<PAGE>
As filed with the Securities and Exchange Commission on October 7, 1999
Registration No. 333-85481
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
AMENDMENT NO. 4
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
eMed Technologies Corporation
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C>
Delaware 7374 04-3155965
(State or Other (Primary Standard Industrial (I.R.S. Employer
Jurisdiction Classification Code Number) Identification No.)
of Incorporation or
Organization)
</TABLE>
25 Hartwell Avenue, Lexington, MA 02421, (781) 862-0000
(Address, including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
----------------
Scott S. Sheldon, Chief Executive Officer
25 Hartwell Avenue, Lexington, MA 02421, (781) 862-0000
(Name, Address, including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
----------------
Copies To:
<TABLE>
<S> <C>
Joel F. Freedman, esq. Paul Model, esq. David J. Goldschmidt,
Ropes & Gray 477 Madison Avenue esq.
One International Place New York, New York 10022 Skadden, Arps, Slate,
Boston, Massachusetts (212) 751-8438 Meagher & Flom LLP
02110-2624 919 Third Avenue
(617) 951-7000 New York, New York 10022
(212) 735-3000
</TABLE>
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the 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, 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. [_]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and it is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED OCTOBER 7, 1999
PROSPECTUS
3,100,000 Shares
eMed Technologies Corporation
Common Stock
-----------
We anticipate that the initial public offering price for our common stock will
be between $12.00 and $14.00 per share. We have applied to have our common
stock approved for quotation on the Nasdaq National Market System under the
symbol "EMDT."
Investing in our common stock involves a high degree of risk. See "Risk
Factors" beginning on page 5 to read about risks that you should consider
before buying shares of our common stock.
Neither the Securities and Exchange Commission nor any other regulatory body
has approved or disapproved these securities or passed upon the adequacy or
accuracy of this prospectus. Any representation to the contrary is a criminal
offense.
-----------
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Public offering price........................................... $ $
Underwriting discount........................................... $ $
Proceeds, before expenses, to eMed.............................. $ $
</TABLE>
The underwriters may also purchase up to an additional 465,000 shares of common
stock from us to cover any over-allotment at the public offering price less the
underwriting discount. The underwriters expect to deliver the shares against
payment in New York, New York on , 1999.
-----------
Bear, Stearns & Co. Inc. Donaldson, Lufkin & Jenrette
Wit Capital Corporation
-----------
The date of this Prospectus is , 1999.
<PAGE>
[eMed LOGO]
"Our systems for electronically managing and distributing medical images are
installed in approximately one of four U.S. imaging facilities and radiologists'
homes."
[map of U.S. depicting postal code locations in which eMed has systems installed
in hospitals and imaging centers.]
"Represents postal code locations of installed systems."
<PAGE>
PROSPECTUS SUMMARY
The following summary contains basic information about eMed and this
offering. It may not contain all the information that may be important to you.
You should read the entire prospectus, including the financial statements and
related notes, before making an investment decision. Except as otherwise noted,
all information in this prospectus (1) assumes no exercise of the underwriters'
over-allotment option, (2) assumes the conversion of all outstanding classes of
preferred stock into common stock and (3) the effectiveness of a 2.4 for 1
reverse split of our common stock.
Overview
Our Company
We provide systems that improve the process of electronically managing and
distributing medical images and related patient information. Our products and
services are used by radiologists, technicians, referring physicians and other
health care professionals to improve the efficiency of the practice of medicine
by allowing them to access, transmit and review medical images and related
patient information quickly and easily. Our products capture, compress,
transmit, route, and store medical images, including x-rays, MRIs, CTs,
ultrasounds and others. Our offerings permit the coordinated transmission and
review of images and information over both proprietary networks and the
internet. Our customers are providers of radiology imaging and interpretive
services, including radiologists, hospitals and outpatient imaging facilities
and often operate as part of complex health care networks. With systems
installed in approximately one of four U.S. imaging facilities and
radiologists' homes, we believe that we have the largest installed user base of
any company in our business.
Our new internet-based offerings capitalize on the internet's universal
accessibility to enable our customers to reduce costs and improve their
service. We introduced FrameWave Web in June 1999 and intend to introduce
eMed_Web later this year. FrameWave Web permits our customers to manage and
distribute medical images and related information over the internet. eMed_Web
is a website development and hosting service through which we intend to
establish and manage individual websites for our customers. Through these
eMed_Web sites, our customers will have FrameWave Web's integrated image and
report management capabilities, as well as the opportunity to incorporate other
clinically relevant information and marketing information targeted at their
customers. In addition, we intend eMed_Web to serve as a platform for offering
products and services that further improve the workflow of medical imaging.
We provide our customers remote, comprehensive support services through our
network operations center, which is fully staffed 24 hours a day, seven days a
week. This level of service enables many customers to outsource the technical
management of their image distribution and management systems to us.
Our Strategy
Our objective is to become the leading supplier of comprehensive, medical
imaging workflow systems to health care providers by leveraging our advanced
technology and experience. Elements of our strategy to achieve this objective
include:
. Introducing our eMed_Web website development and hosting service.
. Bringing to market additional products and services for improving
medical imaging workflow.
. Leveraging our relationships with our significant base of installed
users to increase sales.
. Expanding our sales and marketing efforts.
. Engaging in strategic acquisitions and relationships to obtain
technology and expand our user base.
1
<PAGE>
Our Market Opportunity
Our market opportunity is characterized by several important elements:
. Based on historical data, we believe that more than 350 million
radiology studies are conducted annually.
. The number of studies has grown due to the increasing usefulness of
radiology as a non-invasive diagnostic technique and the general aging
of the U.S. population.
. Medical images and related information are utilized in forming patient
diagnosis and care judgments by a broad cross-section of health care
professionals at disparate locations.
. The current method for capturing, analyzing, distributing and storing
medical images and associated medical reports is inefficient and
represents a significant opportunity to offer improvements and cost
savings.
. Radiology providers are subject to increasing pressure from their
customers and health care payors to reduce costs and improve the
timeliness and availability of interpretations and related patient
images.
. The internet represents a significant advance in the technology
available to radiologists and other health care professionals to improve
the cost-effectiveness and efficiency of the services they provide.
eMed Solutions
Based on our extensive experience with and insight into the workflow of
medical imaging, we have been able to focus our efforts on products and
services that provide our customers with cost savings, increased efficiencies
and competitive advantages. Our products and services incorporate advanced
technology and offer our customers:
. Improved cost effectiveness.
. Enhanced ability to market their services and serve their customers.
. Solutions tailored to meet functionality and cost requirements.
. High quality, comprehensive customer support.
Corporation Information
Our headquarters are located at 25 Hartwell Avenue, Lexington, MA 02421.
Until August 1999, we were known as ACCESS Radiology Corporation. Our telephone
number is (781) 862-0000 and our internet website address on the Worldwide Web
is www.eMed.com. The contents of our website are not part of this prospectus.
eMed, FrameWave and PACSPro are trademarks of eMed Technologies Corporation.
AWARE is a trademark of AWARE, Inc. All other brand names or trademarks
appearing in this prospectus are the property of their respective owners.
2
<PAGE>
The Offering
<TABLE>
<S> <C>
Common Stock offered by eMed...... 3,100,000 shares
Common Stock outstanding after the
offering......................... 11,513,475 shares
Use of Proceeds................... We estimate that the net proceeds from this
offering, without exercise of the over-
allotment option, will be approximately
$36.6 million. We intend to use these net
proceeds to repay approximately
$3.0 million of indebtedness and for
general corporate purposes, including the
expansion of our sales, marketing and
development efforts and possibly
acquisitions and partnerships.
Risk Factors...................... See "Risk Factors" for a discussion of
factors you should carefully consider
before deciding to invest in shares of our
common stock.
Proposed Nasdaq National Market
symbol........................... "EMDT"
</TABLE>
The number of shares of common stock outstanding after the offering is based
on the number outstanding as of September 17, 1999, and excludes:
. 1,696,598 shares of our common stock subject to options outstanding as
of September 17, 1999 at a weighted average exercise price of $1.51 per
share;
. warrants to purchase 522,440 shares of common stock at exercise prices
from $0.02 to $1.20 per share and warrants to purchase 409,091 shares of
Series J preferred stock outstanding as of September 17, 1999 at an
exercise price of $1.10 per share. Upon completion of this offering, the
warrants to purchase Series J preferred stock will become warrants to
purchase 170,449 shares of common stock.
3
<PAGE>
SUMMARY FINANCIAL DATA
(in thousands, except per share data)
You should read the following summary financial data together with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our financial statements and notes thereto included elsewhere
in this prospectus.
<TABLE>
<CAPTION>
Six Months Ended
Year Ended December 31, June 30,
------------------------------------------- ------------------
1994 1995 1996 1997 1998 1998 1999
------- ------- ------- ------- ------- -------- --------
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenue................. $ 139 $ 466 $ 1,009 $ 8,027 $12,594 $ 6,218 $ 11,369
Cost of revenue......... (141) (313) (1,404) (7,012) (8,976) (4,131) (6,351)
------- ------- ------- ------- ------- -------- --------
Gross margin............ (2) 153 (395) 1,015 3,618 2,087 5,018
------- ------- ------- ------- ------- -------- --------
Operating expenses:
Research and
development........... -- 239 610 1,300 2,362 1,031 1,655
Sales and marketing.... 423 571 1,319 2,912 3,498 1,764 2,519
General and
administrative........ 1,443 1,476 1,331 1,982 2,722 1,121 1,851
------- ------- ------- ------- ------- -------- --------
Total operating
expenses............. 1,866 2,286 3,260 6,194 8,582 3,916 6,025
------- ------- ------- ------- ------- -------- --------
Loss from operations.... (1,868) (2,133) (3,655) (5,179) (4,964) (1,829) (1,007)
Interest income
(expense), net......... (14) (119) (70) (204) (106) (19) (68)
Other income (expense).. (15) 218 (21) (242) (43) (6) (82)
------- ------- ------- ------- ------- -------- --------
Net loss................ $(1,897) $(2,034) $(3,746) $(5,625) $(5,113) $ (1,854) $ (1,157)
======= ======= ======= ======= ======= ======== ========
Basic and diluted net
loss per share......... $ (9.10) $ (5.08) $ (8.39) $(12.45) $(11.70) $ (4.30) $ (2.48)
Shares used in computing
basic and diluted net
loss per share......... 209 400 446 452 437 431 467
Unaudited proforma basic
and diluted net loss
per share.............. $ (0.78) $ (0.14)
Shares used in computing
unaudited proforma
basic and diluted net
loss per share......... 6,567 8,324
</TABLE>
<TABLE>
<CAPTION>
As of June 30, 1999
-------------------
Actual As Adjusted
------- -----------
(unaudited)
<S> <C> <C>
Balance Sheet Data:
Cash and cash equivalents................................... $ 5,118 $41,697
Working capital............................................. 4,573 41,152
Total assets................................................ 13,559 50,138
Total long-term liabilities................................. 210 210
Total stockholders' equity.................................. 5,312 41,891
</TABLE>
The as adjusted balance sheet data and pro forma per share data reflects the
conversion of all preferred stock into common stock. The as adjusted balance
sheet data also reflects the sale by us of 3,100,000 shares of common stock at
an assumed public offering price of $13.00 per share in the offering, after
deducting the underwriters' discount and our estimated offering expenses.
4
<PAGE>
RISK FACTORS
Investing in our common stock will provide you with an equity ownership
interest in eMed. As an eMed stockholder, you will be subject to risks inherent
in our business. The value of your investment may increase or decline and could
result in a loss to you. You should carefully consider the following factors as
well as other information contained in this prospectus before deciding to
invest in shares of our common stock.
Risks Related to Our Company
We may not become profitable.
Since our inception, we have incurred significant losses from operations and
negative cash flow. In implementing our strategy, we will significantly
increase our operating expenses as we aggressively market our products and
services and develop new products and services. We are incurring these expenses
under the assumption that the sales we obtain from increased marketing and
developing efforts will permit us to earn revenue in excess of these additional
expenses. If we are unsuccessful in generating revenues to offset these
expenditures, we may continue to incur losses from operations and negative cash
flow. We cannot assure you that we will ever achieve or sustain profitability
or that our operating losses will not increase in the future.
We may be unable to manage growth effectively.
The implementation of our business strategy could result in a period of
rapid growth. This growth could place a strain on our managerial, operational
and financial resources and on our information systems. Our future operating
results will depend on the ability of our senior management to manage rapidly
changing business conditions, and to implement and improve our technical,
administrative, financial control and reporting systems. We may not succeed in
these efforts. The failure to effectively manage and improve these systems
could increase our costs and adversely affect our ability to sell and deliver
our products and services.
We may be unable to hire, retain, motivate or train the key personnel, upon
whom the success of our business will depend.
Our senior management team consists of only seven individuals. Loss of any
senior management or other key personnel could have a disruptive effect on the
implementation of our business strategy and the efficient running of our day-
to-day operations. Also, as we continue to grow, we will need to hire
additional personnel in all operational areas. In particular, we will need to
hire additional sales people and technical staff. Competition for personnel
throughout the health care, information technology and internet industries is
intense. We may be unable to retain our key employees or attract, assimilate,
retain or train other needed qualified employees in the future.
Our market is highly competitive, and we may not be able to compete effectively
because many of our competitors have greater resources and better recognition
in the marketplace.
We operate in a highly competitive environment and we may not be able to
compete effectively. Many of our competitors are larger than we are, have been
in business longer than we have, and have greater financial, technical,
research and development, and sales and marketing resources than we do.
Further, additional internet-based products and services providers may enter
into the market for products and services that improve the workflow of medical
imaging. Larger competitors may have the resources to offer competitive
products at greatly discounted prices or at no charge, sometimes in connection
with the sale of related or complementary products or systems. Customer
decisions to purchase our products are often influenced by the perceived
stability and market recognition of the vendor. We may be at a disadvantage
because many of our competitors are better known and may be perceived as less
risky than we are. For additional information, please see the section
"Business -- Competition."
5
<PAGE>
We may be unable to sell new products and services to our installed user base,
which is a key part of our growth strategy.
A key part of our strategy is to sell to our existing installed user base
additional products and services that we currently offer, as well as products
and services that we intend to develop. We expect that this effort will require
intensive marketing and sales efforts. Customers that have invested substantial
resources in other products may be reluctant to adopt a new product that may
replace or make redundant their existing systems. Because we acquired a large
portion of our installed user base when we acquired the medical imaging
business of E-Systems Medical Electronics, a division of Raytheon, in November
1998, we have limited experience with these users, and we cannot predict what
our success will be in selling new products and services to them.
Our future growth may suffer if we do not achieve broad acceptance of our
internet-based products and services by radiologists, technicians, referring
physicians and other health care professionals.
Our success, in part, depends upon our ability to gain acceptance of our
internet-based products and services by a large number of radiologists,
technicians, referring physicians and other health care professionals.
Achieving market acceptance for our internet-based applications will require
substantial marketing efforts and the expenditure of significant financial and
other resources to create brand awareness and demand by physicians and health
care organizations. In addition, the rate at which physicians and health care
organizations will replace existing medical imaging management products and
systems with more advanced technologies is uncertain. Failure to achieve broad
acceptance of our internet-based applications by physicians and health care
organizations as a preferred medium for medical imaging would have a material
adverse effect on our operating results.
We may be unable to sell our planned eMed_Web service if our target customers
do not accept our subscription fee pricing model.
Our new subscription fee pricing model for internet-based offerings is
untested and will require our target customers to make recurring subscription
fee payments. Currently, customers buy medical systems as a one-time capital
investment with a yearly fee for maintenance and support. Accepting our
subscription fee pricing model may be particularly difficult for larger health
care institutions. If we are unable to convince our existing base and new
target customers to accept this new pricing model, sales of our new internet-
based offerings could suffer.
Our business may be difficult for you to evaluate because the internet
component of our business model is evolving and is unproven.
We only began offering internet products in June 1999 with the introduction
of our FrameWave Web product. We intend to begin marketing our eMed_Web
internet-based service later this year. We have not yet offered or implemented
any of the subscription services we expect to include for use with the eMed_Web
offering. In extending our business into internet-based products and services,
we are significantly changing our business operations, sales and marketing
strategies, pricing models and management focus. We are also facing new risks
and challenges, including a lack of meaningful historical financial data upon
which to plan future budgets and the other risks described in this prospectus.
You must consider our prospects in light of the uncertainties encountered by
companies adopting a modified business strategy, particularly one that depends
on the internet.
Any future strategic acquisitions and partnerships may result in disruptions to
our business and/or the distraction of our management.
Engaging in strategic acquisitions and relationships is a key part of our
strategy. We cannot assure you that we will be able to identify suitable
acquisition candidates, or if we do identify suitable candidates, that we will
be able to make such acquisitions on commercially acceptable terms or at all.
If we acquire another company,
6
<PAGE>
we will only receive the anticipated benefits if we successfully integrate the
acquired business into our existing business in a timely and non-disruptive
manner. We may have to devote a significant amount of time and management and
financial resources to do so. Even with this investment of management and
financial resources, an acquisition may not produce the revenue, earnings or
business synergies that we anticipated. If we fail to integrate the acquired
business effectively or if key employees of that business leave, the
anticipated benefits of the acquisition would be jeopardized. The time,
capital, management and other resources spent on an acquisition that failed to
meet our expectations could cause our business and financial condition to be
materially and adversely affected. In addition, from an accounting perspective,
acquisitions can involve non-recurring charges and amortization of significant
amounts of goodwill that could adversely affect our results of operations.
If our strategic relationship with AWARE is disrupted, our ability to use
important technologies could be halted or delayed.
We currently have arrangements in place with AWARE, Inc. for elements of our
technology for compressing large data files and our web server technology.
These technologies are an integral component of our offerings. Any disruption
in our relationship with AWARE could limit our ability to use these
technologies and could increase our costs or have a material adverse effect on
our revenue. For more information about our relationship with AWARE, please see
the section entitled "Business--Production."
Technological change in medical imaging or internet communications may render
our products and services obsolete.
We expect that the market for our offerings and internet communication will
continue to be characterized by rapidly changing technology, evolving industry
standards, frequent new product announcements and enhancements and changing
customer demands. The introduction of new products and services embodying new
technologies and the emergence of new industry standards could render our
products and services obsolete. Our success depends on our ability to adapt to
rapidly changing technologies and to improve the performance, features and
reliability of our products and services in response to changing customer and
industry demands. Furthermore, we may experience difficulties that could delay
or prevent the successful design, development, testing, introduction or
marketing of our products and services. Our new products and services, or
enhancements to our existing products and services, may not adequately meet the
requirements of our current and prospective customers or achieve any degree of
significant market acceptance.
Concerns about integrating our products into their networks may cause customers
to decide not to buy our products or services.
We often must integrate our products with the networks that exist either at
a customer site or between customer sites. We do not control these proprietary
networks. Concerns about customers' uncertainty as to the compatability of our
products with existing networks may cause customers to decide not to buy our
products or services.
If our computer systems upon which we depend to provide our services fail or
overload, we could lose customers.
The success of our network-based comprehensive customer service depends on
the uninterrupted, efficient operation of our computer network. The servers
that will host eMed_Web sites will be located at customer sites and supported
by us at our headquarters. The occurrence of fires, floods, earthquakes, power
losses and similar events could cause damage or cause interruptions in these
systems. Computer viruses, worms, electronic break ins or similar disruptions
could also adversely affect our network and, if highly publicized, could
materially damage our reputation and efforts to build brand awareness. If our
systems are affected by any of these occurrences, we may not be able to provide
customer support on which our users depend, and as a result our business could
be materially and adversely affected. Our insurance policies may not adequately
cover any losses.
7
<PAGE>
A variety of factors including our plans to expand our business may cause our
quarterly and annual results to vary and our stock price to fluctuate.
Our operating results may fluctuate significantly on a quarterly basis due
to a variety of factors, including our plans to devote significant additional
financial resources to expand our business and to introduce our new eMed_Web
service. Other factors which may cause our operating results to fluctuate
include the size and timing of significant orders, the demand for and market
acceptance of our products and services, and the length of our sales cycles.
Our revenue is not predictable and is difficult to forecast because, among
other things, the market for our products is rapidly evolving, sales cycles are
long and vary substantially from customer to customer and we are initiating a
new subscription fee pricing model for our eMed_Web service. The sales cycle is
subject to a number of factors over which we have little or no control,
including customers' budgetary constraints, the timing of budget cycles,
concerns about the introduction of new products by us or our competitors.
Potential downturns in general economic conditions may cause reductions in
demand for medical imaging workflow management systems. Our revenue and other
financial and operating results may not meet the expectations of securities
analysts and our stockholders. As a result of such fluctuation or failure to
meet expectations, the price of our common stock could be materially adversely
affected.
We may need additional capital in the future to support our growth and such
additional financing may not be available to us.
We expect that the net proceeds from this offering, combined with our
current cash resources, will be sufficient to meet our funding requirements for
at least the next 12 months. However, as we continue our efforts to grow our
business in a rapidly changing and highly competitive market, we may need to
raise additional financing to support expansion, develop new or enhanced
products and services, respond to competitive pressures, acquire complementary
businesses or technologies or take advantage of unanticipated business
opportunities. We may need to raise additional funds by selling debt or equity
securities, by entering into strategic relationships or through other
arrangements. We may be unable to raise any additional amounts on reasonable
terms when they are needed. Any additional equity financing may cause investors
to experience dilution, and any additional debt financing may result in
restrictions on our operations or our ability to pay dividends in the future.
Any disruption of our relations with our suppliers could increase our costs and
adversely affect our assembling process.
We purchase a number of the proprietary software and hardware components of
our offerings from limited sources. Any disruption of our relationships with
any of our suppliers of these components could increase our costs and adversely
affect our assembling operations and delay or halt our filling customer orders.
We have substantial product liability risk and our insurance coverage may not
be adequate to cover any claims.
Our business entails significant risks of product liability claims. Although
no such claims have ever been asserted against us, we cannot assure you that
our insurance coverage limits would be adequate to protect us against any
product liability claims that may arise. We may require additional product
liability insurance coverage as we commercialize new or improved products. This
insurance is expensive and may not be available on acceptable terms, or at all.
Uninsured product liability claims could have a material adverse effect on our
business, results of operations and financial condition.
Our business may suffer if we are not able to successfully protect our
intellectual property rights which are important elements of our products and
services.
We cannot assure you that the steps we have taken to protect our
intellectual property rights will prevent misappropriation of our technology.
These intellectual property rights, which we rely upon to develop and
8
<PAGE>
maintain our competitive position, are important elements of our products and
services. We rely partly on unpatented trade secrets and know-how to protect
our intellectual property. We cannot be sure that others will not independently
develop or otherwise acquire comparable trade secrets or know-how or otherwise
gain access to our proprietary technology or disclose such technology or that
we can meaningfully protect our rights to such unpatented proprietary
technology. Although we generally require our employees, contractors and
consultants who may have access to our confidential information, and parties to
collaboration agreements to execute confidentiality agreements to protect our
unpatented trade secrets and other know-how, these agreements may be breached
by the other party to the agreement or may otherwise be of limited
effectiveness. Misappropriation of our intellectual property could have a
material adverse effect on our business, financial condition, results of
operations and prospects. In addition, we may have to engage in litigation in
the future to enforce or protect our intellectual property rights or to defend
against claims of invalidity, and we may incur substantial costs as a result.
For more information, please see the section "Business -- Intellectual
Property."
If we are forced to defend against intellectual property infringement claims,
we could incur significant expenses and our business could be adversely
affected.
Our products include our proprietary intellectual property and intellectual
property rights licensed from others. We may become subject to claims alleging
that we infringe the proprietary rights of others. In the United States, a
significant number of software and business method patents have been issued
over the past decade and the holders of these patents have been actively
seeking out potential infringers. If any element of our products or services
violates third party proprietary rights, we might not be able to obtain
licenses on commercially reasonable terms to continue offering our products or
services without substantial reengineering and any effort to undertake such
reengineering might not be successful. In addition, any claim of infringement
could cause us to incur substantial costs defending against the claim, even if
the claim is invalid, and could distract our management from our business. Any
judgment against us could require us to pay substantial damages and could also
include an injunction or other court order that could prevent us from offering
our products and services.
We may be liable for information retrieved from or transmitted over the
internet using our products and services.
We may be sued for defamation, negligence, personal injury or other legal
claims relating to information that is published or made available on our
websites. These types of claims have been brought against providers of
internet-based services in the past. We could also be sued for the content that
is accessible from our websites through links to other internet websites. We
could incur significant costs in investigating and defending such claims, even
if we ultimately are not found liable. Our insurance coverage limits may not be
adequate to protect us against liability.
Our business is highly dependent on the proper and continual functioning of our
computer systems and therefore may be adversely affected by Year 2000 problems.
We rely on computer systems to manage our business and to service our
customers. Further, all of our products include computer hardware and/or
software components. Among other things, Year 2000 problems could cause us to:
. fail to fulfill our contractual obligations with our customers;
. face substantial claims by such customers and loss of revenue;
. fail to bill our customers accurately and on a timely basis; and
. be subject to the inability by customers and others to pay, on a timely
basis or at all, obligations owed to us.
A significant Year 2000 related disruption could cause our customers to be
dissatisfied with our products and services or could impose an unmanageable
burden on our technical support staff. Although the effects of any or all of
these events are not quantifiable at this time, any of these events could have
a material adverse effect on our business and operating results.
9
<PAGE>
Risks Related to Our Industry
If the internet is not accepted as a medium for medical imaging, our sales will
suffer.
Our future success depends upon the acceptance of the internet as a medium
for medical imaging. Because the internet-based medical imaging market is new,
we cannot yet gauge its effectiveness as compared to current electronic medical
imaging distribution methods. Most physicians and health care organizations
have little or no experience using the internet for medical imaging
transmission and distribution. The adoption of internet-based medical imaging
systems requires radiologists and other health care professionals to accept a
new way of conducting business and exchanging information. If these users
believe that internet-based medical imaging systems are less effective than
traditional medical imaging distribution methods, our sales will suffer.
Security concerns may keep physicians and health care organizations from
allowing confidential patient information to be made available on the internet.
Internet security remains a critical concern to many consumers. Physicians
and health care organizations may be reluctant to allow confidential medical
images and related patient information to be made available to healthcare
professionals through the eMed_Web sites. Any well publicized compromise of
security on the internet, or on any of the eMed_Web sites in particular, could
deter people from using the internet or from using the eMed_Web sites. Any
reluctance for security reasons on the part of physicians or health care
organizations to use the internet or the eMed_Web sites for internet-based
medical imaging would adversely affect our business.
Uncertainty associated with the regulation of the health care industry may
cause our target customers to curtail or delay purchases of our products.
The health care industry is highly regulated and is subject to changing
political, economic and regulatory influences that may affect the procurement
practices and operation of health care organizations. Changes in current health
care financing and reimbursement systems could result in delays or
cancellations of orders. Federal and state legislatures have periodically
considered programs to reform or amend the U.S. health care system at both the
federal and state level. These programs may contain proposals to increase
governmental involvement in health care, lower reimbursement rates or otherwise
change the environment in which the health care industry participants operate.
Health care industry participants may react to these proposals and the
uncertainty surrounding such proposals by curtailing or deferring investments,
including investments in our products and services. We cannot predict what
impact, if any, such proposals or health care reforms might have on us.
We may be unable to introduce new products or services if we fail to obtain
regulatory clearances and approvals.
Because our products and services are subject to regulation as Class II
medical devices in the United States by the Food and Drug Administration and in
other countries by corresponding regulatory authorities, our ability to market
new products and improvements to existing products will depend upon when we
receive premarket clearance or approval from the Food and Drug Administration
or any foreign counterparts. Failure to comply with applicable domestic or
foreign regulatory requirements at any time during the production, marketing or
distribution of products regulated by the Food and Drug Administration or its
foreign counterparts could result in, among other things, warning letters,
seizures of products, total or partial suspension of production, refusal of the
Food and Drug Administration to grant clearances or approvals, withdrawal of
existing clearances or approvals, or criminal prosecution. See "Business --
Government Regulation."
10
<PAGE>
Government regulation of the internet could limit our operations or increase
our costs.
Laws and regulations directly applicable to internet communications,
commerce and advertising are becoming prevalent, but the legislative and
regulatory treatment of the internet remains largely unsettled. The U.S.
Congress recently adopted internet laws regarding copyrights, taxation and the
protection of children. In addition, a number of other legislative and
regulatory proposals under consideration by federal, state, local and foreign
governments could lead to additional laws and regulations affecting the right
to collect and use personally identifiable information, internet-based content,
user privacy, taxation, access charges and liability for third party
activities, among other things. For example, the growth and development of the
market for internet commerce may prompt calls for more stringent consumer
protection laws, both in the United States and abroad, that may impose
additional burdens on companies conducting business over the internet. These
measures could decelerate the growth in use of the internet and could reduce
the demand for our services or increase our cost of doing business.
State governments or foreign countries might attempt to regulate the content
of our websites or levy sales or other taxes relating to our activities. The
European Union recently enacted its own privacy regulations that may result in
limits on the collection and use of user information. Courts may seek to apply
existing laws not explicitly relating to the internet in ways that could impact
the internet, and it may take years to determine whether and how laws such as
those governing intellectual property, privacy, libel and taxation will affect
the internet and the internet-based medical imaging workflow management
industry.
Risks Related to This Offering
We may allocate the proceeds of this offering in ways with which you may not
agree.
Our management will have significant flexibility in applying the net
proceeds of this offering, including ways with which you may disagree. You will
not have the opportunity to evaluate the economic, financial or other
information on which we base our decisions on how to use the proceeds.
Our stock price is likely to be highly volatile and could drop unexpectedly and
investors may not be able to resell their shares at or above the offering
price.
Following this offering, the price at which our common stock will trade is
likely to be highly volatile and may fluctuate substantially. We cannot predict
the extent to which investors' interest in us will lead to the development of a
trading market or how liquid the market might become. If you purchase shares of
our common stock in this offering, you will pay a price that was not
established in a competitive market, but was negotiated between us and the
underwriters. The price of the common stock that will prevail in the market
after the offering may be higher or lower than the price you pay, depending on
several factors, including our quarterly variations in results of operations,
estimates of securities analysts, competitive developments and general economic
conditions. In addition, the stock market has from time to time experienced
significant price and volume fluctuations that have affected the market prices
for the securities of health care and technology companies, particularly
internet companies. As a result, investors in our common stock may experience a
decrease in the value of their common stock regardless of our operating
performance or prospects. Fluctuations in our common stock price may affect our
visibility and credibility in our market and may affect our ability to secure
additional financing on acceptable terms, if at all.
Shares eligible for public sale after this offering could adversely affect our
stock price.
The market price of our common stock could decline as a result of sales of
shares by our existing stockholders after this offering, or the perception that
such sales will occur. These sales also might make it difficult for us to sell
equity securities in the future at a time and at a price that we deem
appropriate. Approximately 93.5% of our total outstanding shares of common
stock will be freely tradable, subject to Securities Act rules, 180 days after
the date of this prospectus. You should refer to the information in the section
entitled "Shares Eligible for Future Sale" for more information.
11
<PAGE>
Our charter documents and Delaware law may inhibit a takeover that stockholders
may consider favorable.
The health care industry has recently experienced significant consolidation.
There are provisions in our charter and by-laws that may have the effect of
delaying or preventing a change of control or changes in our management that
stockholders consider favorable or beneficial. You should refer to the
information in the section entitled "Description of Capital Stock" for more
information. If a change of control or change in management is delayed or
prevented, the market price of our common stock could suffer.
A small group of existing stockholders, whose interests may differ from other
stockholders, will be able to exert significant influence over us.
After this offering, our officers and directors and parties related to them
will own approximately 22.2% of the outstanding shares of our common stock.
Accordingly, they will have significant influence in determining the outcome of
any corporate transaction or other matter submitted to the stockholders for
approval, including mergers, consolidations and the sale of all or
substantially all of our assets, and also the power to prevent or cause a
change in control. The interests of these stockholders may differ from the
interests of the other stockholders.
Forward-looking statements are inherently uncertain.
Certain statements about us and our industry under the captions "Prospectus
Summary," "Risk Factors," "Use of Proceeds," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business" and
elsewhere in this prospectus are "forward-looking statements." These forward-
looking statements include, but are not limited to, statements about our plans,
objectives, expectations, intentions and assumptions, the industry in which we
operate and other statements in this prospectus that are not historical facts.
When we use the words "estimate," "project," "believe," "anticipate," "intend,"
"plan," "expect" and similar expressions in this prospectus, we generally
intend to identify forward-looking
statements. Because these forward-looking statements involve risks and
uncertainties, including those described in this "Risk Factors" section, actual
results could differ materially from those expressed or implied by these
forward-looking statements. We caution you not to place undue reliance on these
forward-looking statements. These forward-looking statements speak only as of
the date of this prospectus. We do not undertake any obligation to publicly
release any revisions to these forward-looking statements to reflect new
information, future events or otherwise.
12
<PAGE>
USE OF PROCEEDS
We estimate that the net proceeds from our sale of the 3,100,000 shares of
common stock we are offering will be approximately $36.6 million, assuming an
initial public offering price of $13.00 per share and after deducting estimated
underwriting discounts and our estimated offering expenses. If the underwriters
exercise their over-allotment option in full, we estimate that the net proceeds
would be approximately $42.2 million. Our principal reasons for this offering
are to provide us working capital, to create a public market for our common
stock and to facilitate our future access to public capital markets.
We intend to use approximately $3.0 million of the net proceeds of this
offering to repay indebtedness outstanding under our credit facility. We have
used borrowings incurred under this facility within the past 12 months to fund
our working capital requirements as well as a portion of the purchase price for
the medical imaging business of E-Systems Medical Electronics, a division of
Raytheon, that we acquired in November 1998. As of June 30, 1999, the interest
rate on the working capital portion of this facility was 9.75% and the interest
rate on the equipment line portion was 8.75%.
We intend to use the remaining net proceeds from this offering for general
corporate purposes, including the expansion of our sales, marketing and
development efforts, and for potential acquisitions and partnerships. We are
not currently participating in any active negotiations and have no commitments
or agreements with respect to any acquisition, partnership or investment. We
have not determined the amount of net proceeds to be used for each of the
specific purposes indicated. Accordingly, our management will have significant
flexibility in applying the net proceeds of the offering. Pending any use, we
plan to invest the net proceeds of this offering in short-term, investment-
grade interest-bearing securities.
DIVIDEND POLICY
We have never declared or paid a cash dividend on our common stock and we do
not intend to do so in the foreseeable future. We currently intend to retain
earnings to finance future operations.
13
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of June 30, 1999 on an
actual basis and as adjusted to reflect (1) the conversion of all of our
outstanding classes of preferred stock into common stock, and (2) the sale of
the shares of common stock offered by us at an assumed initial public offering
price of $13.00 per share, after deducting the estimated underwriting discount
and our estimated offering expenses. The following table assumes (1) no
exercise of the underwriters' over-allotment option and (2) the effectiveness
of a 2.4 for 1 reverse split of our common stock. This table contains unaudited
information and should be read in conjunction with the financial statements and
notes thereto and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
June 30, 1999
--------------------------
Actual As Adjusted
----------- -------------
(dollars in thousands)
<S> <C> <C>
Long-term debt..................................... $ 210 $ 210
----------- -----------
Stockholders' equity:
Convertible preferred stock, $0.01 par value,
15,000,000 shares authorized; 11,877,492
shares issued and outstanding; no shares issued
and outstanding as adjusted ...................... 119 --
Common stock, $0.01 par value, 35,000,000 shares
authorized; 480,488 shares issued and outstanding;
11,436,638 shares issued and outstanding as
adjusted.......................................... 5 114
Additional paid-in capital......................... 28,803 65,392
Deferred compensation.............................. (2,598) (2,598)
Treasury stock .................................... (50) (50)
Accumulated deficit................................ (20,967) (20,967)
----------- -----------
Total stockholders' equity....................... 5,312 41,891
----------- -----------
Total capitalization............................. $ 5,522 $ 42,101
=========== ===========
</TABLE>
The share information in the table is based on our shares of common stock
outstanding as of June 30, 1999. This table excludes:
. 1,654,455 shares of our common stock subject to options outstanding as
of June 30, 1999 at a weighted average exercise price of $1.46 per
share; and
. warrants to purchase 573,624 shares of common stock at exercise prices
from $0.02 to $1.20 and warrants to purchase 409,091 shares of Series J
preferred stock outstanding as of June 30, 1999 at an exercise price of
$1.10 per share. Upon completion of this offering, the warrants to
purchase Series J preferred stock will become warrants to purchase
170,449 shares of common stock.
14
<PAGE>
DILUTION
Our pro forma net tangible book value as of June 30, 1999 was approximately
$5.2 million or $0.63 per share of common stock. Our pro forma net tangible
book value per share represents our total tangible assets less total
liabilities divided by the pro forma total number of shares of common stock
outstanding at such date, assuming the conversion of all outstanding classes of
our preferred stock into an aggregate of 7,856,150 shares of common stock.
After giving effect to the sale of the shares of common stock offered by us
at an assumed initial public offering price of $13.00 per share, after
deducting the estimated underwriting discount and our estimated offering
expenses, our pro forma net tangible book value as of June 30, 1999 would have
been approximately $41.8 million or $3.66 per share. This amount represents an
immediate increase in pro forma net tangible book value of $3.03 per share to
the existing stockholders and an immediate dilution in pro forma net tangible
book value of $9.34 per share to new investors purchasing shares in this
offering. If the initial public offering price is higher or lower, the dilution
to new investors will be greater or less. The following table illustrates the
dilution in pro forma net tangible book value per share to new investors.
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............... $13.00
Pro forma net tangible book value per share as of June 30,
1999....................................................... $0.63
Increase in net tangible book value per share attributable
to new investors........................................... 3.03
-----
Pro forma net tangible book value per share after the
offering..................................................... 3.66
------
Dilution per share to new investors........................... $ 9.34
======
</TABLE>
The following table summarizes on a pro forma basis, as of June 30, 1999,
the number of shares of common stock purchased from us, the aggregate cash
consideration paid to us and the average price per share paid by existing
stockholders and to be paid by new investors purchasing the shares of common
stock in this offering at an assumed initial public offering price of $13.00
per share, before deducting estimated underwriting discounts and our estimated
offering expenses.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
------------------ ------------------- Average Price
Number Percent Amount Percent Per Share
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.. 8,336,638 72.9% $25,685,000 38.9% $3.08
New investors.......... 3,100,000 27.1% 40,300,000 61.1 13.00
---------- ----- ----------- ----- -----
Total................ 11,436,638 100.0% $65,985,000 100.0% $5.77
========== ===== =========== ===== =====
</TABLE>
The above information assumes no exercise of (1) the underwriters' over-
allotment option and (2) stock options or warrants after June 30, 1999. As of
June 30, 1999, we had reserved 1,654,455 shares of our common stock for
issuance upon exercise of outstanding options at a weighted average exercise
price of $1.46 per share and 744,073 shares of common stock for issuance upon
exercise of warrants to purchase 573,624 shares of common stock at exercise
prices from $0.02 to $1.20 per share and warrants to purchase Series J
preferred stock at an exercise price of $1.10 per share. Upon completion of
this offering, the warrants to purchase Series J preferred stock will become
warrants to purchase 170,449 shares of common stock. To the extent any of those
options or warrants are exercised, there will be further dilution to new
investors.
15
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data set forth below should be read in conjunction
with our financial statements and notes thereto and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included
elsewhere in this prospectus. The statement of operations data for the years
ended December 31, 1996, 1997 and 1998, and the balance sheet data as of
December 31, 1997 and 1998, are derived from and are qualified by reference to
the audited financial statements included elsewhere in this prospectus. The
statement of operations data for the two years ended December 31, 1994 and
1995, and the balance sheet data as of December 31, 1994, 1995 and 1996, have
been derived from audited financial statements of eMed that do not appear in
this prospectus. The statement of operations data for the six months ended June
30, 1998 and 1999 and the balance sheet data as of June 30, 1999 are derived
from unaudited financial statements included elsewhere in this prospectus. The
unaudited financial statements have been prepared on the same basis as the
audited financial statements and, in the opinion of our management, include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the information set forth therein. The historical results
are not necessarily indicative of the operating results to be expected in the
future.
<TABLE>
<CAPTION>
Six Months
Year Ended December 31, Ended June 30,
------------------------------------------- ----------------------
1994 1995 1996 1997 1998 1998 1999
------- ------- ------- ------- ------- ------ -------
(in thousands, except per share data) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data
Revenue................. $ 139 $ 466 $ 1,009 $ 8,027 $12,594 $ 6,218 $11,369
Cost of revenue......... (141) (313) (1,404) (7,012) (8,976) (4,131) (6,351)
------- ------- ------- ------- ------- ------- -------
Gross margin............ (2) 153 (395) 1,015 3,618 2,087 5,018
------- ------- ------- ------- ------- ------- -------
Operating expenses:
Research and
development........... -- 239 610 1,300 2,362 1,031 1,655
Sales and marketing.... 423 571 1,319 2,912 3,498 1,764 2,519
General and
administrative........ 1,443 1,476 1,331 1,982 2,722 1,121 1,851
------- ------- ------- ------- ------- ------- -------
Total operating
expenses............. 1,866 2,286 3,260 6,194 8,582 3,916 6,025
------- ------- ------- ------- ------- ------- -------
Loss from operations.... (1,868) (2,133) (3,655) (5,179) (4,964) (1,829) (1,007)
Interest income
(expense), net......... (14) (119) (70) (204) (106) (19) (68)
Other income (expense).. (15) 218 (21) (242) (43) (6) (82)
------- ------- ------- ------- ------- ------- -------
Net loss................ $(1,897) $(2,034) $(3,746) $(5,625) $(5,113) $(1,854) $(1,157)
======= ======= ======= ======= ======= ======= =======
Basic and diluted net
loss per share......... $ (9.10) $ (5.08) $ (8.39) $(12.45) $(11.70) $ (4.30) $ (2.48)
Shares used in computing
basic and diluted net
loss per share......... 209 400 446 452 437 431 467
Unaudited pro forma
basic and diluted net
loss per share......... $ (0.78) $ (0.14)
Shares used in computing
unaudited pro forma
basic and diluted net
loss per share......... 6,567 8,324
<CAPTION>
As of June 30,
As of December 31, 1999
------------------------------------------- --------------
1994 1995 1996 1997 1998
------- ------- ------- ------- ------- (unaudited)
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash
equivalents............ $ 326 $ 42 $ 2,201 $ 4,421 $ 2,259 $ 5,118
Working capital
(deficit).............. 193 (124) 1,889 5,541 (1,248) 4,573
Total assets............ 1,057 1,022 3,978 9,890 11,506 13,559
Total long-term
liabilities............ 961 1,278 177 963 342 210
Total stockholders'
equity (deficit)....... (343) (810) 2,549 5,503 388 5,312
</TABLE>
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our financial
statements and notes thereto. The following discussion contains forward-looking
statements. Our actual results could differ materially from those discussed in
forward-looking statements. See "Risk Factors."
Overview
We provide workflow solutions that improve the process of electronically
managing medical images and related patient information. Our products permit
the capture, compression, transmission, routing, review and storage of medical
images and the coordinated transmission and review of related patient
information over both proprietary networks and the internet. Prior to 1996, our
business consisted primarily of providing network management services for
systems that permit healthcare professionals to access, transmit and review
medical images at remote locations. We began selling FrameWave products in late
1996.
Product sales currently constitute a substantial portion of our revenue. We
recognize revenue from the sale of our products upon shipment to the customer.
Revenue from our recently introduced FrameWave Web product has not been
material to date. We also derive revenue from installing our products at
customer sites. Our standard installation fee is based on a percentage of the
product sales price. We provide a one year warranty on all products. We
generate recurring revenue from contracts to provide network-based
comprehensive support and post-warranty product maintenance to customers. We
recognize revenue from these contracts ratably over their lives. Recurring fees
constituted approximately 10% of revenue for the year ended December 31, 1998
and 14% of revenue for the six months ended June 30, 1999. As our customer base
grows, we expect recurring fees from service contracts to increase more quickly
than our product sales.
Most of our products are sold under written contracts with our customers.
These contracts generally provide for payment of a portion of the purchase
price upon signing, an additional installment upon shipment, and a final
payment, generally 10% of the purchase price, upon acceptance. Sales to
independent sales and service organizations require payment in full upon
delivery.
We intend to offer our eMed_Web service, which we expect to introduce later
this year, on a subscription fee basis to our current installed base and to new
customers. The result, we believe, will be the gradual decrease of non-
recurring revenue from system sales as a percentage of revenue and the gradual
increase of recurring subscription fees derived from our eMed_Web service as a
percentage of revenue. However, we expect to continue to generate a material
portion of revenue from sales of FrameWave products and our support and other
services, which we anticipate will be used with our internet products.
Customers using our internet services will continue to need products like our
image acquisition devices, servers, workstations and archive products. We
believe we will ultimately derive additional revenue from expanding the medical
imaging workflow management capabilities of our eMed_Web sites.
Costs of product revenue consist primarily of costs of purchased material
and license fees. Costs of service revenue consist primarily of employee-
related costs and the cost of outsourcing services. Historically, our operating
expenses have consisted principally of employee-related costs associated with
the sales, marketing, and research and development of our FrameWave products.
As we seek to increase our customer base and implement our internet strategy,
we expect our operating expenses to increase significantly.
We have incurred net operating losses and negative cash flows since our
inception. As a result, we have recorded no income tax expense or benefit to
date. We expect to continue to incur net losses and negative cash flows as we
seek to rapidly grow our business and continue to implement our internet-based
strategy. We cannot assure you that our customer base or revenue will grow or
that we will achieve or sustain net operating income or positive cash flow.
17
<PAGE>
During the six-month period ended June 30, 1999, we issued stock options to
non-employees and to employees which are exercisable at less than the fair
market value on the date of grant. The issuance of these stock options results
in non-cash compensation charges in the period that the options were granted
and will result in additional non-cash charges over future periods as the
options vest. These charges will be allocated across the various expense
categories as appropriate.
In November 1998, we acquired the assets of the medical imaging business of
E-Systems Medical Electronics, a division of the Raytheon Company, for an
aggregate purchase price of $3.2 million. E-Systems Medical Electronics and its
predecessors have been providing medical imaging products since 1985. The E-
Systems Medical Electronics installed base primarily consists of users who
capture and transmit medical images from an imaging facility to a radiologist's
home for off-hours review using PACSPro products similar to our FrameWave image
acquisition devices and clinical image viewers. The acquisition was accounted
for using the purchase method of accounting. In February 1999, we sold non-core
assets which we acquired as part of the transaction for $861,000. The E-Systems
Medical Electronics business, excluding the non-core assets we sold, had net
sales of approximately $8.1 million and a net loss of approximately $6.0
million for the period from January 1, 1998 to November 23, 1998. Since
acquiring E-Systems Medical Electronics, we have integrated its operations into
our existing business and have eliminated redundant functions. In connection
with this action, we established a reserve of approximately $412,000, of which
we have utilized approximately $331,000 as of June 30, 1999. In addition, we
have discontinued the practice of selling the PACSPro product line at margins
below levels acceptable to us. We generally provide PACSPro products only to
existing users that wish to expand their systems. We did not acquire the E-
Systems Medical Electronics business with the intent to continue their method
of operations. Rather, the main purpose of the acquisition was to obtain easier
access to the E-Systems installed user base for marketing our internet-based
and other FrameWave products and to acquire certain of its technology and
employees. Therefore, the revenue of E-Systems Medical Electronics prior to
acquisition is not indicative of the incremental revenue to be generated by us
as a result of this acquisition.
Results of Operations
Six Months Ended June 30, 1999 Compared to Six Months Ended June 30, 1998
Revenue. Revenue increased by 83% to $11.4 million for the six months ended
June 30, 1999 from $6.2 million for the six months ended June 30, 1998. Product
revenue increased by 71% to $9.8 million for the six months ended June 30, 1999
from $5.7 million for the six months ended June 30, 1998. This increase was
attributable to the increased sale of our FrameWave products as well as $2.9
million of revenue from the sale of PACSPro products, a product line that we
acquired in the E-Systems Medical Electronics transaction described above.
Service revenue increased by 223% to $1.6 million for the six months ended June
30, 1999 from $487,000 for the six months ended June 30, 1998. This increase
was primarily due to the growth in our installed user base. Approximately
$840,000, or 77% of the service revenue increase is due to increased sales of
service to users of our FrameWave products.
Gross Margin. Gross margin increased to $5.0 million, or 44% of revenue, for
the period ended June 30, 1999 from $2.1 million, or 34% of revenue, for the
period ended June 30, 1998. Gross margin from product revenue increased to $5.1
million, or 52% of product revenue, for the period ended June 30, 1999 from
$2.3 million, or 41% of product revenue, for the period ended June 30, 1998.
The increase in gross margin is attributable to a reduction in the material
cost of products sold and an increase in the selling price of products sold. We
achieved material cost reductions through our negotiations with suppliers and
by re-engineering our products to incorporate better and less expensive
components and sub-assemblies. Gross margin from service revenue improved to a
loss of $76,000 for the period ended June 30, 1999 from a loss of $242,000 for
the period ended June 30, 1998. This improvement is primarily the result of an
increase in the volume of products sold, which resulted in an increase in
recurring revenue generated from service contracts.
Research and Development Expense. Research and development expense increased
by 61% to $1.7 million for the six months ended June 30, 1999 from $1.0 million
for the six months ended June 30, 1998. This
18
<PAGE>
increase was primarily the result of personnel added to expand our internet-
based product and service offerings. As a percentage of revenue, research and
development expense decreased to 15% of revenue for the six months ended June
30, 1999 from 17% of revenue for the six months ended June 30, 1998.
Sales and Marketing Expense. Sales and marketing expense increased by 43% to
$2.5 million for the six months ended June 30, 1999 from $1.8 million for the
six months ended June 30, 1998. This increase was primarily the result of the
expansion of our sales force and related support staff. As a percentage of
revenue, sales and marketing expense decreased to 22% for the six months ended
June 30, 1999 from 28% of revenue for the six months ended June 30, 1998.
General and Administrative Expense. General and administrative expense
increased by 65% to $1.8 million for the six months ended June 30, 1999 from
$1.1 million for the six months ended June 30, 1998. Approximately $240,000, or
33%, of this increase is due to a non-cash compensation charge relating
primarily to the issuance of stock options to employees and non-employees
exercisable at less than the fair market value on the date of grant. The
remainder of this increase results primarily from an expansion of our work
force, recruiting expense and facilities expense. As a percentage of revenue,
general and administrative expense decreased to 16% for the six months ended
June 30, 1999 from 18% of revenue for the six months ended June 30, 1998.
Interest Expense -- Net. Interest expense, net, increased to $69,000 for the
six months ended June 30, 1999 from $19,000 for the six months ended June 30,
1998. This increase was primarily a result of increased borrowing under lines
of credit, which was partially offset by interest earned on short-term
investments.
Year Ended December 31, 1998 Compared with Year Ended December 31, 1997
Revenue. Revenue increased by 57% to $12.6 million for the year ended
December 31, 1998 from $8.0 million for the year ended December 31, 1997.
Product revenue increased by 58% to $11.3 million for the year ended December
31, 1998 from $7.2 million for the year ended December 31, 1997. This increase
was a result of continued growth in shipments of our FrameWave products.
Service revenue increased by 50% to $1.3 million for the year ended December
31, 1998 from $863,000 for the year ended December 31, 1997. This increase was
primarily due to the growth in our installed user base.
Gross Margin. Gross margin increased to $3.6 million, or 29% of revenue, for
the period ended December 31, 1998 from $1.0 million, or 13% of revenue, for
the period ended December 31, 1997. Gross margin from product revenue increased
to $4.1 million, or 36% of product revenue, for the year ended December 31,
1998 from $1.6 million, or 22% of product revenue for the year ended December
31, 1997. The increase in gross margin was attributable to an increase in the
volume of products sold. Gross margin from service revenue improved to a loss
of $458,000 for the year ended December 31, 1998 from a loss of $596,000 for
the year ended December 31, 1997. This improvement was primarily the result of
an increase in the volume of products sold which resulted in an increase in
recurring revenue generated from service contracts.
Research and Development Expense. Research and development expense increased
by 82% to $2.4 million for the year ended December 31, 1998 from $1.3 million
for the year ended December 31, 1997. This increase was primarily the result of
personnel added to continue the development of our FrameWave products. As a
percentage of revenue, research and development expense increased to 19% for
the year ended December 31, 1998 from 16% of revenue for the year ended
December 31, 1997.
Sales and Marketing Expense. Sales and marketing expense increased by 20% to
$3.5 million for the year ended December 31, 1998 from $2.9 million for the
year ended December 31, 1997. This increase was primarily the result of our
sales force expansion. As a percentage of revenue, sales and marketing expense
decreased to 28% for the year ended December 31, 1998 from 36% of revenue for
the year ended December 31, 1997.
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General and Administrative Expense. General and administrative expense
increased by 37% to $2.7 million for the year ended December 31, 1998 from $2.0
million for the year ended December 31, 1997. This increase was primarily the
result of an increase in personnel and increased expenses related to additional
leased facilities space. As a percentage of revenue, general and administrative
expense decreased to 22% for the year ended December 31, 1998 from 25% of
revenue for the year ended December 31, 1997.
Interest Expense -- Net. Interest expense, net, decreased to $106,000 for
the year ended December 31, 1998 from $204,000 for the year ended December 31,
1997. This decrease was primarily a result of an increase in interest earned on
short-term investments, which was partially offset by increased borrowing under
lines of credit.
Year Ended December 31, 1997 Compared with Year Ended December 31, 1996
Revenue. Revenue increased to $8.0 million for the year ended December 31,
1997 from $1.0 million for the year ended December 31, 1996. Product revenue
increased to $7.2 million for the year ended December 31, 1997 from $570,000
for the year ended December 31, 1996. This increase was primarily the result of
the successful launch of our FrameWave products. Service revenue increased by
96% to $863,000 for the year ended December 31, 1997 from $439,000 for the year
ended December 31, 1996. This increase was primarily due to the growth in our
installed user base.
Gross margin. Gross margin increased to $1.0 million or 13% of revenue for
the period ended December 31, 1997 from a loss of $394,000 for the period ended
December 31, 1996. Gross margin from product revenue increased to $1.6 million
for the year ended December 31, 1997 from $198,000 for the year ended December
31, 1996. As a percentage of product revenue, gross margin decreased to 22% for
the year ended December 31, 1997 from 35% for the year ended December 31, 1996.
The increase in gross margin was attributable to an increase in the volume of
products sold. The decrease in gross margin as a percentage of revenue was
attributable to the fixed costs of establishing and operating a full-scale
assembly and test operation. Gross margin from service revenue decreased to a
loss of $596,000 for the year ended December 31, 1997 from a loss of $592,000
for the year ended December 31, 1996. The incremental revenue generated from
service activities was offset by an increase in personnel related costs.
Research and Development Expense. Research and development expense increased
by 113% to $1.3 million for the year ended December 31, 1997 from $610,000 for
the year ended December 31, 1996. This increase was primarily the result of
personnel added to continue the development of our FrameWave products. As a
percentage of revenue, research and development expense decreased to 16% for
the year ended December 31, 1997 from 60% of revenue for the year ended
December 31, 1996.
Sales and Marketing Expense. Sales and marketing expense increased by 121%
to $2.9 million for the year ended December 31, 1997 from $1.3 million for the
year ended December 31, 1996. This increase was primarily the result of our
sales force expansion. As a percentage of revenue, sales and marketing expense
decreased to 36% for the year ended December 31, 1997 from 131% of revenue for
the year ended December 31, 1996.
General and Administrative Expense. General and administrative expense
increased by 49% to $2.0 million for the year ended December 31, 1997 from $1.3
million for the year ended December 31, 1996. This increase was primarily the
result of an increase in personnel. As a percentage of revenue, general and
administrative expense decreased to 25% for the year ended December 31,1997
from 132% of revenue for the year ended December 31, 1996.
Interest Expense -- Net. Interest expense, net, increased to $204,000 for
the year ended December 31, 1997 from $70,000 for the year ended December 31,
1996. This increase was primarily a result of increased borrowing under lines
of credit, which was partially offset by interest earned on short-term
investments.
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Liquidity and Capital Resources
Since inception, we have financed our operations primarily through private
equity and debt financings. During the period from inception through June 30,
1999, we received net proceeds from the sale of our capital stock and
convertible notes of $25.7 million. None of the convertible notes remain
outstanding. As of June 30, 1999, we had $5.1 million of cash and cash
equivalents and approximately $674,000 was available under our credit facility.
Cash used in operating activities for the six months ended June 30, 1999 of
$1.2 million consisted primarily of net operating losses of $1.2 million and an
increase in accounts receivable of $1.3 million, offset in part by a decrease
in inventories. The increase in accounts receivable is attributable to the
increase in revenue and the decrease in inventory resulted from our ability to
liquidate inventory acquired as part of our acquisition of E-Systems Medical
Electronics. Cash used in operating activities for the six months ended
June 30, 1998 of $1.9 million was due primarily to net operating losses of $1.9
million and an increase in accounts receivable of $853,000, offset by a
decrease in prepaid expenses and other current assets of $513,000. The increase
in accounts receivable is attributable to the increase in revenue, and the
decrease in prepaid expenses and other current assets is attributable to a
reduction in prepaid software licenses. Cash used in operating activities for
the year ended December 31, 1998 of $2.7 million was due primarily to net
operating losses of $5.1 million offset by a decrease in inventories and
prepaid expenses of $638,000 and $554,000, respectively, and an increase in
deferred revenue of $690,000. The decrease in inventory is attributable to
improvements in the materials purchasing process and the decrease in other
current assets is attributable to a reduction in prepaid software licenses. The
increase in deferred revenue is primarily due to an increase in customer
deposits related to a single customer order. Cash used in operating activities
for the year ended December 31, 1997 of $6.1 million was due primarily to net
operating losses of $5.6 million and an increase in accounts receivable,
prepaid expenses and inventories of $2.5 million, $715,000, and $399,000,
respectively, offset by increases in accounts payable, accrued expenses and
deferred revenue of $1.3 million, $677,000 and $284,000, respectively. These
increases are the result of the increased sales activity during the period. The
level of operating losses incurred in the first three quarters of 1997 caused
our debt to equity ratios to be non-compliant with the ratios required under
our credit facility as then in effect. We cured this non-compliance on
September 30, 1997 when we completed the Series J preferred stock offering
described below. The completion of our acquisition of the E-Systems Medical
Electronics business caused us to be non-compliant with our credit facility
covenants. This was discussed with our bank prior to the acquisition. After
these discussions, our bank permitted us to borrow under the credit facility to
pay a portion of the cost of the acquisition of E-Systems Medical Electronics.
We amended the credit facility in April 1999 pursuant to a term sheet agreed
upon prior to the acquisition. This amendment included waivers of our previous
non-compliance.
Cash provided by investing activities for the six months ended June 30, 1999
of $569,000 consisted primarily of proceeds from the sale of non-core assets
that we acquired as part of the acquisition of E-Systems Medical Electronics,
offset in part by capital expenditures for computer equipment and other fixed
assets. Cash used in investing activities for the six months ended June 30,
1998 of $315,000 consisted primarily of capital expenditures for computer
equipment and other fixed assets. Cash used in investing activities for the
year ended December 31, 1998 of $1.5 million consisted primarily of $999,000
used for the acquisition of E-Systems Medical Electronics and $465,000 used to
fund capital expenditures for computer equipment and other fixed assets. Cash
used in investing activities for the year ended December 31, 1997 of $841,000
consisted primarily of capital expenditures for computer equipment and other
fixed assets.
Cash provided by financing activities for the six months ended June 30, 1999
of $3.5 million consisted primarily of $5.8 million received from the issuance
of 4,142,857 shares of Series K preferred stock and warrants to purchase
467,186 shares of common stock. This amount was offset in part by $2.2 million
payment of the remaining purchase price owed to Raytheon for our purchase of
E-Systems Medical Electronics. The Series K preferred stock will be converted
into 1,726,152 shares of common stock upon the closing of this offering. Cash
provided by financing activities of $1.1 million for the six months ended June
30, 1998 consisted primarily of
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$1.2 million received from additional bank borrowing from lines of credit,
offset by debt repayment. Cash provided by financing activities of $2.1 million
for the year ended December 31, 1998 consisted primarily of $2.4 million
received from additional bank borrowing from lines of credit. Cash provided by
financing activities for the year ended December 31, 1997 of $9.2 million
consisted primarily of $8.4 million received from the issuance of 7,730,909
shares of Series J preferred stock and warrants to purchase 409,091 shares of
Series J preferred stock and $885,000 from additional bank borrowings from
lines of credit. The Series J preferred stock will be converted into 3,221,179
shares of common stock and the Series J warrants will become warrants to
purchase 170,449 shares of common stock upon the closing of this offering.
During 1996, we received $5.8 million from the issuance of 2,216 shares of
preferred stock and warrants to purchase 64,774 shares of common stock, all of
which preferred stock will be converted into 2,522,001 shares of common stock
upon the closing of this offering.
We currently anticipate that our available cash resources combined with the
net proceeds from this offering will be sufficient to meet our anticipated
working capital and capital expenditure requirements for at least 12 months
after the date of this prospectus. We may require additional capital in the
future. Our capital requirements are expected to include the funding of
operating losses, working capital requirements and other general corporate
purposes, including expansion of our network, advertising and content
development. We intend to repay our current credit facility and may pursue one
or more strategic alliances, partnerships, or acquisition transactions,
although, as of the date of this prospectus, we have no agreement to enter into
any material investment or acquisition transaction. We may need to raise
additional funds, however, to respond to business contingencies which may
include the need to:
. fund more rapid expansion;
. fund additional marketing expenditures;
. develop or acquire content, technology or services;
. enhance our operating infrastructure;
. respond to competitive pressures; or
. acquire complementary businesses.
Inflation
We do not believe that inflation has had a material adverse impact on our
business or operating results during the periods reflected above.
Year 2000 Disclosure
Many existing computer programs use only two digits, rather than four, to
represent a year. Accordingly, date-sensitive software or hardware written or
developed in this fashion may not be able to distinguish between 1900 and 2000,
and programs written in this manner that perform arithmetic operations,
comparisons or sorting of date fields may yield incorrect results when
processing a Year 2000 date. This Year 2000 problem could potentially cause
system failures or miscalculations that could disrupt operations.
Our State of Readiness
We have completed an initial analysis and risk assessment aimed at
identifying Year 2000 issues. Though it is impossible to be certain, we believe
that our mission critical systems and equipment are Year 2000 compliant.
Financial, Information Technology and Non-Information Technology Systems. We
have assessed all of our key financial, information technology and non-
information technology systems, and we believe that the actions required to
correct any non-compliant financial, information technology and non-information
technology
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systems have been completed. We may not have identified all system components
that could be affected by Year 2000 problems or all noncompliant components.
Therefore, we cannot be sure that we have identified all Year 2000 problems in
these systems or that any necessary corrective actions have been successfully
completed.
Third Party Vendors, Suppliers and Customers. We continue to contact all of
our significant suppliers and customers to determine the extent to which our
networks and systems are vulnerable to the failure of those
third parties to resolve their own Year 2000 issues. We have not received any
responses that indicate our networks and systems are vulnerable to such
failures. We are continuing to comply with federal guidelines related to the
registration and availability of Year 2000 status information for our products.
We have completed and made available all planned software and system upgrades
related to Year 2000 readiness for fielded products. We believe that all of our
current products are Year 2000 compliant and we have available upgrades for our
fielded legacy systems that represent the highest risk for Year 2000 non-
compliance. We have sent notices to known customers with appropriate
information relative to Year 2000 non-compliance of these legacy systems, and
instructions on how to contact us. We have not and do not plan to evaluate the
risks to us presented by noncompliant fielded products. We have not undertaken,
and will not undertake, an in-depth evaluation of the Year 2000 preparedness of
our suppliers and customers or such other third parties, as their ability to
adequately address Year 2000 issues is outside our control. There can be no
guarantee that their systems will be timely converted, or that any such
converted systems will interact properly with our systems, or that such
conversions, if not completed or improperly implemented, would not have a
material adverse effect on our systems.
Our Year 2000 Risk
Based on the efforts described above, we currently believe that our systems
are Year 2000 compliant. If our systems or those of our suppliers, vendors or
other third parties on which we rely are not Year 2000 compliant, we could,
among other things, fail to fulfill our contractual obligations with customers
in new or existing markets, face substantial claims by such customers and loss
of revenue, fail to bill our customers accurately and on a timely basis,
experience increased expenses associated with litigation, stabilization of
operations after critical systems failures and execution of contingency plans,
and be subject to the inability by customers and others to pay, on a timely
basis or at all, obligations owed to us. Although the adverse effects of any or
all of these events are not quantifiable at this time, any of these events
could have a material adverse effect on our business and operating results.
Our Contingency Plans
We have begun to develop contingency plans which anticipate our most likely
worst case Year 2000 scenarios, which have not yet been identified fully. We
intend to take appropriate actions to mitigate the effects of Year 2000 issues.
Such actions may include having arrangements for alternate suppliers and using
manual intervention where necessary. If it becomes necessary for us to take
these corrective actions, it is uncertain whether this would result in
significant interruptions in service or delays in business operations or
whether it would have a material adverse effect on our results of operations,
financial position or cash flow.
Our Year 2000 Remediation Costs
Our costs incurred to date in addressing the Year 2000 problem have not been
material. We have not deferred information technology projects due to Year 2000
expenses, and we do not expect our costs associated with remediating any Year
2000 problems to have a material adverse impact on our business. However, there
can be no assurance that the costs associated with the Year 2000 problem will
not be material.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board, or FASB, issued a
Statement of Financial Accounting Standards, or SFAS, No. 133, "Accounting for
Derivative Instruments and Hedging Activities."
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The new standard establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments imbedded in other
contracts (collectively referred to as derivatives), and for hedging
activities. In June 1999, the FASB issued SFAS No. 137 which deferred the
effective date of SFAS No. 133 for one year. SFAS No. 133 is now effective for
all fiscal quarters of fiscal years beginning after June 15, 2000. We do not
expect SFAS No. 133 to have a material effect on our financial position or
results of operations.
In February 1998, the Accounting Standards Executive Committee (AcSEC)
issued Statement of Position (SoP) 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." SoP 98-1 establishes the
accounting for costs of software products developed or purchased for internal
use, including when such costs should be capitalized. SoP 98-1 will be
effective for us beginning in fiscal 1999, and we do not expect adoption of
this SoP to have a material effect on our financial position or results of
operations.
In April 1998, the AcSEC issued SoP 98-5, "Reporting on the Costs of Start-
Up Activities." Start-up activities are defined broadly as those one-time
activities related to the opening of a new facility, introducing a new product
or service, conducting business in a new territory, conducting business with a
new class of customer, commencing some new operation or organizing a new
entity. SoP 98-5 requires that the cost of start-up activities be expensed as
incurred. SoP 98-5 is effective for us beginning in 1999, and we do not expect
adoption of this SoP to have a material effect on our financial position or
results of operations.
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BUSINESS
Overview
We provide workflow solutions for electronically managing and distributing
medical images and related patient information. Our products capture, compress,
transmit, route and store medical images, including x-rays, MRIs, CTs and
ultrasounds. Our offerings also permit the coordinated transmission and review
of images and related patient information over both proprietary networks and
the internet. Our customers are providers of radiology imaging and interpretive
services, including radiologists, hospitals and outpatient imaging facilities,
and often operate as part of complex health care networks. We believe that we
have the largest installed user base of any company in our business. Our
products are installed in approximately one of four U.S. imaging facilities and
provide image viewing capabilities in one of four U.S. radiologists' homes.
Our FrameWave products are modular in design and allow us to tailor
solutions to our customers' needs. This could entail providing an entire image
management workflow solution or individual applications that can be integrated
with the customer's existing products. FrameWave incorporates our advanced
proprietary software including our compression technology. We believe our
FrameWave technology provides us with a significant competitive advantage.
Building from this FrameWave technology, we have developed internet-based
offerings that provide secure access to images and other medical information
quickly and easily using any commercially available internet browser. We
believe this universal accessibility will expand the use of electronic image
management tools.
FrameWave Web and eMed_Web, which we intend to introduce later this year,
enable our customers to reduce costs and improve their service. Through the
individual eMed_Web sites we intend to establish and manage for our customers,
our customers will have FrameWave Web's integrated image and report management
capabilities as well as the opportunity to incorporate other clinical and
marketing information.
As part of our solutions, we provide our customers remote comprehensive
support services through our network operations center, which is fully staffed
24 hours a day, seven days a week. Because medical imaging is critical to
patient diagnosis and care, we believe that our customers highly value
comprehensive support services that increase the reliability of their medical
image management systems. Our network operations center personnel are able to
remotely monitor and manage customer systems in order to identify and resolve
system problems. These support services include the ability to remotely
diagnose problems related to portions of a customer's system provided by third
parties. The level of service we provide enables many customers to outsource
the technical management of their image distribution and management systems to
us.
Strategy
Our objective is to become the leading supplier of comprehensive, medical
imaging workflow solutions to health care providers by leveraging our advanced
technology and experience. Elements of our strategy to achieve this objective
include:
. Introducing eMed_Web websites. We intend to introduce our eMed_Web
website development and hosting service later this year. We believe that
eMed_Web will increase our market penetration, build a recurring revenue
base and generate other sources of revenue. We believe that offering the
ability to cost-effectively manage the accessibility and distribution of
imaging, marketing and other information over the internet will drive
the adoption of our eMed_Web sites.
. Expanding our sales by continuing to develop additional medical imaging
workflow solutions. We intend to expand our suite of medical imaging
workflow products and services. For example, the reports that accompany
medical images are generally prepared and stored through inefficient
dictation and transcription procedures. To address this inefficiency, we
intend to incorporate a speech-to-text transcription capability into our
workflow solutions. Also, reporting, scheduling and billing are
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currently maintained on separate information systems from medical
images. We believe that efficiencies can be achieved by eliminating the
need for redundant information systems. We intend eMed_Web to serve as a
platform for offering these additional workflow solutions.
. Leveraging our relationships with our installed users to increase
sales. We recently acquired E-Systems Medical Electronics in order to
access a significant installed user base which we believe is ripe for
upgrade. We will continue to aggressively market our internet-based and
other products to our installed user base. We believe that our installed
base of over 1,800 hospitals and outpatient imaging centers and over
7,000 radiologists provides us with a significant advantage in gaining
acceptance of and selling our current products and services, the
eMed_Web service and planned enhancements to our current workflow
solutions.
. Expanding our sales and marketing efforts. We believe there is a
significant opportunity for us to increase our revenues through expanded
sales and marketing efforts. Our success to date has been achieved with
modest sales and marketing efforts and we believe that by investing
additional resources, we can increase sales significantly. We intend to
devote significant additional resources to market and sell our products
and services to both new customers and our installed user base. We also
intend to expand the scope of our sales and marketing efforts into
promising international markets.
. Engaging in strategic acquisitions and relationships. We intend to
engage in acquisitions and enter into strategic relationships to
accelerate the implementation of elements of our strategy. We may pursue
acquisitions, partnerships or licensing arrangements to obtain
technology if we determine that to do so would be more cost effective or
timely than developing our own. We also may selectively continue to
broaden our user base through acquisitions to improve our economies of
scale.
Market Opportunity
Growing Market for Radiology Services. According to the Health Care
Financing Administration, or HCFA, total expenditures on health care services
in the United States were approximately $1.1 trillion in 1997 and are expected
to reach approximately $2.1 trillion by the year 2007. Based on historical
data, we believe that over 350 million radiology studies are conducted
annually, with an average per study cost of approximately $200. The number of
studies has grown due to the increasing usefulness of radiology as a non-
invasive diagnostic technique and the general aging of the U.S. population.
Medical imaging is critical to patient diagnosis and care across a broad
spectrum of health care procedures and disease states. Moreover, an increasing
proportion of these studies is produced in digital format from devices such as
MRIs and CTs. All states have record retention regulations which require
radiology images to be stored for several years.
Fragmented Industry Complicates Communications and Transactions. Radiology
images and information are used by a broad cross-section of industry
participants including radiologists, referring physicians, hospitals and
outpatient imaging centers. Today there are over 29,000 radiologists organized
into approximately 3,200 radiology practice groups serving approximately 2,350
imaging centers and over 5,000 hospitals. Referring physicians are a
particularly disparate group. Of the 740,000 physicians in the United States,
60% of them are either sole practitioners or practice in partnerships of only
two physicians. Efficient systems for the distribution, management and storage
of radiology images and information is critical to all of these constituencies.
The inability to easily access and the failure to appropriately manage this
information can result in unnecessary expense. HCFA estimates that
approximately 10% of all health care expenditures are the result of a
duplication of care due to missing patient information.
Inefficiencies in Workflow and Information Technology. Radiology images,
even those generated in a digital format, are typically printed to film for the
radiologist's interpretation. The current paradigm for a typical radiology
procedure is as follows: a technician produces the radiology images; the images
are printed to film and copies of the images are provided to the radiologist
for review and diagnosis; the radiologist dictates a report into a recorder; a
clerk transcribes the oral report into a first draft written report for the
radiologist's review; a final report is generated and distributed to the
referring physician and any consulting specialist; duplicate copies of the
images are produced and are delivered by courier to the referring physician and
any
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consulting specialist. Under this paradigm, it often takes 2 to 3 days to
produce a final report and to deliver the images and related report to the
referring physician. The significant costs associated with creating duplicate
film images for multiple users, delivering images to remote locations by
courier, creating reports using conventional transcription services, storing
reports and storing images on film represent inefficiencies in medical imaging
workflow which can be rectified with improved use of information and workflow
technology. Based on a 1996 Mayo Clinic report, for radiology images generated
each year, more than $5.6 billion is spent on radiology film and processing
costs and costs associated with the handling and storing of these films over
their lifetime. We estimate that the cost of conventional transcription of
dictated reports is approximately $950 million annually.
Competitive Pressure on Radiology Providers. Radiology, like other medical
specialties, has been fundamentally affected by change in the structure and
economics of U.S. health care. Health care payors and providers are forcing
radiologists and imaging facilities to reduce unit fees, improve the timeliness
and availability of interpretations and related patient images, and ensure the
availability of sub-specialist radiologists. This pressure has driven radiology
providers to look for ways to enhance their efficiency and to provide better
service to referring physicians and other constituencies. Many of these
improvements can be achieved through the use of electronic medical imaging
workflow solutions.
Growth of the Internet. The internet's open architecture, universal
accessibility and growing acceptance make it an increasingly important
environment for business-to-business and business-to-consumer interaction. Use
of the internet is rapidly expanding from simple information publishing,
messaging, and data gathering to critical business transactions and
confidential communications. The power and ability of the internet to connect
various participants in the health care industry, from physicians, to
hospitals, to patients, creates an opportunity to advance the state of
information technology in the health care industry. Internet-based workflow
solutions permit more efficient distribution of information over a broader
range of remote locations than proprietary dedicated networks. We believe that
physicians are increasingly using internet-based medical applications. We
believe that medical imaging workflow management is uniquely suited to benefit
from internet-based tools, given the fragmentation of the health care industry,
the amount and complexity of the data produced and the need for timely access
to medical imaging information.
eMed Solutions
We have worked with providers of radiology imaging and interpretive services
since 1992 to understand the inefficiencies in medical imaging workflow and to
design cost-effective solutions. Based on this insight, we have been able to
focus our efforts on solutions that provide our customers with cost savings,
increased efficiencies and competitive advantages. Our products and services
incorporate advanced technology and offer our customers the following
advantages:
Our advanced technology improves our customers' cost effectiveness. Our
advanced proprietary technology allows our customers to reduce their costs. For
example, we have pioneered the utilization in medical imaging of a file
compression technology known as "wavelet." This compression technology permits
users to compress very large data files required for film images like x-rays
into files as small as one-fiftieth the original size, without visible loss of
image quality. Other compression technologies typically achieve compression
ratios of one-half or one-third of their original size. Our compression
technology significantly reduces our customers' network transmission and data
storage costs. Using our FrameWave products, a medical image transmission which
would otherwise take up to 27 minutes in uncompressed form can be completed in
as little as 30 seconds.
Our products and services enable our customers to enhance their
competitiveness. Our products and services are designed to enhance our
customers' ability to market their services and to serve their customer base of
referring physicians. By designing our products to operate over the internet
with any commercially available internet browser, we enable our customers to
quickly and easily:
. provide remote access to medical images and related information; and
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. communicate medical and marketing information to their referring
physicians and other constituencies.
We believe this enhanced access to images and information will allow our
customers to provide faster, higher quality and more responsive service to
their referring physicians and other constituencies.
The modularity of our products and services permits us to tailor solutions
to our customers' needs. Our FrameWave products and eMed_Web are modular in
design and allow us to conform our products and services to our customers'
functionality and budget requirements. We can provide an entire image
management workflow solution. Alternatively, customers can integrate our
products and services on an application-by-application basis with systems
previously acquired from other vendors. For example, customers can obtain the
benefits of our internet offerings without replacing their existing medical
imaging management systems, modalities, or film printer networks.
We provide our customers with comprehensive support. Our comprehensive
support services increase the cost effectiveness and reliability of our
customers' medical imaging information systems. Because medical imaging is
critical to patient diagnosis and care, we believe that our customers highly
value comprehensive support services that increase the reliability of their
medical image management systems. Our network operations center personnel are
able to remotely monitor and manage customers' systems and identify and resolve
system problems. These services include the ability to remotely diagnose
problems throughout a customer's image distribution and management system,
including components of a system provided by the customer or other third party
vendors. Our comprehensive support service enables many customers to outsource
the technical management of their image distribution and management systems to
us.
Products and Services
Our products and services are sold as solutions tailored to the specific
needs of our customers. Our products generally consist of industry standard,
third-party hardware, elements of third party software and our proprietary
software. Our flagship products and services described below are currently
marketed and sold under the FrameWave brand name. In addition, we market
PACSPro image acquisition devices which we acquired through the E-Systems
Medical Electronics acquisition. Our internet-based offerings are designed to
enhance our customers' image management systems. Image management systems may
include image acquisition devices, image management servers, image review
workstations and electronic image archives. All of these products can be
purchased from us individually or in larger system configurations.
FrameWave Products
FrameWave Web. Our FrameWave Web product is an internet-based image and
report distribution system which enables access to images, together with
reports about the images, in an integrated presentation. FrameWave Web also
includes multiple security features for protection of the confidentiality of
patient information, including access control, information control and
transaction logging.
Image Acquisition Devices. Our image acquisition devices that convert hard-
copy x-rays into digital form include high-resolution scanners and our
proprietary software. Others use our proprietary software to directly obtain
images from equipment that creates them in electronic format. These images can
then be electronically distributed and managed in compliance with industry
standards. All of our image acquisition products feature graphical user
interfaces for ease of use.
Servers. We offer a variety of servers with advanced proprietary software
that compress, decompress, store and manage medical images and interface with
different medical information systems to provide an integrated view of related
patient information over a variety of networks. Our servers can be configured
in a variety of ways to meet the workflow and budget requirements of our
customers.
28
<PAGE>
Clinical Image Viewers. Our viewers are self-installable software products
that permit users to view medical images on personal computers while at home or
in the office through a telephone connection to a hospital. This product
includes both our proprietary software and software licensed from third
parties. FrameWave viewers support direct telephone connections to our network
operations center enabling remote support service.
Diagnostic Workstations. We offer high performance image display
workstations suitable for primary diagnostic use. Diagnostic workstations
consist of two or more high resolution, grayscale monitors and a workstation
running proprietary image manipulation and display software. Our workstations
offer a wide variety of image manipulation tools and are designed to comply
with the American College of Radiology Standards for Teleradiology. Our
workstation products are intended for use in a hospital, imaging center or
similar facility where patient diagnosis is performed.
Archives. We offer archives that provide cost-effective storage of digital
images. An archive includes our proprietary database management application for
the organization and retrieval of medical images. An archive permits short-term
and long-term storage capacity, both of which may be expanded through upgrades
following an initial purchase. The archives serve as economical alternatives to
the storage of hard copy films that health care professionals are required by
law to retain for several years.
Services
eMed_Web. eMed_Web is a website development and hosting service which
incorporates our FrameWave Web image and report management technology. With our
eMed_Web service, we intend to establish and manage individual customer
websites. Through these eMed_Web sites, our customers will be able to make
available images and related patient information remotely over the internet.
Health care professionals, including radiologists, will be able to access these
images and information with authorizing passwords. Also, eMed_Web sites will
provide customers the opportunity to incorporate other clinically relevant
information and marketing information targeted at their customers. In addition,
we intend eMed_Web to serve as a platform from which we can offer additional
workflow solutions and other information of interest to health care
professionals. The servers that will host the eMed_Web sites will be located at
customer sites and supported from our headquarters in Lexington, Massachusetts.
Customer Service and Training. Comprehensive, system-wide support is an
integral part of the solutions we offer our customers. Our network operations
center is staffed 24 hours a day, 7 days a week with engineers, application
specialists and clinical coordinators. Our products include remote diagnostics
technology which permits our network operations center to remotely assume
operation of a customer's equipment. This permits us to offer a high level of
support at relatively low cost. We market this comprehensive network-based
support service as a separate, purchasable offering, not included in the
customer's first-year warranty. Approximately 85% of our FrameWave customers
have purchased this enhanced service offering.
Our products are typically sold with a one year warranty. After the
expiration of the warranty, we encourage our customers to purchase annual
service contracts. Approximately 75% of our customers with FrameWave
applications have purchased post-warranty annual service contracts.
We sell installation services in connection with the sale of our products.
Upon completion of installation, we conduct formal training at the customer's
site in group settings and teach our customers through "hands on" instruction
on our products. We are certified by the American Association of Radiology
Technologists to train customer technologists in the use of our medical imaging
management systems. Because of this certification, training provided by our
employees satisfies three hours of required continuing education certification.
The average time from the beginning of installation through acceptance testing
is less than two weeks.
We outsource a portion of the on-site installation, training and repair
services described above to third party contractors as well as our independent
sales and service organizations.
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Sales and Marketing
We employ a direct sales force and we utilize independent sales and service
organizations. We manage our independent sales and service organizations to
complement our direct sales force. Members of our direct sales force are
assigned to regional territories and are responsible for customer activity
within their regions.
The independent sales and service organizations purchase products from us
and resell to their customers at prices they determine. Their customers execute
contracts directly with us covering warranty and other service and support. We
have also begun to train and engage a few of these organizations to provide on-
site service to customers under our supervision. These services include
installation, training and on-site repair.
Our marketing activities include telemarketing, advertisements in trade
journals and news releases to the trade press. The focus of our telemarketing
efforts is our installed user base. We also present our products at multiple
trade shows throughout the year. The most significant of these trade shows is
the Radiological Society of North America meeting held in late November of each
year.
Technology
We have historically developed products and services through our own
research and development, acquisitions and strategic relationships. As of
August 1, 1999, our engineering group included approximately one-fourth of our
employees. We will continue to pursue product and service development
internally as well as through strategic relationships.
The core technology employed in our internet application is what is referred
to as dynamic HTML, which is integrated with our compression technology. This
technology, which we license from AWARE, Inc., differs from typical HTML-based
applications due to the number, size, and grayscale characteristics of the
images. For example, one 14"X17" film, digitized at the resolution standard
adopted by the American College of Radiology Standards for Teleradiology,
results in excess of ten megabytes of data. Our internet server technology
delivers images, text, and voice over any internet connection, including dial-
up modem connections, with acceptable clinical performance. Our internet server
technology is browser-independent and employs layered security defenses against
unauthorized access, as well as secure socket layers, to ensure secure transfer
of information over the internet. Our internet server technology has been
jointly developed under an exclusive relationship with AWARE.
All of our products except our archive products operate on computers with
Intel Pentium processors that run the Microsoft Windows NT or Windows SQL
Server operating systems. Our archive products are built on the Sun Sparc
platform. We believe that the use of a well known and highly developed hardware
and operating system platform simplifies manufacturing and support, encourages
customer acceptance, and reduces the risks of technological obsolescence.
All of our FrameWave products are fully DICOM-compliant and all of our
current PACSPro products can be upgraded to be DICOM-compliant. DICOM, or
Digital Imaging Communications for Medicine, is an industry standard network
communications protocol that allows DICOM-compliant imaging modalities and
other image-related devices to directly communicate with each other without
proprietary interfaces or translations. In addition, our products comply with
the benchmarks for quality and professional practice established by the
American College of Radiology Standards for Teleradiology. Our comprehensive
support services facilitate our customers' quality assurance requirements
within these standards.
Production
Most of our products include some hardware components, our proprietary
software, and software licensed from others. All of the hardware components of
our products are acquired from third parties. We assemble and test components
and sub-assemblies acquired from vendors, and integrate our proprietary and
licensed application software programs. We operate under FDA Good Manufacturing
Practices rules, and we have
30
<PAGE>
registered with the FDA as a medical device manufacturer. We have elected to
rely on a limited number of suppliers for most of our components in order to
achieve more advantageous pricing through increased volume. However, we believe
that additional suppliers are available for our hardware components.
Our licensing agreement with AWARE regarding jointly developed web server
technology provides that we will have exclusive rights to this technology for
medical use through its termination on December 31, 2005 and have non-exclusive
rights for a period following termination. This agreement also provides that,
until the same date, AWARE will be our exclusive supplier of web-based image
viewing and distribution software for use in our products. We have agreed to
pay license fees to AWARE based upon the sales we make to our customers. We
have agreed to devote resources to marketing, support and further development
of our web product, and AWARE has agreed to devote engineering resources to
develop new features, applications and technology at our request. The web
server technology agreement provides that AWARE will have exclusive rights to
this technology for non-medical use, and will make royalty payments to us for
any licenses granted by AWARE to customers for non-medical use.
We license compression technology from AWARE under a separate agreement that
provides that we will have rights to this technology for medical use on a non-
exclusive basis through December 31, 2004. We have agreed to pay license fees
for compression technology to AWARE based upon the sales we make to our
customers.
Our licensing agreement for our image viewing software expires on March 31,
2000. Other software included in our products is licensed under a long-term
agreement which terminates on December 31, 2004. Both of these agreements
provide for payment of license fees based upon the number of copies of the
software we use, and require us to obtain signed agreements from our customers
containing specified software licensing provisions. In some cases we have
prepaid, or committed to pay, license fees for software not yet utilized in
order to obtain improved pricing or other benefits. If any of these agreements
expire or are terminated, we believe we would be able to obtain suitable
replacement vendors or internally develop substitute software.
Intellectual Property
We generally do not rely on patent protection for our products and services.
Instead, we rely on a combination of copyright and trade secret law, employee
and third party nondisclosure agreements, and other protective measures to
protect our intellectual property rights. Our policy is to require our
employees, contractors and consultants who may have access to our confidential
information, and parties to collaboration agreements to execute confidentiality
agreements upon the commencement of employment, consulting relationships or
collaborations. We also seek to continuously develop and improve our products
and services in order to offer features not available from our competitors. We
also rely on licensing opportunities to develop and maintain our competitive
positions.
We have registered the names "eMed," "FrameWave" and "PACSPro" as trademarks
with the United States Patent and Trademark Office and have reserved the
internet address: www.eMed.com.
We own three issued U.S. patents covering automated distribution of medical
images over data processing networks. Since this functionality is not yet
necessary in the way medical imaging applications are currently utilized, we
have not yet incorporated these into our products and services.
Competition
Competition in the medical image management market is intense. Competition
in our markets is based on price, functionality, reliability, reputation of the
vendor, and service. Our ability to maintain our competitive position will
depend on our ability to continue to innovate while maintaining quality and
customer satisfaction.
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A large number of companies offer medical imaging management and
distribution products that are competitive with ours, including internet-based
products. A number of smaller vendors offer products which compete with a
portion of our current product line. In addition, many of our competitors are
larger than we are, have been in business longer than we have, and have greater
financial, technical, research and development and sales and marketing
resources than we do. Several large multinational corporations, including Agfa,
Siemens, General Electric Medical Systems and Kodak compete in our market. Many
of our competitors have the resources to offer their products at greatly
discounted prices, or to offer functionality competitive with our products at
no charge in connection with the sale of related or complementary products or
systems. Customer decisions to purchase our products are often influenced by
the perceived stability and market recognition of the vendor. We may be at a
disadvantage because many of our competitors are better known and perceived as
less risky than we are.
Our current and future internet-based products and services will compete in
a market that is rapidly growing and not yet fully defined. A number of
companies have recently entered the field of medically related internet
services including Healtheon, CareInsite, and Medscape. We expect this trend to
continue. We also expect our business plan and the business plans of these
companies to overlap in time, creating both increased competition and
opportunities for strategic relationships.
Government Regulation
The manufacturing and marketing of our products are subject to FDA medical
device regulations in the United States and to similar regulations in other
countries by corresponding regulatory authorities. The FDA regulations govern
the testing, manufacture, labeling, record keeping, approval, advertising and
promotion of our products and services. The process of obtaining and
maintaining required regulatory clearances and approvals is lengthy, expensive
and uncertain. Our ability to market new products and improvements to existing
products will depend on obtaining new clearances and approvals in the future.
The FDA requires that a manufacturer seeking to market a new medical device
or an existing medical device for a new indication obtain either a premarket
notification clearance under section 510(k) of the Federal Food, Drug and
Cosmetic Act or the approval of a premarket approval application under this Act
prior to the marketing of the new device or commercializing the new indication.
Material changes to existing medical devices are also subject to FDA review and
clearance or approval prior to commercialization in the United States. Although
it is believed to be a shorter, less costly regulatory path than the process to
obtain approval of a premarket approval application, the process of obtaining a
510(k) clearance generally requires supporting data, which can be extensive and
can extend the regulatory review process for a considerable length of time. All
of our commercially available products have received 510(k) clearance from the
FDA.
We are also required to register as a medical device manufacturer with the
FDA and as a medical device distributor with the Texas Department of Health.
The FDA requires us to maintain detailed manufacturing records, device history
records and complaint logs. We are subject to inspection and audit by the FDA
for compliance with Good Manufacturing Practices (as defined by FDA rules) and
other applicable regulations. Our most recent FDA inspection and audit was
completed in the second quarter of 1999 and did not identify material problems.
Even after market introduction, the FDA continues to regulate the design,
manufacture and labeling of our medical products. Failure to comply with
applicable regulatory requirements could result in, among other things, warning
letters, seizures of products, total or partial suspension of production,
refusal of the FDA to grant clearances or approvals, withdrawal of existing
clearances or approvals, or criminal prosecution.
Sales of our products and services outside of the United States, which has
been minimal to date, are subject to foreign regulatory requirements that vary
widely from country to country. In Europe, we will be required to obtain the
certificates necessary to enable the CE Mark, an international symbol of
adherence to quality assurance standards and compliance with applicable
European Union Medical Device Directives, to be affixed to our products for
sales in member countries.
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Employees
As of September 17, 1999, we employed 110 persons. None of our employees
are represented by unions.
Properties
We maintain our headquarters and assembling facility in approximately
25,500 square feet of leased space in Lexington, Massachusetts. We also
maintain a sales and service facility in approximately 8,000 square feet of
leased space in San Antonio, Texas. We can provide all of our support services
from either our Lexington or San Antonio location. We believe that our
properties are adequate and suitable for their intended purposes.
Litigation
We are party to suits and regulatory proceedings arising in the ordinary
course of our business, none of which we believe are material.
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<PAGE>
MANAGEMENT
The following table sets forth information concerning our officers and
directors.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <C> <S>
Chief Executive Officer, President and
Scott S. Sheldon.......... 38 Director
Christine L. Chung........ Vice President -- Business Operations,
32 Corporate Secretary
Jerry Froelich, M.D....... 47 Chief Medical Officer
Gary A. Lortie............ Chief Financial Officer, Vice President --
40 Finance and Administration
David J. Mahoney.......... 36 Vice President -- Sales
Howard Pinsky............. 45 Chief Technology Officer
John Strauss.............. 44 Vice President -- Marketing
James J. Bochnowski....... 56 Director, Chairman of the Board
Thomas B. Neff............ 45 Director
Thomas O. Pyle............ 59 Director
Michael Schmertzler....... 47 Director
Donald E. Strange......... 55 Director
</TABLE>
Scott S. Sheldon has served as our President, Chief Executive Officer, and a
Director since he co-founded eMed in March 1992. From 1987 through 1992, he
held various positions in the Mergers and Acquisitions and Corporate Finance
Departments at Morgan Stanley.
Christine L. Chung has served in various senior capacities since joining
eMed in September 1992. She currently serves as Vice President of Business
Operations and Corporate Secretary. Prior to joining eMed, she served as a
strategy consultant for Monitor Company.
Jerry Froelich, M.D. has served as our Chief Medical Officer since August
1999. From 1990 until joining eMed, Dr. Froelich had been a partner in
Radiology Imaging Associates in Denver, Colorado. Radiology Imaging Associates
is a group of 42 sub-specialty radiologists which provides radiology service to
10 hospitals and 15 clinics. He was Medical Director of Radiology at the
Columbia Swedish Medical Center in Englewood, Colorado, and a Clinical
Associate Professor of Medicine at the University of Colorado.
Gary A. Lortie has served as our Chief Financial Officer and Vice President
of Finance and Administration since May 1998. From 1997 until joining eMed, Mr.
Lortie served as the Director of Corporate Development for the Biomedical
Division of Thermo Electron Corporation. From 1996 to 1997, Mr. Lortie served
as President for the Moisture Systems Division of Thermo Electron. From 1993 to
1995, he served as Director of Finance and Administration for Thermedics
Detection, a subsidiary of Thermo Electron. Mr. Lortie is a certified public
accountant.
David J. Mahoney has served as our Vice President of Sales since February
1998. Since 1988, Mr. Mahoney has held various sales and sales management
positions in the electronic medical imaging management industry. From 1997
until joining eMed, Mr. Mahoney was America's Sales Manager for General
Electric's Medical Systems Integrated Imaging Solutions Division. From 1996 to
1997, Mr. Mahoney held the position of Vice President of Sales for Lockheed
Martin's Medical Systems business until it was acquired by General Electric.
From 1995 to 1996, Mr. Mahoney held the position of National Sales Manager with
Loral's Medical Imaging Systems business until it was acquired by Lockheed
Martin. From 1988 until 1995, Mr. Mahoney held various positions with Advanced
Video Products/E-Systems, a predecessor company to eMed.
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<PAGE>
Howard Pinsky has served as our Chief Technology Officer since January 1993.
From 1992 until joining eMed, Mr. Pinsky was Vice President of Customer Service
for RSTAR, Inc., an electronic medical imaging management technology spin-off
of the Massachusetts General Hospital Department of Radiology. From 1987 to
1992, Mr. Pinsky was Senior Systems Consultant for Digital Equipment
Corporation's health care group.
John Strauss has served as our Vice President of Marketing since May 1999.
From 1990 until joining eMed, Mr. Strauss was Director of Marketing, Imaging
and Information Networks for Fuji Medical Systems U.S.A., Inc. and was
responsible for the electronic medical imaging and computed radiography product
lines.
James J. Bochnowski has served as one of our directors since July 1996 and
currently serves as our Chairman. Mr. Bochnowski has been a General Partner
with Delphi Ventures, a private venture capital firm providing financing and
supportive business expertise to young biomedical and health care companies,
since he co-founded Delphi Ventures in 1988.
Thomas B. Neff has served as one of our directors since November 1995. Mr.
Neff has been Chairman and Chief Executive Officer of FibroGen, Inc. which
produces recombinant collagen and gelatin and develops anti-fibrosis therapies,
since 1993. Mr. Neff has also been General Partner of Three Arch Bay Health
Sciences Fund, a private investment fund focused on emerging biomedical
companies, since 1993. Mr. Neff has also been General Partner of Pharmaceutical
Partners I and Pharmaceutical Partners II since 1993 and 1994.
Thomas O. Pyle has served as one of our directors since June 1993. He has
been the Chairman of Interstudy, a leading health policy organization, and
Chairman of its affiliate, The Jackson Hole Group. From 1972 to 1991, Mr. Pyle
held various senior management positions at Harvard Community Health Plan,
becoming its President, Chief Executive Officer and a member of its Board of
Directors in 1978. From October 1993 to September 1994, Mr. Pyle served as
Chief Executive Officer of MetLife HealthCare Management Corp., Inc. He serves
as a director of Millipore Corporation, Lincare Holdings Inc. and various other
private companies.
Michael Schmertzler has served as a director since he co-founded eMed in
March 1992. Since 1997, Mr. Schmertzler has served as a Managing Director of
Credit Suisse First Boston and co-head of the United States and Canadian
investment activities of its Private Equity Division. From 1992 to 1994, Mr.
Schmertzler was a Managing Director of MS Partners Inc., a general partner of
MSX Public Life Sciences Fund. Prior to that, he was a Managing Director of
Morgan Stanley and Lehman Brothers Kuhn Loeb.
Donald E. Strange has served as one of our directors since June 1993. From
1996 until 1998, Mr. Strange served as Chief Executive Officer, President and
Chairman of the Board of First New England Dental Centers, Inc. Prior thereto,
Mr. Strange served as Chairman and Chief Executive Officer of TRANSCare, a
leading provider of patient transportation services. Since 1974, Mr. Strange
has served in various senior management capacities at Hospital Corporation of
America, Avon's Health Care Group, and EPIC Health Care Group. He currently
serves on the Board of Directors of Bon Secours Health System Inc. First New
England Dental Centers, Inc. filed for bankruptcy in February 1998.
Board of Directors
Upon consummation of this offering, our board of directors will be divided
into three classes, with each class of directors to serve three-year staggered
terms (after their initial terms), subject to election and qualification of
their successors or their earlier death, resignation or removal. Messrs.
Sheldon and Schmertzler will serve for an initial one-year term expiring at our
annual meeting in 2000. Messrs. Bochnowski and Pyle will serve for an initial
two-year term expiring at our annual meeting in 2001. Messrs. Neff and Strange
will serve for an initial three-year term expiring in 2002. Our executive
officers are elected by the board of directors and serve at the discretion of
the Board.
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<PAGE>
Committees
The board of directors has established a compensation committee and an audit
committee. The compensation committee, consisting of Messrs. Bochnowski, Neff
and Strange recommends salaries and bonuses and other compensation matters for
our officers and makes recommendations regarding our stock plans. None of these
members has served as an officer of eMed. The audit committee, consisting of
Messrs. Pyle and Schmertzler, has the authority to recommend the appointment of
our independent auditors and to review the results and scope of audits,
internal accounting controls and tax and other accounting-related matters.
Director Compensation
Non-employee directors are reimbursed for their expenses of attending
meetings, but currently do not receive any cash compensation for their
services. We expect, however, that in the future, non-employee directors will
be paid an annual cash retainer in addition to being reimbursed for all
reasonable expenses incurred in attending meetings. On February 4, 1999, we
granted Messrs. Bochnowski, Neff, Pyle, Schmertzler and Strange options to
purchase 6,250 shares of our common stock at a purchase price of $1.20 per
share. On June 30, 1999, we granted Messrs. Bochnowski, Neff, Pyle, Schmertzler
and Strange options to purchase 6,250 shares of our common stock at a purchase
price of $2.04 per share.
Executive Compensation
The following table shows the cash compensation paid or accrued for the year
ended December 31, 1998, to our Chief Executive Officer and to each of our
three highest paid executive officers other than the Chief Executive Officer
who received more than $100,000 in salary and bonus during the year ended
December 31, 1998 (the "Named Executive Officers"). No other executive officer
received more than $100,000 in salary and bonus during this period.
<TABLE>
<CAPTION>
Annual Long-Term
Compensation Compensation
------------ ----------------
Shares of Common
Stock Underlying All Other
Name and Principal Position Salary($) Options (#) Compensation ($)
- --------------------------- ------------ ---------------- ----------------
<S> <C> <C> <C>
Scott S. Sheldon................ $160,500 166,666 $ 1,538(3)
Chief Executive Officer and
President
Howard Pinsky................... $136,800 125,000 $ 8,656(4)
Chief Technology Officer
David J. Mahoney(1)............. $107,100 25,000 $12,880(5)
Vice-President -- Sales
Howard B. Kaufman(2)............ $106,700 4,166 $ 1,143(3)
Vice-President -- Operations
</TABLE>
- --------
(1) Mr. Mahoney joined eMed in February 1999.
(2) Mr. Kaufman resigned his position as an officer of eMed in March 1999.
(3) Represents premiums paid on term life insurance policies.
(4) Represents an annual car allowance of $7,200 and premiums of $1,456 paid on
a term life insurance policy.
(5) Represents commissions of $11,747 and premiums of $1,133 paid on a term
life insurance policy.
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<PAGE>
Option Grants in Last Fiscal Year
The following table sets forth grants of stock options to the Named
Executive Officers for the year ended December 31, 1998. We have not granted
any stock appreciation rights during 1998. The potential realizable value is
calculated based on the term of the option at its date of grant. It is
calculated assuming that the fair market value of our common stock on the date
of grant appreciates at the indicated annual rates compounded annually for the
entire term of the option and that the option is exercised and sold on the last
day of its term for the appreciated stock price. These numbers are calculated
based on the requirements of the Securities and Exchange Commission and do not
reflect our estimate of future stock price growth. The percentage of total
options granted to employees in the last fiscal year is based on options to
purchase an aggregate of shares of common stock granted to employees for the
year ended December 31, 1998. All options were granted at fair market value on
the date of grant as determined by the board of directors, unless otherwise
indicated.
<TABLE>
<CAPTION>
Potential
Realizable Value
at Assumed
Annual Rates of
Stock Price
Appreciation for
Individual Grants Option Term
----------------------------------------------- ------------------
Shares of
Common Percent of
Stock Total Options
Underlying Granted to Exercise
Options Employees in Price Per Expiration
Name Granted Fiscal Year Share Date 5% 10%
- ---- ---------- ------------- --------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Scott S. Sheldon........ 166,666(1) 30% $1.20 3/31/08 124,000 320,000
Howard Pinsky........... 125,000(1) 22% $1.20 3/31/08 93,000 240,000
David J. Mahoney........ 25,000(2) 5% $1.20 1/1/06 14,400 34,200
Howard B. Kaufman....... 4,166(3) 1% $1.20 3/31/08 3,100 8,000
</TABLE>
- --------
(1) Options vest 6.25% each fiscal quarter following the date of grant.
(2) Options vest 100% on the fourth anniversary of the date of grant, provided
that, if Mr. Mahoney is terminated without cause, a portion of the options
will vest equal to 6.25% multiplied by the number of fiscal quarters since
the date of grant to termination.
(3) 1,302 of the options vested and were exercised by Mr. Kaufman. The
remaining 2,864 options were canceled on March 31, 1999.
Fiscal Year-End Option Values
The table below sets forth information for the Named Executive Officers with
respect to options exercised during the fiscal year ended December 31, 1998 and
options held as of December 31, 1998. There was no public trading market for
our common stock as of December 31, 1998. Accordingly, the values in the table
have been calculated on the basis of an assumed initial public offering price
of $13.00 per share less the applicable exercise price.
<TABLE>
<CAPTION>
Number of Shares of
Common Stock Underlying Value of Unexercised
Common Unexercised Options In-the-Money Options at
Stock at Fiscal Year End (#) Fiscal Year End
Acquired on Value ------------------------- -------------------------
Name Exercise (#) Realized Exercisable Unexercisable Exercisable Unexercisable
- ---- ------------ -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Scott S. Sheldon........ 0 -- 84,604 129,909 1,532,926 998,327
Howard Pinsky........... 0 -- 74,971 116,015 886,194 1,369,036
David J. Mahoney........ 0 -- 0 25,000 0 295,000
Howard B. Kaufman....... 0 -- 4,686 7,814 55,295 92,205
</TABLE>
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<PAGE>
Compensation Committee Interlocks and Insider Participation
Series G Preferred Stock From March through June 1996, we sold an aggregate
of 771 shares of Series G preferred stock for net proceeds of $3,848,000
including $217,000 in face amounts of convertible debt and redeemable preferred
stock that were exchanged for shares of Series G preferred stock. On the
closing of this offering, each share of Series G preferred stock will convert
into 1,388.89 shares of common stock. The early investors in the Series G
financing also received warrants to purchase an aggregate of 64,774 shares of
common stock at an exercise price of $1.20 per share. Three Arch Bay Health
Sciences Fund, which holds more than 5% of our common stock and for which
Thomas Neff, our director, has management authority, and related persons
purchased an aggregate of 540 shares of Series G preferred stock, together with
warrants to purchase 50,000 shares of common stock.
1997 Convertible Note Transaction, Series J Preferred Stock In June 1997, we
sold $1.5 million in principal amount of convertible subordinated notes for
aggregate proceeds of $1.5 million. These notes were automatically convertible,
upon our sale of new equity securities for gross proceeds of at least $1.5
million, into securities having the same price and terms as the new equity
securities. Purchasers of the notes also received warrants to purchase an
additional amount of the new equity securities having an aggregate purchase
price of 30% of the amount of the purchaser's note, in exchange for their
commitments to purchase the notes, at the same price that such new equity
securities were issued to other investors. The notes had a maturity date of
October 31, 1997 and bore interest at the rate of 6.0% per annum. Accrued
interest converted on the same terms as the principal amount of the notes. In
September 1997, these notes were automatically converted into 1,384,460 shares
of our Series J preferred stock at a conversion price of $1.10 per share of
Series J preferred stock. The warrants issued with the notes became warrants to
purchase 409,091 shares of Series J preferred stock at an exercise price of
$1.10 per share. On the closing of this offering, each share of Series J
preferred stock will convert into 0.42 share of common stock and the Series J
warrants will become rights to purchase 170,449 shares of common stock.
Three Arch Bay and related persons received warrants to purchase 204,545
shares of Series J preferred stock at an exercise price of $1.10 per share in
connection with their commitment to purchase $750,000 in principal amount of
the convertible subordinated notes. These convertible notes were converted into
691,240 shares of Series J preferred stock. Delphi Ventures III, L.P. and
Delphi Bioinvestments III, L.P., which collectively hold more than 5% of our
common stock and for each of which James Bochnowski, our director, has
management authority, purchased an aggregate of $525,000 in principal amount of
convertible subordinated notes, which were converted into 477,273 shares of
Series J preferred stock, and received warrants exercisable for 143,182 shares
of Series J preferred stock at an exercise price of $1.10 per share.
Series K Preferred Stock In July 1998, various investors entered into
commitments with us to purchase shares of our Series K preferred stock for an
aggregate price of $2.5 million if we notified them of our election to sell the
shares. These commitments provided that the Series K preferred stock would be
issued at a price per share of either $1.40 or $1.50 per share depending on
when we delivered notice of our election to sell. On the closing of this
offering, each share of Series K preferred stock will convert into one share of
our common stock. The investors who made these commitments were eligible to
receive warrants at the time of their commitments to purchase in the aggregate
201,388 shares of our common stock at an exercise price of $0.02 per share as
consideration for their commitments. The exercisability of the warrants was
made subject to satisfaction of the Series K preferred stock purchase
commitment if we elected to sell the shares. Three Arch Bay committed to
purchase shares of Series K preferred stock for an aggregate of $500,000 and
was eligible to receive as consideration warrants to purchase 40,277 shares of
common stock.
In January 1999, we elected to draw upon the initial investors' commitments
to purchase Series K preferred stock. We sold additional shares of Series K
preferred stock together with warrants to purchase additional shares of our
common stock at an exercise price of $0.02 per share to other investors. In
January we sold, in the aggregate, 2,500,000 shares of Series K preferred stock
together with warrants to purchase 281,916 shares of common stock. Delphi
Ventures and Delphi Bioinvestments purchased 178,571 shares of Series K
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<PAGE>
preferred stock and warrants to purchase 20,138 shares of common stock for
aggregate consideration of $250,000. We and Three Arch Bay amended Three Arch
Bay's commitment to purchase Series K preferred stock to release Three Arch Bay
from its obligation to purchase Series K preferred stock and to void the
warrants previously issued to it.
Employment Contracts
Scott S. Sheldon. We are a party to an employment agreement with Scott S.
Sheldon. The term of the agreement is until December 31, 2000, although we may,
by mutual agreement, extend the agreement for successive one-year terms.
Pursuant to the agreement, we are obligated to pay Mr. Sheldon an annual salary
of at least $175,000 beginning in April 1999. Mr. Sheldon is eligible to earn
incentive compensation in an amount and on terms mutually agreed upon. In the
event that we elect not to renew Mr. Sheldon's agreement or he is terminated
without cause or other events which would constitute a constructive termination
without cause, he would receive a severance payment of $95,000. However, if
that termination occurs within 12 months after a change in control, he would
receive 12 monthly installments of his base salary. If Mr. Sheldon's employment
terminates due to his death, his beneficiaries would receive six monthly
installments of his base salary after his death. If Mr. Sheldon's employment is
terminated for any of the foregoing reasons, or if his employment is terminated
due to disability, then he or his legal representative would maintain the right
to exercise any stock option which is then exercisable, other than an incentive
stock option, for the remainder of its term. On a change of control of eMed,
all of Mr. Sheldon's stock options will vest and become exercisable.
Howard Pinsky. We are a party to an employment agreement with Howard Pinsky.
The term of the agreement is until December 31, 2000, although we may, by
mutual agreement, extend the agreement for successive one-year terms. Pursuant
to the agreement, we are obligated to pay Mr. Pinsky an annual salary of at
least $160,000 beginning in April 1999. Mr. Pinsky is eligible to earn
incentive compensation in an amount and on terms mutually agreed upon. In the
event that we elect not to renew Mr. Pinsky's agreement or he is terminated
without cause or other events which would constitute a constructive termination
without cause, he would receive a severance payment of $86,000. However, if
that termination occurs within 12 months after a change in control, he would
receive 12 monthly installments of his base salary. If Mr. Pinsky's employment
terminates due to his death, his beneficiaries would receive six monthly
installments of his base salary after his death. If Mr. Pinsky's employment is
terminated for any of the foregoing reasons, or if his employment is terminated
due to disability, then he or his legal representative would maintain the right
to exercise any stock option which is then exercisable, other than an incentive
stock option, for the remainder of its term. On a change of control of eMed,
all of Mr. Pinsky's stock options will vest and become exercisable.
1994 Stock Plan
Our 1994 Stock Plan provides for the grant of incentive stock options and
non-qualified stock options, stock awards and stock purchase rights for the
purchase of shares of our common stock. The number of shares issuable pursuant
to the 1994 Stock Plan is 2,062,500. Our board of directors is responsible for
the administration of the plan and determines the term of each option, the
option exercise price, the number of shares for which each option may be
granted and the rate at which each option is exercisable. The board may grant
incentive stock options only to employees, at an exercise price per share of
not less than the fair market value per share on the date of grant and not less
than 110% of fair market value in the case of holders of more than 10% of our
voting stock. Non-qualified stock options, awards and stock purchase rights may
be granted to any officer, employee, consultant or director. Grants under the
1994 Stock Plan cannot be made after August 10, 2004. As of September 17, 1999,
279,283 options are available for grant under the 1994 Stock Plan.
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PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of our common stock as of September 17, 1999 and as adjusted to
reflect the sale of the shares offered by us in this offering for (1) each
person who is known by us to own beneficially more than five percent (5%) of
our outstanding shares of common stock, (2) each director and Named Executive
Officer, and (3) all directors and executive officers as a group. As of
September 17, 1999, there were 8,413,475 shares of outstanding common stock.
The table assumes the conversion of all outstanding preferred stock into common
stock. Unless otherwise indicated below, to our knowledge, all persons listed
below have sole voting and investment power with respect to their shares of
common stock, except to the extent authority is shared by spouses under
applicable law. Unless otherwise indicated, each entity or person listed below
maintains a mailing address of c/o eMed Technologies, 25 Hartwell Avenue,
Lexington, MA 02421.
<TABLE>
<CAPTION>
Percentage of
Common Stock
Beneficially Owned
Shares ------------------
Beneficially Prior to After the
Name of Beneficial Owner Owned Offering Offering
- ------------------------ ------------ -------- ---------
<S> <C> <C> <C>
Scott S. Sheldon(1)........................... 261,488 3.1% 2.2%
Howard Pinsky(2).............................. 114,811 1.3% 1.0%
Howard B. Kaufman............................. 0 * *
David J. Mahoney.............................. 0 * *
James J. Bochnowski........................... 936,389 11.0% 8.1%
Delphi Ventures III, L.P. and affiliated
entities(3)
3000 Sand Hill Road
Building 1, Suite 135
Menlo Park, CA 94025
Thomas B. Neff................................ 920,472 10.9% 8.0%
Three Arch Bay Health Sciences Fund and
affiliated entities(4)
c/o FibroGen, Inc.
225 Gateway Blvd.
South San Francisco, CA 94080
Thomas O. Pyle(5)............................. 31,570 * *
Michael Schmertzler(6)........................ 319,721 3.8% 2.8%
Donald E. Strange(7).......................... 33,554 * *
Bedrock Capital Partners I, L.P. and affili- 861,490 10.2% 7.5%
ated entities(8).............................
One Maritime Plaza, Suite 500
San Francisco, CA 94111
Bessemer Venture Partners IV L.P. and related 700,567 8.3% 6.1%
entities(9)..................................
83 Walnut Street
Wellesley Hills, MA 02481
Pacific Venture Group, L.P. and an affiliated 1,325,448 15.7% 11.5%
entity(10)...................................
15635 Alton Parkway, Suite 230
Irvine, CA 92618
Seaflower BioVenture Fund II, LLC and an af- 606,559 7.1% 5.2%
filiated entity(11)..........................
1000 Winter Street, Suite 1000
Waltham, MA 02451
All directors and executive officers as a
group (12 persons)(12)....................... 2,690,579 30.0% 22.3%
</TABLE>
- --------
* Less than one percent
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The number of shares beneficially owned by each stockholder is determined
in accordance with the rules of the Securities and Exchange Commission and
are not necessarily indicative of beneficial ownership for any other
purpose. Under these rules, beneficial ownership includes those shares of
common stock that the stockholder has sole or shared voting or investment
power and any shares of common stock that the stockholder has right to
acquire within 60 days after September 17, 1999 through the exercise of
any option, warrant or other right. The percentage ownership of the
outstanding common stock, however, is based on the assumption, expressly
required by the rules of the Securities and Exchange Commission, that only
the person or entity whose ownership is being reported has converted
options or warrants into shares of common stock.
(1) Represents 147,947 shares issuable to Mr. Sheldon upon the exercise of
options exercisable within 60 days of September 17, 1999, 83,333 shares
held by Scott Sheldon and Kimberly Howard-Sheldon as joint tenants with
right of survivorship and 30,208 shares held by the Sheldon Children's
1999 Irrevocable Trust.
(2) Represents 114,811 shares issuable to Mr. Pinsky upon the exercise of
options exercisable within 60 days of September 17, 1999.
(3) Represents:
. 22,916 shares held by Mr. Bochnowski.
. 1,562 shares issuable to Mr. Bochnowski upon the exercise of options
exercisable within 60 days of September 17, 1999.
. 817,405 shares held by Delphi Ventures III, L.P. and 78,386 shares
issuable to Delphi Ventures III, L.P. upon the exercise of warrants
exercisable within 60 days of September 17, 1999.
. 14,709 shares held by Delphi Bioinvestments III, L.P. and 1,411 shares
issuable to Delphi Bioinvestments III, L.P. upon the exercise of
warrants exercisable within 60 days of September 17, 1999.
Mr. Bochnowski, a director of eMed and a managing member of Delphi
Management Partners III, L.L.C., which is the general partner of the
partnerships listed above, may be deemed to share voting and dispositive
power with respect to the shares listed above and not held by him
individually, and disclaims beneficial ownership of such shares.
(4) Represents:
. 51,466 shares held by Mr. Neff.
. 25,520 shares issuable to Mr. Neff upon the exercise of options
exercisable within 60 days of September 17, 1999.
. 710,799 shares held by Three Arch Bay Health Sciences Fund.
. 99,919 shares held by Thomas B. Neff Family Partnership and 32,768
shares issuable to Thomas B. Neff Family Partnership upon the exercise
of warrants exercisable within 60 days of September 17, 1999.
Mr. Neff is a director of eMed and general partner of Three Arch Bay
Health Sciences Fund and Thomas B. Neff Family Partnership.
(5) Represents 31,570 shares issuable to Mr. Pyle upon the exercise of options
exercisable within 60 days of September 17, 1999.
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<PAGE>
(6) Includes 54,010 shares issuable to Mr. Schmertzler upon the exercise of
options and warrants exercisable within 60 days of September 17, 1999.
(7) Includes 31,570 shares issuable to Mr. Strange upon the exercise of
options exercisable within 60 days of September 17, 1999.
(8) Represents:
. 751,219 shares held by Bedrock Capital Partners I, L.P. and 18,784
shares issuable to Bedrock Capital Partners I, L.P. upon the exercise of
warrants exercisable within 60 days of September 17, 1999.
. 40,785 shares held by Credit Suisse First Boston Bedrock Fund, L.P. and
787 shares issuable to Credit Suisse First Boston Bedrock Fund, L.P.
upon the exercise of warrants exercisable within 60 days of September
17, 1999.
. 39,973 shares held by VBW Employee Bedrock Fund, L.P. and 567 shares
issuable to VBW Employee Bedrock Fund, L.P. upon the exercise of
warrants exercisable within 60 days of September 17, 1999.
. 9,375 shares issuable to Jason Rosenbluth upon the exercise of options
exercisable within 60 days of September 17, 1999.
All of the partnerships listed above are managed by Bedrock General Partner
I, LLC. Bedrock Capital Partners I shares voting and dispositive power over
the shares held by Mr. Rosenbluth pursuant to contractual arrangements and
therefore may be considered the beneficial owner of these shares.
(9) Represents:
. 239,128 shares held by Bessemer Venture Partners IV L.P. and 7,314
shares issuable to Bessemer Venture Partners IV L.P. upon the exercise
of warrants exercisable within 60 days of September 17, 1999.
. 238,686 shares held by Bessec Ventures IV L.P. and 7,194 shares issuable
to Bessec Ventures IV L.P. upon the exercise of warrants exercisable
within 60 days of September 17, 1999.
. 68,046 shares held by Bessemer Venture Investors L.P. and 2,013 shares
issuable to Bessemer Venture Investors L.P. upon the exercise of
warrants exercisable within 60 days of September 17, 1999.
. 28,546 shares held by BVP IV Special Situations L.P. and 845 shares
issuable to BVP IV Special Situations L.P. upon the exercise of warrants
exercisable within 60 days of September 17, 1999.
. An aggregate of 106,036 shares held by, and 2,759 shares issuable upon
the exercise of warrants exercisable within 60 days of September 17,
1999 to William T. Burgin, Neill H. Brownstein, Robert H. Buescher, G.
Felda Hardymon, Christopher Gabrieli, the Gabrieli Family Foundation,
Michael I. Barach, David J. Cowan, Bruce K. Graham, Ravi B. Mhatre,
Gautam A. Prakash, Robi L. Soni, Joanna A. Strober, Craighall
Corporation, Richard R. Davis, Conaly Partners, Lindsay 1994 Family
Partnership, L.P., Rothfeld 1994 Family Partnership, L.P., John G.
MacDonald, Howard S. Markowitz, Edward Park, Robert J.S. Roriston,
Steven L. Williamson, and Woods 1994 Family Partnership, L.P.
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<PAGE>
Deer IV & Co. LLC is the general partner of each of the partnerships listed
in the first four paragraphs of this footnote. The individuals and entities
listed in the fifth paragraph of this footnote are managers, members,
former members or employees of, or otherwise associated with, Deer IV &
Co., Deer II & Co. LLC (a company engaging in activities similar to those
of Deer IV & Co.) or Bessemer Securities Corporation, or entities in which
such persons hold beneficial interests. Bessemer Securities Corporation and
its related entities comprise the limited partners of Bessemer Venture
Partners IV and Bessec Ventures IV. The limited partners of BVP IV Special
Situations are non-employee directors of Bessemer Securities Corporation.
Pursuant to the rules of the Securities and Exchange Commission, each of
the above individuals and entities may be deemed to be members of a group.
(10) Represents:
. 1,227,619 shares held by Pacific Venture Group, L.P. and 38,473 shares
issuable to Pacific Venture Group, L.P. upon the exercise of warrants
exercisable within 60 days of September 17, 1999.
. 57,552 shares held by PVG Associates, L.P. and 1,804 shares issuable to
PVG Associates, L.P. upon the exercise of warrants exercisable within 60
days of September 17, 1999.
PVG Equity Partners, L.L.C. is the general partner of both of the
partnerships listed above.
(11) Represents:
. 290,178 shares held by Seaflower BioVenture Fund II, LLC and 78,543
shares issuable to Seaflower BioVenture Fund II, LLC upon the exercise
of warrants exercisable within 60 days of September 17, 1999.
. 210,655 shares held by Seaflower Health and Technology Fund, LLC and
27,183 shares issuable to Seaflower Health and Technology Fund, LLC upon
the exercise of warrants exercisable within 60 days of September 17,
1999.
James Sherblom is the general manager of both of the limited liability
companies listed above.
(12) Represents:
. Shares described in notes 1, 2, 3, 4, 5, 6 and 7 above.
. 21,959 shares held by, and 50,613 shares issuable to, executive officers
not listed in the notes above upon exercise of options exercisable
within 60 days of September 17, 1999, officers of eMed not listed in the
table above.
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<PAGE>
CERTAIN TRANSACTIONS
In addition to the transactions described under "Compensation Committee
Interlocks and Insider Participation" the following describes transactions in
which our directors and principal shareholders have participated.
Series G Preferred Stock
In 1996, Michael Schmertzler received 23.3 shares of Series G preferred
stock and warrants to purchase 1,944 shares of common stock in exchange for
$117,000 in face amount of our Series A redeemable preferred stock then held by
Mr. Schmertzler.
Series K Preferred Stock
Pursuant to their July 1998 commitments, in January 1999 Bedrock Capital
Partners I, L.P., VBW Employee Bedrock Fund, L.P. and Credit Suisse First
Boston Bedrock Fund L.P., which collectively own more than 5% of our common
stock and for each of which Jason Rosenbluth, who was at the time a director,
has management authority, purchased 178,571 shares of Series K preferred stock
and warrants to purchase 20,138 shares of common stock for aggregate
consideration of $250,000. Pacific Venture Group, L.P. and PVG Associates,
L.P., which collectively hold more than 5% of our common stock, purchased
357,142 shares of Series K preferred stock and warrants to purchase 40,277
shares of common stock for aggregate consideration of $500,000. Bessemer
Venture Partners IV, L.P., Bessec Ventures IV, L.P., and associated investors,
who collectively hold more than 5% of our common stock, purchased 178,571
shares of Series K preferred stock and warrants to purchase 20,138 shares of
common stock for aggregate consideration of $250,000.
44
<PAGE>
DESCRIPTION OF CAPITAL STOCK
General
Our amended and restated certificate of incorporation, which will become
effective upon the closing of this offering, authorizes the issuance of up to
35,000,000 shares of common stock, par value $0.01 per share and 15,000,000
shares of preferred stock, par value $0.01 per share, the rights and
preferences of which may be established from time to time by our board of
directors. As of September 17, 1999, 8,413,475 shares of common stock were
outstanding, held of record by 161 stockholders. As of September 17, 1999,
options were outstanding which are exercisable for 1,696,598 shares of common
stock at a weighted average exercise price of $1.51 per share. Also as of
September 17, 1999, there were warrants to purchase 522,440 shares of common
stock at exercise prices from $0.02 to $1.20 per share and warrants to purchase
409,091 shares of Series J preferred stock at an exercise price of $1.10 per
share. Upon the closing of this offering, the warrants to purchase Series J
preferred stock will become warrants to purchase 170,449 shares of common
stock. Also, as of September 17, 1999, 279,283 additional shares of our common
stock had been reserved for issuance under our stock plans.
Common Stock
Under our amended and restated certificate of incorporation, holders of our
common stock are entitled to one vote for each share held of record on all
matters submitted to a vote of the stockholders, including the election of
directors. They do not have cumulative voting rights. Subject to preferences
that may be applicable to any outstanding series of preferred stock, holders of
our common stock are entitled to share ratably in any dividends that may be
declared by the board of directors out of legally available funds. In case of a
liquidation, dissolution or winding up of eMed, the holders of common stock
will be entitled to share ratably in the net assets legally available for
distribution to shareholders, in each case after payment of all of our
liabilities and subject to preferences that may be applicable to any series of
preferred stock then outstanding. The holders of common stock have no
preemptive or conversion rights or other subscription rights. There are no
redemption or sinking fund provisions applicable to the common stock. The
rights, preferences and privileges of holders of common stock are subject to
the rights of the holders of shares of any series of preferred stock that we
may designate and issue in the future. After the closing of this offering,
there will be no shares of preferred stock outstanding.
Preferred Stock
Under our amended and restated certificate of incorporation, our board of
directors has the authority, without further action by the stockholders, to
issue from time to time, shares of preferred stock in one or more series. The
board of directors may fix the number of shares, designations, preferences,
powers and other special rights of the preferred stock. The preferences,
powers, rights and restrictions of different series of preferred stock may
differ. The issuance of preferred stock could decrease the amount of earnings
and assets available for distribution to holders of common stock or affect
adversely the rights and powers, including voting rights, of the holders of
common stock. The issuance may also have the effect of discouraging, delaying
or preventing a change in control of eMed, regardless of whether the
transaction may be beneficial to stockholders. We have no current plans to
issue any additional shares of preferred stock.
Liability of Directors
Our amended and restated certificate of incorporation provides that our
directors shall not be liable to eMed or its stockholders for monetary damages
for any breach of fiduciary duty, except to the extent otherwise required by
the Delaware General Corporation Law. This provision will not prevent our
stockholders from obtaining injunctive or other relief against our directors.
This provision also does not shield our directors from liability under federal
or state securities laws.
45
<PAGE>
Antitakeover Effects of Delaware Law and Our Amended and Restated Certificate
of Incorporation and By-laws
Certain provisions of the Delaware General Corporation Law and our amended
and restated certificate of incorporation and amended and restated by-laws may
be deemed to have an antitakeover effect and may discourage, delay or prevent a
tender offer or takeover attempt that a stockholder might consider to be in its
best interest, including those attempts that might result in a premium over the
market price for the shares held by stockholders. These provisions are
summarized in the following paragraphs.
Delaware Anti-Takeover Laws. We will be subject to Section 203 of the
Delaware General Corporation Law. This statute will prohibit us from engaging
in a "business combination" with an "interested stockholder" for a period of
three years after the time of the transaction in which one person became an
interested stockholder, unless:
. the business combination or the transaction which resulted in the
stockholder becoming an interested stockholder was approved by our board
of directors before the stockholder became an interested stockholder,
. upon consummation of the transaction that made the stockholder an
interested stockholder, the interested stockholder owns at least 85% of
the voting stock of the corporation outstanding at the time the
transaction commenced, excluding shares owned by directors who are also
officers or held in employee benefit plans in which the employees do not
have a confidential right to tender stock held by the plan in a tender
or exchange offer, or
. the business combination is approved by the board of directors of the
corporation and authorized at a meeting by two-thirds of the voting
stock, other than voting stock owned by the interested stockholder.
A "business combination" generally includes mergers or consolidations
between us and an interested stockholder, transactions with an interested
stockholder involving our assets or stock or assets or stock of our majority-
owned subsidiaries, if any, and transactions which increase an interested
stockholder's percentage ownership of stock.
An "interested stockholder" generally includes those stockholders who become
beneficial owners of 15% or more of our voting stock, together with affiliates
or associates of that stockholder.
Cumulative Voting. Our amended and restated certificate of incorporation
does not provide stockholders the right to cumulate votes in the election of
directors.
Stockholder Action; Special Meeting of Stockholders. Our amended and
restated certificate of incorporation eliminates the ability of stockholders to
act by written consent. Our by-laws provide that special meetings of our
stockholders may be called only by the chairman of the board of directors, the
chief executive officer or a majority of the board of directors or at the
direction of stockholders holding in the aggregate at least 20% of our common
stock. These provisions could have the effect of delaying for 90 days or until
the next annual meeting of stockholders those actions which are favored by the
holders of a majority of our outstanding voting securities. These provisions
may also discourage another person from making a tender offer for our common
stock, because that person, even if it acquired a majority of our outstanding
voting securities, would be able to take action as a stockholder, such as
electing new directors or approving a merger, only at a duly called meeting of
stockholders and not by written consent.
Advance Notice Requirements for Stockholder Proposals and Director
Nominations. Our amended and restated by-laws provide that stockholders seeking
to bring business before an annual meeting of stockholders, or to nominate
candidates for election as directors at an annual meeting of stockholders, must
provide timely notice thereof in writing. To be timely, a stockholder's notice
must be received at our principal executive
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<PAGE>
offices not less than (1) 60 days in advance of the meeting if it is held
within 30 days before the anniversary of the previous year's annual meeting or
(2) 90 days in advance of the meeting if it is held on or after the anniversary
of the previous year's annual meeting. In any other event, in order to be
timely, notice from the stockholder must be received no later than the
fifteenth day following the date on which notice of the annual meeting was
mailed to stockholders or made public, whichever occurred earlier. Our amended
and restated by-laws also specify requirements as to the form and content of a
stockholder's notice. These provisions may preclude stockholders from bringing
matters before an annual meeting of stockholders or from making nominations for
directors at an annual meeting of stockholders. However, in the case of any
meeting called at the direction of stockholders, the stockholders requesting
the meeting be called must give us at least 90 days notice of any matter to be
presented at that meeting.
Authorized but Unissued Shares. The authorized but unissued shares of common
stock and preferred stock are available for future issuance without stockholder
approval. These additional shares may be utilized for a variety of corporate
purposes, including future public offerings to raise additional capital,
corporate acquisitions and employee benefit plans. The existence of authorized
but unissued shares of common stock and preferred stock could render more
difficult or discourage an attempt to obtain control of us by means of a proxy
contest, tender offer, merger or otherwise.
Classified Board of Directors. Our amended and restated certificate of
incorporation provides that our board of directors shall be divided into three
classes which serve staggered three-year terms (after their initial terms). As
a result of this classification, no more than one third of the board of
directors will be elected each year. This may make it more difficult for an
acquiring party to take control of the board of directors.
Removal of Directors. Our by-laws provide that any director, or the entire
board, may be removed, only with cause, by the holders of two-thirds of the
shares then entitled to vote in an election of directors, unless otherwise
specified by law.
Amendments; Supermajority Vote Requirements. The Delaware General
Corporation Law provides generally that the affirmative vote of a majority of
the shares entitled to vote on any matter is required to amend a corporation's
certificate of incorporation or by-laws, unless a corporation's certificate of
incorporation or by-laws, as the case may be, requires a greater percentage.
Our amended and restated certificate of incorporation imposes supermajority
vote requirements in connection with the amendment of provisions of our amended
and restated certificate of incorporation relating to the classification of our
board of directors. Our by-laws impose supermajority vote requirements in
connection with the amendment of the following provisions of our by-laws
related to our corporate structure:
. provisions regarding the location of stockholder meetings, quorums at
stockholder meetings, voting power, proxies, shareholder actions without
meetings and annual meetings,
. provisions regarding the number of directors, the filling of vacancies,
resignations and removals, and quorums and adjournments of director
meetings, and
. amendments of the provision governing amendments.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is expected to be
American Stock Transfer & Trust Company.
Listing
We have applied to list our common stock on the Nasdaq National Market under
the trading symbol "EMDT."
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
The sale of a substantial amount of our common stock in the public market
after this offering could adversely affect the prevailing market price of our
common stock. Furthermore, because few shares will be available for sale
shortly after this offering due to the contractual and legal restrictions on
resale described below, the sale of a substantial amount of common stock in the
public market after these restrictions lapse could adversely affect the
prevailing market price of our common stock and our ability to raise equity
capital in the future.
Upon completion of this offering, we will have outstanding an aggregate of
11,513,475 shares of our common stock, assuming no exercise of the
underwriters' overallotment option and no exercise of outstanding options or
warrants. Of these shares, all of the shares sold in this offering will be
freely tradable without restriction or further registration under the
Securities Act, unless the shares are purchased by "affiliates" as that term is
defined in Rule 144 under the Securities Act. Any shares purchased by an
affiliate may not be resold except pursuant to an effective registration
statement or an applicable exemption from registration, including an exemption
under Rule 144 of the Securities Act. The remaining shares of common stock held
by existing stockholders are "restricted securities" as that term is defined in
Rule 144 under the Securities Act. These restricted securities may be sold in
the public market only if they are registered or if they qualify for an
exemption from registration under Rule 144 or Rule 701 under the Securities
Act. These rules are summarized below.
Upon the expiration of the lock-up agreements described under "Underwriting"
and subject to the provisions of Rule 144 and Rule 701, restricted shares
totaling 7,677,987 will be available for sale in the public market 180 days
after the date of this prospectus. Of those shares, 2,684,169 will be available
pursuant to Rule 144(k) and 92,140 will be available pursuant to Section 701.
The sale of restricted securities under those rules, is subject to volume
limitations for one year following a one year holding period, unless the shares
are held by affiliates, in which case the sale continues to be subject to
volume limitatons until the holder is no longer an affiliate.
Rule 144
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned shares of our
common stock for at least one year from the later of the date those shares of
common stock were acquired from us or from an affiliate of ours would be
entitled to sell within any three month period a number of shares that does not
exceed the greater of:
(1) one percent of the number of shares of common stock then
outstanding, which will equal approximately shares immediately after this
offering; or
(2) the average weekly trading volume of the common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to the sale of any shares of common stock.
The sales of any shares of common stock under Rule 144 are also subject to
manner of sale provisions and notice requirements and to the availability of
current public information about us. Affiliates may sell shares not
constituting restricted securities in accordance with the foregoing volume
limitations and other restrictions, but without regard to the one-year holding
period.
Rule 144(k)
Under Rule 144(k), a person who is not one of our affiliates at any time
during the three months preceding a sale, and who has beneficially owned the
shares proposed to be sold for at least two years from the later of the date
such shares of common stock were acquired from us or from an affiliate of ours,
including the holding period of any prior owner other than an affiliate, is
entitled to sell those shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144. Therefore,
unless otherwise restricted pursuant to the lock-up agreements or otherwise,
those shares may be sold immediately upon the completion of this offering.
48
<PAGE>
Rule 701
In general, under Rule 701 of the Securities Act as currently in effect,
each of our employees, consultants or advisors who purchased shares from us in
connection with a compensatory stock plan or other written agreement is
eligible to resell those shares 90 days after the effective date of this
offering in reliance on Rule 144, but without compliance with the holding
period contained in Rule 144. In addition, these shareholders who are not our
affiliates can resell without compliance with the volume limitations and notice
requirements of Rule 144.
No precise prediction can be made as to the effect, if any, that market
sales of shares or the availability of shares for sale will have on the market
price of our common stock prevailing from time to time. We are unable to
estimate the number of our shares that may be sold in the public market
pursuant to Rule 144 or Rule 701 because this will depend on the market price
of our common stock, the personal circumstances of the sellers and other
factors. Nevertheless, sales of significant amounts of our common stock in the
public market could adversely affect the market price of our common stock.
Stock Plans
We intend to file a registration statement under the Securities Act covering
2,062,500 shares of common stock reserved for issuance under the eMed 1994
Stock Plan. This registration statement is expected to be filed as soon as
practicable after the effective date of this offering.
At September 17, 1999, there were options to purchase 1,696,598 shares
outstanding under our stock option plans and otherwise. All of these shares
will be eligible for sale in the public market from time to time, subject to
vesting provisions, Rule 144 volume limitations applicable to our affiliates
and, in the case of options held by shareholders who are subject to lock-up
agreements, the expiration of those agreements.
Registration Rights
We have entered into two agreements with groups of holders of approximately
7,691,702 shares of our common stock that entitle those holders to require us
to register their shares for resale under the Securities Act of 1933.
Under the agreement with holders of our Series J preferred stock, holders of
at least 30% of the common stock issued on conversion of the Series J preferred
stock can require us to register the sale of their common stock two separate
times. We only must register those shares if they would have an aggregate
offering price of at least $15 million and if the request is made after 180
days following the effective date of this prospectus. After we have satisfied
the requirements for using the shorter S-3 registration form, holders offering
to sell at least $500,000 of common stock can require us to register their
common stock on that form. We would not be required to file more than two of
these registrations in any 12 month period. These holders also have the right
to require us to include their shares in any future registered offering of
securities by us, subject to market conditions.
Under our other registration rights agreement, other holders of our equity
securities have rights similar to those described in the previous paragraph.
However, this agreement provides that if in any registered offering, shares
must be excluded from the offering because of marketing factors, shares covered
by this agreement will be excluded before any shares issuable on conversion of
the Series J preferred stock are excluded.
49
<PAGE>
UNDERWRITING
General
Bear, Stearns & Co. Inc., Donaldson, Lufkin & Jenrette Securities
Corporation and Wit Capital Corporation are acting as representatives of each
of the underwriters named below. Subject to the terms and conditions set forth
in an underwriting agreement among us and the underwriters we have agreed to
sell to the underwriters, and each of the underwriters severally and not
jointly has agreed to purchase from us the number of shares of common stock set
forth opposite its name below.
<TABLE>
<CAPTION>
Number of
Underwriter Shares
----------- ---------
<S> <C>
Bear, Stearns & Co. Inc............................................
Donaldson, Lufkin & Jenrette Securities Corporation................
Wit Capital Corporation............................................
----
Total..........................................................
====
</TABLE>
In the underwriting agreement, the several underwriters have agreed, subject
to the terms and conditions set forth in the underwriting agreement, to
purchase all of the shares of common stock being sold under the terms of the
underwriting agreement if any of the shares of common stock being sold under
the terms of the agreement are purchased. In the event of a default by an
underwriter, the underwriting agreement provides that, the purchase commitments
of the nondefaulting underwriters may be increased or the underwriting
agreement may be terminated.
We have agreed to indemnify the underwriters against some liabilities,
including liabilities under the Securities Act, or to contribute to payments
the underwriters may be required to make in respect of those liabilities.
The shares of common stock are being offered by the several underwriters,
subject to prior sale, when, as and if issued to and accepted by them, subject
to approval of agreed upon legal matters by counsel for the underwriters and
other conditions. The underwriters reserve the right to withdraw, cancel or
modify such offer and to reject orders in whole or in part.
Commissions and Discounts and Public Offering Price
The representatives have advised us that the underwriters propose initially
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 dealers
at such price less a concession not in excess of $ per share of common stock.
The underwriters may allow, and such dealers may reallow, a discount not in
excess of $ per share of common stock to other dealers. After the initial
public offering, the public offering price, concession and discount may change.
The following table shows the per share and total public offering price,
underwriting discount to be paid by us to the underwriters and the proceeds
before expenses to us. This information is presented assuming either no
exercise or full exercise by the underwriters of their over-allotment options.
<TABLE>
<CAPTION>
Per Share Without Option With Option
--------- -------------- -----------
<S> <C> <C> <C>
Public offering price.................. $ $ $
Underwriting discount.................. $ $ $
Proceeds, before expenses, to eMed..... $ $ $
</TABLE>
We estimate our offering expenses, exclusive of the underwriting discount,
will be $ .
50
<PAGE>
Before this offering, there has been no public market for our common stock.
The initial public offering price will be determined through negotiations
between us and the representatives. The factors to be considered in determining
the initial public offering price, in addition to prevailing market conditions,
are the valuation multiples of publicly traded companies that the
representatives believe to be comparable to us, our financial information, the
history, of, and the prospects for, our company and the industry in which we
compete, and an assessment of our management, its past and present operations,
the prospects for, and timing of, future revenues of our company, the present
state of our development, and the above factors in relation to market values
and various valuation measures of other companies engaged in activities similar
to ours. There can be no assurance that an active trading market will develop
for our common stock or that our common stock will trade in the public market
subsequent to the offering at or above the initial public offering price.
The underwriters do not expect sales of the common stock to any accounts
over which they exercise discretionary authority to exceed five percent of the
number of shares being offered in this offering.
Over-allotment Option
We have granted an option to the underwriters, exercisable for 30 days after
the date of this prospectus, to purchase up to an aggregate of 465,000
additional shares of our common stock at the public offering price set forth on
the cover page of this prospectus, less the underwriting discount. The
underwriters may exercise this option solely to cover over-allotments, if any,
made on the sale of our common stock offered hereby. To the extent that the
underwriters exercise this option, each underwriter will be obligated, subject
to conditions, to purchase a number of additional shares of our common stock
proportionate to such underwriter's initial amount reflected in the foregoing
table.
Lock-up Agreements
We, our directors and executive officers and most of our other stockholders
will enter into lock-up agreements with the underwriters. Under those
agreements, neither we nor any of our directors or executive officers nor any
of those stockholders may dispose of or hedge any shares of common stock or
securities convertible into or exchangeable for shares of common stock. These
restrictions will be in effect for a period of 180 days after the date of this
prospectus, subject to limited exceptions. At any time and without notice,
Bear, Stearns & Co. Inc. may, in its sole discretion, release all or some of
the securities from these lock-up agreements.
Price Stabilization, Short Positions and Penalty Bids
In order to facilitate this offering, persons participating in this offering
may engage in transactions that stabilize, maintain or otherwise affect the
price of the common stock during and after this offering. Specifically, the
underwriters may over-allot or otherwise create a short position in the common
stock for their own account by selling more shares of common stock than we have
sold to them. The underwriters may elect to cover any such short position by
purchasing shares of common stock in the open market or by exercising the over-
allotment option granted to the underwriters. In addition, the underwriters may
stabilize or maintain the price of the common stock by bidding for or
purchasing shares of common stock in the open market and may impose penalty
bids, under which selling concessions allowed to syndicate members or other
broker-dealers participating in this offering are reclaimed if shares of common
stock previously distributed in this offering are repurchased in connection
with stabilization transactions or otherwise. The effect of these transactions
may be to stabilize or maintain the market price at a level above that which
might otherwise prevail in the open market. The imposition of a penalty bid may
also affect the price of the common stock to the extent that it discourages
resales thereof. No representation is made as to the magnitude or effect of any
such stabilization or other transactions. Such transactions may be effected on
the Nasdaq National Market or otherwise and, if commenced, may be discontinued
at any time.
51
<PAGE>
Internet Distribution
A prospectus in electronic format is being made available on an internet
website maintained by Wit Capital Corporation. In addition, all dealers
purchasing shares from Wit Capital in this offering have agreed to make a
prospectus in electronic format available on websites maintained by each of
these dealers. Purchases of shares from Wit Capital are to be made through an
account at Wit Capital in accordance with Wit Capital's procedures for opening
an account and transacting in securities.
Wit Capital, a member of the National Association of Securities Dealers,
Inc., will participate in the offering as one of the underwriters. The National
Association of Securities Dealers, Inc., approved the membership of Wit Capital
on September 4, 1997. Since that time, Wit Capital has acted as an underwriter,
e-Manager or selected dealer in over 120 public offerings. Except for its
participation as a manager in this offering, Wit Capital has no relationship
with us, or any of its founders or significant stockholders.
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for eMed
by Ropes & Gray, Boston, Massachusetts. Various legal matters in connection
with this offering will be passed upon for the underwriters by Skadden, Arps,
Slate, Meagher & Flom LLP, New York, New York.
EXPERTS
The financial statements of eMed at December 31, 1997 and 1998 and for the
three years in the period ended December 31, 1998, included in this prospectus,
and the financial statements of E-Systems Medical Electronics, a division of
Raytheon, at December 31, 1997 and November 23, 1998 and for the year ended
December 31, 1997 and the period from January 1, 1998 through November 23,
1998, included in this prospectus, have been so included in reliance on the
reports of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a Registration
Statement on Form S-1, including exhibits and schedules, under the Securities
Act with respect to the common stock to be sold in this offering. This
prospectus, which constitutes a part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement or the
exhibits and schedules which are part of the registration statement. Any
statements made in this prospectus as to the contents of any contract,
agreement or other document are not necessarily complete. With respect to each
such contract, agreement or other document filed as an exhibit to the
Registration Statement, we refer you to the exhibit for a more complete
description of the matter involved, and each statement in this prospectus shall
be deemed qualified in its entirety by this reference.
You may read and copy all or any portion of the Registration Statement or
any reports, statements or other information in the files at the public
reference facilities of the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C., 20549 and at the regional offices of the
Commission located at Seven World Trade Center, 13th Floor, New York, New York
10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. You can
request copies of these documents upon payment of a duplicating fee by writing
to the Commission. You may call the Commission at 1-800-SEC-0330 for further
information on the operation of its public reference rooms. Our filings,
including the Registration Statement, will also be available to you on the
internet website maintained by the Commission at http://www.sec.gov.
52
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
eMed Technologies Corporation
Report of Independent Accountants....................................... F-2
Balance Sheet as of December 31, 1997 and 1998 and as of June 30, 1999
(unaudited)............................................................ F-3
Statement of Operations for the years ended December 31, 1996, 1997 and
1998 and the six months ended June 30, 1998 (unaudited) and June 30,
1999 (unaudited)....................................................... F-4
Statement of Changes in Stockholders' Equity for the years ended
December 31, 1996, 1997 and 1998 and the six months ended June 30, 1999
(unaudited)............................................................ F-5
Statement of Cash Flows for the years ended December 31, 1996, 1997 and
1998 and the six months ended June 30, 1998 (unaudited) and June 30,
1999 (unaudited)....................................................... F-6
Notes to Financial Statements........................................... F-7
E-Systems Medical Electronics (a division of Raytheon E-Systems, Inc.)
Report of Independent Accountants....................................... F-17
Balance Sheet as of December 31, 1997 and November 23, 1998............. F-18
Statement of Operations and Accumulated Deficit for the year ended
December 31, 1997 and for the period from January 1, 1998 through
November 23, 1998...................................................... F-19
Statement of Cash Flows for the year ended December 31, 1997 and for the
period from January 1, 1998 through November 23, 1998.................. F-20
Notes to Financial Statements........................................... F-21
Unaudited Pro Forma Combined Statement of Operations
Unaudited Pro Forma Combined Statement of Operations for the year ended
December 31, 1998...................................................... F-25
Notes to Unaudited Pro Forma Combined Statement of Operations........... F-26
</TABLE>
F-1
<PAGE>
Report of Independent Accountants
To the Board of Directors and Stockholders of
eMed Technologies Corporation:
The reverse common stock split described in Note 8 to the financial
statements has not been consummated at September 17, 1999. When it has been
consummated, we will be in a position to furnish the following report.
"In our opinion, the accompanying balance sheet and the related statements
of operations, of changes in stockholders' equity and of cash flows present
fairly, in all material respects, the financial position of eMed Technologies
Corporation at December 31, 1997 and 1998 and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
1998, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above."
PricewaterhouseCoopers LLP
Boston, Massachusetts
March 22, 1999, except for the last paragraphs of
Notes 7 and 8, as to which the date is September 16, 1999
F-2
<PAGE>
eMed Technologies Corporation
Balance Sheet
<TABLE>
<CAPTION>
Pro Forma
December 31, June 30, June 30,
-------------------------- ------------ ------------
1997 1998 1999 1999
------------ ------------ ------------ ------------
(unaudited)
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash
equivalents........... $ 4,420,714 $ 2,259,052 $ 5,117,591
Accounts receivable,
net of allowance for
doubtful accounts of
$35,000 and $487,073
at December 31, 1997
and 1998,
respectively, and
$422,461 at June 30,
1999 (unaudited)...... 2,665,415 4,926,216 6,217,453
Inventories............ 1,080,264 2,011,410 961,823
Prepaid expenses and
other current assets.. 798,442 330,641 313,134
------------ ------------ ------------
Total current assets... 8,964,835 9,527,319 12,610,001
Fixed assets, net....... 892,450 991,181 816,027
Goodwill................ -- 77,016 72,523
Other assets............ 32,756 49,810 60,888
Assets held for sale.... -- 861,000 --
------------ ------------ ------------
Total assets........... $ 9,890,041 $ 11,506,326 $ 13,559,439
============ ============ ============
Liabilities and
Stockholders' Equity
Current liabilities:
Current portion of
capital lease
obligations........... $ 153,356 $ 45,796 $ 12,347
Short-term debt........ -- 2,797,359 2,797,359
Note payable to
Raytheon.............. -- 2,200,000 --
Accounts payable....... 1,971,964 2,372,307 1,815,838
Accrued employee
benefits.............. 244,871 351,150 542,978
Accrued warranty
expenses.............. 100,657 478,888 629,112
Other accrued
expenses.............. 668,413 811,470 900,983
Accrued acquisition
reserves.............. -- 335,842 81,136
Deferred revenue....... 284,375 1,382,887 1,257,464
------------ ------------ ------------
Total current
liabilities........... 3,423,636 10,775,699 8,037,217
Capital lease
obligations............ 78,707 6,521 --
Long-term debt.......... 884,527 335,893 210,164
------------ ------------ ------------
Total liabilities...... 4,386,870 11,118,113 8,247,381
------------ ------------ ------------
Commitments (Note 12)
Stockholders' equity:
Convertible preferred
stock, $0.01 par
value.................. 77,346 77,346 118,775 $ --
Common stock, $0.01 par
value; Authorized:
35,000,000 shares;
Issued: 452,314 and
485,640 shares at
December 31, 1997 and
1998, respectively, and
522,154 shares at June
30, 1999 actual
(unaudited): 8,378,304
shares issued at June
30, 1999 pro forma
(unaudited);
Outstanding: 452,314
and 443,974 shares at
December 31, 1997 and
1998, respectively,
480,488 shares at June
30, 1999 actual
(unaudited): 8,336,638
shares outstanding at
June 30, 1999 pro forma
(unaudited)............ 4,524 4,857 5,222 83,783
Additional paid-in
capital................ 20,126,414 20,166,075 28,803,798 28,844,012
Deferred compensation... (8,002) -- (2,598,296) (2,598,296)
Treasury stock.......... -- (50,000) (50,000) (50,000)
Accumulated deficit..... (14,697,111) (19,810,065) (20,967,441) (20,967,441)
------------ ------------ ------------ ------------
Total stockholders'
equity................ 5,503,171 388,213 5,312,058 5,312,058
------------ ------------ ------------ ------------
Total liabilities and
stockholders' equity.. $ 9,890,041 $ 11,506,326 $ 13,559,439 $ 13,559,439
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
eMed Technologies Corporation
Statement of Operations
<TABLE>
<CAPTION>
Year ended Six months ended
December 31, June 30,
------------------------------------- ------------------------
1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenue:
Product............... $ 570,273 $ 7,164,242 $11,299,756 $ 5,730,260 $ 9,793,624
Service............... 439,182 862,762 1,294,411 487,242 1,575,777
----------- ----------- ----------- ----------- -----------
Total revenue....... 1,009,455 8,027,004 12,594,167 6,217,502 11,369,401
----------- ----------- ----------- ----------- -----------
Cost of revenue:
Product............... 372,681 5,553,543 7,223,230 3,401,750 4,698,982
Service............... 1,031,107 1,458,579 1,752,909 729,125 1,652,093
----------- ----------- ----------- ----------- -----------
Total cost of
revenue............ 1,403,788 7,012,122 8,976,139 4,130,875 6,351,075
----------- ----------- ----------- ----------- -----------
Gross margin........ (394,333) 1,014,882 3,618,028 2,086,627 5,018,326
----------- ----------- ----------- ----------- -----------
Operating expenses:
Research and
development.......... 610,189 1,300,360 2,361,430 1,030,630 1,654,635
Sales and marketing... 1,318,696 2,912,125 3,498,169 1,763,734 2,519,051
General and
administrative....... 1,331,297 1,981,861 2,722,340 1,120,800 1,851,731
----------- ----------- ----------- ----------- -----------
Total operating
expenses........... 3,260,182 6,194,346 8,581,939 3,915,164 6,025,417
----------- ----------- ----------- ----------- -----------
Loss from operations.... (3,654,515) (5,179,464) (4,963,911) (1,828,537) (1,007,091)
Interest expense, net... (69,686) (203,566) (105,611) (19,243) (68,518)
Other expense........... (21,560) (242,139) (43,432) (6,125) (81,767)
----------- ----------- ----------- ----------- -----------
Net loss............ $(3,745,761) $(5,625,169) $(5,112,954) $(1,853,905) $(1,157,376)
=========== =========== =========== =========== ===========
Basic and diluted net
loss per share......... $ (8.39) $ (12.45) $ (11.70) $ (4.30) $ (2.48)
Shares used in computing
basic and diluted net
loss per share......... 446,428 451,676 436,949 430,843 467,222
Unaudited pro forma
basic and diluted net
loss per share......... $ (0.78) $ (0.14)
Shares used in computing
unaudited pro forma
basic and diluted net
loss per share......... 6,567,037 8,323,501
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
eMed Technologies Corporation
Statement of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
Convertible
preferred stock Common stock Total
------------------- -------------- Additional stockholders'
Par Par paid-in Deferred Treasury Accumulated equity
Shares value Shares value capital compensation stock deficit (deficit)
---------- -------- ------- ------ ----------- ------------ -------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1995................ 1,510 $ 15 439,155 $4,392 $ 4,511,978 $ -- $ -- $ (5,326,181) $ (809,796)
Exercise of common
stock options....... 11,597 116 13,801 13,917
Issuance of 1,000
shares of Series F
convertible
preferred stock..... 1,000 10 999,990 1,000,000
Issuance of 816
shares of Series G
convertible
preferred stock..... 816 8 4,070,341 4,070,349
Issuance of 400
shares of Series H
convertible
preferred stock..... 400 4 1,999,997 2,000,001
Issuance of stock
options to
nonemployees........ 20,000 20,000
Net loss............. (3,745,761) (3,745,761)
---------- -------- ------- ------ ----------- ----------- -------- ------------ -----------
Balance, December 31,
1996................ 3,726 37 450,752 4,508 11,616,107 -- -- (9,071,942) 2,548,710
Exercise of common
stock options....... 1,562 16 1,859 1,875
Issuance of 409,091
warrants to purchase
Series J convertible
preferred stock..... 161,000 161,000
Issuance of 7,730,909
shares of Series J
convertible
preferred stock..... 7,730,909 77,309 8,333,868 8,411,177
Issuance of stock
options to
nonemployees........ 13,580 (8,002) 5,578
Net loss............. (5,625,169) (5,625,169)
---------- -------- ------- ------ ----------- ----------- -------- ------------ -----------
Balance, December 31,
1997................ 7,734,635 77,346 452,314 4,524 20,126,414 (8,002) -- (14,697,111) 5,503,171
Exercise of common
stock options....... 33,326 333 39,661 39,994
Purchase of common
stock held as
treasury shares..... (50,000) (50,000)
Amortization of
deferred
compensation........ 8,002 8,002
Net loss............. (5,112,954) (5,112,954)
---------- -------- ------- ------ ----------- ----------- -------- ------------ -----------
Balance, December 31,
1998................ 7,734,635 77,346 485,640 4,857 20,166,075 -- (50,000) (19,810,065) 388,213
Exercise of common
stock options
(unaudited)......... 36,514 365 43,455 43,820
Issuance of 4,142,857
shares of Series K
convertible
preferred stock
(unaudited)......... 4,142,857 41,429 5,756,037 5,797,466
Issuance of stock
options
(unaudited)......... 2,838,231 (2,838,231) --
Amortization of
deferred
compensation
(unaudited)......... 239,935 239,935
Net loss
(unaudited)......... (1,157,376) (1,157,376)
---------- -------- ------- ------ ----------- ----------- -------- ------------ -----------
Balance, June 30,
1999 (unaudited).... 11,877,492 $118,775 522,154 $5,222 $28,803,798 $(2,598,296) $(50,000) $(20,967,441) $ 5,312,058
========== ======== ======= ====== =========== =========== ======== ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
eMed Technologies Corporation
Statement of Cash Flows
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
Year ended Six months ended
December 31, June 30,
------------------------------------- ------------------------
1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net loss............... $(3,745,761) $(5,625,169) $(5,112,954) $(1,853,905) $(1,157,376)
Adjustments to
reconcile net loss to
net cash used in
operating activities:
Depreciation and
amortization......... 364,946 469,488 521,006 259,844 374,725
Amortization of debt
discount............. -- 119,000 -- -- --
Loss on disposal of
fixed assets......... 20,032 236,764 50,933 12,339 85,763
Compensation expense
associated with
issuance of stock
options.............. 20,000 5,578 8,002 -- 239,935
Preferred stock
issued in lieu of
cash payment for
interest............. 5,381 22,906 -- -- --
Changes in operating
assets and
liabilities, net of
effects from
acquisition of E-
Systems Medical
Electronics:
Accounts receivable.. (2,389) (2,489,335) 36,664 (853,039) (1,291,237)
Inventories.......... (681,064) (399,200) 638,428 293,751 1,049,587
Prepaid expenses and
other current
assets.............. 12,874 (715,014) 553,719 512,581 17,507
Accounts payable..... 669,905 1,302,059 19,673 (296,930) (556,469)
Accrued employee
benefits............ 35,193 209,678 (19,382) 50,858 191,828
Accrued warranty
expenses............ -- 100,657 178,231 40,017 150,224
Other accrued
expenses............ 145,183 366,210 (302,859) (146,547) 89,513
Accrued acquisition
reserves............ -- -- -- -- (254,706)
Deferred revenue..... -- 284,375 689,532 110,830 (125,423)
----------- ----------- ----------- ----------- -----------
Net cash used in
operating
activities......... (3,155,700) (6,112,003) (2,739,007) (1,870,201) (1,186,129)
----------- ----------- ----------- ----------- -----------
Cash flows from
investing activities:
Purchases of fixed
assets................ (532,796) (853,122) (465,274) (335,838) (280,841)
Change in other
assets................ 15,935 11,596 (17,054) 21,192 (11,078)
Cash paid for the
acquisition of E-
Systems Medical
Electronics, net of
cash acquired......... -- -- (999,300) -- --
Proceeds from sale of
assets held for
sale.................. -- -- -- -- 861,000
----------- ----------- ----------- ----------- -----------
Net cash (used in)
provided by
investing
activities......... (516,861) (841,526) (1,481,628) (314,646) 569,081
----------- ----------- ----------- ----------- -----------
Cash flows from
financing activities:
Proceeds from sale-
leaseback
transactions.......... 138,709 -- -- -- --
Principal payments of
capital lease
obligations........... (174,897) (189,842) (179,746) (92,067) (39,970)
Cash received for
fixed assets.......... 5,600 46,028 -- -- --
Proceeds from issuance
of convertible notes
and warrants.......... -- 1,500,000 -- -- --
Borrowings from lines
of credit............. -- 884,527 2,390,039 1,242,522 --
Principal payments of
debt.................. -- -- (141,314) (55,756) (125,729)
Payment of note
payable due to
Raytheon for the
acquisition of
E-Systems Medical
Electronics........... -- -- -- -- (2,200,000)
Proceeds from issuance
of convertible
preferred stock....... 5,848,302 6,930,271 -- -- 5,797,466
Proceeds from exercise
of common stock
options............... 13,917 1,875 39,994 35,655 43,820
Purchase of common
stock held in
treasury.............. -- -- (50,000) (50,000) --
----------- ----------- ----------- ----------- -----------
Net cash provided by
financing
activities......... 5,831,631 9,172,859 2,058,973 1,080,354 3,475,587
----------- ----------- ----------- ----------- -----------
Net increase (decrease)
in cash and cash
equivalents........... 2,159,070 2,219,330 (2,161,662) (1,104,493) 2,858,539
Cash and cash
equivalents, beginning
of period............. 42,314 2,201,384 4,420,714 4,420,714 2,259,052
----------- ----------- ----------- ----------- -----------
Cash and cash
equivalents, end of
period................ $ 2,201,384 $ 4,420,714 $ 2,259,052 $ 3,316,221 $ 5,117,591
=========== =========== =========== =========== ===========
Supplemental cash flow
disclosures:
Cash paid for
interest.............. $ 148,573 $ 122,458 $ 240,343 $ 100,721 $ 148,953
=========== =========== =========== =========== ===========
</TABLE>
Non-cash financing and investing activities:
During 1996, eMed incurred capital lease obligations of $138,709 in connection
with the sale and leaseback of fixed assets.
During 1996, eMed exchanged $116,667 of redeemable preferred stock for
convertible preferred stock.
During 1996 and 1997, eMed converted $1,105,381 and $1,480,906, respectively,
of convertible notes and long-term debt into convertible preferred stock.
During 1998, in connection with the acquisition of E-Systems Medical
Electronics, eMed issued $2,200,000 of notes payable, acquired assets of
$5,020,053 and assumed liabilities of $1,897,069.
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
eMed Technologies Corporation
Notes to Financial Statements
1. Nature of Business
eMed Technologies Corporation ("eMed"), formerly known as ACCESS Radiology
Corporation, was incorporated under the laws of Delaware in March 1992. As a
provider of workflow solutions for electronically managing and distributing
medical images and related patient information, eMed markets and sells
electronic medical imaging systems and provides related support services to
healthcare providers primarily within the United States. eMed operates in one
business segment.
2. Summary of Significant Accounting Policies
Cash Equivalents
eMed invests its excess cash in money market funds of major financial
institutions. These investments are subject to minimal credit and market risk.
eMed considers all highly liquid investments purchased with an initial maturity
of three months or less to be cash equivalents. Cash equivalent investments are
classified as available-for-sale and are carried at cost, which approximates
fair value.
Fair Value of Financial Instruments
The carrying amounts of eMed's financial instruments, which include cash and
cash equivalents, accounts receivable, accounts payable, accrued expenses and
short- and long-term debt, approximate their fair values at December 31, 1997
and 1998.
Revenue Recognition, Significant Customers and Concentration of Credit Risk
Revenue from product sales is recognized upon shipment to the customer
provided that risk of loss has passed to the customer and collection of the
related receivable is probable. In the event uncertainty exists about customer
acceptance of product sales, revenue is deferred until acceptance occurs.
Customer payments received in advance of product shipments are recorded as
deferred revenue. eMed typically provides a one-year warranty on all products
sold. eMed accrues the estimated costs to be incurred in connection with
product warranty upon product shipment.
Service revenue consists of customer fees from installation and training,
network-based comprehensive support and post-warranty product maintenance.
Revenue from installation and training is recognized as the work is performed.
Revenue from support agreements and post-warranty product maintenance contracts
is deferred and recognized ratably over the applicable periods.
Financial instruments which potentially expose eMed to concentration of
credit risk include accounts receivable. eMed performs ongoing evaluations of
customers' financial condition and does not generally require collateral. At
December 31, 1997 and 1998, accounts receivable from one customer accounted for
approximately 13% and 11%, respectively, of the total amounts due to eMed.
There were no customers with accounts receivable greater than 10% of the total
amounts due to eMed at June 30, 1999.
In 1996, sales with three customers accounted for approximately 23%, 20% and
13% of eMed's total revenue. In 1997, sales with one customer accounted for
approximately 18% of eMed's total revenue. In 1998, sales with two customers
accounted for approximately 10% and 11% of eMed's total revenue. During the six
months ended June 30, 1999, no customers accounted for greater than 10% of
eMed's total revenue.
Inventories and Concentration of Suppliers
Inventories are stated at the lower of cost or market, cost being determined
using the first-in, first-out (FIFO) method.
F-7
<PAGE>
eMed Technologies Corporation
Notes to Financial Statements--(Continued)
eMed purchases certain components of eMed's products from limited suppliers.
A change in or loss of these suppliers could cause a delay in filling customer
orders and a possible loss of sales, which could adversely affect results of
operations; however, management believes that suitable replacement suppliers
could be obtained in such an event.
Fixed Assets
Fixed assets are recorded at cost and depreciated using the straight-line
method over their estimated useful lives. Repair and maintenance costs are
expensed as incurred.
Research and Development and Software Development Costs
Costs incurred in the research and development of eMed's products are
expensed as incurred. Costs associated with the development of computer
software are expensed prior to establishing technological feasibility, as
defined by SFAS No. 86, and capitalized thereafter until commercial release of
the products. Software development costs eligible for capitalization have not
been significant to date.
Stock-Based Compensation
eMed accounts for stock-based awards to employees using the intrinsic value
method as prescribed by Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations. eMed
has adopted the provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation," for disclosure purposes only (Note 9).
Advertising Costs
Advertising costs are charged to operations as incurred. Advertising costs
were approximately $31,000, $114,000 and $106,000 in the years ended December
31, 1996, 1997 and 1998, respectively.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
Unaudited Pro Forma Balance Sheet
Upon the closing of eMed's anticipated initial public offering, all shares
of convertible preferred stock outstanding at June 30, 1999 (Note 7) will
automatically convert into 7,856,150 shares of common stock. This conversion
has been reflected in the unaudited pro forma balance sheet as of June 30,
1999.
Unaudited Interim Financial Data
The interim financial data as of June 30, 1999 and for the six months ended
June 30, 1998 and 1999 have been derived from unaudited financial statements of
eMed. Management believes eMed's unaudited financial statements have been
prepared on the same basis as the audited financial statements and include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the financial position and results of operations in such
periods. Results for the six months ended June 30, 1999 are not necessarily
indicative of results to be expected for the full fiscal year.
F-8
<PAGE>
eMed Technologies Corporation
Notes to Financial Statements--(Continued)
Actual and Unaudited Pro Forma Net Loss Per Share
Net loss per share is computed in accordance with SFAS No. 128, "Earnings
Per Share." Basic net loss per share is computed by dividing net loss
attributable to common stockholders by the weighted average number of shares of
common stock outstanding. Diluted net loss per share does not differ from basic
net loss per share since potential common shares from conversion of preferred
stock and exercise of stock options and warrants are anti-dilutive for all
periods presented. Unaudited pro forma basic and diluted net loss per share
have been calculated assuming the conversion of all outstanding shares of
preferred stock into common shares, as if the shares had converted immediately
upon their issuance.
Recently Issued Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities." The new standard establishes accounting
and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. In June 1999, the FASB issued SFAS
No. 137 which deferred the effective date of SFAS No. 133 for one year. SFAS
No. 133 is now effective for all fiscal quarters of fiscal years beginning
after June 15, 2000. eMed does not expect SFAS No. 133 to have a material
effect on its financial position or results of operations.
In February 1998, the Accounting Standards Executive Committee ("AcSEC")
issued Statement of Position ("SoP") 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." SoP 98-1 establishes
the accounting for costs of software products developed or purchased for
internal use, including when such costs should be capitalized. SoP 98-1 will be
effective for eMed beginning in 1999, and eMed does not expect adoption of this
SoP to have a material effect on its financial position or results
of operations.
In April 1998, the AcSEC issued SoP 98-5, "Reporting on the Costs of Start-
Up Activities." Start-up activities are defined broadly as those one-time
activities related to the opening of a new facility, introducing a new product
or service, conducting business in a new territory, conducting business with a
new class of customer, commencing some new operation or organizing a new
entity. SoP 98-5 requires that the cost of start-up activities be expensed as
incurred. SoP 98-5 is effective for eMed beginning in 1999 and eMed does not
expect adoption of this SoP to have a material effect on its financial position
or results of operations.
3. Acquisition
On November 23, 1998, eMed purchased certain assets and assumed certain
liabilities of E-Systems Medical Electronics, a division of Raytheon, for total
consideration of $3,200,000. E-Systems Medical Electronics was engaged in the
business of designing, manufacturing and marketing electronic medical imaging
hardware and software systems and providing technical and network services to
healthcare providers within the United States. The acquisition was funded by a
$2,200,000 note payable to Raytheon (Note 6) and $1,000,000 in cash which was
obtained from eMed's working capital facility (Note 6).
The acquisition was accounted for under the purchase method of accounting
and, accordingly, operating results of this business subsequent to the date of
acquisition have been included in eMed's financial statements. The purchase
price was allocated to the assets acquired and liabilities assumed based on
their fair values at the date of acquisition. The excess of the purchase price
over the fair value of the net assets acquired of $77,016 was recorded as
goodwill and is being amortized over a period of ten years using the straight-
line method. In February 1999, certain assets, primarily inventory, purchased
in the acquisition were sold for total consideration of $861,000. These assets
were classified as assets held for sale at December 31, 1998.
F-9
<PAGE>
eMed Technologies Corporation
Notes to Financial Statements--(Continued)
The following unaudited pro forma data summarizes the results of operations
for the years ended December 31, 1997 and 1998 as if the acquisition of E-
Systems Medical Electronics had been completed on January 1, 1997 and 1998,
respectively. The pro forma data gives effect to actual operating results prior
to the acquisition with adjustments for interest expense and amortization of
goodwill and the sale of assets held for sale at December 31, 1998. These pro
forma amounts do not purport to be indicative of the results that would have
actually been obtained if the acquisition had occurred on January 1, 1997 and
1998 or that may be obtained in the future.
<TABLE>
<CAPTION>
Year ended
December 31,
------------------------
1997 1998
----------- -----------
(Unaudited)
<S> <C> <C>
Revenue............................................ $19,451,507 $20,708,044
Net loss........................................... (16,302,719) (11,457,663)
Net loss per share:
Basic and diluted.................................. ($36.09) ($26.22)
</TABLE>
In connection with the acquisition of E-Systems Medical Electronics, eMed
has undertaken a restructuring of the acquired business. In accordance with
Emerging Issues Task Force ("EITF") No. 95-3 "Recognition of Liabilities in
Connection with a Purchase Business Combination," eMed established a reserve of
approximately $412,000, primarily related to severance and other employee
related costs of $339,000 and other exit costs of $73,000. The restructuring
plan consists of the sale of certain monitor inventory and the exit of related
activities and a reduction in acquired headcount. eMed has terminated the
direct sales activity of the acquired company and discontinued shipping and
manufacturing certain acquired product lines. From the date of acquisition
through December 31, 1998, eMed has paid approximately $76,000 of the planned
costs which related solely to severance payments. As of June 30, 1999, eMed has
paid approximately $331,000 of the planned costs which is comprised of $73,000
of other exit costs and $258,000 of severance and other employee related costs.
The remaining reserve of $81,000 at June 30, 1999 is related to the settlement
of certain employment agreements and is expected to be paid in December 1999.
4. Inventories
<TABLE>
<CAPTION>
December 31,
--------------------- June 30,
1997 1998 1999
---------- ---------- -----------
(Unaudited)
<S> <C> <C> <C>
Raw materials and purchased components... $ 678,005 $1,545,650 $789,264
Work-in-process.......................... 20,654 107,336 126,396
Finished goods........................... 381,605 358,424 46,163
---------- ---------- --------
$1,080,264 $2,011,410 $961,823
========== ========== ========
</TABLE>
5. Fixed Assets
<TABLE>
<CAPTION>
December 31,
Estimated -------------------
Useful lives 1997 1998
(years) --------- ---------
<S> <C> <C> <C>
Furniture and fixtures.................... 5 $ 152,181 $ 194,503
Office equipment and computers............ 3 368,070 256,957
Electronic medical imaging equipment...... 3 1,205,597 1,558,018
Leasehold improvements.................... Lease term 57,066 90,940
--------- ---------
1,782,914 2,100,418
Less - Accumulated depreciation and
amortization............................. 890,464 1,109,237
--------- ---------
$ 892,450 $ 991,181
========= =========
</TABLE>
F-10
<PAGE>
eMed Technologies Corporation
Notes to Financial Statements--(Continued)
At December 31, 1997 and 1998, furniture and electronic medical imaging
equipment held under capital leases totaled $499,425 and $321,770,
respectively. Accumulated amortization of furniture and electronic medical
imaging equipment held under capital leases was $420,096 and $319,074 at
December 31, 1997 and 1998, respectively. Depreciation and amortization expense
on fixed assets was $364,946, $469,488 and $521,006, of which $244,824,
$187,838 and $54,727 related to amortization of assets held under capital
leases in 1996, 1997 and 1998, respectively.
6. Borrowings
Notes Payable
In connection with the acquisition of certain assets and liabilities of E-
Systems Medical Electronics (Note 3), eMed issued a $2,200,000 short-term note
payable to Raytheon. In accordance with the terms of the note, a payment of
$1,500,000 was made in January 1999. The remaining balance of $700,000 was paid
in May, 1999.
At various dates through September 1997, eMed issued $1,500,000 in 6.0%
convertible subordinated notes ("Notes") maturing on October 31, 1997. On
September 30, 1997, in connection with the Series J convertible preferred stock
offering, the Notes, together with accrued interest, were converted into
1,384,460 shares of Series J convertible preferred stock. In connection with
the issuance of the Notes, eMed issued warrants to purchase 409,091 shares of
Series J convertible preferred stock at an exercise price of $1.10. The
warrants expire on June 30, 2002. These warrants were ascribed a value of
approximately $161,000 which was reflected as a debt discount to be amortized
to interest expense over the term of the Notes. Approximately $119,000 of the
debt discount was amortized to interest expense for the year ended December 31,
1997.
Loan Facilities
In May 1997, eMed entered into an agreement with a bank under which it may
borrow up to $2,000,000 for working capital purposes ("Working Capital
Facility") and $500,000 for purchases of fixed assets ("Equipment Facility"),
subject to certain limitations. All borrowings under the agreement are
collateralized by substantially all of eMed's assets. Under the terms of the
agreement, eMed is required to comply with certain restrictive covenants,
including the maintenance of certain financial ratios and limitations on
indebtedness, liens, guaranties, mergers and payments of dividends.
In April 1998, the terms of the Working Capital Facility were amended
whereby eMed can borrow up to $3,000,000, subject to certain limitations,
through March 31, 1999, at which time, all outstanding principal and interest
is due. The interest rate on outstanding borrowings under the new Working
Capital Facility fluctuates monthly between the bank's prime rate plus 0.5% to
1.75% based on certain financial ratios. The interest rate at December 31, 1998
was 9.3%. Additionally, eMed is required to pay a fee equal to 0.75% of the
average unused Working Capital Facility, payable quarterly (the "Facility
Fee"). Borrowings under the Working Capital Facility totaled $550,000 and
$2,550,000 at December 31, 1997 and 1998, respectively.
In January and March 1999, the terms of the Working Capital Facility were
further amended whereby eMed can borrow up to $4,000,000, subject to certain
limitations, through September 30, 1999, at which time all outstanding
principal and interest is due. The amended interest rate on outstanding
borrowings fluctuates monthly between the bank's prime rate plus 0.5% to 2.0%
based on certain financial ratios and the Facility Fee was increased to 1.0%.
Additionally, the amended Working Capital Facility requires eMed to raise $2.0
million of additional capital by June 30, 1999. This additional capital was
obtained as discussed in Note 7.
Borrowings under the Equipment Facility bear interest, payable monthly, at
the bank's prime rate plus 1.0% (8.8% at December 31, 1998). In April 1998, the
terms of the Equipment Facility were amended whereby eMed could borrow up to
$750,000, subject to certain limitations. At December 31, 1998, outstanding
F-11
<PAGE>
eMed Technologies Corporation
Notes to Financial Statements--(Continued)
borrowings of $583,252 under the Equipment Facility converted to a three-year
term loan payable in 36 monthly installments of principal and interest.
As of December 31, 1998, future minimum principal payments under the
Equipment Facility are as follows:
<TABLE>
<CAPTION>
Year ending
December 31,
------------
<S> <C>
1999................................................................ $247,359
2000................................................................ 247,359
2001................................................................ 88,534
--------
$583,252
========
</TABLE>
7. Preferred Stock
Shares authorized, issued and outstanding and the carrying values of eMed's
preferred stock are as follows:
<TABLE>
<CAPTION>
December 31,
------------------- June 30,
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Series B:
716 shares authorized, issued and outstanding
at December 31, 1997 and 1998 and June 30,
1999 ........................................ $ 700,228 $700,228 $ 700,228
Series C:
450 shares authorized, issued and outstanding
at December 31, 1997 and 1998 and June 30,
1999 ........................................ 2,245,000 2,245,000 2,245,000
Series E:
345 shares authorized at December 31, 1997
and 1998 and June 30, 1999; 344 shares issued
and outstanding at December 31, 1997 and 1998
and June 30, 1999 ........................... 1,566,656 1,566,656 1,566,656
Series F:
1,000 shares authorized, issued and
outstanding at December 31, 1997 and 1998 and
June 30, 1999 ............................... 1,000,000 1,000,000 1,000,000
Series G:
816 shares authorized, issued and outstanding
at December 31, 1997 and 1998 and June 30,
1999 ........................................ 4,070,349 4,070,349 4,070,349
Series H:
400 shares authorized , issued and
outstanding at December 31, 1997 and 1998 and
June 30, 1999 ............................... 2,000,001 2,000,001 2,000,001
Series J:
8,140,000 shares authorized at December 31,
1997 and 1998 and June 30, 1999; 7,730,909
shares issued and outstanding at December 31,
1997 and 1998 and June 30, 1999 ............. 8,411,177 8,411,177 8,411,177
Series K:
No shares authorized, issued or outstanding
at December 31, 1997; 1,785,800 and 4,145,000
shares authorized at December 31, 1998 and
June 30, 1999, respectively; 0 and 4,142,857
shares issued and outstanding at December 31,
1998 and June 30, 1999, respectively ........ -- -- 5,797,466
Undesignated:
6,856,275 shares authorized at December 31,
1997;
5,070,475 shares authorized at December 31,
1998;
and 2,711,275 shares authorized at June 30,
1999 ........................................ -- -- --
</TABLE>
F-12
<PAGE>
eMed Technologies Corporation
Notes to Financial Statements--(Continued)
The convertible preferred stock has the following characteristics:
Dividends
No dividends have been declared or paid by eMed through December 31, 1998.
The holders of Series B, Series C, Series E, Series F, Series G and Series H
convertible preferred stock ("Series Preferred") are entitled to receive
noncumulative dividends whenever eMed declares a dividend on its common stock,
in such an amount as they would be entitled to receive if the convertible
preferred stock had been converted into common stock on the date the dividend
was declared. The holders of Series J convertible preferred stock ("Series J")
are entitled to receive noncumulative, annual cash dividends of $0.11 per share
when and if declared by eMed, in preference to the holders of Series Preferred
or common stock.
Voting
The holders of Series Preferred and Series J are entitled to vote, together
with holders of common stock, as a single class on all matters. Each
stockholder is entitled to the number of votes equal to the number of shares of
common stock into which such holder's shares are convertible.
Conversion
Each share of Series B, Series C, Series E, Series F, Series G, Series H,
and Series J convertible preferred stock may be converted at any time, at the
option of the stockholder, into 100, 396.88, 396.83, 833.33, 1,388.89, 1,388.89
and 0.42 shares of common stock, respectively, subject to certain anti-dilution
adjustments. All outstanding shares of Series Preferred automatically convert
into common stock, at their respective conversion rate, upon the closing of an
initial public offering of eMed's common stock or, in the case of Series H
convertible preferred stock and Series J, automatically upon the closing of an
initial public offering of eMed's common stock with gross proceeds of at least
$15,000,000 to eMed and at a price to the public of at least $7.20 per common
share.
Liquidation Preference
In the event of any liquidation, dissolution or winding-up of eMed, the
holders of Series J are entitled to receive, prior to any distribution to
holders of Series Preferred or common stock, up to the amount of $1.10 per
share, plus any declared but unpaid dividends. After the payment of the full
liquidation preference of Series J, the holders of Series B, Series C, Series
E, Series F, Series G and Series H are entitled to receive, prior to any
distribution to holders of common stock, up to the amount of $1,000, $5,000,
$5,000, $1,000, $5,000 and $5,000 per share, respectively, plus any declared
but unpaid dividends. The aggregate liquidation preference of the convertible
preferred stock is approximately $20,265,000 at December 31, 1998.
Subsequent Preferred Stock Issuance
In January and May 1999, eMed sold 4,142,857 shares of Series K Convertible
Preferred Stock ("Series K") for net proceeds of $5,797,466. Each share of
Series K is convertible into 0.42 share of common stock subject to certain
anti-dilution adjustments. The holders of Series K will participate on an as-
converted basis in any dividends paid on common stock and are entitled to vote
together with all other classes of voting stock as a single class on all
matters. The liquidation preference is equal to the issue price. In connection
with the Series K issuance, eMed issued warrants to purchase 467,186 shares of
common stock at an exercise price of $0.02. The warrants expire in 2009.
8. Common Stock
Each share of common stock entitles the holder to one vote on all matters
submitted to a vote of eMed's stockholders. Common stockholders are entitled to
receive dividends, if any, as may be declared by the Board of Directors,
subject to any preferential dividend rights of the preferred stockholders.
F-13
<PAGE>
eMed Technologies Corporation
Notes to Financial Statements--(Continued)
Reserved Shares
As of December 31, 1998 and June 30, 1999, eMed has 8,938,780 and 10,351,758
shares of common stock reserved for issuance upon the exercise of common stock
options and warrants and conversion of the outstanding convertible preferred
stock, respectively.
Stock Split
On September 15, 1999, eMed authorized a 2.4 for one reverse split on its
common stock. As a result, all common stock share and per share data included
in the accompanying consolidated financial statements and notes have been
retroactively restated for the split.
9. Stock Plans
Prior to adoption of the 1994 Stock Plan described below, eMed granted
25,928 non-qualified stock options to certain employees, directors and
consultants of eMed of which 417 options have been exercised and 3,471 have
been canceled. The stock options vested at various dates through January 1998.
In 1994, eMed adopted the 1994 Stock Plan (the "1994 Plan") which provides
for the grant of incentive stock options and non-qualified stock options, stock
awards and stock purchase rights for the purchase of shares of eMed's common
stock by officers, employees, consultants and directors of eMed. At December
31, 1998, the number of shares issuable pursuant to the 1994 Plan was
1,187,500. In February 1999, the stockholders approved an increase in the
number of shares issuable pursuant to the 1994 Plan to 1,812,500. The Board of
Directors is responsible for administration of the 1994 Plan. The Board
determines the term of each option, the option exercise price, the number of
shares for which each option is granted and the rate at which each option is
exercisable. Incentive stock options may be granted to any employee at an
exercise price per share of not less than the fair value per common share on
the date of the grant (not less than 110% of fair value in the case of holders
of more than 10% of eMed's voting stock) and with a term not to exceed ten
years from the date of the grant (five years for incentive stock options
granted to holders of more than 10% of eMed's voting stock).
No compensation cost has been recognized for employee stock-based
compensation in 1996, 1997 or 1998. Had compensation cost attributable to the
1994 Plan and other options been determined based on the fair value of the
options at the grant date consistent with the provisions of FAS 123, eMed's net
loss and net loss per share would have been increased to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Net loss
As reported........................ $(3,745,761) $(5,625,169) $(5,112,954)
Pro forma.......................... (3,782,260) (5,653,283) (5,180,199)
Basic and diluted net loss per share
As reported........................ $ (8.39) $ (12.45) $ (11.70)
Pro forma.......................... (8.47) (12.52) (11.86)
</TABLE>
Because the determination of the fair value of all options granted after
eMed becomes a public entity will include an expected volatility factor,
additional option grants are expected to be made subsequent to December 31,
1998, and most options vest over several years, the above pro forma effects are
not necessarily indicative of the pro forma effects on future years.
F-14
<PAGE>
eMed Technologies Corporation
Notes to Financial Statements--(Continued)
Under SFAS No. 123, the fair value of each employee option grant is
estimated on the date of grant using the Black-Scholes option pricing model to
apply the minimum value method with the following weighted-average assumptions
used for grants made during the years ended December 31, 1996, 1997 and 1998:
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Expected option term (years)................... 5 5 5
Risk-free interest rate........................ 6.2% 6.4% 5.0%
Dividend yield................................. 0.0% 0.0% 0.0%
</TABLE>
A summary of the status of eMed's stock options as of December 31, 1996,
1997 and 1998, and changes during the years then ended is presented below:
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------------------------------------------
1996 1997 1998
----------------------- ----------------------- -----------------------
Weighted- Weighted- Weighted-
average average average
Shares exercise price Shares exercise price Shares exercise price
------- -------------- ------- -------------- ------- --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year................ 110,452 $2.11 235,812 $1.15 510,197 $1.18
Granted................. 236,737 $1.20 331,536 $1.20 564,697 $1.20
Exercised............... (11,597) $1.20 (1,562) $1.20 (33,326) $1.20
Canceled................ (99,780) $2.35 (55,589) $1.20 (54,268) $1.20
------- ----- ------- ----- ------- -----
Outstanding at end of
year................... 235,812 $1.15 510,197 $1.18 987,300 $1.20
======= ===== ======= ===== ======= =====
Options exercisable at
end of year............ 162,525 261,543 471,356
======= ======= =======
Weighted-average fair
value of options
granted during the
year................... $ 0.31 $ 0.34 $ 0.34
======= ======= =======
Options available for
grant at end of year... 328,887 666,884 175,755
======= ======= =======
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1998:
<TABLE>
<CAPTION>
Weighted-average
Options remaining Options
Exercise price outstanding contractual life exercisable
-------------- ----------- ---------------- -----------
<S> <C> <C> <C>
$0.01 6,646 4.4 6,646
$0.42 14,286 4.1 14,286
$0.50 966,368 7.5 450,424
------- -------
987,300 471,356
======= =======
</TABLE>
Deferred Compensation
During the six months ended June 30, 1999, eMed granted stock options to
purchase 177,395 shares of its common stock with an exercise price of $1.20 per
share and 551,354 shares of its common stock with an exercise price of $2.04
per share. eMed recorded deferred compensation relating to these options
totaling approximately $2,838,231, representing the differences between the
estimated fair market value of the common stock on the date of grant and the
exercise price. Compensation expense related to these options is being
amortized over the related vesting periods. For the six months ended June 30,
1999, eMed recorded approximately $240,000 of compensation expense related to
these options.
F-15
<PAGE>
eMed Technologies Corporation
Notes to Financial Statements--(Continued)
10. Income Taxes
Deferred tax assets consist of the following:
<TABLE>
<CAPTION>
December 31,
------------------------
1997 1998
----------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards................. $ 5,914,557 $ 7,532,342
Other............................................ 134,336 624,489
----------- -----------
Deferred tax assets................................ 6,048,893 8,156,831
Deferred tax asset valuation allowance............. (6,048,893) (8,156,831)
----------- -----------
$ -- $ --
=========== ===========
</TABLE>
Realization of deferred tax assets is dependent upon the generation of
future taxable income. eMed has provided a valuation allowance for the full
amount of its deferred tax assets since realization of these future benefits is
not sufficiently assured.
At December 31, 1998, eMed has net operating loss carryforwards of
approximately $18,371,000 to offset future federal taxable income. If not
utilized, these carryforwards will expire at various dates ranging from 2013 to
2018. Under the provisions of the Internal Revenue Code, certain substantial
changes in eMed's ownership may have limited, or may limit in the future, the
amount of net operating loss carryforwards which could be used annually to
offset future taxable income and income tax liability. The amount of any annual
limitation is determined based upon eMed's value prior to an ownership change.
11. 401(k) Plan
During 1995, eMed established a defined contribution savings plan under
Section 401(k) of the Internal Revenue Code. This plan covers substantially all
employees who meet minimum age and service requirements and allows participants
to defer a portion of their annual compensation on a pre-tax basis. eMed
contributions to the plan may be made at the discretion of the Board of
Directors. There were no contributions made to the plan by eMed during the
years ended December 31, 1996, 1997 and 1998.
12. Commitments
Leases
eMed leases office space and certain fixed assets under noncancelable
operating and capital leases. The future minimum lease commitments under all
noncancelable leases at December 31, 1998 are as follows:
<TABLE>
<CAPTION>
Operating Capital
Lease Leases
---------- -------
<S> <C> <C>
1999..................................................... $ 641,239 $52,919
2000..................................................... 584,980 6,966
2001..................................................... 567,780 --
2002..................................................... 520,465 --
---------- -------
Total minimum lease payments............................. $2,314,464 59,885
==========
Less--amount representing interest....................... 7,568
-------
Present value of minimum lease payments.................. $52,317
=======
</TABLE>
Total rent expense under noncancelable operating leases was approximately
$257,000, $287,000 and $562,000 in 1996, 1997 and 1998, respectively.
F-16
<PAGE>
Report of Independent Accountants
To the Board of Directors and Stockholders of
eMed Technologies Corporation:
In our opinion, the accompanying balance sheet and the related statements of
operations and accumulated deficit and of cash flows present fairly, in all
material respects, the financial position of E-Systems Medical Electronics (a
division of Raytheon E-Systems, Inc.) at December 31, 1997 and November 23,
1998 and the results of its operations and its cash flows for the year ended
December 31, 1997 and for the period from January 1, 1998 through November 23,
1998 in conformity with generally accepted accounting principles. 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 of these statements in accordance with
generally accepted auditing standards, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
August 9, 1999
F-17
<PAGE>
E-Systems Medical Electronics
(a division of Raytheon E-Systems, Inc.)
Balance Sheet
<TABLE>
<CAPTION>
December 31, November 23,
1997 1998
------------ ------------
<S> <C> <C>
Assets
Current assets:
Cash............................................. $ 90,888 $ 1,009
Accounts receivable, net of allowance for
doubtful accounts of $46,000 and $150,000 at
December 31, 1997 and November 23, 1998,
respectively.................................... 2,978,522 2,332,937
Inventories...................................... 1,175,196 2,430,573
Prepaid expenses and other current assets........ 363,432 54,653
------------ ------------
Total current assets........................... 4,608,038 4,819,172
Fixed assets, net.................................. 681,576 205,398
Other assets....................................... 37,200 --
------------ ------------
Total assets................................... $ 5,326,814 $ 5,024,570
============ ============
Liabilities and Accumulated Deficit
Current liabilities:
Accounts payable................................. $ 1,363,258 $ 1,156,310
Accrued employee benefits........................ 253,010 161,798
Accrued warranty................................. 200,000 200,000
Other accrued expenses........................... 575,679 390,958
Deferred revenue................................. 465,322 432,035
------------ ------------
Total current liabilities...................... 2,857,269 2,341,101
Long-term payable to Raytheon...................... 29,993,246 36,213,392
------------ ------------
Total liabilities.............................. 32,850,515 38,554,493
Commitments (Note 7)
Accumulated deficit................................ (27,523,701) (33,529,923)
------------ ------------
Total liabilities and accumulated deficit...... $ 5,326,814 $ 5,024,570
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-18
<PAGE>
E-Systems Medical Electronics
(a division of Raytheon E-Systems, Inc.)
Statement of Operations and Accumulated Deficit
<TABLE>
<CAPTION>
Period from
January 1, 1998
Year ended through
December 31, November 23,
1997 1998
------------ ---------------
<S> <C> <C>
Revenue........................................... $ 15,006,266 $ 11,217,121
Cost of revenue................................... 16,055,320 9,928,411
------------ ------------
Gross margin.................................... (1,049,054) 1,288,710
------------ ------------
Operating expenses:
Research and development........................ 2,369,445 3,365,301
Sales and marketing............................. 3,145,504 2,599,950
General and administrative...................... 2,277,301 1,323,836
------------ ------------
Total operating expenses...................... 7,792,250 7,289,087
------------ ------------
Loss from operations.............................. (8,841,304) (6,000,377)
Other expense..................................... (80,895) (5,845)
------------ ------------
Net loss........................................ (8,922,199) (6,006,222)
Accumulated deficit, beginning of period.......... (18,601,502) (27,523,701)
------------ ------------
Accumulated deficit, end of period................ $(27,523,701) $(33,529,923)
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-19
<PAGE>
E-Systems Medical Electronics
(a division of Raytheon E-Systems, Inc.)
Statement of Cash Flows
Increase (Decrease) in Cash
<TABLE>
<CAPTION>
Period from
January 1, 1998
Year ended through
December 31, November 23,
1997 1998
------------ ---------------
<S> <C> <C>
Cash flows from operating activities:
Net loss........................................ $ (8,922,199) $ (6,006,222)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Depreciation................................... 649,650 517,453
Loss on disposal of fixed assets............... -- 3,730
Allocation of costs by Raytheon................ 5,057,882 3,551,205
Changes in operating assets and liabilities:
Accounts receivable........................... 2,132,522 645,585
Inventories................................... 834,282 (1,255,377)
Prepaid expenses and other current assets..... (346,327) 308,779
Accounts payable.............................. 815,510 (206,948)
Accrued employee benefits..................... 23,112 (91,212)
Accrued warranty.............................. 118,300 --
Other accrued expenses........................ 463,955 (184,721)
Deferred revenue.............................. (611,628) (33,287)
Cash provided by Raytheon..................... 18,406,307 15,008,634
Cash remitted to Raytheon..................... (17,222,106) (12,339,693)
------------ ------------
Net cash (used in) provided by operating
activities.................................. 1,399,260 (82,074)
------------ ------------
Cash flows from investing activities:
Purchases of fixed assets....................... (629,604) (45,005)
Change in other assets.......................... (37,200) 37,200
------------ ------------
Net cash used in investing activities........ (666,804) (7,805)
------------ ------------
Cash flows from financing activities:
Cash paid in reorganization (Note 1)............ (9,545,942) --
------------ ------------
Decrease in cash................................. (8,813,486) (89,879)
Cash, beginning of period........................ 8,904,374 90,888
------------ ------------
Cash, end of period.............................. $ 90,888 $ 1,009
============ ============
Supplemental cash flow disclosure:
</TABLE>
No cash was paid for interest or taxes for the year ended December 31, 1997
or for the period from January 1, 1998 through November 23, 1998.
The accompanying notes are an integral part of these financial statements.
F-20
<PAGE>
E-Systems Medical Electronics (a division of Raytheon E-Systems, Inc.)
Notes to Financial Statements
1. Organization and Nature of Business
E-Systems Medical Electronics markets and sells electronic medical imaging
systems and provides related services to healthcare providers primarily within
the United States. E-Systems Medical Electronics operates in one business
segment.
E-Systems Medical Electronics was established as a wholly owned subsidiary
of E-Systems. In 1995, E-Systems was acquired by Raytheon Company ("Raytheon")
and subsequently became Raytheon E-Systems, Inc., a wholly owned subsidiary of
Raytheon. In February 1997, E-Systems Medical Electronics was reorganized as a
division of Raytheon E-Systems, Inc. As part of the reorganization, the assets,
liabilities and capital of E-Systems Medical Electronics were transferred to
Raytheon E-Systems, Inc. E-Systems Medical Electronics operated as a division
of Raytheon E-Systems, Inc. from the date of transfer through November 23,
1998.
2. Summary of Significant Accounting Policies
Cash
E-Systems Medical Electronics maintains minimal levels of cash. Cash needs
are funded by Raytheon and cash receipts are remitted to Raytheon on a regular
basis.
Fair Value of Financial Instruments
The carrying amount of E-Systems Medical Electronics's financial
instruments, which include cash, accounts receivable, accounts payable, accrued
expenses and long-term payable, approximate their fair values at December 31,
1997 and November 23, 1998.
Revenue Recognition, Significant Customers and Concentration of Credit Risk
Revenue from the sale of electronic medical imaging systems and equipment is
recognized upon shipment to the customer provided that the risk of loss has
passed to the customer and collection of the related receivable is probable.
Service revenue, consisting of installation, training, and support services, is
recognized as the work is performed.
Financial instruments that potentially expose E-Systems Medical Electronics
to concentration of credit risk include accounts receivable. E-Systems Medical
Electronics performs ongoing evaluations of customers' financial condition and
does not generally require collateral. At December 31, 1997 and November 23,
1998, accounts receivable from one customer accounted for 13% and 26%,
respectively, of the total amounts due to E-Systems Medical Electronics.
In 1997, sales with two customers accounted for approximately 15% and 11% of
E-Systems Medical Electronics's total revenue. In 1998, sales with one customer
accounted for approximately 12% of E-Systems Medical Electronics's total
revenue.
Inventories
Inventories are stated at the lower of cost or market, cost being determined
using the first-in, first-out (FIFO) method.
F-21
<PAGE>
E-Systems Medical Electronics (a division of Raytheon E-Systems, Inc.)
Notes to Financial Statements--(Continued)
Fixed Assets
Fixed assets are recorded at cost and depreciated using the straight-line
method over their estimated useful lives. Repair and maintenance costs are
expensed as incurred.
Advertising Costs
Advertising costs are charged to operations as incurred. Advertising costs
were approximately $121,000 and $32,000 in the year ended December 31, 1997 and
the period ended November 23, 1998, respectively.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
Income Taxes
As a division of Raytheon, E-Systems Medical Electronics does not operate as
a stand-alone taxable entity; however, for purposes of these financial
statements, income tax information has been calculated in accordance with
Statement of Accounting Standards No. 109, "Accounting for Income Taxes", as if
E-Systems Medical Electronics were a stand-alone taxable entity (Note 6).
Recently Issued Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The new standard establishes accounting
and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, (collectively referred to
as derivatives) and for hedging activities. In June 1999, the FASB issued SFAS
No. 137 which deferred the effective date of SFAS No. 133 for one year. SFAS
No. 133 is now effective for all fiscal quarters of fiscal years beginning
after June 15, 2000. E-Systems Medical Electronics does not expect SFAS No. 133
to have a material effect on its financial position or results of operations.
In April 1998, the AcSEC issued SoP 98-5, "Reporting on the Costs of Start-
Up Activities." Start-up activities are defined broadly as those one-time
activities related to the opening of a new facility, introducing a new product
or service, conducting business in a new territory, conducting business with a
new class of customer, commencing some new operation or organizing a new
entity. SoP 98-5 requires that the cost of start-up activities be expensed as
incurred. SoP 98-5 is effective for E-Systems Medical Electronics beginning in
1999, and E-Systems Medical Electronics does not expect adoption of this SoP to
have a material effect on its financial position or results of operations.
3. Inventories
<TABLE>
<CAPTION>
December 31, 1997 November 23, 1998
----------------- -----------------
<S> <C> <C>
Raw materials and purchased
components.......................... $1,053,037 $2,430,573
Work-in-process...................... 91,646 --
Finished goods....................... 30,513 --
---------- ----------
$1,175,196 $2,430,573
========== ==========
</TABLE>
F-22
<PAGE>
E-Systems Medical Electronics (a division of Raytheon E-Systems, Inc.)
Notes to Financial Statements--(Continued)
4. Fixed Assets
<TABLE>
<CAPTION>
Estimated
Useful life (years) December 31, 1997 November 23, 1998
------------------- ----------------- -----------------
<S> <C> <C> <C>
Furniture and fixtures.. 5 $ 70,330 $ 63,156
Office equipment and
computers.............. 3 613,085 620,720
Electronic imaging
equipment.............. 3 2,368,227 2,231,065
---------- ----------
3,051,642 2,914,941
Less -- Accumulated
depreciation........... 2,370,063 2,709,543
---------- ----------
$ 681,579 $ 205,398
========== ==========
</TABLE>
5. Intercompany Transactions
E-Systems Medical Electronics had a liability due to Raytheon in the amount
of $29,993,246 and $36,213,392 at December 31, 1997 and November 23, 1998,
respectively. The average balance of the liability due to Raytheon during the
year ended December 31, 1997 and the period ended November 23, 1998 was
$29,303,294 and $32,377,065, respectively. The liability due to Raytheon
results from cash transfers between E-Systems Medical Electronics and Raytheon
and the allocation of costs to E-Systems Medical Electronics consisting of
direct costs, such as insurance premiums, payroll services and legal services,
and other allocated services. Other allocated services consist of indirect
costs related to E-Systems Medical Electronics, such as corporate governance
and other general and administrative activities. Such allocations are based
upon estimated support provided to E-Systems Medical Electronics. Management
believes these estimates are reasonable. No interest has been charged on
intercompany liabilities.
The following table summarizes intercompany transactions during the year
ended December 31, 1997 and the period January 1, 1998 through November 23,
1998
<TABLE>
<S> <C>
Balance at December 31, 1996................................. $ 23,751,163
Allocation of costs to E-Systems Medical Electronics....... 5,057,882
Cash transferred from Raytheon to E-Systems Medical
Electronics............................................... 18,406,307
Cash transferred from E-Systems Medical Electronics to
Raytheon.................................................. (17,222,106)
------------
Balance at December 31, 1997................................. 29,993,246
Allocation of costs to E-Systems Medical Electronics....... 3,551,205
Cash transferred from Raytheon to E-Systems Medical
Electronics............................................... 15,008,634
Cash transferred from E-Systems Medical Electronics to
Raytheon.................................................. (12,339,693)
------------
Balance at November 23, 1998................................. $ 36,213,392
============
</TABLE>
6. Income Taxes
Deferred tax assets are comprised of the following:
<TABLE>
<CAPTION>
December 31, November 23,
1997 1998
------------ ------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards............... $ 6,062,000 $ 8,482,000
Other.......................................... 19,000 62,000
----------- -----------
Deferred tax assets.............................. 6,081,000 8,544,000
Deferred tax asset valuation allowance........... (6,081,000) (8,544,000)
----------- -----------
$ -- $ --
=========== ===========
</TABLE>
F-23
<PAGE>
E-Systems Medical Electronics (a division of Raytheon E-Systems, Inc.)
Notes to Financial Statements--(Continued)
Realization of deferred tax assets is dependent upon the generation of
future taxable income. E-Systems Medical Electronics has provided a valuation
allowance for the full amount of its deferred tax assets since realization of
these future benefits is not sufficiently assured.
7. Commitments
Leases
E-Systems Medical Electronics leases office space under noncancelable
operating leases. Future minimum lease payments under these leases are as
follows:
<TABLE>
<CAPTION>
Year ending
December 31,
------------
<S> <C>
1999.............................................................. $73,191
2000.............................................................. 20,483
2001.............................................................. 274
-------
Total minimum lease payments.................................... $93,948
=======
</TABLE>
Total rent expense was approximately $579,348 and $538,683 in 1997 and 1998,
respectively.
8. Subsequent Event
On November 23, 1998, E-Systems Medical Electronics was purchased by eMed
Technologies Corporation for $3,200,000. The acquisition was funded by a
$2,200,000 note payable to Raytheon and $1,000,000 in cash.
F-24
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
The following unaudited pro forma statement of operations gives effect to
the acquisition by eMed Technologies Corporation ("eMed") of E-Systems Medical
Electronics, a division of Raytheon E-Systems, Inc., in a transaction accounted
for as a purchase. The unaudited pro forma statement of operations is based on
the individual statements of operations of eMed and E-Systems Medical
Electronics appearing elsewhere in this registration statement, and combines
the results of operations of eMed and of E-Systems Medical Electronics
(acquired by eMed as of November 23, 1998) for the year ended December 31, 1998
as if the acquisition occurred on January 1, 1998. The unaudited pro forma
statement of operations for the year ended December 31, 1998 should be read in
conjunction with the historical financial statements and notes thereto of eMed
and E-Systems Medical Electronics included elsewhere in this registration
statement.
The pro forma information is presented for illustrative purposes only and is
not indicative of the operating results that would have occurred had the
acquisition been consummated at the beginning of the period presented, nor is
it indicative of future operating results.
Pro Forma Combined Statement of Operations
Year ended December 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
E-Systems
Medical Pro forma Pro forma
eMed Electronics Adjustments Combined
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Revenue................. $12,594,167 $11,217,121 $(3,103,244)a $ 20,708,044
Cost of Revenue......... 8,976,139 9,928,411 (3,093,517)a 15,811,033
----------- ----------- ----------- ------------
Gross margin.......... 3,618,028 1,288,710 (9,727) 4,897,011
----------- ----------- ----------- ------------
Operating expenses:
Research and develop-
ment................. 2,361,430 3,365,301 -- 5,726,731
Sales and marketing... 3,498,169 2,599,950 -- 6,098,119
General and adminis-
trative.............. 2,722,340 1,323,836 7,704 b 4,053,880
----------- ----------- ----------- ------------
Total operating ex-
penses............. 8,581,939 7,289,087 7,704 15,878,730
----------- ----------- ----------- ------------
Loss from operations.... (4,963,911) (6,000,377) (17,431) (10,981,719)
Interest expense, net... (105,611) -- (321,056)c (426,667)
Other expense........... (43,432) (5,845) -- (49,277)
----------- ----------- ----------- ------------
Net loss.............. $(5,112,954) $(6,006,222) $ (338,487) $(11,457,663)
=========== =========== =========== ============
Pro forma basic and di-
luted net loss per
share.................. $ (11.70) -- -- $ (26.22)
Shares used in computing
pro forma basic
and diluted net loss per
share.................. 436,949 -- -- 436,949
</TABLE>
F-25
<PAGE>
NOTES TO PRO FORMA COMBINED STATEMENT OF OPERATIONS
(unaudited)
The unaudited pro forma combined statement of operations gives effect to the
following pro forma adjustments necessary to reflect the acquisition as if it
had occurred on January 1, 1998:
a. Elimination of revenue and cost of revenue directly associated with
certain assets acquired by eMed as part of E-Systems Medical Electronics
and classified as assets held for sale by eMed at December 31, 1998.
These assets were subsequently sold in February 1999.
b. Additional amortization of goodwill on a straight-line basis over 10
years.
c. Increase in interest expense on debt incurred in connection with the
acquisition of E-Systems Medical Electronics. A change in the interest
rate on variable rate debt by 1/8% would not have a material effect on
the pro forma combined statement of operations.
F-26
<PAGE>
"Internet Viewing Applications"
"Image-centric presentation for radiologists and specialists"
"Format"
"Screen layout and study navigation"
[radiology image and patient
information as displayed by FrameWave
Web on a computer monitor.]
"Patient Jacket"
"Access to current and prior
studies and reports"
"Workflow Tools" "Imaging"
"Worklists and Comprehensive tools for image
search utilities" enhancement
"Report-centric presentation for referring physicians"
"Patient Jacket" [radiology image integrated with
"Access to current and radioligist's report and patient
prior reports, audio clips and studies" information as displayed by
FrameWave Web on a computer
monitor.]
"Images"
"Reference images with
double click to full view"
"Report"
"Radiologist reports
readily accessible"
"The above graphics depict products that we introduced in June 1999."
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
No dealer, salesperson or other person is authorized to give any information
or to represent anything not contained in this prospectus. You must not rely
only on any unauthorized information or representation. This prospectus is an
offer to sell or a solicitation of an offer to buy only the shares offered by
this prospectus, but only under circumstances and in jurisdictions where it is
lawful to do so. The information contained in this prospectus is current only
as of its date.
---------------
TABLE OF CONTENTS
---------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary.................................................................. 1
Risk Factors............................................................. 5
Use of Proceeds.......................................................... 13
Dividend Policy.......................................................... 13
Capitalization........................................................... 14
Dilution................................................................. 15
Selected Financial Data.................................................. 16
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 17
Business................................................................. 25
Management............................................................... 34
Certain Transactions..................................................... 44
Description of Capital Stock............................................. 45
Shares Eligible for Future Sale.......................................... 48
Underwriting............................................................. 50
Legal Matters............................................................ 52
Experts.................................................................. 52
Where You Can Find Additional Information................................ 52
Index to Financial Statements............................................ F-1
</TABLE>
Dealer Prospectus Delivery Obligation:
Until , 1999 (25 days after the date of this prospectus), all dealers
that buy, sell, or trade these shares of common stock, whether or not
participating in this offering, may be required to deliver a prospectus. This
is in addition to the dealers' obligation to deliver a prospectus when acting
as underwriters and with respect to their unsold allotments or subscriptions.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
3,100,000 Shares
eMed Technologies
Corporation
Common Stock
---------------
PROSPECTUS
---------------
Bear, Stearns & Co. Inc.
Donaldson, Lufkin & Jenrette
---------------
Wit Capital Corporation
, 1999
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered, other than the
underwriting discounts and commissions. All amounts shown are estimates, except
the Securities and Exchange Commission registration fee and the National
Association of Securities Dealers, Inc. filing fee.
<TABLE>
<CAPTION>
Item Amount
---- --------
<S> <C>
Securities and Exchange Commission Registration Fee................ $ 15,985
National Association of Securities Dealers Filing Fee.............. 6,250
Nasdaq National Market Listing Fee................................. 60,000
Blue Sky Fees and Expenses......................................... 10,000
Transfer Agent and Registrar Fees.................................. 3,500
Accounting Fees and Expenses....................................... 350,000
Legal Fees and Expenses............................................ 350,000
Printing Expenses.................................................. 90,000
Miscellaneous...................................................... 14,265
--------
Total............................................................ $900,000
========
</TABLE>
- --------
* To be filed by amendment
Item 14. Indemnification of Directors and Officers
The Registrant's Amended and Restated Certificate of Incorporation provides
that the Registrant's Directors shall not be liable to the Registrant or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except to the extent that the exculpation from liabilities is not permitted
under the Delaware General Corporation Law as in effect at the time such
liability is determined. The Amended and Restated By-Laws provide that the
Registrant shall indemnify its directors to the full extent permitted by the
laws of the State of Delaware. Each of the Registrant's Directors has entered
into an agreement with the Registrant whereby the Registrant has agreed to
indemnify such Director to the full extent permitted by the laws of the State
of Delaware.
Item 15. Recent Sales of Unregistered Securities
The following information is furnished with regard to all Securities sold by
the Registrant within the past three years which were not registered under the
Securities Act.
(a) From August 1, 1996 to September 17, 1999, the Registrant issued a
total of 148,247 shares of common stock for an aggregate consideration of
$177,898 pursuant to the exercise of stock options and warrants by
employees, directors, consultants and their affiliates.
(b) In June 1997, the Registrant sold $1,500,000 in principal amount of
convertible subordinated notes for aggregate proceeds of $1,500,000. These
notes were issued to Delphi Ventures III, L.P., Seaflower Health and
Technology Fund, LLC and other private investors. These notes were
automatically convertible, upon the Registrant's sale of new equity
securities for gross proceeds of at least $1,500,000, into securities
having the same price and terms as the new equity securities. Purchasers of
the notes also received warrants to purchase an additional amount of the
new equity securities having an aggregate purchase price of 30% of the
amount of the purchaser's note, at the same price that such new equity
securities were issued to other investors. The notes had a maturity date of
October 31, 1997 and bore
II-1
<PAGE>
interest at the rate of 6% per annum. Accrued interest converted on the
same terms as the principal amount of the notes. In September 1997, these
notes were automatically converted into 1,384,460 shares of Series J
preferred stock at a conversion price of $1.10 per share of Series J
preferred stock. The warrants issued with the notes became warrants to
purchase 409,091 shares of Series J preferred stock at an exercise price of
$1.10 per share. The Series J preferred stock will be converted into
3,221,179 shares of common stock and the Series J warrants will become
warrants to purchase 170,449 shares of common stock upon the closing of
this offering.
(c) In September through December of 1997, the Registrant sold an
aggregate of 6,346,449 shares of Series J preferred stock (excluding the
shares issued upon the conversion of the notes described above) for
aggregate proceeds of $6,981,094. These shares were issued to Bedrock
Capital Partners, Pacific Venture Group, L.P., Bessemer Venture Partners IV
L.P., and other private investors.
(d) In July 1998, various investors entered into commitments with the
Registrant to purchase shares of Series K preferred stock for an aggregate
price of $2,500,000 if the Registrant notified them of its election to sell
the shares. The investors who made these commitments also received warrants
to purchase in the aggregate 201,388 shares of common stock at an exercise
price of $.02 per share as consideration for their commitments.
In January 1999, the Registrant elected to draw upon the initial
investors' commitments to purchase Series K preferred stock and sold
additional shares of Series K preferred stock together with warrants to
purchase additional shares of our common stock at an exercise price of $.02
per share to other investors. In the aggregate (including the securities
discussed in the preceding paragraph), the Registrant issued 2,500,000
shares of Series K preferred stock together with warrants to purchase
281,916 shares of common stock for proceeds of $3,500,000. These shares and
warrants were issued to Bedrock Capital Partners, Pacific Venture Group,
L.P., Delphi Ventures III, L.P., Seaflower Bioventure Fund II, LLC,
Bessemer Venture Partners IV L.P., and other private investors.
In May 1999, the Registrant sold 1,642,856 additional shares of Series K
preferred stock and warrants to purchase an additional 185,270 shares of
common stock for aggregate proceeds of $2,300,000. These shares and
warrants were issued to Zero Stage Capital VI, L.P. and other private
investors.
All of the above securities were issued in reliance upon the exemption from
registration provided by Section 4(2) of the Securities Act of 1933, as
amended, and Rule 506 of the Securities and Exchange Commission promulgated
thereunder, as transactions by an issuer not involving a public offering.
Item 16. Exhibits and Financial Statement Schedules
The following is a list of exhibits filed as a part of this registration
statement.
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
1 Form of underwriting agreement.
2 Acquisition Agreement dated as of November 23, 1998 by and between
Raytheon E-Systems, Inc. and the Registrant.
3.1 Form of Amended and Restated Certificate of Incorporation.**
3.2 Form of Amended and Restated By-Laws.**
4.1 Specimen Certificate for Common Stock.
5 Opinion of Ropes & Gray.**
10.1 eMed 1994 Stock Plan.**
10.2 Securities Purchase Agreement dated as of September 30, 1997 between
the Registrant and each of the investors named therein.**
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
10.3 Investors Rights Agreement dated as of September 30, 1997 among the
Registrant and each of the holders of the Company's Series J Preferred
Stock parties thereto.**
10.4 Amendment No. 1 dated as of November 13, 1997 to the Investors Rights
Agreement.**
10.5 Securities Purchase Agreement dated as of July 28, 1998 between the
Registrant and each of the investors named therein.**
10.6 Amendment to Securities Purchase Agreement dated as of January 14,
1999.**
10.7 Securities Purchase Agreement dated as of January 20, 1999 between the
Registrant and each of the investors named therein.**
10.8 Amendment to the Securities Purchase Agreement dated as of May 7,
1999.**
10.9 Registration Rights Agreement dated as of July 28, 1998 between the
Registrant and the parties named therein.**
10.11 Commercial Lease as of September 26, 1997 by and between Hartwell
Group LLC and the Registrant.**
10.12 Amendment 1 to Commercial Lease dated as of November 28, 1997.**
10.13 Employment Agreement dated as of March 31, 1999 by and between Scott
S. Sheldon and the Registrant.**
10.14 Employment Agreement dated as of April 30, 1999 by and between Howard
Pinsky and the Registrant.**
10.15 Form of Director Indemnity Agreement.**
10.16 Form of Director Work Product Agreement.**
10.17 Form of Director Confidentiality Agreement.**
10.18 Form of Common Stock Warrant.**
10.19 Form of Series K Common Stock Warrant.**
10.20 Form of Series J Preferred Warrant.**
10.21 Web Software Licensing and Development Agreement dated as of September
10, 1999 between the Registrant and AWARE, Inc.+**
10.22 Software Licensing and Development Agreement dated as of May 30, 1997
between the Registrant and AWARE, Inc.+**
10.23 Amended and Restated Reseller Agreement dated as of May 30, 1997
between the Registrant and ISG Technologies, Inc.+**
10.24 Amendment No. 1 to Amended and Restated Reseller Agreement dated as of
April 30, 1998 between the Registrant and ISG Technologies, Inc.+**
10.25 Letter Agreement dated as of December 29, 1998 between the Registrant
and ISG Technologies, Inc.+**
10.26 Access Radiology Corporation Confidentiality Agreement dated as of
March 31, 1995 between the Registrant and ISG Technologies, Inc.**
10.27 OEM Development Software Agreement dated as of November 9, 1995
between the Registrant and Mitra Imaging Incorporated.+**
10.28 Amendment to OEM Development Software Agreement dated as of May 20,
1995 between the Registrant and Mitra Imaging Incorporated.+**
10.29 Amendment to OEM Development Software Agreement dated as of April 28,
1999 between the Registrant and Mitra Imaging Incorporated.+**
23.1 Consent of Ropes & Gray (Exhibit 5).**
23.2 Consent of PricewaterhouseCoopers LLP.
23.3 Consent of PricewaterhouseCoopers LLP.
24 Power of Attorney (included on page II-5).**
27.1 Financial Data Schedule.**
</TABLE>
- --------
**Previously Filed
+Portions have been omitted pursuant to a request for confidential treatment
dated September 29, 1999
II-3
<PAGE>
(b) Financial Statement Schedules
Schedule II--Valuation and Qualifying Accounts.
<TABLE>
<CAPTION>
Balance at Balance at
beginning of Charged to end of
Description period Operations Deductions period
- ----------- ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C>
Year ended December 31, 1996
Reserves and allowances
deducted from
asset accounts...............
Allowance for doubtful
accounts.................... $ -- 25,000 -- $ 25,000
Year ended December 31, 1997
Reserves and allowances
deducted from
asset accounts ..............
Allowances for doubtful
accounts ................... $25,000 10,000 -- $ 35,000
Year ended December 31, 1998
Reserves and allowances
dededucted from
asset accounts ..............
Allowances for doubtful
accounts ................... $35,000 460,000 (7,927)(1) $487,073
</TABLE>
- --------
(1) Uncollectible accounts written off.
All other schedules are omitted because they are not applicable or the
required information is shown in the other Financial Statements or Notes
thereto.
Item 17. Undertakings
(a) 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 provisions described under "Item 14--Indemnification
of Directors and Officers" above, or otherwise, the Registrant has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
(b) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purposes 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.
(c) The undersigned Registrant hereby undertakes to provide to the
underwriter at the closing specified in the purchase agreements, certificates
in such denominations and registered in such names as required by the
underwriters to permit prompt delivery to each purchaser.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Lexington, MA on this
7th day of October 1999.
eMed Technologies Corporation
/s/ Scott S. Sheldon
By: _________________________________
Scott S. Sheldon
Chief Executive Officer and
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Scott S. Sheldon President, Chief Executive October 7, 1999
______________________________________ Officer and Director
Scott S. Sheldon
/s/ Gary A. Lortie Chief Financial Officer October 7, 1999
______________________________________
Gary A. Lortie
* Director October 7, 1999
______________________________________
James J. Bochnowski
* Director October 7, 1999
______________________________________
Thomas B. Neff
* Director October 7, 1999
______________________________________
Thomas O. Pyle
* Director October 7, 1999
______________________________________
Michael Schmertzler
* Director October 7, 1999
______________________________________
Donald E. Strange
</TABLE>
By: /s/ Gary A. Lortie
-----------------------------
Attorney in fact
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
1 Form of underwriting agreement.
2 Acquisition Agreement dated as of November 23, 1998 by and between
Raytheon E-Systems, Inc. and the Registrant.
3.1 Form of Amended and Restated Certificate of Incorporation.**
3.2 Form of Amended and Restated By-Laws.**
4.1 Specimen Certificate for Common Stock.
5 Opinion of Ropes & Gray.**
10.1 eMed 1994 Stock Plan.**
10.2 Securities Purchase Agreement dated as of September 30, 1997 between
the Registrant and each of the investors named therein.**
10.3 Investors Rights Agreement dated as of September 30, 1997 among the
Registrant and each of the holders of the Company's Series J Preferred
Stock parties thereto.**
10.4 Amendment No. 1 dated as of November 13, 1997 to the Investors Rights
Agreement.**
10.5 Securities Purchase Agreement dated as of July 28, 1998 between the
Registrant and each of the investors named therein.**
10.6 Amendment to Securities Purchase Agreement dated as of January 14,
1999.**
10.7 Securities Purchase Agreement dated as of January 20, 1999 between the
Registrant and each of the investors named therein.**
10.8 Amendment to the Securities Purchase Agreement dated as of May 7,
1999.**
10.9 Registration Rights Agreement dated as of July 28, 1998 between the
Registrant and the parties named therein.**
10.11 Commercial Lease as of September 26, 1997 by and between Hartwell
Group LLC and the Registrant.**
10.12 Amendment 1 to Commercial Lease dated as of November 28, 1997.**
10.13 Employment Agreement dated as of March 31, 1999 by and between Scott
S. Sheldon and the Registrant.**
10.14 Employment Agreement dated as of April 30, 1999 by and between Howard
Pinsky and the Registrant.**
10.15 Form of Director Indemnity Agreement.**
10.16 Form of Director Work Product Agreement.**
10.17 Form of Director Confidentiality Agreement.**
10.18 Form of Common Stock Warrant.**
10.19 Form of Series K Common Stock Warrant.**
10.20 Form of Series J Preferred Warrant.**
10.21 Web Software Licensing and Development Agreement dated as of September
10, 1999 between the Registrant and AWARE, Inc.+**
10.22 Software Licensing and Development Agreement dated as of May 30, 1997
between the Registrant and AWARE, Inc.+**
10.23 Amended and Restated Reseller Agreement dated as of May 30, 1997
between the Registrant and ISG Technologies, Inc.+**
10.24 Amendment No. 1 to Amended and Restated Reseller Agreement dated as of
April 30, 1998 between the Registrant and ISG Technologies, Inc.+**
10.25 Letter Agreement dated as of December 29, 1998 between the Registrant
and ISG Technologies, Inc.+**
10.26 Access Radiology Corporation Confidentiality Agreement dated as of
March 31, 1995 between the Registrant and ISG Technologies, Inc.**
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
10.27 OEM Development Software Agreement dated as of November 9, 1995
between the Registrant and Mitra Imaging Incorporated.+**
10.28 Amendment to OEM Development Software Agreement dated as of May 20,
1995 between the Registrant and Mitra Imaging Incorporated.+**
10.29 Amendment to OEM Development Software Agreement dated as of April 28,
1999 between the Registrant and Mitra Imaging Incorporated.+**
23.1 Consent of Ropes & Gray (Exhibit 5).**
23.2 Consent of PricewaterhouseCoopers LLP.
23.3 Consent of PricewaterhouseCoopers LLP.
24 Power of Attorney (included on page II -5).**
27.1 Financial Data Schedule.**
</TABLE>
- --------
**Previously Filed
+Portions have been omitted pursuant to a request for confidential treatment
dated September 29, 1999.
<PAGE>
EXHIBIT 1
3,100,000 Shares of Common Stock
eMed Technologies Corporation
UNDERWRITING AGREEMENT
----------------------
October [ ], 1999
BEAR, STEARNS & CO. INC.
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
WIT CAPITAL CORPORATION,
as representatives of the several Underwriters named in Schedule I
attached hereto
c/o Bear, Stearns & Co. Inc. 245 Park Avenue New York, NY 10167
Ladies and Gentlemen:
eMed Technologies Corporation, a corporation organized and existing
under the laws of Delaware (the "Company"), proposes, subject to the terms and
conditions stated herein, that the Company issue and sell to the several
underwriters named above (the "Underwriters"), as indicated in Schedule I
hereto, an aggregate of 3,100,000 shares (the "Firm Shares") of its Common
Stock, par value $.01 per share (the "Common Stock"), and, for the sole purpose
of covering over-allotments in connection with the sale of the Firm Shares, at
the option of the Underwriters, up to an additional 465,000 shares (the
"Additional Shares") of Common Stock. The Firm Shares and any Additional Shares
purchased by the Underwriters are referred to herein as the "Shares". The
Shares are more fully described in the Registration Statement referred to below.
1. Representations and Warranties of the Company. The Company
---------------------------------------------
represents and warrants to, and agrees with, the Underwriters that:
(a) The Company has filed with the Securities and Exchange Commission
(the "Commission") a registration statement, and may have filed an amendment or
amendments thereto, on Form S-1 (No. 333-85481), for the registration
<PAGE>
of the Shares under the Securities Act of 1933, as amended (the "Act"). Such
registration statement, including the prospectus, financial statements and
schedules, exhibits and all other documents filed as a part thereof, as amended
at the time of effectiveness of the registration statement, including any
information deemed to be a part thereof as of the time of effectiveness pursuant
to paragraph (b) of Rule 430A or Rule 434 of the Rules and Regulations of the
Commission under the Act (the "Regulations"), is herein called the "Registration
Statement". Any registration statement filed pursuant to Rule 462(b) of the
Regulations is herein called the "462(b) Registration Statement", and after such
filing the term "Registration State ment" shall include the Rule 462(b)
Registration Statement. The prospectus, in the form first filed with the
Commission pursuant to Rule 424(b) of the Regulations or filed as part of the
Registration Statement at the time of effectiveness if no Rule 424(b) or Rule
434 filing is required, is herein called the "Prospectus". The term "preliminary
prospectus" as used herein means a preliminary prospectus as described in Rule
430 of the Regulations. Neither the Commission nor the Blue Sky or securities
authority of any jurisdiction has issued a stop order suspending the
effectiveness of the Registration Statement, preventing or suspending the use of
any preliminary prospectus, the Prospectus, the Registration Statement or any
amend ment or supplement thereto, refusing to permit the effectiveness of the
Registration Statement or suspending the registration or qualification of the
Shares, nor, to the Company's knowledge, has any of such authorities instituted
or threatened to institute any proceedings with respect to a stop order.
(b) At the respective time of the effectiveness of the Registra tion
Statement or any 462(b) Registration Statement or the effectiveness of any post-
effective amendment to the Registration Statement, when the Prospectus is first
filed with the Commission pursuant to Rule 424(b) or Rule 434 of the
Regulations, when any supplement to or amendment of the Prospectus is filed with
the Commission and at the Closing Date and the Additional Closing Date, if any
(as hereinafter respec tively defined), the Registration Statement and the
Prospectus and any amendments thereof and supplements thereto (including any
prospectus wrapper) complied or will comply in all material respects with the
applicable provisions of the Act and the Regulations and does not or will not
contain an untrue statement of a material fact and does not or will not omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein (i) in the case of the Registration Statement, not
misleading and (ii) in the case of the Prospectus, in light of the circumstances
under which they were made, not misleading. When any related preliminary
prospectus was first filed with the Commission (whether filed as part of the
registration statement for the registration of the Shares or any amendment
thereto
2
<PAGE>
or pursuant to Rule 424(a) of the Regulations) and when any amendment
thereof or supplement thereto was first filed with the Commission, such
preliminary prospectus and any amendments thereof and supplements thereto
complied in all material respects with the applicable provisions of the Act and
the Regulations and did not contain an untrue statement of a material fact and
did not omit to state any material fact required to be stated therein or
necessary in order to make the statements therein in light of the circumstances
under which they were made not misleading. No representation and warranty is
made in this subsection (b), however, with respect to any information contained
in or omitted from the Registration Statement or the Prospectus or any related
preliminary prospectus or any amendment thereof or supplement thereto in
reliance upon and in conformity with information furnished in writing to the
Company by or on behalf of any Underwriter through you as herein stated
expressly for use in connection with the preparation thereof. If Rule 434 is
used, the Company will comply with the requirements of Rule 434.
(c) PricewaterhouseCoopers LLP, who have certified the financial
statements and supporting schedules included in the Registration State ment,
are independent public accountants as required by the Act and the Regulations.
(d) Subsequent to the respective dates as of which informa tion is
given in the Registration Statement and the Prospectus, except as disclosed in
the Prospectus, there has been no material adverse change or any development
involving a prospective material adverse change in the business, prospects,
proper ties, operations, condition (financial or other) or results of
operations of the Com pany, including but not limited to relationships with
customers and suppliers of the Company, whether or not arising from transactions
in the ordinary course of business (a "Material Adverse Effect"), and since the
date of the latest balance sheet presented in the Registration Statement and the
Prospectus, the Company has not incurred nor assumed any liabilities or
obligations, direct or contingent, other than in the ordinary course, which are
material to the Company, except for liabilities or obligations which are
disclosed in the Registration Statement and the Prospectus.
(e) This Agreement and the transactions contemplated herein have been
duly and validly authorized by the Company, and this Agreement has been duly and
validly executed and delivered by the Company.
(f) The execution, delivery, and performance of this Agree ment by
the Company and the consummation by the Company of the transactions contemplated
hereby do not and will not (i) conflict with or result in a breach of any
3
<PAGE>
of the terms and provisions of, or constitute a default (or an event which with
notice or lapse of time, or both, would constitute a default) or Repayment Event
(as hereinafter defined) under, or result in the creation or imposition of any
lien, charge or encumbrance upon any property or assets of the Company pursuant
to, any agreement, instrument, franchise, license or permit to which the Company
is a party or by which the Company or its properties or assets may be bound,
(ii) any judg ment, decree, order, statute, rule or regulation of any court or
any public, govern mental or regulatory agency or body having jurisdiction over
the Company or any of its properties or assets or (iii) violate or conflict with
any provision of the certificate of incorporation or by-laws of the Company,
except in the case of (i) and (ii) to the extent as would not have a Material
Adverse Effect. No consent, approval, authori zation, order, registration,
filing, qualification, license or permit of or with any court or any public,
governmental or regulatory agency or body having jurisdiction over the Company
or any of its properties or assets is required for the execution, delivery and
performance of this Agreement or the consummation of the transactions contem
plated hereby, including the issuance, sale and delivery of the Shares to be
issued, sold and delivered by the Company hereunder, except the registration
under the Act of the Shares and such consents, approvals, authorizations,
orders, registrations, filings, qualifications, licenses and permits as may be
required under state securities or Blue Sky laws in connection with the purchase
and distribution of the Shares by the Underwriters. As used herein, a "Repayment
Event" means any event or condi tion which gives the holder of any note,
debenture or other evidence of indebtedness (or any person acting on such
holder's behalf) the right to require the repurchase, redemption or repayment of
all or a portion of such indebtedness by the Company.
(g) All of the outstanding shares of capital stock of the Company are
duly and validly authorized and issued, fully paid and nonassessable, and none
of such shares was issued in violation of or is now subject to any preemp tive
or similar rights. The Shares have been duly authorized for issuance and sale
to the Underwriters pursuant to this Agreement and, when issued, delivered and
paid for in accordance with this Agreement, will be duly and validly issued and
outstand ing, fully paid and nonassessable, will not have been issued in
violation of or be subject to any preemptive or similar rights and no holder of
Shares will be subject to personal liability by reason of being such a holder.
The Company had, at [June 30, 1999] an authorized and outstanding capitalization
as set forth in the Registration Statement and the Prospectus. The authorized
capital stock of the Company, including the Firm Shares and the Additional
Shares, conforms, in all material respects, with the description thereof
contained in the Registration Statement and the Prospectus. Except as disclosed
in the Registration Statement and the Prospectus,
4
<PAGE>
there are no outstanding options, warrants or other rights calling for the
issuance of, and no commitments, obligations, plans or arrangements to issue,
any shares of capital stock of the Company or any security convertible into or
exchangeable for capital stock of the Company. The outstanding stock options and
warrants relating to the Common Stock have been duly authorized and validly
issued and conform to the descriptions thereof contained in the Registration
Statement and the Prospectus.
(h) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of Delaware. The
Company is duly qualified and in good standing as a foreign corporation in each
jurisdiction in which the character or location of its properties (owned, leased
or licensed) or the nature or conduct of its business makes such qualification
necessary, except for those failures to be so qualified or in good standing
which will not in the aggregate have a Material Adverse Effect. The Company has
all requisite power and authority, and all necessary consents, approvals,
authorizations, orders, registrations, qualifications, licenses and permits
(collectively, "Governmental Licenses") of and from all public, regulatory or
governmental agencies and bodies, to own, lease and operate its properties and
conduct its business as now being conducted and as described in the Registration
Statement and the Prospectus, each such Governmental License is valid and in
full force and effect and no such Governmental License contains a materially
burdensome restriction not adequately disclosed in the Regis tration Statement
and the Prospectus and the Company has not received any notice of proceedings
relating to the revocation of any such Governmental Licenses.
(i) The Company has no subsidiaries and does not otherwise own or
control, directly or indirectly, any other corporation, association, or business
entity.
(j) The Company is not in violation of its charter or by-laws or in
default (or would be in default with notice or lapse of time, or both) in the
performance or observance of any material obligation, agreement, covenant or
condition contained in any material bond, debenture, note or other evidence of
indebtedness or in any material contract, indenture, mortgage, deed of trust,
loan or credit agreement, lease, joint venture or other agreement or instrument
to which the Company is a party or by which any of its properties may be bound,
which default or defaults would have in the aggregate a Material Adverse Effect,
or in violation of any law, order, rule, regulation, writ, injunction, judgment
or decree of any court or governmental agency or body, the violation of which
would have in the aggregate a Material Adverse Effect.
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(k) Except as described in the Prospectus, there is no litiga tion
or governmental proceeding to which the Company is a party or to which any
property of the Company is subject or which is pending or, to the knowledge of
the Company, contemplated against the Company which might individually or in the
aggregate result in a Material Adverse Effect or which is required to be
disclosed in the Registration Statement and the Prospectus, and the to the
Company's knowledge, no such proceeding are threatened or contemplated.
(l) Neither the Company nor any of its directors, officers or
affiliates (as defined in the Regulations) has taken or will take, directly or
indirectly, any action designed to cause or result in, or which constitutes 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.
(m) The financial statements, including the notes thereto, and
supporting schedules included in the Registration Statement and the Prospectus
present fairly, in all material respects, the financial position of the Company
as of the dates indicated and the results of its operations for the periods
specified; except as otherwise stated in the Registration Statement, said
financial statements have been prepared in conformity with generally accepted
accounting principles applied on a consistent basis; and the supporting
schedules included in the Registration Statement present fairly the information
required to be stated therein; and the selected financial data and the summary
financial information included in the Registration Statement and the Prospectus
present fairly in all material respects, the information shown therein and have
been compiled on a basis consistent with that of the financial statements
included in the Registration Statement and the Prospectus.
(n) The Company has filed all federal, state, local and foreign tax
returns that have been required to be filed as of the date hereof and has paid
all taxes shown as due thereon 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. Except as disclosed in the Registration Statement and the
Prospectus, there is no tax deficiency that has been or might reasonably be
expected to be asserted or threatened against the Company.
(o) Except as described in the Prospectus or as would not have a
Material Adverse Effect the Company owns or possesses, or reasonably believes it
can acquire on reasonable terms, valid and enforceable licenses or other
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rights to use all inventions, patents, patent applications, trademarks, service
marks, trade names, trade dress copyrights, technology, know-how (including
trade secrets and other unpatented and/or unpatentable proprietary or
confidential information, systems or procedures) and other intellectual property
rights necessary to conduct the business now conducted or presently contemplated
to be conducted by the Company, as described in the Registration Statement and
the Prospectus ("Intellectual Prop erty"). The Company has taken, or caused to
be taken, all appropriate steps to protect, maintain and safeguard the
Intellectual Property for which improper or unauthorized disclosure would impair
its value or validity, and has executed appro priate nondisclosure and
confidentiality agreements and made appropriate filings and registrations in
connection with the foregoing, except where in-action would not result in a
Material Adverse Effect. Other than as described in the Registration Statement
and the Prospectus or as would not have a Material Adverse Effect: (i) there are
no third parties who have any rights in the Intellectual Property that could
preclude the Company from conducting its business as currently conducted or as
presently contemplated to be conducted as described in the Registration
Statement and the Prospectus; (ii) there are no pending or, to the Company's
knowledge, threatened actions, suits, proceedings, investigations or claims by
others challenging the rights in the Intellectual Property of the Company or (if
the Intellectual Property is licensed) the licensor thereof in any Intellectual
Property owned or licensed to the Company; (iii) the Company has not and (if the
Intellectual Property is licensed) to the Company's knowledge, the licensor
thereof has not infringed, or received any notice of infringement of or conflict
with, any rights of others with respect to the Intellectual Property; (iv) there
is, to the knowledge of the Company, no dispute between the Company or any
licensor with respect to any Intellectual Property; and (v) the statements in
the Prospectus under the caption "Business- Production," to the extent they
purport to summarize the provisions of the Company's licenses with AWARE, Inc.,
are accurate in all material respects.
(p) The Company has no reason to believe that it is not in compliance
with applicable Food and Drug Administration ("FDA") regulations governing the
design, manufacture and labeling of the Company's medical products. The Company
has registered with all state entities which require the registration of medical
devices, except where the failure to register would not result in a Material
Adverse Effect.
(q) No relationship, direct or indirect, exists between or among the
Company, on the one hand, and the directors, officers, stockholders, customers
or suppliers of the Company, on the other hand, that is required by the Act
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to be described in the Registration Statement and the Prospectus that is not so
described.
(r) The Shares have been approved for quotation on the Nasdaq
National Market, subject only to official notice of issuance.
(s) Except as described in the Prospectus, no holder of securities of
the Company has any rights to the registration of securities of the Company
because of the filing of the Registration Statement or otherwise in connec tion
with the sale of the Shares contemplated hereby.
(t) The Company is not, and upon consummation of the transactions
contemplated hereby will not be, subject to registration as an "invest ment
company" under the Investment Company Act of 1940.
(u) There are no existing or, to the knowledge of the Com pany,
threatened labor disputes with any employees of the Company that would have a
Material Adverse Effect.
(v) The Company (i) is in compliance with any and all applicable
foreign, federal, state and local laws and regulations relating to the
protection of human health and safety, the environment or hazardous or toxic
substances or wastes, pollutants or contaminants ("Environmental Laws"), except
where such noncompliance would not have a Material Adverse Effect, (ii) has
received all permits, licenses or other approvals required of it under
applicable Environmental Laws to conduct its respective business except where
such failure to obtain permits, licenses or other approval would not have a
Material Adverse Effect, and (iii) is in compliance with all terms and
conditions of any such permit, license or approval, except where such
noncompliance, failure to comply with the terms and conditions of such permits,
licenses or approvals will not have a Material Adverse Effect.
(w) Each employee benefit plan, within the meaning of Section 3(3) of
the Employee Retirement Income Securities Act of 1974, as amended ("ERISA"),
that is maintained, administered or contributed to by the Company for employees
or former employees of the Company has been maintained in compliance with its
respective terms and the requirements of any applicable statutes, order, rules
and regulations, including but not limited to ERISA and the Internal Revenue
Code of 1986, as amended (the "Code"). No prohibited transaction, within the
meaning of
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Section 406 of ERISA or Section 4975 of the Code, has occurred with respect to
any such plan, excluding transactions effected pursuant to a statutory or
administrative exemption. For each such plan that is subject to the funding
rules of Section 412 of the Code or Section 302 of ERISA, no "accumulated
funding deficiency", as defined in Section 412 of the Code, has been incurred,
whether or not waived, and the fair market value of the assets of each such plan
(excluding for these purposes accrued but unpaid contributions) exceeded the
present value of all benefits accrued under such plan determined using
reasonable actuarial assumptions.
(x) The Company maintains insurance of the types and in the amounts
generally deemed adequate for its business, including, without limitation,
insurance coverage for real and personal property owned or leased by it against
theft, damage, destruction, acts of vandalism, product liability and all other
material risks customarily insured against, all of which insurance is in full
force and effect. The Company has no reason to believe that it will not be able
to renew existing insurance coverage as and when such coverage expires or to
obtain similar coverage from similar insurers as may be necessary to continue
its respective business.
(y) The Company believes that its systems are Year 2000 compliant,
except to the extent that non-compliance would not have a Material Adverse
Effect, and that, with respect to third party vendors, suppliers and custom
ers, the Company has taken, or caused to be taken, all appropriate steps to
protect against a Material Adverse Effect as a result of Year 2000 non-
compliance by such parties, except where in-action would not have a Material
Adverse Effect.
(z) There are no contracts or documents which are required to be
described in the Registration Statement or the Prospectus or to be filed as
exhibits thereto which have not been so described and filed as required.
(aa) None of the Company's stockholders have rights to require the
Company to include the securities of the Company they hold in the Offering or to
require the Company to register such securities under the Securities Act for the
180-day period beginning on the date hereof (unless the Company is otherwise
registering capital stock of the Company), or if any stockholders have such
rights, they have validly and irrevocably waived such rights, and the Company
agrees that it will not waive the undertakings of the stockholders under those
waivers.
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2. Purchase, Sale and Delivery of the Shares.
------------------------------------------
(a) On the basis of the representations, warranties, covenants and
agreements herein contained, but subject to the terms and conditions herein set
forth, the Company agrees to sell to the Underwriters and the Underwriters,
severally and not jointly, agree to purchase from the Company, at a purchase
price per share of $[ ], the number of Firm Shares set forth opposite the
respective names of the Underwriters in Schedule I hereto plus any additional
number of Shares which such Underwriter may become obligated to purchase
pursuant to the provisions of Section 9 hereof.
(b) Payment of the purchase price for, and delivery of certificates
for, the Shares shall be made at the offices of Ropes & Gray ("Company's
Counsel"), One International Place, Boston, Massachusetts 02110-2624 or at such
other place as shall be agreed upon by you and the Company, at 9:00 A.M. on the
third or fourth Business Day (as permitted under Rule 15c6-1 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) (unless
postponed in accordance with the provisions of Section 9 hereof) following the
date of the effectiveness of the Registration Statement (or, if the Company has
elected to rely upon Rule 430A of the Regulations, the third or fourth Business
Day (as permitted under Rule 15c6-1 under the Exchange Act) after the
determination of the initial public offering price of the Shares), or such other
time not later than ten Business Days after such date as shall be agreed upon by
you and the Company (such time and date of payment and delivery being herein
called the "Closing Date"). As used herein, the term "Business Day" means any
day other than a day on which banks are permitted or required to be closed in
New York City. Payment shall be made to the Company by wire transfer in same
day funds, against delivery to you at the offices of Underwriters' Counsel, or
such other location as may be mutually acceptable, for the respective accounts
of the Underwriters of certificates for the Shares to be purchased by them.
Delivery of the certificates for the Shares shall be made through the facilities
of The Depository Trust Company ("DTC") unless the Underwriters shall otherwise
instruct.
(c) In addition, the Company hereby grants to the Underwrit ers the
option to purchase up to 465,000 Additional Shares at the same purchase price
per share to be paid by the Underwriters to the Company for the Firm Shares as
set forth in this Section 2, for the sole purpose of covering over-allotments in
the sale of Firm Shares by the Underwriters. This option may be exercised at
any time, or from time to time, in whole or in part, on or before the thirtieth
day following the date of the Prospectus, by written notice by you to the
Company. Such notice shall set forth the aggregate number of Additional Shares
as to which the option is being
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<PAGE>
exercised and the date and time, as reasonably determined by you, when the
Additional Shares are to be delivered (such date and time being herein sometimes
referred to as the "Additional Closing Date"); provided, however, that the
Additional Closing Date shall not be earlier than the Closing Date or earlier
than the second full Busi ness Day after the date on which the option shall have
been exercised nor later than the eighth full Business Day after the date on
which the option shall have been exercised (unless such time and date are
postponed in accordance with the provisions of Section 9 hereof). Delivery of
the certificates for the Additional Shares shall be made through the facilities
of the DTC unless the Underwriters shall otherwise instruct.
The number of Additional Shares to be sold to each Underwriter shall
be the number which bears the same ratio to the aggregate number of Additional
Shares being purchased as the number of Firm Shares set forth opposite the name
of such Underwriter in Schedule I hereto (or such number increased as set forth
in Section 9 hereof) bears to 310,000,000, subject, however, to such adjustments
to eliminate any fractional shares as you in your sole discretion shall make.
Payment of the purchase price for the Additional Shares shall be made
to the Company by wire transfer in same day funds at the offices of Underwrit
ers' Counsel, 919 Third Avenue, New York, New York 10022, or such other location
as may be mutually acceptable, upon delivery of the certificates for the
Additional Shares to you for the respective accounts of the Underwriters.
3. Offering.
--------
Upon your authorization of the release of the Firm Shares, the
Underwriters propose to offer the Shares for sale to the public upon the terms
set forth in the Prospectus.
4. Covenants of the Company. The Company covenants and agrees with
------------------------
the Underwriters that:
(a) If the Registration Statement has not yet been declared
effective, the Company will use its best efforts to cause the Registration
Statement and any amendments thereto to become effective as promptly as
possible, and if Rule 430A is used or the filing of the Prospectus is otherwise
required under Rule 424(b) or Rule 434, the Company will file the Prospectus
(properly completed if Rule 430A has been used) pursuant to Rule 424(b) or Rule
434 within the prescribed time period
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<PAGE>
and will provide evidence satisfactory to you of such timely filing. If the
Company elects to rely on Rule 434, the Company will prepare and file a term
sheet that complies with the requirements of Rule 434.
The Company will notify you immediately (and, if requested by you,
will confirm such notice in writing) (i) when the Registration Statement and any
amendments thereto become effective, (ii) of any request by the Commission for
any amendment of or supplement to the Registration Statement or the Prospectus
or for any additional information, (iii) of the mailing or the delivery to the
Commission for filing of any amendment of or supplement to the Registration
Statement or the Prospectus, (iv) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement or any post-
effective amendment thereto or of the initiation, or the threatening, of any
proceedings therefor, (v) of the receipt of any comments from the Commission,
and (vi) of the receipt by the Company of any notification with respect to the
suspension of the qualification of the Shares for sale in any jurisdiction or
the initiation or threatening of any proceeding for that purpose. If the
Commission shall propose or enter a stop order at any time, the Company will
make every reasonable effort to prevent the issuance of any such stop order and,
if issued, to obtain the lifting of such order as soon as possible. The Company
will not file any amendment to the Registration Statement, make any filing under
Rule 462(b) of the Regulations, or any amendment of or supplement to the
Prospectus (including the prospectus required to be filed pursuant to Rule
424(b)or Rule 434 of the Regulations) that differs from the prospectus on file
at the time of the effectiveness of the Registration Statement before or after
the effective date of the Registration Statement to which you shall reasonably
object in writing after being timely furnished in advance a copy thereof.
(b) If at any time when a prospectus relating to the Shares is
required to be delivered under the Act any event shall have occurred as a result
of which the Prospectus as then amended or supplemented would, in the judgment
of the Underwriters or the Company, include an untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, or if it shall be necessary at any
time to amend or supplement the Prospectus or Registration Statement to comply
with the Act or the Regulations, the Company will notify you promptly and
prepare and file with the Commission an appropriate amendment or supplement (in
form and substance reasonably satisfactory to you) which will correct such
statement or omission and will use its reasonable
12
<PAGE>
best efforts to have any amendment to the Registration Statement declared
effective as soon as possible.
(c) The Company will promptly deliver to you one signed copy of the
Registration Statement, including exhibits and all amendments thereto, and the
Company will promptly deliver to each of the Underwriters such number of copies
of any preliminary prospectus, the Prospectus, the Registration Statement, and
all amendments of and supplements to such documents, if any, as you may reason
ably request.
(d) The Company will endeavor in good faith, in cooperation with you,
at or prior to the time of effectiveness of the Registration Statement, to
qualify the Shares for offering and sale under the securities laws relating to
the offering or sale of the Shares of such jurisdictions as you may designate
and to maintain such qualification in effect for so long as required for the
distribution thereof; except that in no event shall the Company be obligated in
connection therewith to qualify as a foreign corporation or to execute a general
consent to service of process, to qualify as a securities dealer or to subject
itself to taxation in respect of doing business in any jurisdiction in which it
is not otherwise so subject.
(e) The Company will make generally available (within the meaning of
Section 11(a) of the Act) to its security holders and to you as soon as
practicable, but not later than 45 days after the end of its fiscal quarter in
which the first anniversary date of the effective date of the Registration
Statement occurs, an earning statement (in form complying with the provisions of
Rule 158 of the Regulations) covering a period of at least twelve consecutive
months beginning after the effective date of the Registration Statement.
(f) During the period of 180 days from the date of the Prospectus,
(A) the Company will not directly or indirectly, without the prior written
consent of Bear Stearns, issue, sell, offer or agree to sell, grant any option
for the sale of, pledge, or otherwise dispose of or encumber or otherwise create
or maintain a "put equivalent position" (within the meaning of Rule 16a-1(h) of
the Rules and Regulations of the Commission under the Exchange Act) in, any
Common Stock (or any securities convertible into, exercisable for or
exchangeable for Common Stock), other than (1) the Company's sale of Shares
hereunder, (2) the Company's issuance of Common Stock upon the exercise of
presently outstanding stock options or warrants or the conversion of securities
outstanding on the date hereof, (3) the grant of options under the stock option
plan described in the Prospectus, so long as they
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<PAGE>
are either (i) not exercisable for 180 days after the date of the Prospectus or
(ii) the holder thereof provides an undertaking substantially consistent with
that contained in Schedule II hereto or (4) the issuance of Common Stock in
acquisitions or invest ment transactions approved the holders of such Common
Stock provide undertakings substantially consistent with that contained in
Schedule II and (B) and the Company will obtain an undertaking, in the form
previously provided to the Company by Bear Stearns, a copy of which is attached
hereto as Schedule II, of each of the Company's officers, directors and
shareholders listed on Schedule III hereto. The Company agrees not to waive any
undertaking obtained pursuant to this paragraph.
(g) During a period of three years from the effective date of the
Registration Statement, the Company will furnish to you copies of (i) all
reports to its stockholders; and (ii) all reports, financial statements and
proxy or information statements filed publicly by the Company with the
Commission or any national securities exchange.
(h) The Company will apply the proceeds from the sale of the Shares
as set forth under "Use of Proceeds" in the Prospectus and report such use of
proceeds as may be required pursuant to Rule 463 of the Regulations.
(i) The Company will use its reasonable best efforts to cause the
Shares to be quoted on the Nasdaq National Market and to maintain such quotation
for at least three years from the date hereof.
5. Payment of Expenses. Whether or not the transactions contem
-------------------
plated in this Agreement are consummated or this Agreement is terminated, the
Company hereby agrees to pay all costs and expenses incident to the performance
of the obligations of the Company hereunder, including those in connection with
(i) preparing, printing, duplicating, filing and distributing the Registration
Statement, as originally filed and all amendments thereof (including all
exhibits thereto), any preliminary prospectus, the Prospectus and any amendments
or supplements thereto (including, without limitation, fees and expenses of the
Company's accountants and counsel), printing, duplicating, filing and
distributing the underwriting documents (including this Agreement) and all other
documents related to the public offering of the Shares (including those supplied
to the Underwriters in quantities as hereinabove stated), (ii) the issuance,
transfer and delivery of the Shares to the Underwriters, including any transfer
or other taxes payable thereon, (iii) the qualification of the Shares under
state or foreign securities or Blue Sky laws, including the costs of printing
and mailing a preliminary and final "Blue Sky Survey" and the fees
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<PAGE>
of counsel for the Underwriters and such counsel's disbursements in relation
thereto, (iv) quotation of the Shares on the Nasdaq National Market, (v) filing
fees of the Commission and the National Association of Securities Dealers, Inc.,
(vi) the cost of printing certificates representing the Shares and (vii) the
cost and charges of any transfer agent or registrar.
6. Conditions of Underwriters' Obligations. The obligations of the
---------------------------------------
Underwriters to purchase and pay for the Firm Shares and the Additional Shares,
as provided herein, shall be subject to the accuracy of the representations and
warran ties of the Company herein contained, as of the date hereof and as of
the Closing Date (for purposes of this Section 6 "Closing Date" shall refer to
the Closing Date for the Firm Shares and any Additional Closing Date, if
different, for the Additional Shares), to the absence from any certificates,
opinions, written statements or letters furnished to you or to Underwriters'
Counsel pursuant to this Section 6 of any misstatement or omission, to the
performance by the Company of its obligations hereunder, and to the following
additional conditions:
(a) The Registration Statement, including any Rule 462(b)
Registration Statement, shall have become effective and all necessary approvals
of the Nasdaq National Market shall have been received not later than 5:30 P.M.,
New York time, on the date of this Agreement, or at such later time and date as
shall have been consented to in writing by you; if the Company shall have
elected to rely upon Rule 430A or Rule 434 of the Regulations, the Prospectus
shall have been filed with the Commission in a timely fashion in accordance with
Section 4(a) hereof; and at or prior to the Closing Date, no stop order
suspending the effectiveness of the Registra tion Statement or any post-
effective amendment thereof shall have been issued and no proceedings therefor
shall have been initiated or threatened by the Commission.
(b) At the Closing Date you shall have received the opinion of Ropes
& Gray counsel for the Company, dated the Closing Date, addressed to the
Underwriters and in form attached hereto as Exhibit B.
(c) All proceedings taken in connection with the sale of the Firm
Shares and the Additional Shares as herein contemplated shall be reasonably
satisfactory in form and substance to you and to Underwriters' Counsel, and the
Underwriters shall have received from said Underwriters' Counsel a favorable
opinion, dated as of the Closing Date with respect to the issuance and sale of
the Shares, the Registration Statement and the Prospectus and such other related
matters as you may reasonably require, and the Company shall have furnished to
Underwriters'
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<PAGE>
Counsel such documents as they reasonably request for the purpose of enabling
them to pass upon such matters.
(d) At the Closing Date you shall have received a certificate of the
Chief Executive Officer and Chief Financial Officer of the Company, dated the
Closing Date to the effect that (i) the condition set forth in subsection (a) of
this Section 6 has been satisfied, (ii) as of the date hereof and as of the
Closing Date the representations and warranties of the Company set forth in
Section 1 hereof are accurate, (iii) as of the Closing Date the obligations of
the Company to be performed hereunder on or prior thereto have been duly
performed and (iv) subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, the Company has not
sustained any material loss or interference with their respective businesses or
properties from fire, flood, hurricane, accident or other calamity, whether or
not covered by insurance, or from any labor dispute or any legal or governmental
proceeding, and there has not been any material adverse change, or any
development involving a material adverse change, in the business, prospects,
properties, operations, condition (financial or otherwise), or results of
operations of the Company, except in each case as described in or contemplated
by the Prospectus.
(e) At the time this Agreement is executed and at the Closing Date,
you shall have received a letter from PricewaterhouseCoopers, independent public
accountants for the Company, dated, respectively, as of the date of this
Agreement and as of the Closing Date addressed to the Underwriters and in form
and substance satisfactory to you, stating that: (i) they are independent
certified public accountants with respect to the Company within the meaning of
the Act and the Regulations and stating that the answer to Item 10 of the
Registration Statement is correct insofar as it relates to them; (ii) in their
opinion, the financial statements (including E-Systems Medical Electronics (a
division of Raytheon E-Systems, Inc.) and the unaudited proforma data) of the
Company included in the Registration Statement and the Prospectus and covered by
their opinion therein comply as to form in all material respects with the
applicable accounting requirements of the Act and the applicable published rules
and regulations of the Commission thereunder; (iii) on the basis of procedures
consisting of a reading of the latest available unaudited interim financial
statements of the Company a reading of the minutes of meetings and consents of
the stockholders and the board of directors of the Company and the committees of
such board subsequent to [ ,1999], inquiries of officers and other
employees of the Company who have responsibility for financial and accounting
matters of the Company with respect to transactions and events subsequent to [
,1999], a review of interim financial information in accordance with the
standards
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established by the American Institute of Certified Public Accountants
in Statement of Auditing Standards No. 71, Interim Financial Information with
respect to the six-month period ended June 30, 1999 and other specified
procedures and inquiries to a date not more than five days prior to the date of
such letter, nothing has come to their attention that would cause them to
believe that: (A) the unaudited financial state ments and schedules of the
Company presented in the Registration Statement and the Prospectus do not comply
as to form in all material respects with the applicable accounting requirements
of the Act and, if applicable, the Exchange Act and the applicable published
rules and regulations of the Commission thereunder or that such unaudited
consolidated financial statements are not fairly presented in conformity with
generally accepted accounting principles applied on a basis substantially
consistent with that of the audited consolidated financial statements included
in the Registration Statement and the Prospectus; (B) with respect to the period
subsequent to June 30, 1999, there were, as of the date of the most recent
available monthly consolidated financial statements of the Company, if any, and
as of a specified date not more than five days prior to the date of such letter,
any changes in the capital stock or long-term indebtedness of the Company or any
decrease in the net current assets or stockholders' equity of the Company, in
each case as compared with the amounts shown in the most recent balance sheet
presented in the Registration Statement and the Prospectus, except for changes
or decreases which the Registra tion Statement and the Prospectus disclose have
occurred or may occur or which are set forth in such letter or (C) that during
the period from[ , 1999] to the date of the most recent available monthly
financial statements of the Company, if any, and to a specified date not more
than five days prior to the date of such letter, there was any decrease, as
compared with the corresponding period in the prior fiscal year, in total
revenues, or total or per share net income, except for decreases which the
Registra tion Statement and the Prospectus disclose have occurred or may occur
or which are set forth in such letter; and (iv) they have compared specific
dollar amounts, num bers of shares, percentages of revenues and earnings, and
other financial information pertaining to the Company set forth in the
Registration Statement and the Prospectus, which have been specified by you
prior to the date of this Agreement, to the extent that such amounts, numbers,
percentages, and information may be derived from the general accounting and
financial records of the Company or from schedules fur nished by the Company,
and excluding any questions requiring an interpretation by legal counsel, with
the results obtained from the application of specified readings, inquiries, and
other appropriate procedures specified by you set forth in such letter, and
found them to be in agreement.
17
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(f) Prior to the Closing Date, the Company shall have furnished to
you copies of the undertaking of its directors, officers and shareholders,
referred to in Section 4(f) of this Agreement.
(g) Prior to the Closing Date, the Company shall have furnished to
you such further information, certificates and documents as you may reasonably
request.
(h) At the Closing Date, the Shares shall have been approved for
quotation on the Nasdaq National Market.
If any of the conditions specified in this Section 6 shall not have
been fulfilled when and as required by this Agreement, or if any of the
certificates, opinions, written statements or letters furnished to you or to
Underwriters' Counsel pursuant to this Section 6 shall not be in all material
respects reasonably satisfactory in form and substance to you and to
Underwriters' Counsel, all obligations of the Underwriters hereunder may be
canceled by you at, or at any time prior to, the Closing Date, and the
obligations of the Underwriters to purchase the Additional Shares may be
canceled by you at, or at any time prior to, the Additional Closing Date.
Notice of such cancellation shall be given to the Company in writing, or by
telephone, facsimile, telex or telegraph, confirmed in writing.
7. Indemnification.
---------------
(a) The Company agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act against
any and all losses, liabilities, claims, damages and expenses whatsoever as
incurred (including but not limited to reasonable attorneys' fees and any and
all reasonable expenses whatsoever incurred in investigating, preparing or
defending against any litigation, commenced or threatened, or any claim
whatsoever, and any and all amounts paid in settlement of any claim or
litigation), joint or several, to which they or any of them may become subject
under the Act, the Exchange Act or otherwise, insofar as such losses,
liabilities, claims, damages or expenses (or actions in respect thereof) arise
out of or are based upon any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement or any amend ment
thereof, or any related preliminary prospectus or the Prospectus, or in any
supplement thereto or amendment thereof, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated
18
<PAGE>
therein or necessary to make the statements therein not misleading; provided,
however, that the Company will not be liable in any such case to the extent but
only to the extent that any such loss, liability, claim, damage or expense
arises out of or is based upon any such untrue statement or alleged untrue
statement or omission or alleged omission made therein in reliance upon and in
conformity with written information furnished to the Company relating to any
Underwriter through you expressly for use therein. This indemnity agreement will
be in addition to any liability which the Company may otherwise have including
under this Agreement.
(b) Each Underwriter severally, and not jointly, agrees to indemnify
and hold harmless the Company, each of the directors of the Company , each of
the officers of the Company who shall have signed the Registration State ment
and each other person, if any, who controls the Company within the meaning of
Section 15 of the Act or Section 20(a) of the Exchange Act, against any losses,
liabilities, claims, damages and expenses whatsoever as incurred (including but
not limited to attorneys' fees and any and all reasonable expenses whatsoever
incurred in investigating, preparing or defending against any litigation,
commenced or threat ened, or any claim whatsoever, and any and all amounts paid
in settlement of any claim or litigation), joint or several, to which they or
any of them may become subject under the Act, the Exchange Act or otherwise,
insofar as such losses, liabilities, claims, damages or expenses (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement or
any amendment thereof, or any related preliminary prospectus or the Prospectus,
or in any amendment thereof or supple ment thereto, or arise out of or are
based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent, that any such
loss, liability, claim, damage or expense arises out of or is based upon any
such untrue statement or alleged untrue statement or omission or alleged
omission made therein in reliance upon and in conformity with written
information furnished to the Company relating to any Underwriter through you
expressly for use therein; provided, however, that in no case shall any
Underwriter be liable or responsible for any amount in excess of the
underwriting discount applicable to the Shares purchased by such Underwriter
hereunder. This indemnity will be in addition to any liability which any
Underwriter may otherwise have including under this Agreement. The Company
acknowledges that the statements set forth in the last sentence of the last
paragraph of the cover page and in the last sentence of the fourth paragraph,
the eighth paragraph, the eleventh paragraph, the twelfth paragraph and the
thirteenth paragraph under the caption "Underwriting" in the Prospectus
19
<PAGE>
constitute the only information furnished in writing by or on behalf of any
Underwriter expressly for use in the Registration Statement or in any amendment
thereof, any related preliminary prospectus or the Prospectus or in any
amendment thereof or supplement thereto, as the case may be.
(c) Promptly after receipt by an indemnified party under subsection
(a) or (b) above of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify each party against whom indemni
fication is to be sought in writing of the commencement of such action (but the
failure so to notify an indemnifying party shall not relieve it from any
liability which it may have under this Section 7, except to the extent the
indemnifying party is prejudiced thereby). In case any such action is brought
against any indemnified party, and it notifies an indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate
therein, and to the extent it may elect by written notice delivered to the
indemnified party promptly after receiving the aforesaid notice from such
indemnified party, to assume the defense thereof with counsel reasonably
satisfactory to such indemnified party. Notwithstanding the foregoing, the
indemnified party or parties shall have the right to employ its or their own
counsel in any such case, but the fees and expenses of such counsel shall be at
the expense of such indemnified party or parties unless (i) the employment of
such counsel shall have been authorized in writing by one of the indemnifying
parties in connection with the defense of such action, (ii) the indemnifying
parties shall not have employed counsel to take charge of the defense of such
action within a reason able time after notice of commencement of the action, or
(iii) such indemnified party or parties shall have been advised by counsel that
there may be defenses available to it or them which are different from or
additional to those available to one or all of the indemnifying parties (in
which case the indemnifying parties shall not have the right to direct the
defense of such action on behalf of the indemnified party or parties), in any of
which events such fees and expenses shall be borne by the indemnifying parties.
In no event shall the indemnifying parties be liable for fees and expenses of
more than one counsel (in addition to any local counsel) separate from their own
counsel for all indemnified parties in connection with any one action or
separate but similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances. Anything in this section to the
contrary notwithstand ing, an indemnifying party shall not be liable for any
settlement of any claim or action effected without its written consent;
provided, however, that such consent was not unreasonably withheld.
20
<PAGE>
8. Contribution. In order to provide for contribution in
------------
circumstances in which the indemnification provided for in Section 7 hereof is
for any reason held to be unavailable from any indemnifying party or is
insufficient to hold harmless a party indemnified thereunder, the Company and
the Underwriters shall contribute to the aggregate losses, claims, damages,
liabilities and expenses of the nature contem plated by such indemnification
provision (including any reasonable investigation, legal and other expenses
incurred in connection with, and any amount paid in settlement of, any action,
suit or proceeding or any claims asserted, but after deduct ing in the case of
losses, claims, damages, liabilities and expenses suffered by the Company any
contribution received by the Company from persons, other than the Underwriters,
who may also be liable for contribution, including persons who control the
Company within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act, officers of the Company who signed the Registration Statement and
directors of the Company) as incurred to which the Company and one or more of
the Underwriters may be subject, in such proportions as is appropriate to
reflect the relative benefits received by the Company and the Underwriters from
the offering of the Shares or, if such allocation is not permitted by applicable
law, in such propor tion as is appropriate to reflect not only the relative
benefits referred to above but also the relative fault of the Company and the
Underwriters in connection with the statements or omissions which resulted in
such losses, claims, damages, liabilities or expenses, as well as any other
relevant equitable considerations. The relative benefits received by the
Company and the Underwriters shall be deemed to be in the same proportion as (x)
the total proceeds from the offering (net of underwriting discounts and
commissions but before deducting expenses) received by the Company and (y) the
underwriting discounts and commissions received by the Underwriters,
respectively, in each case as set forth in the table on the cover page of the
Prospec tus. The relative fault of the Company and of the Underwriters 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
Underwriters and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission or any
violation of the nature referred to in Section 7(a)(ii). The Company and the
Underwriters agree that it would not be just and equitable if contribution
pursuant to this Section 8 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. Notwithstanding the provisions of this Section 8, (i) in no
case shall any Underwriter be liable or responsible for any amount in excess of
the underwriting discount applicable to the Shares purchased by such Underwriter
21
<PAGE>
hereunder, and (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. Notwithstanding
the provisions of this Section 8 and the preceding sentence, no Underwriter
shall be required to contribute any amount in excess of the amount by which the
total price at which the Shares underwritten by it and distributed to the public
were offered to the public exceeds the amount of any damages that such
Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. For purposes of this
Section 8, each person, if any, who controls an Underwriter within the meaning
of Section 15 of the Act or Section 20(a) of the Exchange Act shall have the
same rights to contribution as such Underwriter, and each person, if any, who
controls the Company within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act, each officer of the Company who shall have signed the
Registration Statement and each director of the Company shall have the same
rights to contribution as the Company, subject in each case to clauses (i) and
(ii) of this Section 8. Any party entitled to contribution will, promptly after
receipt of notice of commencement of any action, suit or proceeding against such
party in respect of which a claim for contribution may be made against another
party or parties, notify each party or parties from whom contribution may be
sought, but the omission to so notify such party or parties shall not relieve
the party or parties from whom contribution may be sought from any obligation it
or they may have under this Section 8 or otherwise. No party shall be liable
for contribution with respect to any action or claim settled without its written
consent; provided, however, that such consent was not unreasonably withheld.
9. Default by an Underwriter.
-------------------------
(a) If any Underwriter or Underwriters shall default in its or their
obligation to purchase Firm Shares or Additional Shares hereunder, and if the
Firm Shares or Additional Shares with respect to which such default relates do
not (after giving effect to arrangements, if any, made by you pursuant to
subsection (b) below) exceed in the aggregate 10% of the number of Firm Shares
or Additional Shares, as the case may be, the Firm Shares or Additional Shares
to which the default relates shall be purchased by the non-defaulting
Underwriters in proportion to the respective proportions which the numbers of
Firm Shares set forth opposite their respective names in Schedule I hereto bear
to the aggregate number of Firm Shares set forth opposite the names of the non-
defaulting Underwriters.
22
<PAGE>
(b) In the event that such default relates to more than 10% of the
total number of Firm Shares or Additional Shares, as the case may be, you may in
your discretion arrange for yourself or for another party or parties (including
any non-defaulting Underwriter or Underwriters who so agree) to purchase such
Firm Shares or Additional Shares, as the case may be, to which such default
relates on the terms contained herein. In the event that within five calendar
days after such a default you do not arrange for the purchase of the Firm Shares
or Additional Shares, as the case may be, to which such default relates as
provided in this Section 9, this Agreement or, in the case of a default with
respect to the Additional Shares, the obligations of the Underwriters to
purchase and of the Company to sell the Addi tional Shares shall thereupon
terminate, without liability on the part of the Company (except in each case as
provided in Section 5, 7(a) and 8 hereof) or the Underwriters, but nothing in
this Agreement shall relieve a defaulting Underwriter or Underwriters of its or
their liability, if any, to the other Underwriters and the Company for damages
occasioned by its or their default hereunder.
(c) In the event that the Firm Shares or Additional Shares to which
such default relates are to be purchased by the non-defaulting Underwriters, or
are to be purchased by another party or parties as aforesaid, you or the Company
shall have the right to postpone the Closing Date or Additional Closing Date, as
the case may be for a period, not exceeding five Business Days, in order to
effect whatever changes may thereby be made necessary in the Registration
Statement or the Prospectus or in any other documents and arrangements, and the
Company agrees to file promptly any amendment or supplement to the Registration
Statement or the Prospectus which, in the opinion of Underwriters' Counsel, may
thereby be made necessary or advisable. The term "Underwriter" as used in this
Agreement shall include any party substituted under this Section 9 with like
effect as if it had originally been a party to this Agreement with respect to
such Firm Shares and Additional Shares, as the case may be.
10. Survival of Representations and Agreements. All representations
------------------------------------------
and warranties, covenants and agreements of the Underwriters and the Company
contained in this Agreement, including the agreements contained in Section 5
hereof, the indemnity agreements contained in Section 7 hereof and the
contribution agreements contained in Section 8 hereof, shall remain operative
and in full force and effect regardless of any investigation made by or on
behalf of any Underwriter or any controlling person thereof or by or on behalf
of the Company, any of its officers and directors or any controlling person
thereof and shall survive delivery of and payment for the Shares to and by the
Underwriters. The representations contained
23
<PAGE>
in Section 1 and the agreements contained in Sections 5, 7, 8 and 11(d) hereof
shall survive the termination of this Agreement, including termination pursuant
to Section 9 or 11 hereof.
11. Effective Date of Agreement; Termination.
----------------------------------------
(a) This Agreement shall become effective, upon the later of (i) such
time as you and the Company shall have received notification of the effec
tiveness of the Registration Statement and (ii) the execution of this Agreement.
If either the initial public offering price or the purchase price per Share has
not been agreed upon prior to 5:00 P.M., New York time, on the fifth full
Business Day after the Registration Statement shall have become effective, this
Agreement shall thereupon terminate without liability to the Company or the
Underwriters except as herein expressly provided. Until this Agreement becomes
effective as aforesaid, it may be terminated by the Company by notifying you or
by you notifying the Company. Notwithstanding the foregoing, the provisions of
this Section 11 and of Sections 1, 5, 7 and 8 hereof shall at all times be in
full force and effect.
(b) You shall have the right to terminate this Agreement at any time
prior to the Closing Date or the obligations of the Underwriters to purchase the
Additional Shares at any time prior to the Additional Closing Date, as the case
may be, if (i) any domestic or international event or act or occurrence has
materially disrupted, or in your opinion will in the immediate future materially
disrupt, the market for the Company's securities or securities in general; (ii)
if trading on the New York Stock Exchange or the Nasdaq National Market shall
have been sus pended, or minimum or maximum prices for trading shall have been
fixed, or maximum ranges for prices for securities shall have been required, on
the New York Stock Exchange or the Nasdaq National Market by the New York Stock
Exchange or the Nasdaq National Market or by order of the Commission or any
other governmen tal authority having jurisdiction; or (iii) if a banking
moratorium has been declared by a state or federal authority or if any new
restriction materially adversely affecting the distribution of the Firm Shares
or the Additional Shares, as the case may be, shall have become effective; or
(iv) (A) if the United States becomes engaged in hostilities or there is an
escalation of hostilities involving the United States or there is a declaration
of a national emergency or war by the United States or (B) if there shall have
been such change in political, financial or economic conditions if the effect of
any such event in (A) or (B) as in your judgment makes it impracticable or
inadvis able to proceed with the offering, sale and delivery of the Firm Shares
or the Addi tional Shares, as the case may be, on the terms contemplated by the
Prospectus.
24
<PAGE>
(c) Any notice of termination pursuant to this Section 11 shall be by
telephone, facsimile, telex, or telegraph, confirmed in writing by letter.
(d) If this Agreement shall be terminated pursuant to any of the
provisions hereof (otherwise than pursuant to (i) notification by you as
provided in Section 11(a) hereof or (ii) Section 9(b) or 11(b) hereof), or if
the sale of the Shares provided for herein is not consummated because any
condition to the obliga tions of the Underwriters set forth herein is not
satisfied or because of any refusal, inability or failure on the part of the
Company to perform any agreement herein or comply with any provision hereof, the
Company will, subject to demand by you, reimburse the Underwriters for all out-
of-pocket expenses (including the fees and expenses of their counsel), incurred
by the Underwriters in connection herewith.
12. Notice. All communications hereunder, except as may be otherwise
specifically provided herein, shall be in writing and, if sent to any Under
writer, shall be mailed, delivered, sent by facsimile, telex or telegraph and
confirmed in writing by letter, to such Underwriter c/o Bear, Stearns & Co.
Inc., 245 Park Avenue, New York, New York 10167, Attention: Robert J. Fraiman,
Managing Director, fax no. (212) 272-3613; or if sent to the Company, shall be
mailed, delivered, or sent by facsimile, telex or telegraph and confirmed in a
letter to the Company, 25 Hartwell Avenue, Lexington, Massachusetts 02421-3102,
Attention: Scott S. Sheldon, President and Chief Executive Officer, fax no.
(781) 861-6360 with a copy to Ropes & Gray, One International Place, Boston,
Massachusetts 02110-2624, Attention Joel F. Freedman, fax no. (617) 951-7050.
13. Parties. This Agreement shall insure solely to the benefit of,
and shall be binding upon, the Underwriters and the Company and the controlling
persons, directors, officers, employees and agents referred to in Sections 7 and
8, and their respective successors and assigns, and no other person shall have
or be con strued to have any legal or equitable right, remedy or claim under or
in respect of or by virtue of this Agreement or any provision contained herein.
The term "successors and assigns" shall not include a purchaser, in its capacity
as such, of Shares from any of the Underwriters.
14. Governing Law. This agreement shall be governed by and construed
-------------
in accordance with the laws of the State of New York, but without regard to
principles of conflicts of law.
25
<PAGE>
15. Counterparts. This Agreement may be executed in counterparts,
------------
each of which shall be an original and all of which together shall constitute
one and the same instrument.
26
<PAGE>
If the foregoing correctly sets forth the understanding between you
and the Company, please so indicate in the space provided below for that
purpose, whereupon this letter shall constitute a binding agreement among us.
Very truly yours,
eMed Technologies Corporation
By:____________________________________________
Name:
Title:
Accepted as of the date first above written
BEAR, STEARNS & CO. INC.
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
WIT CAPITAL CORPORATION
By: BEAR, STEARNS & CO. INC.
By: ___________________________
Name:
Title:
On behalf of themselves and the other
Underwriters named in Schedule I hereto.
27
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
Number of Firm Shares
Name of Underwriter to be Purchased
- ----------------------------------------- ---------------------
<S> <C>
Bear, Stearns & Co. Inc..................
Donaldson, Lufkin & Jenrette Securities
Corporation.............................
Wit Capital Corporation..................
Total............................. _________
</TABLE>
<PAGE>
SCHEDULE II
[Form of Lock-up]
<PAGE>
SCHEDULE III
[List of Officers, Directors and Stockholders participating in the Lock-up]
<PAGE>
EXHIBIT A
[List of Patents & Trademarks owned by eMed]
<PAGE>
EXHIBIT B
[ Ropes & Gray opinion]
<PAGE>
EXHIBIT B
[FORM OF ROPES & GRAY OPINION]
October __, 1999
BEAR, STEARNS & CO. INC.
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
WIT CAPITAL CORPORATION,
As Representatives of the
Several Underwriters Named
in the Underwriting Agreement
Re: Shares of Common Stock,
$ .01 par value, of eMed Technologies Corporation
---------------------------------------------------
Ladies and Gentlemen:
We have acted as counsel for eMed Technologies Corporation, a Delaware
corporation (the "Company"), in connection with the issuance and sale by the
Company of ________ shares (the "Shares") of its Common Stock, $.01 par value
per share (the "Common Stock"). This opinion is furnished to you as
Representatives of the several Underwriters pursuant to Section 6(b) of the
underwriting agreement dated October __, 1999 (the "Underwriting Agreement"),
among the Company and you as Representatives of the several Underwriters listed
on Schedule I thereto relating to the issuance and sale of the Shares. Terms
defined in the Underwriting Agreement and not otherwise defined herein are used
herein with the meanings so defined.
We have attended the Closing of the sale of the Shares held today. We have
examined signed copies of the registration statement of the Company on Form S-1
(No. 333-85481), together with all amendments and all exhibits thereto (the
"Registration Statement"), all as filed with the Securities and Exchange
Commission (the "Commission") under the Securities Act of
<PAGE>
1933, as amended (the "Act"); a copy of the prospectus dated _________ relating
to the Shares filed with the Commission pursuant to Rule 424(b) under the Act
(the "Prospectus"), which included information that under Rule 430A under the
Act was deemed to be included in the Registration Statement at the time it was
declared effective; an executed copy of the Underwriting Agreement; and such
other documents as we have deemed necessary as a basis for the opinions
expressed herein. For purposes of our opinion in the second sentence of
paragraph 6 below, we have assumed that the Underwriting Agreement and the
waivers received by the Company from the holders of rights to require
registration of Common Stock have been duly authorized, executed, and delivered
by the parties thereto other than the Company. For purposes of our opinion in
paragraph 10 below, we have relied solely on the publicly available records of
the United States Patent and Trademark Office. Additionally, we have relied upon
oral advice from the staff of the Commission to the effect that the Registration
Statement became effective on _____________.
We express no opinion as to the laws of any jurisdiction other than those
of the General Corporation Law of the State of Delaware (the "DGCL"), the
Commonwealth of Massachusetts and the federal laws of the United States of
America.
Insofar as this opinion relates to factual matters, information with
respect to which is in the possession of the Company, we have made inquiries to
the extent we believe reasonable with respect to such matters and have relied
upon representations made by the Company in the Underwriting Agreement and
representations made to us by one or more officers of the Company. Although we
have not independently verified the accuracy of such representations, we do not
know of the existence or absence of any fact contradicting such representations.
-2-
<PAGE>
Any reference herein to "our knowledge," "known to us" or any variation thereof
shall mean the actual knowledge of lawyers in this firm who have participated in
our representation of the Company in connection with the preparation of the
Registration Statement. With respect to our opinion set forth in paragraph 4
below, we have not searched the dockets of any court, administrative body,
agency or other filing office in any jurisdiction.
Based upon and subject to the foregoing, we are of the opinion that:
1. The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware, with corporate
power to own, lease and operate its properties and conduct its business
as described in the Prospectus, and is qualified as a foreign
corporation in the Commonwealth of Massachusetts.
2. The authorized, issued and outstanding capital stock of the Company is
as set forth in the Capitalization table contained in the Prospectus,
except for issuances or forfeitures subsequent to the date of the
information provided in such table, if any, pursuant to the Company's
stock plan or outstanding options and warrants. The Shares and the other
shares of Common Stock (including the Common Stock issued upon
conversion of preferred stock) issued and outstanding on this date have
been duly authorized and validly issued and are fully paid and
nonassessable. The issuance of the Shares to the Underwriters is not
subject to statutory preemptive rights or, to our knowledge, any
contractual preemptive rights.
3. The Underwriting Agreement has been duly authorized, executed and
delivered by the Company.
-3-
<PAGE>
4. The execution and delivery of the Underwriting Agreement and the
issuance and sale by the Company of the Shares will not (i) violate or
conflict with the Certificate of Incorporation or By-Laws of the
Company, (ii) breach or result in a default under any agreement or
instrument listed as an Exhibit to the Registration Statement or (iii)
violate the DGCL or any applicable federal law or regulation or, to our
knowledge, any order, writ, injunction or decree of any jurisdiction,
court or governmental instrumentality binding upon the Company or any of
its properties, except that we express no opinion as to state securities
or blue sky laws or as to compliance with the antifraud provisions of
federal and state securities laws.
5. No authorizations or consents of any governmental entity are required to
permit the Company to issue and sell the Shares except such as may be
required under state securities or blue sky laws, as to which we express
no opinion, and except for such as have been obtained under the Act.
6. To our knowledge, except as described in the Prospectus, no holder of
any security of the Company has the right to require registration of
shares of Common Stock of the Company in connection with the
registration of the Shares. To our knowledge, all such rights with
respect to the Registration Statement have been effectively waived.
Further, to our knowledge, no holders of any security of the Company
have the right to require the Company to register shares of Common Stock
for 180 days after the effective date of the
-4-
<PAGE>
Registration Statement other than in connection with a future
registered offering by the Company.
7. The Company is not, and immediately following the offering will not be,
subject to regulation as an "investment company" under the Investment
Company Act of 1940, as amended.
8. The statements in the Prospectus under the section "Description of
Capital Stock," insofar as they purport to summarize the provisions of
documents or matters of law referred to therein or constitute legal
conclusions, are accurate in all material respects and the statements
in the Prospectus under the section "Business -- Production," insofar
as they purport to summarize the provisions of documents, are accurate
in all material respects.
9. The form of certificate evidencing the Common Stock has been approved
by all necessary corporate action of the Company and complies as to
form with the requirements of the DGCL.
10. The Company, under its former name, is listed in the records of the
United States Patent and Trademark Office as the sole current owner of
record of United States registered marks "EMED" and "FRAMEWAVE"
numbered 1,965,898 and 2,072,753, respectively. These registrations are
current, in force and not abandoned.
The Registration Statement became effective on ___________________. We do
not know of the issuance of any stop order suspending the effectiveness of the
Registration Statement by the Commission or of any proceeding for that purpose
under the Act.
-5-
<PAGE>
In the course of the preparation by the Company of the Registration
Statement and the Prospectus, we have participated in discussions with your
representatives and those of the Company and its independent accountants, in
which the business and affairs of the Company and the contents of the
Registration Statement and the Prospectus were discussed. On the basis of
information that we have gained in the course of our representation of the
Company in connection with its preparation of the Registration Statement and the
Prospectus and our participation in the discussions referred to above, we
believe that the Registration Statement, as of its effective date, and the
Prospectus, as of its date, complied as to form in all material respects with
the requirements of the Act and the published rules and regulations of the
Commission thereunder, and we do not know of any legal or governmental
proceeding to which the Company or any of its subsidiaries is a party or to
which any of its property is subject required to be described in the Prospectus
which is not so described, nor of any contract or other document of a character
required to be described in the Prospectus or to be filed as an exhibit to the
Registration Statement which is not so described or filed. Further, based on
such information and participation, nothing that has come to our attention has
caused us to believe that as of its effective date the Registration Statement
contained any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading, or that the Prospectus as of its date or as of the date
hereof contained or contains any untrue statement of a material fact or omitted
or omits to state any material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading. We
express no opinion, however, as to the financial statements, including the notes
and schedules thereto, or any other financial
-6-
<PAGE>
or accounting information set forth or referred to in the Registration Statement
or the Prospectus.
The limitations inherent in the independent verification of factual matters
and the character of the determinations involved in our review are such that we
do not assume any responsibility for the accuracy, completeness or fairness of
the statements made or the information contained in the Registration Statement
or Prospectus except as described in paragraph 8 above.
This opinion is furnished by us to you as Representatives of the several
Underwriters and, except as otherwise expressly consented to by us in writing,
is solely for the benefit of the several Underwriters.
Very truly yours,
Ropes & Gray
-7-
<PAGE>
EXHIBIT 4.1
[eMed TECHNOLOGIES logo]
NUMBER SHARES
EMT________
eMed Technologies Corporation
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
CUSIP 290853 10 0
SEE REVERSE FOR CERTAIN DEFINITIONS
THIS CERTIFIES THAT
is the owner of
FULLY-PAID AND NONASSESSABLE SHARES OF THE COMMON STOCK, $0.01 PAR VALUE, OF
eMed Technologies Corporation
(the "Corporation") transferable on the books of the Corporation by the holder
hereof in person or by duly authorized attorney, upon surrender of this
Certificate properly endorsed. This Certificate and the shares represented
hereby are subject to all of the terms and conditions contained in the
Certificate of Incorporation and all amendments thereto. Upon request, the
Corporation will furnish without charge to the holder hereof a statement of the
powers, designations, preferences and relative, participating, optional or other
special rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights as may be
established, from time to time, by the Certificate of Incorporation of the
Corporation and by any certificate of designation, the number of shares
constituting each class and series, and the designations thereof. This
Certificate is not valid unless countersigned and registered by the Transfer
Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
Dated: ___________________
/s/ Gary A. Lortie /s/ Scott S. Sheldon
Treasurer and President and
Chief Financial Officer Chief Executive Officer
eMed Technologies Corporation
CORPORATE
SEAL
1992
DELAWARE
COUNTERSIGNED AND REGISTERED:
AMERICAN STOCK TRANSFER & TRUST COMPANY
(New York, N.Y.)
BY TRANSFER AGENT AND REGISTRAR
-----------------------------
AUTHORIZED SIGNATURE
<PAGE>
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM -as tenants in common UNIF GIFT MIN ACT-__________Custodian____________
TEN ENT -as tenants by the entireties (Cust) (Minor)
JT TEN -as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as Act________________________
tenants in common (State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
For Value Received,___________________hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
________________________________________
________________________________________
________________________________________________________________________________
(Please Print or Typewrite Name and Address, Including Zip Code of Assignee)
________________________________________________________________________________
________________________________________________________________________________
__________________________________________________________________________Shares
of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
________________________________________________________________________Attorney
to transfer the said stock on the books of the within named Company
with full power of substitution in the premises.
Dated_____________________________
_______________________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND
WITH THE NAME AS WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERNATION
OR ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed:
________________________________________________
THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS,
SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS
WITH MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM), PURSUANT TO
S.E.C. RULE 17Ad-15.
KEEP THIS CERTIFICATE IN A SAFE PLACE. IF IT IS LOST, STOLEN, MUTILATED OR
DESTROYED, THE CORPORATION WILL REQUIRE A BOND OF INDEMNITY AS A CONDITION TO
THE ISSUANCE OF A REPLACEMENT CERTIFICATE.
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated March 22, 1999, except
for the last paragraphs of Notes 7 and 8 which are as of September 16, 1999,
relating to the financial statements of eMed Technologies Corporation, which
appears in such Prospectus. We also consent to the application of such report
to the Financial Statement Schedule for the three years ended December 31, 1998
listed under Item 16(b) of this Registration Statement when such schedule is
read in conjunction with the financial statements referred to in our report.
The audits referred to in such report also included this schedule. We also
consent to the reference to us under the headings "Experts" in such Prospectus.
PricewaterhouseCoopers LLP
Boston, Massachusetts
October 7, 1999
<PAGE>
Exhibit 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated August 9, 1999 relating
to the financial statements of E-Systems Medical Electronics (a division of
Raytheon E-Systems, Inc.) which appears in such Prospectus.
PricewaterhouseCoopers LLP
Boston, Massachusetts
October 7, 1999
