------
James B. Hoover
MSTC, CUSTODIAN FBO
THE IRA/ROLLOVER OF JAMES B. HOOVER
By
--------------------------------
- ----------------------------------
David F. Bellet
22
<PAGE> 23
IASD HEALTH SERVICES, INC.
By
--------------------------------
FBL VENTURES OF SOUTH DAKOTA
By
--------------------------------
N.F. NORDISKA FONDKOMMISSION A.B.
By
--------------------------------
ALFRED BERG FONDKOMMISSION A.B
By
--------------------------------
EDGEWATER PRIVATE EQUITY FUND, L.P.
By
--------------------------------
VENTANA PARTNERSHIP III, L.P.
By
--------------------------------
ANDEX
By
--------------------------------
- ----------------------------------
Theodore Chafoulias
23
<PAGE> 24
- ----------------------------------
James A. Chafoulias
HOEGH INVEST A/S
By
--------------------------------
- ----------------------------------
Fredrik Schreuder
- ----------------------------------
Antone Lazos
- ----------------------------------
Derace L. Schaffer, M.D.
- ----------------------------------
John Pappajohn
- ----------------------------------
John H. Dayani, Ph.D.
- ----------------------------------
Douglas H. Riddell, M.D.
- ----------------------------------
Ben J. Alper, M.D.
- ----------------------------------
Benjamin Fisher, M.D.
24
<PAGE> 25
- ----------------------------------
John W. Rich
- ----------------------------------
Rich Investments
- ----------------------------------
Robert B. Faber, M.D.
- ----------------------------------
Lewis H. Conner, Jr.
- ----------------------------------
Mary Ann F. Robbins
- ----------------------------------
Laurence A. Grossman, M.D.
- ----------------------------------
Dorothy Grossman
- ----------------------------------
John M. Tudor, M.D.
- ----------------------------------
Thomas F. Frist, Sr.
25
<PAGE> 26
- ----------------------------------
Frist Family Partners
- ----------------------------------
Stanley Bernard, Jr., M.D.
- ----------------------------------
Karl E. Hofammann, M.D.
- ----------------------------------
Jeffrey L. Hymes, M.D.
- ----------------------------------
John L. Seigenthaler
- ----------------------------------
William C. Weaver, III
- ----------------------------------
Anthony M. and Pamela H. Iannacio
- ----------------------------------
Dr. and Mrs. Stanley Bernard, Sr.
- ----------------------------------
Stan E. and Elisabeth Litchman
- ----------------------------------
John Hassenfeld
26
<PAGE> 27
- ----------------------------------
Edward L. Samek
WILLIAM BLAIR CAPITAL PARTNERS V, L.P.
By
--------------------------------
- ----------------------------------
Randolf G. Brown
NATIONAL CITY CAPITAL CORPORATION
By
--------------------------------
- ----------------------------------
Martin H. Marcus
- ----------------------------------
Herbert L. Marcus
- ----------------------------------
Philip M. Cohen
- ----------------------------------
Gregory A. Marcus
- ----------------------------------
Jeffrey S. Marcus
- ----------------------------------
Lynne M. Cohen
27
<PAGE> 28
- ----------------------------------
Steven I. Marcus
- ----------------------------------
Daniel H. Marcus
- ----------------------------------
Catherine R. Huser
- ----------------------------------
Kevin Huser
- ----------------------------------
Jason E. Green
28
<PAGE> 29
ANNEX I
[addresses omitted]
SERIES IV PREFERRED STOCKHOLDERS
- --------------------------------
Alfred Berg Fondkommission AB
Andex
James A. Chafoulias
Theodore A. Chafoulias
Edgewater Private Equity Fund LP
FBL Ventures of South Dakota, Inc.
Hoegh Invest A/S
IASD Health Services Corporation
N.F. Nordiska Fondkommission AB
Fredrik Schreuder
Ventana Partnership III, L.P.
John Pappajohn
SERIES V PREFERRED STOCKHOLDERS
- -------------------------------
Welsh, Carson, Anderson & Stowe VI, L.P.
Patrick J. Welsh*
Russell L. Carson
Bruce K. Anderson
Richard H. Stowe
DE Charter Trust Co., as Trustee
FBO the IRA/Rollover of Richard H. Stowe
Andrew M. Paul
Thomas E. McInerney
Laura M. VanBuren
James B. Hoover
DE Charter Trust Co., as Trustee
FBO the IRA/Rollover of James B. Hoover
David F. Bellet
Jason E. Green
- ----------------------------
<PAGE> 30
SERIES VI PREFERRED STOCKHOLDERS
- --------------------------------
Welsh, Carson, Anderson & Stowe VI, L.P.
WCAS Healthcare Partners, L.P.
Patrick J. Welsh
Russell L. Carson
Bruce K. Anderson
Richard H. Stowe
DE Charter Trust Co., as Trustee
FBO the IRA/Rollover of Richard H. Stowe
Andrew M. Paul
Thomas E. McInerney
Laura M. VanBuren
James B. Hoover
MSTC, Custodian
FBO the IRA/Rollover of James B. Hoover
William Blair Capital Partners V, L.P.
IRA of Ann D. Brown
J.C. Bradford & Co., Custodian
National City Capital Corporation
Edward L. Samek
John H. Dayani, Ph.D.
Derace L. Schaffer, M.D.
Antone Lazos
Dr. and Mrs. (Adell) Stanley Bernard, Sr.
Ben J. Alper, M.D.
Edgewater Private Equity Fund LP
HOLDERS OF RESTRICTED 1991 STOCK
- --------------------------------
Antone Lazos
John Pappajohn
Derace L. Schaffer, M.D.
HOLDERS OF FOUNDERS STOCK
- -------------------------
Ben J. Alper, M.D.
Dr. and Mrs. (Adell) Stanley Bernard, Sr.
Stanley Bernard, Jr., M.D.
Lewis H. Conner, Jr.
Robert B. Faber, M.D.
Benjamin Fisher, M.D.
Frist Family Partners
Thomas F. Frist, Sr., M.D.
Dorothy R. Grossman
Lawrence A. Grossman, M.D.
2
<PAGE> 31
John E. Hassenfeld
Karl E. Hofammann, M.D.
Jeffrey L. Hymes, M.D.
Anthony M. and Pamela H. Iannacio
Stan E. and Elisabeth Litchman
John W. Rich
Rich Investments
Douglas H. Riddell, M.D.
Mary Ann F. Robbins
John L. Seigenthaler
John M. Tudor, M.D.
William C. Weaver, III
John H. Dayani, Ph.D.
SAMEK SHAREHOLDER
- -----------------
Edward L. Samek
MRC HOLDERS
- -----------
Martin H. Marcus
Herbert L. Marcus
Philip M. Cohen
Gregory A. Marcus
Jeffrey S. Marcus
Lynne M. Cohen
Steven I. Marcus
Daniel H. Marcus
Catherine R. Huser
Kevin Huser
3
<PAGE> 1
Exhibit 10.5
COVENANT NOT TO COMPETE
AND
SEVERANCE AGREEMENT
THIS COVENANT NOT TO COMPETE AND SEVERANCE AGREEMENT (this "Agreement"),
dated this 19th day of July, 1996, is made and entered into by and between
MEDIFAX, INC, a Missouri corporation (the "Company"), and EDWARD L. SAMEK, an
individual resident of the State of Ohio (the "Executive").
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, the Company has entered into that certain Transfer Agreement
and Plan of Section 351 Exchange, dated July 19, 1996 (the "Transfer
Agreement"), pursuant to which the Company, in a series of related transactions,
has acquired all of the outstanding capital stock of Medical Records Corp., an
Ohio corporation;
WHEREAS, the Company desires to employ the Executive as its President
and a member of its Office of the Chief Executive on an at will basis, and the
Executive desires to serve the Company in such capacities;
WHEREAS, as an inducement to the Company to consummate the transactions
contemplated by the Transfer Agreement, the Executive is willing to agree, on
the terms and conditions hereinafter set forth, to refrain from competing with
the Company for the period of time specified herein; and
WHEREAS, the execution and delivery of this Agreement by the Company and
the Executive is a condition precedent to the obligations of the Company under
the Transfer Agreement.
NOW, THEREFORE, in consideration of the mutual agreements and covenants
contained herein and in the Transfer Agreement, the receipt and sufficiency of
which is hereby acknowledged, the parties hereto agree as follows:
1. EMPLOYMENT. The Company hereby employs the Executive as its President
and a member of its Office of the Chief Executive at an annual base salary of
$175,000, and the Executive hereby accepts such employment with the Company, on
an at will basis on the terms and conditions hereinafter set forth. The Company
also agrees to approve an annual performance bonus plan for the benefit of
Executive based on the achievement of certain performance criteria.
2. SEVERANCE. (a) If the Company terminates Executive's employment
hereunder "for cause" (as hereinafter defined), all obligations of the Company
to provide compensation and benefits to Executive shall immediately cease, other
than Executive's right to receive his prorated salary and reimbursement of
expenses incurred in accordance with Company policy through the date of such
termination. The Company's election to terminate Executive's employment for
cause shall be without prejudice to any remedy the Company may have against the
Executive for the
<PAGE> 2
breach or non-performance of any of the provisions of this Agreement. For
purposes of this Agreement, "for cause" shall mean:
(i) Executive's drug or alcohol abuse (as determined by majority
vote of a committee of three physicians, one of whom shall be appointed
by the Executive, the second shall be appointed by the Company, and the
third shall be appointed by the mutual consent of such physicians);
(ii) termination of the Executive's employment by the Company
because of the Executive's inability to perform his duties due to
disability or incapacity for a period of 120 or more days, whether or
not consecutive, occurring within any period of twelve consecutive
months;
(iii) Executive is indicted or convicted for the commission of a
felony;
(iv) failure by the Executive to obey the reasonable and lawful
orders of the Board of Directors or to perform any duties material to
his responsibilities as an executive officer of the Company, if such
failure is not corrected within 30 days after written notice has been
given to the Executive by the Board;
(v) the resignation, retirement or termination of Executive's
employment by the Execution for any reason other than as set forth in
Subparagraph (c) below, at any time on or prior to December 31, 1997; or
(vi) the death of the Executive.
(b) In the event Executive's employment is terminated by the Company
"without cause" (as hereinafter defined), the Company shall pay the Executive
severance compensation equal to the sum of one year's base salary at the
Executive's then current level, plus an amount equal to any performance bonus
paid to Executive during the twelve months immediately preceding the date of
termination or accrued by the Company at the direction of the Board of Directors
for payment to Executive of a performance bonus for services rendered during
such period (collectively the "Severance Payment"); provided, however, if
Executive is terminated without cause within one year of the date of this
Agreement, the calculation of the Severance Payment shall not include any
performance bonuses paid to Executive prior to the consummation of the
transactions contemplated in the Transfer Agreement, but shall include an amount
equal to any bonus paid after the date of this Agreement, on an annualized
basis, and; provided, further, however, if Executive accepts other employment or
provides consulting or advisory services within twelve months of the date of
termination of his employment, any salary or consulting or advisory fees earned
or received by Executive shall offset dollar-for-dollar the Severance Payment.
Executive covenants and agrees to immediately notify the Company upon obtaining
other employment or if he provides any such consulting or advisory services
within twelve months of the date of such termination. Subject to the foregoing,
the Severance Payment shall be paid to Executive in twelve substantially equal
installments (less legally required deductions) in accordance with the Company's
regular payroll cycle for the one year period following the date of termination.
No interest shall accrue on or be paid with respect to any portion of such
Severance Payment.
-2-
<PAGE> 3
(c) For purposes of this Agreement, the term "without cause" shall mean
termination of Executive's employment by the Company for any reason other than
those enumerated in Section 2(a) above as constituting "for cause" including,
without limitation, (i) the Company's failure to pay Executive's base salary in
accordance with its regular payroll practices, if such failure is not corrected
within three business days of the Company's receipt of written notice thereof,
(ii) reduction of Executive's annual rate of base salary as set forth in Section
1 hereof, (iii) Executive's resignation or retirement after December 31, 1997,
(iv) the constructive termination of Executive as the result of actions taken by
the Company that result in the removal of Executive from the Board of Directors
or as an executive officer of the Company or any material change by the Company
in Executive's functions, duties or responsibilities, if such action is not
corrected within thirty days of the Company's receipt of written notice from
Executive that a constructive termination has occurred; provided, however, the
parties hereto agree that any changes in Executive's functions, duties or
responsibilities as a result of the termination of the Office of the Chief
Executive shall not constitute constructive termination so long as Executive is
appointed to serve as Chairman of the Board, Vice Chairman of the Board, Chief
Executive Officer, President or Chief Operating Officer of the Company; and (v)
a decision by the Company to move the Company's principal office to a city other
than Cleveland, Ohio, unless Executive elects to continue in the employment of
the Company.
3. NONCOMPETITION. (a) Executive agrees that while employed by the
Company and for a three year period following the termination of such
employment, Executive will not, without the prior written consent of the Board
of Directors of the Company, directly or indirectly: (i) own, manage, operate,
control or participate in, or be associated with as a director, officer,
shareholder, partner, joint venture, employee, consultant or otherwise, any
business which provides medical transcription services or any other services
provided or performed by the Company during the term of Executive's employment,
which compete, directly or indirectly, with the Company in any city or other
geographic area where any business is carried on by the Company or any of its
subsidiaries within the twelve month period immediately preceding the
termination of his employment (a "Prohibited Business"); (ii) become financially
interested in any person or entity engaged in any such Prohibited Business;
(iii) employ or solicit any employee of the Company either to work for him
personally or on behalf of any other person or entity whether or not engaged in
a Prohibited Business; or (iv) solicit any client or customer of the Company
with which Executive had substantial contact or oversight responsibility within
the twelve month period immediately preceding the termination of his employment
for the provision of services constituting a Prohibited Business.
Notwithstanding the foregoing, Executive shall not be deemed to be engaged in a
Prohibited Business solely by reason of his ownership of not more than 5% of any
class of securities registered under the Securities Act of 1933, as amended,
even if the issuer of such class of securities is engaged in a Prohibited
Business.
(b) In connection with the foregoing provisions of this Section 3, the
Executive represents that his experience, capabilities and circumstances are
such that such provisions will not prevent him from earning a livelihood. The
Executive further agrees that the limitations set forth in this Section 3
(including, without limitation, any time or territorial limitations) are
reasonable and properly required for the adequate protection of the businesses
of the Company and its subsidiaries. It is understood and agreed that the
covenants made by the Executive in this Section 3 shall survive the expiration
or termination of this Agreement.
(c) The Executive acknowledges and agrees that a remedy at law for any
breach or threatened breach of the provisions of this Section 3 would be
inadequate and, therefore, the
-3-
<PAGE> 4
Executive agrees that the Company and any of its subsidiaries shall be entitled
to seek injunctive relief in addition to any other available rights and remedies
in cases of any such breach or threatened breach; provided, however, that
nothing contained herein shall be construed as prohibiting the Company or any of
its subsidiaries from pursuing any other rights and remedies available for any
such breach or threatened breach.
4. INVENTIONS AND CONFIDENTIAL INFORMATION. The Executive hereby
covenants; agrees and acknowledges as follows:
(a) The Company is engaged in a continuous program of research, design,
development, production, marketing and servicing with respect to its businesses
and that as part of the Executive's employment by the Company the Executive is
(or may be) expected to make new contributions and inventions of value to the
Company.
(b) The Executive's employment hereunder creates a relationship of
confidence and trust between the Executive and the Company with respect to
certain information pertaining to the business of the Company and its
subsidiaries or pertaining to the business of any client or customer of the
Company or its subsidiaries which may be made known to the Executive by the
Company or any of its subsidiaries or by any client or customer of the Company
or any of its subsidiaries or learned by the Executive during the period of his
employment by the Company.
(c) The Company possesses and will continue to possess information that
has been created, discovered or developed by, or otherwise become known to it
(including, without limitation, information created, discovered or developed by,
or made known to, the Executive during the period of his employment or arising
out of his employment) or in which property rights have been or may be assigned
or otherwise conveyed to the Company, which information has commercial value in
the business in which the Company is engaged and is treated by the Company as
confidential.
(d) Any and all inventions, products, discoveries, improvements,
processes, manufacturing, marketing and service methods or techniques, formulae,
designs, styles, specifications, data bases, computer programs (whether in
source code or object code), know-how, strategies and data, whether or not
patentable or registerable under copyright or similar statutes made, developed
or created by the Executive (whether at the request or suggestion of the
Company, any of its subsidiaries, or otherwise, whether alone or in conjunction
with others, and whether during regular hours of work or otherwise) during the
period of his employment by the Company which may pertain to the business,
products, or processes of the Company or any of its subsidiaries (collectively,
hereinafter referred to as "Inventions"), will be promptly and fully disclosed
by the Executive to an appropriate executive officer of the Company (other than
the Executive) and shall be the Company's exclusive property, and the Executive
will promptly execute and/or deliver to an appropriate executive officer of the
Company (other than the Executive) without any additional compensation therefor,
all papers, drawings, models, data, documents and other material pertaining to
or in any way relating to any inventions made, developed or created by him as
aforesaid.
(e) The Executive will keep confidential and will hold for the Company's
sole benefit any Invention which is to be the exclusive property of the Company
under this Section 4 for which no patent, copyright, trademark or other right or
protection is issued.
-4-
<PAGE> 5
(f) The Executive also agrees that he will not, without the prior
written consent of the Board of Directors of the Company (i) use for his benefit
or disclose at any time during his employment by the Company, or thereafter,
except to the extent required by the performance by him of his duties as an
employee of the Company, any confidential or proprietary information obtained or
developed by him while in the employ of the Company with respect to any
Inventions or with respect to any customers, clients, suppliers, products,
employees, financial affairs, or methods of design, distribution, marketing,
service, procurement or manufacture of the Company or any of its subsidiaries,
or any confidential matter, except information which at the time is generally
known to the public other than as a result of disclosure by him not permitted
hereunder or the disclosure of which is required by law or by Court Order, or
(ii) take with him upon leaving the employ of the Company any document or paper
relating to any of the foregoing or any physical property of the Company or any
of its subsidiaries.
(g) The Executive acknowledges and agrees that a remedy at law for any
breach or threatened breach of the provisions of this Section 4 would be
inadequate and, therefore, agrees that the Company and its subsidiaries shall be
entitled to seek injunctive relief in addition to any other available rights and
remedies in case of any such breach or threatened breach; provided, however,
that nothing contained herein shall be construed as prohibiting the Company or
any of its subsidiaries from pursuing any other rights and remedies available
for any such breach or threatened breach.
(h) The Executive agrees that upon termination of his employment by the
Company for any reason, the Executive shall forthwith return to the Company all
documents and other property in his possession belonging to the Company or any
of its subsidiaries.
(i) Without limiting the generality of Section 4 hereof, the Executive
hereby expressly agrees that the foregoing provisions of this Section 4 shall be
binding upon the Executive's heirs, successors and legal representatives.
5. SUCCESSORS BOUND; ASSIGNMENT. This Agreement shall inure to the
benefit of and be binding upon the Executive, the Company, and their respective
successors, assigns, heirs, executors, legal representatives and administrators.
Any attempted assignment of this Agreement by the Executive shall be void.
6. SEVERABILITY. In the event that any one or more of the provisions of
this Agreement or any word, phrase, clause, sentence, or other portion thereof
shall be held to be unenforceable or invalid for any reason, such provision or
portion thereof shall be modified or deleted in such a manner so as to make this
Agreement, as modified, legal and enforceable to the fullest extent permitted
under applicable laws.
7. NOTICES. All notices, demands or other communications required to be
or otherwise given or made hereunder shall be in writing and shall be deemed
given if delivered personally, or mailed overnight delivery service or by
registered or certified mail (return receipt requested),
-5-
<PAGE> 6
postage prepaid, to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
If to Executive: Mr. Edward L. Samek
1717 Woodland Avenue
Edison, NJ 08820
If to the Company: Board of Directors
Medifax, Inc.
c/o Welsh Carson Anderson & Stowe
One World Financial Center, Suite 3601
New York, New York 10261
with a copy to: Mr. Martin H. Marcus
Chairman of the Board
The MRC Group
3637 Green Road
Cleveland, Ohio 44122
All such notices shall be deemed given on the date personally delivered or
received.
8. AGREEMENT NOT TO DISPARAGE. The Company shall not, and shall admonish
its officers, directors, employees, agents and affiliates not to say or write
anything derogatory about Executive and Executive shall not say or write
anything derogatory about the Company, its subsidiaries or their respective
officers, directors, employees, agents or affiliates. The parties agree that any
violation or threatened violation of any of the provisions of this paragraph
shall cause immediate and irreparable harm to the other party and, in such
event, an injunction restraining the breaching party from such violation may be
entered against such party in addition to any other relief available to the
nonbreaching party. In addition to the remedies set forth in the immediately
preceding sentence, in the event the Company files suit against the Executive
alleging a breach of this covenant not to disparage, all Severance Payments
otherwise payable pursuant to Section 2(b) hereof shall be held in abeyance by
the Company pending a judicial determination of the allegations. If the court
renders a finding that Executive has breached this covenant, Executive shall
forfeit his right to such Severance Payments and the Company shall have no
further obligation to make any Severance Payments to Executive.
9. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
among the parties with respect to the subject matter hereof and supersedes and
cancels any prior agreements, representations, warranties or communications,
whether oral or written, among the parties relating to the subject matter
hereof.
10. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same agreement.
11. AMENDMENT AND MODIFICATION. This Agreement may not be amended or
modified, except by the mutual written consent of the parties hereto.
-6-
<PAGE> 7
12. GOVERNING LAW. This Agreement shall be construed and interpreted
according to the substantive laws of the State of Ohio without giving effect to
the conflicts of laws provisions thereof.
13. FEES AND EXPENSES. If legal action (including a request for
injunctive relief) is commenced by either party to enforce or defend its rights
under this Agreement, the prevailing party in such action shall be entitled to
recover its costs and reasonable attorneys' fees in addition to any other
relief granted.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
MEDIFAX, INC
By: /s/ Martin H. Marcus
-------------------------------
Martin H. Marcus
Chairman of the Board
EXECUTIVE:
/s/ Edward L. Samek
----------------------------------
Edward L. Samek
-7-
<PAGE> 1
Exhibit 10.6
COVENANT NOT TO COMPETE
AND
SEVERANCE AGREEMENT
THIS COVENANT NOT TO COMPETE AND SEVERANCE AGREEMENT (this "Agreement"),
dated this 19th day of July, 1996, is made and entered into by and between
MEDIFAX, INC., a Missouri corporation (the "Company."), and MARTIN H. MARCUS, an
individual resident of the State of Ohio (the "Executive").
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, the Company and the Executive have entered into that certain
Transfer Agreement and Plan of Section 351 Exchange, dated July 19, 1996 (the
"Transfer Agreement"), pursuant to which the Company, in a series of related
transactions, has acquired all of the outstanding capital stock of Medical
Records Corp., an Ohio corporation of which the Executive was the founder and
formerly a significant shareholder, President and Treasurer:
WHEREAS, the Company desires to employ the Executive as its Chairman of
the Board of Directors and a member of its Office of the Chief Executive on an
at will basis, and the Executive desires to serve the Company in such
capacities.
WHEREAS, as an inducement to the Company to consummate the transactions
contemplated by the Transfer Agreement, the Executive is willing to agree, on
the terms and conditions hereinafter set forth, to refrain from competing with
the Company for the period of time specified herein; and
WHEREAS, the execution and delivery of this Agreement by the Company and
the Executive is a condition precedent to the obligations of the Company under
the Transfer Agreement.
NOW, THEREFORE, in consideration of the mutual agreements and covenants
contained herein and in the Transfer Agreement, the receipt and sufficiency of
which is hereby acknowledged, the parties hereto agree as follows:
l. EMPLOYMENT. The Company hereby employs the Executive as its Chairman
of the Board of Directors and a member of its Office of the Chief Executive at
an annual base salary of $175,000, and the Executive hereby accepts such
employment with the Company, on an at will basis on the terms and conditions
hereinafter set forth. The Company also agrees to approve an annual performance
bonus plan for the benefit of Executive based on the achievement of certain
performance criteria.
2. SEVERANCE. (a) If the Company terminates Executive's employment
hereunder "for cause" (as hereinafter defined), all obligations of the Company
to provide compensation and benefits to Executive shall immediately cease, other
than Executive's right to receive his prorated salary and reimbursement of
expenses incurred in accordance with Company policy through the date of such
termination. The Company's election to terminate Executive's employment for
cause
<PAGE> 2
shall be without prejudice to any remedy the Company may have against the
Executive for the breach or non-performance of any of the provisions of this
Agreement. For purposes of this Agreement, "for cause" shall mean:
(i) Executive's drug or alcohol abuse (as determined by
majority vote of a committee of three physicians, one of whom shall be
appointed by the Executive, the second shall be appointed by the
Company, and the third shall be appointed by the mutual consent of such
physicians);
(ii) termination of the Executive's employment by the Company
because of the Executive's inability to perform his duties due to
disability or incapacity for a period of 120 or more days, whether or
not consecutive, occurring within any period of twelve consecutive
months;
(iii) Executive is indicted or convicted for the commission of a
felony;
(iv) failure by the Executive to obey the reasonable and lawful
orders of the Board of Directors or to perform any duties material to
his responsibilities as an executive officer of the Company, if such
failure is not corrected within 30 days after written notice has been
given to the Executive by the Board;
(v) the resignation, retirement or termination of Executive's
employment by the Execution for any reason other than as set forth in
subparagraph (c) below, - at any time on or prior to December 31, 1997;
or
(vi) the death of the Executive.
(b) In the event Executive's employment is terminated by the Company
"without cause" (as hereinafter defined), the Company shall pay the Executive
severance compensation equal to the sum of one year's base salary at the
Executive's then current level, plus an amount equal to any performance bonus
paid to Executive during the twelve months immediately preceding the date of
termination or accrued by the Company at the direction of the Board of Directors
for payment to Executive of a performance bonus for services rendered during
such period (collectively the "Severance Payment"); provided, however, if
Executive is terminated without cause within one year of the date of this
Agreement, the calculation of the Severance Payment shall not include any
performance bonuses paid to Executive prior to the consummation of the
transactions contemplated in the Transfer Agreement, but shall include an amount
equal to any bonus paid after the date of this Agreement, on an annualized
basis, and; provided, further, however, if Executive accepts other employment or
provides consulting or advisory services within twelve months of the date of
termination of his employment, any salary or consulting or advisory fees earned
or received by Executive shall offset dollar-for-dollar the Severance Payment.
Executive covenants and agrees to immediately notify the Company upon obtaining
other employment or if he provides any such consulting or advisory services
within twelve months of the date of such termination. Subject to the foregoing,
the Severance Payment shall be paid to Executive in twelve substantially equal
installments (less legally required deductions) in accordance with the Company's
regular payroll cycle for the one year period following the date of termination.
No interest shall accrue on or be paid with respect to any portion of such
Severance Payment.
-2-
<PAGE> 3
(c) For purposes of this Agreement, the term "without cause" shall mean
termination of Executive's employment by the Company for any reason other than
those enumerated in Section 2(a) above as constituting "for cause" including,
without limitation, (i) the Company's failure to pay Executive's base salary in
accordance with its regular payroll practices, if such failure is not corrected
within three business days of the Company's receipt of written notice thereof,
(ii) reduction of Executive's annual rate of base salary as set forth in Section
1 hereof, (iii) Executive's resignation or retirement after December 31, 1997,
(iv) the constructive termination of Executive as the result of actions taken by
the Company that result in the removal of Executive from the Board of Directors
or as an executive officer of the Company or any material change by the Company
in Executive's functions, duties or responsibilities, if such action is not
corrected within thirty days of the Company's receipt of written notice from
Executive that a constructive termination has occurred; provided, however, the
parties hereto agree that any changes in Executive's functions, duties or
responsibilities as a result of the termination of the Office of the Chief
Executive shall not constitute constructive termination so long as Executive is
appointed to serve as Chairman of the Board, Vice Chairman of the Board, Chief
Executive Officer, President or Chief Operating Officer of the Company; and (v)
a decision by the Company to move the Company's principal office to a city other
than Cleveland, Ohio, unless Executive elects to continue in the employment of
the Company.
3. NONCOMPETITION. (a) Executive agrees that while employed by the
Company and for a three year period following the termination of such
employment, Executive will not, without the prior written consent of the Board
of Directors of the Company, directly or indirectly: (i) own, manage, operate,
control or participate in, or be associated with as a director, officer,
shareholder, partner, joint venture, employee, consultant or otherwise, any
business which provides medical transcription services or any other services
provided or performed by the Company during the term of Executive's employment,
which compete, directly or indirectly, with the Company in any city or other
geographic area where any business is carried on by the Company or any of its
subsidiaries within the twelve month period immediately preceding the
termination of his employment (a "Prohibited Business"); (ii) become financially
interested in any person or entity engaged in any such Prohibited Business;
(iii) employ or solicit any employee of the Company either to work for him
personally or on behalf of any other person or entity whether or not engaged in
a Prohibited Business; or (iv) solicit any client or customer of the Company
with which Executive had substantial contact or oversight responsibility within
the twelve month period immediately preceding the termination of his employment
for the provision of services constituting a Prohibited Business.
Notwithstanding the foregoing, Executive shall not be deemed to be engaged in a
Prohibited Business solely by reason of his ownership of not more than 5% of any
class of securities registered under the Securities Act of 1933, as amended,
even if the issuer of such class of securities is engaged in a Prohibited
Business.
(b) In connection with the foregoing provisions of this Section 3, the
Executive represents that his experience, capabilities and circumstances are
such that such provisions will not prevent him from earning a livelihood The
Executive further agrees that the limitations set forth in this Section 3
(including, without limitation, any time or territorial limitations) are
reasonable and properly required for the adequate protection of the businesses
of the Company and its subsidiaries. It is understood and agreed that the
covenants made by the Executive in this Section 3 shall survive the expiration
or termination of this Agreement
(c) The Executive acknowledges and agrees that a remedy at law for any
breach or threatened breach of the provisions of this Section 3 would be
inadequate and, therefore, the
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<PAGE> 4
Executive agrees that the Company and any of its subsidiaries shall be entitled
to seek injunctive relief in addition to any other available nights and remedies
in cases of any such breach or threatened breach; provided, however, that
nothing contained herein shall be construed as prohibiting the Company or any of
its subsidiaries from pursuing any other rights and remedies available for any
such breach or threatened breach.
4. INVENTIONS AND CONFIDENTIAL INFORMATION. The Executive hereby
covenants, agrees and acknowledges as follows:
(a) The Company is engaged in a continuous program of research, design,
development, production, marketing and servicing with respect to its businesses
and that as part of the Executive's employment by the Company the Executive is
(or may be) expected to make new contributions and inventions of value to the
Company.
(b) The Executive's employment hereunder creates a relationship of
confidence and trust between the Executive and the Company with respect to
certain information pertaining to the business of the Company and its
subsidiaries or pertaining to the business of any client or customer of the
Company or its subsidiaries which may be made known to the Executive by the
Company or any of its subsidiaries or by any client or customer of the Company
or any of its subsidiaries or learned by the Executive during the period of his
employment by the Company.
(c) The Company possesses and will continue to possess information that
has been created, discovered or developed by, or otherwise become known to it
(including, without limitation, information created, discovered or developed by,
or made known to, the Executive during the period of his employment or arising
out of his employment) or in which property rights have been or may be assigned
or otherwise conveyed to the Company, which information has commercial value in
the business in which the Company is engaged and is treated by the Company as
confidential.
(d) Any and all inventions, products, discoveries, improvements,
processes, manufacturing, marketing and service methods or techniques, formulae,
designs, styles, specifications, data bases, computer programs (whether in
source code or object code), know-how, strategies and data, whether or not
patentable or registerable under copyright or similar statutes made, developed
or created by the Executive (whether at the request or suggestion of the
Company, any of its subsidiaries, or otherwise, whether alone or in conjunction
with others, and whether during regular hours of work or otherwise) during the
period of his employment by the Company which may pertain to the business,
products, or processes of the Company or any of its subsidiaries (collectively,
hereinafter referred to as "Inventions"), will be promptly and fully disclosed
by the Executive to an appropriate executive officer of the Company (other than
the Executive) and shall be the Company's exclusive property, and the Executive
will promptly execute and/or deliver to an appropriate executive officer of the
Company (other than the Executive) without any additional compensation therefor,
all papers, drawings, models, data, documents and other material pertaining to
or in any way relating to any inventions made, developed or created by him as
aforesaid.
(e) The Executive will keep confidential and will hold for the Company's
sole benefit any Invention which is to be the exclusive property of the Company
under this Section 4 for which no patent, copyright, trademark or other right or
protection is issued.
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<PAGE> 5
(f) The Executive also agrees that he will not; without the prior
written consent of the Board of Directors of the Company (i) use for his benefit
or disclose at any time during his employment by the Company, or thereafter,
except to the extent required by the performance by him of his duties as an
employee of the Company, any confidential or proprietary information obtained
or developed by him while in the employ of the Company with respect to any
Inventions or with respect to any customers, clients, suppliers, products,
employees, financial affairs, or methods of design, distribution, marketing,
service, procurement or manufacture of the Company or any of its subsidiaries,
or any confidential matter, except information which at the time is generally
known to the public other than as a result of disclosure by him not permitted
hereunder or the disclosure of which is required by law or by Court Order, or
(ii) take with him upon leaving the employ of the Company any document or paper
relating to any of the foregoing or any physical property of the Company or any
of its subsidiaries.
(g) The Executive acknowledges and agrees that a remedy at law for any
breach or threatened breach of the provisions of this Section 4 would be
inadequate and, therefore, agrees that the Company and its subsidiaries shall be
entitled to seek injunctive relief in addition to any other available rights and
remedies in case of any such breach or threatened breach; provided, however,
that nothing contained herein shall be construed as prohibiting the Company or
any of its subsidiaries from pursuing any other rights and remedies available
for any such breach or threatened breach.
(h) The Executive agrees that upon termination of his employment by the
Company for any reason, the Executive shall forthwith return to the Company all
documents and other property in his possession belonging to the Company or any
of its subsidiaries.
(i) Without limiting the generality of Section 4 hereof, the Executive
hereby expressly agrees that the foregoing provisions of this Section 4 shall be
binding upon the Executive's heirs, successors and legal representatives.
5. SUCCESSORS BOUND; ASSIGNMENT. This Agreement shall inure to the
benefit of and be binding upon the Executive, the Company, and their respective
successors, assigns, heirs, executors, legal representatives and administrators.
Any attempted assignment of this Agreement by the Executive shall be void.
6. SEVERABILITY. In the event that any one or more of the provisions of
this Agreement or any word, phrase, clause, sentence, or other portion thereof
shall be held to be unenforceable or invalid for any reason, such provision or
portion thereof shall be modified or deleted in such a manner so as to make this
Agreement, as modified, legal and enforceable to the fullest extent permitted
under applicable laws.
7. NOTICES. All notices, demands or other communications required to be
or otherwise given or made hereunder shall be in writing and shall be deemed
given if delivered personally, or mailed overnight delivery service or by
registered or certified mail (return receipt requested),
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<PAGE> 6
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<PAGE> 7
12. GOVERNING LAW. This Agreement shall be construed and interpreted
according to the substantive laws of the State of Ohio without giving effect to
the conflicts of laws provisions thereof.
13. FEES AND EXPENSES. If legal action (including a request for
injunctive relief) is commenced by either party to enforce or defend its rights
under this Agreement, the prevailing party in such action shall be entitled to
recover its costs and reasonable attorneys' fees in addition to any other relief
granted.
[Intentionally blank]
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<PAGE> 8
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
MEDIFAX, INC
By: /s/Edward L. Samek
-------------------------------
Edward L. Samek
President
EXECUTIVE:
/s/ Martin H. Marcus
----------------------------------
Martin H. Marcus
-8-
<PAGE> 1
Exhibit 10.7
COVENANT NOT TO COMPETE
AND
SEVERANCE AGREEMENT
THIS COVENANT NOT TO COMPETE AND SEVERANCE AGREEMENT (this "Agreement"),
dated this 19th day of July, 1996, is made and entered into by and between
MEDIFAX, INC., a Missouri corporation (the "Company"), and HERBERT L. MARCUS, an
individual resident of the State of Ohio (the "Executive").
WITNESSETH
WHEREAS, the Company and the Executive have entered into that certain
Transfer Agreement and Plan of Section 351 Exchange, dated July 19, 1996 (the
"Transfer Agreement"), pursuant to which the Company, in a series of related
transactions, has acquired all of the outstanding capital stock of Medical
Records Corp., an Ohio corporation of which the Executive was formerly a
significant shareholder, Executive Vice President and Secretary;
WHEREAS, the Company desires to employ the Executive as its Vice
Chairman of the Board of Directors and a member of its Office of the Chief
Executive on an at will basis, and the Executive desires to serve the Company in
such capacities.
WHEREAS, as an inducement to the Company to consummate the transactions
contemplated by the Transfer Agreement, the Executive is willing to agree, on
the terms and conditions hereinafter set forth, to refrain from competing with
the Company for the period of time specified herein; and
WHEREAS, the execution and delivery of this Agreement by the Company and
the Executive is a condition precedent to the obligations of the Company under
the Transfer Agreement.
NOW, THEREFORE, in consideration of the mutual agreements and covenants
contained herein and in the Transfer Agreement, the receipt and sufficiency of
which is hereby acknowledged, the parties hereto agree as follows:
1. EMPLOYMENT. The Company hereby employs the Executive as its Vice
Chairman of the Board of Directors and a member of its Office of the Chief
Executive at an annual base salary of $175,000, and the Executive hereby accepts
such employment with the Company, on an at will basis on the terms and
conditions hereinafter set forth. The Company also agrees to approve an annual
performance bonus plan for the benefit of Executive based on the achievement of
certain performance criteria.
2. SEVERANCE. (a) If the Company terminates Executive's employment
hereunder "for cause" (as hereinafter defined), all obligations of the Company
to provide compensation and benefits to Executive shall immediately cease,
other than Executive's right to receive his prorated salary and reimbursement
of expenses incurred in accordance with Company policy through the date of such
termination. The Company's election to terminate Executive's employment for
cause
<PAGE> 2
shall be without prejudice to any remedy the Company may have against the
Executive for the breach or non-performance of any of the provisions of this
Agreement. For purposes of this Agreement, "for cause" shall mean:
(i) Executive's drug or alcohol abuse (as determined by
majority vote of a committee of three physicians, one of whom shall
be appointed by the Executive, the second shall be appointed by the
Company, and the third shall be appointed by the mutual consent of such
physicians);
(ii) termination of the Executive's employment by the Company
because of the Executive's inability to perform his duties due to
disability or incapacity for a period of 120 or more days, whether or
not consecutive, occurring within any period of twelve consecutive
months;
(iii) Executive is indicted or convicted for the commission of a
felony;
(iv) failure by the Executive to obey the reasonable and lawful
orders of the Board of Directors or to perform any duties material to
his responsibilities as an executive officer of the Company, if such
failure is not corrected within 30 days after written notice has been
given to the Executive by the Board;
(v) the resignation, retirement or termination of Executive's
employment by the Execution for any reason other than as set forth in
subparagraph (c) below, at any time on or prior to December 31, 1997;
or
(vi) the death of the Executive.
(b) In the event Executive's employment is terminated by the
Company "without cause" (as hereinafter defined), the Company shall pay the
Executive severance compensation equal to the sum of one year's base salary at
the Executive's then current level, plus an amount equal to any performance
bonus paid to Executive during the twelve months immediately preceding the date
of termination or accrued by the Company at the direction of the Board of
Directors for payment to Executive of a performance bonus for services rendered
during such period (collectively the "Severance Payment"); provided, however, if
Executive is terminated without cause within one year of the date of this
Agreement, the calculation of the Severance Payment shall not include any
performance bonuses paid to Executive prior to the consummation of the
transactions contemplated in the Transfer Agreement, but shall include an amount
equal to any bonus paid after the date of this Agreement, on an annualized
basis, and; provided, further, however, if Executive accepts other employment
or provides consulting or advisory services within twelve months of the date of
termination of his employment, any salary or consulting or advisory fees earned
or received by Executive shall offset dollar-for-dollar the Severance Payment.
Executive covenants and agrees to immediately notify the Company upon obtaining
other employment or if he provides any such consulting or advisory services
within twelve months of the date of such termination. Subject to the foregoing,
the Severance Payment shall be paid to Executive in twelve substantially equal
installments (less legally required deductions) in accordance with the Company's
regular payroll cycle for the one year period following the date of termination.
No interest shall accrue on or be paid with respect to any portion of such
Severance Payment.
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<PAGE> 3
(c) For purposes of this Agreement, the term "without cause" shall mean
termination of Executive's employment by the Company for any reason other than
those enumerated in Section 2(a) above as constituting "for cause" including,
without limitation, (i) the Company's failure to pay Executive's base salary in
accordance with its regular payroll practices, if such failure is not corrected
within three business days of the Company's receipt of written notice thereof,
(ii) reduction of Executive's annual rate of base salary as set forth in Section
1 hereof, (iii) Executive's resignation or retirement after December 31, 1997,
(iv) the constructive termination of Executive as the result of actions taken by
the Company that result in the removal of Executive from the Board of Directors
or as an executive officer of the Company or any material change by the Company
in Executive's functions, duties or responsibilities, if such action is not
corrected within thirty days of the Company's receipt of written notice from
Executive that a constructive termination has occurred; provided, however, the
parties hereto agree that any changes in Executive's functions, duties or
responsibilities as a result of the termination of the Office of the Chief
Executive shall not constitute constructive termination so long as Executive is
appointed to serve as Chairman of the Board, Vice Chairman of the Board, Chief
Executive Officer, President or Chief Operating Officer of the Company; and (v)
a decision by the Company to move the Company's principal office to a city
other than Cleveland, Ohio, unless Executive elects to continue in the
employment of the Company.
3. NONCOMPETITION. (a) Executive agrees that while employed by the
Company and for a three year period following the termination of such
employment, Executive will not, without the prior written consent of the Board
of Directors of the Company, directly or indirectly: (i) own, manage, operate,
control or participate in, or be associated with as a director, officer,
shareholder, partner, joint venturer, employee, consultant or otherwise, any
business which provides medical transcription services or any other services
provided or performed by the Company during the term of Executive's employment,
which compete, directly or indirectly, with the Company in any city or other
geographic area where any business is carried on by the Company or any of its
subsidiaries within the twelve month period immediately preceding the
termination of his employment (a "Prohibited Business"); (ii) become financially
interested in any person or entity engaged in any such Prohibited Business;
(iii) employ or solicit any employee of the Company either to work for him
personally or on behalf of any other person or entity whether or not engaged in
a Prohibited Business; or (iv) solicit any client or customer of the Company
with which Executive had substantial contact or oversight responsibility within
the twelve month period immediately preceding the termination of his employment
for the provision of services constituting a Prohibited Business.
Notwithstanding the foregoing, Executive shall not be deemed to be engaged in a
Prohibited Business solely by reason of his ownership of not more than 5% of any
class of securities registered under the Securities Act of 1933, as amended,
even if the issuer of such class of securities is engaged in a Prohibited
Business.
(b) In connection with the foregoing provisions of this Section 3, the
Executive represents that his experience, capabilities and circumstances are
such that such provisions will not prevent him from earning a livelihood. The
Executive further agrees that the limitations set forth in this Section 3
(including, without limitation, any time or territorial limitations) are
reasonable and properly required for the adequate protection of the businesses
of the Company and its subsidiaries. It is understood and agreed that the
covenants made by the Executive in this Section 3 shall survive the expiration
or termination of this Agreement.
(c) The Executive acknowledges and agrees that a remedy at law for any
breach or threatened breach of the provisions of this Section 3 would be
inadequate and, therefore, the
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<PAGE> 4
Executive agrees that the Company and any of its subsidiaries shall be entitled
to seek injunctive relief in addition to any other available rights and remedies
in cases of any such breach or threatened breach; provided, however, that
nothing contained herein shall be construed as prohibiting the Company or any of
its subsidiaries from pursuing any other rights and remedies available for any
such breach or threatened breach.
4. INVENTIONS AND CONFIDENTIAL INFORMATION. The Executive hereby
covenants, agrees and acknowledges as follows:
(a) The Company is engaged in a continuous program of research, design,
development, production, marketing and servicing with respect to its businesses
and that as part of the Executive's employment by the Company the Executive is
(or may be) expected to make new contributions and inventions of value to the
Company.
(b) The Executive's employment hereunder creates a relationship of
confidence and trust between the Executive and the Company with respect to
certain information pertaining to the business of the Company and its
subsidiaries or pertaining to the business of any client or customer of the
Company or its subsidiaries which may be made known to the Executive by the
Company or any of its subsidiaries or by any client or customer of the Company
or any of its subsidiaries or learned by the Executive during the period of his
employment by the Company.
(c) The Company possesses and will continue to possess information that
has been created, discovered or developed by, or otherwise become known to it
(including, without limitation, information created, discovered or developed by,
or made known to, the Executive during the period of his employment or arising
out of his employment) or in which property rights have been or may be assigned
or otherwise conveyed to the Company, which information has commercial value in
the business in which the Company is engaged and is treated by the Company as
confidential.
(d) Any and all inventions, products, discoveries, improvements,
processes, manufacturing, marketing and service methods or techniques, formulae,
designs, styles, specifications, data bases, computer programs (whether in
source code or object code), know-how, strategies and data, whether or not
patentable or registrable under copyright or similar statutes made, developed or
created by the Executive (whether at the request or suggestion of the Company,
any of its subsidiaries, or otherwise, whether alone or in conjunction with
others, and whether during regular hours of work or otherwise) during the period
of his employment by the Company which may pertain to the business, products, or
processes of the Company or any of its subsidiaries (collectively, hereinafter
referred to as "Inventions"), will be promptly and full disclosed by the
Executive to an appropriate executive officer of the Company (other than the
Executive) and shall be the Company's exclusive property, and the Executive will
promptly execute and/or deliver to an appropriate executive officer of the
Company (other than the Executive) without any additional compensation therefor,
all papers, drawings, models, data, documents and other material pertaining to
or in any way relating to any inventions made, developed or created by him as
aforesaid.
(e) The Executive will keep confidential and will hold for the Company's
sole benefit any Invention which is to be the exclusive property of the Company
under this Section 4 for which no patent, copyright, trademark or other right or
protection is issued.
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<PAGE> 5
(f) The Executive also agrees that he will not, without the prior
written consent of the Board of Directors of the Company (i) use for his benefit
or disclose at any time during his employment by the Company, or thereafter,
except to the extent required by the performance by him of his duties as an
employee of the Company, any confidential or proprietary information obtained or
developed by him while in the employ of the Company with respect to any
Inventions or with respect to any customers, clients, suppliers, products,
employees, financial affairs, or methods of design, distribution, marketing,
service, procurement or manufacture of the Company or any of its subsidiaries,
or any confidential matter, except information which at the time is generally
known to the public other than as a result of disclosure by him not permitted
hereunder or the disclosure of which is required by law or by Court Order, or
(ii) take with him upon leaving the employ of the Company any document or paper
relating to any of the foregoing or any physical property of the Company or any
of its subsidiaries.
(g) The Executive acknowledges and agrees that a remedy at law for any
breach or threatened breach of the provisions of this Section 4 would be
inadequate and, therefore, agrees that the Company and its subsidiaries shall
be entitled to seek injunctive relief in addition to any other available rights
and remedies in case of any such breach or threatened breach; provided, however,
that nothing contained herein shall be construed as prohibiting the Company or
any of its subsidiaries from pursuing any other rights and remedies available
for any such breach or threatened breach
(h) The Executive agrees that upon termination of his employment by the
Company for any reason, the Executive shall forthwith return to the Company all
documents and other property in his possession belonging to the Company or any
of its subsidiaries.
(i) Without limiting the generality of Section 4 hereof, the Executive
hereby expressly agrees that the foregoing provisions of this Section 4 shall be
binding upon the Executive's heirs, successors and legal representatives.
5. SUCCESSORS BOUND; ASSIGNMENT. This Agreement shall inure to the
benefit of and be binding upon the Executive, the Company, and their respective
successors, assigns, heirs, executors, legal representatives and administrators.
Any attempted assignment of this Agreement by the Executive shall be void
6. SEVERABILITY. In the event that any one or more of the provisions of
this Agreement or any word, phrase, clause, sentence, or other portion thereof
shall be held to be unenforceable or invalid for any reason, such provision or
portion thereof shall be modified or deleted in such a manner so as to make this
Agreement, as modified, legal and enforceable to the fullest extent permitted
under applicable laws
7 NOTICES. All notices, demands or other communications required to be
or otherwise given or made hereunder shall be in writing and shall be deemed
given if delivered personally, or mailed overnight delivery service or by
registered or certified mall (return receipt requested),
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<PAGE> 6
postage prepaid, to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
If to Executive: Mr. Herbert L. Marcus
Medical Records Corporation
3637 Green Road
Cleveland, Ohio 44122
If to the Company: Board of Directors
Medifax, Inc.
c/o Welsh Carson Anderson & Stowe
One World Financial Center, Suite 3601
New York, New York 10261
with a copy to: Mr. Edward L. Samek
President
Medifax, Inc.
6201 Powers Ferry Road
Suite 250
Atlanta, Georgia 30339
All such notices shall be deemed given on the date personally delivered or
received.
8. AGREEMENT NOT TO DISPARAGE. The Company shall not, and shall admonish
its officers, directors, employees, agents and affiliates not to say or write
anything derogatory about Executive and Executive shall not say or write
anything derogatory about the Company, its subsidiaries or their respective
officers, directors, employees, agents or affiliates. The parties agree that any
violation or threatened violation of any of the provisions of this paragraph
shall cause immediate and irreparable harm to the other party and, in such
event, an injunction restraining the breaching party from such violation may be
entered against such party in addition to any other relief available to the
nonbreaching party. In addition to the remedies set forth in the immediately
preceding sentence, in the event the Company files suit against the Executive
alleging a breach of this covenant not to disparage, all Severance Payments
otherwise payable pursuant to Section 2(b) hereof shall be held in abeyance by
the Company pending a judicial determination of the allegations. If the court
renders a finding that Executive has breached this covenant, Executive shall
forfeit his right to such Severance Payments and the Company shall have no
further obligation to make any Severance Payments to Executive.
9. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement among the parties with respect to the subject matter hereof and
supersedes and cancels any prior agreements, representations, warranties or
communications, whether oral or written, among the parties relating to the
subject matter hereof
10. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same agreement.
11. AMENDMENT AND MODIFICATION. This Agreement may not be
amended or modified, except by the mutual written consent of the parties hereto.
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<PAGE> 7
12. GOVERNING LAW. This Agreement shall be construed and interpreted
according to the substantive laws of the State of Ohio without giving effect to
the conflicts of laws provisions thereof.
13. FEES AND EXPENSES. If legal action (including a request for
injunctive relief) is commenced by either party to enforce or defend its
rights under this Agreement, the prevailing party in such action shall be
entitled to recover its costs and reasonable attorneys' fees in addition to any
other relief granted.
[Intentionally Blank]
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<PAGE> 8
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
MEDIFAX, INC.
By: /s/ Edward L. Samek
------------------------------------
Edward L. Samek
President
EXECUTIVE
/s/ Herbert L. Marcus
--------------------------------------
Herbert L. Marcus
-8-
<PAGE> 1
Exhibit 10.8
[MRC GROUP LETTERHEAD]
July 7, 1997
Mr. Dennis R. Byerly
3888 Northlake Creek Drive
Tucker, GA 30084
Dear Dennis:
1. EMPLOYMENT; TERM OF EMPLOYMENT. The purpose of this letter
is to set forth the terms and conditions wherein we agree to employ you and you
agree to accept such employment as an executive officer of Medifax, Inc., a
Missouri corporation currently doing business as The MRC Group, to commence
immediately. Unless the parties otherwise specify in writing, this letter
agreement shall extend and apply to any position you may hold with any company
then affiliated with The MRC Group, as a result of your being transferred,
assigned or leased to such affiliated company. The MRC Group currently consists
of three entities: Medifax, Inc., Medical Records Corp., and SecrePhone, Ltd.;
these companies will be referenced in this letter agreement, collectively, as
"The MRC Group" or the "Company". Because you will be considered an "at will"
employee at all times (subject to the obligations set forth in this letter),
this letter agreement (and correspondingly, your employment) has no fixed term.
2. SCOPE OF EMPLOYMENT. You agree to perform the duties of
Chief Operating Officer of the Company (and/or such other position(s) to which
you hereafter may be assigned), to exercise direct responsibility for its
branch operations, its sales and marketing functions, its systems, and its
technology; and otherwise to carry out the directives and policies of the
President and Chief Executive Officer of The MRC Group and its Board of
Directors, including, without limitation, related services throughout the
Company. You understand and acknowledge that the position requires
approximately two days per week spent in Cleveland, Ohio, at the Company's
principal offices and that the balance of the time will be spent on the road
meeting with clients, prospects, employees or working out of the Atlanta
office. You agree not directly or indirectly to act in a manner that is
intentionally, or reasonably known by you to be, inimical to the Company.
Nothing herein shall be deemed to prevent you from fulfilling your stated
obligations under your agreement with Medaphis Corporation dated September 26,
1996, nor shall your obligations to Medaphis under such agreement prevent or
materially interfere with your obligations to the Company under this letter
agreement. Likewise, nothing herein shall be deemed to prevent you from
engaging in personal investment activities, or other activities, provided they
are not inconsistent and do not interfere with your obligations under this
letter agreement.
3. DIRECT COMPENSATION. In consideration of your services, The
MRC Group agrees to pay you direct compensation consisting of: (a) a base salary
at the rate of $200,000 per year; and (b) participation in a performance-related
incentive compensation plan (or a combination of such plans), commencing with
the 1998 calendar year, which will contain terms reasonably providing for
payment of a bonus of up to an additional sixty percent (60%) of your
<PAGE> 2
base salary; and (c) for the 1997 calendar year only (until the establishment of
the applicable incentive compensation plan(s)), an individual bonus arrangement
covered your performance in 1997 which provides a bonus opportunity comparable
to that described in subparagraph (b) hereof but which otherwise is determined
by the Compensation Committee of the Board of Directors of Medifax, Inc. It is
anticipated that the bonus described in subparagraph (c) hereof shall be paid on
or before February 15, 1998. Any and all direct compensation paid to you or on
your behalf will be subject to all tax and other withholdings determined by the
Company to be required by law or regulation.
4. STOCK OPTIONS. You will receive an immediate grant of
non-qualified stock options, to purchase up to two hundred thousand (200,000)
common shares of Medifax, Inc., which such shares, if purchased, would represent
approximately one percent (1%) of the outstanding common shares of Medifax, Inc.
(determined as of the date of this letter agreement, but without taking into
consideration such shares as outstanding). Such options shall be granted under
the Medifax, Inc. 1992 Employee Stock Option Plan (the "1992 Option Plan") by
the Board of Directors of Medifax, Inc. at their next regular meeting. The terms
of such options shall be set forth in an individual option agreement, and shall
otherwise be subject to the terms of the 1992 Option Plan, but in any event
shall include the following terms and conditions: a term of ten (10) years from
date of grant; vesting of all options over a three (3)-year period, with 66,666
options vesting on July 7, 1998, 66,666 options vesting on July 7, 1999, and
66,667 options vesting on July 7, 2000; full and immediate vesting of all
options in the event of any Change in Control (as defined below); and an
exercise price for all options of $5.41 per common share (as adjusted for stock
dividends, stock splits, recapitalization, or similar events). In the event of
any involuntary termination of your Company employment (other than for Cause, as
further described in Paragraph 8 of this letter agreement), all then-vested
stock options shall continue in effect for the remainder of their term (subject
to any right under the 1992 Option Plan to cancel or otherwise discharge or
extinguish all option holders' rights).
For purposes of this Paragraph 4, a Change in Control will be
deemed to have occurred if and when: (a) any tender offer is made and
consummated for the ownership of thirty percent (30%) or more of the outstanding
voting securities of Medifax, Inc. or The MRC Group; (b) Medifax, Inc. (or
whichever other entity is then considered the parent organization within The MRC
Group) is merged or consolidated with another entity and, as a result of such
merger, reorganization or consolidation, less than thirty percent (30%) of the
outstanding voting interests of the surviving or resulting entity is owned in
the aggregate by Medifax or such other parent organization, or by the former
shareholders thereof, as determined immediately prior to such merger,
reorganization or consolidation; (c) Medifax, Inc. sells substantially all of
its assets to another entity (including one or more Affiliated Companies, if
applicable) which is not at least thirty percent (30%) owned by the Company; or
(d) a person, within the meaning of Section 3(a)(9) or of Section 13(d)(3) (as
in effect on the date hereof) of the Securities Exchange Act of 1934, acquires,
other than by reason of inheritance, thirty percent (30%) or more of the
outstanding voting securities of the Company (whether directly, indirectly,
beneficially or of record), or otherwise acquires the unrestricted right to
elect a majority of the members of the Medifax, Inc. Board of Directors; (e)
During any period of two consecutive years, individuals who at the beginning of
such period constitute the Board, cease for any reason to constitute at least a
majority thereof, unless the election of each new director was approved in
advance by a vote of at least a majority of the directors then still in office
who were directors at the beginning
<PAGE> 3
of the period. In making any such determination, the following events and
transactions shall not be taken into account: transfers made by a person to an
affiliate of such person (as determined by the Board of Directors of The MRC
Group prior to such transfer), whether by gift, devise or otherwise; and any
sale of Company securities effected pursuant to a general registration of such
securities under the Securities Act of 1933. For purposes of this Paragraph 4,
ownership of voting securities shall take into account and shall include
ownership as determined by applying the provisions of Rule 13d-3(d)(1)(i) as in
effect on the date hereof pursuant to the Securities Exchange Act.
5. EMPLOYEE BENEFITS; FRINGE BENEFITS. In addition to your
direct compensation and the stock options described, respectively, in Paragraphs
3 and 4 of this letter agreement, you will be eligible for, participate in, or
receive (as applicable) the following employee benefits:
(a) You will be entitled to two (2) weeks of paid vacation in the 1997
calendar year, and thirty four (4) weeks in each subsequent calendar
year, in each case as part of the Company's regular PTO policy and
without any carry-over of vacation days or any conversion rights.
(b) You will be eligible to participate in all other employee benefit
plans maintained by The MRC Group or Medifax, Inc. (or both) for which
regular, full-time employees of The MRC Group are eligible; you
likewise will be eligible to participate in any plans, programs or
policies maintained by the Company (or any member thereof) for
executive officers of the Company.
(c) You will not participate in the Company's relocation policy.
By signing this letter agreement, you acknowledge and accept that: (i) some of
the benefits, payments and rights described in this Paragraph 5 are to be
provided under the terms of one (1) or more of the Company's standing employee
benefit plans and written policies (e.g., PTO, relocation, etc.); (ii) any
benefits and/or payments that may (or may not) be made, and any rights that may
arise, under the Company's benefit plans and policies at all times remain
subject to the terms, conditions and limitations of those benefit plans and
policies, which control in such cases; (iii) your rights under this Paragraph 5
are a matter of individual agreement between you and the Company, do not
constitute an amendment or modification of any of the Company's benefit plans or
policies, and constitute a separate undertaking by the Company; (iv) you cannot
use the representations and promises contained in this Paragraph 5 to obtain a
double recovery (i.e., payment under this letter agreement AND a recovery under
the applicable benefit plan or policy).
6. OFFICES; EXPENSE REIMBURSEMENT. Appropriately furnished and
equipped offices will be maintained for you in both Atlanta, Georgia and
Cleveland, Ohio; both such offices will include an appropriate level of
administrative services and support. The Company will reimburse you for all
expenses incurred in connection with the discharge of your responsibilities for
the Company. You also will be reimbursed for all living expenses while staying
in Cleveland, Ohio, and travel expenses incurred by you when traveling between
the Company's Atlanta, Georgia and Cleveland, Ohio offices, including expenses
incurred by your
<PAGE> 4
spouse when occasionally accompanying you on such travels. All such expenses
will be reimbursed upon submission of a detailed Expense Account form.
7. CONFIDENTIALITY; NON-COMPETITION; NON-SOLICITATION AND
NON-DISPARAGEMENT. Your acceptance of this letter agreement is contingent upon
your acceptance of the covenants detailed in paragraphs 7a-7e below since
consideration is being provided to you under this letter agreement partly in
exchange for binding yourself to those obligations.
7a. NONCOMPETITION. You agree to not directly or indirectly
compete with the Company in providing medical transcription services, and speech
recognition products, for Radiology and Emergency Medicine transcription, in any
county in any state within the continental United States in which The MRC Group
is providing those services so long as you remain an employee of The MRC Group,
and for a period of one (1) year following any termination of your employment
with the Company, regardless how it occurs.
7b. NONSOLICITATION. You agree to not directly or indirectly
solicit any of the Company's employees or agents, unless you first obtain The
MRC Group's written consent. We both agree that "solicitation" of a Company
employee means to solicit or induce any employee or agent of The MRC Group to
terminate their his/her employment or contractual relationship with The MRC
Group, regardless of the reason(s) for doing so.
You agree to abide by this commitment so long as you remain a
Company employee, and for a period of two (2) years immediately following any
termination of your Company employment, regardless how it occurs.
7c. NONDISPARAGEMENT. You agree to not publicly say or write
anything derogatory about The MRC Group, or any of its officers, directors,
employees, agents and affiliates, its products or practices, unless compelled by
a legal requirement, in connection with a legal proceeding, or a claim or suit.
You agree to abide by this commitment so long as you remain an employee, and for
a period of two (2) years immediately following any termination of your Company
employment, regardless how it occurs.
7d. NONDISCLOSURE. You agree to not directly or indirectly use
or disclose any of the Company's trade secrets or confidential information to
others except as needed in connection with performing your duties as a Company
employee, and to not directly or indirectly make use of any trade secret or
confidential information for yourself, without first obtaining the written
consent of The MRC Group. In connection with this commitment, you specifically
agree to not disclose any confidential information or trade secret which is a
"trade secret" (within the meaning of relevant state or federal law) until such
"trade secret" becomes generally known to the public through the acts of those
specifically authorized by The MRC Group to disclose that "trade secret."
We both agree that for this purpose, "disclose" includes any
oral or written publication by you of any trade secret or confidential
information to any individual, entity or other person. We also both agree that
this commitment on your part does not apply to any disclosure which you are
compelled to make by applicable statute or court order, so long as you notify
The MRC Group--in advance--that such a disclosure may be required or compelled
and
<PAGE> 5
The MRC Group has an adequate opportunity to contest the disclosure (with
your cooperation, if to a Company believes such cooperation is needed).
As part of this commitment, you acknowledge and agree to
immediately return to The MRC Group any and all trade secrets, confidential
information, or other Company property within your control, as soon as your
Company employment terminates. We both agree that Company property includes all
handbooks, training materials, reports, policy statements, programs, customer
lists, employee lists, referral lists, computer programs, products, designs,
formulae, and data bases, and any billing or pricing information, which you
receive or acquire while employed by The MRC Group.
You agree to abide by this commitment indefinitely--not only
while a Company employee, but also after you cease to be a Company employee,
(regardless of how that employment terminates).
7e. ENFORCEMENT. You acknowledge that the commitments you are
making in paragraphs 7a-7d above are reasonable and necessary to protect and
preserve The MRC Group's business and its relationship with its customers. It is
understood that in the event of any alleged violation of paragraphs 7a-7d, in
addition to seeking monetary damages for any damages, The MRC Group will have
the right to seek and obtain an injunction against you, to prevent you from
further violating this letter agreement, without posting any bond; The MRC Group
will not be considered to have waived its rights under this letter agreement if
it does not immediately act to enforce those rights against you, or against any
other parties coming within the scope of this letter agreement regardless of the
reason for not doing so.
8. TERMINATION OF EMPLOYMENT.
(a) If you quit or resign from your Company
employment, or the Company terminates your employment for Cause (as defined
below), the Company's obligations to you shall immediately cease and be
extinguished, except for (i) payment of your base salary, prorated through the
date of termination, and (ii) reimbursement of any expenses you have properly
incurred to that date in accordance with Company policy or this letter
agreement, and (iii) obligations relating to stock options in accordance with
this agreement. For purposes of this letter agreement, "Cause" means:
(i) Your indictment for any felony, or any crime
involving fraud, deceit, or moral turpitude;
(ii) Your chemical dependency (determined by majority
vote of a committee of three physicians, one appointed by the
Executive, one appointed by the Company, and one appointed by
the other two physicians); or
(iii) Your failure or refusal to either obey the
reasonable and lawful orders of the Chief Executive Officer of
Medifax, Inc. or its Board of Directors or perform all of the
duties material to your responsibilities as an executive
officer of the Company, if such failure or refusal is not
corrected within thirty (30) days following your receipt of
written notice of such failure or refusal from said Chief
<PAGE> 6
Executive Officer or Board of Directors, provided that you may
have the opportunity, if requested by you in writing during
that thirty (30) day period, to explain such failure or
refusal at a meeting of the Board of Directors called for that
purpose.
(b) In the event your Company employment
involuntarily terminates, other than for Cause (including, without limitation,
your death or your disability, or a Company-initiated discharge) you (or your
estate, as applicable) will be paid severance and related benefits in
accordance with the terms specified in paragraph 9 below.
9. SEVERANCE.
(a) If your employment with The MRC Group
involuntarily terminates other than for
Cause (including, without limitation, death, disability, or Company-initiated
discharge), you shall be paid or provided, subject to the other provisions,
limitations and offsets set forth in this Agreement:
(i) Severance pay, equal in amount to your monthly base salary
in effect on the date your Company employment terminates, less
applicable deductions required by law, and paid in
semi-monthly installments, for a period of twelve (12)
consecutive months; and
(ii) Continuation of all Company-paid health insurance
benefits then being provided to you and your then-covered
dependents, so long as severance pay continues to be paid in
accordance with Subparagraph (a)(i) hereof.
(iii) Continuation of vested stock options in accordance with
the stock option agreement contained in Paragraph 4 of this
Agreement.
(b) All benefits payable under this Agreement shall
immediately cease and terminate, and all Company and Company-sponsored plan
obligations to you and your dependents hereunder shall cease and be
extinguished, if:
(i) You breach, renounce or violate paragraphs 7a-7d of this
Agreement; or
However, in the event the Company ceases and terminates the benefits payable
hereunder on account of its determination that you violated the provisions of
paragraphs 7a-7d hereof, all severance pay otherwise due and payable to you
shall be held in abeyance by the Company and all severance previously paid to
you shall be subject to recovery by the Company, pending a judicial
determination of such allegations. If the court renders a finding that you did
not violate such provisions, the Company shall thereupon make such severance
payments to you and waive all right to recoup payments previously made.
(c) The amounts and benefits payable under this Agreement are
in lieu of, and not supplemental to, any and all other severance, supplemental
unemployment, and group health, accident and sickness, and life and disability
benefits for which you may qualify under any and all other severance pay, group
health, accident and sickness, and life and disability plans maintained by the
Company for its current and former employees. To the extent you qualify for
<PAGE> 7
benefits under any other employee welfare benefit plan, fund, program or policy
maintained by the Company, the benefits described in this Agreement will be
correspondingly reduced (but not below zero).
10. SUCCESSORS BOUND; ASSIGNMENT PROHIBITED. This letter
agreement is binding on both you and the Company, and our respective successors,
heirs, executors, legal representatives and administrators. This letter
agreement is not assignable by you, and any attempt by you to assign this letter
agreement in contravention of this Paragraph will be considered null and void.
11. ENTIRE AGREEMENT; MODIFICATIONS; OTHER MATTERS. This
letter agreement, together supersede all prior agreements and understandings
between us and may not be modified except in writing signed by you and the Chief
Executive Officer of the Company. In the event any provision hereof shall be
determined to be unenforceable, such determination shall not be deemed to affect
the enforceability of any other provision. All notices to be given hereunder
shall be in writing and delivered by hand or by mail by registered or certified
mail, return receipt requested, and addressed to the parties at the addresses
set forth for such parties above or to such other addresses as either party may
designate by similar notice, and such notice shall be deemed to have been given
as of the date of delivery by hand two (2) business days after the date of
mailing. This letter agreement is to be governed and construed in accordance
with the laws of the State of Ohio applicable to agreements made and performed
solely with that State. If signed in multiple copies, each copy will be
considered an original.
Your signature at the end of this letter agreement will make
this a binding and fully enforceable agreement between us. By signing this
letter agreement, you acknowledge that you fully considered whether to retain or
consult with legal counsel, and either did so or freely chose not to do so.
Sincerely,
MEDIFAX, INC.
By: /s/ Edward L. Samek
----------------------------------
Edward L. Samek, President & CEO
ACCEPTED AND AGREED:
- -------------------
By: /s/ Dennis R. Byerly
----------------------------------------
Dennis R. Byerly
6/17/98
----------------------------------------
Date
<PAGE> 1
Exhibit 10.9
July 2, 1996
Mr. Steven Bell
1708 Waterford Way
Maple Glen, Pennsylvania 19002
Dear Steven :
1. EMPLOYMENT; TERM OF EMPLOYMENT. The purpose of this letter
is to set forth the terms and conditions wherein we agree to employ you
commencing on or about July 8, 1996 and you agree to accept such employment as
an executive officer of Medifax, Inc. (Medifax or Company), a Missouri
corporation, to commence immediately. Unless the parties otherwise specify in
writing, this letter agreement shall extend and apply to any position you may
hold with any company then affiliated with Medifax, as a result of your being
transferred, assigned or leased to such affiliated company. Because you will be
considered an "at will" employee at all times (subject to the obligations set
forth in this letter), this letter agreement (and correspondingly, your
employment) has no fixed term.
2. SCOPE OF EMPLOYMENT. You agree to devote your full working
time (except normal vacation periods and illness) and to exert your best
efforts, knowledge and skill to the performance of the duties of Senior Vice
President Finance and Chief Financial Officer of the Company (and/or such other
position(s) to which you hereafter may be assigned.). In this capacity, you
shall perform such duties as are customarily associated with, and incidental to,
such position which shall include direct responsibility for all aspects of the
Company's financial operations, financial projections, budgeting and related
systems and technology; and otherwise to carry out the directives and policies
of the President and Chief Executive Officer, and the Company's Board of
Directors, including, without limitation, related services throughout the
Company. Nothing herein shall be deemed to prevent you from engaging in personal
investment activities, or other activities, provided they are not inconsistent
and do not interfere with your obligations under this letter agreement.
3. DIRECT COMPENSATION. In consideration of your services,
Medifax agrees to pay you direct compensation consisting of: (a) a base salary
at the rate of $150,000 per year; and (b) a bonus at a rate of not less than
$15,000 per year to be paid quarterly ($3,750/quarter) commencing third quarter
1996. Any and all direct compensation paid to you or on your behalf will be
subject to all tax and other withholdings determined by the Company to be
required by law or regulation.
4. STOCK OPTIONS. You will receive an immediate grant of
non-qualified stock options, to purchase up to seventy thousand (70,000) common
shares of Medifax, Inc. Such options shall be granted under the Medifax, Inc.
1992 Employee Stock Option Plan (the "1992 Option Plan") by the Board of
Directors of Medifax, Inc. at their next regular meeting.
<PAGE> 2
Mr. Steven Bell
July 2, 1996
Page 2
The terms of such options shall be set forth in an individual option agreement,
and shall otherwise be subject to the terms of the 1992 Option Plan, but in any
event shall include the following terms and conditions: a term of ten (10) years
from date of grant; vesting of all options over a five (5)-year period, with
14,000 options vesting on each anniversary date of the date of the Option
Agreement; fifty percent accelerated vesting of all options in the event of any
Change in Control (as defined below); and an exercise price for all options of
the lower of $4.29 or fair market value per common share (as adjusted for stock
dividends, stock splits, recapitalization, or similar events).
For purposes of this Paragraph 4, a Change in Control will be
deemed to have occurred if and when: (a) any tender offer is made and
consummated for the ownership of fifty-one percent (51%) or more of the
outstanding voting securities of Medifax, Inc. (b) Medifax, Inc. is merged or
consolidated with another entity and, as a result of such merger, reorganization
or consolidation, less than fifty-one percent (51%) of the outstanding voting
interests of the surviving or resulting entity is owned in the aggregate by
Medifax or such other parent organization, or by the former shareholders
thereof, as determined immediately prior to such merger, reorganization or
consolidation; (c) Medifax, Inc. sells substantially all of its assets to
another entity (including one or more Affiliated Companies, if applicable) which
is not at least fifty-one percent (51%) owned by the Company; or (d) a person,
within the meaning of Section 3(a)(9) or of Section 13(d)(3) (as in effect on
the date hereof) of the Securities Exchange Act of 1934, acquires, other than by
reason of inheritance, fifty-one percent (51%) or more of the outstanding voting
securities of the Company (whether directly, indirectly, beneficially or of
record), or otherwise acquires the unrestricted right to elect a majority of the
members of the Medifax, Inc. Board of Directors. In making any such
determination, the following events and transactions shall not be taken into
account: transfers made by a person to an affiliate of such person (as
determined by the Board of Directors of Medifax prior to such transfer), whether
by gift, devise or otherwise; and any sale of Company securities effected
pursuant to a general registration of such securities under the Securities Act
of 1933. For purposes of this Paragraph 4, ownership of voting securities shall
take into account and shall include ownership as determined by applying the
provisions of Rule 13d-3(d)(1)(i) as in effect on the date hereof pursuant to
the Securities Exchange Act.
5. EMPLOYEE BENEFITS; FRINGE BENEFITS. In addition to your
direct compensation and the stock options described, respectively, in Paragraphs
3 and 4 of this letter agreement, you will be eligible for, participate in, or
receive (as applicable) the following employee benefits:
(a) You will be entitled to ten days of vacation time off in the 1996
calendar year, and a minimum of fifteen days (but not less than other
same level executives of the Company) in each subsequent calendar year,
in each case as part of the Company's regular vacation policy and
without any carry-over of vacation days or any conversion rights. You
will also be entitled to time off for Company recognized holidays as
well as sick days.
<PAGE> 3
Mr. Steven Bell
July 2, 1996
Page 3
(b) You will be eligible to participate in all other employee benefit
plans maintained by Medifax, Inc. for which regular, full-time
employees of the Company are eligible; you likewise will be eligible to
participate in any plans, programs or policies maintained by the
Company (or any member thereof) for executive officers of the Company.
(c) You will be reimbursed for moving costs and real estate transaction
costs for your relocation to Cleveland, Ohio of up to $35,000 upon
submission of documentation regarding moving-related expenses and
costs.
(d) You will be reimbursed for reasonable house hunting costs including
travel and lodging for spouse.
(e) You will be reimbursed for the cost of professional dues and
continuing education.
By signing this letter agreement, you acknowledge and accept that: (i) some of
the benefits, payments and rights described in this Paragraph 5 are to be
provided under the terms of one (1) or more of the Company's standing employee
benefit plans and written policies (e.g., vacation, relocation, etc.); (ii) any
benefits and/or payments that may (or may not) be made, and any rights that may
arise, under the Company's benefit plans and policies at all times remain
subject to the terms, conditions and limitations of those benefit plans and
policies, which control in such cases; (iii) your rights under this Paragraph 5
are a matter of individual agreement between you and the Company, do not
constitute an amendment or modification of any of the Company's benefit plans or
policies, and constitute a separate undertaking by the Company; (iv) you cannot
use the representations and promises contained in this Paragraph 5 to obtain a
double recovery (i.e., payment under this letter agreement AND a recovery under
the applicable benefit plan or policy).
6. OFFICES; EXPENSE REIMBURSEMENT. An appropriately furnished
and equipped office will be maintained for you in Cleveland, Ohio; with an
appropriate level of administrative services and support. The Company will
reimburse you for all expenses incurred in connection with the discharge of your
responsibilities for the Company, including reimbursement for the normal costs
of commuting between your residence and a required working location. All such
expenses will be reimbursed upon submission of a detailed Expense Account form.
7. CONFIDENTIALITY; NON-COMPETITION; NON-SOLICITATION AND
NON-DISPARAGEMENT. Your acceptance of this letter agreement is contingent upon
your acceptance of the covenants detailed in paragraphs 7a-7e below since
consideration is being provided to you under this letter agreement partly in
exchange for binding yourself to those obligations.
7a. NONCOMPETITION. You agree to not directly or indirectly
compete with the Company in providing medical transcription services and
products, and/or other such services and products, developed, provided, sold
and/or marketed by the Company during the term of your employment, in any county
in any state within the continental United States in which the
<PAGE> 4
Mr. Steven Bell
July 2, 1996
Page 4
Company is providing those services and products so long as you remain an
employee of the Company, and for a period of two (2) year following any
termination of your employment with the Company, regardless how it occurs.
7b. NONSOLICITATION. You agree to not directly or indirectly
solicit any of the Company's customers or any of its employees or agents, unless
you first obtain the Company's written consent. We both agree that
"solicitation" of a Company customer means any attempt on your part (or by
others, acting at your direction) (a) to solicit, sell, provide, or offer to
sell or provide, to any customer or prospective customer of the Company any
medical transcription products or services, or any products or services, which
the Company develops, sells or provides during the term of your employment by
Medifax within the same territories covered by the noncompetition commitment, or
(b) to solicit or induce any employee or agent of Medifax to terminate their
his/her employment or contractual relationship with Medifax, regardless of the
reason(s) for doing so.
You agree to abide by this commitment so long as you remain a
Company employee, and for a period of two (2) years immediately following any
termination of your Company employment, regardless how it occurs.
7c. NONDISPARAGEMENT. You agree to not publicly say or write
anything derogatory about the Company, or any of its officers, directors,
employees, agents and affiliates, its products or practices. You agree to abide
by this commitment so long as you remain employee, and for a period of two (2)
years immediately following any termination of your Company employment,
regardless how it occurs.
7d. NONDISCLOSURE. You agree to not directly or indirectly use
or disclose any of the Company's trade secrets or confidential information to
others except as needed in connection with performing your duties as a Company
employee, and to not directly or indirectly make use of any trade secret or
confidential information for yourself, without first obtaining the written
consent of the Company. In connection with this commitment, you specifically
agree to not disclose any confidential information or trade secret which is a
"trade secret" (within the meaning of relevant state or federal law) until such
"trade secret" becomes generally known to the public through the acts of those
specifically authorized by the Company to disclose that "trade secret."
We both agree that for this purpose, "disclose" includes any
oral or written publication by you of any trade secret or confidential
information to any individual, entity or other person. We also both agree that
this commitment on your part does not apply to any disclosure which you are
compelled to make by applicable statute or court order, so long as you notify
the Company--in advance--that such a disclosure may be required or compelled and
the Company has an adequate opportunity to contest the disclosure (with your
cooperation, if to a Company believes such cooperation is needed).
<PAGE> 5
Mr. Steven Bell
July 2, 1996
Page 5
As part of this commitment, you acknowledge and agree to
immediately return to the Company any and all trade secrets, confidential
information, or other Company property within your control, as soon as your
Company employment terminates. We both agree that Company property includes all
handbooks, training materials, reports, policy statements, programs, customer
lists, employee lists, referral lists, computer programs, products, designs,
formulae, and data bases, and any billing or pricing information, which you
receive or acquire while employed by Medifax.
You agree to abide by this commitment indefinitely--not only
while a Company employee, but also after you cease to be a Company employee,
(regardless of how that employment terminates).
7e. ENFORCEMENT. You acknowledge that the commitments you are
making in paragraphs 7a-7d above are reasonable and necessary to protect and
preserve the Company's business and its relationship with its customers. It is
understood that in the event of any alleged violation of paragraphs 7a-7d, in
addition to seeking monetary damages for any damages, the Company will have the
right to seek and obtain an injunction against you, to prevent you from further
violating this letter agreement, without posting any bond; the Company will not
be considered to have waived its rights under this letter agreement if it does
not immediately act to enforce those rights against you, or against any other
parties coming within the scope of this letter agreement regardless of the
reason for not doing so.
8. TERMINATION OF EMPLOYMENT.
(a) If you quit or resign from your Company
employment, or the Company terminates your employment for Cause (as defined
below), the Company's obligations to you shall immediately cease and be
extinguished, except for (i) payment of your base salary, prorated through the
date of termination, and (ii) reimbursement of any expenses you have properly
incurred to that date in accordance with Company policy or this letter
agreement. For purposes of this letter agreement, "Cause" means:
(ii) Your indictment for any felony, or any crime
involving fraud, deceit, or moral turpitude;
(iii) Fraud, embezzlement, or knowing or intentional
dishonesty relating to the operations of the Company.
(iv) Your chemical dependency (determined by majority
vote of a committee of three physicians, one appointed by the
Executive, one appointed by the Company, and one appointed by
the other two physicians); or
(v) Your failure or refusal to either obey the reasonable and
lawful orders of the Chief Executive Officer of Medifax, Inc. or its
Board of Directors or perform all of the duties material to your
responsibilities as an executive officer of
<PAGE> 6
Mr. Steven Bell
July 2, 1996
Page 6
the Company, if such failure or refusal is not corrected
within thirty (30) days following your receipt of written
notice of such failure or refusal from said Chief Executive
Officer or Board of Directors.
(b) In the event your Company employment
involuntarily terminates, other than for Cause (including, without limitation,
your death or your disability, or a Company-initiated discharge) you (or your
estate, as applicable) will be paid severance and related benefits in
accordance with the terms specified in paragraph 9 below.
9. SEVERANCE.
(a) If your employment with Medifax involuntarily
terminates other than for Cause
(including, without limitation, death, disability, or Company-initiated
discharge), you shall be paid or provided, subject to the other provisions,
limitations and offsets set forth in this Agreement:
(i) Severance pay, equal in amount to your monthly base salary
plus minimum bonus in effect on the date your Company
employment terminates, less applicable deductions required by
law, and paid in semi-monthly installments, for a period of
twelve (12) consecutive months; and
(ii) Continuation of all Company-paid health insurance
benefits then being provided to you and your then-covered
dependents, so long as severance pay continues to be paid in
accordance with Subparagraph (a)(i) hereof.
(b) All benefits payable under this Agreement shall
immediately cease and terminate, and all Company and Company-sponsored plan
obligations to you and your dependents hereunder shall cease and be
extinguished, if:
(i) You breach, renounce or violate paragraphs 7a-7d of this
Agreement; or
(ii) You refuse to execute a release of the Company and its
officers of any and all liability arising out of your
employment or separation from employment other than those
obligations arising under this Agreement.
However, in the event the Company ceases and terminates the benefits payable
hereunder on account of its determination that you violated the provisions of
paragraphs 7a-7d hereof, all severance pay otherwise due and payable to you
shall be held in abeyance by the Company and all severance previously paid to
you shall be subject to recovery by the Company, pending a judicial
determination of such allegations. If the court renders a finding that you did
not violate such provisions, the Company shall thereupon make such severance
payments to you and waive all right to recoup payments previously made.
<PAGE> 7
Mr. Steven Bell
July 2, 1996
Page 7
(c) The amounts and benefits payable under this Agreement are
in lieu of, and not supplemental to, any and all other severance, supplemental
unemployment, and group health, accident and sickness, and life and disability
benefits for which you may qualify under any and all other severance pay, group
health, accident and sickness, and life and disability plans maintained by the
Company for its current and former employees. To the extent you qualify for
benefits under any other employee welfare benefit plan, fund, program or policy
maintained by the Company, the benefits described in this Agreement will be
correspondingly reduced (but not below zero).
10. SUCCESSORS BOUND; ASSIGNMENT PROHIBITED. This letter
agreement is binding on both you and the Company, and our respective successors,
heirs, executors, legal representatives and administrators. This letter
agreement is not assignable by you, and any attempt by you to assign this letter
agreement in contravention of this Paragraph will be considered null and void.
11. ENTIRE AGREEMENT; MODIFICATIONS; OTHER MATTERS. This
letter agreement, together supersede all prior agreements and understandings
between us and may not be modified except in writing signed by you and the Chief
Executive Officer of the Company. In the event any provision hereof shall be
determined to be unenforceable, such determination shall not be deemed to affect
the enforceability of any other provision. All notices to be given hereunder
shall be in writing and delivered by hand or by mail by registered or certified
mail, return receipt requested, and addressed to the parties at the addresses
set forth for such parties above or to such other addresses as either party may
designate by similar notice, and such notice shall be deemed to have been given
as of the date of delivery by hand two (2) business days after the date of
mailing. This letter agreement is to be governed and construed in accordance
with the laws of the State of Ohio applicable to agreements made and performed
solely with that State. If signed in multiple copies, each copy will be
considered an original.
<PAGE> 8
Mr. Steven Bell
July 2, 1996
Page 8
Your signature at the end of this letter agreement will make
this a binding and fully enforceable agreement between us. By signing this
letter agreement, you acknowledge that you fully considered whether to retain or
consult with legal counsel, and either did so or freely chose not to do so.
Sincerely,
MEDIFAX, INC.
By: /s/ Edward L. Samek
----------------------------------
Edward L. Samek, President & CEO
ACCEPTED AND AGREED:
By: /s/ Steven Bell
-----------------------------
Steven Bell
6/4/98
-----------------------------
Date
<PAGE> 1
Exhibit 10.10
[THE MRC GROUP LETTERHEAD]
March 19, 1997
Mr. Ethan H. Cohen
22425 Canterbury Ln.
Shaker Hts., OH 44122
Dear Ethan:
1. The purpose of this letter is to set forth the terms and conditions
wherein we agree to employ you and you agree to accept such employment
as an executive of The MRC Group.
2. You agree to devote your full time and attention to the performance of
your duties hereunder, to carry out the directives and policies of the
President and the Board of Directors of the Company, including, but
not limited to, related services with such subsidiaries and affiliates
that the Company may have from time to time. You agree not directly or
indirectly to engage in any other business or to do any act or thing
inimical to the Company. Nothing herein shall be deemed to prevent you
from engaging in other investments or activities which do not conflict
with your duties with the Company.
3. COMPENSATION. In consideration of all your services, we agree to pay
you a salary at the rate of $150,000 per year. In addition you will be
eligible for a discretionary bonus subject to Board approval of 0-20%
of your base salary.
4. STOCK OPTIONS. You will be recommended for 50,000 stock options at the
next meeting of the Board of Directors, and for an additional 25,000
shares at the first Board meeting after April 1, 1998.
5. BENEFITS
A. The company has a health insurance program which requires
employee contribution.
B. You will be entitled to fifteen (15) days of Paid Time Off
(PTO) in 1997 and twenty (20) days per year beginning in
1998. This will increase to twenty-five (25) days per year
after five (5) years service with The MRC Group.
C. You will be eligible for all other employee benefits offered
to employees of The MRC Group.
6. EXPENSE REIMBURSEMENT. The Company will reimburse you for all expenses
incurred in the execution of your responsibilities. Such expenses will
be reimbursed upon submission of a detailed Expense Account form.
7. CONFIDENTIALITY. The attached Covenant Not To Compete, Agreement Not
To Solicit, Agreement Not To Recruit, and Covenant Not To Disclose
signed by both of us is incorporated herein by reference and is a part
of this employment agreement.
<PAGE> 2
Mr. Ethan H. Cohen
March 19, 1997
Page 2 of 2
8. TERMINATION. This agreement may be terminated at any time by either
party with four (4) weeks notice. If your employment is terminated
without cause within one (1) year of your starting date, you will be
entitled to severance pay. Maximum severance pay will be six (6)
months. It will be reduced by one (1) month on the last day of every
two full months of employment during the first year.
9. MODIFICATION. This agreement supersedes all prior agreements and
understandings between us and may not be modified or terminated
orally. In the event any provision hereof shall be determined to be
unenforceable, such determination shall not be deemed to affect the
enforceability of any other provision. All notices to be given
hereunder shall be in writing and delivered by hand or by mail by
registered or certified mail, return receipt requested, and addressed
to the parties at the addresses set forth for such parties above or to
such other addresses as either party may designate by similar notice,
and such notice shall be deemed to have been given as of the date of
delivery by hand two (2) business days after the date of mailing. This
agreement shall be governed and construed in accordance with the laws
of the State of Ohio applicable to agreements made and to be performed
solely within the State.
10. Your signature at the foot of this letter will constitute this a
binding agreement between us.
Sincerely,
The MRC Group
By: /s/ Edward I. Samek
--------------------------------
Edward I. Samek, President & CEO
Accepted and Agreed:
By: /s/ Ethan H. Cohen
---------------------------------
Ethan H. Cohen
3-19-97
---------------------------------
Date
<PAGE> 1
Exhibit 10.11
COVENANT NOT TO COMPETE
AND
SEVERANCE AGREEMENT
THIS COVENANT NOT TO Compete AND SEVERANCE AGREEMENT (this "Agreement"),
dated this 19th day of July, 1996, is made and entered into by and between
MEDIFAX, INC., a Missouri corporation (the "Company"); and PHILIP M. COHEN, an
individual resident of the State of Ohio (the "Employee").
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, the Company and the Employee have entered into that certain
Transfer Agreement and Plan of Section 351 Exchange; dated July 19, 1996 (the
"Transfer Agreement"), pursuant to which the Company, in a series of related
transactions, has acquired all of the outstanding capital stock of Medical
Records Corp, an Ohio corporation of which the Employee was formerly a
shareholder and officer;
WHEREAS, the Company desires to employ the Employee to serve as Senior
Vice President of Corporate Development on an at will basis, and the Employee
desires to serve the Company in such capacity.
WHEREAS, as an inducement to the Company to consummate the transactions
contemplated by the Transfer Agreement, the Employee is willing to agree, on the
terms and conditions hereinafter set forth, to refrain from competing with the
Company for the period of time specified herein; and
WHEREAS, the execution and delivery of this Agreement by the Company and
the Employee is a condition precedent to the obligations of the Company under
the Transfer Agreement.
NOW, THEREFORE, in consideration of the mutual agreements and covenants
contained herein and in the Transfer Agreement, the receipt and sufficiency of
which is hereby acknowledged, the parties hereto agree as follows:
l. EMPLOYMENT. The Company hereby employs the Employee as Senior Vice
President of Corporate Development at an annual base salary of $165,000, and the
Employee hereby accepts such employment with the Company, on an at will basis on
the terms and conditions hereinafter set forth. The Company also agrees to
approve an annual performance bonus plan for the benefit of Employee based on
the achievement of certain performance criteria.
2. SEVERANCE. (a) If the Company terminates Employee's employment
hereunder "for cause" (as hereinafter defined), all obligations of the Company
to provide compensation and benefits to Employee shall immediately cease, other
than Employee's right to receive his prorated salary and reimbursement of
expenses incurred in accordance with Company policy through the date of such
termination. The Company's election to terminate Employee's employment for cause
shall be without prejudice to any remedy the Company may have against the
Employee for the breach or non-performance of any of the provisions of this
Agreement. For purposes of this Agreement, "for cause" shall mean
(i) Employee's drug or alcohol abuse (as determined by majority
vote of a committee of three physicians, one of whom shall be appointed
by the Employee, the second shall be appointed by the Company, and the
third shall be appointed by the mutual consent of such physicians);
<PAGE> 2
(ii) termination of the Employee's employment by the Company
because of the Employee's inability to perform his duties due to
disability or incapacity for a period of 120 or more days, whether or
not consecutive; occurring within any period of twelve consecutive
months;
(iii) Employee is indicted or convicted for the commission of a
felony;
(iv) failure by the Employee to obey the reasonable and lawful
orders of the Board of Directors or to perform any duties material to
his responsibilities as an officer of the Company, if such failure is
not corrected within ten days after written notice has been given to the
Employee by the Board;
(v) termination of the Employee's employment by the Employee at
any time for any reason (including, without limitation, Employee's
resignation); or
(vi) the death of the Employee.
(b) In the event Employee's employment is terminated by the Company
"without cause" (as hereinafter defined), the Company shall pay the Employee
severance compensation equal to the sum of one year's base salary at the
Employee's then current level, plus an amount equal to any performance bonus
paid to Employee during the twelve months immediately preceding the date of
termination or accrued by the Company at the direction of the Board of Directors
for payment to Employee of a performance bonus for services rendered during such
period (collectively the "Severance Payment"); provided, however, if Employee is
terminated without cause within one year of the date of this Agreement, the
calculation of the Severance Payment shall not include any performance bonuses
paid to Employee prior to the consummation of the transactions contemplated in
the Transfer Agreement, but shall include an amount equal to any bonus paid
after the date of this Agreement, on an annualized basis, and; provided,
further, however, if Employee accepts other employment or provides consulting or
advisory services within twelve months of the date of termination of his
employment, any salary or consulting or advisory fees earned or received by
Employee shall offset dollar-for-dollar the Severance Payment. Employee
covenants and agrees to immediately notify the Company upon obtaining other
employment or if he provides any such consulting or advisory services within
twelve months of the date of such termination. Subject to the foregoing, the
Severance Payment shall be paid to Employee in twelve substantially equal
installments (less legally required deductions) in accordance with the Company's
regular payroll cycle for the one year period following the date of termination.
No interest shall accrue on or be paid with respect to any portion of such
Severance Payment.
(c) For purposes of this Agreement, the term "without cause" shall mean
termination of Employee's employment by the Company for any reason other than
those enumerated in Section 2(a) above as constituting "for cause" including,
without limitation, (i) the Company's failure to pay Employee's base salary in
accordance with its regular payroll practices, if such failure is not corrected
within three business days of the Company's receipt of written notice thereof,
(ii) reduction of Employee's annual rate of base salary as set forth in Section
1 hereof, (iii) the constructive termination of Employee as the result of
actions taken by the Company that result in the removal of Employee as an
officer of the Company or any material diminishment by the Company in Employee's
functions, duties or responsibilities, if such action is not corrected within
thirty days of the Company's receipt of written notice from Employee that a
constructive termination has occurred; and (v) a decision by the Company that
the Employee is required to relocate to a city other than Cleveland, Ohio, if
Employee refuses to accept such relocation.
-2-
<PAGE> 3
3. NONCOMPETITION. (a) Employee agrees that while employed by the
Company and for a two year period following the termination of such employment,
Employee will not, without the prior written consent of the Board of Directors
of the Company, directly or indirectly: (i) own, manage, operate, control or
participate in, or be associated with as a director, officer, shareholder,
partner, joint venture, employee, consultant or otherwise, any business which
provides medical transcription services or any other services provided or
performed by the Company during the term of Employee's employment, which
compete, directly or indirectly, with the Company in any city or other
geographic area where any business is carried on by the Company or any of its
subsidiaries within the twelve month period immediately preceding the
termination of his employment (a "Prohibited Business"); (ii) become financially
interested in any person or entity engaged in any such Prohibited Business;
(iii) employ or solicit any employee of the Company either to work for him
personally or on behalf of any other person or entity whether or not engaged in
a Prohibited Business; or (iv) solicit any client or customer of the Company
with which Employee had substantial contact or oversight responsibility within
the twelve month period immediately preceding the termination of his employment
for the provision of services constituting a Prohibited Business.
Notwithstanding the foregoing, Employee shall not be deemed to be engaged in a
Prohibited Business solely by reason of his ownership of not more than 5% of any
class of securities registered under the Securities Act of 1933, as amended,
even if the issuer of such class of securities is engaged in a Prohibited
Business.
(b) In connection with the foregoing provisions of this Section 3, the
Employee represents that his experience, capabilities and circumstances are such
that such provisions will not prevent him from earning a livelihood. The
Employee further agrees that the limitations set forth in this Section 3
(including, without limitation, any time or territorial limitations) are
reasonable and properly required for the adequate protection of the businesses
of the Company and its subsidiaries. It is understood and agreed that the
covenants made by the Employee in this Section 3 shall survive the expiration or
termination of this Agreement.
(c) The Employee acknowledges and agrees that a remedy at law for any
breach or threatened breach of the provisions of this Section 3 would be
inadequate and, therefore, the Employee agrees that the Company and any of its
subsidiaries shall be entitled to seek injunctive relief in addition to any
other available rights and remedies in cases of any such breach or threatened
breach; provided, however, that nothing contained herein shall be construed as
prohibiting the Company or any of its subsidiaries from pursuing any other
rights and remedies available for any such breach or threatened breach.
4. INVENTIONS AND CONFIDENTIAL INFORMATION. The Employee hereby
covenants, agrees and acknowledges as follows:
(a) The Company is engaged in a continuous program of research, design,
development, production, marketing and servicing with respect to its businesses
and that as part of the Employee's employment by the Company the Employee is (or
may be) expected to make new contributions and inventions of value to the
Company.
(b) The Employee's employment hereunder creates a relationship of
confidence and trust between the Employee and the Company with respect to
certain information pertaining to the business of the Company and its
subsidiaries or pertaining to the business of any client or customer of the
Company or its subsidiaries which may be made known to the Employee by the
Company or any of its subsidiaries or by any client or customer of the Company
or any of its subsidiaries or learned by the Employee during the period of his
employment by the Company.
(c) The Company possesses and will continue to possess information that
has been created, discovered or developed by, or otherwise become known to it
(including, without limitation, information
-3-
<PAGE> 4
created; discovered or developed by, or made known to, the Employee during the
period of his employment or arising out of his employment) or in which property
rights have been or may be assigned or otherwise conveyed to the Company, which
information has commercial value in the business in which the Company is engaged
and is treated by the Company as confidential.
(d) Any and all inventions, products, discoveries, improvements,
processes, manufacturing, marketing and service methods or techniques, formulae,
designs, styles, specifications, data bases, computer programs (whether in
source code or object code), know-how, strategies and data, whether or not
patentable or registerable under copyright or similar statutes made, developed
or created by the Employee (whether at the request or Suggestion of the Company,
any of its subsidiaries, or otherwise, whether alone or in conjunction with
others, and whether during regular hours of work or otherwise) during the period
of his employment by the Company which may pertain to the business, products, or
processes of the Company or any of its subsidiaries (collectively, hereinafter
referred to as "Inventions"), will be promptly and fully disclosed by the
Employee to an appropriate executive officer of the Company (other thin the
Employee) and shall be the Company's exclusive property, and the Employee will
promptly execute and/or deliver to an appropriate executive officer of the
Company (other than the Employee) without any additional compensation therefor,
all papers, drawings, models, data, documents and other material pertaining to
or in any way relating to any inventions made, developed or created by him as
aforesaid.
(e) The Employee will keep confidential and will hold for the Company's
sole benefit any Invention which is to be the exclusive property of the Company
under this Section 4 for which no patent, copyright, trademark or other right or
protection is issued.
(f) The Employee also agrees that he will not, without the prior written
consent of the Board of Directors of the Company (i) use for his benefit or
disclose at any time during his employment by the Company, or thereafter, except
to the extent required by the performance by him of his duties as an employee of
the Company, any confidential or proprietary information obtained or developed
by him while in the employ of the Company with respect to any Inventions or with
respect to any customers, clients, suppliers, products, employees, financial
affairs, or methods of design, distribution, marketing, service, procurement or
manufacture of the Company or any of its subsidiaries, or any confidential
matter, except information which at the time is generally known to the public
other thin as a result of disclosure by him not permitted hereunder or the
disclosure of which is required by law or by Court Order, or (ii) take with him
upon leaving the employ of the Company any document or paper relating to any of
the foregoing or any physical property of the Company or any of its
subsidiaries.
(g) The Employee acknowledges and agrees that a remedy at law for any
breach or threatened breach of the provisions of this Section 4 would be
inadequate and, therefore, agrees that the Company and its subsidiaries shall be
entitled to seek injunctive relief in addition to any other available rights and
remedies in case of any such breach or threatened breach; provided, however,
that nothing contained herein shall be construed as prohibiting the Company or
any of its subsidiaries from pursuing any other rights and remedies available
for any such breach or threatened breach.
(h) The Employee agrees that upon termination of his employment by the
Company for any reason, the Employee shall forthwith return to the Company all
documents and other property m his possession belonging to the Company or any of
its subsidiaries.
(i) Without limiting the generality of Section 4 hereof, the Employee
hereby expressly agrees that the foregoing provisions of this Section 4 shall be
binding upon the Employee's heirs, successors and legal representatives.
-4-
<PAGE> 5
5. SUCCESSORS BOUND; ASSIGNMENT. This Agreement shall inure to the
benefit of and be binding upon the Employee, the Company, and their respective
successors, assigns, heirs, executors, legal representatives and
administrators. Any attempted assignment of this Agreement by the Employee
shall be void.
6. SEVERABILITY. In the event that any one or more of the provisions of
this Agreement or any word, phrase, clause, sentence, or other portion thereof
shall be held to be unenforceable or invalid for any reason, such provision or
portion thereof shall be modified or deleted in such a manner so as to make this
Agreement, as modified, legal and enforceable to the fullest extent permitted
under applicable laws.
7. NOTICES. All notices, demands or other communications required to be
or otherwise given or made hereunder shall be in writing and shall be deemed
given if delivered personally, or mailed overnight delivery service or by
registered or certified mail (return receipt requested), postage prepaid, to the
parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
If to Employee: Mr. Philip M. Cohen
Medical Records Corporation
3637 Green Road
Cleveland, Ohio 44122
If to the Company: Board of Directors
Medifax, Inc.
c/o Welsh Carson Anderson & Stowe
One World Financial Center, Suite 3601
New York, New York 10261
with a copy to: Mr. Edward L. Samek
President
Medifax, Inc.
6201 Powers Ferry Road
Suite 250
Atlanta, Georgia 30339
All such notices shall be deemed given on the date personally delivered or
received.
8. AGREEMENT NOT TO DISPARAGE. The Company shall not, and shall admonish
its officers, directors, employees, agents and affiliates not to say or write
anything derogatory about Employee and Employee shall not say or write anything
derogatory about the Company, its subsidiaries or their respective officers,
directors, employees, agents or affiliates. The parties agree that any violation
or threatened violation of any of the provisions of this paragraph shall cause
immediate and irreparable harm to the other party and, in such event, an
injunction restraining the breaching party from such violation may be entered
against such party in addition to any other relief available to the nonbreaching
party. In addition to the remedies set forth in the immediately preceding
sentence, in the event the Company files suit against the Employee alleging a
breach of this covenant not to disparage, all Severance Payments otherwise
payable pursuant to Section 2(b) hereof shall be held in abeyance by the Company
pending a judicial determination of the allegations. If the court renders a
finding that Employee has breached this covenant, Employee shall forfeit his
right to such Severance Payments and the Company shall have no further
obligation to make any Severance Payments to Employee.
-5-
<PAGE> 6
9. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
among the parties with respect to the subject matter hereof and supersedes and
cancels any prior agreements, representations, warranties or communications,
whether oral or written, among the parties relating to the subject matter
hereof.
10. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which deemed an original, but all of which together Shall
constitute one and the same agreement.
11. AMENDMENT AND MODIFICATION. This Agreement may not be amended or
modified, except by the mutual written consent of the parties hereto.
12. GOVERNING LAW. This Agreement shall be construed and interpreted
according to the substantive laws of the State of Ohio without giving effect to
the conflicts of laws provisions thereof.
13. FEES AND EXPENSES. If legal action (including a request for
injunctive relief) is commenced by either party to enforce or defend is rights
under this Agreement, the prevailing party in such action shall be entitled to
recover its costs and reasonable attorneys' fees in addition to any other relief
granted.
[Signatures on Next Page]
-6-
<PAGE> 7
IN WITNESS WHEREOF, the parties have executed this Covenant Not to
Compete and Severance Agreement as of the date first above written.
MEDIFAX, INC
By: /s/Edward L. Samek
-------------------------------
Edward L. Samek
President
EMPLOYEE
/s/ Philip M. Cohen
------------------------------------
Philip M. Cohen
-7-
<PAGE> 1
Exhibit 10.12
COVENANT NOT TO COMPETE
AND
SEVERANCE AGREEMENT
THIS COVENANT NOT TO COMPETE AND SEVERANCE AGREEMENT (this
"Agreement"), is made and entered into this 22nd day of October 1996 to be
effective as of July 19, 1996 by and between MEDIFAX, INC., a Missouri
corporation (the "Company"), and JAMES W. MILLS, an individual resident of the
State of Ohio (the "Employee").
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, the Company desires to impose certain restrictions on
Employee's ability to compete with the Company upon termination of his
employment and, in consideration for Employee's agreement to be subject to such
restrictions, to grant Employee certain severance benefits on the terms set
forth herein.
WHEREAS, Employee desires to have the severance benefits set forth
herein and agrees that such benefits constitute fair and adequate consideration
with respect to the restrictive covenants set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual agreements and covenants
contained herein, the receipt and sufficiency of which is hereby acknowledged,
the parties hereto agree as follows:
1. EMPLOYMENT. The Company hereby employs the Employee as Senior Vice
President at an annual base salary of $165,000, and the Employee hereby accepts
such employment with the Company, on an at will basis on the terms and
conditions hereinafter set forth. The Company also agrees to approve an annual
performance bonus plan for the benefit of Employee based on the achievement of
certain performance criteria.
2. SEVERANCE. (a) If the Company terminates Employee's employment
hereunder "for cause" (as hereinafter defined), all obligations of the Company
to provide compensation and benefits to Employee shall immediately cease, other
than Employee's right to receive his prorated salary and reimbursement of
expenses incurred in accordance with Company policy through the date of such
termination. The Company's election to terminate Employee's employment for cause
shall be without prejudice to any remedy the Company may have against the
Employee for the breach or non-performance of any of the provisions of this
Agreement. For purpose this Agreement, "for cause" shall mean:
(i) Employee's drug or alcohol abuse (as determined by
majority vote of a committee of three physicians, one of whom shall be
appointed by the Employee, the second shall be appointed by the
Company, and the third shall be appointed by the mutual consent of such
physicians);
(ii) termination of the Employee's employment by the Company
because of the Employee's inability to perform his duties due to
disability of incapacity for a period of 120 or more days, whether or
mot consecutive, occurring within any period of twelve consecutive
months;
(iii) Employee is indicted or convicted for the commission of
a felony;
<PAGE> 2
(iv) failure by the Employee to obey the reasonable and lawful
orders to the Board of Directors or to perform any duties material to
his responsibilities as an officer of the Company, if such is not
corrected within ten days after written notice has been given to the
Employee by the Board;
(v) termination of the Employee's employment by the Employee
at any time for any reason (including, without limitation, Employee's
resignation); or
(vi) the death of the Employee.
(b) In the event Employee's employment is terminated by the Company
"without cause" (as hereinafter defined), the Company shall pay the Employee
severance compensation equal to the sum of one year's base salary at the
Employee's then current level, plus an amount equal to any performance bonus
paid to Employee during the twelve months immediately preceding the date of
termination or accrued by the Company at the direction of the Board of Directors
for payment to Employee of a performance bonus for services rendered during such
period (collectively the "Severance Payment"); provided, however, if Employee
accepts other employment or provides consulting or advisory services within
twelve months of the date of termination of his employment, any salary or
consulting or advisory fees earned or received by Employee shall offset
dollar-for-dollar the Severance Payment. Employee covenants and agrees to
immediately notify the Company upon obtaining other employment or if he provides
any such consulting or advisory services within twelve months or the date of
such termination. Subject to the foregoing, the Severance Payment shall be paid
to Employee in twelve substantially equal installments (less legally required
deductions) in accordance with the Company's regular payroll cycle for the one
year period following the date of termination. No interest shall accrue on or be
paid with respect to any portion of such Severance Payment.
(c) For purposes of this Agreement, the term "without cause" shall mean
termination of Employee's employment by the Company for any reason other than
those enumerated in Section 2(a) above as constituting "for cause" including,
without limitation, (i) the Company's failure to pay Employee's base salary in
accordance with its regular payroll practices, if such failure is not corrected
within three business days of the Company's receipt of written notice thereof,
(ii) reduction of Employee's annual rate of base salary as set forth in Section
1 hereof, and (iii) the constructive termination of Employee as the result of
actions taken by the Company that result in the removal of Employee as an
officer of the Company or any material diminishment by the Company in Employee's
functions, duties or responsibilities, if such action is not corrected within
thirty days of the Company's receipt of written notice from Employee that a
constructive termination has occurred.
3. NONCOMPETITION. (a) Employee agrees that while employed by the
Company and for a two year period following the termination of such employment,
Employee will not, without the prior written consent of the Board of Directors
of the Company, directly of indirectly: (i) own, manage, operate, control or
participate in, or be associated with as a director, officer, shareholder,
partner, joint venturer, employee, consultant or otherwise, any business which
provides medical transcription services or any other services provided or
performed by the Company during the term of Employee's employment, which
compete, directly or indirectly, with the Company in any city or other
geographic area where any business is carried on by the Company or any of its
subsidiaries within the twelve month period immediately preceding the
termination of his employment (a "Prohibited Business"); (ii) become financially
interested in any person or entity engaged in any such Prohibited Business;
(iii) employ or solicit any employee of the Company either to work for him
personally or on behalf of any other person or entity whether or not engaged in
a Prohibited Business; or (iv) solicit any client or customer of the Company
with which Employee had substantial contact or oversight responsibility within
the twelve month period immediately preceding the termination of
-2-
<PAGE> 3
his employment for the provision of services constituting a Prohibited
Business. Notwithstanding the foregoing, Employee shall not be deemed to be
engaged in a Prohibited Business solely by reason of his ownership of not more
than 5% of any class of securities registered under the Securities Act of 1933,
as amended, even if the issuer of such class of securities is engaged in a
Prohibited Business.
(b) In connection with the foregoing provisions of this Section
3, the Employee represents that his experience, capabilities and circumstances
are such that such provisions will not prevent him from earning a livelihood.
The Employee further agrees that the limitations set forth in this Section 3
(including, without limitation, any time or territorial limitations) are
reasonable and properly required for the adequate protection of the businesses
of the Company and its subsidiaries. It is understood and agreed that the
covenants made by the Employee in this Section 3 shall survive the expiration
or termination of this Agreement.
(c) The Employee acknowledges and agrees that a remedy at law for
any breach or threatened breach of the provisions of this Section 3 would be
inadequate and, therefore, the Employee agrees that the Company and any of its
subsidiaries shall be entitled to seek injunctive relief in addition to any
other available rights and remedies in cases of any such breach or threatened
breach; provided, however, that nothing contained herein shall be construed as
prohibiting the Company or any of its subsidiaries from pursuing any other
rights and remedies available for any such breach or threatened breach.
4. INVENTIONS AND CONFIDENTIAL INFORMATION. The Employee hereby
covenants, agrees and acknowledges as follows:
(a) The Company is engaged in a continuous program of research,
design, development, production, marketing and servicing with respect to its
businesses and that as part of the Employee's employment by the Company the
Employee is (or may be) expected to make new contributions and inventions of
value to the Company.
(b) The Employee's employment hereunder creates a relationship of
confidence and trust between the Employee and the Company with respect to
certain information pertaining to the business of the Company and its
subsidiaries or pertaining to the business of any client or customer of the
Company or its subsidiaries or pertaining to the business of any client or
customer of the Company or its subsidiaries which may be made known to the
Employee by the Company or any of its subsidiaries or by any client or
customer of the Company or any of its subsidiaries or learned by the Employee
during the period of his employment by the Company.
(c) The Company possesses and will continue to possess
information that has been created, discovered or developed by, or otherwise
become known to it (including, without limitation, information created,
discovered or developed by, or made known to, the Employee during the period of
his employment or arising out of his employment) or in which property rights
have been or may be assigned or otherwise conveyed to the Company, which
information has commercial value in the business in which the Company is engaged
and is treated by the Company as confidential.
(d) Any and all inventions, products, discoveries, improvements,
processes, manufacturing, marketing and service methods or techniques,
formulae, designs, styles, specifications, data bases, computer programs
(whether in source code or object code), know-how, strategies and data, whether
or not patentable or registrable under copyright or similar statutes made,
developed or created by the Employee (whether at the request or suggestion of
the Company, any of its subsidiaries, or otherwise, whether alone or in
conjunction with others, and whether during regular hours of work or
otherwise) during the period of his employment by the Company which may
pertain to the business, products, or processes of the Company or any of its
subsidiaries (collectively, hereinafter referred to as "Inventions"), will be
promptly and full
-3-
<PAGE> 4
disclosed by the Employee to an appropriate executive officer of the Company
(other than the Employee) and shall be the Company's exclusive property, and the
Employee will promptly execute and/or deliver to an appropriate executive
officer of the Company (other than the Employee) without any additional
compensation therefor, all papers, drawings, models, data, documents and other
material pertaining to or in any way relating to any inventions made, developed
or created by him as aforesaid.
(e) The Employee will keep confidential and will hold for the Company's
sole benefit any Invention which is to be the exclusive property of the Company
under this Section 4 for which no patent, copyright, trademark or other right or
protection is issued.
(f) The Employee also agrees that he will not, without the prior written
consent of the Board of Directors of the Company (i) use for his benefit or
disclose at any time during his employment by the Company, or thereafter, except
to the extent required by the performance by him of his duties as an employee of
the Company, any confidential or proprietary information obtained or developed
by him while in the employ of the Company with respect to any Inventions or with
respect to any customers, clients, suppliers, products, employees, financial
affairs, or methods of design, distribution, marketing, service, procurement or
manufacture of the Company or any of its subsidiaries, or any confidential
matter, except information which at the time is generally known to the public
other than as a result of disclosure by him not permitted hereunder or the
disclosure of which is required by law or by Court Order, or (ii) take with him
upon leaving the employ of the Company any document or paper relating to any of
the foregoing or any physical property of the Company or any of its
subsidiaries.
(g) The Employee acknowledges and agrees that a remedy at law for any
breach or threatened breach of the provisions of this Section 4 would be
inadequate and, therefore, agrees that the Company and its subsidiaries shall be
entitled to seek injunctive relief in addition to any other available rights and
remedies in case of any such breach or threatened breach; provided, however,
that nothing contained herein shall be construed as prohibiting the Company or
any of its subsidiaries from pursuing any other rights and remedies available
for any such breach or threatened breach.
(h) The Employee agrees that upon termination of his employment by the
Company for any reason, the Employee shall forthwith return to the Company all
documents and other property in his possession belonging to the Company or any
of its subsidiaries.
(i) Without limiting the generality of Section 4 hereof, the Employee
hereby expressly agrees that the foregoing provisions of this Section 4 shall be
binding upon the Employee's heirs, successors and legal representatives.
5. SUCCESSORS BOUND; ASSIGNMENT. This Agreement shall inure to the
benefit of and be binding upon the Employee, the Company, and their respective
successors, assigns, heirs, executors, legal representatives and administrators.
Any attempted assignment of this Agreement by the Employee shall be void.
6. SEVERABILITY. In the event that any one or more of the provisions of
this Agreement or any word, phrase, clause, sentence, or other portion thereof
shall be held to be unenforceable or invalid for any reason, such provision or
portion thereof shall be modified or deleted in such a manner so as to make this
Agreement, as modified, legal and enforceable to the fullest extent permitted
under applicable laws.
7. NOTICES. All notices, demands, or other communications required to be
or otherwise given or made hereunder shall be in writing and shall be deemed
given if delivered personally, or mailed overnight
-4-
<PAGE> 5
delivery service or by registered or certified mail (return receipt requested),
postage prepaid, to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
If to Employee: Mr. James W. Mills
The MRC Group
3637 Green Road
Cleveland, Ohio 44122
If to the Company: Board of Directors
The MRC Group
c/o Welsh Carson Anderson & Stowe
One World Financial Center, Suite 3601
New York, New York 10261
with a copy to: Mr. Edward L. Samek
President
The MRC Group
3637 Green Road
Cleveland, Ohio 44122
All such notices hall be deemed given on the date personally delivered or
received.
8. AGREEMENT NOT TO DISPARAGE. The Company shall not, and shall
admonish its officers, directors, employees, agents and affiliates not to say or
write anything derogatory about Employee and Employee shall not say or write
anything derogatory about the Company, its subsidiaries or their respective
officers, directors, employees, agents or affiliates. The parties agree that any
violation or threatened violation of any of the provisions of this paragraph
shall cause immediate and irreparable harm to the other party and, in such
event, an injunction restraining the breaching party from such violation may be
entered against such party in addition to any other relief available to the
nonbreaching party. In addition to the remedies set forth in the immediately
preceding sentence, in the event the Company files suit against the Employee
alleging a breach of this covenant not to disparage, all Severance Payments
otherwise payable pursuant to Section 2(b) hereof shall be held in abeyance by
the Company pending a judicial determination of the allegations. If the court
renders finding that Employee has breached this covenant, Employee shall forfeit
his right to such Severance Payments and the Company shall have no further
obligation to make any Severance Payments to Employee.
9. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
among the parties with respect to the subject matter hereof and supersedes and
cancels any prior agreements, representations, warranties or communications,
whether oral or written, among the parties relating to the subject matter
hereof.
10. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same agreement.
11. AMENDMENT AND MODIFICATION. This Agreement may not be amended or
modified, except by the mutual written consent of the parties hereto.
12. GOVERNING LAW. This Agreement shall be construed and interpreted
according to the substantive laws of the State of Ohio without giving effect to
the conflicts of laws provisions thereof.
-5-
<PAGE> 6
13. FEES AND EXPENSES. If legal action (including a request for
injunctive relief) is commenced by either party to enforce or defend its rights
under this Agreement, the prevailing party in such action shall be entitled to
recover its costs and reasonable attorneys' fees in addition to any other
relief granted.
IN WITNESS WHEREOF, the parties have executed this Covenant Not to
Compete and Severance Agreement as of the date first above written.
MEDIFAX, INC.
By:/s/ Edward L. Samek
--------------------
Edward L. Samek
President
EMPLOYEE:
/s/ James W. Mills
-----------------------
James W. Mills
-6-
<PAGE> 1
Exhibit 10.13
MEDIFAX, INC.
6201 POWERS FERRY ROAD, SUITE 250
ATLANTA, GEORGIA 30339
April 1, 1995
Mr. Edward L. Samek
669 Brooke Road
Wayne, Pennsylvania 19087
Medifax, Inc.
Stock Option Agreement
----------------------
Dear Mr. Samek:
Pursuant to the Securities Purchase Agreement, dated as of December 2, 1994
(the "Securities Purchase Agreement"), between Medifax, Inc., a Missouri
corporation (the "Company"), and you, and in consideration of the securities
purchased thereunder, the Company has granted to you on this date an option
(the "Option") to purchase the number of shares of the Company's Common Stock,
$.01 par value ("Common Stock"), set forth below. Such shares (as the same may
be adjusted as described in Section 7 below) are herein referred to as the
"Option Shares". The other terms and conditions of the Option are set forth
below.
This Stock Option Agreement is the "Final Option" granted pursuant to
Section 1.01 of the Securities Purchase Agreement and is entitled to the
benefits of, and is subject to, the terms thereof.
l. NUMBER OF SHARES; DATE OF GRANT. The number of shares of Common Stock
subject to the Option shall be 327,565. The Option is granted to you as of April
1, 1995.
2. TERMINATION OF OPTION. Your right to exercise the Option (and to
purchase the Option Shares) shall expire and terminate in all events on December
1, 2004.
<PAGE> 2
3. OPTION PRICE. The purchase price to be paid upon the exercise of the
Option is $5.23 per share.
4. EXERCISE OF OPTION. (a) You are entitled to exercise the Option (and
purchase any Option Shares) in part or in its entirety on and as of the
date hereof until the date on which the Option expires and terminates pursuant
to Section 2 hereof.
(b) To exercise the Option, you must deliver a completed copy of the
attached Option Exercise Form to the address indicated on the Form, specifying
the number of Option Shares being purchased as a result of such exercise,
together with payment of the full option price for the Option Shares being
purchased. Payment of the option price must be made in cash or by personal or
certified check.
5. TRANSFERABILITY OF OPTION. The Option may not be transferred by you,
other than (i) by will or the laws of descent and distribution or (ii) to your
spouse, natural or adopted children or grandchildren, or parents, to one or more
trusts for the benefit of you or any of those persons, or to one or more
partnerships in which you and any of those persons are the sole partners, in
any case to the extent permitted by Rule 16b under the Exchange Act, if
applicable, and if there is no consideration paid to you for the transfer.
6. REPRESENTATIONS. (a) You represent and warrant to the Company that,
upon exercise of the Option, you will be acquiring the Option Shares for your
own account for the purpose of investment and not with a view to or for sale in
connection with any distribution thereof in violation of any applicable
securities laws, and you understand that (i) neither the Option nor the Option
Shares have been registered with the Securities and Exchange Commission by
reason of their issuance in a transaction exempt from the registration
requirements and (ii) the Option Shares must be held indefinitely by you unless
a subsequent disposition thereof is registered under the Securities Act or is
exempt from such registration. The stock certificates for any Option Shares
issued to you will bear the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE
DISPOSED OF UNLESS THEY HAVE BEEN REGISTERED UNDER
THAT ACT OR AN EXEMPTION FROM REGISTRATION IS
AVAILABLE.
(b) You further represent and warrant that you understand the Federal,
state and local income tax consequences of the granting of the Option with
respect to any Option Shares, the exer-
<PAGE> 3
cise the Option and purchase of Option Shares, and the subsequent sale or
other disposition of any Option Shares.
7. ADJUSTMENTS; RECAPITALIZATION, RECLASSIFICATION. In the event that,
after the date hereof, the outstanding shares of the Company's Common Stock
shall be increased or decreased or changed into or exchanged for a different
number or kind of shares of stock or other securities of the Company through
recapitalization, reclassification, stock split, split-up, combination or
exchange of Shares or declaration of any dividends payable in Common Stock,
then, the Board of Directors of the Company shall appropriately adjust the
number of shares of Common Stock (and the option or purchase price per share)
subject to the unexercised portion of the Option (to the nearest possible full
share), and such adjustment shall be effective and binding for all purposes of
this Agreement.
8. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York. If any one or more provisions
of this Agreement shall be found to be illegal or unenforceable in any respect,
the validity and enforceability of the remaining provisions hereof shall not in
any way be affected or impaired thereby.
<PAGE> 4
Please acknowledge receipt of this Agreement by signing the enclosed copy
of this Agreement in the space provided below and returning it promptly to the
Secretary of the Company.
MEDIFAX, INC.
By /s/ Haines Hargrett
-----------------------------------
Accepted and Agreed to
As of April 1, 1995:
/s/ Edward L. Samek
- ---------------------------------
Edward L. Samek
<PAGE> 5
MEDIFAX, INC.
OPTION EXERCISE FORM
I, Edward L. Samek, do hereby exercise the right to purchase shares
of Common Stock, $.01 par value, of Medifax, Inc. pursuant to the Option
granted to me on December 2, 1994 under the Letter Agreement, dated as of
December 2, 1994, and as modified on April 1, 1995, between Medifax, Inc.
and me. Enclosed herewith is $ , an amount equal to the total exercise
price for the shares of Common Stock being purchased pursuant to this Option
Exercise Form.
Date:
----------------------------- ------------------------------------
Signature
Send a completed copy of this Option Exercise Form to:
Medifax, Inc.
6201 Powers Ferry Road, Suite 250
Atlanta, Georgia 30339
Attention: Secretary
<PAGE> 6
MEDIFAX, INC.
AMENDMENT TO NONQUALIFIED STOCK OPTION AGREEMENT
THIS AMENDMENT TO NONQUALIFIED STOCK OPTION AGREEMENT is entered into this
8th day of February, 1996 by and between MEDIFAX, Inc., a Missouri corporation
("Corporation"), and EDWARD L. SAMEK ("Employee").
WITNESSETH:
WHEREAS, the Board of Directors and the shareholders of the Corporation
have approved the amendment of the Nonqualified Stock Option Agreement "D" dated
4/1/95, by and between the Corporation and the Employee (the "Agreement") as
provided below; and
WHEREAS, the Corporation and the Employee desire to amend the Agreement as
provided below;
NOW, THEREFORE, in consideration of the mutual promises and covenants made
herein and the mutual benefits to be derived, the parties agree as follows:
The option price per share, defined in paragraph 3 of the Agreement, is
amended from $5.21 to $4.23.
Except as modified herein, the Agreement shall remain in full force and
effect.
IN WITNESS WHEREOF, the Corporation has caused this Amendment to be
executed on its behalf, and the Employee has hereunto set his hand, as of the
day and year first above written.
MEDIFAX, INC.
By /s/ Haines Hargrett
------------------------
Treasurer
/s/ Edward L. Samek
- ---------------------------
Option Holder
<PAGE> 7
MEDIFAX, INC,
SECOND AMENDMENT TO NONQUALIFIED STOCK OPTION AGREEMENT
THIS AMENDMENT TO NONQUALIFIED STOCK OPTION AGREEMENT is entered into
this 19th day of July, 1996 by and between MEDIFAX, Inc., a Missouri corporation
("Corporation"), and EDWARD L. SAMEK ("Employee").
WITNESSETH:
WHEREAS, the Board of Directors and the shareholders of the Corporation
have approved the amendment of the Nonqualified Stock Option Agreement "D" dated
4/1/95, by and between the Corporation and the Employee (the "Agreement") as
provided below; and
WHEREAS, the Corporation and the Employee desire to amend the Agreement
as provided below;
NOW, THEREFORE, in consideration of the mutual promises and covenants
made herein and the mutual benefits to be derived, the parties agree as follows:
The number of shares granted under Paragraph 1 of the Agreement is
amended to 328,516.
Except as modified herein, the Agreement shall remain in full force and
effect:
IN WITNESS WHEREOF, the Corporation has caused this Amendment to be
executed on its behalf, and the Employee has hereunto set his hand, as of the
day and year first above written.
MEDIFAX, INC.
By /s/ Haines Hargrett
----------------------------
Treasurer
/s/ Edward L. Samek
- ------------------------------
Option Holder
<PAGE> 1
Exhibit 10.14
Option I
MEDIFAX, INC. STOCK OPTION AGREEMENT
THIS AGREEMENT, dated as of the 19th day of July, 1996, is entered into
by and between MEDIFAX, INC., a Missouri corporation (the "Corporation"), and
Edward L. Samek (the "Optionee").
WITNESSETH:
WHEREAS, on July 19, 1996, the Board of Directors of the Corporation
granted to Optionee, effective as of July 19, 1996 (the "Date of Grant"), an
option (the "Option") to purchase shares of common stock of the Corporation
("Common Stock"), for the term, and upon the terms and conditions set forth
below and those hereinafter stated:
Number of shares of Common Stock 250,000
Price per share (the "Price") $5.41
Expiration Date (the "Expiration Date") July 18, 2006
NOW, THEREFORE, in consideration of the mutual promises and covenants
made herein and the mutual benefits to be derived herefrom, the parties hereto
agree as follows:
1. GRANT OF OPTION. The Corporation hereby grants to the Optionee as a
matter of separate inducement and agreement and not in lieu of any salary or
other compensation for his services, the right and option to purchase on the
terms and conditions hereinafter set forth, all or any part of an aggregate of
Two Hundred Fifty Thousand (250,000) shares of Common Stock at the Price,
exercisable in the manner specified in Section 2 of this Agreement.
2. EXERCISABILITY OF OPTION. The Option is fully vested and may be
exercised at any time, and from time to time, as to any part or all of the
shares covered thereby commencing on the date hereof (the "Exercisability
Date(s)").
The Option may be exercised only as to whole shares. Fractional share
interests shall be disregarded except that they may be accumulated from year to
year.
3. CONTINUANCE OF EMPLOYMENT. Nothing contained in this Agreement shall
confer upon the Optionee any right with respect to his employment or interfere
in any way with the right of the Corporation, its parent or any subsidiary, at
any time to terminate such employment or to increase or decrease the
compensation received by the Optionee as such an employee, but nothing contained
herein shall affect any otherwise existing contractual rights of the Optionee.
4. METHOD OF EXERCISE AND PAYMENT. Each exercise of the Option shall be
by means of a written notice of, exercise, in accordance with Section 9 hereof,
specifying the number of whole shares with respect to which the Option is being
exercised, together with tender to the Corporation of the full Price of the
Shares to be purchased. A written notice of exercise shall be irrevocable after
it is effective in accordance with Section 9 unless the Corporation consents in
<PAGE> 2
writing to its revocation. The Price shall be paid in full at the time of each
such purchase and may be paid (i) in cash, (ii) by check, (iii) with shares of
Common stock already owned by Optionee having a fair market value equal in
amount to the Price, or (iv) with a combination of such methods of payment.
5. EFFECT OF TERMINATION OF EMPLOYMENT. The Option will remain
exercisable until the Expiration Date even if Optionee's employment with the
Corporation is terminated prior to such date for any reason including death or
disability.
6. NONASSIGNABILITY OF OPTION. Except as set forth below, the Option and
the rights and privileges conferred hereby are not transferable or assignable,
and shall not be pledged or hypothecated in any way (whether by operation of law
or otherwise), and shall not be subject to execution, attachment, garnishment,
levy or similar process. The Option may be exercised during the lifetime of
Optionee, only by him or, in the event of disability or death, by the duly
appointed legal representative of Optionee or by his estate or transferees by
will or under the laws of descent and distribution.
7. RECAPITALIZATION. In the event that the outstanding shares of
Common Stock of the Corporation are changed into or exchanged for a different
number or kind of shares or other securities of the Corporation by reason of any
recapitalization, reclassification, stock split, stock dividend, combination or
subdivision, appropriate adjustment shall be made in the number and kind of
shares available under this Option. Such adjustment shall be made without
change in the total price applicable to the unexercised portion of this Option,
and a corresponding adjustment in the Price shall be made.
8. OPTIONEE NOT A STOCKHOLDER. Optionee shall have no rights as a
stockholder with respect to the Common Stock covered by the Option until the
date of the issuance of a stock certificate or stock certificates to him. No
adjustment will be made for dividends or other rights for which the record date
is prior to the date on which such stock certificates are issued even if such
record date is subsequent to the date upon which notice of exercise was
delivered and the tender of payment was accepted.
9. NOTICES. Any notice to be given under the terms hereof shall be hand
delivered to the Secretary of the Corporation or sent by certified mail, return
receipt requested, to MEDIFAX, INC., Attention: Secretary, 3637 Green Road,
Cleveland, Ohio 44122-5781, and any notice to be given to the Optionee shall be
addressed to him at the address given beneath his signature hereto, or at such
other address as a party may hereafter designate in writing to the other party.
Any such notice shall have been deemed duly given when enclosed in a properly
sealed envelope addressed as aforesaid, certified mail, and deposited (postage
and certification fee prepaid) in a post office or branch post office regularly
maintained by the United States Government.
10. APPLICATION OF SECURITIES LAWS. No shares of Common Stock may be
purchased pursuant to the Option unless and until any then applicable
requirements of the Securities and Exchange Commission, or any other regulatory
agency having jurisdiction and of any exchanges upon which the Common Stock may
be listed shall have been fully complied with. The Optionee
-2-
<PAGE> 3
represents and agrees that if he exercises the Option in whole or in part at a
time when there is not in effect under the Securities Act of 1933, as amended
(the "Act"), a registration statement relating to the shares issuable upon
exercise and available for delivery to him a prospectus meeting the requirement
of Section 10(a) (3) of the Act, he will not acquire the shares issuable upon
such exercise except for the purpose of investment and without a view to their
resale or distribution and that, as a condition to each such exercise and at the
request of the Corporation, he will furnish to the Corporation a written
statement satisfactory to the Corporation in form and substance. The Optionee
further represents and agrees that if and when he proposes to publicly offer to
sell shares which are issued to him upon exercise of the option, he will notify
the Corporation prior to any such offering or sale and will abide by the opinion
of counsel to the Corporation as to whether and under what circumstances, if
any, he may offer and sell such shares. Any person or persons entitled to
exercise the Option under the provisions of Section 6 shall be obligated under
the provisions of this Section 10 to the same extent as is the Optionee.
11. EFFECT OF AGREEMENT. This Agreement shall be binding upon and inure
to the benefit of any successor or successors of the Corporation and shall be
binding upon the heirs, successors and assigns of Optionee, and except as
otherwise provided herein, shall inure to the benefit of such heirs, successors
and assigns.
12. NECESSARY ACTS. Each party hereto agrees to perform any further acts
and execute and deliver any documents which may be reasonably necessary to
effectuate the purposes, intents and provisions of this Agreement.
13. TAX WITHHOLDING. The Corporation shall have the right to deduct any
sums required by federal, state, or local tax law to be withheld with respect to
the exercise of the Option, but, in the alternative, the Optionee or other
person exercising the Option may elect to pay such sums to the Corporation by
delivering written notice of that election to the Corporation not less than
thirty (30) or more than sixty (60) days prior to exercise.
14. LAWS APPLICABLE TO CONSTRUCTION. The option has been granted,
executed and delivered as of the day and year first above written and the
interpretation, performance and enforcement of the Option and this Agreement
shall be governed by the laws of the State of Missouri. This Option has not been
granted pursuant to any stock option plan of the Corporation and is therefore
not subject to any restrictions or limitations contained therein.
-3-
<PAGE> 4
IN WITNESS WHEREOF, the Corporation has caused this Agreement to be
executed on its behalf, and attested, by its officers, and the Optionee has
hereunto set his hand as of the day and year first above written.
MEDIFAX, INC.
By: /s/ Martin H. Marcus /s/ Edward L. Samek
-------------------------------- --------------------------------
Martin H. Marcus Edward L. Samek
Chairman Optionee
---------------------------------
Address
By: /s/ Haines Hargrett
-------------------------------- ---------------------------------
Haines Hargrett City, State, ZIP Code
Title: Treasurer
---------------------------
-4-
<PAGE> 5
Option II
MEDIFAX, INC.
STOCK OPTION AGREEMENT
THIS AGREEMENT, dated as of the 19th day of July, 1996, is
entered into by and between MEDIFAX, INC., a Missouri corporation (the
"Corporation"), and Edward L. Samek (the "Optionee").
WITNESSETH
WHEREAS, on July 19, 1996, the Board of Directors of the Corporation
granted to Optionee, effective as of July 19, 1996 (the "Date of Grant"), an
option (the "Option") to purchase shares of common stock of the Corporation
("Common Stock"), for the term, and upon the terms and conditions set forth
below and those hereinafter stated:
Number of shares of Common Stock 250,000
Price per share (the "Price") $5.41
Expiration Date (the "Expiration Date") July 18, 2006
NOW, THEREFORE, in consideration of the mutual promises and covenants
made herein and the mutual benefits to be derived herefrom, the parties hereto
agree as follows:
1. GRANT OF OPTION. The Corporation hereby grants to the Optionee as a
matter of separate inducement and agreement and not in lieu of any salary or
other compensation for his services, the right and option to purchase on the
terms and conditions hereinafter set forth, all or any part of an aggregate of
Two Hundred Fifty Thousand (250,000) shares of Common Stock at the Price,
exercisable in the manner specified in Section 2 of this Agreement.
2. EXERCISABILITY OF OPTION. The Option may be exercised at any time,
and from time to time, as to any part or all of the shares covered thereby in
accordance with the following schedule (the "Exercisability Date(s)"):
a. Commencing one (1) year from the date hereof Twenty-Five percent
(25%) of the shares subject to this Option may be purchased.
b. An additional Twenty-Five percent (25%) of the shares subject to this
Option may be purchased during the period beginning two (2) years from the date
hereof
c. An additional Twenty-Five percent (25%) of the shares subject to this
Option may be purchased during the period beginning three (3) years from the
date hereof.
d. The balance of the shares subject to this Option may be
purchased beginning four (4) years from the date hereof, but in no event may
shares be purchased under the option after the Expiration Date.
<PAGE> 6
The Option may be exercised only as to whole shares. Fractional share
interests shall be disregarded except that they may be accumulated from year to
year.
The Option shall become immediately exercisable as to all shares granted
hereunder upon a change of control of the Corporation as such term is defined
in Section 8 hereof, other than through an initial public offering of the
Corporation. In addition, the Board, in its discretion, may accelerate the
Exercisability Date of the Option and the dates on which subsequent
installments become exercisable.
3. CONTINUANCE OF EMPLOYMENT. Nothing contained in this Agreement shall
confer upon the Optionee any right with respect to his employment or interfere
in any way with the right of the Corporation, its parent or any subsidiary, at
any time to terminate such employment or to increase or decrease the
compensation received by the Optionee as such an employee, but nothing contained
herein shall affect any otherwise existing contractual rights of the Optionee.
4. METHOD OF EXERCISE AND PAYMENT. Each exercise of the Option shall be
by means of a written notice of exercise, in accordance with Section 10 hereof,
specifying the number of whole shares with respect to which the Option is being
exercised, together with tender to the Corporation of the full Price of the
shares to be purchased. A written notice of exercise shall be irrevocable after
it is effective in accordance with Section 10 unless the Corporation consents in
writing to its revocation. The Price shall be paid in full at the time of each
such purchase and may be paid (i) in cash, (ii) by check, (iii) with shares of
Common Stock already owned by Optionee having a fair market value equal in
amount to the Price, or (iv) with a combination of such methods of payment.
5. EFFECT OF TERMINATION OF EMPLOYMENT. Any portion of the Option that
has vested and is exercisable at the time of the termination of Optionee's
employment with the Corporation, including termination due to death or
disability, will remain exercisable until the Expiration Date. That portion of
the Option that is unvested as of the date of termination of Optionee's
employment Shall be cancelled.
6. NONASSIGNABILITY OF OPTION. Except as set forth below, the Option and
the rights and privileges conferred hereby are not transferable or assignable,
and shall not be pledged or hypothecated in any way (whether by operation of law
or otherwise), and shall not be subject to execution, attachment, garnishment,
levy or similar process. The Option may be exercised during the lifetime of
Optionee, only by him or, in the event of disability or death, by the duly
appointed legal representative of Optionee or by his estate or transferees by
will or under the laws of descent and distribution.
7. RECAPITALIZATION. In the event that the outstanding shares of Common
Stock of the Corporation are changed into or exchanged for a different number or
kind of shares or other securities of the Corporation by reason of any
recapitalization, reclassification, stock split, stock dividend, combination or
subdivision, appropriate adjustment shall be made in the number and kind of
shares available under this Option. Such adjustment shall be made without change
in the
-2-
<PAGE> 7
total price applicable to the unexercised portion of this Option, and a
corresponding adjustment in the price shall be made.
8. CHANGE OF CONTROL. For purposes of this Option, the term change of
control shall mean the occurrence of any of the following events. (i) the
Corporation is merged or consolidated with another corporation and the
Corporation is not the surviving corporation, (ii) all or substantially all of
the assets or more than fifty percent (50%) of the voting stock of the
Corporation is acquired by another corporation, or (iii) a reorganization or
liquidation of the Corporation.
9. OPTIONEE NOT A STOCKHOLDER. Optionee shall have no rights as a
stockholder with respect to the Common Stock covered by the Option until the
date of the issuance of a stock certificate or stock certificates to him or her.
No adjustment will be made for dividends or other rights for which the record
date is prior to the date on which such stock certificates are issued even if
such record date is subsequent to the date upon which notice of exercise was
delivered and the tender of payment was accepted.
10. NOTICES. Any notice to be given under the terms hereof shall be hand
delivered to the Secretary of the Corporation or sent by certified mail, return
receipt requested, to MEDIFAX, INC., Attention: Secretary, 3637 Green Road,
Cleveland, Ohio 44122-5781, and any notice to be given to the Optionee shall be
addressed to him at the address given beneath his signature hereto, or at such
other address as a party may hereafter designate in writing to the other party.
Any such notice shall have been deemed duly given when enclosed in a properly
sealed envelope addressed as aforesaid, certified mail, and deposited (postage
and certification fee prepaid) in a post office or branch post office regularly
maintained by the United States Government.
11. APPLICATION OF SECURITIES LAWS. No shares of Common Stock may be
purchased pursuant to the Option unless and until any then applicable
requirements of the Securities and Exchange Commission, or any other regulatory
agency having jurisdiction and of any exchanges upon which the Common Stock may
be listed shall have been fully complied with. The Optionee represents and
agrees that if he exercises the Option in whole or in part at a time when there
is not in effect under the Securities Act of 1933, as amended (the "Act"), a
registration statement relating to the shares issuable upon exercise and
available for delivery to him a prospectus meeting the requirement of Section
10(a) (3) of the Act, he will not acquire the shares issuable upon such
exercise except for the purpose of investment and without a view to their
resale or distribution and that, as a condition to each such exercise and at
the request of the Corporation, he will furnish to the Corporation a written
statement satisfactory to the Corporation in form and substance. The Optionee
further represents and agrees that if and when he proposes to publicly offer to
sell shares which are issued to him upon exercise of the option, he will notify
the Corporation prior to any such offering or sale and will abide by the
opinion of counsel to the Corporation as to whether and under what
circumstances, if any, he may offer and sell such shares. Any person or persons
entitled to exercise the Option under the provisions of Section 6 shall be
obligated under the provisions of this Section 11 to the same extent as is the
Optionee.
-3-
<PAGE> 8
12. EFFECT OF AGREEMENT. This Agreement shall be binding upon and inure
to the benefit of any successor or successors of the Corporation and shall be
binding upon the heirs, successors and assigns of Optionee, and except as
otherwise provided herein, shall inure to the benefit of such heirs, successors
and assigns.
13. NECESSARY ACTS. Each party hereto agrees to perform any further acts
and execute and deliver any documents which may be reasonably necessary to
effectuate the purposes, intents and provisions of this Agreement.
14. TAX WITHHOLDING. The Corporation shall have the right to deduct any
sums required by federal, state, or local tax law to be withheld with respect
to the exercise of the Option, but, in the alternative, the Optionee or other
person exercising the Option may elect to pay such sums to the Corporation by
delivering written notice of that election to the Corporation not less than
thirty (30) or more than sixty (60) days prior to exercise.
15. LAWS APPLICABLE TO CONSTRUCTION. The option has been granted,
executed and delivered as of the day and year first above written and the
interpretation, performance and enforcement of the Option and this Agreement
shall be governed by the laws of the State of Missouri. This Option has not
been granted pursuant to any stock option plan of the Corporation and is
therefore not subject to any restrictions or limitations contained therein.
IN WITNESS WHEREOF, the Corporation has caused this Agreement to be
executed on its behalf and attested, by its officers, and the Optionee has
hereunto set his hand as of the day and year first above written
MEDIFAX, INC.
By: /s/ Martin H. Marcus /s/ Edward L. Samek
------------------------------ -----------------------------------
Martin H. Marcus Edward L. Samek
Chairman Optionee
-----------------------------------
Address
By: /s/ Haines Hargrett
----------------------------- -----------------------------------
Haines Hargrett City, State, ZIP Code
Title: Treasurer
-----------------------
-4-
<PAGE> 9
Option III
MEDIFAX, INC.
STOCK OPTION AGREEMENT
THIS AGREEMENT, dated as of the 19th day of July, 1996, is entered into
by and between MEDIFAX, INC., a Missouri corporation (the "Corporation"), and
Edward L. Samek (the "Optionee").
WITNESSETH
WHEREAS, on July 19, 1996, the Board of Directors of the Corporation
granted to Optionee, effective as of July 19, 1996 (the "Date of Grant"), an
option (the "Option") to purchase shares of common stock of the Corporation
("Common Stock"), for the term, and upon the terms and conditions set forth
below and those hereinafter stated;
Number of shares of Common Stock 250,000
Price per share (the "Price") $5.41
Expiration Date (the "Expiration Date") July 18, 2006
NOW, THEREFORE, in consideration of the mutual promises and covenants
made herein and the mutual benefits to be derived herefrom, the parties hereto
agree as follows:
1. GRANT OF OPTION. The Corporation hereby grants to the Optionee as a
matter of separate inducement and agreement and not in lieu of any salary or
other compensation for his services, the right and option to purchase on the
terms and conditions hereinafter set forth, all or any part of an aggregate of
Two Hundred Fifty Thousand (250,000) shares of Common Stock at the Price,
exercisable in the manner specified in Section 2 of this Agreement.
2. EXERCISABILITY OF OPTION. The Option may be exercised at any time,
and from time to time, as to any part or all of the shares covered thereby in
accordance with the following schedule (the "Exercisability Date(s)"):
a. Commencing June 20, 2001, Twenty-Five percent (25%) of the shares
subject to this Option may be purchased.
b. An additional Twenty-Five percent (25%) of the shares subject to this
Option may be purchased during the period beginning June 20, 2002.
c. An additional Twenty-Five percent (25%) of the shares subject to this
Option may be purchased during the period beginning June 20, 2003.
d. The balance of the shares subject to this Option may be purchased
beginning June 20, 2004, but in no event may shares be purchased under the
Option after the Expiration Date.
<PAGE> 10
The Option may be exercised only as to whole shares. Fractional share
interests shall be disregarded except that they may be accumulated from year to
year.
The Option shall become immediately exercisable as to all shares granted
hereunder upon a change of control of the Corporation as such term is defined in
Section 8 hereof, other than through an initial public offering of the
Corporation, or upon certain performance targets established by the Board. In
addition, the Board, in its discretion, may accelerate the Exercisability Date
of the Option and the dates on which subsequent installments become exercisable.
3. CONTINUANCE OF EMPLOYMENT. Nothing contained in this Agreement shall
confer upon the Optionee any right with respect to his employment or interfere
in any way with the right of the Corporation, its parent or any subsidiary, at
any time to terminate such employment or to increase or decrease the
compensation received by the Optionee as such an employee, but nothing contained
herein shall affect any otherwise existing contractual rights of the Optionee.
4. METHOD OF EXERCISE AND PAYMENT. Each exercise of the Option shall be
by means of a written notice of exercise, in accordance with Section 10 hereof,
specifying the number of whole shares with respect to which the Option is being
exercised, together with tender to the Corporation of the full Price of the
shares to be purchased. A written notice of exercise shall be irrevocable after
it is effective in accordance with Section 10 unless the Corporation consents in
writing to its revocation. The Price shall be paid in full at the time of each
such purchase and may be paid (i) in cash, (ii) by check, (iii) with shares of
Common Stock already owned by Optionee having a fair market value equal in
amount to the Price, or (iv) with a combination of such methods of payment.
5. EFFECT OF TERMINATION OF EMPLOYMENT. Any portion of the Option that
has vested and is exercisable at the time of the termination of Optionee's
employment with the Corporation, including termination due to death or
disability, will remain exercisable until the Expiration Date. That portion of
the Option that is unvested as of the date of termination of Optionee's
employment shall be cancelled.
6. NONASSIGNABILITY OF OPTION. Except as set forth below, the Option and
the rights and privileges conferred hereby are not transferable or assignable,
and shall not be pledged or hypothecated in any way (whether by operation of law
or otherwise), and shall not be subject to execution, attachment, garnishment,
levy or similar process. The Option may be exercised during the lifetime of
Optionee, only by him or, in the event of disability or death, by the duly
appointed legal representative of Optionee or by his estate or transferees by
will or under the laws of descent and distribution.
7. RECAPITALIZATION. In the event that the outstanding shares of Common
Stock of the Corporation are changed into or exchanged for a different number or
kind of shares or other securities of the Corporation by reason of any
recapitalization, reclassification, stock split, stock dividend, combination
or subdivision, appropriate adjustment shall be made in the number and
-2-
<PAGE> 11
kind of shares available under this Option. Such adjustment shall be made
without change in the total price applicable to the unexercised portion of this
Option, and a corresponding adjustment in the Price shall be made.
8. CHANGE OF CONTROL. For purposes of this Option, the term change of
control shall mean the occurrence of any of the following events: (i) the
Corporation is merged or consolidated with another corporation and the
Corporation is not the surviving corporation, (ii) all or substantially all of
the assets or more than fifty percent (50%) of the voting stock of the
Corporation is acquired by another corporation, or (iii) a reorganization or
liquidation of the Corporation.
9. OPTIONEE NOT A STOCKHOLDER. Optionee shall have no rights as a
stockholder with respect to the Common Stock covered by the Option until the
date of the issuance of a stock certificate or stock certificates to him or
her. No adjustment will be made for dividends or other rights for which the
record date is prior to the date on which such stock certificates are issued
even if such record date is subsequent to the date upon which notice of
exercise was delivered and the tender of payment was accepted.
10. NOTICES. Any notice to be given under the terms hereof shall be hand
delivered to the Secretary of the Corporation or sent by certified mall, return
receipt requested, to MEDIFAX, INC., Attention: Secretary, 3637 Green Road,
Cleveland, Ohio 44122-5781, and any notice to be given to the Optionee shall be
addressed to him at the address given beneath his signature hereto, or at such
other address as a party may hereafter designate in writing to the other party.
Any such notice shall have been deemed duly given when enclosed in a properly
sealed envelope addressed as aforesaid, certified mail, and deposited (postage
and certification fee prepaid) in a post office or branch post office regularly
maintained by the United States Government.
11. APPLICATION OF SECURITIES LAWS. No shares of Common Stock may be
purchased pursuant to the Option unless and until any then applicable
requirements of the Securities and Exchange Commission, or any other regulatory
agency having jurisdiction and of any exchanges upon which the Common Stock may
be listed shall have been fully complied with. The Optionee represents and
agrees that if he exercises the Option in whole or in part at a time when there
is not in effect under the Securities Act of 1933, as amended (the "Act"), a
registration statement relating to the shares issuable upon exercise and
available for delivery to him a prospectus meeting the requirement of Section
10(a) (3) of the Act, he will not acquire the shares issuable upon such exercise
except for the purpose of investment and without a view to their resale or
distribution and that, as a condition to each such exercise and at the request
of the Corporation, he will furnish to the Corporation a written statement
satisfactory to the Corporation in form and substance. The Optionee further
represents and agrees that if and when he proposes to publicly offer to sell
shares which are issued to him upon exercise of the option, he will notify the
Corporation prior to any such offering or sale and will abide by the opinion of
counsel to the Corporation as to whether and under what circumstances, if any,
he may offer and sell such shares. Any person or persons entitled to exercise
the Option under the provisions of Section 6 shall be obligated under the
provisions of this Section 11 to the same extent as is the Optionee.
-3-
<PAGE> 12
12. EFFECT OF AGREEMENT. This Agreement shall be binding upon and inure
to the benefit of any successor or successors of the Corporation and shall be
binding upon the heirs, successors and assigns of Optionee, and except as
otherwise provided herein, shall inure to the benefit of such heirs, successors
and assigns.
13. NECESSARY ACTS. Each party hereto agrees to perform any further acts
and execute and deliver any documents which may be reasonably necessary to
effectuate the purposes, intents and provisions of this Agreement.
14. TAX WITHHOLDING. The Corporation shall have the right to deduct any
sums required by federal, state, or local tax law to be withheld with respect
to the exercise of the Option, but, in the alternative, the Optionee or other
person exercising the Option may elect to pay such sums to the Corporation by
delivering written notice of that election to the Corporation not less than
thirty (30) or more than sixty (60) days prior to exercise.
15. LAWS APPLICABLE TO CONSTRUCTION. The option has been granted,
executed and delivered as of the day and year first above written and the
interpretation, performance and enforcement of the Option and this Agreement
shall be governed by the laws of the State of Missouri. This Option has not been
granted pursuant to any stock option plan of the Corporation and is therefore
not subject to any restrictions or limitations contained therein.
IN WITNESS WHEREOF, the Corporation has caused this Agreement to be
executed on its behalf, and attested, by its officers, and the Optionee has
hereunto set his hand as of the day and year first above written.
MEDIFAX, INC.
By: /s/ Martin H. Marcus /s/ Edward L. Samek
---------------------------------- -------------------------------
Martin H. Marcus Edward L. Samek
Chairman Optionee
-------------------------------
Address
By: /s/ Haines Hargrett
-------------------------------- -------------------------------
Haines Hargrett City, State, ZIP Code
Title: Treasurer
------------------------------
-4-
<PAGE> 1
Exhibit 10.15
Holders of form promissory note immediately following:
<TABLE>
<CAPTION>
PRINCIPAL
HOLDER BALANCE
<S> <C>
Martin H. Marcus 59,812.00
Herbert L. Marcus 350,000.00
Philip M. Cohen 502,728.00
Gregory A. Marcus 165,820.00
Jeffrey S. Marcus 165,820.00
Lynne M. Cohen 105,820.00
Steven I. Marcus 175,000.00
Catherine R. Huser 175,000.00
Shelley Marcus 60,000.00
Debra Silverman 60,000.00
Alexander Marcus 60,000.00
Emily Marcus 60,000.00
Eric Marcus 60,000.00
</TABLE>
<PAGE> 2
THIS INSTRUMENT IS SUBJECT TO THE TERMS OF A SUBORDINATION AGREEMENT DATED JULY
19, 1996, IN FAVOR OF SUMMIT BANK AND EDWARD L. SAMEK, WHICH SUBORDINATION
AGREEMENT IS INCORPORATED HEREIN BY REFERENCE. NOTWITHSTANDING ANY CONTRARY
STATEMENT CONTAINED IN THE WITHIN INSTRUMENT, NO PAYMENT ON ACCOUNT OF THE
PRINCIPAL OR INTEREST THEREOF SHALL BECOME DUE OR BE PAID EXCEPT IN ACCORDANCE
WITH THE TERMS OF SUCH SUBORDINATION AGREEMENT.
PROMISSORY NOTE
July 19, 1996
$__________ Cleveland, Ohio
FOR VALUE RECEIVED, the undersigned, MEDIFAX, INC., a Missouri
corporation, promises to pay to the order of _______________, an individual
resident of the State of Ohio (hereinafter, together with any holder hereof,
called "Holder") at 3637 Green Road, Cleveland, Ohio 44122, or at such other
place as the Holder may designate in writing to the undersigned, in lawful money
of the United States of America, and in immediately available funds, the
principal sum of ______________________________ ($__________) together with
interest on the principal balance from time to time outstanding hereunder
(computed on the basis of a 360-day year for the actual number of days elapsed)
from the date hereof until paid in full at a rate of eight percent (8%) per
annum.
Accrued interest shall be payable quarterly, commencing on October 1,
1996. The principal amount of this Note shall be payable in four substantially
equal annual installments commencing on July 19, 2000 with the final installment
due on July 19, 2003 in an amount sufficient to pay in full all principal and
all accrued interest then outstanding. Notwithstanding the foregoing, this Note
shall accelerate and shall be due and payable in full (i) on the tenth business
day following the closing of a firm commitment underwritten initial public
offering of the undersigned's common stock; or (ii) upon the sale of all or
substantially all of the assets or capital stock of the undersigned or any
similar transaction that results in a change of control of the undersigned.
Interest shall accrue on any amount past due hereunder at a rate equal
to two percent (2.0%) per annum in excess of the interest rate otherwise payable
hereunder. All such interest shall be due and payable on demand.
In no event shall the amount of interest due or payable under this Note
exceed the maximum rate of interest allowed by applicable law, and if any such
payment is inadvertently paid by the undersigned or inadvertently received by
the Holder, then such excess sum shall be credited as a payment of principal,
unless the undersigned shall notify the Holder in writing that the undersigned
elects to have such excess sum returned to it forthwith. It is the express
intent of the parties hereto that the undersigned not pay and the Holder not
receive, directly or indirectly, in any manner whatsoever, interest in excess of
that which may be lawfully paid by the undersigned under applicable law.
The undersigned, at its option, may prepay the indebtedness evidenced
by this Note, either in whole or in part, at any time without penalty. All
accrued interest on the amount so
2
<PAGE> 3
prepaid shall be due and payable with such prepayment. All prepayments of
principal shall be applied to the payments due under this Note in reverse order
of maturity.
This Note has been executed and delivered by the undersigned in
connection with that certain Transfer Agreement and Plan of Section 351 Exchange
dated as of July 19, 1996 by and among the undersigned, Medical records Corp.
and the shareholders of Medical Records Corp. (the "Transfer Agreement"). THE
OBLIGATIONS OF THE UNDERSIGNED TO MAKE PAYMENTS UNDER THIS NOTE ARE SUBJECT TO
THE TERMS OF ARTICLE X OF THE TRANSFER AGREEMENT, INCLUDING THE UNDERSIGNED'S
RIGHT TO OFFSET THE AMOUNT PAYABLE UNDER THIS NOTE.
An "Event of Default" under this Note shall occur upon: (i) failure of
the undersigned to pay any principal, interest or other amount due hereunder
when due and such failure shall continue for 5 business days following the
receipt of written notice to the undersigned of such default; (ii) the
undersigned shall (a) commence a voluntary case under the Bankruptcy Code of
1978, as amended or other federal bankruptcy law (as now or hereafter in
effect); (b) file a petition seeking to take advantage of any other laws,
domestic or foreign, relating to bankruptcy, insolvency, reorganization, winding
up or composition for adjustment of debts; (c) consent to or fail to contest in
a timely and appropriate manner any petition filed against it in an involuntary
case under such bankruptcy laws or other laws; (d) apply for or consent to, or
fail to contest in a timely and appropriate manner, the appointment of, or the
taking of possession by, a receiver, custodian, trustee, or liquidator of itself
or of a substantial part of its property, domestic or foreign; or (e) make a
general assignment for the benefit of creditors; (iii) a case or other
proceeding shall be commenced against the undersigned in any court of competent
jurisdiction seeking (a) relief under the Bankruptcy Code of 1978, as amended or
other federal bankruptcy law (as now or hereafter in effect) or under any other
laws, domestic or foreign, relating to bankruptcy, insolvency, reorganization,
winding up or adjustment of debts or (b) the appointment of a trustee, receiver,
custodian, liquidator or the like for the undersigned or all or any substantial
part of the assets, domestic or foreign, of the undersigned.
Upon the occurrence of an Event of Default (other than an Event of
Default described in clause (ii) or (iii) of the definition thereof), any and
all of the obligations hereunder, at the option of the Holder, and without
demand or notice of any kind, may be immediately declared, and thereupon shall
immediately become in default and due and payable and the Holder may exercise
any and all rights and remedies available to it at law, in equity or otherwise.
Upon the occurrence of an Event of Default described in clause (ii) or (iii) of
the definition thereof, any and all of the obligations hereunder, without demand
or notice of any kind, shall immediately become in default and due and payable
and the Holder may exercise any and all rights and remedies available to it at
law, in equity or otherwise.
The undersigned shall pay all expenses of the Holder in the collection
of this Note after the occurrence of an Event of Default, including reasonable
attorneys' fees, if this Note is collected by or through an attorney-at-law.
Time is of the essence with respect to this Note.
3
<PAGE> 4
No delay or failure on the part of the Holder in the exercise of any
right or remedy shall operate as a waiver thereof, and no single or partial
exercise by the Holder of any right or remedy shall preclude other or further
exercise thereof or the exercise of any other right or remedy.
All amendments to this Note, and any waiver or consent of the Holder,
must be in writing and signed by the Holder and the undersigned.
The undersigned hereby waives presentment, demand, notice of dishonor,
protests and all other notices whatever.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF OHIO.
This Note shall be binding upon the successors and assigns of the
undersigned and shall inure to the benefit of the Holder and its successors and
assigns.
IN WITNESS WHEREOF, the undersigned has executed and delivered this
Promissory Note under seal as of the date and year first written above.
MEDIFAX, INC.
By: /s/ Edward L. Samek
-----------------------------
Edward L. Samek
President
[CORPORATE SEAL]
Address for Notices
4
<PAGE> 1
Exhibit 10.16
CONTRACT FOR LICENSE OF MEDRITE SOFTWARE AND
--------------------------------------------
SUPPORT ARRANGEMENTS
--------------------
THIS AGREEMENT, shall be effective on the lst day of February,
1994, by and between MEDICAL RECORDS CORP, a OHIO corporation with its principal
place of business at 3637 Green Road, Cleveland Ohio, 44122, (hereinafter
referred to as "MRC") and CRESCENDO SYSTEMS CORPORATION, a Canadian corporation
with its principal place of business at 5305 Notre Dame West, Suite 206, Laval,
Quebec, H7W 4T8, (hereinafter referred to as "CRESCENDO").
WITNESSETH:
WHEREAS, MRC is in the business of providing transcription
services for the medical industry; and
WHEREAS, CRESCENDO has developed certain software copyrighted
under the name "MEDRite(R)" which MRC has proven to be of significant use to
MRC's business; and
WHEREAS, MRC wishes to license the MEDRite(R) software from
CRESCENDO under the terms of this Contract and CRESCENDO is willing to grant a
license on such terms; and
WHEREAS, the parties acknowledge that MEDRite(R) software is
currently in use by MRC, other transcription services and hospitals and that it
meets the intended purpose; and
WHEREAS, CRESCENDO's corporate strategy is to continually
develop and enhance MEDRite(R) so that it gains wider acceptance; and
WHEREAS, CRESCENDO is willing to provide support services
necessary to modify and update the MedRite(R) software to maximize its
effectiveness for MRC's business; and
WHEREAS, MRC is willing to assist CRESCENDO in the further
development of the MEDRite(R) software providing marketing input, offering
suggestions and comments for further improvement and providing resources to test
and evaluate new developments; and
WHEREAS, both parties wish to make certain arrangements to
protect CRESCENDO's ownership rights to MEDRite(R) as well as to protect
confidential business information and trade secrets of both companies and their
clients;
<PAGE> 2
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants and
promises contained in this Contract, the parties hereto agree and contract as
follows:
ARTICLE I
---------
DEFINITIONS
-----------
1. DEFINITIONS. The following definitions apply to this Contract:
A. "Copyright Notice" means certain notices which are
reflected on all registered copies of the subject software. The copyright notice
specifies that CRESCENDO has copyrighted the MEDRite(R) software and that all
rights not expressly granted under this Contract are reserved by CRESCENDO.
Unauthorized copying of the MEDRite(R) software, including MEDRite(R) software
that has been modified, merged or included with other software, or of the
accompanying written materials, is expressly forbidden.
B. "Registered Copy" means the original MEDRite(R) disks
transferred to MRC and all copies made of those disks pursuant to this Contract.
C. "Software" refers to the MEDRite(R) program developed by
CRESCENDO and all modifications, updates and extensions of that program.
D. "Transcription Station" means any of office MRC and any
home occupied by an employee or independent contractor of MRC used for the
purpose of transcribing medical data and related services. The term shall
further include stations for network file servers print servers, communication
servers, fax servers, management and supervisor's stations and client facilities
(hospitals, clinics, doctor's offices and the like) operated or supervised by
MRC.
ARTICLE II
----------
LICENSE AGREEMENT
-----------------
1. LICENSE FOR USE. CRESCENDO hereby grants MRC, and its
successors and subsidiaries (listed herein), a non-exclusive license to use the
MEDRite(R) software, together with any and all modifications, updates and
extensions of that software that have been or may hereafter be created, as they
relate to Medical Transcription, including but not limited to electronic
signature, HL7 interfacing and optical archival. MRC specifically acknowledges
that CRESCENDO may market the software and any modifications and updates thereof
to other businesses, including business that may compete against MRC. CRESCENDO
covenants and agrees that it will not market the software or any modifications
or updates in such a manner as to place MRC at a competitive disadvantage.
Nothing herein shall limit the right of MRC to utilize software,
materials or procedures offered by competitors of CRESCENDO; provided, however
that
- -------------------------------------------------------------------------------
Page 2
<PAGE> 3
CRESCENDO makes no warranty that such competitor's programs will be compatible
with the software licensed hereunder.
2. USE AT TRANSCRIPTION STATIONS. MRC agrees that only its
employees and independent contractor's shall be permitted to use MEDRite(R) for
the purpose of transcribing reports. MRC further agrees that each client
facility at which MRC installs a copy of MEDRite(R) is to be registered with
MRC. It is further agreed between the parties that any MRC Client having access
to use MEDRite(R) shall be required, as a prerequisite thereof, to have signed
and delivered to MRC a non-disclosure agreement, which clearly states that the
software is only to be used to manage those files completed by MRC for the
Client within the scope of its retainer.
MRC and its employees and independent contractors may use the
MEDRite(R) software at any of its transcription stations.
3. COPIES OF SOFTWARE; RESTRICTION ON USE. Unauthorized
copying of the software, including forms of the software that may have been
modified, merged or included with other software, is expressly forbidden. MRC
may not modify the software in any way without the expressed written permission
of CRESCENDO. MRC may not allow any other person or entity to copy the
MEDRite(R) software or accompanying documentation. MRC may not give, sell or
otherwise distribute the MEDRite(R) software or accompanying documentation to
any other person or entity.
CRESCENDO shall supply MRC with diskettes at its own cost,
excluding shipping, duties and taxes, for each MRC office covered by this
agreement. Each set of diskettes shall include the MEDRite(R) program, including
the FAX interface, in an "Unlimited Network User Version", "Remote User Version"
and "Standalone Version", in addition to the "Medical Word List" and "Main Frame
Download Program" diskette. Each set shall contain five diskettes, serialized to
reflect the MRC office number destined to install the program. Each MRC office
must only make use of MEDRite(R) software which correctly reflects their office
number. MRC shall be permitted to copy or download the software for use by
authorized remote users and Clients.
4. INSTALLATION. CRESCENDO is responsible for providing the
initial medium (floppy diskette) for transfer of the software. The risk of loss
or failure of the transfer medium is on CRESCENDO until such time as the
software is installed and functioning properly. CRESCENDO shall deliver to MRC
the sets of diskettes containing the MEDRite(R) software, together with one set
of documentation for each set of diskettes, within ten (10) days of the signing
of this contract. MRC shall have the right to make additional copies of the
documentation, at its own expense, as needed for use at its various
transcription stations.
MRC shall furnish appropriate IBM compatible PCs, at its
expense for installation of the software. CRESCENDO is not responsible for the
condition of the hardware, either during or after the installation of the
software. However, CRESCENDO acknowledges that it is familiar with the hardware
utilized by MRC and hereby warrants that the software is compatible
- -------------------------------------------------------------------------------
Page 3
<PAGE> 4
with MRC's hardware and will run on that hardware. MRC is responsible for
installing all the software on its hardware and making it operational.
5. TRAINING. CRESCENDO has trained MRC head office personnel
in the use and operation of the software. CRESCENDO shall also provide training
in the use and operation of any modifications, updates or extensions of the
software that may be developed from time to time. This training shall be
provided at no charge to head office personnel at CRESCENDO's facilities in
Laval, Quebec, and at CRESCENDO discretion.
6. WARRANTY OF TITLE; COPYRIGHT INFRINGEMENT. CRESCENDO
warrants that it has good title to the software and the right to license its use
to MRC.
MRC shall promptly notify CRESCENDO of any action or claim
alleging that the software or MRC's use of the software violates the trade
secret, trademark, copyright, patent or other proprietary rights of any other
party, and further agrees to cooperate with CRESCENDO in the investigation and
resolution of the action or claim.
If CRESCENDO is so notified of a claim involving title or use
of the software, CRESCENDO shall indemnify and hold MRC harmless against any and
all such claims and shall defend same at its expense and shall pay any costs and
damages awarded, provided that CRESCENDO shall have sole control of the defense
of any action and all negotiations for its settlement or compromise.
CRESCENDO shall not be required to indemnify MRC against
damages arising from MRC's independent modification or conversion of the
software or for any use of the software after the termination of this contract.
At any time during the course of the litigation arising out of
a claim of infringement of a trade secret, United States patent or copyright or
other proprietary right, or, if in CRESCENDO's opinion the software is likely to
become the subject of such a claim, CRESCENDO shall, at its option and expense,
either procure for MRC the right to continue using the software, replace or
modify the software so that it becomes noninfringing.
7. WARRANTY; FITNESS OF USE. In the event that a programming
error attributable to CRESCENDO is found to exist in the software, then
CRESCENDO shall provide the services necessary to remedy such programming error,
either by replacing the software or by taking other appropriate action.
CRESCENDO shall use due diligence to correct all faults rated priority one or
two, which are deemed to mean "determined to cause major inconvenience, system
crashes, unexpected or incorrect results". All replaced programs shall become
the property of CRESCENDO on an exchange basis. THIS WARRANTY WILL NOT APPLY IF
SUCH ERROR CORRECTION IS REQUIRED BECAUSE OF MISUSE OR ALTERATION OF PRODUCT BY
MRC OR CAUSES OTHER THAN ORDINARY USE. Repair services will be rendered during
normal business hours, CRESCENDO shall have full and free access to the computer
equipment, software and printouts at MRC's place of business when performing
such services.
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Page 4
<PAGE> 5
The warranties set forth in this Contract are in addition to
and not in limitation of the service and training requirements set forth
elsewhere in this Contract.
It is agreed for purposes of compliance with this paragraph,
that CRESCENDO's documentation, and all modifications thereto, shall be utilized
by the parties as the standard for specifications for the system requirements
and functionality. The parties shall endeavour, if at all practicable, to use
the documentation references to determine fault origination as to intended
purposes versus perceived purpose.
8. LIMITATION ON DAMAGES. NEITHER CRESCENDO, NOR ANYONE ELSE
WHO HAS BEEN INVOLVED IN THE CREATION, PRODUCTION, OR DELIVERY OF THIS PRODUCT
SHALL BE LIABLE FOR ANY DIRECT, INDIRECT, CONSEQUENTIAL, OR INCIDENTAL DAMAGES
(INCLUDING DAMAGES FOR LOSS OF BUSINESS INFORMATION PROFITS, BUSINESS
INTERRUPTION, LOSS OF BUSINESS INFORMATION, AND THE LIKE) ARISING OUT OF THE USE
OR INABILITY TO USE SUCH PRODUCT.
9. PROPRIETARY RIGHTS. MRC acknowledges and agrees that the
MEDRite(R) software and all updates, modifications and extensions of that
software, including those updates, modifications and extensions created jointly
with MRC's assistance, remain the property of CRESCENDO and may be copyrighted
by CRESCENDO. MRC further acknowledges and agrees that the MEDRite(R) software
and all updates, modifications and extensions of that software, including those
updates, modifications and extensions created jointly with MRC's assistance, are
trade secrets of CRESCENDO.
10. NON-DISCLOSURE. During the course of this contract and
business relationship, CRESCENDO will have access to and become familiar with
various trade secrets, including patient records, customer and supplier list and
compilations of information, records and specifications, that are owned by MRC
and that are vital importance to MRC's business. Crescendo shall not disclose
any of these trade secrets, directly or indirectly, or use them in any way,
either during the term of this Contract or at any later time, except as required
in the course of its dealings with MRC. All patient records, data bases, files,
records, documents, lists, and similar items relating to the business of MRC
whether prepared by CRESCENDO or otherwise coming into CRESCENDO's possession,
shall remain the exclusive property of MRC.
ARTICLE III
-----------
SUPPORT AGREEMENT
-----------------
1. SUPPORT AGREEMENT. CRESCENDO shall make its employees
available for telephone consultations with MRC head office personnel to answer
questions or resolve problems that may arise from the use of the software.
Furthermore, this unlimited support shall include remote diagnostics and
troubleshooting when required.
This support shall be provide Monday to Friday, from eight
(8:00) a.m. to six (6:00) p.m. Eastern Standard Time, excluding statutory
holidays. Response time shall be a
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<PAGE> 6
maximum of two hours after receipt of call, except for cases that are beyond
CRESCENDO's control (such as bad weather or "acts of God").
The support agreement also entities MRC to and covers the cost
all updates and extensions to the software, excluding shipping, duties and
taxes, and unique software development specifically requested by MRC.
2. COST. MRC shall pay CRESCENDO Ten Thousand Dollars US
($10,000.00US) per year for support of the software. This fee is due upon
execution of this Contract and on each subsequent anniversary date of the
Contract and upon receipt of invoice. MRC shall continue to pay the cost of this
Support Agreement as long as this contract is enforced, as provided for in
"Article V, Paragraph 2 - License Period".
3. EXCLUSIONS. This support agreement does not include
replacement of data lost due to failure of hardware or software; MRC is advised
to "back-up" all data on an alternative storage medium in order to avoid
possible loss of data. This support agreement shall not apply if such program
servicing is required because of misuse or alteration of the software by MRC or
causes other than ordinary use.
4. WARRANTIES AND DAMAGES. Any replacement software or
modifications produced under this support agreement are subject to the same
warranties, rights of recovery, non-disclosure provisions and limitations on
damages as the original software licensed hereunder.
5. SOFTWARE MODIFICATIONS. CRESCENDO shall provide the same
program support for any modifications, updates or extensions of the software
developed from time to time.
6. SOFTWARE UPDATES. Crescendo acknowledges that from time to
time it will need to enhance and update the software so that it meets the ever
evolving needs of the medical transcription industry. CRESCENDO, at its option
may choose to undertake to modify or develop the software so that it meets the
changing needs of the medical transcription industry. CRESCENDO shall not be
limited to any particular platform, source code or database system in developing
additional software.
ARTICLE IV
----------
SOFTWARE DEVELOPMENT
--------------------
1. INTENT. Although MEDRite(R) is a complete product that
addresses the current needs of medical transcription services, these needs are
ever evolving. Needs may be changed by the addition of new clients, new
requirements for interfacing with mainframe computers or other special
requirements in the manner in which work is prepared and subsequently
transmitted or communicated. It is therefore the intent of the parties to
participate, one with the other, in developing additional transcription software
and to modify existing software in order to better serve the needs of MRC in a
competitive marketplace.
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Page 6
<PAGE> 7
CRESCENDO shall from time to time, develop products that
address different requirements in the medical records field. These products
which do not directly influence the transcribing or communication of reports are
NOT covered by this agreement. These additional products, not covered herein
include, digital voice recording or automated chart tracking and coding.
CRESCENDO may offer these products to MRC under a separate agreement and MRC may
choose to procure or license these products and services at some future time.
It is not the intent of the parties to this Contract to
cooperate in technology fields outside of medicine. Nothing herein is intended
to restrict CRESCENDO from independently pursuing development of software or
hardware technology in those fields.
2. UNIQUE DEVELOPMENT. From time to time, MRC will advise
CRESCENDO of the need for unique development in order to advance the software to
better meet the needs of it's clients. CRESCENDO, at its option may choose to
undertake to modify or develop the software so that it meets the changing needs
of MRC. CRESCENDO covenants that it will respond to MRC in a prompt and
forthright manner to each of its request for unique development. CRESCENDO also
covenants that when it agrees to a modification or development of additional
unique software specifically for MRC, it will employ its best efforts in a
diligent manner to provide MRC with the results. CRESCENDO covenants that it
will employ its best faith effort in a diligent manner to modify the software in
accordance with MRC's directives.
CRESCENDO shall not be limited to any particular platform,
source code or database system in developing additional software.
3: COST. The cost of developing and implementing unique
software developments, specifically requested and appropriately approved by MRC,
as referred to in "Article IV, Paragraph 2", will be borne solely by MRC. The
cost shall be Thirty-Five Dollars US ($35.00US) per hour of development.
4. PROPRIETARY RIGHTS. All software developed under this
agreement in cooperation with MRC shall be and remain the property of CRESCENDO
subject to MRC's right of use.
5. LICENSE. MRC shall be entitled to a license to use any
modifications, updates or extensions of the MEDRite(R) software under the same
terms and conditions as the original license.
6. NON-DISCLOSURE. Any updated or modified software produced
under this agreement is subject to the same warranties, rights of recovery,
nondisclosure provisions and limitations on damages as the original software
licensed hereunder.
7. INDEPENDENT CONTRACTOR. The parties agree that CRESCENDO
shall perform its duties under this agreement as an independent contractor, not
as an employee of MRC. CRESCENDO shall not have or claim any right arising from
employee status.
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<PAGE> 8
ARTICLE V
---------
COMPENSATION AND LICENSE PERIOD
-------------------------------
1. COMPENSATION. As compensation for the use of the MEDRite(R)
software, with the inclusion of Electronic Signature module and the two MRC
Payroll and Billing reports, MRC shall pay CRESCENDO a total fee of Two Hundred
and Fifty Thousand Dollars US ($250,000.00US).
MRC shall pay Fifty Thousand Dollars US ($50,000.00US) as an
initial payment upon execution of this Contract. An additional seventeen (17)
monthly payments of Eleven Thousand Seven Hundred and Sixty Four Dollars and
Seventy Cents US ($11,764.70US), starting with the first day of the second month
to cover the balance of the Two Hundred Thousand Dollars US ($200,000.00US).
MRC shall pay an additional Eight Thousand Dollars US
($8,000.00US) for future offices opened or acquired that are in addition to the
forty-one (41) offices included in Attachment "A" of this Contract. For any
additional offices opened or acquired between February 1, 1994 and July 31,
1995, amounts owned will only become due on August 1, 1995 at a rate of Eight
Thousand Dollars US ($8,000.00US) per month starting on the first day of the
nineteen month. For offices opened or acquired after July 31, 1995 that are in
addition to the forty-one (41) offices included in Attachment "A" of this
Contract, payment shall be upon receipt of invoice, though MRC shall be granted
terms so that a maximum of Eight Thousand Dollars US ($8,000.00US) per month is
paid. These payments shall continue until such time as all monies owned to
Crescendo have been paid.
2. LICENSE PERIOD; TERMINATION. This contract shall remain in
effect for a period of three (3) years after the effective date, subject to the
terms of this agreement, and shall automatically renew for successive one (1)
year periods unless terminated as provided herein by either party with ninety
(90) days advance written notice.
CRESCENDO may not terminate this agreement license except in
the case of nonpayment by MRC or violation of copyright by MRC.
Following termination of the Contract and payment to CRESCENDO
of all sums then due, the rights and duties of each party shall terminate,
except for those duties with respect to non-disclosure and trade secrets.
Termination of the license agreement also terminates the parties
responsibilities under the support and software development portions of this
Contract.
ARTICLE VI
----------
ESCROW PROVISIONS
-----------------
1. ESCROW. Crescendo hereby agrees to negotiate an ESCROW
agreement with MRC, that will allow for MRC to acquire the MEDRite source code,
all associated software, development tools, development environment and all
associated documentation (herein after referred to as "Source Code Materials")
should Crescendo be adjudicated bankrupt and cease to operate, or should
Crescendo or it's successors cease to support the MEDRite software as
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Page 8
<PAGE> 9
provided for in "Article II, Paragraph 7", "Article III, Paragraph 1" and
"Article IV, Paragraph 5". The parties shall use a mutually agreeable and
reputable ESCROW lawyer to conclude this provision. Crescendo shall update the
"Source Code Materials" at least once each calendar year. Should this ESCROW
agreement be executed MRC agrees that the acquired "Source Code Materials" may
only be used for the purposes of supporting it's business of providing
transcription services for it's clients.
2. TRAINING. Crescendo hereby agrees that under the terms of
the ESCROW provision that it will provide training to two (2) qualified MRC
employees in regards to the development methodology and development environments
used by Crescendo's development staff, in regards to the MEDRite software. This
training will be held at Crescendo's corporate offices and will be conducted by
key development personnel. A review of the "Source Code Materials" held in
ESCROW will be held at the same time. These training sessions are to be provided
at least once each calendar year and shall continue as long as this contract is
enforced, as provided for in "Article V, Paragraph 2 - License Period".
3. COST. The cost of the ESCROW agreement, the annual
maintenance cost of the ESCROW agreement and the cost of the ESCROW training
sessions shall be borne solely by MRC.
ARTICLE VII
-----------
GENERAL PROVISIONS
------------------
1. Any controversy or claim arising out of or relating to this
Contract shall be settled by arbitration conducted in accordance with the then
current Rules of the American Arbitration Association (the "Association"),
strictly in accordance with the terms of this Contract, and the substantive law
of the State of Ohio. The arbitration shall be held in Cleveland, Ohio and shall
be conducted by three (3) arbitrators. Each party shall select one (1)
arbitrator and the two (2) nominees shall select the third arbitrator. At least
one of the arbitrators shall be chosen from a panel of persons knowledgeable in
data processing and business information systems, and at least one (1) of the
arbitrators shall be an attorney. Judgment on an award rendered by the
arbitrators may be entered and enforced in any court of competent jurisdiction.
Neither party shall institute an arbitration proceeding until that party has
furnished to the other party, by certified mail, at least ten (10) days prior
to, written notice of its intent to do so.
Notwithstanding the foregoing provision, either party may
apply directly to a Court of competent jurisdiction, without proceeding through
arbitration, for an injunction, provided that the party must certify, under
oath, that the other party's breach is such that an immediate injunction is
required to preserve the status quo. Upon issuance of an injunction the Court
may then refer the matter to arbitration under this provision.
2. The prevailing party shall be entitled to a reasonable
attorney's fee together with the costs of any action brought in law or at equity
to enforce the provisions of the License Agreement.
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<PAGE> 10
3. Any notices required or permitted under this contract shall
be made in writing to the party at the address shown at the beginning of this
Contract or at any subsequent address that may be designated in writing from
time to time by that party.
4. This Contract is governed by the laws of the State of Ohio.
Venue shall be in the Cuyahoga County, Ohio.
5. This Contract shall be effective on February 1, 1994,
provided that both parties have executed this agreement in writing.
6. This Contract constitutes the entire agreement of the
parties and supersedes all prior arrangements and representations of the parties
relating to the subject matter of this Contract.
EXECUTED by MRC this 7th day of February, 1994.
MEDICAL RECORDS CORPORATION
By: /s/ Herbert L. Marcus
---------------------------------------
its, Vice President
EXECUTED by CRESCENDO this ____ day of February, 1994
CRESCENDO SYSTEMS CORPORATION
By:_______________________________________
its, President
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Page 10
<PAGE> 1
Exhibit 10.17
GREEN PARK BUILDING
LEASE
-----
This Indenture of Lease, made and entered into at Cleveland, Ohio, as
of this 1 day of January, 1998 between 3637 GREEN ROAD CO., LTD., an Ohio
Limited Liability Company, "Lessor" and MEDIFAX, INC., a Missouri corporation,
dba The MRC Group, "Lessee".
WITNESSETH:
LEASED PREMISES
- ---------------
1. Lessor hereby lets and leases unto Lessee, the premises described
as follows:
That portion of the GREEN PARK BUILDING ("Building") located at 3637
Green Road, Beachwood, Ohio and known as:
Unit #'s 1 and 2 of the front office area containing approximately 3722
square feet, and Unit #1 of the warehouse area containing
approximately 3912 square feet, and Unit #2-A of the warehouse space
containing approximately 1679 square feet.
The portion of the Building being leased hereunder is hereinafter
referred to as the "Leased Premises" and "Premises" and is outlined in blue
on the drawing attached hereto and made a part hereof as Exhibit "A". Lessor
represents that it is the owner of the Premises and that the portion thereof
being leased to Lessee is not currently under lease to any other party.
TERM
- ----
2. To have and to hold the Leased Premises for a term of Three (3)
years beginning on the commencement date which shall be on or before January 1,
1998 and ending on December 31, 2000. Provided however, that the term for Unit
#2-A of the warehouse area shall be for a period of one year that shall
automatically renew for the same one year term unless either party gives
written notice to the other no later than sixty (60) days prior to the end of
the then current term. The parties acknowledge that Lessee is currently in the
Premises and that the Premises are ready for occupancy except as may
hereinafter be set forth.
CONDITION OF THE PREMISES
- -------------------------
3. At the date of Lessee's occupancy, Lessee will inspect the Leased
Premises and is leasing the same in an "as-is" condition unless otherwise set
forth in writing as hereinafter provided. Lessor grants to Lessees an allowance
in the amount of Four Thousand Five Hundred dollars ($4,500.00) for remodeling
or replacing carpeting and doors and painting/wallpapering in the Premises.
Lessor shall not be obligated to grant any further allowances or to make any
further alterations to the Leased Premises unless agreed to in writing.
RENT
- ----
4. Lessee covenants and agrees to pay to Lessor, at such place as
Lessor may designate, as rent for said Leased Premises for and during the three
(3) year term of this Lease, the sum of Two Hundred Fifty-Four Thousand Four
Hundred Thirty-Six and 00/100 dollars ($254,436.00) to be paid as follows:
Commencing on January 1, 1998, twelve (12) equal monthly installments of Six
Thousand Seven Hundred and 00/100 dollars ($6,700.00) each, in advance, on the
first day of each calendar month. Commencing on January 1, 1999, twelve (12)
equal monthly installments of Seven Thousand Fifty-Five and 00/100 dollars
($7,055.00) each, in advance, on the first day of each calendar month.
Commencing on January 1, 2000, twelve (12) equal monthly installments of Seven
Thousand Four Hundred Forty-eight and 00/100 dollars ($7,448.00) each, in
advance, on the first day of each calendar month. If either party elects to
terminate the lease term for Unit #2-A of the warehouse area as provided
hereinabove, then the rent of the Leased Premises shall be reduced by Five
Hundred and 00/100 dollars per month during the remaining balance of the term of
this Lease. All installments of rent shall be paid during the said term without
deduction or setoff. All payments hereunder are to be made payable to Lessor at
3637 Green Road, Beachwood, OH 44122, or at such other place as the
<PAGE> 2
Lessor may designate in writing. All rent, charges and other payments not paid
to Lessor when the same become due bear interest at the rate of ten percent
(10%) per annum commencing on the sixth day after the rent, charges or other
payments are due. If the commencement date of this Lease is a day other than
the first day of the month, pro rata rent for the number of days remaining in
said month shall be paid by Lessee or Lessor on the commencement date.
SECURITY DEPOSIT
- ----------------
5. Upon the execution of this Lease, Lessee agrees to deposit with
Lessor the sum of ___________ to be held without interest to secure the
faithful performance of all of the covenants of the Lease and if the same have
been faithfully performed, said deposit shall be refunded at the expiration of
this Lease. If at any time the rent for the Premises is increased, the
security deposit shall be increased so as to equal a one month installment. In
the event of the sale of the entire building, Lessor shall have the right to
(i) transfer the security deposit of Lessee to the purchaser or mortgagee,
as the case may be, and thereupon Lessor shall be released and is hereby
released by Lessee from all liability for the return of such security deposit
and Lessee agrees to look to the new Lessor solely for the return of the
security deposit, or (ii) refund the security deposit to Lessee who hereby
agrees to immediately deposit the same with the purchaser or mortgagee. Lessee
hereby agrees not to assign or encumber or attempt to assign or encumber the
security deposit and Lessor shall not be bound by any such assignment or
encumbrance.
SERVICES
- --------
6. The Lessor shall provide to the Office area of the Leased Premises:
a. Such heat and air conditioning to maintain the Leased Premises
at comfortable temperatures appropriate to the use of Lessee and
the weather conditions prevailing twenty-four a day, seven days a
week.
b. Common washrooms, as required by local applicable codes.
c. Hot and cold water in reasonable amounts to the aforesaid common
washrooms and to the Leased Premises.
d. Adequate janitorial services, including said services to said
common washrooms and common areas. Said janitorial services shall
be furnished not more than five (5) days per week.
e. Window washing service as reasonably required.
f. Adequate parking spaces on the grounds appurtenant to Building
for the use, in common, with the other tenants of said building
and their employees and invitees.
g. Adequate snow removal service for the aforementioned parking
spaces and for all approaches thereto.
h. Provide during business hours reasonable illumination for all
parking areas and footways appurtenant to the Building.
i. Landscaping of the grounds appurtenant to the Building.
6A. The Lessor shall provide to the warehouse area of the Leases
Premises:
a. Adequate parking spaces on the grounds appurtenant to Building
for the use, in common, with the other tenants of said building and
their employees and invitees.
b. Adequate snow removal service for the aforementioned parking
spaces and for all approaches thereto.
2
<PAGE> 3
c. Hot and cold water in reasonable amounts to the Premises.
d. Landscaping of the grounds appurtenant to the Building.
UTILITIES
- ---------
7. With respect to the Office Area, Lessor shall supply electrical
current to the Leased Premises for lighting and other general office use
purposes.
Installation of special equipment such as x-ray, electronic and other
intermittent operating equipment shall first have the approval of the Lessor and
be subject to special charges and regulations. Any new or additional electric
facilities required to service equipment installed by Lessee, all changes in
existing electrical facilities in or service to the Premises required by the
Lessee, if permitted, and all electric lighting bulbs and tubes, shall be
installed and furnished at Lessee's expense. All expenses of maintenance and
cleaning of fluorescent lighting equipment located in the Lease Premises shall
be borne by Lessee.
Lessor does not warrant that any of the services mentioned above in
Paragraphs 6 and 7 will be free from interruptions caused by repairs, renewals,
improvements, alterations, strikes, lockouts, accidents, inability of Lessor to
procure such services or to obtain fuel or supplies, or other causes beyond the
reasonable control of Lessor. Any such interruption of service shall never be
deemed an eviction or disturbance of the Lessee's use and possession of the
Premises or any part thereof, or render the Lessor liable to the Lessee for
damages, or relieve the Lessee from performance of the Lessee's obligations
under this Lease.
Unless otherwise provided, Lessee to pay its pro rata share of
electricity and gas supplied to the Leased Premises in accordance to a ratio of
the amount of square footage occupied by lessee to the total square footage
covered by any and all electric and gas meters regulating said Leased Premises.
Such percentages may be adjusted by separate written agreements with co-tenants
covered under the same meters. All tenants sharing any meter are required to be
named on the billing statement of the appropriate utility. In the event that a
co-tenant vacates the building then Lessor shall pay for the gas or
electricity supplied to the vacant space to maintain Lessee's premises at a
comfortable level.
RESERVATION OF EASEMENT
- -----------------------
7.1 Lessor reserves a non-exclusive easement for access to Unit 2-A of
the warehouse area through that portion shown as the "Access Area" shaded in
blue on Exhibit A. Lessee may use such access area in common with the tenant
using Unit 2-B of the warehouse area. Each tenant shall keep the access area
free of obstructions.
PARKING
- -------
8. Lessee, its employees and invitees, shall have the right in common
with the other tenants in the building to parking areas. Lessor reserves the
right to establish rules and regulations in connection with the use of
driveways, parking areas, exterior service and delivery areas.
REAL ESTATE TAX ESCALATION
- --------------------------
9. If the real estate taxes, including special assessments for public
improvements, levied against the land and buildings of the Leased Premises
shall be increased for any reason whatsoever in any tax year during the term
hereof over the amount of such taxes due and payable for said building for the
year 1997 then Lessee shall pay to Lessor, within 15 days after being
billed therefore as additional rent without any deduction or setoff whatever,
an amount equal to 34.0% of such tax increase being Lessee's pro rata share,
(and further pro rated for the number of months that Lessee has occupied the
Leased Premises during the calendar year).
3
<PAGE> 4
OPERATING EXPENSE ESCALATION
- ----------------------------
10. In the event that the operating expenses (as hereinafter defined)
incurred by lessor during any lease year or part thereof pro rated for the
number of months that Lessee has occupied the Leased Premises shall be greater
than the operating expenses incurred by Lessor during the calendar year 1997,
then Lessee shall pay to Lessor as additional rent for the lease year in
question, within 15 days after being billed therefore, an amount equal to 34.0%
of the warehouse, office-warehouse share of such increase. For the purposes of
this paragraph "operating expenses" shall mean any or all expenses incurred by
Lessor with respect to the building of which the Leased Premises form a part
including but not limited to: wages of building personnel, service contracts
with independent contractors for the cleaning, maintenance and repair of the
building (interior and exterior), electricity, steam, utility taxes, water,
(including sewer rental and use), gas, casualty and liability insurance,
supplies, management fees, landscaping, parking lot maintenance, snow removal,
roof maintenance, and all other expenses paid in connection with the
operation of the building, excluding real estate taxes. Lessee shall be
obligated to pay only that pro rata portion of the increased operating expenses
attributable to the categories of space being leased as designated in Paragraph
1 herein.
Further, Lessee shall pay in amount equal to 53.00% of that portion of
additional expenses incurred on behalf of all front office tenants, including
but not limited to light fixtures, cleaning, maintenance, gas and
exterminating.
USE
- ---
11. Lessee agrees that the Leased Premises shall be used for the purpose
of general office use related to Lessee's core business and storage of related
materials and for no other purposes, and shall be used in a careful and safe
manner and in compliance with all local zoning ordinances; that no nuisance
or waste shall be committed or permitted upon or any damage be done to said
Premises and Lessee will pay on demand for any damage to the premises caused by
Lessee, Lessee's agents or other persons permitted by Lessee to occupy or use
the Premises or parts thereof. Based on Lessee's representations, Lessee's use
of the Premises will comply with the permitted zoning use for the City of
Beachwood.
UNLAWFUL USE
- ------------
12. Lessee shall not conduct or permit to be conducted upon said
Premises any business or permit any act which is contrary to or in violation
of any law or regulation of any and all governmental agencies, including the
Environmental Protection Agency, and the rules, regulations and requirements
that may be imposed by any such agencies and by insurance companies by which
the demised premises are insured, nor will Lessee use or allow the Premises to
be used in any way that will injure the reputation of the Premises, Lessor or
occupiers of the Building, nor will Lessee store or sell or permit to be sold or
stored therein any malt, spirituous or vinous liquors without the prior written
permission of Lessor. Lessee shall not use or permit the demised premises to be
used for any unlawful or illegal business purposes or any purposes which will
invalidate or be in conflict with any fire insurance policy or increase the
rate of fire insurance covering the Building, and in addition, will comply, at
Lessee's expense, with all governmental regulations concerning the proper use,
disposal and ventilation of hazardous, toxic or flammable materials, and shall
not do or permit to be done anything upon the Premises which might subject
Lessor to any liability of responsibility for injury to person or property by
reason of any business operation carried on the Premise or for any other
reason. In no event shall any explosives, extra hazardous or inflammable
material be taken or retained in the Premises.
RESERVED RIGHTS
- ---------------
13. Lessor reserves the following rights:
a. To change the name or street address of the building or of the door
number of the premises, without liability of Lessor to Lessee.
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<PAGE> 5
b. To enter during the last ninety (90) days of the term, at reasonable
times with responsible notice. For the purpose of displaying the Leased
Premises to prospective tenants.
c. To establish rules and regulations as, in its sole judgement, may from
time to time be deemed appropriate for the safety, care, cleanliness and
welfare of the building and its tenants.
Lessor may exercise any or all of the foregoing rights hereby reserved to
Lessor without being deemed guilty of any eviction or disturbance of Lessee's
use and possession and without being liable in any manner to Lessee and without
elimination or abatement of rent, or other compensation, and such acts shall
have no effect upon this Lease.
REPAIRS BY LESSOR
- -----------------
14. Lessor shall maintain the exterior of the Lease Premises, including
the roof, the foundation and the structural portion thereof and the heating and
plumbing systems and fixtures all in good repair, except such as may be
required thereto by reason of the negligent acts of the Lessee or it's agents
or invitees. Lessor shall make all necessary repairs to parking areas, service
driveways, sidewalks and equipment for lighting parking areas.
REPAIRS BY LESSEE; ALTERATIONS
- ------------------------------
15. Lessee shall take good care of the Leased Premises and all
improvements thereon and shall immediately keep the same in good condition and
repair and in compliance with all building and fire codes. Lessee shall
forthwith make good any injury or breakage done by anyone therein. Lessor makes
no other representation as to the condition of the Premises. Lessee will make no
alterations in or additions or improvements to the Premises without first
obtaining the written consent of Lessor, and all additions and improvements
made by Lessee (except only movable office furniture, equipment and fixtures)
shall become the property of Lessor on the termination of the Lease. Lessee
shall comply with the directions of public officers and all ordinances
immediately upon taking possession of the Premises as to the maintenance of the
Premises and shall comply with all health, building and police regulations
applicable to or affecting the interior of the Premises. A lessee of the
office-warehouse area and the warehouse area shall maintain the heat for such
areas at minimum temperatures to prevent freezing of the pipes.
15.1 Notwithstanding anything to the contrary contained in Ohio Revised
Code Section 1311.10 or in this Lease, Lessee's shall not deemed to be a
partner, member, joint venturer or agent of Landlord; and in no event shall any
lien resulting from Lessee's improvements to the Premises encumber Lessor's
underlying fee simply estate. Lessee agrees that it shall not enter into any
contract for improvements to the Premises unless the following language is
included in such contract:
"Notwithstanding anything herein contained to the contrary, the contractor
acknowledges that [fill in name by which Lessee contracts] holds only a
leasehold interest in the property which is the subject of this contract.
[fill in name of by which Lessee contracts] is not the agent of the owner
of the property, an no lien resulting from work performed under this
contract shall attach to the interest of such owner."
Lessee shall not permit any work to be commenced until such time as Lessee has
provided Lessor with a fully executed copy of the construction contract
evidencing incorporation of the aforesaid language. In addition prior to the
commencement of, Lessee shall post the following notice in a conspicuous place
on the Premises, and shall assure that such notice is maintained throughout the
entire course of construction:
NOTICE TO CONTRACTORS, SUBCONTRACTORS,
--------------------------------------
MATERIALMEN AND LABORERS
------------------------
Notice is hereby given that work on [description of job] is being
5
<PAGE> 6
performed for [name by which Lessee contracts]. [name by which Lessee
contracts] is not a the agent of the owner of this property, and any
lien rights shall be limited to the leasehold estate of [name by
which Lessee contracts] and shall in no event attach to the interest of
the owner.
REMOVAL OF
LESSEE'S
PROPERTY 16. All furnishings, trade fixtures and other equipment
installed in the premises by Lessee and paid for by Lessee shall be removed
by Lessee upon termination of this Lease, and Lessee shall at its own
expense repair any damage caused by removal of any of such as are affixed
to the premises and require severance
Any and all property of the Lessee which the Lessee fails to
remove after the termination of this Lease may be handled, removed, stored
or otherwise disposed of by the Lessor at the risk and expense of the
Lessee, and the Lessor in no event shall be responsible for the
preservation or safekeeping thereof. The Lessee shall pay to the Lessor,
upon demand in writing, any and all expenses incurred by such removal and
all storage charges incurred with respect to such property. If any
property shall remain in the leased premises or in the possession or
under the control of the Lessor and shall not be retaken by the Lessee
within a period of thirty (30) days from and after the time when the
premises are either abandoned by the Lessee or re-entered by the Lessor
under the terms of this Lease, said property shall conclusively by deemed
to have been forever abandoned by the Lessee.
SIGNS 17. Lessee may not erect any sign, advertisement or notice,
except as approved by Lessor in writing, as to the size, type and location
thereof, and except as conforms to and meets all the requirements of
state, county and local authorities, and same shall be maintained by
Lessee.
INDEMNITY
---------
18. Lessee shall indemnify, pay and save harmless Lessor from all
liability, damage, expense, cost of actions, suits legal fees, claims
and/or judgments arising from injury to person or property or to or upon
so much of the Leased Premises as is within the exclusive control of the
Lessee, arising out of, in connection with or relating to any use or
occupation of said Premises by Lessee. Lessee shall at its own expense,
defend all suits brought against Lessor or in which Lessor is joined with
others upon any such claim or claims and will satisfy, pay and discharge
all judgments recovered against Lessor, in any such actions. Lessee shall
carry and pay for public liability insurance in limits of at least One
Hundred Thousand Dollars/Three Hundred Thousand Dollars
($100,000.00/$300,000.00) for injury or death and One Hundred Thousand
Dollars ($100,000.00) for property damage and shall deposit memorandum
copies or certificates of said policy with Lessor, and Lessor shall be
named as an additional insured therein. All such policies shall provide
that they may not be cancelled without at least ten (10) days prior written
notice to the Lessor by either Lessee or the Insurer.
NON-LIABILITY
-------------
19. Unless caused by the fault of the Lessor, Lessor shall not be
liable for any damage occasioned by reason of the construction of the
premises. Lessor shall not be responsible for any damage occasioned by the
failure to make required repairs unless written notice of the need for
such repairs has been given by Lessee to Lessor, a reasonable time after
Lessee learns of the need of such repairs has elapsed and Lessor has
failed to make such repairs.
6
<PAGE> 7
WAIVER OF 20. Provided and so long as the provisions of this paragraph
SUBROGA- do not result in the invalidation or cancellation of the fire and
TION extended coverage or additional perils insurance policies on the
building or constitute a defense to any claim for loss under said
policies, Lessor and Lessee agree to and by these presents do hereby
waive all rights of recovery and causes of action against Lessee and
Lessor respectively, and their officers, employees, servants, agents,
invitees, and all parties claiming through or under the Lease, for
any damage to or destruction of the leased premises caused by any of
the perils insurance policy of Lessor and/or Lessee respectively
notwithstanding the fact that said damage shall be due to the
negligence of any or all of the parties in whose favor this agreement
operates.
DESTRUCTION OF PREMISES
-----------------------
21. If the Leased Premises shall be destroyed or so injured by any
cause as to be unfit, in whole or in part for occupancy, and such
destruction or injury can reasonably be repaired within ninety (90) days
from the happening of such destruction or injury, then Lessee shall not be
entitled to terminate this Lease, Lessor thereupon shall proceed to
repair the Leased Premises with all reasonable speed, and if during such
period, Lessee shall be unable to use all or any portion of the Leased
Premises, there shall be a proportionate reduction in the rent due from the
Lessee to the Lessor. (In addition to simple physical access, use also
shall mean to conduct business activity, typical of Lessee's use prior to
such destruction or injury) If the
VACATION 22. Lessee shall deliver up and surrender to Lessor
OF possession of the leased premises upon the expiration of the
PREMISES Lease or its termination in any way in as good condition and repair as
the same shall be at the commencement of said term (loss by fire or
other casualty covered by the standard extended coverage insurance
policy and ordinary wear and tear only excepted) and deliver the keys
at the office of Lessor or Lessor's agent.
HOLDING 23. Should the Lessee remain in possession of the leased
OVER premises after the date of the expiration of this Lease, Lessee shall
be a tenant from month to month, and such tenancy shall be otherwise
subject to all the conditions and covenants of this Lease.
WAIVER AND 24. No waiver of any condition or legal right or remedy
WASTE shall be implied by the failure of Lessor to declare a forfeiture, or
for any other reason, and no waiver of any condition or covenant shall
be valid unless it be in writing signed by Lessor. No waiver of Lessor
in respect to one tenant of the building in which the leased premises
are located shall constitute a waiver in favor or a breach of any
condition claimed or pleaded or excuse a future breach of the same
condition or covenant or any other condition or covenant.
Lessee covenants and agrees not to commit any waste in or upon
any portion of the leased premises or of the Building.
7
<PAGE> 8
LIEN OF 25. Lessor shall have the first lien, paramount to all
LESSOR others, upon every right and interest of Lessee in and to the
leased premises and all additions or improvements now or hereafter
placed thereon for the purpose of securing the payment of rent and
other moneys covenanted to be paid by Lessee, and to secure the
performance of all the obligations of this Lease to be performed
and observed by Lessee; and it is especially agreed, notice hereby
given to that effect, that no contract, transfer, assignment,
mortgage, judgment, mechanic's lien or other lien arising out of
transactions with the Lessee shall in any manner affect the title
of the Lessor in the leased premises or its interest under this
Lease, or take precedence over the rights, interest and first lien
of the Lessor hereunder.
CUMULATIVE 26. All rights and remedies of Lessor under this Lease
REMEDIES shall be cumulative and none thereof shall exclude any other rights
or remedies provided for herein or allowed afforded by law.
MECHANICS' 27. If, because of any act or omission of Lessee, or
LIENS anyone claiming through or under Lessee, an mechanic's lien or
other lien or order for the payment of money shall be filed
against the demised premises or the building or buildings of which
the leased premises are a part, or against Lessor (whether or not
such lien or order is valid or enforceable as such), Lessee shall,
at Lessee's own cost and expense, cause the same to be cancelled
and discharged of record within sixty (60) days after the date of
filing thereof, and shall also indemnify and save harmless Lessor
from any and all costs, expenses, claims losses or damages,
including reasonable counsel fees, resulting therefrom or by
reason thereof.
SUBLETTING 28. Lessee, Lessee's heirs, executors, administrators
AND successors, assigns and legal representatives shall not assign,
ASSIGNMENT transfer, mortgage, pledge or encumber this Lease or sublease
the leased premises or any part thereof, without Lessor's consent
in writing first having been obtained which consent shall not be
unreasonably withheld. No assignment for the benefit of creditors
or by operation of law, nor any assignment or underletting by the
heirs, executors, administrators, legal representatives or
successors of Lessee, as the case may be, shall be effective to
transfer any rights to the said assignee without the written
consent of Lessor fist have been obtained.
WORDS 29. Whenever the words "Lessor" or "Lessee" are used in
"LESSOR" this Lease, they shall be construed to include not only the
AND original parties by their respective permitted legal
"LESSEE" representatives, successors and assigns, and all the terms,
covenants, benefits and/or conditions herein set forth, performed
and derived and/or to be performed and derived by either or any of
the parties hereto shall inure to and be binding upon their or its
heirs, legal representatives, successors and/or assigns.
CONDEMNATION 30. If the land upon which the demised premises are
situated and/or the building shall be taken or condemned for a
public or quasi-public use before the termination of this Lease,
then and in that event upon such taking, this Lease shall terminate
and be and become at an end, as to so much of the leased premises
as shall have been taken, and the rent shall be apportioned and
paid by Lessee up to the date of such taking,
8
<PAGE> 9
and any repairs or improvements which may have been made by Lessee
upon the leased premises shall be and remain the property of
Lessor and Lessee shall have no right to part or all of any
compensation or award paid or payable by reason of such taking and
Lessee shall have no claim against Lessor by reason thereof.
Lessee hereby assigns to Lessor all of Lessee's rights, title and
interest in and to any and all amounts awarded or paid by reason of
such taking.
MORTGAGE 31. Lessee covenants and agrees, in the event any
FORE- proceedings are brought for the foreclosure of any mortgage, to
CLOSURE attorn to the purchaser upon any such foreclosure sale and to
recognize such purchaser as the Lessor under this Lease. Lessee
agrees to execute and deliver at any time and from time to time,
upon the request of Lessor or of any such holder, any instrument
which, in the judgment of Lessor, may be necessary or appropriate
in any such foreclosure proceeding or otherwise to evidence such
attornment.
DEFAULT 32. If Lessee shall at any time be in default of the
payment of rent, charge or other payments hereunder for a period
of ten (10) days from the due date of the same or if Lessee shall
at any time be in default of performance of any of the conditions
and obligations of this Lease, other than the payment of moneys
hereunder, and shall fail to remedy such defaults within thirty
(30) days after written notice thereof from Lessor to Lessee, or
if Lessee shall be declared insolvent or a bankrupt or shall make
an assignment for the benefit of creditors, or if a receiver of any
property of Lessee in or upon the premises be appointed in any
action, suit or proceeding by or against Lessee, or if the
interest of Lessee in the leased premises shall be levied upon or
sold under execution or other legal process, or if Lessee shall
file a petition to be declared insolvent or a bankrupt or for the
appointment of a receiver, whether under the operation of state or
federal statutes, Lessor may, at its option, immediately and
without further notice to Lessee, or any successor, assignee,
transferee, receiver, trustee, heir, executor, administrator,
agent, representative or any other person or persons, terminate
this Lease, and immediately retake possession of said premises,
using such force as may be necessary without being deemed guilty
in any manner of trespass or forcible entry or detainer, or,
without terminating this Lease, Lessor may re-enter the premises
by summary proceedings or otherwise, and in either event may
dispossess Lessee. In the event of such re-entry, Lessor may
re-let the leased premises or any portion thereof and apply the
rent therefrom first to the payment of Lessor's expense incurred
by reason of Lessee's default and the expenses of re-letting and
then to the payment of rent and all other sums due from Lessee
hereunder, Lessee remaining liable for any deficiency. If Lessor,
in lieu of terminating this Lease by reason of the default of
Lessee, as aforesaid, elects to re-enter the premises and take
possession of same, it shall have the right to do so without
demand or notice, and may take possession of the same and remove
all persons and property any signs of Lessee therefrom, using such
force as may be necessary, and in any such event Lessor shall have
the right to let, sublet and re-let the leased premises or any
portion thereof from time to time for and during the unexpired
9
<PAGE> 10
period of the term hereby demised, without notice to Lessee,
and to receive and collect the rents and other income
therefrom. For the purpose of such re-letting or subletting,
Lessor is authorized to make any repairs, changes, alterations
or additions in or to said leased premises as may be
necessary in the opinion of Lessor, and if a sufficient sum
shall not be realized from such subletting or re-letting
after paying all of the costs and expenses of such repairs,
changes, alternations and additions and the expense of
such re-letting or subletting and the collection of rent
accruing therefrom each month to equal the monthly rental and
other sums above stipulated to be paid by the said Lessee,
then Lessee will pay such efficiency each month upon demand
therefor.
TAKING OF 33. Taking of possession by Lessee shall be
POSSESSION conclusive evidence against Lessee that the leased premises
BY LESSEE were in good order and satisfactory condition when Lessee
took possession. No promise of Lessor to alter, remodel or
improve the leased premises or the building, and no
representation respecting the condition of the premises or
the building have been made by Lessor to Lessee, unless the
same is contained herein, or made a part hereof. This Lease
does not grant any rights to light or air over the property;
and Lessor shall not be liable to the Lessee for any expense,
injury, loss or damage resulting from work done in or upon,
or by reason of, the use of any adjacent or nearby building,
land, street or alley.
RECORDING 34. This Lease shall not be recorded by Lessee, but a
short form or statutory notice of Lease describing the
property herein demised, giving the term of this Lease
and referring to this Lease, may be executed, and may be
recorded by either party.
NOTICES 35. In every instance where it shall be necessary or
desirable for the Lessor to serve any notice or demand upon
the Lessee, such notice or demand shall be deemed
sufficiently given or made if in writing and given to Lessee
or left at the premises or sent by United States registered
or certified mail, postage prepaid, return receipt
requested. If mailed the same shall be addressed to the
Lessee at the Building, or if left at the premises the same
shall be addressed to Lessee, and the time of the making or
giving of such notice or demand shall be deemed to be the
time when the same is delivered to Lessee, mailed, or left at
the premises as herein provided. Any notice by Lessee to
Lessor must be served by United States registered or
certified mail, postage prepaid, return receipt requested,
addressed to the Lessor at the address where the then last
previous payment of rent hereunder was paid and such notice
shall be deemed to be given when the same is mailed.
QUIET 36. Lessor hereby covenants and agrees that if Lessee
ENJOYMENT shall perform all the covenants and agreements herein
stipulated to be performed on Lessee's part, Lessee shall
at all times during the continuance hereof have the peaceable
and quiet enjoyment and possession of the leased premises
subject to the provisions and conditions of this Lease.
[ ] 37. In the event of a sale or lease of the entire
Building by the entity initially named as Lessor hereunder
(exclusive of its successors and assigns), or in the event a
mortgagee assumes possession of the Building, said entity
shall be and hereby is entirely freed and relieved of all
covenants
10
<PAGE> 11
and obligations of Lessor hereunder, and it shall be deemed
and construed without further agreement between the parties or
their assigns or successors in interest, or between the
parties and such purchaser, lessee or mortgagee, as the case
may be, that such purchaser, lessee or mortgagee has assumed
and agreed to carry out any and all covenants and obligations
of Lessor hereunder.
Lessee hereby agrees that no partner or member of
Lessor, nor their heirs, administrators, successors or
assigns, shall have any partnership, membership or other
personal liability under this Lease and that no deficiency or
other personal judgment shall be rendered against them, or any
one or more of them, in any action or proceeding brought on
the Lease and that the Lessee shall look solely to the
Building, as the same may then be encumbered, for the
satisfaction of any judgment obtained by Lessee against
Lessor.
SUBORDIN- 38. The Lessor shall have the right at any time and
ATION OF from time to time to place upon the Building or land upon
LEASE which the Building is situated or upon any underlying
leasehold rights with respect thereto shall be wholly prior
to the rights of the Lessee. The Lessee agrees, at the option
of the mortgagee, to attorn to such mortgage provided that at
the same time the mortgagee enters into an agreement not to
disturb the Lessee's possession provided this Lease is not in
default. This provision shall be self-executing without the
necessity of the future execution of documents of
subordination. However, in order to confirm the provisions of
this Paragraph, Lessee agrees to execute any and all
instruments deemed by the Lessor necessary or advisable to
confirm the subjection and subordination this Lease and of all
rights of the Lessee to such mortgage or mortgages. In the
event that Leasee shall refuse to execute any such
instruments, the Lessee does hereby irrevocably nominate and
appoint Lessor as Lessee's agent and attorney-in-fact to
execute on behalf of Lessee such instruments or documents and
Lessee does hereby confirm and ratify any instruments so
executed by virtue of this power of attorney.
ESTOPPEL 39. At any time and from time to time, Lessee agrees,
CERTIFI- upon request in writing from Lessor, to execute, acknowledge
CATES and deliver to Lessor 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 modifications) and the
dates to which the rent and other charges have been paid.
BROKERAGE 40. Lessee warrants that it has had no dealings with
any broker or agent other than Lessor's personnel in
connection with this Lease and covenants to pay, hold harmless
and indemnify Lessor from and against any and all cost,
expense or liability for any compensation, commissions and
charges claimed by any broker or agent other than Lessor's
personnel with respect to this Lease or the negotiation
thereof.
RULES AND 41. A copy of the rules and regulations of the
REGULATIONS Building is attached hereto and made a part hereof as fully as
though herein rewritten. Lessee grants to Lessor the right to
make such changes therein and additions thereto from time to
time as in Lessor's judgment may be necessary for the
interest, safety, care and cleanliness of the premises, the
Building, the parking lot or lots and driveways and for the
preservation of good order therein and thereon. Lessee agrees
to comply with and abide by all such rules and regulations
including all amendments and additions thereto.
12
<PAGE> 12
42. This Lease contains the entire agreement between the
parties, and any other agreement hereafter made shall be ineffective to
change, modify or discharge it in whole or in part unless in writing
and signed by the party against whom enforcement of the change,
modification or discharge is sought. The paragraph titles are inserted
only as a matter of convenience and for reference and in no way define,
limit or describe the scope or intent of this Lease nor in any way
affect this Lease. The invalidity of one or more phrases, sentences, or
paragraphs of this Lease shall not affect the remaining phrases,
sentences or paragraphs or the remaining provisions of this Lease and
in the event that any one or more thereof shall be contrary to statute
or declared invalid by the final order, decree or judgment of a court
of competent jurisdiction, this Lease shall be construed as if the
same had not been inserted herein.
OPTION TO RENEW
---------------
43. Provided that Lessee is not in an uncured default in the
performance of any of the covenants, agreements, conditions or
provision of this Lease, and further provided that Lessor has not
notified Lessee of such uncured default, Lessee shall have an option to
renew this Lease for an additional two (2) years ("Renewal Term") upon
the same terms, covenants, agreements, conditions or provisions as now
set forth herein except that the rent as set forth in the first
paragraph of Item 4. hereinabove shall be at the sum of One Hundred
Ninety-Five Thousand Two Hundred Sixty-Four and 001/00 dollars
($195,264.00) to be paid as follows: Commencing on January 1, 2001,
twelve (12) equal monthly installments of Seven Thousand Nine Hundred
and Fifteen and 00/100 dollars ($7,915.00) each, in advance, on the
first day of each calendar month. Commencing on January 1, 2002, twelve
(12) equal monthly installments of Eight Thousand Three Hundred
Fifty-Seven and 00/100 dollars ($8,357.00) each, in advance, on the
first day of each calendar month. If either party elects to terminate
the lease for the space for Unit #2-A of the warehouse area as
hereinbefore provided either prior to or during the Renewal Term, then
the rent for the Leased Premises shall be reduced by Five Hundred and
Fifty 00/100 dollars ($550.00) per month during the remaining balance
of the Renewal Term of this Lease. This Option To Renew must be
exercised no later than 180 days prior to the expiration of the
original term, by Lessee giving written notice to Lessor of Lessee's
intent to exercise the Option To Renew this Lease.
IN WITNESS WHEREOF, the parties hereto have caused this
instrument to be signed on the day and year first above written.
IN THE PRESENCE OF: 3637 GREEN ROAD CO., LTD
an Ohio Limited Liability Company
"Lessor"
/s/ ????? /s/ ????
----------------------- --------------------------------
Howard ????, Member
/s/ Seth B. Marks /s/ ?????
----------------------- --------------------------------
Seth B. Marks Stuart ????, Member
MEDIFAX, INC. dba The MRC GROUP,
INC. a Missouri Corporation
/s/ Wendy ???? /s/ Steve Bell
----------------------- --------------------------------
Wendy ?????? STEVE BELL "Lessee"
its Chief Financial Officer
/s/ Vicki Solomon
------------------------
VICKI SOLOMON
13
<PAGE> 13
State of Ohio ]
] SS.
Cuyahoga County ]
BEFORE ME, Notary Public, in and for said County and State, personally
appeared Stuart T. Barber and Howard Greene, personally known to me, who
acknowledged that they did executed the foregoing Lease and that the same is
their free act and deed.
In Witness Whereof, I have hereunto set my hand and seal at Beachwood,
Ohio, this 3 day of February, 1998.
/s/Seth B. Marks
---------------------------
Notary Public
SETH B. MARKS, ATTORNEY
State of OHIO ] NOTARY PUBLIC
] SS COMMISSION HAS????
Cuyahoga County ] SECTION 147.03 0.R.C.
BEFORE ME, Notary Public, in and for said County and State, personally
appeared STEVE Bell, personally known to me, who acknowledged that they did
executed the foregoing Lease and that the same is their free act and deed.
In Witness Whereof, I have hereunto set my hand and seal at Cuyahoga, OH,
this 3 day of February, 1998.
/s/ Ja'Nece Robinson
-----------------------------
Notary Public
This Document Prepared by:
Seth B. Marks, Esq.
Beachwood, OH 44122
216-292-2600
/s/ Ja'Nece Robinson
Term Ending Jan 14, 2003 -----------------------------
JA'NECE ROBINSON
<PAGE> 14
RULES AND REGULATIONS
---------------------
OF
--
GREEN PARK BUILDING
-------------------
(1) No sign, fixture, advertisement or notice shall be displayed,
inscribed, painted or affixed by any Lessee on any part of the
outside or inside of the Building or on or about the premises
without prior written consent of the Lessor and then in
such event the sign, fixture, advertisement or notice shall be
only of such color, size, style and material as shall be first
specified by Lessor, and the same shall only be constructed,
installed and/or affixed at Lessee's cost and risk.
(2) The sidewalks, entrances, passages, and staircases shall not be
obstructed or used for any purpose other than ingress and egress.
(3) The Lessees shall not install or permit to be installed any
shades, blinds or draperies unless Lessor shall have given its
prior written consent which shall specify the color, material,
shape, style and size of the shades or blinds to be installed. No
awning or screen shall be installed by Lessee. All draperies in the
premises shall be lined in white drapery lining material and all
drapery rods and hardware shall be affixed only to wood window
casings unless Lessor otherwise consents in writing.
(4) The Lessee shall not nail or bore or screw into the woodwork
or plaster, nor shall any painting be done by the Lessee without the
Lessor's written consent being first obtained.
(5) All glass, locks and trimmings in or above the doors or windows and
all electric globes and shades belonging to the Building shall be
kept whole and whenever broken by any Lessee shall be immediately
replaced or repaired which shall be done by the Lessor at Lessee's
expense.
(6) No additional locks shall be placed upon any door of the premises and
Lessee will not permit any duplicate keys to be made, but if more than
two (2) keys for any door are desired, the additional number must be
procured from Lessor and paid for by Lessee. Upon the termination
of the tenancy, Lessee shall surrender to Lessor all such keys.
(7) [Intentionally left blank]
<PAGE> 15
(8) The Lessor retains the power to prescribe the weight and proper
positions of safes; and all safes or furniture, boxes and bulky
articles and packages shall be taken into or out of the Building or
from one part of the Building to another part only at times prescribed
by the Lessor, and each Lessee shall be responsible for all damage to
the walls, floors or other parts of the Building caused by or
resulting from any such moving by Lessee or caused by any safe,
furniture, boxes or bulky articles of Lessee. No moving in or out by
Lessee shall occur without the prior written consent of the Lessor in
each instance. No engine or other machinery other than general office
equipment shall be put upon the premises of any Lessee without the
express written prior consent of the Lessor.
(9) The Lessee shall not do or permit anything to be done in the premises
or bring or keep anything therein which will in any way increase the
rate of fire insurance on the Building, or on property kept therein;
nor shall Lessee do or permit anything which will be dangerous to life
or limb or which will tend to create a nuisance or injure the
reputation of the Building or obstruct or interfere with the rights of
other tenants or Lessor, or in any way which would injure or annoy
them or conflict with any of the rules or orders of the health
authorities or with the statutes of the State of Ohio or the United
States or ordinances of the City of Beachwood or which would use the
premises for any illegal or immoral purposes.
(10) The Lessee shall instruct his agents, employees, contractors, guests
and invitees not to use the hallways, corridors or stairwells for
loitering, lounging or public gathering.
(11) The doors, windows and transomes that reflect or admit light into
passageways or into any common area way in said Building shall not be
covered or obstructed by Lessee. The water closets and other plumbing
apparatus shall not be used for any purpose other than for which they
were constructed and no sweepings, rubbish, rags or other substances
shall be thrown therein. Any damage resulting to them from such use
shall be borne by the Lessee who causes same.
(12) Nothing shall be thrown by the Lessee, his agents, invitees,
contractors, employees or guests out of the windows or doors or down
the passages of the Building or upon the parking lots.
(13) The Lessee and his employees, agents, contractors, invitees and guests
are not to injure or deface the Building, nor the woodwork and walls
of the premises, nor to conduct in the Building obnoxious, noisy or
offensive business or a nuisance, nor to conduct an auction therein.
(14) No room or rooms shall be occupied or used as sleeping or lodging
apartments.
-2-
<PAGE> 16
(15) Water shall not be wasted by tying or wedging back faucets or
otherwise.
(16) Lessee must not leave their windows open when it rains or snows or
when leaving the premises at the close of business or when the
premises are unoccupied at any time; and at all such times the Lessee
shall close windows and lock doors and for any default or carelessness
in these respects or any one of them the Lessee shall make good all
injury sustained by other tenants and by the Lessor for damages
resulting from such default or carelessness. No windows shall be left
open when air conditioning is in operation.
(17) No bicycle, cart or vehicle, and no animal, shall be allowed in any
part of the Building without the prior written consent of the Lessor.
(18) Lessee shall not accumulate or store in the premises any waste paper,
discarded records, books, paper files, sweepings, rags, rubbish or
combustible material, unless the same is stored in steel cabinets and
is well protected from any external combustion.
(19) The Lessor reserves the right to exclude from the Building all drunken
and disorderly persons, idlers, peddlers, solicitors and persons of
similar character and the Lessor reserves the right to exclude persons
entering in crowds or in unusual number so as to cause inconvenience
to the other tenants of the Building.
-3-
<PAGE> 17
[Schematics of Warehouse and Office]
WAREHOUSE
3637 GREEN RD.
BEACHWOOD, OHIO
<PAGE> 1
Exhibit 10.18
THE MRC GROUP
1998 INCENTIVE COMPENSATION PLAN
--------------------------------
Purpose: The 1998 Incentive Compensation Plan of The MRC Group (MRC),
- ------- effective January 1, 1998, is intended to promote significantly
increased profitability and achievements and to reward designated
members of the management team for their contributions to the
success of the Company.
1. Incentive Compensation Plan Annual Targets (based on Income
Targets, or Growth, & Production. Cost /Std.Unit, etc.) will be
established at each of the following levels:
* Consolidated Company
* Groups (East, Central, & West)
* Regions
* Client Service Centers (formerly called branches)
Targets may be changed due to such things as acquisitions,
organizational changes, etc.
2. (a) Regional Managers, Regional Technical Managers and Client Service
Center Managers who meet or exceed their Incentive Compensation Plan
targets will be paid one third (1/3) of their eligible annual
Incentive Compensation income, even if the consolidated company does
not achieve its 1998 budgeted target.
(b) All other participants will be paid one third (1/3) of their annual
Incentive Compensation, based on the following:
i. The consolidated company must achieve its target.
ii. The participant's Group must achieve its target before any
Incentive Compensation may be paid to any member of the Group.
iii. Available funding from the Company exceeding the 1998 budgeted
targets.
<PAGE> 2
3. Payment of the remaining two thirds (2/3) of each participant's
eligible incentive compensation is discretionary, based on the overall
achievement of the consolidated company, including available funding,
recommendation of the Management Committee and approval of the
Compensation Committee of the Board of Directors.
4. Incentive Compensation Plan payment priority is as follows:
a) Regional Managers, Regional Technical Managers, and Client
Service Center Managers at one third (1/3) of their Incentive
Compensation, in accordance with Paragraph #2 (a).
b) All Other Plan Participants up to one third (1/3) of their
Incentive Compensation, in accordance with paragraph #2 (b).
c) All Plan Participants up to two thirds (2/3) of their Incentive
Compensation, in accordance with Paragraph #3.
5. Each participant's eligible incentive compensation is limited to an
amount equal to the participant's annual base salary (amount of base
salary actually PAID during 1998) multiplied by the participant's
assigned bonus percentage.
6. To be eligible, participants must be employed (as regular, active,
full-time employees) by The MRC Group at the time of Incentive
Compensation Plan payment.
7. Total Incentive Compensation payable under the Plan will be limited to
the aggregate of the eligible bonus amounts for all participants in
the Plan. Payment of Incentive Compensation amounts to participants
under the Plan will be made within (30) days following the release of
the independent auditor's report on the Company's 1998 financial
statements to the Board of Directors (which is usually in March).
8. The Plan will terminate on December 31, 1998 except for payment of
amounts due to participants.
9. This Incentive Compensation Plan will be administered in accordance
with, and is subject to, the following additional terms and
conditions:
a) The 1998 Incentive Compensation Plan expense is NOT included in
MRC's 1998 Budget approved by the Board of Directors on December
4, 1997.
<PAGE> 3
Therefore, except for Paragraph #2 (a) above, funding of the
1998 Incentive Compensation Plan will be based on exceeding the
financial results of MRC's 1998 budget
b) MRC's Management Committee (CEO, COO, CFO), subject to the
approval of the Compensation Committee of the Board of Directors,
will establish targets for the entire company, the Medical
Transcription business, the PowerScribe business, as well as each
Group, Region and Client Service Center.
c) The Management Committee, subject to the approval of the
Compensation Committee of the Board of Directors, will approve
each participant in the Plan and establish the bonus percentage
each participant is eligible to receive. Employees selected to be
participants will be notified in writing, using the form attached
as Exhibit A. Any changes to the participant's bonus percentage
or target, during the Plan year, must (a) be approved by the
Management Committee; (b) be documented in writing.
d) The Board of Directors of The MRC Group may, at any time, amend,
revise, suspend, or discontinue the Plan in any manner whatsoever
without notice.
e) Any determinations regarding the Plan which are made by the Board
of Directors or its Compensation Committee, or by the Management
Committee, are final and binding and are not subject to review.
This standard applies to all determinations, including
specifically any made regarding the income or financial results
of The MRC Group or any constituent component and / or company.
f) This is not a contract of employment, nor is it evidence of any
contract of employment. Any employee who participates in the Plan
remains an employee-at-will of The MRC Group and its constituent
companies.
g) All payments will be made net of any applicable withholding(s).
h) Ohio law will govern any interpretation of the Plan's terms.
i) Any payments made to an employee under the Plan will be taken
into account for purposes of any company-sponsored 401 (k) plan
for which that employee is eligible; however, Plan payments will
not affect any other company-provided benefit(s).
j) Participation in the Plan is conditioned upon an employee's
accepting the terms of the Plan.
<PAGE> 4
Exhibit "A"
Participant's Name:__________________________________
Profit Center:_______________________________________
Target Amount:_______________________________________
Participant's Bonus Percentage:______________________
It is my honor to inform you that you have been named as a participant in the
1998 Incentive Compensation Plan of The MRC Group. A copy of the plan has been
provided to you with this acknowledgement.
With your dedication and contribution, The MRC Group aspires to achieve their
respective targets for 1998.
The MRC Group
By:_____________________________________________
Signature:______________________________________
Title:__________________________________________
(CEO, COO, or CFO)
Date:___________________________________________
I acknowledge receipt of this notice and a copy of the Plan. I also acknowledge
that I have read and understood the attached Plan document and consent to, and
accept its terms, conditions, and limitations.
By: ____________________________
Signature: ____________________________
Date: ____________________________
<PAGE> 1
Exhibit 11.1
SUPPLEMENTAL DISCLOSURE OF EPS CALCULATION
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED DECEMBER 31, 1995
<S> <C> <S>
BASIC
Numerator Net loss (126,191)
Denominator Wt. avg common shares outstanding 1,272,048
EPS (0.10)
DILUTED
Numerator Not shown due to net loss as impact is antidilutive
Denominator Not shown due to net loss as impact is antidilutive
TWELVE MONTHS ENDED DECEMBER 31, 1996
BASIC
Numerator Net loss (1,316,445)
Denominator Wt. avg common shares outstanding 2,578,421
EPS (0.51)
DILUTED
Numerator Not shown due to net loss as impact is antidilutive
Denominator Not shown due to net loss as impact is antidilutive
</TABLE>
<PAGE> 2
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED DECEMBER 31, 1997
<S> <C> <C>
BASIC
Numerator Net loss (1,013,137)
Denominator Wt. avg common shares outstanding 4,106,364
EPS (0.25)
PRO FORMA BASIC
Numerator Net loss (actual) (1,013,137)
Add: Interest expense on debt to be repaid,
net of tax 247,580
-------------
Adjusted net income (765,558)
Denominator Basic wt. avg common shares outstanding 4,106,364
Assumed conversion of preferred shares 7,262,107
Approximate shares issued in Offering
-------------
Adjusted wt. avg common shares outstanding
EPS
DILUTED
Numerator Net loss (actual) (1,013,137)
Denominator Basic wt. avg common shares outstanding 4,106,364
Add: Assumed conversion of preferred shares 7,262,107
Add: Potential dilutive securities 2,189,702
Less: Approx. proceeds and tax benefit from
potentially dilutive securities 20,366,821
Divided by estimated FMV of shares 12.57
--------------
Anticipated shares repurchased (1,620,272)
-------------
Adjusted wt. avg common shares outstanding 11,937,901
EPS (0.08) N/A as
antidilutive
PRO FORMA DILUTED
Numerator Adjusted pro forma net loss per above (765,558)
Denominator Adjusted pro forma wt. avg common shares outstanding
per above
Add: Potential dilutive securities
Less: Approx. proceeds and tax benefit from
potentially dilutive securities
Divided by estimated FMV of shares 12.57
--------------
Anticipated shares repurchased
-------------
Adjusted wt. avg common shares outstanding
EPS N/A as
antidilutive
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1997
<S> <C> <C>
BASIC
Numerator Net loss (43,328)
Denominator Wt. avg common shares outstanding 4,106,364
EPS (0.01)
PRO FORMA BASIC
Numerator Net loss (actual) (43,328)
Add: Interest expense on debt to be repaid,
net of tax 60,431
-------------
Adjusted net income 17,103
Denominator Basic wt. avg common shares outstanding 4,106,364
Assumed conversion of preferred shares 7,262,107
Approximate shares issued in Offering
-------------
Adjusted wt. avg common shares outstanding
EPS
DILUTED
Numerator Net loss (actual) (43,328)
Denominator Basic wt. avg common shares outstanding 4,106,364
Add: Assumed conversion of preferred shares 7,262,107
Add: Potential dilutive securities 2,189,702
Less: Approx. proceeds and tax benefit from
potentially dilutive securities 20,366,821
Divided by estimated FMV of shares 12.57
--------------
Anticipated shares repurchased (1,620,272)
-------------
Adjusted wt. avg common shares outstanding 11,937,901
EPS (0.00) N/A as
antidilutive
PRO FORMA DILUTED
Numerator Adjusted pro forma net income per above 17,103
Denominator Adjusted pro forma wt. avg common shares outstanding
per above
Add: Potential dilutive securities
Less: Approx. proceeds and tax benefit from
potentially dilutive securities
Divided by estimated FMV of shares 12.57
--------------
Anticipated shares repurchased
-------------
Adjusted wt. avg common shares outstanding
EPS
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1998
<S> <C> <C>
BASIC
Numerator Net income 562,638
Denominator Wt. avg common shares outstanding 4,106,364
EPS 0.14
PRO FORMA BASIC
Numerator Net income (actual) 562,638
Add: Interest expense on debt to be repaid,
net of tax 52,793
-------------
Adjusted net income 615,431
Denominator Basic wt. avg common shares outstanding 4,106,364
Assumed conversion of preferred shares 7,262,107
Approximate shares issued in Offering
-------------
Adjusted wt. avg common shares outstanding
EPS
DILUTED
Numerator Net income (actual) 562,638
Denominator Basic wt. avg common shares outstanding 4,106,364
Add: Assumed conversion of preferred shares 7,262,107
Add: Potential dilutive securities 2,478,103
Less: Approx. proceeds and tax benefit from
potentially dilutive securities 22,596,161
Divided by estimated FMV of shares 12.57
--------------
Anticipated shares repurchased 1,797,626
-------------
Adjusted wt. avg common shares outstanding 12,048,948
EPS 0.05
PRO FORMA DILUTED
Numerator Adjusted pro forma net income per above 615,431
Denominator Adjusted pro forma wt. avg common shares outstanding
per above
Add: Potential dilutive securities
Less: Approx. proceeds and tax benefit from
potentially dilutive securities
Divided by estimated FMV of shares 12.57
--------------
Anticipated shares repurchased
-------------
Adjusted wt. avg common shares outstanding
EPS
</TABLE>
<PAGE> 1
Exhibit 21.1
Subsidiaries
Medical Records Corp., an Ohio corporation
<PAGE> 1
Exhibit 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
dated March 3, 1998 (and to all references to our Firm) included in or made a
part of this S-1 Registration Statement.
Cleveland, Ohio,
June 23, 1998. /s/ Arthur Andersen LLP
<PAGE> 1
Exhibit 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated February 16, 1996 (and to all references to our Firm) included in or made
a part of this S-1 Registration Statement.
Cleveland, Ohio, /s/ Skoda, Minotti, Reeves & Co.
June 23, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) THE MRC
GROUP, INC. AND SUBSIDIARY CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH (B) FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 2,963,682
<SECURITIES> 2,976,749
<RECEIVABLES> 18,992,345
<ALLOWANCES> 906,032
<INVENTORY> 0
<CURRENT-ASSETS> 26,009,349
<PP&E> 26,859,025
<DEPRECIATION> 13,455,364
<TOTAL-ASSETS> 76,851,056
<CURRENT-LIABILITIES> 16,599,300
<BONDS> 7,867,829
47,493,252
104
<COMMON> 41,064
<OTHER-SE> 3,263,571
<TOTAL-LIABILITY-AND-EQUITY> 76,851,056
<SALES> 29,410,469
<TOTAL-REVENUES> 29,410,469
<CGS> 23,620,237
<TOTAL-COSTS> 23,620,237
<OTHER-EXPENSES> 4,733,403
<LOSS-PROVISION> 75,000
<INTEREST-EXPENSE> 62,653
<INCOME-PRETAX> 994,176
<INCOME-TAX> 431,538
<INCOME-CONTINUING> 562,638
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 562,638
<EPS-PRIMARY> 0.14
<EPS-DILUTED> 0.05
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) THE MRC
GROUP, INC. AND SUBSIDIARY CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH (B) FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 1,192,959
<SECURITIES> 4,003,094
<RECEIVABLES> 19,124,848
<ALLOWANCES> 819,218
<INVENTORY> 0
<CURRENT-ASSETS> 25,385,294
<PP&E> 25,085,721
<DEPRECIATION> 11,779,708
<TOTAL-ASSETS> 75,469,136
<CURRENT-LIABILITIES> 15,121,163
<BONDS> 9,036,410
47,493,252
104
<COMMON> 41,064
<OTHER-SE> 2,566,180
<TOTAL-LIABILITY-AND-EQUITY> 75,469,136
<SALES> 108,117,494
<TOTAL-REVENUES> 108,117,494
<CGS> 86,975,531
<TOTAL-COSTS> 86,975,531
<OTHER-EXPENSES> 21,845,112
<LOSS-PROVISION> 539,000
<INTEREST-EXPENSE> 309,988
<INCOME-PRETAX> (1,013,137)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,013,137)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,013,137)
<EPS-PRIMARY> (0.25)
<EPS-DILUTED> (0.25)
</TABLE>
