UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
MEDGRUP CORPORATION
-------------------
(Name of small business issuer in its charter)
Colorado 6411 84-1504390
-------- ---- ----------
(State or jurisdiction of (Primary Standard Industrial I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.
1880 Willow Park Way, Suite B
Monument, Colorado 80132-9086
(Address and telephone number of principal executive offices
and principal place of business)
William D. Cronin,
Chairman of the Board and Chief Executive Officer
MedGrup Corporation
1880 Willow Park Way, Suite B
Monument, Colorado 80132-9086
(719) 481-1500
(Name, address and telephone number of agent for service)
Copies of all communications to:
David J. Babiarz, Esq.
Overton, Babiarz & Associates, P.C.
7720 E. Belleview Ave., Suite 200
Englewood, Colorado 80111
(303) 779-5900
Approximate date of proposed sale to the public: From time to time after
the Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]____________________
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]_____________________
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]_____________________
If delivery of the prospectus is expected to be made pursuant to Rule 434, check
the following box. [ ]
<PAGE>
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
Title of each Proposed Proposed
class of securities Amount to maximum offering maximum aggregate Amount of
to be registered be registered price per share(1) offering price(1) registration fee(1)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.001
par value 865,000 $1.75 $1,513,750 $400
- ---------
</TABLE>
(1) Based upon the average of the bid and asked prices of the Company's
common stock on April 24, 2000 in accordance with Rule 457(c) of the Securities
Act of 1933.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE>
Subject to Completion. Dated April 28, 2000
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING OFFERS TO BUY THESE
SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
PROSPECTUS
865,000 SHARES OF COMMON STOCK
MEDGRUP CORPORATION
(LOGO)
This prospectus relates to 865,000 shares of common stock of MedGrup
Corporation that may be offered for sale or otherwise transferred from time to
time by one or more of the selling stockholders identified in this prospectus.
The total net proceeds to the selling stockholders from the sale of our shares
will equal the sales price of such shares, less any commissions. See "Plan of
Distribution." We will not receive any of the proceeds from the sale of the
common stock by the selling stockholders. We will pay the expenses incurred in
registering the common stock, including legal and accounting fees.
A total of 600,000 shares of common stock offered by this prospectus were
acquired by the selling stockholders in a private placement conducted by us
during late 1999 and early 2000. An additional 145,000 shares were acquired by
certain selling stockholders in conversion of notes payable by the Company. We
can issue the remaining 120,000 shares upon exercise of a warrant held by a
securities broker-dealer who assisted with our private placement. See "Selling
Stockholders."
Our common stock is traded over the counter under the symbol "CODX" and
quotations are published in the Pink Sheets maintained by members of the
National Association of Securities Dealers, Inc. and published by the National
Quotations Bureau. Following receipt of an effective date for the registration
statement of which this prospectus is a part, we intend to apply for quotation
of our common stock in the OTC Bulletin Board. The last quotes of our common
stock as reported by the National Quotations Bureau on April 24, 2000 was $1.50
per share bid and $2.00 asked.
Our principal executive offices are located at 1880 Willow Park Way, Suite
B, Monument, Colorado 80132-9086, and our telephone number is (719) 481-1500.
Investing in our common stock involves substantial risks. See "Risk
Factors" (page 3)
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of the prospectus. Any representation to the contrary is a
criminal offense.
Dated April ______, 2000
<PAGE>
TABLE OF CONTENTS
Page
----
1 SUMMARY OF THE OFFERING................................................1
1.1 OUR BUSINESS.....................................................1
1.2 OPERATING RESULTS................................................1
1.3 OUR GROWTH STRATEGY..............................................2
1.4 THE OFFERING.....................................................2
1.5 SELECTED FINANCIAL DATA..........................................3
2 RISK FACTORS...........................................................3
2.1 RISKS ASSOCIATED WITH OUR FINANCIAL POSITION.....................3
2.2 BUSINESS FACTORS THAT MAY NEGATIVELY AFFECT OUR OPERATIONS.......4
2.3 OTHER FACTORS THAT MAY NEGATIVELY AFFECT OUR COMMON STOCK........7
3 FORWARD-LOOKING STATEMENTS.............................................9
3.1 IN GENERAL.......................................................9
3.2 NO "SAFE HARBOR".................................................9
4 PRICE RANGE OF OUR COMMON STOCK.......................................10
5 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.............................................10
5.1 OVERVIEW........................................................10
5.2 LIQUIDITY AND CAPITAL RESOURCES.................................11
5.3 RESULTS OF OPERATION............................................12
5.4 PERSEUS ART GROUP, INC..........................................14
5.5 CHANGES IN OUR ACCOUNTANTS......................................15
6 OUR BUSINESS..........................................................15
6.1 GENERAL.........................................................15
6.2 INDUSTRY OVERVIEW AND COMPETITION...............................15
6.3 OPERATIONS......................................................17
6.4 MARKETING.......................................................20
6.5 COMPLIANCE AND INDUSTRY REGULATION..............................21
6.6 INSURANCE.......................................................22
6.7 EMPLOYEES.......................................................22
6.8 FACILITIES......................................................22
6.9 LEGAL MATTERS...................................................22
7 OUR MANAGEMENT........................................................22
7.1 OUR DIRECTORS AND EXECUTIVE OFFICERS............................23
7.2 COMMITTEES OF THE BOARD OF DIRECTORS............................24
7.3 DIRECTOR COMPENSATION...........................................24
7.4 EXECUTIVE COMPENSATION..........................................24
7.5 EMPLOYMENT CONTRACTS............................................26
7.6 QUALIFIED STOCK OPTION PLAN.....................................26
7.7 TRANSACTIONS WITH RELATED PARTIES...............................27
7.8 REPORTS TO SHAREHOLDERS.........................................28
ii
<PAGE>
8 PRINCIPAL STOCKHOLDERS................................................28
9 DESCRIPTION OF OUR CAPITAL STOCK......................................31
9.1 IN GENERAL......................................................31
9.2 COMMON STOCK....................................................31
9.3 OUR TRANSFER AGENT..............................................32
9.4 CERTAIN PROVISIONS OF OUR ARTICLES OF INCORPORATION.............32
9.5 LIMITATION OF DIRECTOR LIABILITY AND INDEMNIFICATION............32
10 SHARES ELIGIBLE FOR FUTURE SALE.......................................33
10.1 IN GENERAL......................................................33
10.2 SALES OF RESTRICTED SHARES......................................33
10.3 EFFECT OF SALES OF SHARES.......................................34
11 PLAN OF DISTRIBUTION..................................................34
12 LEGAL MATTERS.........................................................36
13 EXPERTS...............................................................36
14 ADDITIONAL INFORMATION................................................36
FINANCIAL STATEMENTS OF MEDGRUP CORPORATION, FORMERLY
MEDGRUP DEVELOPMENT SERVICES, INC...........................................F-1
FINANCIAL STATEMENTS OF MEDGRUP CORPORATION, FORMERLY PERSEUS
ART GROUP, INC..............................................................F-20
iii
<PAGE>
1 SUMMARY OF THE OFFERING
This summary highlights important information about our business and about
this offering. Because it's a summary, it doesn't contain all the information
you should consider before investing in the common stock. So please read the
entire prospectus.
MedGrup Corporation, a Colorado corporation, was organized in 1998. We were
originally founded as Perseus Art Group, Inc. to operate a retail fine art
business. In 1999, the assets and operations of MedGrup Development Services,
Inc. were merged with Perseus and we began operation in the medical services
industry. MedGrup Development Services, Inc. was originally organized in 1995.
Our principal executive offices are located at 1880 Willow Park Way, Suite B,
Monument, Colorado 80132-9086, and our telephone number is (719) 481-1500.
1.1 Our Business
As a company, we provide coding and consulting service for hospitals and
other healthcare providers located in the United States. Under existing Federal
and state requirements, these providers must submit billings for Medicare and
Medicaid reimbursement in a coded format. Many private health insurers also
require submission of billing information in this coded format. These providers
are therefore faced with strict regulatory compliance issues, as well as cash
flow concerns in addressing coding requirements. We maintain a staff of highly
qualified individuals to satisfy these coding requirements and help the
providers operate more efficiently and profitably. Most of our service is
provided off the premises of the providers, although we often maintain personnel
at the providers' location to facilitate our service. We license the computer
software used in connection with our coding service from an independent third
party and modify it to be used in our business. We do not own the rights to the
software.
We presently have approximately 57 clients. Many of these clients are
hospitals in rural areas, which can't afford or locate full-time coding staff.
We also work with larger, urban healthcare providers which believe our services
are more efficient than maintaining their own staff or use our services to
supplement their staff. Some highlights of our business include the following:
o We provide coding services for inpatient, outpatient and emergency
room services provided by healthcare organizations.
o We assist our clients in staffing their medical records department to
improve operations.
o We provide consulting services to healthcare providers to help their
medical records and business office departments run more smoothly and
profitably.
o We audit the medical records departments of our clients to assist them
to comply with Federal and state regulations.
1.2 Operating Results
We've operated in the medical services industry for 5 years. During that
time, we have significantly increased our clients, revenues and profit. Here are
some of our financial highlights:
1
<PAGE>
o We increased the number of clients from 17 in 1997 to 37 in 1998 and
47 at the end of 1999.
o Our revenues have increased from $968,267 during 1997, to $980,431 in
1998 and $1,986,596 in 1999.
o Our profit or loss after income taxes have increased from a loss of
$2,666 in 1997, to a profit of $195,269 in 1998 and $231,650 in 1999.
1.3 Our Growth Strategy
The strategy for our growth in the future is to add as many additional
clients as is consistent with our goal of providing superior service in the
medical services industry. Our target market is small, rural and community
hospitals, but we also market to large, urban health centers. We market our
services through personal contact by our employees, through industry
associations, services and various publications. We also obtain new customers by
word of mouth referral from existing clients. Our existing customer base is
located primarily in Texas, Oklahoma, California and Colorado. We hope to
continually add to that client base and expand the geographic reach. Finally, we
must continually update our technology to enhance productivity, profitability
and customer service.
We currently work with several networks of hospitals, including T.O.R.C.H.
and Covenant in Texas, Western Healthcare Alliance in Colorado and Tenet on a
nationwide basis. Our strategy for growth is to obtain additional service within
these networks, as well as expand our service into additional provider networks.
Our biggest obstacle to date has been managing our growth. The large
increase in clients and revenues that we have experienced over recent years has
strained our executive, administrative and operating staff. We must continually
add new coders to provide service to our clients. We must also maintain quality
over the service we provide to our customers. The proceeds that we received from
a recent private placement have been used to expand our infrastructure to help
with our growth.
1.4 The Offering
(a) Common stock offered: 865,000 shares to be sold by the selling
stockholders.
(b) Common stock outstanding: 5,535,000 shares.
(c) Proposed symbol and trading market: "CODX" on the OTC Bulletin Board
The number of shares of common stock outstanding (i) gives effect to a 1
for 2 reverse split of our common stock effective May 12, 1999, and (ii) does
not include 120,000 shares issuable upon exercise of a warrant at $1.10 per
share or 1,391,293 shares of common stock issuable upon exercise of stock
options outstanding under our stock option plan. The weighted average exercise
price of these options is $1.17 per share. This number also does not include up
to an additional 108,707 shares of common stock reserved for future stock option
grants. See "Qualified Stock Option Plan" for a more complete description of our
stock option plan.
2
<PAGE>
1.5 Selected Financial Data
The following financial information summarizes the more complete historical
financial information at the end of this prospectus. Our independent public
accountants, Cordovano & Harvey, P.C., have audited it. You should read the
information below along with all other financial information and analysis in
this prospectus. Please don't assume that the results below indicate results
we'll achieve in the future.
- --------------------------------------------------------------------------------
Fiscal Year Ended
December 31,
---------------------------
1999 1998
- --------------------------------------------------------------------------------
Statement of Operations Data:
- -----------------------------
Revenues $1,986,596 $ 980,431
Gross profit 1,186,956 728,581
Operating expenses 932,340 532,611
Income from operations 254,616 195,970
Interest expense 14,912 701
Income tax provision 9,554 -0-
Income from continuing operations 231,650 195,269
Earnings per share .05 .05
Balance Sheet Data:
- -------------------
Current assets $ 860,402
Total assets 1,205,385
Current liabilities 299,201
Long-term debt 86,049
Total stockholders' equity 811,088
2 RISK FACTORS
Please carefully consider the following risk factors before deciding to
invest in the common stock.
2.1 Risks Associated With Our Financial Position
(A) Limited operating history and revenues. We completed the merger with
MedGrup Development Services on May 12, 1999. Prior to that, MedGrup Development
Services operated for a limited period of time. Consequently, we have a limited
operating history. Our revenues for the year ended December 31, 1999 were
approximately $2 million, an increase of approximately $1 million from 1998. We
are in the early phase of our development. Purchasers of our common stock should
be aware of the difficulties encountered by companies such as ours, including
the need for working capital, limited operating history and intense competition.
3
<PAGE>
(B) Limited capitalization and working capital. We presently have limited
capitalization and working capital. At December 31, 1999, we reported
shareholder's equity of $811,088 and working capital of $561,201. We believe we
will require capital from outside sources to continue growing at our present
rate. We hope to finance these capital requirements through a combination of
debt and equity financing. While we believe we have resources available to
satisfy those requirements, we cannot assure that we can obtain capital or that
we can acquire such capital on terms acceptable to us.
(C) Collection of accounts receivable. Accounts receivable in the amount of
$665,783 represent a substantial portion of our working capital. This represents
a substantial investment for us. We depend on collecting those receivables to
finance our working capital requirements. While we believe we maintain an
adequate reserve against those receivables, we cannot assure we will succeed in
collecting the remainder. As most of our customers are hospitals which are
wholly or partially government funded, we believe our collections are reasonably
certain. However, we typically collect our receivables 60 to 90 days after
billing. We must finance our operations during this collection time.
2.2 Business Factors That May Negatively Affect Our Operations
(A) We must keep up with our growth. Because of our limited operating
history and revenues, we maintain a relatively limited staff of management and
administrative personnel. This situation places great stress on these
individuals to manage our growth. Our continued growth will depend on a variety
of factors, including our ability to initiate, develop and maintain new client
relationships. We must also assure that our existing clients receive quality
service from our coders. We must also develop systems to accurately record and
monitor our growth. We must also evaluate and expand our facilities and
equipment to ensure our clients receive quality service and we can continue to
grow as we hope. All of these factors place great demands on our people and our
systems, and we cannot assure that we will continue to grow at our past rate.
(B) We are dependent on the hospital market. Our customers are typically
hospitals and other healthcare providers, and we derive substantially all of our
revenues from services to hospitals. Our performance therefore depends on
continued demand for our service from these providers. Consolidation in the
healthcare industry, particularly in the hospital market, could decrease the
number of potential purchasers of our services or the loss of one or more of our
significant customers. Either of these events could negatively affect our
business, financial condition and results of operation. Legislative or
market-driven reforms could also negatively affect our business. Finally, the
decision to purchase our services typically involves the approval of several
members of management of a hospital. Consequently, it is difficult for us to
predict the timing or outcome of the buying decision of our customers or
potential customers.
(C) We are dependent on the services of certain key personnel. We depend on
the continued service of key management employees. These individuals include
William Cronin, Chairman of the Board and Chief Executive Officer, Terry Holmes,
President, and Gary Mendenhall, Vice President. Mr. Cronin founded the Company
and is responsible for marketing the Company's services to our clients. Messrs.
Holmes and Mendenhall are responsible for managing the day-to-day operations of
our business. The loss of the services of any of these individuals could
adversely affect our business. We have employment agreements with each of these
individuals for a minimum of one year. However, we maintain no "key man" life
4
<PAGE>
insurance on any of their lives. The loss of any of these individuals would
adversely affect our business.
(D) Our success depends upon our ability to keep up with rapidly changing
technology. We depend on our computer and telecommunications equipment and
software capabilities to run our business. Our failure to maintain the
competitiveness of our technological capabilities or respond effectively to
technological changes could negatively affect our business, results of
operations or financial condition. As we are not a computer software provider,
we do not typically invest funds in research and development for our coding
software. We depend on products acquired from independent third parties. Our
continued growth and future profitability will depend on a number of factors,
including our ability to (i) expand our existing service offerings to include
desired customer services and (ii) as our business matures, introduce new
services that leverage and respond to changing technological and healthcare
developments. We cannot assure that technologies or services developed by our
competitors will not render our products or services non-competitive or
obsolete.
(E) We compete with other industry participants. Although the outsourcing
of medical coding is a relatively new service, we compete with larger, well
established companies with greater resources than ours. Most importantly, we
compete with the medical records departments of hospitals and other clients and
potential clients. However, these providers are often unable to find qualified
personnel to work in their medical records department. In marketing our service,
we attempt to educate healthcare providers about the benefit of our service.
Providers are beginning to look to third parties for their coding and other
administrative needs. This has created competition for our service.
Larger, established services companies such as QuadraMed Corp., provide a
variety of coding and consulting services to participants in the healthcare
industry. Large professional accounting and management services firms such as
Arthur Anderson and Ernst and Young, have also developed departments which
provide coding services to their hospital clients. These companies have
substantially greater financial and personnel resources than we do and have
established relationships with certain clients. We also compete with other
specialty coding companies, which provide services similar to ours. While we
believe we are favorably positioned to compete with these specialty and larger
companies, we cannot assure that our business will be successful in the future.
We must continually expand and refine our services to remain competitive.
Finally, pressures from current or future competitors could also cause our
services to lose market acceptance or result in price erosion, with a negative
effect on our business, results of operations or financial condition.
(F) We face liability for incorrect coding. If we incorrectly code charts
for a client, we may incur additional costs associated with correcting the
errors and assisting the client in the "reconsideration process" with the payer,
i.e. Medicare, Medicaid or a private health insurance company. This is done
without additional charge to the client. In addition, if monetary or other
penalties are assessed against a client by a state or Federal agency, it is
possible that the client could claim reimbursement or damages from us. We cannot
assure that the amount of our liability insurance will be adequate to insure
against our potential losses.
5
<PAGE>
(G) A business interruption could materially disrupt our operations. Our
operations depend on our ability to protect our communication systems with
clients, including computer and telecommunications equipment and software,
against damage from fire, power loss, interruption or failure, natural disaster
and other similar events. In the event we experience a temporary or permanent
interruption at one or more of our coding locations, through casualty, operating
malfunction or otherwise, our business could be negatively affected and we may
be required to compensate clients for any loss that they incur. In order to
reduce the possibility of such an interruption, we maintain redundant service
locations for our computer and other operating systems. We also currently
maintain property and business interruption insurance; however, such insurance
may not adequately compensate for any losses we or our clients may incur.
(H) Our client contracts may be terminated on short notice and do not
guarantee specific revenues. Our contracts with clients may be terminated on 90
days advance notice and do not ensure that we will generate a minimum level of
revenue. The profitability of each client may fluctuate, sometimes
significantly, depending on service required by that entity. We are not usually
designated as our clients' exclusive coding provider. To remedy these
situations, we are presently attempting to negotiate longer-term contracts with
our clients. However, we believe that meeting our client's expectations can have
a more significant impact on our revenues and profitability than the specific
terms of our contracts. We believe we have excellent relations with all of our
clients.
(I) Our success depends on retaining qualified coders. Our success depends
largely on our ability to recruit, hire, train and retain qualified employees,
especially medical coders. Our industry is very labor intensive and requires
highly trained and experienced personnel. While we believe we have excellent
relations with our existing employees, we must continually recruit new employees
to sustain our growth. Our employees are partially responsible for successful
relations with our clients. For that reason, it is important that we maintain a
qualified labor force. Qualified coders are in high demand and short supply in
our industry. We must also retain employees at acceptable costs, including
wages, employee benefits and taxes. An increase in these expenses could
adversely affect our business and financial condition.
(J) Our clients' business is heavily regulated by Federal and state law.
While we are not directly regulated, the health care industry and our clients
are heavily regulated by Federal and state laws. On the Federal level, the U.S.
Department of Health and Human Services, through the Health Care Finance
Authority ("HCFA") and the Office of the Inspector General, implement and
enforce regulations specifying, among other thing, uniform coding requirements
and strict billing guidelines for Medicare and Medicaid claims. The regulations
require that providers use standardized numerical codes and descriptive terms to
report procedures and services provided. These regulations also impose
substantial penalties for incorrect billing. These regulations are found within
the Social Security Act, as amended. The regulations and the penalties are
directed at the health care providers, who directly provide the services and
submit the claims for payment. HCFA may impose civil monetary penalties,
assessments or exclusion from the Medicare and Medicaid programs for violations
of the regulations. State laws also govern health care providers. State
regulations regarding uniformity and submission are similar to the Federal
regulations. Because we do not actually submit the claims, we do not believe
that the regulations directly affect us, but we must follow state and Federal
regulations in our coding work.
6
<PAGE>
The confidentiality of patient records and the circumstances under which
such records may be released for inclusion in the Company's databases are
regulated by Federal and state governments. These state laws and regulations
govern both the disclosure and the use of confidential patient medical record
information. Although compliance with these laws and regulations is at present
principally the responsibility of the hospital, physician or other healthcare
provider, regulations governing patient confidentiality rights are evolving
rapidly. Additional legislation governing the dissemination of medical record
information has been proposed at both the state and federal level. This
legislation may require holders of such information to implement security
measures that may require substantial expenditures by us. We cannot assure that
changes to state or federal laws will not materially restrict the ability of
healthcare providers to transmit information from patient records to facilitate
our service.
2.3 Other Factors that May Negatively Affect Our Common Stock
(A) There may be no active public market for our common stock. Because our
stock presently trades in limited amounts, we can't assure you that there will
be an active public market for our shares in the future. Quotations for our
stock are currently reported in the "Pink Sheets" maintained by securities
brokers/dealers. This medium of quotation is not widely recognized in the
financial services industry. As a result, trading in our stock may be limited.
You shouldn't expect to easily resell our common stock if you buy it.
(B) Our stock price may experience extreme price and volume fluctuations.
The stock market in general, and the OTC Market, has historically experienced
extreme price and volume fluctuations that have often been unrelated to the
operating performance of companies and which has affected the market price of
securities of many companies. The trading price of our common stock is likely to
be highly volatile and could also be subject to significant fluctuations in
price in response to such factors as:
o variations in quarterly results of operations;
o announcements of new services or acquisitions by us or our
competitors;
o governmental regulatory action;
o general trends in our industry and overall market conditions; and
o other event or factors, many of which are beyond our control.
Movements in prices of equity securities may also affect the market price
of our common stock in general.
(C) No assurance of stock listing. It is our intention to apply for listing
of our common stock in the OTC Bulletin Board following the date of this
prospectus. We believe such listing will provide additional exposure to our
stock and our company, and allow increased liquidity for our shareholders.
However, we cannot assure that our efforts to obtain this listing will be
successful. Representatives of the NASD, the agency that oversees the means of
electronic quotation, control application and approval for listing in the
Bulletin Board and other Nasdaq markets. Applications for listing in the
Bulletin Board have received increased scrutiny recently as a result perceived
abuse involving "micro-cap" securities. While we believe we will satisfy the
7
<PAGE>
criteria for listing on the Bulletin Board, we cannot assure that our
application will be successful. Our failure to obtain such listing may result in
shareholders having difficulty selling their shares, should they desire to do
so.
(D) Our stock may be characterized as "penny stock." Sales of certain lower
priced securities are regulated by special rules adopted by the Securities and
Exchange Commission. "Penny stocks" generally are equity securities with a price
of less than $5 per share, other than securities listed on certain national
securities exchanges or quoted in the Nasdaq system. These penny stock rules
require a securities broker or dealer, prior to a transaction in a penny stock
not otherwise excused from the rules, to deliver risk disclosure information to
its customer. The broker or dealer must also provide the customer with current
sales information for the stock, the compensation of the broker or dealer and
monthly account statements showing the market value of each stock held in the
customer's accounts. In addition, these rules require that the broker or dealer
make a written determination that the security is a suitable investment for the
customer and receive the customer's agreement to the transaction. These
disclosure and other requirements may have the effect of reducing the level of
trading activity in our stock. Based on the historical trading price of our
stock, we believe it will initially be characterized as a penny stock.
(E) We don't plan to pay dividends. We don't expect to pay dividends on
common stock anytime soon. We expect to use all earnings to develop our
business. Our Board of Directors will decide on any future payment of dividends,
depending on our results of operations, financial condition, capital
requirements and any other relevant factors.
(F) You will experience dilution. You'll experience immediate and
substantial dilution in net tangible book value for any common stock you
purchase. Our net tangible book value as of December 31, 1999, was $811,088 or
$.15 per share. Assuming sales of the common stock at $1.75 per share, of which
there is no assurance, shareholders will experience an immediate decrease in net
tangible book value of $1.60 per share.
(G) Our Company is controlled by management. Members of our management own
or control approximately 70% of our outstanding common stock. As a result, these
individuals will be able to control election of our Board of Directors and other
events affecting our future. Our Articles of Incorporation under which we
operate allow approval of all significant transactions by a majority vote of the
outstanding shares. Because our management owns substantially in excess of 50%
of the outstanding common stock, they will be in a position to control the
Company for the foreseeable future. Other shareholders will have a limited voice
in the affairs of our Company.
(H) Sale of a substantial amount of our common stock into the market in the
future may depress our stock price. Sales of a substantial amount of our common
stock in the public market or the perception that such sales might occur could
negatively affect the market price of our common stock in the future. Of the
5,535,000 shares of common stock outstanding as of the date of this prospectus,
approximately 1,025,000 are freely tradable and 4,510,000 are subject to
restrictions on resale imposed by securities laws. The shares of restricted
stock may be sold in the public market only if registered or if they qualify for
an exemption from registration under federal and state law. Of the total amount
of restricted stock currently outstanding, 675,000 shares are immediately
available for resale in limited amounts, and will become completely unrestricted
in June, 2000. The shares issued in connection with the merger of MedGrup
Development Services will become available for resale in limited amounts in May,
8
<PAGE>
2000. Sales of any or all of these shares in the future may depress the price
for our common stock in the public market.
3 FORWARD-LOOKING STATEMENTS
3.1 In General
This prospectus contains statements that plan for or anticipate the future.
Forward-looking statements include statements about the future of the medical
services industry, statements about our future business plans and strategies,
and most other statements that are not historical in nature. In this prospectus,
forward-looking statements are generally identified by the words "anticipate,"
"plan," "believe," "expect," "estimate," and the like. Because forward-looking
statements involve future risks and uncertainties, there are factors that could
cause actual results to differ materially from those expressed or implied. For
example, a few of the uncertainties that could affect the accuracy of
forward-looking statements, besides the specific factors identified in Section
2, include:
(a) changes in general economic and business conditions affecting the
medical services industry;
(b) financial strength of the Medicare, Medicaid and private healthcare
systems;
(c) new regulations which might be adopted by Federal or state
governments;
(d) changes in billing requirements which might be adopted by private
insurance carriers;
(e) our costs and the pricing of our services;
(f) the level of demand for our services; and
(g) changes in our business strategies.
3.2 No "Safe Harbor"
The Private Securities Litigation Reform Act of 1995, which provides a
"safe harbor" for similar statements by existing public companies, does not
apply to our offering.
4 PRICE RANGE OF OUR COMMON STOCK
The following table shows the range of high and low bids for our common
stock for the last two fiscal years or portions thereof as reported by the
National Quotations Bureau. Our common stock has traded over the counter since
July, 1999 and is currently quoted in the "Pink Sheets" maintained by securities
broker-dealers and published by the National Quotation Bureau. Trading in our
common stock is very limited at present. The quotations represent prices between
dealers, do not include retail markup, markdown or commissions, and may not
necessarily represent actual transactions.
9
<PAGE>
Fiscal Quarter Ended High Low
-------------------- ---- ---
1999
----
September 30 $1.50 $1.50
December 31 1.50 1.00
2000
----
January 1 - March 31 1.3125 1.1875
As of March 20, 2000 there were approximately 50 record holders of our
common stock. No dividends have been paid with respect to our common stock and
we have no plans to pay dividends in the foreseeable future. Payment of future
dividends, if any, will be at the discretion of our Board of Directors after
taking into account various factors, including our financial condition, results
of operations, current and anticipated cash needs and plans for expansion.
5 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
5.1 Overview
We derive our revenue from services provided in the medical services
industry. Specifically, we act as a third party source for coding of medical
records charts and other consulting services for the healthcare industry. Our
clients are primarily hospitals. A majority of our services are billed on a flat
fee basis based upon the number of charts coded. Fees for other services vary,
based on the type of service and client, but are also on a flat fee basis.
On May 12, 1999, we merged with MedGrup Development Services, Inc., then a
privately held Colorado corporation. At that time, our name was changed to
MedGrup Corporation. MedGrup Development Services had been engaged in the
medical services industry since approximately 1995.
Effective with the date of the merger, we issued 3,785,000 shares of our
common stock to the former shareholders of MedGrup Development Services. This
transaction has been treated as a recapitalization of MedGrup Development
Services for accounting purposes, although MedGrup Corporation, formerly known
as Perseus Art Group, Inc., is the legal survivor. The transaction was treated
as a reverse acquisition for accounting purposes, as if MedGrup Development
Services had acquired Perseus. Our historical financial information contained in
this prospectus is that of MedGrup Development Services. The merger was
effective May 12, 1999. However, the financial statements have been presented as
if the transaction took place on April 30, 1999.
5.2 Liquidity and Capital Resources.
(A) December 31, 1999. At December 31, 1999, we had working capital of
$561,201, consisting of current assets of $860,402 and current liabilities of
$299,201. Coupled with additional cash received by us subsequent to year-end, we
believe our cash and capital resources are sufficient for the 2000 fiscal year.
10
<PAGE>
Our greatest need for cash is payment of salaries and benefits to our
coders, as well as management and administrative personnel. Whether our coders
are paid on a salary or piecework basis, we must compensate them in advance of
payment from our clients. At December 31, 1999, we had accrued $665,783 of
accounts receivable from our clients, net of allowances for potentially
uncollectable accounts. This represents a substantial investment for us.
However, we believe the reservoir of receivables accrued at year end, coupled
with our existing cash, will be sufficient to satisfy our cash and capital
requirements for the year 2000.
Historically, we have a very high collection rate for our receivables. As
many of our hospital clients are government funded, collections are reasonably
certain. However, our collection experience is historically approximately 60 to
90 days after billing. This resulted in the need to raise additional capital
during 1999. As our revenues grow, our need to finance additional receivables
will also increase.
Our other greatest need for capital is to finance equipment acquisition. We
have a substantial investment in equipment to conduct coding services, both
within our client hospitals and at remote locations where our coders operate. We
finance all of these equipment acquisitions. We acquire this equipment,
consisting of sophisticated fax machines and computers from independent third
parties, through a combination of outright purchase and capital leases. At
December 31, 1999, we had acquired $343,683 of equipment, net of accumulated
depreciation, which included approximately $141,518 of capital leases. While we
believe our existing equipment is adequate for our immediate needs, we must
replace and/or expand our equipment in the future to maintain operations and our
perceived competitive edge.
We believe we have a variety of resources to finance future capital
requirements. In addition to our existing cash and accounts receivable, we have
available a line of credit from our commercial lender in the amount of $50,000,
all of which was available at the date of this prospectus. Any amounts which we
borrow on this line carry interest at a variable rate based on the existing
prime rate (8.25% at December 31, 1999), are collateralized by substantially all
of our assets and will be due in full on October 30, 2000. Our lender has also
indicated its willingness to finance additional equipment acquisitions on a
longer-term basis. Finally, we believe we could obtain additional financing
through additional placement of our equity securities.
During the year ended December 31, 1999, our operations used approximately
$57,000 in cash. A majority of that use is attributable to an increase in
accounts receivable, in the approximate amount of $450,000. We used an
additional $150,000 in cash in connection with investing activities, primarily
the acquisition of equipment and leasehold improvements.
We satisfied our cash requirements during 1999 primarily through private
sales of our common stock. In July, 1999, we undertook an offering of up to
600,000 shares at a price of $1 per share pursuant to exemptions from the
registration requirements of existing Federal and state securities laws. A
securities broker/dealer acted as our placement agent for purposes of this
offering and charged us 10% commission on sales and a non-accountable expense
allowance of 1% of the gross proceeds raised in the offering. We also issued
50,000 shares of common stock valued at $50,000 and warrants to acquire our
common stock at an exercise price of $1.10 per share at the rate of one warrant
for each five shares sold in the offering. We netted a total of $275,054 prior
to year-end on the sale of 385,000 shares after $110,000 of offering costs. The
remainder of the offering was sold subsequent to year-end.
11
<PAGE>
We also received $87,000 through the issuance of notes to private parties
during 1999. These notes were subsequently converted to common stock during the
year at a price of $.60 per share. Overall, our cash increased approximately
$100,000 during the year. We believe our existing cash is sufficient for the
2000 fiscal year.
We do not believe the expenses which we incurred in connection with the
merger will be repeated during the year 2000. Assuming no other changes in cash
flow, this could improve operations during year 2000 and reduce the need for
cash from outside sources. However, we are unable to predict with any degree of
certainty the results of our operations this year, and accordingly, make no
assurance as to future cash flow.
(B) Comparison of 1999 to 1998. Our financial condition improved from 1998
to 1999. Our working capital increased approximately $325,000 from December 31,
1998 to 1999. Our current assets increased significantly during that time, while
current liabilities also increased, but in a smaller amount. Our net worth also
improved, from negative $313,000 at December 31, 1998 to $811,000 at December
31, 1999.
The improvement in our financial condition during 1999 is primarily
attributable to the stock offering we conducted during that year. We also
converted $87,000 in notes payable to common stock with the consent of the note
holders. The result of those transactions, coupled with our net income and other
activity during the year, resulted in an increase in our net worth.
With regard to our working capital, accounts receivable increased
substantially from 1998 to 1999, from $214,000 at December 31, 1998 to $666,000
at December 31, 1999. This increase corresponds to the increase in business that
we experienced during 1999 and was made possible by the cash flow from financing
activities described above. The greatest increase in current liabilities during
1999 was accrued salaries and payroll taxes. This too is attributable to our
increased business activity and greater compensation expense for our coders and
other personnel.
5.3 Results of Operation.
(A) Year ended December 31, 1999. During the year ended December 31, 1999,
we realized net income after taxes of $231,650, or $.05 per share, on revenues
of $1,986,596. Costs of revenue were approximately $800,000, resulting in a
gross profit margin of approximately 60%.
Costs of our revenue include primarily salaries and benefits for coding
personnel. We believe these costs were higher relative to our revenues during
1999 due to the integration of many new coders. We also added many new clients
during 1999, which required set-up and familiarization with new information. We
expect each of these situations to continue for the foreseeable future.
Our most significant item of expense was general and administrative, in the
approximate amount of $750,000. The most significant items included in general
and administrative expenses were payroll and related expenses, in the
approximate amount of $400,000. We believe salaries and benefits for our
management and administrative personnel will increase during 2000 as new people
are added, and will continue to represent a significant portion of our expenses.
We also incurred approximately $100,000 of expenses during 1999 for travel and
related expense associated with obtaining and retaining clients.
12
<PAGE>
During the year ended December 31, 1999, we also incurred approximately
$83,000 of expenses for professional and consulting fees. We expect those
expenses will be reduced during 2000 following completion of the merger.
However, we will incur additional professional fees as we begin filing reports
with the SEC.
Our revenues are divided between coding and miscellaneous services. Coding,
which represented the majority of our revenues during 1999, includes outsourcing
of the coding function normally performed by healthcare providers. Coding for
emergency rooms services represents the most significant portion of this
service. Other revenue includes auditing service provided to our clients, review
of fees and other miscellaneous consulting. We expect that consulting revenues
will increase during 2000, as we have signed certain long-term contracts with
existing and new clients. However, we believe that coding will continue to
represent a majority of our revenues in the future.
(B) Comparison to 1998. During the year ended December 31, 1998, we
realized net income after taxes of $195,269, or $.05 per share, on total revenue
of $980,431. Our revenues increased 103% from 1998 to 1999, while our net income
increased approximately 24%.
The substantial increase in our revenue from 1998 to 1999 resulted from the
addition of many new clients, as well as additional services provided to
existing clients. We are continually adding additional infrastructure in an
effort to expand our service to additional clients. However, we do not wish to
sacrifice service for the sake of growth. Accordingly, additional clients will
be added only as we believe we can provide quality, reliable service.
Our net income increased at a much slower rate than our revenue. We believe
this is primarily attributable to two factors. First, our profit margin
decreased significantly from 1998 to 1999, from 75% in 1998 to 60% in 1999. We
believe this decrease is attributable to hiring and training many new coders
during 1999, with a concurrent increase in cost and decrease in productivity by
bringing coders on line prior to demand. We hope the results of our efforts will
improve during 2000 as these coders become more experienced and productive.
The second factor affecting our income significantly was the increase in
general and administrative expenses. Payroll and related expenses increased
approximately 100% from 1998 to 1999 with the increase in our management and
administrative staff. Travel and related expenses also increased. This coincides
with our increased marketing efforts and client load. We believe our general and
administrative expenses will decrease as a percentage of revenue during 2000
with the elimination of expenses associated with the merger. However,
unpredictable expenses may arise which we cannot now anticipate.
We are unable at this time to accurately predict what effect, if any,
inflation will have on our operations in the future. While we believe labor
costs will increase in the short-term, we expect our prices will increase to
keep pace. However, there is no assurance our clients will accept price
increases in the future. We also cannot predict what effect new services will
have on our operation, as this is an evolving part of our business.
13
<PAGE>
5.4 Perseus Art Group, Inc.
Perseus Art Group, Inc. was organized on June 26, 1998 under the laws of
the State of Colorado to develop and operate an e-commerce market for the sale
of original art and art reproductions. Prior to the merger with MedGrup
Development Services, Inc., the activities of Perseus were limited to
organizational efforts and obtaining financing. Perseus had no revenues prior to
the merger.
From its inception to December 31, 1998, Perseus survived entirely on the
sale of its common stock to fund operating activities. In a limited public
offering completed in October, 1998, the Company raised $82,500, net of offering
costs, through the sale of 180,000 shares of its common stock to investors.
Proceeds of that offering were used to acquire inventory and equipment, as well
as pay operating costs. At December 31, 1998, Perseus had remaining $14,938 of
assets, including $10,859 of cash. Total liabilities at that date equaled
$1,854.
Perseus raised an additional $10,000 through the sale of its common stock
in the period January 1, 1999 through the date of the merger. Proceeds of that
financing were used to fund additional operating expenses. At the date of the
merger, the Company had no assets and no liabilities.
For the period from inception through December 31, 1998, Perseus realized a
net loss of $519,416, or $.48 per share. Significant expenses during that time
included $60,500 of consulting fees paid to related parties and $450,000 of
stock-based compensation. This latter expense was a non-cash expense, recorded
under applicable accounting rules for stock issued to the founders of the
Company. Perseus was in the development stage during 1998, and had no revenues
from operations.
During the period from January 1, 1999 through the date of the merger, the
Company incurred an additional loss of $23,084, or $.02 per share. Significant
expenses during that period include $10,069 paid to the vice president as
compensation and $6,321 in legal and accounting fees. Perseus also realized a
loss of $3,920 on the disposal of its assets and inventory prior to the merger.
For further discussion of certain transactions between Perseus and its officers
and directors, see Transactions With Related Parties.
5.5 Changes in our accountants.
We retained Cordovano & Harvey, P.C., independent accountants, to audit our
financial statements for the year ended December 31, 1999. Cordovano & Harvey
replaced A. Liparulo, CPA, who acted as the accountant for MedGrup Development
Services, Inc. and audited its financial statements for the year ended December
31, 1998. The dismissal of A. Liparulo and hiring of Cordovano & Harvey was
approved by our Board of Directors. Cordovano & Harvey, P.C. audited the
financial statements of Perseus Art Group, Inc. prior to its name change to
MedGrup Corporation.
The report of A. Liparulo for December 31, 1998 did not contain an adverse
opinion or disclaimer of opinion, nor was such report modified as to
uncertainty, audit scope or accounting principles. There was no disagreement
with A. Liparulo on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure, which, if not resolved to
his satisfaction, would have caused him to make reference to the subject matter
of the disagreement in connection with his report.
14
<PAGE>
6 OUR BUSINESS
6.1 General
We provide coding and consulting services to hospitals and other healthcare
providers. Billing provided through Medicare, Medicaid and all private insurance
companies must be coded in accordance with Federal regulations in order for
healthcare providers to obtain reimbursement and remain in compliance with these
regulations. We offer outsourcing of these coding and related consulting
services to our clients.
6.2 Industry Overview and Competition
(A) The Market. An important trend in healthcare today is outsourcing of
various services. Hospitals and other healthcare providers are under increasing
pressure to reduce costs to maintain or increase profitability. Healthcare costs
in general are continually rising while consumers, Federal and state government
agencies demand increasing efficiency from healthcare providers. An additional
factor influencing this trend is the need of healthcare providers to ensure
compliance with Federal billing regulations and reduce liability for incorrect
coding. One means of addressing this demand is by outsourcing certain functions
that can be provided by independent third parties. Healthcare providers often
find that independent parties can provide services with more efficiency and
reduced cost.
An additional trend affecting this industry is the effort by the United
States Government to reduce healthcare fraud. An initiative by the Clinton
Administration has resulted in several high-profile actions against healthcare
providers for over-billing Medicare and Medicaid. Existing regulations also
provide substantial monetary penalties for errors in coding medical services.
For this reason, coding departments of healthcare providers are under increased
pressure to obtain accuracy in coding services.
Many hospitals have a substantial backlog of information waiting to be
coded due to their inability to find adequately trained personnel and to keep up
with demand. With the increased emphasis on profitability, healthcare providers
can no longer afford to retain an abundance of personnel. Unable to reduce staff
personnel below minimum levels required for direct patient care, many healthcare
providers reduce business office personnel to reduce overall costs. This has
created the need for outsourcing of many business office functions.
Our most important market is small to medium-sized hospitals located in
rural and small urban areas. As a general rule, these institutions cannot locate
or afford to pay, specialized personnel necessary to accurately code hospital
charts for reimbursement. These institutions often find it more economical and
efficient to retain outside coders to provide this service. Of approximately
5,700 acute healthcare facilities in the United States, we estimate that less
than 10% retain outside coding services. Little additional information is
available about this segment of the medical services industry, due to its
relatively recent development.
(B) Demographics. It is undisputed that the U.S. population is aging
rapidly. Members of the baby boom generation born after World War II have
reached middle age and are rapidly approaching retirement. In addition, life
15
<PAGE>
expectancy is increasing as healthcare and living habits of individuals improve.
These trends will result in increased healthcare and hospital demand for the
U.S. population in the future.
The following statistics illustrate the convergence of these trends:
Projected Life Expectancy at birth, 1999 to 2100*
- -------------------------------------------------
Male Female
---- ------
1999 74.1 79.8
2025 77.6 83.6
2050 81.2 86.7
2100 88.0 92.3
* Methodology and Assumptions for the Population Projections of the United
States: 1999 to 2100, Population Division Working Paper No. 38, U.S. Census
Bureau, Issued January 13, 2000.
POPULATION DISTRIBUTION AMONG AGES, 1990 - 1999
================================================================================
Population Mean Aged 65 percentage of Aged 85 percentage of
All ages* Age and over* population and over* population
- --------------------------------------------------------------------------------
1990 249,439 35.2 31,239 12.52 3059 1.23
1991 252,127 35.3 31,777 12.60 3189 1.26
1992 254,995 35.4 32,294 12.66 3315 1.30
1993 257,746 35.6 32,812 12.73 3446 1.34
1994 260,289 35.7 33,209 12.76 3562 1.35
1995 262,765 35.8 33,618 12.79 3684 1.40
1996 265,190 35.9 33,955 12.80 3800 1.43
1997 267,744 36.1 34,198 12.77 3919 1.46
1998 270,299 36.2 34,401 12.73 4054 1.50
1999 272,878 36.4 34,578 12.67 4184 1.53
*Numbers in thousands
**Source: Population Estimates Program, Population Division, U.S. Census Bureau
(C) Our Competition. Competition in the coding segment of the medical
services industry is poorly defined, due to the relatively new development of
this segment. Our most recognizable competition is from the existing medical
records department of clients and potential clients. We continually strive to
educate our clients and potential clients of the advantages of outsourcing the
coding function. We believe education is an important part of our marketing
function.
Among the industry participants who offer outsourcing of the medical
records function, participants include major accounting firms with specialty
departments and specialty coding services companies.
o Major accounting firms, such as Ernst and Young and Arthur Andersen,
are acquiring or developing coding departments within their overall
firm strategy. Their service is generally provided to existing
hospital clients as a supplement to other management services.
16
<PAGE>
o Specialty coding companies. Several medium to large participants exist
in the specialty coding segment of the medical services industry.
These include Laguna, MC Strategies and QuadraMed. Some of these
organizations provide on-site coding review and may be implementing
off-site coding. QuadraMed offers a wide variety of services,
including software development and integration, which is designed to
assist healthcare providers with the coding function, as well as their
overall business office functions. While these entities present
competition for our business, we believe the quality and variety of
our service gives us a competitive advantage. However, we may be at a
competitive disadvantage as a result of our limited financial
resources and personnel.
We believe our service of off-site coding assistance has major competitive
advantages compared to services offered by most of our competitors. These
advantages include minor on-site space or equipment requirements,
non-threatening relationship with medical records staff and immediate response.
These advantages, coupled with the experience and variety of service offered by
the Company, gives us what we believe to be a competitive advantage.
6.3 Operations.
(A) We operate primarily as an independent coding service. We operate as an
independent, third party service satisfying coding requirements for hospitals
and other healthcare providers. At the end of 1999, we had approximately 47
active clients in nine states. We offer a variety of services, primarily
independent coding of medical charts. While our executive offices are located in
Colorado, we maintain coders in approximately 9 states. A vast majority of our
coding service is provided off-site through qualified individuals employed by
us. The majority of our services are billed on a per-chart basis.
(B) We offer a variety of services. We offer healthcare providers a
reliable, quality alternative to in-house medical record department staffing
requirements. Coding is primarily an administrative function which many
healthcare providers find inefficient or uneconomical. However, these same
providers must comply with strict Federal, state and private regulations to
obtain reimbursement for services provided. Accordingly, we believe there is a
strong demand for our service.
Our services can generally be broken down into the following categories:
o Coding review. We review coding originally preformed by the healthcare
provider medical records department. Our qualified staff randomly
selects patient charts for review to determine the accuracy of
in-house coding. Specific documentation from each chart which has
previously been coded is reviewed by our personnel, and the results
relayed to the client within as little as 24 hours. In this capacity,
we act as a safety check and education tool for hospital records
departments. By providing this service, we believe we can increase
revenue to the client while reducing errors and potential penalties.
o Independent coding. We provide off-site, independent coding for
services provided by hospitals and other healthcare providers.
Services rendered to medical patients is initially recorded in a
narrative format and accumulated in a chart. In order for the
healthcare provider to be reimbursed for its service, the chart must
be converted to a coded format specified primarily by Federal law.
17
<PAGE>
Coding is required for inpatient treatment (where patients remain
overnight), outpatient services and emergency room treatment. In this
capacity, we may supplement the service of the provider's medical
records department on a temporary or permanent basis, or completely
replace in-house coders. We generally charge our clients on a
per-chart basis.
o Professional fee schedule review. We work with administrative staff in
a consulting capacity to review fees for emergency room services.
Because of our experience in the healthcare industry, we believe we
possess expertise in evaluating various charges for emergency room
services. Our goal is to increase the profitability and enhance
compliance of emergency room departments.
o Staffing. We assist healthcare providers with permanent or temporary
clerical staffing requirements. Due to our knowledge and contacts in
the industry, we maintain a database of qualified personnel to
alleviate staffing problems associated with clean-up or ongoing
projects. We believe this service provides an important supplement to
our independent coding services since some clients prefer to retain
the coding function in-house and hire our clerical personnel on a
temporary basis.
(C) How we operate. We derive a majority of our revenues from independent
coding services. We maintain electronic data connections between our clients and
our coding personnel. We receive patient charts via facsimile from our clients,
code the information and return the coded summary to them within as little as 24
hours. Our coding personnel are located in various states, often in home
offices, which allows them flexible working schedules and provides us access to
highly qualified personnel. We maintain the latest data transmission and
computer equipment, which is purchased or leased, depending on our working
capital and perceived cost savings.
We license a software package from a third-party provider that assists our
coding staff in converting the providers' medical chart information to
appropriate numerical codes. These codes are required by Medicare, Medicaid and
private insurance companies for reimbursement to the provider for medical
services provided. We entered into a Software Limited License Agreement on
December 4, 1997 and entered into an addendum to the Agreement December 13,
1999. The term of the Agreement is three years (December 13, 1999 through
December 13, 2002). We are charged annual license fees on a per-user basis,
which may be increased annually with proper notice from the licensor.
We randomly audit our employees' performance to insure quality standards.
Our coding supervisors periodically select random client charts for review.
Errors or inaccuracies are immediately reported to our employees and steps taken
to correct improper procedures. Due to the credentials and experience of our
employees and the results of our internal audit process, we believe we have an
extremely small margin of error.
Our coders are required to maintain current credentials with the American
Health Information Management Association or the American Academy of
Professional Coders, Registered Health Information Administrator, Registered
Health Information Technician, Certified Coding Specialist, Certified Coding
Specialist for Physician Offices, Certified Procedural Coder, or Certified
Procedural Coder for Hospitals. We require inpatient coders to have proof of at
least 5 years inpatient coding experience in a medium to large sized facility
18
<PAGE>
prior to employment. This provides the expertise needed to code high acuity
illness and invasive procedures often performed at large medical centers. We
also require each full-time coder to complete 10 hours of continuing education
credits each year pertaining specifically to coding.
In most cases, we are retained by our clients on an indefinite basis. This
means we may work with a client for one month or many years. While our
relationships may be terminated with little advance notice from our clients, we
believe the quality of our service will afford long working relationships. All
of our contracts are in writing, but may be terminated by either us or our
clients on short notice.
Our most important market is small to medium hospitals with less than 150
beds. Hospitals in these markets typically lack financial and other resources
sufficient to adequately staff medical records departments or simply cannot find
qualified people. We often work with hospital groups, such as Torch and Covenant
in Texas, Western Healthcare Alliance in Colorado and Tenet on a nationwide
basis. These hospitals are typically located in rural and small urban markets.
Two clients, Covenant Medical Center in Lubbock, Texas and Hillcrest Healthcare
Systems in Tulsa, Oklahoma, each account for more than 10% of our revenue.
(D) Our operating strategy. We try to be a leader in our segment of the
medical service industry through superior customer service and technological
innovation. Our goals are to enhance our clients' compliance with government
regulations regarding billing for medical services, and increase our clients'
profitability through efficient coding and increased reimbursement. Some clients
verify that the cost of our service can be wholly or partially recovered by the
increased revenues realized from more accurate coding. We emphasize the benefits
of outsourcing versus in-house coding by:
o Adhering to high professional service standards;
o Maintaining only highly qualified coding personnel;
o Educating our clients on accurate and complete coding; and
o Providing our services at a cost which is affordable to our clients.
We also try to increase customer satisfaction by offering a wide variety of
services. In addition to independent coding services, we offer coding review,
staffing and consulting services. We believe our clients view this as a turn-key
solution for an important administrative function.
In addition to offering a variety of services, we endeavor to offer a
coding solution which will address a variety of client needs. Our off-site
coding services may be used in the following situations:
o To temporarily replace the services of an absent staff member;
o As a permanent replacement to increase efficiency and accuracy and
decrease costs;
o To alleviate temporary back-logs; or
19
<PAGE>
o As a staffing solution to replace or supplement existing personnel.
Our service can therefore be viewed as a total solution for healthcare coding
requirements.
Our future strategy is to increase the number of clients we serve, and to
increase our services to each client. Numerous rural and community hospitals
operate throughout the United States with inadequately staffed coding
departments. We believe we can offer an excellent solution for their coding
requirements. As we continue to develop our coding expertise in smaller
hospitals, we hope to appeal to larger institutions, such as large urban
hospitals throughout the United States. Our existing clients are located in the
United States, primarily Texas, Oklahoma, California and Colorado. As our staff,
technologies and administrative functions increase, we hope to increase the
geographic scope of our markets.
By initially concentrating on the rural and community hospital market, we
believe we are positioning ourselves for long-term, steady growth. By continuing
to market our service to medium to large urban facilities, especially those in
more remote urban areas, we hope to grow more rapidly.
We believe our existing services will be adequate to sustain our growth for
the foreseeable future. However, as new opportunities come to our attention, we
will attempt to capitalize on additional revenue opportunities to accelerate
that growth.
6.4 Marketing.
Our marketing is conducted primarily through a staff managed by Bill
Cronin, Chairman of the Board and Chief Executive Officer. Mr. Cronin has
substantial experience in the medical services industry and enjoys an excellent
reputation. Our marketing department calls periodically on numerous individual
and group hospitals to acquaint them with our services. They also maintain
contact with existing clients to ensure satisfaction with our service.
To supplement the efforts of our employees, we also maintain various
marketing programs designed to acquaint healthcare providers with our services.
These include membership and participation in various industry related
associations, trade shows, public relations, print media and business
development. We maintain a database of prospective clients and endeavor to reach
provides through seminars, newsletters and targeted events. However, we believe
nothing contributes to our marketing more than the quality of service we provide
our clients.
We also receive numerous referrals from our existing clients by
word-of-mouth advertising. However, we expect our marketing efforts will
increase in the future as competition in our industry increases.
6.5 Compliance and Industry Regulation.
While we are not directly regulated, the health care industry and our
clients are heavily regulated by Federal and state law. On the Federal level,
the U.S. Department of Health and Human Services, through the Health Care
Finance Authority and the Office of the Inspector General, implement and enforce
regulations specifying, among other thing, uniform coding requirements and
strict billing guidelines for Medicare and Medicaid claims. The regulations
require that providers use standardized numerical codes and descriptive terms to
20
<PAGE>
report procedures and services provided. These regulations also impose
substantial penalties for over billing and other statutory violations.
HCFA can impose civil monetary penalties and additional assessments and may
exclude providers from participating in the Medicare and Medicaid programs for
certain specified time periods for violations of the regulations. The
assessments are additional monetary payments in lieu of damages sustained by the
government because of the claim. Maximum civil monetary penalties range up to
$10,000 per item or service in noncompliance, and assessments may be up to three
times the amount claimed for some violations. Additionally, a person who is
found guilty of committing Medicare fraud faces a host of different criminal,
civil and administrative sanctions. The regulations and the penalties are
directed at the health care providers, who directly provide the services and
submit the claims for payment.
State laws also govern health care providers. State regulations regarding
uniformity and submission of Medicaid claims are similar to the Federal
regulations.
Because the Company does not actually submit the claims, we do not believe
that the regulations directly affect us, but we must follow state and Federal
regulations in our coding practices, or face potential liability to our client.
In addition, because we bill on a flat fee per chart basis, we have no financial
incentive to overbill, specify higher cost codes or otherwise incorrectly code.
As our primary business is coding, our staff keeps abreast of the regulations
regarding coding, including the pronouncement of new and additional procedure
codes that are or will be required by providers. The coding staff is trained on
new legal coding requirements prior to the implementation of such requirements.
We believe that use of our services provide a valuable service to our
clients in keeping them in compliance with state and Federal regulations,
thereby lessening the likelihood of sanctions to the client. Because our clients
do not do the coding themselves, and we have no financial incentive to code
incorrectly, we believe the possibility of fraud is virtually eliminated.
6.6 Insurance
We presently maintain errors and omissions insurance on all of our coders
to insure against claims resulting from the coding process. This policy provides
protection in the amount of $1 million per claim and $3 million in the aggregate
for acts or omissions resulting from the coding process of our business. We
believe such policy to be sufficient for the needs of our company for the
foreseeable future.
6.7 Employees.
As of April 1, 2000, we employed 65 people, including full and part-time
employees. Of that amount, four are executive officers of the Company, four are
other management personnel, three are in sales, 31 are clerical level
individuals servicing our clients, 2 are administrative staff and 22 are coding
providers. Of the coding providers, 16 are employed on a full-time basis and the
remainder on a part-time basis. None of our employees are unionized and we
believe we enjoy excellent relations with our employees.
21
<PAGE>
6.8 Facilities.
Our executive and administrative headquarters are located in Monument,
Colorado, north of Colorado Springs, in office space leased from an unaffiliated
third party. We occupy approximately 2,000 square feet of office space which
serves our executive officers, billing, bookkeeping and certain other
administrative functions. The space is leased for a period lasting until March,
2002. The remainder of our employees are located on site at various client
locations or in home offices throughout the United States.
Due to the substantial growth we realized during the recent years, we have
leased new premises commencing June 1, 2000. This space, located at 1824
Woodmore Drive, Suite 102, Monument, CO 80132, is in close proximity to our
existing space and provides additional facilities for our employees. The new
lease covers approximately 3,400 square feet and extends for a period of three
years. Total annual rent for the 12 month period beginning June 1, 2000 is
$47,096, escalating to $48,778 for the second year and $50,460 for the third
year, each payable in monthly installments. The lease also provides for payment
of our pro rata share of real estate taxes, insurance, utilities and other
operating expenses. We believe this new space will be adequate for our needs for
the foreseeable future.
6.9 Legal Matters.
No lawsuits are pending, or to our knowledge, threatened against the
Company or any of our officers or directors in their capacities as such.
7 OUR MANAGEMENT
7.1 Our Directors and Executive Officers
Our board of directors includes 4 members, all of whom are officers of our
Company.
<TABLE>
<CAPTION>
Name Position Biographical Information
- ---- -------- ------------------------
<S> <C> <C>
William D. Cronin Chairman of the Board and Mr.Cronin, who is 42 years of age, has been
Chief Executive Officer our Chairman and Chief Executive Officer
since the Company was merged with MedGrup
Development Services in 1999. Prior to
that, he was the president and founder of
MedGrup Development Services, a position he
occupied since 1995. Prior to that, he
spent over 15 years in engineering and
related sales and marketing. From 1993 to
1994, he was a vice president and business
unit manager for Automatic Building
Controls, a privately-held company engaged
in engineering services. Mr. Cronin is a
graduate of the Bolton Street College of
Engineering in Dublin, Ireland.
22
<PAGE>
Terry J. Holmes President and Director Mr. Holmes, 45, joined the Company as
President on February 14, 2000. From June,
1995 through September, 1999, he worked for
American Telecasting, Inc., first as vice
president of operations and later senior
vice president. American Telecasting was a
publicly-traded entity engaged in the
wireless communications industry. Sprint
Corporation acquired it in September, 1999.
From March, 1991 to June, 1995, Mr. Holmes
worked as the general manager of Fresno
MMDS Associates, a privately held
business operating a wireless cable
system in central California.
Margaret M. Cronin Vice President - Finance, Ms. Cronin, who is 42 years old, became
Treasurer, Secretary and Vice President, Treasurer and a Director of
Director MedGrup Development Services in August,
1998 and assumed those positions with the
Company following the merger in May, 1999.
Prior to those positions, she functioned as
the office manager of MedGrup Development
Services since approximately March, 1997.
Prior to her association with the Company
and its predecessor, she worked as a senior
financial analyst for Texaco Corporation in
a Texas office. Ms. Cronin graduated from
the Illinois State University with a
Bachelors of Business Administration in
1979.
Gary B. Mendenhall Vice President - Operations, Mr. Mendenhall, who is 41 years old, joined
Chief Operating Officer the Company in his current capacity in
and Director February, 1999. Prior to that, he was the
director of international event marketing
for Meckler Media/Penton Media, a
publicly-traded company, where he was
responsible for internet world trade shows
in 32 countries. Mr. Mendenhall occupied
that position from January, 1998 until
February, 1999. From October, 1994 to
December, 1997, he was the manager of
international event marketing for Softbank
Comdex, a publicly-traded entity. He is a
1981 graduate of the University of Michigan
School of Engineering.
23
</TABLE>
<PAGE>
Margaret Cronin is the wife of William Cronin and Gary Mendenhall is the
brother-in-law of William Cronin. No other family relationship exists between
any of the officers or directors of the Company.
Directors hold office until the next annual meeting of shareholders and
until their successors are duly elected and qualified. Officers are appointed by
the Board of Directors and serve at the pleasure of the Board of Directors.
7.2 Committees of the Board of Directors.
The Board of Directors is not presently comprised of any committees.
Rather, the entire Board considers all matters presented for consideration.
However, the Board may appoint an audit, compensation or such other committees
as it deems appropriate in the future.
7.3 Director Compensation.
None of the Directors receive any additional compensation for their
services as Directors.
7.4 Executive Compensation
The following table sets forth the compensation paid, or to be paid, by the
Company for services rendered during the fiscal year ended December 31, 1998 and
1999, to (a) the Chief Executive Officer of the Company, and (b) each of the
four most highly compensated executive officers who served as executive officers
at the end of the last fiscal year and whose total annual salary and bonus
exceeded or may exceed $100,000.
Summary Compensation
--------------------
Long-term Compensation
Year Ended Securities Underlying
Name December 31, Salary Options
- --------------------------------------------------------------------------------
William D. Cronin, Chief 1999(1) $72,500
Executive Officer and 1998 -0-
Chairman of the Board
Bruce A. Capra(2) 1999 -0-
1998 -0-
Gary B. Mendenhall, Vice 1999 56,500 250,000(3)
President and Chief Operating 1998 -0-
Officer
- ------------------------------
(1) Excludes 3,154,000 shares of common stock issued to Mr. Cronin in
connection with the merger with MedGrup Development Services, Inc.. See "Certain
transactions with related parties."
(2) Mr. Capra served as the president and chief executive officer of the
Company until its merger with MedGrup Development Services in May, 1999.
(3) Excludes an additional 250,000 shares of our stock underlying options
issued to the named executive officer but not yet vested.
- ------------------------------
24
<PAGE>
<TABLE>
<CAPTION>
Option/SAR Grants in Last Fiscal Year
(Individual Grants)
- ----------------------------------------------------------------------------------------
Name Number of Percent of total Exercise or Expiration
Securities options/SARs granted base price date
Underlying to employees in fiscal ($/Sh)
Options/SARs 1999
Granted (#)
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gary B. Mendenhall 500,000(1) 71% $1.00 May 26, 2006
</TABLE>
- -------------------------------
(1) A total of 250,000 of these options are presently vested; 60,000
additional options vest when the Company's stock price reaches $2 per share;
60,000 additional options vest when the Company's stock price reaches $3 per
share; 60,000 additional options vest when the Company's stock price reaches $4
per share and 70,000 options vest when the Company's stock price reaches $5 per
share. For purposes of this vesting provision, the share price will be measured
based upon the average of the mean between the closing bid and the asked prices
during the preceding 30 calendar days.
- -------------------------------
Fiscal Year End Option Value
Number of Shares
Underlying Unexercised Value of Unexercised
Options at FY-End Options at FY-End
Exercisable/Unexercisable Exercisable/Unexercisable
------------------------- -------------------------
Gary B. Mendenhall 250,000/250,000 $187,500/$187,500(1)
- -------------------------------
(1) Based upon the mean between the closing bid and asked prices of our
common stock on April 24, 2000.
- -------------------------------
7.5 Employment Contracts.
Each of Messrs. Cronin, Holmes and Mendenhall and Mrs. Cronin serve the
Company pursuant to written employment contracts. The agreements with Mr. and
Mrs. Cronin and Mr. Mendenhall were effective January 1, 2000, each for a three
year term. Mr. Holmes serves under a three-year agreement that commenced
February 14, 2000. All of the agreements provide for automatic one-year renewals
after the original term unless notice of nonrenewal is given prior to
expiration. Each agreement provides for base compensation with a minimum 5%
annual increase, discretionary bonuses or incentive compensation, participation
in employee benefit plans, and reimbursement of expenses incurred on the
Company's behalf. Mr. Cronin's initial base salary is $105,000 per annum, Mr.
Holmes' base salary is $80,000, and Mrs. Cronin and Mr. Mendenhall are each
compensated $78,000. In addition, Mr. Holmes has been granted 500,000 stock
options which vest at a rate of 83,333 every six months as long as he remains
25
<PAGE>
employed by the Company. The agreements also provide for either a company
vehicle or $700 per month car allowance, and each individual is also entitled to
a severance package which, under certain conditions of termination, may entitle
him or her to one year's base salary and benefits.
7.6 Qualified Stock Option Plan.
1999 Incentive Stock Option Plan. Our 1999 Incentive Stock Option Plan (the
"Plan") provides for the granting of stock options for up to 1,500,000 shares of
our common stock to our executive officers and other employees. The plan also
permits the granting of non-qualified options to persons who are not employees
of the Company but none-the-less provide valuable service to the Company.
Currently, the Board of Directors administers the Plan, but the Plan permits a
Compensation Committee to administer it. The Board of Directors has the sole
discretion to determine eligibility of persons to receive incentive stock
options, as well as the amounts, terms and conditions of the granting of
options. Our shareholders have approved this plan.
The stock-option grants under the Plan have various vesting schedules,
including partial vesting immediately upon date of the grant, partial quarterly
automatic vesting, quarterly vesting based upon the occurrence of certain
events, vesting on a date certain, vesting on the one year anniversary date of
the grant or some combination thereof. Early vesting of all or part of the
unvested options may occur upon certain events, including retirement or
permanent disability of the employee, dissolution, liquidation, reorganization,
merger or consolidation of the Company, or upon sale of all or substantially all
of the property of the Company. The options expire seven years after the date of
the grant.
Options to purchase 1,391,293 shares of our common stock were granted as of
March 31, 2000, 1,000,000 of which were made to our directors or executive
officers. As of March 31, 2000, 108,707 shares of common stock remain available
for new option grants under this Plan. The Company intends to ask its
shareholders to increase the number of shares available for grants under the
Plan at its next regularly scheduled shareholders' meeting in 2001. As of March
31, 2000, options for 294,293 shares of common stock have vested, and no shares
have been acquired on exercise of options. The exercise price of the options
ranges from $1.00 per share to $1.50 per share.
7.7 Transactions with related parties.
(A) Merger with MedGrup Development Services, Inc. Effective May 12, 1999,
the assets and liabilities of MedGrup Development Services, Inc. were merged
into our company, and we commenced operation as MedGrup Corporation. In
connection with this merger, we split our stock such that every two shares
outstanding prior to the merger were converted into one share at the effective
date. Prior to the merger, MedGrup Development Services, Inc. was a Colorado
corporation owned entirely by Bill and Margaret Cronin. In connection with the
merger, we issued 3,154,000 shares of our common stock to Mr. Cronin and 631,000
shares to Mrs. Cronin.
Also in connection with the merger, we transferred our assets and
liabilities existing prior to the effective date to former officers and
directors. We assigned assets consisting of art inventory and valued at $2,765
for purposes of that transaction were assigned to Bruce Capra, former president,
chief executive officer and director of the Company, in consideration of his
26
<PAGE>
surrendering 125,000 shares of our common stock to us. We assigned assets
consisting of a computer and cash valued at $11,223 for purposes of the
transaction to Scott Thornock, former vice president and director of the
Company, in consideration of his assuming and agreeing to pay all of the
liabilities which existed prior to the merger. The Board of Directors of our
company as then constituted considered the foregoing transactions to be no less
favorable than could have been obtained from unaffiliated third parties.
(B) Other related transactions. In connection with the initial
capitalization of our company, Messrs. Thornock and Capra acquired a total of
900,000 shares of our common stock. Mr. Thornock acquired a total of 630,000
shares for a price of $.002 per share or a total of $1,260, and Mr. Capra
acquired a total of 270,000 shares for the same price per share or $540. The
shares issued to Messrs. Thornock and Capra on June 30, 1998 were issued in
consideration for services rendered to the Company.
In conjunction with a subsequent financing conducted by us in April, 1999,
Messrs. Thornock and Capra acquired stock upon the same terms and conditions as
other purchasers in the offering. Mr. Thornock acquired 35,000 shares of common
stock for a price of $.05 per share, or a total of $1,750 and Mr. Capra acquired
30,000 shares for a purchase price of $1,500. Messrs. Thornock and Capra were
the only members of the Board of Directors participating in the decision to
issue those shares on behalf of the Company.
In July, 1998, prior to the merger, we entered into a consulting agreement
with Scott Thornock whereby he agreed to provide business consulting services to
the Company. The services consisted of advice regarding refinement and
implementation of our business plan, consultation regarding corporate financing
and other management services. Mr. Thornock was paid a total of $20,000 for
those services.
During the year ended December 31, 1999, we repaid advances received from
Bill Cronin, Chairman of the Board and Chief Executive Officer, totaling
$10,287. Furthermore, prior to termination of its status as an "S" corporation
for Federal income tax purposes, we recorded a distribution payable of $100,000
to Bill and Margaret Cronin, shareholders of MedGrup Development Services. At
December 31, 1999, the $100,000 had not been paid, and is accordingly recorded
as a liability due to a related party.
7.8 Reports to shareholders.
Effective with the date of this prospectus, we registered our common stock
under the Securities Exchange Act of 1934. As a result, we will file periodic
reports and proxy statements with the SEC. We will send an annual report
containing financial statements audited by our independent accountants to
shareholders in conjunction with each annual meeting of shareholders. We may
also deliver quarterly and other reports to our shareholders as the Board of
Directors deems appropriate.
8 PRINCIPAL STOCKHOLDERS
The following table sets forth certain information known to us regarding
beneficial ownership of our common stock at the date of this prospectus and as
adjusted to reflect the sale of the shares of common stock in this offering by:
27
<PAGE>
o each person known by us to be the beneficial owner of more than 5% of
our common stock;
o each of our executive officers;
o each of our directors;
o all selling stockholders; and
o all executive officers and directors as a group.
Unless otherwise indicated, to our knowledge, each stockholder possesses
sole voting and investment power over the shares listed, except for shares owned
jointly with that person's spouse.
The percentage of common stock owned by individuals or entities described
in the table is based on 5,535,000 shares of common stock outstanding as of the
date of this prospectus. For purposes of calculating each person's or entity's
percentage ownership, stock options or warrants exercisable within 60 days of
the date of this prospectus are included for that person or entity, but not the
stock options or warrants of any other person or entity.
Unless otherwise stated, the current address for each beneficial owner is
that of the Company, 1880 Willow Park Way, Suite B, Monument, Colorado
80132-9086.
<TABLE>
<CAPTION>
Shares Beneficially
Owned
Before the Offering Percentage
Name and address of ------------------- Shares To After the
Beneficial Owner Number Percentage Be Sold(1) Offering(1)
- ---------------- ------ ---------- ---------- -----------
<S> <C> <C> <C> <C>
Executive Officers and Directors
- --------------------------------
William D. Cronin 3,205,500 57.91% 57.91%
Margaret M. Cronin(2) 631,000 11.40% 11.40%
Gary B. Mendenhall(3) 260,000 4.49% 4.49%
Terry Holmes(4, 5) 42,250 * 25,000 *
All Directors and Executive
Officers as a Group (4 individuals) 4,138,750 71.54% 71.11%
All Selling Shareholders(5)
- ---------------------------
Kashner Davidson Securities, Inc.(6) 120,000 2.17% 120,000 -0-
77 South Palm Avenue
Sarasota, FL 34236
Donal Finnegan 10,000 * 10,000 -0-
36A Woodlands Road
Dun Laolre
Dublin, Ireland
Douglas J. Fleming 100,000 1.81% 100,000 -0-
6900 SW Oleson Road
Portland, OR 97223
28
<PAGE>
Shares Beneficially
Owned
Before the Offering Percentage
Name and address of ------------------- Shares To After the
Beneficial Owner Number Percentage Be Sold(1) Offering(1)
- ---------------- ------ ---------- ---------- -----------
Frank P. Cassano 25,000 * 25,000 -0-
17545 McCarron Road
Lockport, IL 60441
Thomas Vickers 35,000 * 35,000 -0-
6025 S. Quebec, Suite 150
Englewood, CO 80111
James E. Hosch 20,000 * 20,000 -0-
7038 Willa Lane
Evergreen, CO 80439
Steven M. Bathgate 20,000 * 20,000 -0-
6376 E. Tufts Avenue
Englewood, CO 80111
Eugene C. McColley 20,000 * 20,000 -0-
C/0 Bathgate McColley
5350 S. Roslyn Street, Suite 380
Englewood, CO 80111
Paul H. Dragul, M.D. 17,500 * 17,500 -0-
22 Blue Heron Drive
Littleton, CO 80121
Greg Fulton 27,500 * 27,500 -0-
5520 S. Newport Street
Greenwood Village, CO 80111
Alpha International, Ltd. 75,000 1.35% 75,000 -0-
C/O Charlotte House
Charlotte Street
Nassau Bahamas
Dermot Walsh(7) 110,000 1.99% 110,000 -0-
49 Dawson Street
Dublin, Ireland
Elizabeth W. Murdaugh 30,000 * 30,000 -0-
580 Silhouette Way
Monument, CO 80132
Bryan H. Scott 25,000 * 25,000 -0-
4893 Shadow Ridge Road
Castle Rock. CO 80104
Rodney L. Rich 25,000 * 25,000 -0-
P.O. Box 12624
Pensacola, Fl 32574
Oliver A. Conrads(8) 45,000 * 45,000 -0-
2511 Autumn Shore Circle
Katy, TX 77450
Brent Henshaw 25,000 * 25,000 -0-
4825 E. Kansas Drive
Denver, CO 80222
29
<PAGE>
Shares Beneficially
Owned
Before the Offering Percentage
Name and address of ------------------- Shares To After the
Beneficial Owner Number Percentage Be Sold(1) Offering(1)
- ---------------- ------ ---------- ---------- -----------
Gary E. Markman 50,000 * 50,000 -0-
424 Charles Lane
Wynnewood, PA 19096
Kieron Cronin(9) 60,000 1.08% 60,000 -0-
42 Glenlawn Drive
The Park Cabinteely
Dublin, Ireland
- -----------------------------
</TABLE>
*Less than 1%.
(1) Assumes sale of all shares included in this prospectus, of which there
is no assurance.
(2) Margaret Cronin is the wife of William Cronin. Each individual
disclaims beneficial ownership of shares owned by his or her spouse.
(3) Includes 250,000 shares immediately issuable upon exercise of an option
at a purchase price of $1 per share until 2006. Excludes an additional 250,000
shares underlying an option which are not yet vested.
(4) Excludes 500,000 shares issuable upon exercise of an option at a
purchase price of $1.31 per share. This option vests in equal, semiannual
installments of 83,333.4 shares beginning with the six month anniversary of Mr.
Holmes employment (August 14, 2000), and continuing each six month interval
thereafter.
(5) Unless otherwise stated, all shares offered by the selling shareholders
were acquired in a private placement conducted by the Company and completed in
January, 2000.
(6) Consists of 120,000 shares issuable upon exercise of a warrant at a
purchase price of $1.10 per share until September 3, 2004. The warrant was
issued as compensation in connection with the private placement conducted by the
Company and completed in January, 2000.
(7) Includes 60,000 shares acquired by the selling shareholder in exchange
for cancellation of a promissory note payable by the Company.
(8) Includes 25,000 shares acquired by the selling shareholder in exchange
for cancellation of a promissory note payable by the Company.
(9) Consists of 60,000 shares acquired by the selling shareholder in
exchange for cancellation of a promissory note payable by the Company.
- -----------------------------
30
<PAGE>
9 DESCRIPTION OF OUR CAPITAL STOCK
9.1 In General
Our articles of incorporation provide that we may issue up to 50,000,000
shares of common stock. As of March 20, 2000, we had 50 shareholders of record
with a total of 5,535,000 shares of common stock outstanding. We do not have any
shares of preferred stock outstanding.
9.2 Common Stock
Each outstanding share of common stock is entitled to one vote on all
matters to be submitted to a vote of the shareholders. Holders do not have
preemptive rights, so we may issue additional shares that may reduce each
holder's voting and financial interest in our company. Cumulative voting does
not apply in the election of our directors, so holders of a simple majority of
the shares voted at a meeting at which a quorum is present can elect all of the
directors to be elected at that meeting. The right of holders of our common
stock to receive dividends may be restricted by the terms of any shares of our
preferred stock issued in the future. If we were to liquidate, dissolve, or wind
up our affairs, holders of common stock would share proportionally in our assets
that remain after payment of all of our debts and obligations and after any
liquidation payments with respect to preferred stock.
9.3 Our Transfer Agent
The transfer agent for our common stock is Corporate Stock Transfer, Inc.
Its address is 3200 Cherry Creek Drive South, Suite 430, Denver, CO 80202-4616,
and its telephone number is (303) 282-4800.
9.4 Certain provisions of our Articles of Incorporation.
Pursuant to provisions of our Articles of Incorporation, cumulative voting
is not permitted in the election of directors. As a result, a simple majority of
the shares outstanding and entitled to vote at a meeting at which a quorum of
shares is present can elect our entire Board of Directors. This provision will
have the effect of limiting any voice which purchasers of our common stock may
have in the affairs of the Company.
Shareholders of our company are not entitled to preemptive rights with
regard to any of our common stock. As a result, we can issue common stock to
third parities in the future which would have the effect of diluting a
shareholder's interest in the Company.
9.5 Limitation of director liability and indemnification.
(A) Director liability. Under provisions of our Articles of Incorporation
and Colorado statutes, we shall eliminate or limit the personal liability of our
directors to our shareholders for monetary damages for breach of fiduciary duty.
This limitation shall not apply for monetary damages for any breach by a
director in the following circumstances:
(1) for a breach of a director's duty of loyalty to the Corporation or its
shareholders;
31
<PAGE>
(2) for acts or omissions committed by the director not in good faith or
which involve intentional misconduct or knowing violation of law;
(3) an unlawful distribution authorized by a director; or
(4) any transaction from which a director directly or indirectly derived
an improper personal benefit.
(B) Director indemnification. Also under provisions of our Articles of
Incorporation and Colorado statutes, we may indemnify a person made a party to a
proceeding because the person is or was an officer, director or agent if:
(1) the person conducted himself or herself in good faith; and
(i) the person reasonably believed:
(a) in the case of conduct in an official capacity, that his or
her conduct was in our best interests; and
(b) in all other cases, that his or her conduct was at least not
opposed to our best interests; and
(ii) in the case of a criminal proceeding, the person had no
reasonable cause to believe that his or her conduct was unlawful.
However, we may not indemnify an individual in connection with any
proceeding by or in our right in which the individual is adjudged liable to us
or in any proceeding charging that such individual derived a personal benefit or
in which proceeding the individual was adjudged liable on the basis that he or
she derived an improper personal benefit.
We must also indemnify such a person who was successful in defending
himself or herself against reasonable expenses incurred by him or her in
connection with that proceeding. We may also advance expenses to persons under
certain circumstances. The determination of whether an individual is entitled to
indemnification may not be made until a determination has been made that the
individual met the standards of conduct set forth above. This determination
shall be made by the Board of Directors at a meeting at which a quorum is
present and only those directors not party to the proceeding are counted in
satisfying the quorum, by a committee of the Board of Directors consisting of
two or more parties not parties to the proceeding, independent legal counsel, by
the shareholders or by a court.
In the event that a claim for indemnification against liabilities under the
Securities Act (other than the payment of expenses incurred or paid by such
individual in the successful defense of any action, suit or proceeding) is
asserted by such a person in connections with the securities in this prospectus,
we will, unless in the opinion of our counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by us is against public policy as
expressed in such Act and will be governed by the final adjudication of such
issue.
32
<PAGE>
10 SHARES ELIGIBLE FOR FUTURE SALE
10.1 In General
We will have a total of 5,655,000 shares of common stock outstanding,
assuming the sale of all common stock included in this prospectus, of which
there is no assurance. Of these shares, 1,145,000 will be freely tradable
without restriction or further registration under the Securities Act.
10.2 Sales of restricted Shares
(A) In General. The remaining 4,510,000 shares of common stock are
"restricted securities" as defined in Rule 144. Restricted securities may be
sold in the public market only if they are registered or if they qualify for an
exemption from registration under the Securities Act. Additional shares of
common stock will be available for sale in the public market (subject in the
case of shares held by affiliates to compliance with certain volume
restrictions) as follows:
(B) Who can sell.
(1) In general. Under Rule 144 a person (or persons whose shares are
aggregated), including an affiliate, who has beneficially owned shares for
at least one year can sell, within any three-month period beginning 90 days
after the date of this prospectus, a number of shares of common stock that
does not exceed the greater of:
(a) 1% of the then outstanding shares of common stock (about 56,500 shares
immediately after the offering); or
(b) the average weekly trading volume in the common stock during the four
calendar weeks before notice of Rule 144 sale is filed, subject to
certain restrictions.
(2) No volume limits. In addition, any person not deemed to have been our
affiliate at any time during the 90 days before a sale and who has
beneficially owned the shares proposed to be sold for at least two years
may sell those shares under Rule 144(k) without regard to the volume limits
described above.
10.3 Effect of Sales of Shares
Before the offering, there has been a limited public market for the common
stock, and no precise prediction can be made about any effect that market sales
of common stock or the availability for sale of common stock will have on the
market price of the common stock. Nevertheless, sale of substantial amounts of
common stock in the public market could adversely affect prevailing market
prices and could impair our future ability to raise capital through the sale of
our equity securities.
11 PLAN OF DISTRIBUTION
We are registering the shares of common stock covered hereby on behalf of
the Selling Stockholders. The Selling Stockholders, purchasers or other
recipients, may sell the shares directly or through brokers, dealers, agents or
underwriters who may receive compensation in the form of discounts, commissions
33
<PAGE>
or similar selling expenses. Such compensation will be paid by a Selling
Stockholder or by a purchaser of the shares on whose behalf such broker-dealer
may act as agent. Sales and transfers of the shares may be effected from time to
time in one or more transactions, in private or public transactions, in the
over-the-counter market, in negotiated transactions or otherwise, at a fixed
price or prices that may be changed, at market prices prevailing at the time of
sale, at negotiated prices, without consideration or by any other legally
available means.
Any or all of the shares may be sold from time to time by means of (i) a
block trade, in which a broker or dealer attempts to sell the shares as agent
but may position and resell a portion of the shares as principal to facilitate
the transaction; (ii) purchases by a broker or dealer as principal and the
subsequent sale by such broker or dealer for its account pursuant to this
prospectus; (iii) ordinary brokerage transactions (which may include long or
short sales) and transactions in which the broker solicits purchasers; (iv) the
writing (sale) of put or call options on the shares; (v) the pledging of the
shares as collateral to secure loans, credit or other financing arrangements
and, upon any subsequent foreclosure, the disposition of the shares by the
lender thereunder; and (vi) any other legally available means.
To the extent required with respect to a particular offer or sale of the
shares, a prospectus supplement will be filed pursuant to Section 424(b)(3) of
the Securities Act, and will accompany this prospectus, to disclose (i) the
number of shares to be sold, (ii) the purchase price, (iii) the name of any
broker, dealer or agent effecting the sale or transfer and the amount of any
applicable discounts, commissions or similar selling expenses, and (iv) any
other relevant information.
The Selling Stockholders may transfer the shares by means of gifts,
donations and contributions. This prospectus may be used by the recipients of
such gifts, donations and contributions to offer and sell the shares received by
them, directly or through brokers, dealers or agents and in private or public
transactions; however, if sales pursuant to this prospectus by any such
recipient could exceed 500 shares, than a prospectus supplement would need to be
filed pursuant to Section 424(b)(3) of the Securities Act to identify the
recipient as a Selling Stockholder and disclose any other relevant information.
Such prospectus supplement would be required to be delivered, together with this
prospectus, to any purchaser of such shares.
In connection with distributions of the shares or otherwise, the Selling
Stockholders may enter into hedging transactions with brokers, dealers or other
financial institutions. In connection with such transactions, brokers, dealers
or other financial institutions may engage in short sales of our common stock in
the course of hedging the positions they assume with Selling Stockholders. To
the extent permitted by applicable law, the Selling Stockholders also may sell
the shares short and redeliver the shares to close out such short positions.
The Selling Stockholders and any broker-dealers who participate in the
distribution of the shares may be deemed to be "underwriters" within the meaning
of Sections 2(11) of the Securities Act and any discounts, commissions or
similar selling expenses they receive and any profit on the resale of the shares
purchased by them may be deemed to be underwriting commissions or discounts
under the Securities Act.
As a result, we have informed the Selling Stockholders that Regulation M,
promulgated under the Exchange Act, may apply to sales by the Selling
Stockholders in the market. The Selling Stockholders may agree to indemnify any
broker, dealer or agent that participates in transactions involving the sale of
34
<PAGE>
the shares against certain liabilities, including liabilities arising under the
Securities Act. The aggregate net proceeds to the Selling Stockholders from the
sale of the shares will be the purchase price of such shares less any discounts,
concessions or commissions.
Each of the Selling Stockholders is acting independently of us in making
decisions with respect to the timing, price, manner and size of each with the
distribution of the shares. There is no assurance, therefore, that the Selling
Stockholders will sell any or all of the shares. In connection with the offer
and sale of the shares, we have agreed to make available to the Selling
Stockholders copies of this prospectus and any applicable prospectus supplement
and have informed the Selling Stockholders of the need to deliver copies of this
prospectus and any applicable prospectus supplement to purchasers at or prior to
the time of any sale of the shares offered hereby.
The shares covered by this prospectus may qualify for sale pursuant to
Section 4(1) of the Securities Act or Rule 144 promulgated thereunder, and may
be sold pursuant to such provisions rather than pursuant to this prospectus.
We will not receive any proceeds from the sale of the shares covered by
this prospectus and have agreed to pay all of the expenses incident to the
registration of the shares, other than discounts and selling concessions or
commissions, if any, and fees and expenses of counsel for the Selling
Stockholders, if any.
12 LEGAL MATTERS
We are being advised on the legality of the shares included in this
prospectus by Overton, Babiarz & Associates, P.C. of Englewood, Colorado.
Entities associated with a principal of that firm own an aggregate of 15,000
shares of our common stock.
13 EXPERTS
Our financial statements and related schedules as of December 31, 1999 and
for each of the years in the two year period ended December 31, 1999 included in
this prospectus and elsewhere in the registration statement, have been included
in reliance on the report of Cordovano & Harvey, P.C., our independent certified
public accountants. These financial statements have been included on the
authority of that firm as experts in accounting and auditing.
14 ADDITIONAL INFORMATION
We have filed our Form SB-2 registration statement with the SEC. This
prospectus does not contain all the information set forth in the registration
statement. You'll find additional information about us and our common stock in
the registration statement. For example, in this prospectus we've summarized or
referred to some contracts, agreements, and other documents that have been filed
as exhibits to the registration statement. You may inspect he registration
statement, including its exhibits and schedules, without charge at the SEC's
principal office at 450 Fifth Street, N.W., Washington, D.C. 20549 and at its
regional offices located at 7 World Trade Center, New York, NY 10007 and 500
West Madison Street, Suite 1400, Chicago, IL 60661, and you may obtain copies
35
<PAGE>
from those offices, upon payment of the applicable fees. You may call the SEC at
1-800-SEC-0030 for further information on the operation of public reference
rooms and you can request copies of the documents by writing to the SEC. The
registration statement, including its exhibits and schedules, are also available
on the SEC's website at www.sec.gov.
Prospective investors may rely only on the information contained in this
prospectus. This prospectus isn't an offer to sell to - nor is it seeking an
offer to buy these securities from - any person in any jurisdiction in which it
is illegal to make an offer or solicitation. The information here is correct
only on the date of this prospectus, regardless of the time of the delivery of
this prospectus or any sale of these securities.
No action is being taken in any jurisdiction outside the United States to
permit a public offering of the common stock or possession or distribution of
this prospectus. Persons who come into possession of this prospectus in
jurisdictions outside the United States must inform themselves about and observe
any restrictions on this offering and on the distribution of this prospectus in
that jurisdiction.
36
<PAGE>
MEDGRUP CORPORATION
-------------------
(Formerly Medgrup Development Services, Inc.)
Page
----
Independent auditors' report............................................... F-2
Balance sheet as of December 31, 1999...................................... F-3
Statements of operations, for the years ended December 31, 1999 and 1998... F-4
Statement of shareholders' equity, for the period January 1, 1998
through December 31, 1999................................................ F-5
Statements of cash flows, for the years ended December 31, 1999 and 1998... F-6
Notes to financial statements.............................................. F-7
F-1
<PAGE>
To the Board of Directors and Shareholders
Medgrup Corporation
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying balance sheet of Medgrup Corporation as of
December 31, 1999 and the related statements of operations, shareholders' equity
and cash flows for the years ended December 31, 1999 and 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Medgrup Corporation, as of
December 31, 1999 and the results of its operations and cash flows for the years
ended December 31, 1999 and 1998, in conformity with generally accepted
accounting principles.
/s/ Cordovano and Harvey, P.C.
- ------------------------------
Cordovano and Harvey, P.C.
Denver, Colorado
January 31, 2000
F-2
<PAGE>
<TABLE>
<CAPTION>
MEDGRUP CORPORATION
-------------------
(Formerly Medgrup Development Services, Inc.)
BALANCE SHEET
DECEMBER 31, 1999
ASSETS
CURRENT ASSETS
<S> <C>
Cash ........................................................... $ 182,443
Accounts receivable, net of $54,685 allowance .................. 665,783
Prepaid expenses ............................................... 12,176
----------
TOTAL CURRENT ASSETS 860,402
PROPERTY AND EQUIPMENT, net of
accumulated depreciation of $81,644 (Note C) ................... 343,683
DEPOSITS ............................................................. 1,300
----------
$1,205,385
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable, trade ........................................ $ 44,498
Due to related party (Note B) ................................. 100,000
Other accrued expenses ......................................... 29,691
Accrued salaries and payroll taxes ............................. 60,420
Income taxes payable ........................................... 507
Current portion of note payable (Note D) ....................... 5,747
Current portion of capital leases payable (Note D) ............ 58,338
----------
TOTAL CURRENT LIABILITIES 299,201
NOTE PAYABLE (Note D) ............................................... 10,919
CAPITAL LEASES PAYABLE (Note D) ..................................... 75,130
DEFERRED INCOME TAXES (Note F) ....................................... 9,047
COMMITMENTS (Note H) ................................................. --
----------
394,297
SHAREHOLDERS' EQUITY
Common stock, $.001 par value; 50,000,000 shares authorized;
5,320,000 shares issued and outstanding ...................... 5,320
77,000 outstanding common stock warrants ..................... 27,104
15,293 outstanding common stock options ...................... 4,634
Additional paid in capital ..................................... 619,803
Retained earnings .............................................. 154,227
----------
TOTAL SHAREHOLDERS' EQUITY 811,088
----------
$1,205,385
==========
See accompanying notes to the financial statements
F-3
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MEDGRUP CORPORATION
-------------------
(Formerly Medgrup Development Services, Inc.)
STATEMENTS OF OPERATIONS
For the Years Ended December 31,
--------------------------------
1999 1998
----------- -----------
REVENUES
<S> <C> <C>
Coding services ................................ $ 1,651,439 $ 951,910
Other .......................................... 335,157 28,521
----------- -----------
TOTAL REVENUES 1,986,596 980,431
----------- -----------
COSTS AND EXPENSES
Cost of revenue ................................ 799,640 251,850
Stock based compensation, coding services ...... 4,634 --
Provision for doubtful accounts ................ 39,136 7,184
General and administrative ..................... 833,033 511,950
Depreciation ................................... 57,820 13,477
Gain on disposal of assets ..................... (2,283) --
----------- -----------
TOTAL OPERATING EXPENSES 1,731,980 784,461
----------- -----------
OPERATING INCOME 254,616 195,970
OTHER INCOME (EXPENSE)
Interest expense ............................... (14,912) (701)
Other income ................................... 1,500 --
----------- -----------
NET INCOME BEFORE INCOME TAXES $ 241,204 $ 195,269
INCOME TAXES (NOTE F)
Current tax expense ............................ (507) --
Deferred tax expense ........................... (9,047) --
----------- -----------
NET INCOME $ 231,650 $ 195,269
=========== ===========
NET INCOME PER SHARE:
Basic .......................................... $ 0.05 $ 0.05
=========== ===========
Diluted ........................................ $ 0.05 $ 0.05
=========== ===========
SHARES USED FOR COMPUTING NET INCOME PER SHARE:
Basic .......................................... 4,544,167 3,785,000
=========== ===========
Diluted ........................................ 4,907,917 3,785,000
=========== ===========
Pro forma information (Note A):
Pro forma net income before income taxes ....... $ 141,204 $ 175,269
Pro forma benefit (provision) for income taxes . 1,314 (50,914)
----------- -----------
Pro forma net income ........................... $ 142,518 $ 124,355
=========== ===========
Pro forma basic earnings per share ............. $ 0.03 $ 0.03
=========== ===========
See accompanying notes to the financial statements
F-4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MEDGRUP CORPORATION
-------------------
(Formerly Medgrup Development Services, Inc.)
STATEMENT OF SHAREHOLDERS' EQUITY
From January 1, 1998 through December 31, 1999
Additional Total
Common Stock Outstanding Common Stock Paid In Retained Shareholders'
Shares Amount Warrants Options Capital Earnings Equity
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1998 .......... 3,154,000(a) $ 3,154 $ -- $ -- $ 1,846 $ 132,281 $ 137,281
Stock issued for cash ............. 631,000(b) 631 -- -- (431) -- 200
Shareholders' distribution ........ -- -- -- -- -- (20,000) (20,000)
Net income for the year
ended December 31, 1998 ......... -- -- -- -- -- 195,269 195,269
--------- --------- --------- --------- --------- --------- ---------
BALANCE, DECEMBER 31, 1998 3,785,000* 3,785 -- -- 1,415 307,550 312,750
Shareholders' distribution ........ -- -- -- -- -- (100,000) (100,000)
Net income from January 1,
1999 to April 30, 1999 .......... -- -- -- -- -- 77,423 77,423
S Corporation termination ......... -- -- -- -- 284,973 (284,973) --
Merger with Perseus Art Group ..... 955,000 955 -- -- (955) -- --
Stock issued for cash, net
of $109,946 offering costs ...... 385,000 385 -- -- 274,669 -- 275,054
Stock issued for payment of
$50,000 offering costs,
valued at fair value of
stock ........................... 50,000 50 -- -- (50) -- --
Stock issued for conversion
of notes payable ................ 145,000 145 -- -- 86,855 -- 87,000
77,000 warrants issued for
payment of offering costs,
valued at fair value of
warrants ........................ -- -- 27,104 -- (27,104) -- --
15,293 options issued for
coding services, valued
at fair value of options ........ -- -- -- 4,634 -- -- 4,634
Deferred taxes relating to
the termination of S
Corporation ..................... -- -- -- -- -- (4,418) (4,418)
Net income from May 1, 1999
through December 31, 1999 ....... -- -- -- -- -- 158,645 158,645
--------- ------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1999 5,320,000 $ 5,320 $ 27,104 $ 4,634 $ 619,803 $ 154,227 $ 811,088
========= ========================================================================
(a) Restated from 1,000
(b) Restated from 100
*Restated from 1,100 - See Note A
See accompanying notes to the financial statements
F-5
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MEDGRUP CORPORATION
-------------------
(Formerly Medgrup Development Services, Inc.)
STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
--------------------------------
1999 1998
--------- ---------
OPERATING ACTIVITIES
<S> <C> <C>
Net income ...................................................... $ 231,650 $ 195,269
Transactions not requiring cash:
Depreciation ................................................ 57,820 13,477
Gain on sale of assets ...................................... (2,283) --
Increase to allowance for doubtful accounts ................. 39,136 4,895
Stock based compensation expense ............................ 4,634 --
Changes in current assets and current liabilities:
Increase in receivables and prepaid expenses ............... (501,515) (88,324)
Increase in accounts payable and accrued liabilities ........ 113,132 18,832
--------- ---------
NET CASH (USED IN) PROVIDED BY
OPERATING ACTIVITIES (57,426) 144,149
--------- ---------
INVESTING ACTIVITIES
Equipment and leasehold purchases ............................... (155,153) (43,229)
Proceeds from sale of equipment ................................. 7,000 --
Cash paid for deposits .......................................... (1,300) --
--------- ---------
NET CASH (USED IN)
INVESTING ACTIVITIES (149,453) (43,229)
--------- ---------
FINANCING ACTIVITIES
Sale of common stock ............................................ 385,000 200
Cash paid for offering costs .................................... (109,946) --
Shareholder distributions ....................................... -- (20,000)
Repayments to shareholder ....................................... (10,287) (574)
Payments on capital leases ...................................... (42,748) (2,845)
Payments on note payable ........................................ (953) --
Proceeds from notes payable ..................................... 87,000 --
--------- ---------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 308,066 (23,219)
--------- ---------
NET INCREASE IN CASH ................................................ 101,187 77,701
Cash, beginning ...................................................... 81,256 3,555
--------- ---------
Cash, ending ......................................................... $ 182,443 $ 81,256
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest ............................................... $ 14,912 $ 701
========= =========
Cash paid for income taxes ........................................... $ -- $ --
========= =========
NONCASH INVESTING AND FINANCING ACTIVITIES:
50,000 common shares issued for payment of offering costs ............ $ 50,000 $ --
77,000 stock options issued for payment of offering costs ............ $ 27,104 $ --
145,000 common shares issued for conversion of notes payable ......... $ 87,000 $ --
Vehicle acquired in exchange for note payable ........................ $ 19,119 $ --
Equipment acquired under capital lease ............................... $ 88,919 $ 90,143
See accompanying notes to the financial statements
F-6
</TABLE>
<PAGE>
MEDGRUP CORPORATION
-------------------
(Formerly Medgrup Development Services, Inc.)
NOTES TO FINANCIAL STATEMENTS
Note A: Organization, business, and summary of significant accounting policies
- ------------------------------------------------------------------------------
Organization and business
Effective May 7, 1999, Medgrup Development Services, Inc. ("MDSI") merged with
Perseus Art Group, Inc. ("Perseus") which was incorporated under the laws of the
state of Colorado on June 26, 1998. Concurrent with the merger, Perseus changed
its name to Medgrup Corporation (the "Company").
Perseus was originally incorporated for the purpose of developing an on-line art
gallery which would market, sell and trade original artworks and art
reproductions on the Internet.
MDSI is a medical consulting company that specializes in the coding of medical
record charts of previously discharged patients from various hospitals'
inpatient, outpatient and emergency room settings. The Company provides services
to fifty seven hospitals in nine states. The contracts with the hospitals vary
from the Company coding all of the medical charts for the hospitals to the
hospitals having some of their coded medical charts reviewed by the Company.
Hospitals pay the Company on a per chart basis. MDSI originated as an Illinois
corporation then moved all operations to Colorado in 1997 where it subsequently
became a corporation under the laws of the state of Colorado on February 2,
1997.
Acquisition and merger
- ----------------------
On May 7, 1999, MDSI exchanged 100 percent of its outstanding shares of common
stock for 3,785,000 shares of the common stock of Perseus. This acquisition has
been treated as a recapitalization of MDSI, a Colorado corporation, with Perseus
the legal surviving entity. Since Perseus had, prior to the recapitalization, no
assets or liabilities and no operations, the recapitalization has been accounted
for as the sale of 1,100 shares of MDSI for the net liabilities of Perseus. The
recapitalization took place on May 7, 1999; however, the financial statements
have been prepared as if the recapitalization took place on April 30, 1999.
S Corporation termination
- -------------------------
MDSI terminated its S Corporation tax status as of April 30, 1999 in conjunction
with its merger with Perseus. At that date MDSI had $284,973 of undistributed
earnings. The financial statements include the transfer of $284,973 from
retained earnings to additional paid-in-capital. The financial statements also
show the pro forma effect on net income of shareholder distributions totaling
$100,000 and $20,000 for the years ended December 31, 1999 and 1998,
respectively, as if the distributions were compensation expense to the
shareholders. The pro forma financial information also shows pro forma corporate
tax expense for the years ended December 31, 1999 and 1998. Pro forma basis
earnings per share reflect the weighted average shares outstanding as if the
merger was effective at the beginning of all periods presented.
F-7
<PAGE>
MEDGRUP CORPORATION
-------------------
(Formerly Medgrup Development Services, Inc.)
NOTES TO FINANCIAL STATEMENTS
Summary of significant accounting policies:
Use of estimates
- ----------------
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Reclassifications
- -----------------
Certain amounts in the prior year financial statements have been reclassified
for comparative purposes to conform with the presentation in the current year
financial statements.
Cash
- ----
The Company considers all short-term, highly liquid investments with an original
maturity date of three months or less to be cash equivalents. Cash is stated at
cost, which approximates fair value.
Concentrations and credit risk
- ------------------------------
Approximately 41% of the Company's net revenues in 1999 were from services
rendered to two customers.
The Company has concentrated its credit risk for cash by maintaining deposits in
financial institutions, which may at times, exceed the amounts covered by
insurance provided by the United States Federal Deposit Insurance Corporation
("FDIC"). The maximum loss that would have resulted from that risk totaled
$82,443 at December 31, 1999, for the excess of the deposit liabilities reported
by financial institutions over the amount that would have been covered by
federal insurance. The Company has not experienced any losses to date in such
accounts and accordingly, believes it is not exposed to any significant credit
risk.
Property and equipment
- ----------------------
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is provided using the straight-line method over the estimated
useful lives of the assets, which is estimated to be three to five years.
Expenditures for repairs and maintenance are charged to expense when incurred.
Expenditures for major renewals and betterments, which extend the useful lives
of existing equipment, are capitalized and depreciated. Upon retirement or
disposition of property and equipment, the cost and related accumulated
depreciation are removed from the accounts and any resulting gain or loss is
recognized in the consolidated statements of operations.
Leasehold improvements are amortized over sixty months.
F-8
<PAGE>
MEDGRUP CORPORATION
-------------------
(Formerly Medgrup Development Services, Inc.)
NOTES TO FINANCIAL STATEMENTS
Summary of significant accounting policies continued:
Long-lived assets
- -----------------
In accordance with SFAS No. 121, "Accounting for the Impairment of Long-lived
Assets and for Long-lived Assets to be Disposed of", the Company periodically
reviews the values assigned to long-lived assets, such as property and
equipment, to determine whether any impairments are other than temporary. SFAS
No. 121 requires that an impairment loss be recognized when the carrying amount
of an asset exceeds the expected future undiscounted net cash flows. Management
believes that the long-lived assets in the accompanying balance sheets are
appropriately valued.
Income taxes
- ------------
Income taxes are provided for the tax effects of transactions reported in the
financial statements and consist of taxes currently due plus deferred taxes
related primarily to differences between the recorded book basis and tax basis
of assets and liabilities for financial and income tax reporting. The deferred
tax assets and liabilities represent the future tax return consequences of those
differences, which will either be taxable or deductible when the assets and
liabilities are recovered or settled. Deferred taxes are also recognized for
operating losses that are available to offset future taxable income and tax
credits that are available to offset future federal income taxes.
Revenue recognition
- -------------------
Revenue is recognized at the time the services are rendered. Other revenue is
comprised of services provided to customers for clerical support, consulting and
review of charts coded by hospital employees.
Stock-based compensation
- ------------------------
The Company accounts for any stock-based compensation plans using the intrinsic
value method prescribed by the Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25"). Compensation cost for
stock options, if any, is measured as the excess of the quoted market prices of
the Company's stock at the date of grant over the amount an employee must pay to
acquire the stock.
SFAS No. 123, "Accounting for Stock-Based Compensation," ("SFAS 123") was issued
in October 1995. This accounting standard permits the use of either a fair value
based method or the method defined in APB 25 to account for stock-based
compensation arrangements. Companies that elect to use the method provided in
APB 25 are required to disclose the pro forma net income and earnings per share
that would have resulted from the use of the fair value based method. The
Company has elected to continue to determine the value of the stock-based
compensation arrangements under the provision of APB 25 and, accordingly, has
included the pro forma disclosures required under SFAS 123 in Note E.
F-9
<PAGE>
MEDGRUP CORPORATION
-------------------
(Formerly Medgrup Development Services, Inc.)
NOTES TO FINANCIAL STATEMENTS
Summary of significant accounting policies continued:
Fair value of financial instruments
- -----------------------------------
SFAS 107, "Disclosure About Fair Value of Financial Instruments," requires
certain disclosures regarding the fair value of financial instruments. The
Company has determined, based on available market information and appropriate
valuation methodologies, the fair value of its financial instruments
approximates carrying value. The carrying amounts of cash, accounts receivable,
prepaid expenses, accounts payable, accrued compensation, and other accrued
liabilities approximate fair value due to the short-ter maturity of the
instruments.
Earnings per share
- ------------------
In February 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 128, "Earnings Per Share" (SFAS 128). The Company adopted SFAS 128 for the
two-year period ended December 31, 1999. Under SFAS 128, net income per
share-basic excludes dilution and is determined by dividing income available to
common shareholders by the weighted average number of common shares outstanding
during the period. Net income per share-diluted reflects the potential dilution
that could occur if securities and other contracts to issue common stock were
exercised or converted into common stock.
Recently issued accounting pronouncements
- -----------------------------------------
The Company has adopted the following new accounting pronouncements for the year
ended December 31, 1999. There was no material effect on the financial
statements presented from the adoption of the new pronouncements.
SFAS No. 130, "Reporting Comprehensive Income," requires the reporting and
display of total comprehensive income and its components in a full set of
general-purpose financial statements. m SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information," is based on the "management"
approach for reporting segments. The management approach designates the internal
organization that is used by management for making operating decisions and
assessing performance as the source of the Company's reportable segments. SFAS
No. 131 also requires disclosure about the Company's products, the geographic
areas in which it earns revenue and holds long-lived assets, and its major
customers.
SFAS No. 132, "Employers' Disclosures about Pensions and Other Post-retirement
Benefits," which requires additional disclosures about pension and other
post-retirement benefit plans, but does not change the measurement or
recognition of those plans.
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities,"
requires an entity to recognize all derivatives as either an asset or liability
and measure those instruments at fair value, as well as identify the conditions
for which a derivative may be specifically designed as a hedge.
F-10
<PAGE>
MEDGRUP CORPORATION
-------------------
(Formerly Medgrup Development Services, Inc.)
NOTES TO FINANCIAL STATEMENTS
Summary of significant accounting policies continued:
Recently issued accounting pronouncements, continued
- ----------------------------------------------------
Statement of Position ("SOP") 98-1, "Accounting for the costs of Computer
Software Developed or Obtained for Internal Use." This SOP requires that
entities capitalize certain internal-use software costs once certain criteria
are met.
SOP 98-5, "Reporting on the costs of Start-Up Activities." SOP 98-5 provides,
among other things, guidance on the reporting of start-up costs and organization
costs. It requires costs of start-up activities and organization costs to be
expensed as incurred.
The Company will continue to review these new accounting pronouncements over
time to determine if any additional disclosures are necessary based on evolving
circumstances.
Note B: Related party transactions
- ----------------------------------
For the year ended December 31, 1999
- ------------------------------------
During the year ended December 31, 1999, the Company repaid advances received
from the President of the Company totaling $10,287. Also, during the year ended
December 31, 1999, the President of the Company leased office space to the
Company for three months for a total of $1,500.
Prior to the termination of the S Corporation status, the Company recorded a
distribution payable (return of earnings) of $100,000 to the S Corporation
shareholders. At December 31, 1999 the $100,000 had not been paid, and is
accordingly recorded as a current liability due to related party.
For the year ended December 31, 1998
- ------------------------------------
At December 31, 1997, the Company owed the President of the Company $10,861 for
advances the President had made to the Company. During the year ended December
31, 1998, the Company repaid $574 of the advances to the President.
F-11
<PAGE>
MEDGRUP CORPORATION
-------------------
(Formerly Medgrup Development Services, Inc.)
NOTES TO FINANCIAL STATEMENTS
Note C: Property and equipment
- ------------------------------
Furniture and equipment consisted of the following at December 31, 1999:
Equipment under Capital Lease
-----------------------------------
Furniture and fixtures ...... $ 26,791 $ 11,397 $ 38,188
Computer equipment .......... 78,919 39,658 118,577
Fax equipment ............... 123,117 123,501 246,618
Vehicles .................... 19,119 -- 19,119
Leasehold improvements ...... 2,825 -- 2,825
--------- ----------------------
250,771 174,556 425,327
Less accumulated depreciation (48,606) (33,038) (81,644)
--------- ----------------------
$ 202,165 $ 141,518 $ 343,683
========= ======================
Note D: Debt
- ------------
Line of credit
- --------------
The Company has a $50,000 revolving line-of-credit, of which, $50,000 was unused
as of December 31, 1999. Advances on the line carry an interest rate of the
Norwest Bank, N.A. prime rate plus two percent (10.25% at December 31, 1999).
The credit line is collateralized by substantially all corporate assets and is
personally guaranteed by an officer of the Company. Interest payments only are
due monthly and any unpaid interest and principal are due at October 30, 2000.
Convertible notes
- -----------------
On April 30, 1999 the Company issued notes in the amounts of $15,000, $36,000
and $36,000 to three individuals. The notes were non-interest bearing and were
convertible in 3.95, 9.50 and 9.50, respectively, of shares of the Company's
common stock. On May 26, 1999 the Company converted the notes to 25,000, 60,000
and 60,000 shares of common stock, respectively.
F-12
<PAGE>
MEDGRUP CORPORATION
-------------------
(Formerly Medgrup Development Services, Inc.)
NOTES TO FINANCIAL STATEMENTS
Note D: Debt, continued
- -----------------------
Long-term debt consists of the following note payable and capital leases payable
at December 31, 1999:
Note payable:
Note payable due in monthly installments of
$489, interest at 0.90 percent, maturing October
15, 2002, collateralized by vehicle ............ $ 16,666
Less: current maturities ....................... (5,747)
--------
$ 10,919
========
Maturities on note payable, subsequent to December 31, 1999 are as follows:
2000..................... $ 5,747
2001..................... 5,799
2002..................... 5,120
--------
$ 16,666
========
Capital leases payable:
-----------------------
Capital lease, due in monthly installments of
$2845, net of imputed interest, maturing November
2001, collateralized by equipment ............... $ 59,900
Capital lease, due in monthly installments of
$2845, net of imputed interest, maturing May
2002, collateralized by equipment ............... 73,568
---------
133,468
Less: current maturities ........................ (58,338)
---------
$ 75,130
=========
Maturities on capital leases payable, subsequent to December 31, 1999 are as
follows:
2000........................................... $ 68,280
2001........................................... 65,435
2002........................................... 14,225
---------
147,940
Less: imputed interest......................... (14,472)
---------
Present value of net minimum lease payments.... $ 133,468
=========
F-13
<PAGE>
MEDGRUP CORPORATION
-------------------
(Formerly Medgrup Development Services, Inc.)
NOTES TO FINANCIAL STATEMENTS
Note E: Stock based compensation
- --------------------------------
Common stock options
- --------------------
The Company has an Incentive Stock Option Plan (the "Plan"), and has reserved
1,500,000 shares for issue as options are granted. Under the Plan, the Company
may grant incentive stock options under Section 422 of the Internal Revenue Code
of 1986, as amended. Under Section 422 of the Code, exercise of a qualified
incentive stock option will not create income to the option holder on the date
of exercise; income recognition is deferred until disposition of the stock
acquired. Incentive stock options must be granted with an exercise price equal
to or greater than the fair market value of the underlying common stock on the
date of grant. Incentive stock options granted to holders of more than ten
percent of the outstanding common stock must have (1) an exercise price equal to
at least 110% of the fair market value of the underlying common stock on the
date of grant, and (2) a term not exceeding five years.
The Plan provides that the total number of shares covered by such plan, the
number of shares covered by each option, and the exercise price per share may be
proportionally adjusted in the event of a stock split, reverse stock split,
stock dividend, or similar capital adjustment which is effected with receipt of
additional consideration by the Company.
During the year ended December 31, 1999 the Company granted 1,014,793 options
pursuant to the Plan. 209,500 of the options were canceled prior to vesting due
to termination of the employee or non-performance of the terms of the option
agreement. The options vest over a period of up to one year, or vest based on
certain performance criteria and are priced at or above the current
over-the-counter share trading price. 363,293 of the options granted during 1999
were exercisable at December 31, 1999 at a weighted average price of $1.02;
however, none of the options were exercised at December 31, 1999. The options
expire on various dates. The expiration dates are based on the date of grant and
expire from five to seven years after date of grant. The following summarizes
the expiration schedule for options outstanding at December 31, 1999.
Expiration Number
Date of Options
---------------------------------
September 2, 2004.... 50,000
December 8, 2004..... 27,000
May 26, 2006......... 572,000
June 3, 2006......... 40,293
December 1, 2006..... 35,000
December 30, 2006.... 81,000
-------
805,293
=======
F-14
<PAGE>
MEDGRUP CORPORATION
-------------------
(Formerly Medgrup Development Services, Inc.)
NOTES TO FINANCIAL STATEMENTS
Note E: Stock based compensation, continued
- -------------------------------------------
Common stock options, continued
- -------------------------------
<TABLE>
<CAPTION>
Incentive Stock Option Plan
---------------------------------- Weighted
Options and Weighted Weighted Average
Incentive Executive Warrants Average Average Exercise Price
Stock Employment Issued to Exercise Fair Currently Currently
Options Options Non-Employees Price Value Exercisable Exercisable
------- ------- ------------- ----- ----- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Outstanding, January 1, 1998 -- -- -- $ -- $ -- -- $ --
Options and warrants granted ........... -- -- -- -- -- -- --
-------- -------- -------- ----- ----- -------- -----
Outstanding, December 31, 1998 -- -- -- -- -- -- --
Options granted ........................ 172,500 500,000 342,293 1.04 0.32 363,293 1.02
Options cancelled ...................... (34,500) -- (175,000) (1.00) (0.30) -- --
-------- -------- -------- ----- ----- -------- -----
Outstanding, December 31, 1999 138,000 500,000 167,293 $1.05 $0.32 363,293 $1.02
======== ======== ======== ===== ===== ======== =====
All options and warrants were granted above their fair value.
</TABLE>
<TABLE>
<CAPTION>
December 31, 1999
------------------------------------------------------------
Options Outstanding Options Exercisable
---------------------------------- ----------------------
Weighted
Weighted Average Weighted
Average Remaining Average
Number Exercise Contracual Number Exercise
Range of Exercisable Price Outstanding Price Life Exercisable Price
- -------------------------- ----------- ----- ---- ----------- -----
<S> <C> <C> <C> <C> <C>
$1.00 - $1.31 805,293 $1.05 6.34 363,293 $1.02
======= ===== ==== ======= =====
</TABLE>
F-15
<PAGE>
MEDGRUP CORPORATION
-------------------
(Formerly Medgrup Development Services, Inc.)
NOTES TO FINANCIAL STATEMENTS
Note E: Stock based compensation continued
- ------------------------------------------
Common stock options continued
- ------------------------------
On May 26, 1999 the Company granted options for 500,000 shares of its common
stock, to an officer of the Company, exercisable for $1.00 per share. The
options begin vesting at the rate of 250,000 as of the grant date with the
remaining 250,000 vesting based on the performance of the Company's common stock
price. If the stock trades greater than $2.00, $3.00, $4.00 or $5.00 per share;
60,000, 60,000, 60,000 and 70,000, vest respectively. The options expire on May
26, 2006. The options were granted at the market value of the Company's common
stock as of May 26, 1999. The market price was based on the $1.00 cash offering
price of the Company's common stock, which was contemporaneous with the grant
date. In accordance with APB 25, no compensation expense was recorded.
On June 3, 1999 the Company granted options for 15,293 shares of its common
stock, exercisable for $1.00 per share to an individual for payment of coding
services rendered to the Company. The options were granted at the market value
of the Company's common stock as of June 3, 1999. They are fully vested and
expire on June 3, 2006. The fair value of the options as determined in
accordance with SFAS No. 123 is $4,634 and has been charged to operations with a
corresponding credit to equity shown as outstanding common stock options.
On September 2, 1999 and December 8, 1999 the Company issued warrants for 50,000
and 27,000 shares, respectively of its common stock, exercisable for $1.10 per
share to the agent that assisted the Company with its common stock offering. The
warrants were granted at 110% of the market value of the Company's common stock
as of the date of grant. The warrants are fully vested and expire five years
from the date of grant. The fair value of the warrants as determined in
accordance with SFAS No. 123 is $27,104 and has been charged to additional paid
in capital as offering costs with a corresponding credit to equity shown as
outstanding common stock warrants.
SFAS 123
- --------
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123 (SFAS 123), "Accounting for Stock-Based
Compensation". SFAS 123 encourages the use of a fair value based method of
accounting for compensation expense associated with stock option awards and
similar plans. SFAS 123 permits the continued use of the intrinsic value based
method prescribed by APB 25, but requires additional disclosures, including pro
forma calculations of net earnings and earnings per share, as if the fair value
method of accounting prescribed by SFAS 123 had been applied for the applicable
periods.
F-16
<PAGE>
MEDGRUP CORPORATION
-------------------
(Formerly Medgrup Development Services, Inc.)
NOTES TO FINANCIAL STATEMENTS
Note E: Stock based compensation continued
- ------------------------------------------
SFAS 123 continued
- ------------------
The fair value of each option granted has been estimated as of the grant date
using the Black-Scholes option-pricing model with the following weighted-average
assumptions: risk-free interest rate of 6.623 percent, expected volatility of 60
percent, expected life of seven years, and no expected dividends. During the
year ended December 31, 1999, the weighted-average exercise price and fair
values of options granted and fully vested were $1.00 and $.30, respectively, on
the date of grant for options granted with an exercise price equal to the market
price of the stock. There were no fully vested options at December 31, 1999 that
were granted at prices less than or in excess of the market price of the
underlying stock on date of grant.
Had compensation expense been determined based on the fair value at the grant
date, and charged to expense over vesting periods, consistent with the
provisions of SFAS 123, the Company's net income and net income per share would
have decreased to the pro forma amounts indicated below:
Amount
-----------
Net income, as reported ................... $ 231,650
Decrease due to:
Employee stock options ............. (6,363)
Executive employment options ....... (75,750)
-----------
Pro forma net income ...................... $ 149,537
===========
Net income per share - basic, as reported . $ 0.05
Net income per share - diluted, as reported $ 0.05
Pro Forma:
Net income per share - basic .......... $ 0.03
Net income per share - diluted ........ $ 0.03
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options, which have no vesting restrictions and are fully
transferable. Option valuation models also require the input of highly
subjective assumptions such as expected option life and expected stock price
volatility. Because the Company's stock-based awards have characteristics
significantly different from those of traded options and because changes in the
subjective input assumptions can materially affect the fair value estimate, the
Company believes that the existing option valuation models do not necessarily
provide a reliable single measure of the fair value of its stock-based awards.
F-17
<PAGE>
MEDGRUP CORPORATION
-------------------
(Formerly Medgrup Development Services, Inc.)
NOTES TO FINANCIAL STATEMENTS
Note F: Income taxes
- --------------------
As discussed in Note A, the Company reports income taxes in accordance with SFAS
No. 109, "Accounting for Income Taxes". Also, as discussed in Note A, the
Company terminated its S Corporation status on April 30, 1999. In connection
with that termination, the Company recorded deferred income taxes as of April
30, 1999 and a one-time charge to earnings of $4,418. The total income tax
provision for the eight months ended December 31, 1999 has been allocated as
follows:
Arising from termination of S Corporation ... $4,418
Subsequent to S Corporation termination ..... 5,136
------
$9,554
======
A reconciliation of the U.S. statutory federal income tax rate to the effective
tax rate follows for the eight months subsequent to the S Corporation
termination.
U.S. statutory federal rate, graduated ... 15.00%
State rate, net of federal benefit ....... 4.25%
Temporary differences (depreciation) ..... -1.97%
Permanent differences, other ............. 1.97%
Permanent differences (offering costs).... -18.94%
-------
0.31%
=======
At December 31, 1999, the deferred tax liability consisted of the temporary
differences related to tax versus book depreciation methods.
Note G: Shareholders' equity
- ----------------------------
On July 9, 1999 the Company commenced an offering of 600,000 shares of its
common stock for $1.00 per share. The shares were offered pursuant to an
exemption from the securities offering registration requirements provided by
rule 506 of Regulation D of the Securities Act of 1933, as amended. The offering
closed on January 15, 2000. As of December 31, 1999 the Company sold 385,000
shares for net proceeds of $275,054 after deducting $109,946 in cash offering
costs. The Company also issued 50,000 shares to the placement agent as non-cash
offering costs valued at $50,000. Pursuant to the placement agent agreement, the
placement agent also received warrants to purchase 77,000 shares of the
Company's common stock for $1.10 per share. The warrants have been valued at
their fair value of $27,104 and recorded in the financial statements as
outstanding common stock warrants. Subsequent to December 31, 1999 the Company
sold an additional 215,000 shares for net proceeds of $191,350 after deducting
$23,650 in offering costs.
F-18
<PAGE>
MEDGRUP CORPORATION
-------------------
(Formerly Medgrup Development Services, Inc.)
NOTES TO FINANCIAL STATEMENTS
Note H: Commitments and contingencies
- -------------------------------------
Non-cancelable leases
- ---------------------
The Company leases office space under a non-cancelable operating lease that
expires in March 2002. Total office rent expense incurred under the leases for
the years ended December 31, 1999 and 1998 was $16,000 and $-0-, respectively.
The Company also leases vehicles and fax machines under non-cancelable leases
that begin to expire in April 2000. Total lease expense for the vehicles and fax
machines for the year ended December 31, 1999 was $14,633 and $5,526,
respectively. Total lease expense for the vehicles and fax machines for the year
ended December 31, 1998 was $12,391 and $5,526, respectively. Future minimum
lease payments for the leases with initial terms in excess of one year as of
December 31, 1999 are as follows:
December 31, 2000............. $ 45,002
December 31, 2001............. $ 37,448
December 31, 2002............. $ 20,308
December 31, 2003............. $ 6,608
December 31, 2004............. $ 551
Note I: Subsequent events
- -------------------------
On January 3, 2000, the Company granted options to two consultants to purchase
10,000 shares (per each consultant) of the Company's common stock for $1.31 per
share, when $1.19 was the market value of the Company's common stock on that
date. The options vest in two equal increments of 5,000 shares six months and
twelve months from the date of grant. The options expire seven years from date
of grant.
On January 3, 2000, the Company granted 135,000 incentive stock options to five
employees. The options were granted at $1.31 per share and the market price of
the Company's common stock on that date was $1.19.
Employment contracts
- --------------------
On February 14, 2000 the Company entered into an Executive Employment Agreement
(the "Agreement") with the new President of the Company. The Agreement provides
for an annual salary and a grant of 500,000 incentive stock options. The options
vest in increments of 83,333 options every six months, provided the President is
still employed by the Company. The options are exercisable for $1.31 per share
and the market price on the date of grant was $1.19.
F-19
<PAGE>
MEDGRUP CORPORATION
-------------------
(Formerly Perseus Art Group, Inc.)
(A Development Stage Company)
Index to Financial Statements
Page
Independent auditors' report............................................... F-21
Balance sheets, May 6, 1999 and December 31, 1998.......................... F-22
Statements of operations, from January 1, 1999 through May 6, 1999, from
June 26, 1998 (inception) through December 31, 1998, and from
June 26, 1998 (inception) through May 6, 1999......................... F-23
Statement of shareholders' equity, from June 26, 1998 (inception)
through May 6, 1999................................................... F-24
Statements of cash flows, from January 1, 1999 through May 6, 1999, from
June 26, 1998 (inception) through December 31, 1998, and from
June 26, 1998 (inception) through May 6, 1999......................... F-25
Notes to financial statements.............................................. F-27
F-20
<PAGE>
To the Board of Directors and Shareholders
Medgrup Corporation (Formerly Perseus Art Group, Inc.)
Independent Auditors' Report
We have audited the balance sheets of Perseus Art Group, Inc. as of May 6, 1999
and December 31, 1998, and the related statements of operations, shareholders'
equity and cash flows for the periods of January 1, 1999 to May 6, 1999, from
June 26, 1998 (inception) through December 31, 1998, and from June 26, 1998
(inception) through May 6, 1999. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Perseus Art Group, Inc. as of
May 6, 1999 and December 31, 1998, and the related statements of operations and
cash flows for the period periods of January 1, 1999 to May 6, 1999, from June
26, 1998 (inception) through December 31, 1998, and from June 26, 1998
(inception) through May 6, 1999, in conformity with generally accepted
accounting principles.
Perseus Art Group, Inc. has incurred consulting fees of $60,500, and $-0- from
three affiliated companies during the periods from June 26, 1998 (inception)
through December 31, 1998, and the period from January 1, 1999 to May 6, 1999,
respectively.
/s/ Cordovano and Harvey, P.C.
- ------------------------------
Cordovano and Harvey, P.C.
Denver, Colorado
January 31, 2000
F-21
<PAGE>
<TABLE>
<CAPTION>
MEDGRUP CORPORATION
-------------------
(Formerly Perseus Art Group, Inc.)
(A Development Stage Company)
BALANCE SHEETS
May 6, December 31,
1999 1998
--------- ---------
ASSETS
<S> <C> <C>
CASH ....................................................................... $ -- $ 10,859
INVENTORY .................................................................. -- 2,765
EQUIPMENT, less accumulated depreciation of
$0 and $77, respectively (Notes A and B) .............................. -- 1,315
--------- ---------
$ -- $ 14,939
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Accounts payable ..................................................... $ -- $ 214
Accrued expenses ..................................................... -- 1,640
--------- ---------
TOTAL LIABILITIES -- 1,854
--------- ---------
SHAREHOLDERS' EQUITY (Notes C and E)
Common stock, $.001 par value, 50,000,000 shares authorized,
955,000 and 1,080,000 shares issued and outstanding, respectively .. 955 1,080
Additional paidin capital ............................................ 541,545 531,420
Deficit accumulated during the development stage ..................... (542,500) (519,415)
--------- ---------
TOTAL SHAREHOLDERS' EQUITY -- 13,085
--------- ---------
$ -- $ 14,939
========= =========
See accompanying notes to financial statements.
F-22
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MEDGRUP CORPORATION
-------------------
(Formerly Perseus Art Group, Inc.)
(A Development Stage Company)
STATEMENTS OF OPERATIONS
June 26,
1998 June 26,
(Inception) 1998
January 1, 1999 Through (Inception)
through December 31, Through
May 6, 1999 1998 May 6, 1999
----------- ----------- -----------
COSTS AND EXPENSES
<S> <C> <C> <C>
Consulting, related parties (Note B) ........................... $ -- $ 60,500 $ 60,500
Stock based compensation organizational services (Note C) ..... -- 450,000 450,000
Compensation ................................................... 10,069 -- 10,069
Legal and accounting ........................................... 6,321 3,090 9,411
Stock transfer fees ............................................ 93 1,500 1,593
Website ........................................................ -- 2,100 2,100
Other .......................................................... 2,747 2,346 5,093
----------- ----------- -----------
OPERATING LOSS (19,230) (519,536) (538,766)
NONOPERATING INCOME (EXPENSE)
Investment income .............................................. 64 121 185
Loss on disposal of assets and inventory (Note B) .............. (3,919) -- (3,919)
----------- ----------- -----------
NET LOSS BEFORE INCOME TAXES (23,085) (519,415) (542,500)
INCOME TAX BENEFIT (EXPENSE) (Note D)
Current ........................................................ 4,395 192,885 197,280
Deferred ....................................................... (4,395) (192,885) (197,280)
----------- ----------- -----------
NET LOSS $ (23,085) $ (519,415) $ (542,500)
=========== =========== ===========
Basic loss per common share ......................................... $ (0.02) $ (0.48) $ (0.49)
=========== =========== ===========
Basic weighted average common shares outstanding .................... 1,120,000 1,080,000 1,096,667
=========== =========== ===========
See accompanying notes to financial statements.
F-23
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MEDGRUP CORPORATION
-------------------
(Formerly Perseus Art Group, Inc.)
(A Development Stage Company)
STATEMENT OF SHAREHOLDER'S EQUITY
June 26, 1998 (Inception) through May 6, 1999
Deficit
Accumulated
Common Stock Additional During the Total
--------------------- Paid-in Development Shareholders'
Shares Amount Capital Stage Equity
------ ------ ------- ----- ------
<S> <C> <C> <C> <C> <C>
Balance, June 26, 1998 (Inception) .................... -- $ -- $ -- $ -- $ --
Common stock issued for services rendered at
estimated fair value (Note C) ...................... 900,000* 900 449,100 -- $ 450,000
Shares issued in common stock offering, less
$7,500 of offering costs (Note C) .................. 180,000* 180 82,320 -- $ 82,500
Net loss for the period ended
December 31, 1998 .................................. -- -- -- (519,415) $ (519,415)
---------- ---------- ---------- ---------- ----------
BALANCE, DECEMBER 31, 1998 1,080,000* 1,080 531,420 (519,415) $ 13,085
Shares issued in common stock offering (Note C) ....... 100,000* 100 9,900 -- $ 10,000
Retirement and cancellation of
shares of common stock (Note C) .................. (225,000)* (225) 225 -- $ --
Net loss for the period from January 1, 1999
through May 6, 1999 ................................ -- -- -- (23,085) $ (23,085)
---------- ---------- ---------- ---------- ----------
BALANCE, MAY 6, 1999 955,000* $ 955 $ 541,545 $ (542,500) $ 0
========== ========== ========== ========== ==========
* Restated (See Note E)
See accompanying notes to financial statements.
F-24
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MEDGRUP CORPORATION
-------------------
(Formerly Perseus Art Group, Inc.)
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
June 26,
1998 June 26,
(Inception) 1998
January 1, 1999 Through (Inception)
through December 31, Through
May 6, 1999 1998 May 6, 1999
----------- --------- -----------
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net loss ........................................................... $ (23,085) $(519,415) $(542,500)
Transactions not requiring cash:
Depreciation .................................................... 160 77 237
Loss on disposal of assets and inventory (Note B) ............... 3,920 -- 3,920
Common stock issued for services rendered
by officers (Note C) .......................................... -- 450,000 450,000
--------- --------- ---------
(19,005) (69,338) (88,343)
Changes in operating assets and liabilities:
(Decrease)/Increase in accounts payable and accrued expenses .... (1,854) 1,854 --
--------- --------- ---------
NET CASH (USED IN)
OPERATING ACTIVITIES (20,859) (67,484) (88,343)
--------- --------- ---------
INVESTING ACTIVITIES
Purchase of inventory .............................................. -- (2,765) (2,765)
Purchase of equipment .............................................. -- (1,392) (1,392)
--------- --------- ---------
NET CASH (USED IN)
INVESTING ACTIVITIES -- (4,157) (4,157)
--------- --------- ---------
FINANCING ACTIVITIES
Sale of common stock ............................................... 10,000 90,000 100,000
Offering costs incurred ............................................ -- (7,500) (7,500)
--------- --------- ---------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 10,000 82,500 92,500
--------- --------- ---------
NET INCREASE/(DECREASE) IN CASH AND
CASH EQUIVALENTS ................................................... (10,859) 10,859 --
Cash and cash equivalents at beginning of period ................... 10,859 -- --
--------- --------- ---------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD ................................................... $ -- $ 10,859 $ --
========= ========= =========
See accompanying notes to financial statements.
F-25
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MEDGRUP CORPORATION
-------------------
(Formerly Perseus Art Group, Inc.)
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
June 26,
1998 June 26,
(Inception) 1998
January 1, 1999 Through (Inception)
through December 31, Through
May 6, 1999 1998 May 6, 1999
----------- ---- -----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
<S> <C> <C> <C>
Cash paid for interest ................................ $-- $-- $--
====== ==== =====
Cash paid for income taxes ............................ $-- $-- $--
====== ==== =====
Noncash investing and financing activities:
Retirement and cancellation of 225,000
shares of common stock (Note C) ................... $ 225 $-- $ 225
====== ==== =====
See accompanying notes to financial statements.
F-26
</TABLE>
<PAGE>
MEDGRUP CORPORATION
-------------------
(Formerly Perseus Art Group, Inc.)
(A Development Stage Company)
Notes to Financial Statements
Note A: Organization and summary of significant accounting policies
Organization and basis of presentation
- --------------------------------------
Perseus Art Group, Inc. (the "Company") is a development stage company which was
organized under the laws of the state of Colorado on June 26, 1998. The Company
proposes to develop an "on-line" art gallery for the purpose of marketing,
selling, and trading original artworks and art reproductions on the Internet.
Since inception, the Company has been engaged primarily in organizational
matters, the development of its business plan, and the offer and sale of 280,000
shares of its $.001 par value common stock.
On May 7, 1999, Medgrup Development Services, Inc. ("MDSI") exchanged 100
percent of its outstanding shares of common stock for 3,785,000 shares of the
common stock of Perseus Art Group, Inc. ("Perseus"). This acquisition has been
treated as a reverse acquisition whereby MDSI is considered the surviving
entity. Costs of the transactions have been charged to the period. Immediately
prior to the merger Perseus changed its name to Medgrup Corporation.
Cash equivalents
- ----------------
For financial accounting purposes and the statement of cash flows, cash
equivalents include all highly liquid debt instruments purchased with an
original maturity of three months or less.
Use of estimates
- ----------------
The preparation of the financial statements in conformity with generally
accepted accounting principals requires management to make estimates and
assumptions that affect certain reported amounts of assets and liabilities;
disclosure of contingent assets and liabilities at the date of the financial
statements; and the reported amounts of revenues and expenses during the
reporting period. Accordingly, actual results could differ from those estimates.
Inventory
- ---------
Inventory, consisting of pieces of art, is valued at the lower of cost or
market. The cost of the inventory has been determined on a specific
identification basis.
Equipment and depreciation
- --------------------------
Equipment is recorded at cost and depreciated using the straight-line method
over the useful lives of the assets, beginning at the time the assets are placed
into service. As of December 31, 1998, equipment consisted of computer hardware
and software. Depreciation expense for the period from June 26, 1998 (inception)
through December 31, 1998 totaled $77. Depreciation expense for the period from
January 1, 1999 through May 6, 1999 was $160.
F-27
<PAGE>
MEDGRUP CORPORATION
-------------------
(Formerly Perseus Art Group, Inc.)
(A Development Stage Company)
Notes to Financial Statements
Note A: Organization and summary of significant accounting policies, concluded
Equipment and depreciation, concluded
- -------------------------------------
Upon retirement or disposition of the equipment, the cost and accumulated
depreciation are removed from the accounts and any resulting gain or loss is
reflected in operations. Repairs and maintenance are charged to expense as
incurred and expenditures for additions and improvements are capitalized.
Loss per share
- --------------
The Company reports loss per share using a dual presentation of basic and
diluted loss per share. Basic loss per share excludes the impact of common stock
equivalents. Diluted loss per share utilizes the average market price per share
when applying the treasury stock method in determining common stock equivalents.
Stock-based compensation
- ------------------------
SFAS No. 123, "Accounting for Stock-Based Compensation" was issued in October
1995. This accounting standard permits the use of either a "fair value based
method" or the "intrinsic value method" defined in Accounting Principles Board
Opinion 25, "Accounting for Stock Issued to Employees" (APB 25) to account for
stock-based compensation arrangements.
Companies that elect to use the method provided in APB 25 are required to
disclose pro forma net income and pro forma earnings per share information that
would have resulted from the use of the fair value based method. The Company has
elected to determine the value of stock-based compensation arrangements under
the provisions of SFAS 123 and, accordingly, has not included pro forma
disclosures.
Income taxes
- ------------
Income taxes are provided for the tax effects of transactions reported in the
financial statements and consist of taxes currently due plus deferred taxes
related primarily to differences between the recorded book basis and the tax
basis of assets and liabilities for financial and income tax reporting. The
deferred tax assets and liabilities represent the future tax return consequences
of those differences, which will either be taxable or deductible when the assets
and liabilities are recovered or settled. Deferred taxes are also recognized for
operating losses that are available to offset future taxable income and tax
credits that are available to offset future federal income taxes.
F-28
<PAGE>
MEDGRUP CORPORATION
-------------------
(Formerly Perseus Art Group, Inc.)
(A Development Stage Company)
Notes to Financial Statements
Note B: Related party transactions
The Company engaged an affiliate to provide consulting services concerning
financing, shareholder relations, public market strategy, broker relations,
capitalization, and corporate structure. For the periods from June 26, 1998
(inception) through December 31, 1998 and from January 1, 1999 through May 6,
1999, the Company paid the affiliate $38,000 and $-0-, respectively, in
consulting fees, all of which were expensed.
The Company also engaged an affiliate to provide assistance with business
development matters. For the periods from June 26, 1998 (inception) through
December 31, 1998 and from January 1, 1999 through May 6, 1999, the Company paid
the affiliate $2,500 and $-0-, respectively, for consulting services, all of
which were expensed. The President of the Company is the owner and President of
the affiliate.
In addition, the Company engaged an affiliate to provide assistance with
business development matters. For the periods from June 26, 1998 (inception)
through December 31, 1998 and from January 1, 1999 through May 6, 1999, the
Company paid the affiliate $20,000 and $-0-, respectively, for consulting
services, all of which were expensed. The Vice-president of the Company is the
owner and managing member of the affiliate.
Pursuant to the terms of the reverse merger with Medgrup Development Services,
Inc., the assets and liabilities of the Company were distributed to the
President and Vice-President of the Company immediately prior to the reverse
merger. The Company's cash, consisting of $10,069, was distributed to the
Vice-president of the Company. Accordingly, the cash distribution has been
classified as compensation expense for the period ended May 6, 1999. The
Vice-president also received the Company's computer equipment, valued at $1,155,
net of accumulated depreciation. The Vice-President of the Company was given the
other assets of the Company consisting of inventories valued at $2,765. The
distribution of equipment and inventories was accounted for as a loss on
disposal of assets for the period ended May 6, 1999.
F-29
<PAGE>
MEDGRUP CORPORATION
-------------------
(Formerly Perseus Art Group, Inc.)
(A Development Stage Company)
Notes to Financial Statements
Note C: Shareholders' equity
Common stock issuances
- ----------------------
Effective June 30, 1998, the Company issued to its Vice-president and President,
respectively, 630,000 and 270,000 shares of the Company's $.001 par value per
share common stock for services in connection with its organization. The shares
were valued by management at $.002 per share, or a total of $1,800. However, the
issuance of the shares was accounted for based on the fair value of the
Company's common stock as established by contemporaneous equity transactions and
other analysis, measured on July 10, 1998. Accordingly, the Company recorded
stock-based compensation of $450,000 in the accompanying financial statements.
Effective July 10, 1998, the Company offered for sale 900 Units aggregating
$90,000 through its officers and directors. Each Unit included 200 shares of the
Company's $.001 par value common stock. Upon issuance, the shares are detachable
from the Units and may be transferred separately.
The Company closed the offering and issued 900 Units representing 180,000 shares
of common stock for net proceeds of $82,500 after deducting $7,500 in offering
costs. The shares were issued without registration under the federal securities
laws in reliance upon an exemption from registration requirements contained in
the Securities Act of 1933, as amended.
On March 31, 1999 the Company sold an additional 100,000 shares of its $.001 par
common stock for $.10 per share. No offering costs were incurred in relation to
this sale.
Immediately prior to the reverse merger with Medgrup Development Services, Inc.
the Company's President returned to the Company 225,000 shares of common stock
to be retired and cancelled. This was accounted for as an increase to additional
paid in capital since no consideration was received for the 225,000 shares upon
retirement and cancellation.
Also immediately prior to the reverse merger with Medgrup Development Services,
Inc., the board of directors approved an amendment to the articles of
incorporation increasing the number of shares of common stock outstanding to
50,000,000 from 20,000,000.
Description of common stock
- ---------------------------
All shares of common stock have equal voting rights and, when validly issued and
outstanding, are entitled to one vote per share in all matters to be voted upon
by shareholders. The shares of common stock have no preemptive, subscriptive,
conversion or redemption rights. Cumulative voting in the election of directors
is not permitted. In case of liquidation of the Company, each shareholder is
entitled to receive a proportionate share of the Company's assets available for
distribution to shareholders after the payment of liabilities.
F-30
<PAGE>
MEDGRUP CORPORATION
-------------------
(Formerly Perseus Art Group, Inc.)
(A Development Stage Company)
Notes to Financial Statements
Note D: Income taxes
A reconciliation of the U.S. statutory federal income tax rate to the effective
tax rate is as follows:
<TABLE>
<CAPTION>
June 26,
1998 June 26,
(Inception) 1998
January 1, 1999 Through (Inception)
through December 31, Through
May 6, 1999 1998 May 6, 1999
-------------- ------------ -----------
<S> <C> <C> <C>
U.S. statutory federal rate, graduated ............. 15.00% 34.00% 34.00%
State income tax rate, net of federal benefit ...... 4.04% 3.13% 3.14%
Net operating loss (NOL) for which
no tax benefit is currently available .......... -19.04% -37.13% -37.14%
------- ------- -------
0.00% 0.00% 0.00%
======= ======= =======
</TABLE>
At December 31, 1998, deferred taxes consisted of a net tax asset of $192,885
due to operating loss carryforwards of $519,416, which was fully allowed for in
the valuation allowance of $192,885. The valuation allowance offsets the net
deferred tax asset for which there is no assurance of recovery. The change in
the valuation allowance from June 26, 1998 (inception) through December 31, 1998
was $192,885. Net operating loss carryforwards will expire in 2018.
The valuation allowance will be evaluated at the end of each year, considering
positive and negative evidence about whether the asset will be realized. At that
time, the allowance will either be increased or reduced; reduction could result
in the complete elimination of the allowance if positive evidence indicates that
the value of the deferred tax asset is no longer impaired and the allowance is
no longer required.
At May 6, 1999, deferred taxes consisted of a net tax asset of $4,395 due to
operating loss carryforwards of $23,084, which was fully allowed for in the
valuation allowance of $4,395. The valuation allowance offsets the net deferred
tax asset for which there is no assurance of recovery. The change in the
valuation allowance from December 31, 1998 through May 6, 1999 was $4,395. Net
operating loss carryforwards will expire through 2019.
F-31
<PAGE>
MEDGRUP CORPORATION
-------------------
(Formerly Perseus Art Group, Inc.)
(A Development Stage Company)
Notes to Financial Statements
Note E: Reverse Stock Split
Effective May 6, 1999, the shareholders approved a reverse split of common stock
of one share for each two shares of common stock (1:2) held. The accompanying
financial statements have been retroactively restated to give effect to the
reverse stock split for all periods presented.
F-32
<PAGE>
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
Included in prospectus.
Item 25. Other Expenses of Issuance and Distribution
Description of Expenses Amount
----------------------- ------
SEC filing fee .......................................... $ 400
Legal fees and expenses ................................. 30,000
Accounting fees and expenses ............................ 30,000
Blue Sky filing fees and expenses ....................... 1,500
Printing ................................................ 2,500
Miscellaneous ........................................... 600
--------
Total $ 65,000
========
Item 26. Recent Sales of Unregistered Securities
The Company commenced its capitalization on June 30, 1998 by issuing an
aggregate of 900,000 shares of its common stock (on a post-split basis) to its
officers and directors. Messrs. Scott Thornock and Bruce Capra acquired 630,000
and 270,000 shares, respectively, in a transaction exempt from the registration
requirements of the Securities Act pursuant to the provisions of Section 4(2)
thereof. Each of those individuals was afforded access to information typically
contained in a registration statement, and each had a preexisting relationship
with the Company. Finally, Messrs. Thornock and Capra were able to bear the
financial risks of the investment. In conjunction with this offering, the
Company placed stop transfer instructions with its transfer agent and
certificates representing the shares were embossed with the restrictive legend
required by Rule 144.
In October, 1998, the Company completed an offering exempt from the
registration requirements of the Securities Act pursuant to the provisions of
Regulation D, Rule 504 thereof and Section 3(b). The Company sold an aggregate
of 180,000 shares of its common stock for total gross proceeds of $90,000. The
offering was made by means of a Private Placement Memorandum dated July 10, 1998
and investors were advised of the absence of any registration under the
Securities Act. The following list sets forth the name and share amounts
acquired by the purchasers in that offering, each of which was a friend or
business associate of officers and directors of the Company:
Name of Number Transaction
Shareholder of Shares Date
----------- --------- ----
Brad Keech 6,000 6/29/98
Roana Thornock 1,000 6/30/98
Peter Garthwaite 4,000 6/30/98
Heidi Wertz-Garthwaite 4,000 6/30/98
II-1
<PAGE>
Name of Number Transaction
Shareholder of Shares Date
----------- --------- ----
Stephene McKay 6,000 6/30/98
Diana Thornock 5,000 6/30/98
Karl White 2,000 6/30/98
Horace Starr 2,000 7/01/98
Michael Bryant 1,000 7/01/98
Ross W. King 4,000 7/01/98
Ed Venerable 12,000 7/01/98
Mark A. Tellinger 4,000 7/01/98
John F. Hyer, Jr. 2,000 7/01/98
Daniel R. Albright 2,000 7/01/98
Richard K. Krause 2,000 7/01/98
Matthew Nicholas 2,000 7/01/98
Michael Krause 3,000 7/01/98
Jim DeLutes 6,000 7/07/98
William Moore 1,500 7/07/98
Kyla B. Moore 1,500 7/07/98
Jeffrey H. Lee 2,000 7/08/98
Jessica Lee 2,000 7/08/98
Rick Neitenbach 12,000 7/16/98
Bradley R. Parker 10,000 7/16/98
Robert E. Nye 10,000 7/16/98
Kirk Eberl 10,000 7/16/98
Dan Nye 10,000 7/16/98
Bruce Capra 5,000 7/17/98
II-2
<PAGE>
Name of Number Transaction
Shareholder of Shares Date
----------- --------- ----
Mary E. Writer 12,000 10/24/98
James Kreutz 12,000 10/21/98
James H. Watson, Jr. 12,000 10/21/98
Velma Walters 12,000 10/21/98
-------
Total 180,000
=======
In April, 1999, the Company conducted a subsequent offering pursuant to the
provisions of Rule 504. The Company sold an aggregate of 100,000 shares of its
Common Stock at an offering price of $.05 per share, or a total of $10,000. This
offering was conducted by means of a subscription agreement executed by each of
the purchasers. Each purchaser acknowledged that the shares were not registered
under the Securities Act. The following individuals, each of whom was a friend
or business associate of officers and directors of the Company, participated in
that offering:
Name of Number Transaction
Shareholder of Shares Date
----------- --------- ----
Bruce A. Capra 15,000 4/05/99
Entrepreneur Investments, LLC 10,000 4/05/99
Michael D. Tanner 10,000 4/05/99
Scott M. Thornock 17,500 4/05/99
C. Edward Venerable 17,500 4/05/99
Velma Walters 10,000 4/05/99
James H. Watson, Jr. 10,000 4/05/99
Mary A. Writer 10,000 4/05/99
-------
Total 100,000
=======
In conjunction with the merger of the Company with MedGrup Development
Services, the Company issued an aggregate of 3,785,000 shares of its common
stock in a transaction exempt from the registration requirements under Section
4(2). Mr. and Mrs. Cronin, former officers, directors and shareholders of
MedGrup Development Services, were afforded access to the information about the
Company customarily contained in a registration statement. Each was able to fend
for himself or herself in the transaction. Further, the Company placed
II-3
<PAGE>
stop-transfer restrictions with its transfer agent and certificates representing
the shares were embossed with a restrictive legend.
In conjunction with an offering completed in January, 2000, the Company
issued an additional 600,000 shares of its Common Stock pursuant to the
provisions of Regulation D, Rule 506 and Section 4(2) of the 1933 Act. This
offering was conducted by Kashner Davidson Securities, Inc. as placement agent,
who acted on the Company's behalf for purposes of placing its common stock. The
Company paid compensation to the placement agent in the amount of 10% of the
sale price of each share sold in the offering. The Company also paid a
non-accountable expense allowance in the amount of 1% of the gross proceeds of
the offering, and issued 50,000 shares of its common stock valued at $50,000.
The Company also issued a warrant to purchase one share of common stock for each
five shares sold in the offering, each warrant exercisable at $1.10 per share.
Purchasers in the offering, all of whom are selling shareholders described in
this registration statement, represented customers of the placement agent,
friends and business associates of officers and directors of the Company. The
offering was conducted by means of a Private Placement Memorandum dated July 9,
1999 and each purchaser executed a questionnaire and subscription agreement
demonstrating his status as an accredited investor. Stop transfer instructions
were issued to the Company's transfer agent in connection with issuance of the
certificates for that stock, each of which bore the restrictive legend required
by Rule 144.
In conjunction with the issuance of the common stock and warrant to the
placement agent described above, the Company relied on the exemption provided by
Section 4(2) of the Securities Act. The placement agent was afforded access to
the type of information customarily contained in a registration statement.
Furthermore, the placement agent was able to fend for itself in the transaction.
Finally, certificates representing the common stock and warrants were embossed
with a restrictive legend and stop transfer instructions were issued to the
Company's transfer agent.
In May, 1999, the Company issued an aggregate of 145,000 shares of its
common stock to three individuals in conversion of notes payable by the Company.
Principal and interest in the amount of $87,000 were converted at a price of
$.60 per share. The Company relied on the exemption provided by Section 4(2) in
issuing these shares. By virtue of their relationship with the Company, each
note holder was afforded access to information customarily contained in a
registration statement, and each was able to fend for himself in the
transaction. Finally, certificates representing the common stock were embossed
with a restrictive legend and stop transfer instructions were issued to the
Company's transfer agent.
Finally, several times during the 12 months succeeding the merger with
MedGrup Development Services, the Company has issued options to acquire its
common stock to employees and consultants of the Company. Such options were
issued under the 1999 Incentive Stock Option Plan maintained by the Company. As
of March 31, 2000, 1,391,293 options are outstanding with 294,293 of those
options vested. None of these options has been exercised as of the date of this
registration statement.
Item 27. Exhibits
1 Not applicable.
II-4
<PAGE>
2 Articles of Merger, MedGrup Corporation, as the survivor and MedGrup
Development Services, Inc., as filed with the Secretary of State of the
State of Colorado on May 12, 1999.
3.1 Articles of Incorporation of the Company as filed on June 26, 1998 with
the Secretary of State of the State of Colorado.
3.2 Articles of Amendment to the Articles of Incorporation, as filed with
the Secretary of State of the State of Colorado May 12, 1999.
3.3 Amended and Restated Bylaws
4 Form of Certificate for Common Stock
5 Opinion re: legality of securities - Included with Exhibit 23
6 Not applicable.
8 Not applicable.
9 Not applicable.
10.1 Form of Agreement for Coding Services
10.2 Form of Capital Lease Agreement between the Company and Wells Fargo
Equipment Finance, Inc. dated June 2, 1999.
10.3 Commercial Property Lease Agreement between the Company and Gary Bader
dated March 15, 2000.
10.4 Form of Warrant Agreement between the Company and Kashner Davidson
Securities Corporation.
10.5 Employment Agreement between the Company and William D. Cronin, dated
January 1, 2000.
10.6 Employment Agreement between the Company and Terry J. Holmes, dated
February 14, 2000.
10.7 Employment Agreement between the Company and Margaret M. Cronin, dated
January 1, 2000.
10.8 Employment Agreement between the Company and Gary B. Mendenhall, dated
January 1, 2000.
10.9 Incentive Stock Option Plan with Form of Option Agreement.
10.10 Option Agreement between the Company and Gary Mendenhall, dated May 26,
1999.
II-5
<PAGE>
10.11 Option Agreement between the Company and Terry Holmes, dated February
14, 2000.
10.12 Software Limited License Agreement between the Company and QuadraMed
Corporation dated December 13, 1999.
11 Not applicable.
12 Not applicable.
15 Not applicable.
16 Not applicable.
21 Not applicable.
23.1 Consent of Cordovano & Harvey, P.C.
23.2 Consent of Overton, Babiarz & Associates, P.C.
24 Power of Attorney (included in the signature page to this registration
statement)
25 Not applicable.
26 Not applicable.
27 Financial Data Schedule.
99 Not applicable.
Item 28. Undertakings
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the
most recent post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the
information set forth in the registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
II-6
<PAGE>
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment 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.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than insurance payments and 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 of whether such
indemnification by it is against public policy as expressed in the act and will
be governed by the final adjudication of such issue.
II-7
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorize this registration
statement to be signed on its behalf by the undersigned, in the County of El
Paso, State of Colorado on this 26th day of April, 2000.
MEDGRUP CORPORATION
By:/s/ William D. Cronin
------------------------
William D. Cronin, Chairman of the Board
and Chief Executive Officer
POWER OF ATTORNEY
We, the undersigned officers and directors of MedGrup Corporation, do
hereby constitute and appoint William D. Cronin and Terry L. Holmes, or either
of them, to be our true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution, for each of us and in our name, place and
stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this registration statement, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents full power and authority to do and perform each and every act and thing
requisite and necessary to be done in connection therewith and about the
premises, as fully to all intents and purposes as each of us might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue thereof.
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons on the 26th day of
April, 2000 in the capacities stated.
/s/ William D. Cronin Chairman of the Board, Chief Executive Officer
- ---------------------
William D. Cronin
/s/ Terry J. Holmes President, Director
- -------------------
Terry J. Holmes
/s/ Margaret M. Cronin Vice President - Finance (Principal Financial
- ---------------------- Officer), Treasurer, Secretary and Director
Margaret M. Cronin
II-8
<PAGE>
/s/ Gary B. Mendenhall Vice President - Operations, Chief Operating
- ---------------------- Officer and Director
Gary B. Mendenhall
/s/ James S. Wantman Controller
- --------------------
James S. Wantman
II-9
Exhibit 2
ARTICLES OF MERGER
MEDGRUP CORPORATION (FORMERLY PERSEUS ART GROUP, INC.,
(AS THE SURVIVING CORPORATION)
MEDGRUP DEVELOPMENT SERVICES, INC. (MERGED CORPORATION)
These Articles of Merger are filed with the Colorado Secretary of State
pursuant to section 7-111-105 of the Colorado Business Corporation Act (the
"Colorado Act"):
1. Plan of Merger. On May 7, 1999 Perseus Art Group, Inc. ("Perseus")
entered into a Plan and Agreement of Merger with Medgrup Development Services,
Inc. ("Medgrup"), pursuant to section 7-111-101 of the Colorado Act. Perseus is
the surviving corporation. A copy of the Plan and Agreement of Merger is
attached to these Articles of Merger. Perseus' name has been changed by filing
Articles of Amendment to the Articles of Incorporation of Perseus, which upon
filing effected certain changes in the Articles of Incorporation including the
change of name of the surviving corporation to "Medgrup Corporation."
2. Shareholder Approval. All of the shareholders of Perseus and all of the
shareholders of Medgrup voted in favor of the Plan and Agreement of Merger.
3. Effective Date of Merger. The merger is to take effect on the date these
Articles of Merger are filed by the Colorado Secretary of State.
Perseus Art Group, Inc.
/s/ Bruce A. Capra
- ------------------------
Bruce A. Capra,
President
<PAGE>
PLAN AND AGREEMENT OF MERGER
This Plan and Agreement of Merger ("Agreement") is entered into on May 7,
1999 between Perseus Art Group, Inc. ("Perseus"), a Colorado corporation with
offices located at 6604 West 67th Avenue, Arvada, Colorado 80003; Medgrup
Development Services, Inc. ("Medgrup"), a Colorado corporation with offices
located at 1880 Willow Park Way, Monument, Colorado 80132; and Scott M. Thornock
("Thornock"), 1422 Delgany Street, Denver, Colorado 80202, and Bruce A. Capra
("Capra"), 6604 West 67th Avenue, Arvada, Colorado 80003. Thornock and Capra are
officers, directors and shareholders of Perseus. Perseus and Medgrup are
referred to collectively in this Agreement as the "companies."
RECITALS
A. Perseus is in the business of acquiring and selling items of original
art and reproductions of original artworks on the Internet through its web site
"www.artwant.com." The board of directors of Perseus has determined that due to
competition from other companies selling similar goods on the Internet,
continuing losses from operations, and the limited financial resources available
to continue in operation, Perseus' business is not likely to become profitable.
Perseus' common stock is approved for trading on the National Quotation Bureau
System.
B. Medgrup is in the business of providing medical record coding services
and related services to hospitals. Medgrup realized a net profit from operations
for the period January 1, 1999 through April 30, 1999. Medgrup desires to have
its securities traded in a public market.
C. Perseus and Medgrup have negotiated the terms and conditions of a merger
of the companies by which Perseus would assign its current business and assets
to Thornock and Capra, Thornock and Capra would resign as directors and officers
of Perseus, and Medgrup would be merged into Perseus with new directors and
officers. In addition, Perseus' name would be changed to "Medgrup Corporation,"
the outstanding shares of common stock of Perseus would be reverse split (1 for
2), and other changes would be made to Perseus' Articles of Incorporation.
NOW THEREFORE, in consideration of the mutual promises and covenants
contained in this Agreement, and subject to the terms and conditions of hereof,
the parties agree as follows:
AGREEMENT
1. MERGER OF THE COMPANIES.
1.1 Surviving Corporation; Effect of Merger on the Assets and Liabilities
of the Companies. Subject to the terms and conditions of this Agreement, as of
the effective date of the closing (defined below), Medgrup shall be merged into
Perseus as the surviving corporation pursuant to section 7-111-101 of the
Colorado Business Corporation Act. As of the effective date of the closing (i)
all of the tangible and intangible assets of Medgrup shall be vested in Perseus
as the surviving corporation without reversion or impairment, by operation of
law; (ii) Perseus shall have all of the liabilities of Perseus and Medgrup; and
(iii) the separate existence of Medgrup Development Services, Inc. as a
corporation shall cease.
<PAGE>
1.2 Divestiture of the Assets and Assumption of the Liabilities of Perseus
Before the Effective Date of the Merger; Adjustment in Outstanding Shares of
Perseus. Subject to the terms and conditions of this Agreement, immediately
before the effective date of the Merger, Perseus shall assign (i) all of its
assets (except its computer and cash) to Capra by execution and delivery to
Capra of the "Assignment and Bill of Sale" in the form attached as Exhibit A;
and (ii) turn over all of its cash to Thornock (who shall personally undertake
to pay all of the liabilities of Perseus which exist immediately before the
effective date of the merger), by signing with Thornock the "Assignment and Bill
of Sale for Computer and Delivery of Cash, and Assumption of Liabilities" in the
form attached as Exhibit B. These conveyances shall be made, respectively, (a)
to Capra in consideration of his turning back to Perseus for cancellation and
retirement 450,000 shares of common stock of Perseus owned by Capra as of the
date of this Agreement (which would equal 225,000 shares after the reverse split
to take place as of the effective date of the closing); and (b) to Thornock in
consideration of his unconditional agreement to pay all of the liabilities of
Perseus as of the effective date of the closing of this Agreement.
1.3 Consideration for the Merger; Tax Treatment of the Merger. In full
payment for the merger of Medgrup into Perseus, on the effective date of the
closing of this Agreement and subsequent to the filing of Articles of Amendment
to the Perseus Articles of Incorporation, Perseus shall issue 3,785,000 shares
of common stock to the shareholders of Medgrup, as follows: 3,154,000 shares to
William D. Cronin and 631,000 shares to Margaret M. Cronin (at the rate of 6,308
shares of Perseus for each of the 500 shares of Medgrup owned by William D.
Cronin and the 100 shares owned by Margaret M. Cronin). No other consideration
will be paid to Medgrup or its shareholders in connection with the merger. The
number of Perseus shares to be issued will be after the reverse split of
Perseus' stock. As of the effective date of the merger, Perseus will have
4,740,000 shares of common stock issued and outstanding, of which the 3,785,000
shares issued to the Medgrup shareholders will constitute 79.85 percent of the
voting stock of Perseus. The merger is intended to constitute a tax free
"statutory reorganization" of the companies under section 368(A) of the Internal
Revenue Code of 1986, as amended.
1.4 Compliance with Securities Laws.
(a) The shares of common stock of Perseus to be issued to the shareholders
of Medgrup shall constitute "restricted securities" as that term is
defined in rule 144 adopted by the Securities and Exchange Commission
("SEC") under the United States Securities Act of 1933, as amended
(the "1933 Act"), and the securities laws of the State of Colorado.
Such shares shall be issued without registration with the SEC under
the 1933 Act, pursuant to the exemption from registration provided by
section 4(2) thereof. The certificates for such shares shall bear a
restrictive legend and "stop transfer" instructions shall be issued to
Perseus' transfer agent (Corporate Stock Transfer) to such effect.
(b) By their execution of this Agreement as officers and directors of
Medgrup, William D. Cronin and Margaret M. Cronin represent and
warrant to Perseus that:
(1) They are acquiring their shares of Perseus without any present
intent to resell or make a distribution of all or any portion
thereof, and that such shares are restricted securities under the
2
<PAGE>
1933 Act. Bill Cronin and Margaret represent and warrant to
Perseus that they have been advised of the restriction applicable
to such shares by Medgrup's securities counsel. The restrictive
legend shall be in substantially the following form: "The shares
represented by this Certificate have not been registered under
the Securities Act of 1933, as amended (the "Act"), and are
"restricted securities" as that term is defined in rule 144 under
the Act. These shares may not be offered for sale, sold or
otherwise transferred except pursuant to an effective
registration statement under the Act, or pursuant to an exemption
from registration under the Act."
(2) They have received and reviewed the articles of incorporation and
bylaws of Perseus, the Perseus' financial statements attached to
this Agreement, and Perseus' "Information Statement Pursuant to
Rule 15c2-11" attached to this Agreement, and have had the
opportunity to ask the officers and directors of Perseus any
questions they deem necessary in connection with the transactions
under this Agreement.
1.5 Closing. Subject to the conditions precedent set forth herein, the
closing of all transactions under this Agreement shall take place at the offices
of Patricia Cudd, attorney for Perseus, located at 1120 Lincoln Street, Suite
1310, Denver, Colorado 80203 at 10:30 am on Friday, May 7, 1999 or at another
time mutually agreed upon by Medgrup and Perseus.
(a) Conditions Precedent to Closing. The obligations of the companies to
close this Agreement are subject to the prior satisfaction of the following
conditions.
(1) Actions Required to be Taken. All of the shareholders of Perseus
shall have consented in writing to the following matters: The
merger under this Agreement; the 1 for 2 reverse split of all the
outstanding shares of common stock of Perseus; the change of
Perseus' name to "Medgrup Corporation"; and the addition of
certain provisions to the Articles of Incorporation of Perseus
(including an increase in the authorized number of shares of
common stock which Perseus will be authorized to issue). In
addition, all of the shareholders of Perseus shall have consented
to the new Incentive Stock Option Plan (for which 1,500,000
shares of common stock of Perseus shall be reserved for issuance
upon exercise of options to be granted to employees of Medgrup
Corporation after the effective date of the merger). The share
holders of Perseus also shall have approved the appointment of
William D. Cronin, Margaret M. Cronin and Gary Mendenhall to the
Perseus board of directors, as of the effective date of the
merger.
(2) Representations and Warranties, and Due Diligence. The
representations and warranties of Perseus and Medgrup contained
in this Agreement shall be in all material respects true and
correct on and as of the date of closing. Perseus and Medgrup, or
their agents, shall have completed their "due diligence" review
of the business and other aspects of each entity.
3
<PAGE>
(b) Actions to be Taken at Closing (or on Effective Date of Merger, If
After Date of Closing):
(1) By Perseus: Perseus shall deliver to Medgrup at closing:
(A) The written consent of all of its shareholders to each of
the actions required to be taken as listed in section
1.5(a)(1) of this Agreement;
(B) Executed authorization of the Perseus board of directors to
issue shares of restricted common stock to William D. Cronin
and Margaret M. Cronin in the amounts stated in section 1.3
of this Agreement, and to cancel 450,000 shares of common
stock (pre-reverse split) held in Capra's name upon
surrender of Capra's certificate for 540,000 shares;
(C) Executed duplicate originals of Articles of Merger and
Articles of Amendment to the Articles of Incorporation of
Perseus.
(D) Resolutions of the board of directors electing William D.
Cronin, Margaret M. Cronin and Gary Mendenhall as directors
of Perseus, and the resignations of Capra and Thornock as
officers and directors of Perseus as of the effective date
of the merger;
(E) Legal opinion of counsel to Perseus in the form approved by
counsel to Medgrup prior to the closing,
(2) By Perseus: Perseus shall deliver:
(A) To Capra, the Executed Assignment and Bill of Sale (Exhibit
A);
(B) To Thornock, the Assignment and Bill of Sale for Computer
and Delivery of Cash, and Assumption of Liabilities (Exhibit
B) executed by Perseus (as to the Assignment and Bill of
Sale) and by Thornock (as to the Assumption of Liabilities);
(3) By Capra: Capra shall deliver to Perseus his certificate for
540,000 shares of common stock of Perseus (pre-reverse split),
endorsed with signature Medallion Guaranteed.
(4) By Medgrup: Medgrup shall deliver to Perseus:
(A) The certificates for common stock of Medgrup owned by Bill
Cronin and Margaret Cronin, without endorsement.
(B) Legal opinion of counsel to Medgrup in the form approved by
counsel to Perseus prior to the closing.
4
<PAGE>
(c) Actions to be Taken After Closing: Perseus shall file Articles of
Merger and Articles of Amendment to the Perseus Articles of
Incorporation with the Colorado Secretary of State, and send the
certificate for Capra's shares of common stock to the transfer agent
for cancellation of 450,000 shares (225,000 post reverse split) and
issue and deliver a new certificate for the remaining 45,000 shares
(post reverse split) in the name of and to Capra. Perseus shall cancel
the certificates for Medgrup stock received from Medgrup. The former
officers of Perseus shall deliver to Perseus all of the corporate
books and records and bank statements and accounting records
maintained by the former officers. Copies of such materials may be
retained by Capra and Thornock.
(d) Effective Date of the Merger. The merger shall be effective as of the
date Articles of Merger, and Articles of Amendment to the Perseus
Articles of Incorporation, are filed by Perseus and Medgrup with the
Colorado Secretary of State. The parties agree to use their best
efforts to file these documents on the same day as the closing. Until
such filings are made, the boards of directors of Perseus and Medgrup,
or either one of them, may abandon and terminate this Agreement in
their sole discretion, as permitted by section 7-111-103(9) of the
Colorado Business Corporation Act, but only pursuant to section 3 of
this Agreement. If this Agreement is abandoned and terminated, all
documents and instruments delivered at the closing shall be returned
to the parties.
2. REPRESENTATIONS AND WARRANTIES. Perseus and Medgrup hereby represent and
warrant to each other that the following are true and correct as of the date
hereof (except for the Medgrup financial statements, which will be delivered to
Perseus after the date of this Agreement) and will be true and correct through
the date of closing as if made on that date:
(a) Entity Status. It is a corporation duly organized, validly existing
and in good standing under the laws of the State of Colorado, with all
requisite power and authority to carry on the business in which it is
engaged, and is duly qualified and licensed to do business and is in
good standing in all jurisdictions where the nature of its business
makes such qualification necessary.
(b) Litigation. There are no claims, actions, suits, proceedings or
investigations pending or threatened against or affecting it or any of
its properties or assets in any court or by or before any federal,
state, municipal or other government department, which, if determined
adversely to it, would materially affect its business, prospects,
properties or financial condition or its right to conduct business.
(c) Financial Statements.
(1) Of Perseus. The Perseus balance sheet as of December 31, 1998 and
related statements for the period from inception to such date
("Exhibit C") fairly present the assets, liabilities and
financial condition of Perseus as of such dates and for such
periods, and have been prepared in conformity with generally
accepted accounting principles consistently applied. From
December 31, 1998 to the date of closing, there have been no
5
<PAGE>
material adverse changes in the financial condition or the
results of operations of Perseus, except as incurred in the
ordinary course of business. The Perseus financial statements are
audited by an independent firm of certified public accountants.
(2) Of Medgrup. The balance sheet of Medgrup as of April 30, 1999,
and the related statements for the 4 month period then ended
fairly present the assets, liabilities and financial condition of
Medgrup as of such dates and for such periods, and have been
prepared in conformity with generally accepted accounting
principles consistently applied. From April 30, 1999 to the date
of closing, there have been no material adverse changes in the
financial condition or the results of operations of Medgrup,
except as incurred in the ordinary course of business. The
Medgrup financial statements will be not be audited for purposes
of this Agreement. The Medgrup financial statements are attached
hereto as "Exhibit D."
(d) Material Transactions and Adverse Changes. Except as has been disclosed
in writing to each other, it has not and as of the date of closing it will
not have: (i) suffered any materially adverse change in its assets or
business taken as a whole; (ii) suffered any damage or destruction in the
nature of a casualty loss, whether or not covered by insurance, which
singly or in the aggregate are materially adverse to its business; or (iii)
made any change in any method of accounting or accounting practice,
including the revaluation of any assets.
(e) Taxes. All income, excise, unemployment, social security, occupational,
franchise, ad valorem and other taxes, duties, assessments or charges
levied, assessed or imposed upon it have been duly paid or adequately
provided for, and all required tax returns or reports have been duly filed.
Adequate reserves have been established for all income and other tax
liabilities in its financial statements. It has not waived any statute of
limitations with respect to any tax liability for any period.
(f) Authorization and Validity. The execution, delivery and performance by
it of this Agreement and the consummation of the transactions contemplated
hereby, have been (or with respect to the approval of the Perseus
shareholders will have been as of the date of closing) duly authorized by
it. This Agreement has been duly executed and delivered and is enforceable
against it, except as may be limited by applicable bankruptcy, insolvency
or similar laws affecting creditors' rights generally or the availability
of equitable remedies.
(g) Capitalization
(1) Of Perseus: Perseus has 2,360,000 shares of common stock issued
and outstanding, prior to the reverse stock split and the return
of shares by Capra.
(2) Of Medgrup: Medgrup has 600 shares of common stock issued and
outstanding.
6
<PAGE>
(3) No Other Securities. Except for $87,000.00 of short-term debt
which is convertible into 22.95 shares of Medgrup common stock as
of the date of this Agreement (but which debt is not to be
converted as part of the merger), neither Perseus nor Medgrup has
issued and outstanding any warrants, options or similar rights to
subscribe for or purchase shares of its capital stock (or any
securities convertible into or exchangeable for its capital
stock), nor are there any other securities outstanding
convertible into or exchangeable for its common stock. Neither
Perseus nor Medgrup has any contracts or commitments pursuant to
which any person may acquire any shares of its capital stock.
Excepted from the preceding are options, which may be issued
subsequent to the effective date of the merger under the Perseus
Incentive Stock Option Plan, to purchase up to 815,000 shares of
common stock of Perseus at an exercise price of $1.00 per share.
(h) The written information about its business (other than its financial
statements as to which a separate representation and warranty is made)
is materially true and complete, and does not omit to state any facts
necessary to make the statements which are made therein not
misleading.
3. TERMINATION OF THIS AGREEMENT. Before the effective date of the merger,
this Agreement shall terminate:
(a) By mutual written consent of Perseus and Medgrup;
(b) By Perseus or Medgrup, if all the conditions precedent to its
respective obligations hereunder have not been satisfied or waived
prior to the date of closing.
(c) Termination of this Agreement shall be made in writing given to the
other party. If this Agreement is terminated, each party shall keep
confidential all information about the other party, and return all
documents to the other party.
4. MISCELLANEOUS.
(a) Amendments. This Agreement may be amended, modified, or supplemented
only by instrument in writing executed by all parties.
(b) Assignment. Neither this Agreement nor any right created hereby or in
any agreement entered into in connection with the transactions
contemplated hereby shall be assignable by any party hereto without
the written consent of the party not seeking assignment.
(c) Parties in Interest; No Third Party Beneficiaries. Except as otherwise
provided herein, the terms and conditions of this Agreement shall
inure to the benefit of and be binding upon the parties and their
respective heirs, legal representatives, successors and assigns.
Neither this Agreement nor any other agreement contemplated hereby
7
<PAGE>
shall be deemed to confer upon any person not a party hereto or
thereto any rights or remedies hereunder or thereunder.
(d) Entire Agreement. This Agreement together with its exhibits constitute
the entire agreement of the parties regarding the subject matter
hereof, and supersede all prior agreements and understandings, both
written and oral, among the parties, or any of them, with respect to
the subject matter hereof.
(e) Severability. If any provision of this Agreement is held to be
illegal, invalid or unenforceable, such provision shall be fully
severable and this Agreement shall be construed and enforced as if
such illegal, invalid or unenforceable provision never comprised a
part hereof; and the remaining provisions hereof shall remain in full
force and effect and shall not be affected by the illegal, invalid or
unenforceable provision or by its severance herefrom. Further, in lieu
of such illegal, invalid or unenforceable provision, there shall be
added automatically as part of this Agreement a provision as similar
in terms to such illegal, invalid, or unenforceableprovision as may be
possible and remain legal, valid and enforceable.
(f) Survival of Representations, Warranties and Covenants. The
representations, warranties and covenants of all parties contained
herein shall survive the closing of this Agreement.
(g) Notice. Any notice or communication hereunder must be in writing and
given by depositing the same in the United States mail, addressed to
the party to be notified, postage prepaid and registered or certified
with return receipt requested, by telefax transmission or by delivery.
Such notice shall be deemed received on the date on which it is
delivered to the addressee.
(h) Prevailing Party Clause. In the event of any litigation or proceeding
arising as a result of the breach of this Agreement or the failure to
perform hereunder, or failure or untruthfulness of any representation
or warranty herein, the party or parties prevailing in such litigation
or proceeding shall be entitled to collect the costs and expenses of
bringing or defending such litigation or proceeding, including
reasonable attorneys' fees, from the party or parties not prevailing.
(i) Specific Performance. All parties agree that its, his or her legal
remedy for damages based upon the breach by other parties of their
respective obligations under this Agreement will be inadequate to the
other parties and that, in addition to any other remedies a party may
have, the aggrieved party shall be entitled to obtain specific
performance of this Agreement and temporary and permanent injunctive
relief without the necessity of proving actual damages or posting any
bond with the court.
8
<PAGE>
IN WITNESS WHEREOF, all parties have executed this Agreement as of the date
first stated above. This Agreement may be executed in counterpart signature
pages, which together will constitute the executed Agreement.
MEDGRUP DEVELOPMENT SERVICES, INC. PERSEUS ART GROUP, INC.
/s/ William D. Cronin /s/ Bruce A. Capra
- --------------------------- ------------------------------------
By William D. Cronin, Bruce A. Capra,
President President
/s/ Scott M. Thornock /s/ Bruce A. Capra
- --------------------------- ------------------------------------
SCOTT M. THORNOCK, BRUCE A. CAPRA,
Individually Individually
9
<PAGE>
IN WITNESS WHEREOF, all parties have executed this Agreement as of the date
first stated above. This Agreement may be executed in counterpart signature
pages, which together will constitute the executed Agreement.
MEDGRUP DEVELOPMENT SERVICES, INC. PERSEUS ART GROUP, INC.
- ------------------------- ----------------------------------
By William D. Cronin, Bruce A. Capra,
President President
/s/ Margaret Cronin
- -----------------------------
Margaret Cronin,
Vice President and
Treasurer
- ----------------------------- ----------------------------------
SCOTT M. THORNOCK, BRUCE A. CAPRA,
Individually Individually
9
<PAGE>
EXHIBIT A TO PLAN AND AGREEMTN OF MERGER
ASSIGNMENT AND BILL OF SALE
Perseus Art Group, Inc. (the "Assignor") hereby assigns and conveys to
Bruce A. Capra (the "Assignee") all of the Assignor's right, title and interest
in and to (i) the Internet site "www.artwant.com"; (ii) "collectibles" and art
works and other inventory owned by Assignor; and (iii) accounts receivable as of
the date hereof. A list of the items covered by (ii) and (iii) are attached.
This Assignment is made in consideration of Assignee's return to the
Assignor of 450,000 shares of common stock of the Assignor which he ownes. Such
suchares are to be cnaceled and returned to the status of authorized unissued
shares. A copy of the stock certificate is attached.
Dated May 7, 1999
Perseus Art Group, Inc.
/s/ Scott M. Thornock
- ----------------------------------
Scott M. Thornock, duly authorized
/s/ Bruce A. Capra
- ----------------------------------
Bruce A. Capra
<PAGE>
EXHIBIT B TO PLAN AND AGREEMENT OF MERGER
ASSIGNMENT AND BILL OF SALE,
AND ASSUMPTION OF LIABILITIES
Perseus Art Group, Inc. (the "Assignor") hereby assigns and conveys to
Scott M. Thornock (the "Assignee") all of the Assignor's right, title and
interst in and to (i) a computer (make and serial no. _________); (ii) cash on
hand as of the date hereof (copy of the check to Assignee is attached).
this Assignment is made in consideration of Assignee's unconditional
agreement to assume and be responsible for the prompt payment of all of the
Assignor's liabilities, including corporate attorney's fees, which have been
incurred through the date hereof. This assumption of liabilities extends to all
liabilities of the Assignor, whether or not such liabilities have been entered
on the financial books and records of the Assignor.
Dated May 7, 1999
Perseus Art Group, Inc.
/s/ Bruce A. Capra
- -------------------------------
Bruce A. Capra, duly authorized
/s/ Scott M. Thornock
- -------------------------------
Scott M. Thornock
Exhibit 3.1
ARTICLES OF INCORPORATION
OF
PERSEUS ART GROUP, INC.
KNOW ALL MEN BY THESE PRESENTS:
That I, SCOTT M. THORNOCK, desiring to establish a corporation under the
name of PERSEUS ART GROUP, INC., for the purpose of becoming a body corporate
under and by virtue of the laws of the State of Colorado and, in accordance
with the provisions of the laws of said. State, do hereby make, execute and
acknowledge this certificate in writing of my intention to become a body
corporate, under and by virtue of said laws.
ARTICLE I
The name of the corporation shall be: PERSEUS ART
ARTICLE II
The nature of the business and the objects and purposes to be transacted,
promoted and carried on are to do any or all of the things herein mentioned as
fully and to the same extent as natural persons might or could do, and in any
part of the world, viz:
(a) To transact all lawful business for which corporations may be
incorporated pursuant to the Colorado Business Corporations Act.
(b) To manufacture, purchase or otherwise acquire and to hold, own,
mortgage or otherwise lien, pledge, lease, sell, assign, exchange, transfer
or in any manner dispose of, and to invest, deal and trade in and with
goods, wares, merchandise and personal property of any and every class and
description, within or without the State of Colorado.
(c) To acquire the goodwill, fights and property and to undertake the
whole or any part of the assets and liabilities of any person, firm,
association or corporation, to pay fur the same in cash, the stock of the
corporation, bonds or otherwise; to hold or in any manner dispose of the
whole or any part of the property so purchased; to conduct in any lawful
manner the whole or any part of any business so acquired and to exercise
all the powers necessary or convenient in and about the conduct and
management of such business.
(d) To guarantee, purchase or otherwise acquire, hold, sell, assign,
transfer, mortgage, pledge or otherwise dispose of shares of the capital
stock, bonds or other evidences of indebtedness created by other
corporations and, while
<PAGE>
the holder of such stock, to exercise all the rights and privileges of
ownership, including the right to vote thereon, to the same extent as
natural persons might or could do.
(e) To purchase or otherwise acquire, apply for, register, hold, use,
sell or in any manner dispose of and to grant licenses or other rights in
and in any manner deal with patents, inventions, improvements, processes,
formulas, trademarks, trade names, rights and licenses secured under
letters patent, copyright or otherwise.
(f) To enter into, make and perform contracts of every kind for any
lawful purpose, with any person, firm, association or corporation, town
city, county, body politic, state, terrItory, government, colony or
dependency thereof.
(g) To borrow money for any of the purposes of the corporation and to
draw, make, accept, endorse, discount, execute, issue, sell, pledge or
otherwise dispose of promissory notes, drafts, bills of exchange, warrants,
bonds, debentures and other negotiable or non-negotiable, transferable or
nontransferable instruments and evidences of indebtedness, and to secure
the payment thereof and the interest thereon by mortgage or pledge,
conveyance or assignment in trust of the whole or any part of the property
of the corporation at the time owned or thereafter acquired.
(h) To lend money to, or guarantee the obligations of; or to otherwise
assist the directors of the corporation or of any other corporation the
majority of whose voting capital stock is owned by the corporation, upon
the affirmative vote of at least a majority of the outstanding shares
entitled to vote for directors.
(i) To purchase, take, own, hold, deal in, mortgage or otherwise
pledge, and to lease, sell, exchange, convey, transfer or in any manner
whatever dispose of real property, within or without the State of Colorado,
(j) To purchase, hold, sell and transfer the shares of its capital
stock.
(k) To have one or more offices and to conduct any and all operations
and business and to promote its objects, within or without the State of
Colorado, without restrictions as to place or amount.
(1) To do any or all of the things herein set forth as principal,
agent, contractor, trustee, partner or otherwise, alone or in company with
others.
(m) The objects and purposes specified herein shall be regarded as
independent objects and purposes and, except where otherwise expressed,
shall be in no way limited or restricted by reference to or inference from
the terms of any other clauses or paragraph of these Articles of
Incorporation.
2
<PAGE>
(n) The foregoing shall be constructed both as objects and powers and
the enumeration thereof shall not be held to limit or restrict in any
manner the general powers conferred on this corporation by the laws of the
State of Colorado.
ARTICLE III
The total number of shares of all classes of capital stock which the
corporation shall have authority to issue is 20,000,000 shares of common stock,
1001. par value per share. The holders of shares of common stock shall have the
right to receive dividends or share in the distribution of assets in the event
of liquidation, dissolution or winding up of the affairs of the corporation. The
capital stock, after the subscription price has been paid in, shall not be
subject to assessment to pay the debts of the corporation. Any stock of the
corporation may be issued for money, property, services rendered, labor done,
cash advances for the corporation or for any other assets of value in accordance
with the action of the Board of Directors, whose judgment as to value received
in return therefor shall be conclusive and said stock when issued shall be
fully-paid and nonassessable.
ARTICLE IV
The corporation shall have perpetual existence.
ARTICLE V
The governing board of this corporation shall be known as the Board of
Directors, and the number of directors may from time to time be increased or
decreased in such manner as shall be provided by the Bylaws of this corporation,
provided that the number of directors shall not be reduced to less than one.
The name and post office address of the incorporator is as follows:
Scott M. Thornock 1422 Delgany Street, Suite #12
Denver, Colorado 80202
The names and post office addresses of the sole director comprising the
original Board of Directors of the corporation is as follows:
Scott M. Thornock 1422 Delgany Street, Suite #12
Denver, Colorado 80202
Bruce Capra 6604 West 67th Avenue
Arvada, Colorado 80003
In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized:
3
<PAGE>
(a) To manage and govern the corporation by majority vote of members
present at any regular or special meeting at which a quorum shall be
present.
(b) To make, alter, or amend the Bylaws of the corporation at any
regular or special meeting.
(c) To fix the amount to be reserved as working capital over and above
its capital stock paid in.
(d) To authorize and cause to be executed mortgages and liens upon the
real and personal property of this corporation.
(e) To designate one or more committees, each committee to consist of
two or more of the directors of the corporation, which, to the extent
provided by resolution or in the Bylaws of the corporation, shall have and
may exercise the powers of the Board of Directors in the management of the
business and affairs of the corporation. Such committees shall have such
name or names as may be stated in the Bylaws of the corporation or as may
be determined from time to time by resolution adopted by the Board of
Directors.
The Board of Directors shall have power and authority to sell, lease,
exchange or otherwise dispose of all or substantially all of the property and
assets of the corporation, if in the usual and regular course of its business,
upon such terms and conditions as the Board of Directors may determine without
vote or consent of its shareholders.
The Board of Directors shall have power and authority to sell, lease,
exchange or otherwise dispose of all or substantially all the property or assets
of the corporation, including its goodwill, if not in the usual and regular
course of its business, upon such terms and conditions as the Board of Directors
may determine, provided that such sale shall be authorized or ratified by the
affirmative vote of the shareholders of at least a majority of the shares
entitled to vote thereon at a shareholders meeting called for that purpose, or
when authorized or ratified by the written consent of all the shareholders of
the shares entitled to vote thereon.
The Board of Directors shall have the power and authority to merge or
consolidate the corporation upon such terms and conditions as the Board of
Directors may authorize, provided that such merger or consolidation is approved
or ratified by the shares entitled to vote thereon at a shareholders meeting
called for that purpose, or when authorized or ratified by the written consent
of all the shareholders of the shares entitled to vote thereon.
The corporation shall be dissolved upon the affirmative vote of the
shareholders of at least a majority of the shares entitled to vote thereon at a
meeting called for that purpose, or when authorized or ratified by the written
consent of all the shareholders of the shares entitled to vote thereon.
4
<PAGE>
The corporation shall revoke voluntary dissolution proceedings upon the
affirmative vote of the shareholders of at least a majority of the shares
entitled to vote at a meeting called for that purpose, or when authorized or
ratified by the written consent of all the shareholders of the shares entitled
to vote.
ARTICLE VI
The following provisions are inserted for the management of the business
and for the conduct of the affairs of the corporation, and the same are in
furtherance of and not in limitation of the powers conferred by law.
No contract or other transactions of the corporation with any other person,
firm or corporation, or in which this corporation is interested, shall be
affected or invalidated by (a) the fact that any one or more of the directors or
officers of this corporation is interested in or is a director or officer of
such other firm or corporation; or (b) the fact that any director or officer of
this corporation, individually or jointly with others, may be a party to or may
be interested in any such contract or transaction, so long as the contract or
transaction is authorized, approved or ratified at a meeting of the Board of
Directors by sufficient vote thereon by directors not interested therein, to
which such fact or relationship or interest has been disclosed, or so long as
the contract or transaction is fair and reasonable to the corporation4 Each
person who may become a director or officer of the corporation is hereby
relieved from any liability that might otherwise arise by reason of his
contracting with the corporation for the benefit of himself or any firm or
corporation in which be may be in any way interested.
The officers, directors and other members of management of this corporation
shall be subject to the doctrine of corporate opportunities only insofar as it
applies to business opportunities in which this corporation has expressed. an
interest as determined from time to time by the corporation's Board of Directors
as evidenced by resolutions appealing in the corporation's minutes. When such
areas of interest are delineated, all such business opportunities within such
areas of interest which cone to the attention of the officers, directors and
other members of management of this corporation shall be disclosed promptly to
this corporation and made available to it. The Board of Directors may reject any
business opportunity presented to it and thereafter any officer,, director or
other member of management may avail himself of such opportunity. Until such
time as this corporation, through its Board of Directors, has designated an area
of interest, the officers, directors and other members of management of this
corporation shall be free to engage in such areas of interest on their own and
the provisions hereof shall not limit the rights of any officer, director or
other member of management of this corporation to continue a business existing
prior to the time that such area of interest is designated by this corporation.
This provision shall not be construed to release any employee of the corporation
(other than an officer, director or member of management) from any duties which
he may have to the corporation.
5
<PAGE>
ARTICLE VII
Each director and officer of the corporation shall be indemnified by the
corporation as follows:
(a) The corporation shall indemnify any person who was or is a party,
or is threatened to be made a party, to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of
the corporation), by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is otherwise serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fees and amounts
paid in settlement, actually and reasonably incurred by him in connection
with such action, suit or proceeding, if he acted in good faith and in a
manner he reasonably believed to be in, or not opposed to, the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful.
The termination of any action, suit or proceeding, by judgment, order,
settlement, conviction upon a plea of no contendere or its equivalent,
shall not of itself create a presumption that the person did not act in
good faith and in a manner he reasonably believed to be in, or not opposed
to, the best interests of the corporation and, with respect to any criminal
action or proceeding, had reasonable cause to believe the action was
unlawful.
(b) The corporation shall indemnify any person who was or is a party,
or is threatened to be made a party, to any threatened, pending or
completed action or suit by or in the right of the corporation, to procure
a judgment in its favor by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against expenses (including attorney's fees) actually and reasonably
incurred by him in connection with the defense or settlement of such action
or suit, if he acted in good faith and in a manner he reasonably believed
to be in, or not opposed to, the best interests of the corporation, except
that no indemnification shall be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable for
negligence or misconduct in the performance of his duty to the corporation,
unless, and only to the extent that, the court in which such action or suit
was brought shall determine upon application that, despite the adjudication
of liability, but in view of all circumstances of the case, such person is
fairly and reasonably entitled to indemnification for such expenses which
such court deems proper.
6
<PAGE>
(c) To the extent that a director, officer, employee or agent of the
corporation has been successful on the merits or otherwise in defense of
any action, suit or proceeding referred to in Sections (a) and (b) of this
Article, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.
(d) Any indemnification under Section (a) or (b) of this Article
(unless ordered by a court) shall be made by the corporation only as
authorized in the specific case upon a determination that indemnification
of the officer, director and employee or agent is proper in the
circumstances, because he has met the applicable standard of conduct set
forth in Section (a) or (b) of this Article. Such determination shall be
made (i) by the Board of Directors by a majority vote of a quorum
consisting of directors who were not parties to such action, suit or
proceeding, or (ii) if such quorum is not obtainable or, even if'
obtainable, a quorum of disinterested directors so directs, by independent
legal counsel in a written opinion, or (iii) by the affirmative vote of the
holders of a majority of the shares of stock entitled to vote and
represented at a meeting called for such purpose.
(e) Expenses (including attorneys' fees) incurred in defending a civil
or criminal action, suit or proceeding may be paid by the corporation in
advance of the final disposition of such action, suit or proceeding, as
authorized in Section (d) of this Article, upon receipt of an understanding
by or on behalf of the director, officer, employee or agent to repay such
amount, unless it shall ultimately be determined that he is entitled to be
indemnified by the corporation as authorized in this Article.
(f) The Board of Directors may exercise the corporation's power to
purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, against any liability asserted against him and incurred by him
in any such capacity, or arising out of his status as such, whether or not
the corporation would have the power to indemnify him against such
liability under this Article.
(g) The indemnification provided by this Article shall not be deemed
exclusive of any other rights to which those seeking indemnification may be
entitled under these Articles of Incorporation, the Bylaws, agreements,
vote of the shareholders or disinterested directors, or otherwise, both as
to action in his official capacity arid as to action in another capacity
while holding such office, and shall continue as to a person who has ceased
to be a director, officer, employee or agent and shall inure to the benefit
of the heirs and personal representatives of such a person.
7
<PAGE>
ARTICLE VIII
The initial registered and principal office of said corporation shall be
located at 1422 Delgany Street, Suite 13, Denver, Colorado, 80202, and the
initial registered agent of the corporation at such address shall be Scott M.
Thornock.
Part or all of the business of said corporation may be carried on in the
City and County of Denver, or any other place in the State of Colorado or beyond
the limits of the State of Colorado, in other states or territories of the
United States and in foreign countries.
ARTICLE IX
Whenever a compromise or arrangement is proposed by the corporation between
it and its creditors or any class of them, and/or between said corporation and
its shareholders or any class of them, any court of equitable jurisdiction may,
on. the application in a summary way by said corporation, or by a majority of
its stock, or on the application of trustees in dissolution, order a meeting of
the creditors or class of creditors and/or of the shareholders or class of
shareholders of said corporation, as the case may be, to be notified in such
manner as the said court decides. If a majority in number, representing at least
three-fourths in amount of the creditors or class of creditors, and/or the
holders of a majority of the stock or class of stock of said corporation, as the
case may be, agree to any compromise or arrangement and/or to any reorganization
of said corporation, as a consequence of such compromise or arrangement, the
said compromise or arrangement and/or the said reorganization shall, if
sanctioned by the court to which the said application has been made, be binding
upon all the creditors or class of creditors, and/or on all the shareholders or
class of shareholders of said corporation, as the case may be, and also on said
corporation.
ARTICLE X
No shareholder in the corporation shall have the preemptive right to
subscribe to any or all additional issues of stock and/or other securities of
any or all classes of this corporation or securities convertible into stock or
carrying stock purchase warrants, options or privileges.
ARTICLE XI
Meetings of shareholders may be held at any time and place as the Bylaws
shall provide. At all meetings of the shareholders, a majority of all shares
entitled to vote shall constitute a quorum.
ARTICLE XII
Cumulative voting shall not be allowed.
8
<PAGE>
ARTICLE XIII
These Articles of Incorporation may be amended by resolution of the Board
of Directors if no shares have been issued, and if shares have been issued, by
affirmative vote of the shareholders of at least a majority of the shares
entitled to vote thereon at a meeting called for that purpose, or, when
authorized, when such action is ratified by the written consent of all the
shareholders of the shares entitled to vote thereon.
ARTICLE XIV
Whenever the shareholders must approve or authorize any matter, whether now
or hereafter required by the laws of the State of Colorado, the affirmative vote
of a majority of the shares entitled to vote thereon shall be necessary to
constitute such approval or authorization.
IN TESTIMONY WHEREOF, I have hereunto set my hand on this 26th day of June,
1998.
/s/ Scott M. Thornock
----------------------
Scott M. Thornock
STATE OF COLORADO )
) ss.
COUNTY OF DENVER )
I, Janet L. Davis, a Notary Public, in and for the said county and state,
hereby certify that there personally appeared before me Scott M. Thornock, who
being first duly sworn, declared that she is the person who executed the
foregoing document as the incorporator, and that the statements therein
contained are true.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 26th day of
June, 1998.
/s/ Janet L. Davis
-------------------------
Notary Public
My Commission Expires: 4-15-2000
9
<PAGE>
CONSENT TO APPOINTMENT AS INITIAL REGISTERED AGENT
By my signature below on this 26th day of June, 1998, I hereby consent to
my appointment as the initial registered agent of PERSEUS ART GROUP, INC.
/s/ Scott M. Thornock
----------------------
Scott M. Thornock
STATE OF COLORADO )
) ss.
COUNTY OF DENVER )
I, Janet Davis, a Notary Public, in and for the said county and state,
hereby certify that there personally appeared before me, Scott M. Thornock, who
being first duly SWOrn, declared that he is the person who executed the
foregoing document as the initial registered agent of the corporation, and that
the statements therein contained are true.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 26th day of
June, 1998.
/s/ Janet L. Davis
---------------------------------
Notary Public
My Commission Expires: 4-15-2000
l0
Exhibit 3.2
Mail to: Secretary of State For office use only
Corporations Section
1560 Broadway, Suite 200
Denver, CO 80202
(303) 894-2251
MUST BE TYPED Fax (303) 894-2242
FILING FEE: $25.00
MUST SUBMIT TWO COPIES
ARTICLES OF AMENDMENT
Please include a typed TO THE
self-addressed envelope ARTICLES OF INCORPORATION
Pursuant to the provisions of the Colorado Business Corporation Act, the
undersigned corporation adopts the following Articles of Amendment to its
Articles of Incorporation:
First: The name of the corporation is Perseus Art Group, Inc.
Second: The following amendment to the Articles of Incorporation was
adopted on May 7, 1999, as prescribed by the Colorado Business Corporation Act,
in the manner marked with an X below:
No shares have been issued or Directors Elected -
--------- Action by Incorporators
No shares have been issued but Directors Elected -
--------- Action by Directors
Such amendment was adopted by the board of directors where
--------- shares have been issued and shareholder action was not
required.
X Such amendment was adopted by a vote of the shareholders. The
number of shares voted for the amendment was sufficient for
approval.
The text of the Amendment follows:
There are 1,910,000 shares of common stock of the corporation which are
issued and outstanding as of the date these Articles of Incorporation are filed
with the Colorado Secretary of State. Such number of issued and outstanding
shares is after the return and cancellation of 450,000 shares by Bruce A. Capra
in connection with the Plan and Agreement of Merger between the corporation and
Medgrup Development Services, Inc., which Plan and Agreement is to take effect
by the filing of Articles of Merger immediately after the filing of these
Articles of Amendment. The 1,910,000 shares of common stock which are issued and
outstanding shall be reverse split on a 1 for 2 basis, such that as of the
effective date of these Articles of Amendment there shall be issued and
outstanding 955,000 shares of common stock, $.001 par value.
ARTICLE III. Capital Stock. The Corporation is authorized to issue
50,000,000 shares of Common Stock, $.001 par value. The holders of shares of
common stock shall have the right to receive dividends or share in the
distribution of assets in the event of liquidation, dissolution or winding up of
the affairs of the corporation. The capital stock, after being paid for in
accordance with the authorization of issue by the board of directors of the
corporation, shall not be subject to assessment.
<PAGE>
ARTICLE XIV. Limited Liability of Directors Under Certain Circumstances. No
director of the corporation shall be personally liable to the corporation or to
the shareholders of the corporation for monetary damages for breach of fiduciary
duty to the corporation as a director, except that the foregoing shall not
eliminate or limit the liability of a director to the corporation or to its
shareholders for monetary damages for (i) any breach of a director's duty of
loyalty to the corporation or its shareholders, (ii) acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) any of the acts specified in Section 7-8-403 of the Colorado Business
Corporation Act, or (iv) any transaction from which the director derived an
improper personal benefit. In addition, the corporation shall have full
authority to indemnify its directors, officers, employees, and agents as now or
hereinafter permitted by the Act.
Third: If changing corporate name, the new name of the corporation is
Medgrup Corporation.
Fourth: The manner, if not set forth in such amendment, in which any
exchange, reclassification, or cancellation of issued shares provided for in the
amendment shall be effected, is as follows: Not applicable.
If these amendments are to have a delayed effective date, please list that
date (not to exceed ninety (90) days from filing date: Not applicable - to be
effective as of filing date with the Colorado Secretary of State.
Perseus Art Group, Inc.
/s/ Bruce A. Capra
- -------------------------
Bruce A. Capra, President
Exhibit 3.3
AMENDED AND RESTATED
BYLAWS
OF
MEDGRUP CORPORATION
ARTICLE I
Office
------
The principal office of the Corporation in the State of Colorado shall be
located at 1880 Willow Park Way, Suite B, Monument, Colorado 80132, and
thereafter at such location as the Board of Directors may determine.
The Corporation may have such other offices, either within or without the
State of Colorado, as the Board of Directors may determine or as the affairs of
the Corporation may require from time to time.
The Corporation shall have and continuously maintain in the State of
Colorado a registered office and a registered agent whose office is identical
with such registered office as required by the Colorado Business Corporation
Act.
ARTICLE II
Shareholders' Meetings
----------------------
Section 1. Annual Meetings.
A. Time and Place. The Annual Meeting of the Shareholders of the
Corporation, commencing with the year of incorporation, shall be as
determined by the Board of Directors on a date not less frequent than once
every 365 days. If said day is a legal holiday, the meeting shall be held
on the next succeeding day not a legal holiday.
B. Purpose of Annual Meeting. The business to be transacted at such
Annual Meeting shall be the election of Directors and such other business
as shall be properly brought before the meeting.
C. Alternate Election Date. If the election of Directors shall not be
held on the day designated for the Annual Meeting, or at the designated
date upon adjournment of such meeting, the Board of Directors shall call a
Special Meeting of the Shareholders as soon as conveniently possible
thereafter. At such meeting, the election of Directors shall take place,
and such election and any other business transacted there at shall have the
same force and effect as at an Annual Meeting duly called and held.
<PAGE>
D. Notice. Written notice at the address last shown on the books of
the Corporation stating the place, day and hour of the meeting, and in the
case of a Special Meeting the purpose for which the meeting is called,
shall be delivered not less than 10 days nor more than 60 days before the
date of the meeting, either personally or by mail at the direction of the
President, Secretary or other officer or person calling the meeting; except
that if the authorized shares of the Corporation are to be increased, at
least 30 days notice shall be given.
Section 2. Special Meetings. Special Meetings of the Shareholders may be
called by the Chief Executive Officer, Board of Directors or by the holders of
at least 20% of the stock entitled to vote at such meeting.
Section 3. Waiver of Notice. A Shareholder may waive the notice of meeting
by attendance, either in person or by proxy, at the meeting, or by so stating in
writing either before or after such meeting. Attendance at a meeting for the
express purpose of objecting that the meeting was not lawfully called or
convened shall not, however, constitute a waiver of notice. Except where
otherwise required by law, notice need not be given of any adjourned meeting of
the Shareholders.
Section 4. Quorum. The holders of record of at least a majority of the
shares of the stock of the Corporation, issued and outstanding and entitled to
vote, present in person or by proxy, shall, except as otherwise provided by law
or by these Bylaws, constitute a quorum at all meetings of the Stockholders; if
there be no such quorum, the holders of a majority of such shares so present or
represented may adjourn the meeting from time to time until a quorum shall have
been obtained and, except as otherwise provided by law, no notice of any such
adjourned meeting need be given if the time and place to which the meeting is
adjourned are announced at the meeting so adjourned.
Section 5. Closing of Transfer Books; Record Date. In order to determine
the Shareholders of record of the Corporation's stock who are entitled to notice
of meetings, to vote at a meeting or adjournment thereof, and to receive payment
of any dividend, or to make a determination of the Shareholders of record for
any other proper purpose, the Board of Directors of the Corporation may order
that the Stock Transfer Books be closed for a period not to exceed 60 days. If
the purpose of such closing is to determine who is entitled to notice of a
meeting and to vote at such meeting, the Stock Transfer Books shall be closed
for at least ten days preceding such meeting.
A. Record Date. In lieu of closing the Stock Transfer Books, the Board
of Directors may fix a date as the record date for such determination of
Shareholders, such date in any case to be not more than 60 days prior to
the date of action which requires such determination, nor in the case of a
Shareholders' meeting, not less than ten days in advance of such meeting.
2
<PAGE>
B. Alternate Record Date. If the Stock Transfer Books are not closed
and no record date is fixed for such determination of the Shareholders of
record, the date on which notice of the meeting is mailed or on which the
resolution of the Board of Directors declaring a dividend is adopted, as
the case may be, shall be the record date for such determination of
Stockholders.
C. Adjournment. When a determination of Stockholders entitled to vote
at any meeting has been made, as provided in this Section, such
determination shall apply to any adjournment of such meeting.
Section 6. Presiding Officer. Meetings of the Stockholders shall be
presided over by the Chief Executive Officer or President.
Section 7. Proxies. At all meetings of Stockholders, a Stockholder may vote
by proxy executed in writing by the Stockholder or the Stockholder's duly
authorized attorney-in-fact. Such proxies shall be filed with the Secretary of
the Corporation before or at the time of the meeting. No proxy shall be valid
after 11 months from the date of its execution, unless otherwise provided in the
proxy.
Section 8. Voting of Shares by Stockholders.
A. Neither treasury shares, nor shares of its own stock held by the
Corporation in a fiduciary capacity, nor shares held by another corporation
if a majority of the shares entitled to vote for the election of directors
of such other corporation is held by this Corporation, shall be voted at
any meeting or counted in determining the total number of outstanding
shares at any given time.
B. At each meeting of the Stockholders, except as otherwise provided
by law or by the Articles of Incorporation, every holder of record of stock
entitled to vote shall be entitled to one vote for each share of stock
standing in his name on the books of the Corporation. Elections of
directors shall be determined by a plurality of the votes cast, and except
as otherwise provided by law, the Articles of Incorporation, or these
Bylaws, all other actions shall be determined by a majority of the votes
cast at such meeting. Each proxy to vote shall be in writing and signed by
the Stockholder or by his duly authorized attorney and shall not be voted
or acted upon after eleven (11) months from the date of its execution,
unless such proxy expressly provides for a longer period.
C. At all elections of directors, the voting shall be by ballot or in
such other manner as may be determined by the Stockholders present in
person or by proxy entitled to vote at such election. With respect to any
other matter presented to the Stockholders for their consideration at a
meeting, any Stockholder entitled to vote may, on any question, demand a
vote by ballot. The cumulative system of voting for the election of
directors or for any other purpose shall not be allowed.
3
<PAGE>
D. A complete list of the Stockholders entitled to vote at each such
meeting, arranged in alphabetical order, with the address of each, and the
number of shares registered in the name of each Stockholder, shall be
prepared by the Secretary and shall be open to the examination of any
Stockholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least ten (10) days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall
also be produced and kept at the time and place of the meeting during the
whole time thereof, and may be inspected by any Stockholder who is present.
E. The Board of Directors in advance of any meeting of Stockholders
may appoint one or more inspectors of election to act at that meeting or
any adjournment thereof. If inspectors of election are not so appointed,
the Chairman of the meeting may, and on the request of any Stockholder
entitled to vote shall, appoint one or more inspectors of election. Each
inspector of election, before entering upon the discharge of his duties,
shall take and sign an oath faithfully to execute the duties of inspector
of election at such meeting with strict impartiality and according to the
best of his ability. If appointed, inspectors of election shall take charge
of the polls and, when the vote is completed, shall make a certificate of
the result of the vote taken and of such other facts as may be required by
law.
Section 9. Informal Action by Stockholders. Any action required to be taken
at a meeting of the Stockholders or any other action which may be taken at a
meeting of the Stockholders may be taken without a meeting if a consent in
writing, setting forth the action so taken, shall be signed by all of the
Stockholders entitled to vote with respect to the subject matter thereof. Such
consent shall have the same force and effect as a unanimous vote of the
Stockholders and may be stated as such in any documents filed with the Secretary
of State of Colorado under the Colorado Business Corporation Act.
Section 10. Presumption of Assent. A Stockholder of the Corporation who is
present at a meeting of the Stockholders at which action on any corporate matter
is taken shall be presumed to have assented to the action taken unless such
Stockholder's dissent shall be entered in the Minutes of the meeting or unless
such Stockholder shall have filed written dissent to such action with the person
acting as the Secretary of the meeting before the adjournment thereof or shall
forward such dissent by certified mail to the Secretary of the Corporation
immediately following the adjournment of the meeting. Such right to dissent
shall not apply to a Stockholder who voted in favor of such action.
ARTICLE III
Directors
---------
Section 1. Number. The property, affairs and business of the Corporation
shall be managed by a Board of Directors of not less than two (2) persons as
shall be fixed by the Board of Directors. Except as hereinafter provided,
Directors shall be elected at the Annual Meeting of the Stockholders and each
4
<PAGE>
Director shall serve until the next annual meeting of shareholders or his
resignation or removal and until his successor shall be elected and qualify.
Section 2. Increase in Numbers. The number of Directors may be increased or
decreased from time to time by a majority vote of the whole Board of Directors,
provided however, that no vote to decrease the number of Directors shall have
the effect of shortening the term of any incumbent Director.
Section 3. Qualification. Directors need not be Stockholders of the
Corporation.
Section 4. Quorum. A majority of the Directors in office shall be necessary
to constitute a quorum for the transaction of business. If at any meeting of the
Board of Directors there shall be less than a quorum present, a majority of
those present may adjourn the meeting without further notice, from time to time,
until a quorum shall have been obtained.
Section 5. Vacancies. Any Director may resign at any time by giving written
notice to the President or to the Secretary of the Corporation. Such resignation
shall take effect at the time specified therein except such resignations shall
not be submitted effective retroactively. Unless otherwise specified therein,
the acceptance of such resignation shall not be necessary to make it effective.
Any vacancy occurring in the Board of Directors may be filled by the affirmative
vote of the Stockholders, or by the remaining Directors, though less than a
quorum, or by a sole remaining Director. A Director elected to fill a vacancy
shall be elected for the unexpired term of such Director's predecessor in
office. Any vacancy may be filled by the affirmative vote of Directors then in
office or by an election at an Annual Meeting or at a Special Meeting of
Stockholders called for that purpose, and a Director so chosen shall hold office
until the next Annual meeting of Stockholders and thereafter until such
Director's successor shall have been elected and qualified.
Section 6. Meetings. Regular meetings of the Board of Directors shall be
held at such times as are fixed from time to time by resolution of the Board.
Special Meetings may be held at any time upon call of the President, or a
majority of Directors serving as members of the Board of Directors. A meeting of
the Board of Directors shall be held without notice immediately following the
Annual Meeting of the Stockholders. Notice need not be given of regular meetings
of the Board of Directors held at any time without notice if all the Directors
are present, or if before the meeting those not present waive such notice in
writing. Notice of a meeting of the Board of Directors need not state the
purpose of or the business to be transacted at such meeting.
Section 7. Presumption of Assent. A Director of the Corporation who is
present at a meeting of the Board of Directors at which action on any corporate
matter is taken shall be presumed to have assented to the action taken unless
such Director's dissent shall be entered in the Minutes of the meeting or unless
such Director shall have filed written dissent to such action with the person
acting as the Secretary of the meeting before the adjournment thereof or shall
forward such dissent by certified mail to the Secretary of the Corporation
immediately following the adjournment of the meeting. Such right to dissent
shall not apply to a Director who voted in favor of such action.
5
<PAGE>
Section 8. Removal. At any meeting of Stockholders, any Director or
Directors may be removed from office, without assignment of any reason therefor,
by a requisite majority of the Stockholders. When any Director or Directors are
removed, new Directors may be elected at the same meeting of Stockholders for
the unexpired term of the Director or Directors to be removed. If the
Stockholders fail to elect persons to fill the unexpired term or terms of the
Director or Directors removed, such unexpired terms shall be considered
vacancies on the Board to be filled by the remaining Directors.
Section 9. Informal Action by Directors. Any action required to be taken at
a meeting of the Board of Directors or any other action which may be taken at a
meeting of the Board of Directors may be taken without a meeting if a consent in
writing, setting forth the action so taken, shall be signed by all of the
Directors entitled to vote with respect to the subject matter thereof. Such
consent shall have the same force and effect as a unanimous vote of the
Directors and may be stated as such in any documents filed with the Secretary of
State of Colorado under the Colorado Business Corporation Act.
Section 10. Compensation. Directors and members of any committee of the
Board of Directors shall be entitled to such reasonable compensation for their
services as Directors and members of any such committee as shall be fixed from
time to time by resolution of the Board of Directors, and shall also be entitled
to reimbursement for any reasonable expenses incurred in attending such
meetings. The compensation of Directors may be on such basis as is determined in
the resolution of the Board of Directors. Any Directors receiving compensation
under these provisions shall not be barred from serving the Corporation in any
other capacity and receiving reasonable compensation for such other services.
Section 11. Committees. The Board of Directors, by a resolution or
resolutions adopted by a majority of the members of the whole Board, may appoint
an executive committee and such other committees as it may deem appropriate.
Each such committee shall consist of at least two members of the Board of
Directors. Each committee shall have and may exercise such powers as shall be
conferred or authorized by the resolution appointing it and as otherwise
provided by Colorado law. A majority of any such committee may determine its
action and may fix the time and place of its meetings, unless provided otherwise
by the Board of Directors. The Board of Directors shall have the power at any
time to fill vacancies in, to change the size of membership of and to discharge
any such committee.
A. Committee to Keep Written Records. Each such committee shall keep a
written record of its acts and proceedings and shall submit such record to
the Board of Directors at each regular meeting thereof and at such other
times as requested by the Board of Directors.
B. Failure to Keep Written Records. Failure to submit such records, or
failure of the Board to approve any action indicated therein will not,
however, invalidate such action to the extent it has been carried out by
the Corporation prior to the time the record of such action was, or should
have been, submitted to the Board of Directors as herein provided.
6
<PAGE>
Section 12. Director Voting. At all meetings of the Board of Directors,
each Director present shall have one vote, irrespective of the number of shares
of stock, if any, which such Director may hold.
Section 13. Majority. The action of a majority of the Directors present at
any meeting at which a quorum is present shall be the act of the Board of
Directors with respect to regularly conducted business affairs. Any action
authorized, in writing, by all of the Directors entitled to vote thereon and
filed with the minutes of the Corporation shall be the act of the Board of
Directors with the same force and effect as if the same had been passed by
unanimous vote at a duly called meeting of the Board.
Section 14. Board and Committee Meeting by Telephone. Any one or more
(including, without limitation, all) members of the Board of Directors, or any
committee thereof, may participate in a meeting of the Board or such committee
by means of a conference telephone or similar communications equipment allowing
all persons participating in the meeting to hear each other at the same time.
Participation by such means shall constitute presence in person at a meeting.
ARTICLE IV
Officers
--------
Section 1. Election and Term of Office. The Officers of the Corporation
shall be elected by the Board of Directors annually at the first meeting of the
Board held after each Annual Meeting of the Stockholders. If the election of the
Officers shall not be held at such meeting, such election shall be held as soon
thereafter as conveniently may occur. Each Officer shall hold office until the
first of the following to occur: until such Officer's successor shall have been
duly elected and shall have qualified; or until such Officer's death; or until
such Officer shall resign; or until such Officer shall have been removed in the
manner herein provided. The Officers of the Corporation shall be a President,
Secretary, Treasurer and one (1) or more Vice-Presidents, Assistant Secretaries
or Assistant Treasurers, at the discretion of the Board of Directors. In
addition, there may be a Chairman of the Board of Directors and such subordinate
Officers as the Board of Directors may deem necessary.
Section 2. Removal. Any Officer or agent or employee of the Corporation may
be removed by the Board of Directors whenever in its judgment the best interests
of the Corporation will be served thereby, but such removal shall be without
prejudice to the contract rights, if any, of the person so removed. Election or
appointment of any Officer or agent shall not of itself create contract rights.
Section 3. Vacancies. Any vacancy in an office from any cause may be filled
for the unexpired portion of the term by the Board of Directors.
7
<PAGE>
Section 4. Chairman of the Board - Chief Executive Officer. The Chairman of
the Board shall be the chief executive officer of the Corporation and shall
preside at all meetings of the Board of Directors and of the Stockholders at
which he is present. He shall have general charge of the business and affairs of
the Corporation, may execute in the name of the Corporation authorized corporate
obligations or other instruments, shall perform such other duties as may be
prescribed by the Board of Directors from time to time, and, in the absence or
disability of the President, shall exercise all of the powers and duties of the
President. In the absence or disability of the Chairman of the Board, the
President shall exercise all the powers and duties of the Chairman of the Board.
In addition, the President shall perform such duties as may be prescribed by the
Board of Directors from time to time or as may from time to time be prescribed
by the Chairman of the Board.
Section 5. President. The President shall be the chief operating officer of
the Corporation and, in the absence or disability of the Chairman of the Board,
he shall exercise all of the powers and duties of the Chairman of the Board. He
shall have general and active supervision of the operations of the Corporation
and shall, from time to time, make such reports of the Chairman of the Board may
require. He shall have the general powers and duties of supervision usually
vested in the office of the president of a corporation and shall have such other
powers and duties as may, from time to time, be assigned to him by the Board of
Directors or the Chairman of the Board.
The President shall execute all deeds, conveyances, deeds of trust, bonds
and other contracts requiring a seal, under the seal of the Corporation, except
where required or permitted by law to be otherwise signed and executed and
except where the signing and execution thereof shall be expressly delegated by
the Board of Directors to some Officer or agent of the Corporation.
Section 6. Duties of Secretary. The Secretary shall:
A. Keep the minutes of the meeting of the Stockholders and of the
Board of Directors in books provided for that purpose.
B. Disseminate all notices in accordance with the provisions of these
Bylaws or as required by law.
Section 7. Duties of Treasurer - Chief Financial Officer. The Treasurer -
Chief Financial Officer shall have the care and custody of the corporate funds
and securities, sign checks, drafts, notes and orders for the payment of money,
pay out and disburse the funds of the Corporation as may be ordered by the
Board, taking proper vouchers for such payments and disbursements, deposit all
monies and securities belonging to the Corporation and, in general, perform such
other duties as are customarily performed by the Treasurer - Chief Financial
Officer.
8
<PAGE>
The Treasurer shall:
A. Have charge and custody of, and be responsible for, all funds and
securities of the Corporation.
B. Render a statement of the condition of the finances of the
Corporation from time to time and at the specific request of the Board of
Directors.
C. Receive and give receipts for monies due and payable to the
Corporation from any source whatsoever.
D. Perform all duties incident to the office of Treasurer, and such
other duties as from time to time may be assigned by the Board of Directors
or by the President. The Treasurer may be required to give bond for the
faithful performance of Treasurer's duties in such sum and with such surety
as may be determined by the Board of Directors.
Section 8. Duties of Vice-President. The Vice-President(s), if appointed in
the discretion of the Board of Directors, shall perform such duties as are
incident to their offices, or are properly required of them by the Board of
Directors or are assigned to them by the Articles of Incorporation or these
Bylaws.
Section 9. Duties of Assistant Secretaries, Assistant Treasurers and Other
Subordinate Officers. Assistant Secretaries, Assistant Treasurers, and other
subordinate Officers appointed by the Board of Directors shall exercise such
powers and perform such duties as may be delegated to them by the resolutions
appointing them, or by subsequent resolutions adopted from time to time.
Section 10. Duties of Officers May Be Delegated. In case of the absence or
disability of any officer of the Corporation, or for any other reason that the
Board may deem sufficient, the Board may delegate, for the time being, the
powers or duties, or any of them, of such officer to any other officer, or to
any director.
Section 11. Salaries. The salaries of all Officers of the Corporation shall
be fixed by the Board of Directors. No Officer shall be ineligible to receive
such salary by reason of the fact that he is also a Director of the Corporation
and receiving compensation therefor.
Section 12. Checks and Endorsements. All checks and drafts upon the funds
to the credit of the Corporation in any of its depositories shall be signed by
such of its Officers or agents as shall from time to time be determined by
resolution of the Board of Directors which may provide for the use of signatures
under specific conditions, and all notes, bills, receivables, trade acceptances,
drafts and other evidences of indebtedness payable to the Corporation shall, for
the purpose of deposit, discount, or collection be endorsed by such Officers or
agents of the Corporation or in such manner as shall from time to time be
determined by resolution of the Board of Directors.
9
<PAGE>
ARTICLE V
Stock
-----
Section 1. Certificates. The shares of stock shall be represented by
consecutively numbered certificates signed in the name of the Corporation by its
President and the Secretary and shall be sealed with the seal of the
Corporation, or with a facsimile thereof. The signatures of the Corporation's
Officers on such certificate may also be a facsimile engraved or printed if the
certificate is countersigned by the transfer agent, or registered by a
registrar. In the event any Officer who has signed or whose facsimile signature
has been placed upon such certificate shall have ceased to be such before the
certificate is issued, it may be issued by the Corporation with the same effect
as if such Officer had not ceased to be an officer at the date of its issue.
Certificates of stock shall be in such form consistent with law as shall be
prescribed by the Board of Directors. No certificate shall be issued until the
shares represented thereby are fully paid.
Section 2. Consideration for Shares. Shares shall be issued for such
consideration, expressed in dollars as shall be fixed from time to time by the
Board of Directors. Treasury shares shall be disposed of for such consideration
expressed in dollars as may be fixed from time to time by the Board. Such
consideration may consist in whole or in part of money, other property, tangible
or intangible, or such other consideration as shall be permitted under the
Colorado Business Corporation Act.
Section 3. Lost, Destroyed or Stolen Certificates. No certificates for
shares of stock in the Corporation shall be issued in place of any certificate
alleged to have been lost, destroyed or stolen except on production of evidence
satisfactory to the Board of Directors of such loss, destruction or theft; and
if the Board of Directors so requires, upon the furnishing of an indemnity bond
in such amount and with such terms and such surety as the Board of Directors
may, in its discretion, require.
Section 4. Transfer of Shares.
A. Upon surrender to the Corporation of a certificate of stock duly
endorsed or accompanied by proper evidence of succession, assignment, or
authority to transfer, it shall be the duty of the Corporation to issue a
new certificate to the person entitled thereto, and cancel the old
certificate. Every such transfer of stock shall be entered on the stock
book of the Corporation which shall be kept either at the offices of the
Corporation's legal counsel, at the Corporation's principal office or by
its registered duly appointed agent.
B. The Corporation shall be entitled to treat the holder of record of
any share of stock as the holder in fact thereof, and, accordingly, shall
not be bound to recognize any equitable or other claim to interest in such
share on the part of any other person whether or not it shall have express
or other notice thereof, except as may be required by the laws of the State
of Colorado.
10
<PAGE>
Section 5. Record Dates. The Board of Directors may fix in advance a date,
not less than ten (10) or more than sixty (60) days preceding the date of any
meeting of stockholders or the date for the payment of any dividend, or the date
for the distribution or allotment of rights, or the date when any change,
conversion or exchange of capital stock shall go into effect, as a record date
for the determination of Stockholders entitled to notice of, and to vote at, any
such meeting, or entitled to receive payment of any such dividend, or to receive
any distribution or allotment of such rights, or to exercise the rights in
respect of any such change, conversion or exchange or capital stock, and in such
case only such Stockholders as shall be Stockholders of record on the date so
fixed shall be entitled to such notice of, and to vote at, such meeting, or to
receive payment of such dividend, or to receive such distribution or allotment
of rights, or to exercise any stock on the books of the Corporation after any
such record date fixed as aforesaid.
Section 6. Voting on Stock. All stock owned by the Corporation, other than
stock of the Corporation, shall be voted, in person or by proxy, by the Chairman
of the Board, the President or any Vice President of the Corporation on behalf
of the Corporation upon resolution and approval by the board.
ARTICLE VI
Contracts, Loans, Checks and Deposits
-------------------------------------
Section 1. Contracts. The Board of Directors may authorize any officer or
agent to enter into any contract or execute and deliver any instrument in the
name of and on behalf of the Corporation, and such authority may be general or
confined to specific instances.
Section 2. Loans. No loans shall be contracted on behalf of the Corporation
and no evidence of indebtedness shall be issued in its name unless authorized by
a resolution of the Board of Directors. Such authority may be general or
confined to specific instances.
Section 3. Checks, Drafts, etc. All checks, drafts, or other orders for the
payment of money, notes or other evidences of indebtedness issued in the name of
the Corporation shall be signed by such officer or agent of the Corporation and
in such manner as shall from time to time be determined by resolution of the
Board of Directors.
Section 4. Deposits. The money of the Corporation shall be deposited in the
name of the Corporation in such banks, trust companies, or other depositories,
as the Board of Directors may designate and shall be subject to the order of the
Corporation signed by such officer or agent of the Corporation, and in such
manner as shall from time to time be determined by resolution of the Board of
Directors.
ARTICLE VII
Corporate Seal
--------------
The corporate seal of the Corporation shall consist of a circular imprint
bearing around the outside rim the name of the Corporation and the word
"Colorado" and in the center shall be inscribed the word "Seal".
11
<PAGE>
ARTICLE VIII
Amendment of Bylaws
-------------------
Section 1. By Shareholders. All Bylaws of the Corporation shall be subject
to alteration or repeal and new Bylaws may be made by the requisite vote of
Stockholders, a quorum being present in person or by proxy, provided that the
notice or waiver of notice of such meeting shall have summarized or set forth in
full therein the proposed amendment.
Section 2. By Directors. The Board of Directors shall have power to make,
adopt, later, amend or repeal, from time to time, these Bylaws of the
Corporation.
ARTICLE IX
Fiscal Year
-----------
The fiscal year end of the Corporation shall be as determined by the Board
of Directors.
ARTICLE X
Approval
--------
The undersigned hereby certifies that the foregoing Bylaws constitute a
true and complete copy of the Bylaws of MEDGRUP CORPORATION and the same have
been approved, ratified and accepted by the Board of Directors as the Bylaws of
the Corporation.
Dated: March 1, 2000 /s/ Terry J. Holmes
--------------------------- -----------------------------
Terry J. Holmes, President
12
Exhibit 4
MEDGRUP CORPORATION
INCORPORATED UNDER THE LAWS OF THE STATE OF COLORADO
AUTHORIZED: 50,000,000 COMMON SHARES, $.001 PAR VALUE
See Reverse
For Certain Definitions
CUSIP 584368 10 4
THIS CERTIFIES That
is the owner of
FULLY PAID AND NON-ASSESSABLE COMMON SHARES, $.001 PAR VALUE OF
Medgrup Corporation
transferable on the books of the Corporation by the holder hereof, in person or
by duly authorized attorney, upon surender of this Certificate properly
endorsed. this Certificate is not valid unless countersigned by the Transfer
Agent and registered by the Registrar.
WITNESS, the facsimile seal of the Corporation and the facsimile signature
of its authorized officers.
Dated:
/s/ Margaret M. Cronin /s/ William D. Cronin
Secretary President
[Graphic of corporate seal omitted]
Countersigned:
CORPORATE STOCK TRANSFER, INC.
370 - 17th Street, Suite 2350
Denver, Colorado 80202
By:____________________________________________
Transfer Agent and Registrar Authorized Officer
Exhibit 10.1
Agreement for Coding Services
This Agreement for Coding Services (hereinafter referred to as "Agreement") is
made between [[Company:25]] (hereinafter referred to as "Hospital") and MedGrup
Corporation (hereinafter referred to as "MedGrup").
Whereas, Hospital desires that MedGrup provide off-site coding services for
their Inpatient, Outpatient and Emergency Room charts. Now therefore, MedGrup
and Hospital agree as follows:
1. Hospital will forward to MedGrup, via dedicated high-speed facsimile
machine, specific information from the charts for Inpatient, Outpatient and
Emergency Room visits. Upon receiving said documents, MedGrup shall code
said documents in compliance with all legal and statutory requirements.
Within twenty-four hours of receipt by MedGrup (Monday through Friday),
excluding federal holidays, a completed abstract or facesheet will be
returned to the Hospital for billing. The object of MedGrup's
aforementioned efforts shall be to assist the Hospital in rendering
billings that are proper and accurate.
2. MedGrup warrants that the services will be performed in a good and
workmanlike manner and will not be in violation of any federal or state
laws, rules or regulations. The services shall conform to all JCAHO Medical
Reporting requirements and will meet or exceed established guidelines as
set forth by the RHIT and/or RHIA credentialing requirements.
3. Hospital shall pay MedGrup as follows:
o For each Inpatient chart coded, MedGrup will be paid ______ dollars
($____).
o For each previously coded Inpatient chart reviewed on a concurrent basis
(DRG Review), MedGrup will be paid ________ dollars ($_____).
o For each Outpatient (visit) chart coded, MedGrup will be paid ______dollars
($____).
o For each Outpatient Surgery chart coded, MedGrup will be paid
_______dollars ($____).
o For each Emergency Room chart coded, MedGrup will be paid ______dollars
($____) each for the professional and the facility coding, which equates to
______dollars ($_____) per chart.
o MedGrup shall be paid $______ should the hospital utilize MedGrup to revise
their Fee Schedule(s).
o At Hospital's request MedGrup will hire on-site personnel to scan the
charts for transmission to MedGrup coding personnel and to perform all
necessary data entry work when the coding summary sheets are returned.
MedGrup will supervise the personnel and be responsible for all payroll
etc. involved. Hospital agrees to pay MedGrup the actual cost for this
staff (estimated to be $_____ per day per person).
o Hospital shall pay MedGrup within forty-five days of receiving MedGrup's
invoice.
o Hospital agrees to pay MedGrup 1.5% per thirty days on all portions of
MedGrup's compensation that is overdue.
o The compensation aforementioned shall be the sole and exclusive
compensation due MedGrup under this Agreement.
4. Should the payer subsequently deny any records coded by MedGrup, MedGrup
agrees to assist Hospital in the "reconsideration process". This assistance
shall consist of the drafting of all necessary letters to the PRO,
supported by necessary documentation from the chart (provided by the
Hospital), and consulting with Hospital staff as to the best defensible
position.
<PAGE>
5. Hospital shall be responsible for the monthly rental cost of the
scanner/facsimile machine, approximately $______.
6. In all instances, MedGrup will be considered an Independent Contractor and
will not be considered an employee or agent of Hospital. Hospital shall not
supervise or control the manner or means of performance of MedGrup's
duties. MedGrup shall be solely responsible for its work.
7. Hospital has the right to audit or verify any or all of MedGrup's work by
any means it may deem appropriate.
8. MedGrup and its employees recognize and acknowledge the confidentiality of
patient's records. Consequently, MedGrup and its employees will not
disclose any matter mentioned in said records to which the patient's
privilege of confidentiality attaches. Only MedGrup's physicians, coders
and administrative staff shall process all documents transmitted to MedGrup
by Hospital. After completing the processing of transmitted records,
MedGrup shall shred and dispose of all records.
9. If either party to this Agreement institutes an action to enforce this
Agreement, the non-prevailing party to said action shall be liable for the
reasonable fees for the services of the prevailing party's attorneys
related to said action. The non-prevailing party also shall be liable for
the costs of court related to said action which the prevailing party
incurred. The statutory, judicial and other laws of the State of
[[State:31]] shall govern the interpretation, construction, performance and
enforcement of this Agreement.
10. MedGrup shall maintain, at its sole expense, comprehensive Professional
Liability insurance with limits of liability of not less than One Million
Dollars ($1,000,000) per occurrence and Three Million Dollars ($3,000,000)
per annum for Professional Coding Services. MedGrup shall provide Hospital
with a certificate of such insurance coverage prior to the effective date
of this Agreement and at any subsequent date during the term of this
Agreement upon the Hospital's request.
11. Either party may terminate this Agreement, without cause, by providing
ninety days written notice to the address outlined in paragraph 12.
12. Payments, notices and all other written communications between the parties
to this Agreement shall be given either in person or by United States
postage prepaid, addressed as follows:
If to MedGrup: If to Hospital:
Mr. William D. Cronin [[Contact:26]]
Chief Executive Officer [[Title:46]]
MedGrup Corporation [[Company:25]]
1880 Willow Park Way, Suite B [[Address:27]]
Monument, CO 80132 [[City:30]], [[State:31]]
[[Zip Code:32]]
13. This Agreement shall define the obligations of the parties regarding the
services described herein. To the extent this Agreement is inconsistent
with any prior agreements between the parties, this Agreement shall control
and take precedence. No oral agreements between the parties exist.
14. This Agreement may be amended or changed only by written amendments
executed by Hospital and MedGrup.
In witness, the parties hereto have executed this agreement on the day and the
year set forth below.
MedGrup Corporation [[Company:25]]
By: __________________________ By: ______________________________
William D. Cronin
Title: Chief Executive Officer Title: _____________________
Date: ____________ Date: ____________
- --------------------------------------------------------------------------------
Wells Fargo Equipment Finance, Inc. Equipment Master Lease
Investors Building, Suite 300
733 Marquette Avenue
Minneapolis, MN 55479-2048
- --------------------------------------------------------------------------------
Master Lease Number 41444 dated as of June 02, 1999
Name and Address of Lessee:
Medgrup Corporation
905 Bowstring Road
Monument, CO 80132
Master Lease Provisions
1. LEASE. Lessor hereby agrees to lease to Lessee, and Lessee hereby agrees
to lease from Lessor, the personal property described in a Supplement or
Supplements to this Master Lease from time to time signed by Lessor and Lessee
upon the terms and conditions set forth herein and in the related Supplement
(such property together with all replacements, repairs, and additions
incorporated therein or affixed thereto being referred to herein as the
"Equipment"). The lease of the items described in a particular Supplement shall
be considered a separate lease pursuant to the terms of the Master Lease and the
Supplement the same as if a single lease agreement containing such terms had
been executed converting such items.
2. TERM. The term of this lease with respect to each item of Equipment
shall begin on the date it is accepted by Lessee and shall continue for the
number of consecutive months from the rent commencement date shown in the
related Supplement (the "initial term") unless earlier terminated as provided
herein or unless extended automatically as provided below in this paragraph. The
rent commencement date is the 15th day of the month in which all of the items of
Equipment described in the related Supplement have been delivered and accepted
by Lessee of if such delivery and acceptance is completed on or before the 15th
of such month, and the rent commencement date is the last day of such month if
such delivery and acceptance is completed during the balance of such month. In
the event Lessee executes the related Supplement prior to delivery and
acceptance of all items of Equipment described therein, Lessee agrees that the
rent commencement date may be left blank when Lessee executes the related
Supplement and hereby authorizes Lessor to insert the rent commencement date
based upon the date appearing on the delivery and acceptance certificate signed
by Lessee with respect to the last item of Equipment to be delivered.
AUTOMATIC EXTENSION. Lessee or Lessor may terminate this lease at the
expiration of the initial term by giving the other at least 90 says prior
written notice of termination. If neither Lessee nor Lessor gives such notice,
then the term of this lease shall be extended automatically on the same rental
and other terms set forth herein (except that in any event rent during any
extended term shall be payable in the amounts and at the times provided in
paragraph 3) for successive periods of one month until terminated by either
Lessee or Lessor giving the other at least 90 days prior written notice of
termination.
<PAGE>
3. RENT. Lessee shall pay as basic rent for the initial term of this lease
the amount shown in the related Supplement as Total Basic Rent. The Total Basic
Rent shall be payable in installments each in the amount of the basic rental
payment set forth in the related Supplement plus sales and use tax thereon.
Lessee shall pay advance installments and any security deposit, each as shown in
the related Supplement, on the date it is executed by Lessee. Subsequent
installments shall be payable on the first day of each rental payment period
shown in the related Supplement beginning after the first rental payment period;
provided, however, that Lessor and Lessee may agree to any other payment
schedule, including irregular payments of balloon payments, in which event they
shall be set forth in the space provided in the Supplement for additional
provisions. If the actual cost of the Equipment is more or less than the Total
Cost as shown in the Supplement, the amount of each installment of rent will be
adjusted up or down to provide the same yield to Lessor as would have been
obtained if the actual cost had been the same as the Total Cost. Adjustments of
10% or less may be made by written notice from Lessor to Lessee. Adjustments of
more than 10% shall be made by execution of an amendment to the Supplement
reflecting the change in Total Cost and rent.
During any extended term of this lease, basic rent shall be payable monthly
in advance on the first day of each month during such extended term in the
amount equal to the basic rental payment set forth in the related Supplement if
rent is payable monthly during the initial term or in an amount equal to the
monthly equivalent of the basic rental payment set forth in the related
Supplement if rent is payable other than monthly during the initial term. In
addition, Lessee shall pay any applicable sales and use tax on rent payable
during any extended term.
In addition to basic rent, which is payable only from the rent commencement
date as provided above, Lessee agrees to pay interim rent with respect to each
separate item of Equipment covered by a particular Supplement from the date it
is delivered and accepted to the rent commencement date at a daily rate equal to
the percentage of Lessor's cost of such item specified in such Supplement.
Interim rent accruing each calendar month shall be payable by the 10th day of
the following month and in any event on the rent commencement date. Lessee
agrees that if all of the items of Equipment covered by such Supplement have not
been delivered and accepted thereunder before the date specified as the Cutoff
Date in such Supplement, Lessee shall purchase from Lessor the items of
Equipment then subject to the lease within five days after Lessor's request to
do so for a price equal to Lessor's cost of such items plus all accrued but
unpaid interim rent thereon. Lessee shall also pay any applicable sales and use
tax on such sale.
4. SECURITY DEPOSIT. Lessor may apply any security deposit toward any
obligation of Lessee under this lease, and shall return any unapplied balance to
Lessee without interest upon satisfaction of Lessee's obligations hereunder.
5. WARRANTIES. Lessee agrees that it has selected each item of Equipment
based upon its own judgment and disclaims any reliance upon any statement or
representations made by Lessor. LESSOR MAKES NO WARRANTY WITH RESPECT TO THE
EQUIPMENT, EXPRESS OR IMPLIED, AND LESSOR SPECIFICALLY DISCLAIMS ANY WARRANTY OF
MERCHANTABILITY OR OF FITNESS FOR A PARTICULAR PURPOSE AND ANY LIABILITY FOR
CONSEQUENTIAL DAMAGES ARISING OUT OF THE USE OF OR THE INABILITY TO USE THE
EQUIPMENT. Lessee agrees to make the rental and other payments required
hereunder without regard to the condition of the Equipment and to look only to
persons other than Lessor such as the manufacturer, vendor or carrier thereof
should any item of Equipment for any reason be defective. So long as no Event of
Default has occurred and is continuing, Lessor agrees, to the extent they are
assignable, to assign to Lessee, without any recourse to Lessor, any warranty
received by Lessor.
<PAGE>
6. TITLE. Title to the Equipment shall at all times remain in Lessor, and
Lessee at its expense shall protect and defend the title of Lessor and keep it
free of all claims and liens other than the rights of Lessee hereunder and
claims and liens created by or arising through Lessor. The Equipment shall
remain personal property regardless of its attachment to realty, and Lessee
agrees to take such action at its expense as may be necessary to prevent any
third party from acquiring any interest in the Equipment as a result of its
attachment to realty.
7. LAWS AND TAXES. Lessee shall comply with all laws and regulations
relating to the Equipment and its use and shall promptly pay when due all sales,
use, property, excise and other taxes and all license and registration fees now
or hereafter imposed by any governmental body or agency upon the Equipment or
its use or the rentals hereunder. Upon request by Lessor, Lessee shall prepare
and file all tax returns relating to taxes for which Lessee is responsible
hereunder which Lessee is permitted to file under the laws of the applicable
taxing jurisdiction.
8. INDEMNITY. Lessee hereby indemnifies Lessor against and agrees to save
Lessor harmless from any and all liability and expense arising out of the
ordering, ownership, use, condition, or operation of each item of Equipment
during the term of this lease, including liability for death or injury to
persons, damage to property, strict liability under the laws or judicial
decisions of any state or the United States, and legal expenses in defending any
claim brought to enforce any such liability or expense
9. ASSIGNMENT. WITHOUT LESSOR'S PRIOR WRITTEN CONSENT, LESSEE WILL NOT SELL
ASSIGN, SUBLET, PLEDGE, OR OTHERWISE ENCUMBER OR PERMIT A LIEN ARISING THROUGH
LESSEE TO EXIST ON OR AGAINST ANY INTEREST IN THIS LEASE OR THE EQUIPMENT, or
remove the Equipment from its location referred to above. Lessor may assign its
interest in this lease and sell or grant a security interest in all or any part
of the Equipment without notice to or the consent of Lessee. Lessee agrees not
to assert against any assignee of Lessor any claim or defense Lessee may have
against Lessor.
10. INSPECTION. Lessor may inspect the Equipment at any time and from time
to time during regular business hours.
11. REPAIRS. Lessee will use the Equipment with due care and for the
purpose for which it is intended. Lessee will maintain the Equipment in good
repair, condition and working order and will furnish all parts and services
required therefor, all at its expense, ordinary wear and tear excepted. Lessee
shall, at its expense, make all modifications and improvements to the Equipment
required by law, and shall not make other modifications or improvements to the
Equipment without the prior written consent of Lessor. All parts, modifications
and improvements to the Equipment shall, when installed or made, immediately
become the property of Lessor and part of the Equipment for all purposes.
12. LOSS OR DAMAGE. In the event any item of Equipment shall become lost,
stolen, destroyed, damaged beyond repair or rendered permanently unfit for use
for any reason, or in the event of condemnation or seizure of any item of
Equipment, Lessee shall promptly pay Lessor the sum of (a) the amount of all
rent and other amounts payable by Lessee hereunder with respect to such item due
but unpaid at the date of such payment plus (b) the amount of all unpaid rent
with respect to such item for the balance of the term of this lease not yet due
at the time of such payment discounted from the respective dates installment
payments would be due at the rate implicit in the schedule of rental payments
when applied to the cost of such item plus (c) 10% of the cost of such item as
shown in the related Supplement. Upon payment of such amount to Lessor, such
item shall become the property of Lessee, Lessor will transfer to Lessee,
without recourse or warranty, all of Lessor's right, title and interest therein,
the rent with respect to such item shall terminate, and the basic rental
payments on the remaining items shall be reduced accordingly. Lessee shall pay
any sales and use taxes due on such transfer. Any insurance or condemnation
proceeds received shall be credited to Lessee's obligation under this paragraph
and Lessor shall be entitled to any surplus.
<PAGE>
13. INSURANCE. Lessee shall obtain and maintain on or with respect to the
Equipment at its own expense (a) liability insurance insuring against liability
for bodily injury and property damage with a minimum limit of $500,000 combined
single limit and (b) physical damage insurance insuring against loss or damage
to the Equipment in an amount not less than the full replacement value of the
Equipment. Lessee shall furnish Lessor with a certificate of insurance
evidencing the issuance of a policy or policies to Lessee in at least the
minimum amounts required herein naming Lessor as an additional insured
thereunder for the liability coverage and as loss payee for the property damage
coverage. Each such policy shall be in such form and with such insurers as may
be satisfactory to Lessor, and shall contain a
THIS AGREEMENT INCLUDES THE TERMS ON THE BACK OF THIS PAGE
Lessor: Wells Fargo Equipment Finance, Inc. Medgrup Corporation, Lessee
- --------------------------------------------------------------------------------
By By
- --------------------------------------------------------------------------------
Title Title
<PAGE>
- --------------------------------------------------------------------------------
Wells Fargo Equipment Finance, Inc. Supplement to Master Lease
Investors Building, Suite 300 Agreement of Sale
733 Marquette Avenue
Minneapolis, MN 55479-2048
- --------------------------------------------------------------------------------
Supplement Number 41444-400 dated as of June 02, 1999 to
Master Lease Number 41444 dated as of June 02, 1999
Name and Address of Lessee:
Medgrup Corporation
905 Bowstring Road
Monument, CO 80132
- --------------------------------------------------------------------------------
This Is a Supplement to the Master Lease identified above between Lessor and
Lessee (the "Master Lease"). Upon the execution and delivery by Lessor and
Lessee of this Supplement, Lessor hereby agrees to lease to Lessee, and Lessee
hereby agrees to lease from Lessor, the equipment described below upon the terms
and conditions of this Supplement and the Master Lease. All terms and conditions
of the Master Lease shall remain In full force and effect except to the extent
modified by this Supplement. This Supplement and the Master Lease as It relates
to this Supplement are hereinafter referred to as the "Lease".
Equipment Description:
See Schedule A
Equipment Location: 905 Bowstring Road, Monument, 80132
- --------------------------------------------------------------------------------
SUMMARY OF PAYMENT TERMS
- --------------------------------------------------------------------------------
Initial Term in Months: 36 Total Cost: $88,918.93
- --------------------------------------------------------------------------------
Payment Frequency: Monthly Total Basic Rent: $102,436.20
- --------------------------------------------------------------------------------
Basic Rental Payment. $2,845
plus applicable sales and use tax Interim Rent Daily Rate: .024
- --------------------------------------------------------------------------------
Number of Installments: 36 Interim Rent Cutoff Date: July 1, 1999
- --------------------------------------------------------------------------------
Advance Payments. First due on
assigning this Lease Security Deposit: N/A
- --------------------------------------------------------------------------------
End of Term Agreement
1. In addition to paying the Total Basic Rent when and as due under the Lease,
Lessee agrees to pa y Lessor $1.00 on the expiration date of the initial
term of the Lease (the "Final Purchase Payment").
2. Upon receipt of the Total Basic Rent and the Final Purchase Payment by
Lessor, the Equipment shall be deemed transferred to Lessee at its then
location. Upon request by Lessee, Lessor will deliver a bill of sale
transferring the Equipment to Lessees. Lessor hereby warrants that at the
time of transfer the Equipment will be free of all security interests and
other liens created by Lessor or in favor of persons claiming through
Lessor. LESSOR MAKES NO OTHER WARRANTY WITH RESPECT TO THE EQUIPMENT,
EXPRESS OR IMPLIED, AND SPECIFICALLY DISCLAIMS ANY WARRANTY OF
MERCHANTABILITY AND OF FITNESS FOR A PARTICULAR PURPOSE AND ANY LIABILITY
FOR CONSEQUENTIAL DAMAGES ARISING OUT OF THE USE OF OR THE INABILITY TO USE
THE EQUIPMENT.
<PAGE>
3. Failure to pay the Final Purchase Payment when due shall constitute an
"Event of Default" under the Lease.
4. Lessee agrees to pay all sales and use taxes arising on account of the sale
of the Equipment to Lessee.
Lessor makes no representation with respect to the income tax consequences of
the transaction evidenced by this Lease. Lessor will treat the Lease as a sale
regardless of how the Lease is treated by Lessee.
Modification to Master Lease: To be consistent with this Supplement, the Master
Lease is amended as follows:
1. The second paragraph of paragraph 2 entitled "Automatic Extension" is
hereby deleted.
2. The first sentence of paragraph 12 covering casualty to the Equipment is
amended to read as follows:
THIS AGREEMENT INCLUDES THE TERMS ON THE BACK OF THIS PAGE
Lessor: Wells Fargo Equipment Finance, Inc. Medgrup Corporation, Lessee
- --------------------------------------------------------------------------------
By By
- --------------------------------------------------------------------------------
Title Title
- -----------------------------------------
Rent Commencement Date
<PAGE>
- --------------------------------------------------------------------------------
Wells Fargo Equipment Finance, Inc. Pay Proceeds Letter
693 17th Street, Third Floor
Denver, CO 80202
- --------------------------------------------------------------------------------
In reference to Contract Number 41444-400 dated as of June 2, 1999, Wells Fargo
Equipment Finance, Inc. is irrevocably instructed to disburse payment as
follows:
- --------------------------------------------------------------------------------
Payee Invoice Number Amount
- --------------------------------------------------------------------------------
Ricoh Corporation Various $16,701.00
Medgrup Corporation Reimbursement of $69,628.06
paid invoices
Colorado State Sales Tax $2,589.87
TOTAL FINANCED $88,918.93
Dated: June 2,1999
Medgrup Corporation
By:
- -------------------------------
Its:
- -------------------------------
<PAGE>
In the event any Item of Equipment shall become lost, stolen, destroyed,
damaged beyond repair, or rendered permanently unfit for use for any
reason, or in the event of condemnation or seizure of any item of
Equipment, Lessee shall promptly pay Lessor an amount equal to Lessor's
Loss as defined in paragraph 18 with respect to such item at the time of
payment based on the proportion that the original cost of such item bears
to the Total Cost of all items of equipment.
In addition, the last sentence of paragraph 12 of the Lease is amended to read
"Any insurance or condemnation proceeds received shall be credited to Lessee's
obligation under this paragraph and Lessee shall be entitled to any surplus."
3. Paragraph 14 is deleted in its entirety.
4. The definition of "Lessor's Loss" in paragraph 18 is hereby amended by
amending the first sentence of paragraph 18 to read as follows:
"Lessor's Loss" as used in this paragraph is the unpaid balance of the
Total Basic Rent and other amounts payable by Lessee hereunder plus the
Final Purchase Payment less the unearned portion of the finance charge
based on the simple interest method as of the date of determination. For
this purpose, the term "Final Purchase Payment" means the amount defined as
such in the applicable supplement, and the term "finance charge" means the
excess of the Total Basic Rent plus the Final Purchase Payment over the
Total Cost of the Equipment.
In addition, the third sentence of paragraph 18(c) is amended to read "Lessee
shall be entitled to any surplus and shall remain liable for any deficiency."
<PAGE>
- --------------------------------------------------------------------------------
Wells Fargo Equipment Finance, Inc. Promissory Note
Investors Building, Suite 300
733 Marquette Avenue
Minneapolis, MN 55479-2048
- --------------------------------------------------------------------------------
Dated as of December 07, 1998
Contract Number 41444-700
For value received, the undersigned, hereby promises to pay to the order of
Norwest Equipment Finance, Inc. (the "Lender") at its office in Minneapolis,
Minnesota, or at such other place as may be designated from time to time by the
holder hereof, the sum of $102,426.48 in installments according to the schedule
set forth below; provided, however, that the undersigned and the Lender may
agree to any other payment schedule, in which case any variations shall be set
forth in the space provided for additional provisions. The first payment period
shall begin on the 15th day of the month in which Lender disburses the loan
proceeds if disbursement is made on or before the 15th day of such month, and
the first payment period shall begin on the last day of such month if
disbursement is made during the balance of such month. The first installment
shall be payable on the first payment due date set forth below (which maybe the
same as the date the first payment period begins). Subsequent installments shall
be payable on the first day of each payment period beginning after the first
payment period. The undersigned agrees that the date the first payment period
begins maybe left blank when this Note Is executed and hereby authorizes Lender
to insert such date based upon the date the loan proceeds are disbursed.
PAYMENT SCHEDULE:
- --------------------------------------------------------------------------------
Date first payment period begins:
December 31, 1998 First payment due: December 31, 1998
- --------------------------------------------------------------------------------
Number of Installments: 36 Amount of each installment: $2,845.18
- --------------------------------------------------------------------------------
Payment period: Monthly Annual Interest rate used in computing
payment schedule: 9.00%
- --------------------------------------------------------------------------------
Principal amount of loan proceeds
disbursed: $90,142.78
- --------------------------------------------------------------------------------
In addition to installment payments as set forth above, the undersigned agrees
to pay Lender interim interest on the loan proceeds disbursed hereunder from the
date of disbursement to the date the first payment period begins at the annual
interest rate set forth above used in computing the payment schedule. Interim
interest shall be due and payable on the date the first payment period begins.
If any installment is not paid when due, then in addition to any other remedy
Lender may have hereunder, Lender may impose and, if imposed the undersigned
shall pay a late charge of 5% of the amount of the delinquent installment but in
any event not more than permitted by applicable law. Payments thereafter
received shall be applied first to delinquent installments and then to current
installments.
<PAGE>
This Note may be prepaid in whole or in part at anytime and from time to time
but only if accompanied by a prepayment premium of 2% of the principal amount
prepaid if prepaid during the first 18 months. Any partial prepayment shall be
applied to the last maturing installment or installments. Upon any prepayment in
full, the unearned portion of the interest will be refunded using the simple
interest method.
The following shall constitute an Event of Default hereunder (a) failure to pay
any installment hereunder when due; (b) the occurrence of an event of default as
defined in any security agreement or mortgage securing this Note; (c) the
commencement of any bankruptcy or insolvency proceedings by or against the
undersigned or any guarantor of this Note; and (d) any indebtedness the
undersigned may now or hereafter owe to Norwest Bank Minnesota, National
Association or any affiliate thereof shall be accelerated following a default
thereunder or, if any such indebtedness is payable on demand, payment thereof
shall be demanded. Upon the occurrence of an Event of Default, Lender may do any
one or more of the following as it may elect: (i) upon written notice to the
undersigned, declare the entire unpaid balance of the Note to be immediately due
and payable, and the same (less unearned interest computed using the simple
interest method as if this Note had been paid in full on the date it became due
and payable) shall thereupon be and become immediately due and payable; (ii)
exercise any one or more of the rights and remedies available to it under any
security agreement or mortgage securing this Note or under any other agreement
or by law.
The undersigned hereby waives presentment, notice of dishonor, and protest. The
undersigned agrees to pay all costs of collection of this Note, including
reasonable attorneys' fees. The holder hereof may change the terms of payment of
the Note by extension, renewal or otherwise, and release any security for, or
party to, this Note and such action shall not release any accommodation maker,
endorser, or guarantor from liability on this Note.
Notwithstanding anything to the contrary contained herein, if the rate of
interest, late payment fee, prepayment premium or any other charges or fees due
hereunder are determined by a court of competent jurisdiction to be usurious,
then said interest rate, fees and/or charges shall be reduced to the maximum
amount permissible under applicable law and any such excess amounts shall be
applied towards the reduction of the principal balance of this Note.
This Note shall be construed and enforced in accordance with, and the rights of
the parties shall be governed by, the laws of the State of Minnesota without
regard to conflicts of law rules.
If this Note is signed by more than one person as Debtor, then the term "Debtor"
shall refer to each of them separately and to all of them jointly, and each such
person shall be liable hereunder individually in full and jointly with the
others.
IN WITNESS WHEREOF the Debtor has signed this Agreement as of the date first
above written.
Medgrup Development Services, Inc.
- ----------------------------------
Debtor
- ----------------------------------
By
- ----------------------------------
Title
<PAGE>
- --------------------------------------------------------------------------------
Wells Fargo Equipment Finance, Inc. Security Agreement
Investors Building, Suite 300
733 Marquette Avenue
Minneapolis, MN 55479-2048
- --------------------------------------------------------------------------------
Dated as of December 07, 1998
Contract Number 41444-700
Name and Address of Debtor
Medgrup Development Services, Inc.
905 Bowstring Road
Monument, CO 80132
- --------------------------------------------------------------------------------
1. Security Interest and Collateral. To secure the payment and performance of
each and every debt liability and obligation of every type and description
which Debtor may now or at anytime hereafter owe to Norwest Equipment
Finance, Inc. ("Secured Party") (whether such debt, liability or obligation
now exists or is hereafter created or incurred, whether it is currently
contemplated by the Debtor and Secured Party, whether any documents
evidencing it refer to the Security Agreement, and whether it is or may be
direct or indirect, due or to become due, absolute or contingent, primary
or secondary, liquidated or unliquidated, or joint, several or joint and
several: all such debts, liabilities and obligations being herein
collectively referred to as the "Obligations"), Debtor hereby grants
Secured Party a security interest (herein call the "Security Interest") in
the following property (herein called the "Collateral"):
SEE ATTACHED SCHEDULE A
together with all substitutions and replacements for and products of the
Collateral, all proceeds, accessories, attachments, parts, equipment and
repairs now or hereafter attached or affixed to or used in connection with
the Collateral.
2. Representations, Warranties and Agreements. Debtor represents, warrants and
agrees that:
(a) Authorization. If Debtor is a corporation, a partnership or a limited
liability company, the execution, delivery and performance of this
Agreement has been duly authorized by all necessary action on the part
of the Debtor and will not violate any provision of the Debtor's
articles of incorporation or bylaws, partnership agreement or articles
of organization or management agreement, as the case may be.
(b) Office Location. Debtor's chief executive office (if Debtor is a
corporation, a partnership or a limited liability company) is located
at the address for Debtor shown above. Debtor will not change the
location of its chief executive office or his/her residence, as the
case may be, without first giving Secured Party at least 10 days prior
written notice of the new location.
(c) Business Purpose; Lawful Use. The Equipment will be used primarily for
business purposes as opposed to personal, family or household
purposes. Debtor will comply with all laws and regulations applicable
to the Equipment and its use.
<PAGE>
3. Additional Representations, Warranties and Agreements. Debtor represents,
warrants and agrees that:
(a) Debtor has (or will have at the time Debtor acquires rights in
Collateral hereafter arising) absolute title to each item of
Collateral free and clear of all security interests, liens and
encumbrances, except the Security Interest and will defend the
Collateral against all claims or demands of all persons other than
Secured Party. Debtor will not sell or otherwise dispose of the
Collateral or any interest therein without the prior written consent
of Secured Party. If Debtor is a corporation, this Agreement has been
duly and validly authorized by all necessary corporate action, and, if
Debtor is a partnership or a limited liability company, the partner(s)
or manager(s) executing this Agreement has (have) authority to act for
the partnership or the limited liability company.
(b) Debtor will not permit any Collateral to be located in any state (and,
if county filing is required, in any county) in which the financing
statement covering such Collateral is required to be, but has not in
fact been, filed in order to perfect the Security Interest.
(c) Debtor will (i) keep all Collateral in good repair, working order and
condition, normal depreciation excepted, and will, from time to time,
replace any worn, broken or defective parts thereof; (ii) promptly pay
all taxes and other governmental charges levied or assessed upon or
against any Collateral or upon or against the creation, perfection or
continuance of the Security Interest; (iii) keep all Collateral free
and clear of all security interests, liens and encumbrances except the
Security Interest; (iv) at all reasonable times, permit Secured Party
or its representatives to examine or inspect any Collateral, wherever
located, and to examine, inspect and copy Debtor's books and records
pertaining to the Collateral and its business and financial condition;
(v) keep accurate and complete records pertaining to Debtor's business
and financial condition and submit to Secured Party such periodic
reports concerning Debtor's business and financial condition as
Secured Party may from time to time reasonably request; (vi) promptly
notify Secured Party of any loss of or material damage to any
Collateral; (vii) at all times keep all Collateral insured against
risks of fire (including so-called extended coverage), theft collision
(in case of Collateral consisting of motor vehicles) and such other
risks and in such amounts as Secured Party may reasonably request with
any loss payable to Secured Party to the extent of its interest (viii)
from time to time execute such financing statements as Secured Party
may reasonably require in order to perfect the Security Interest and,
if any Collateral consists of a motor vehicle, execute such documents
as may be required to have the Security Interest properly noted on a
certificate of title; (ix) pay when due or reimburse Secured Party on
demand for all costs of collection of any of the Obligations and ail
other out-of-pocket expenses (including in each case all reasonable
attorneys' fees) incurred by Secured Party in connection with the
creation, perfection, satisfaction, protection, defense or enforcement
of the Security Interest or the creation, continuance, protection,
defense or enforcement of this Agreement or any or all of the
Obligations, including expenses incurred in any litigation or
bankruptcy or insolvency proceedings; (x) execute, deliver or endorse
any and all instruments, documents, assignments, security agreements
and other agreements and writings which Secured Party may at any time
reasonably request in order to secure, protect perfect or enforce the
Security Interest and Secured Party's rights under this Agreement;
(xi) not use or keep any Collateral, or permit it to be used or kept,
<PAGE>
for any unlawful purpose or in violation of any federal, state or
local law, statute or ordinance; and (xii) not permit any Collateral
to become part of or to be affixed to any real property without first
assuring to the reasonable satisfaction of Secured Party that the
Security Interest will be prior and senior to any interest or lien
then held or thereafter acquired by any mortgagee of such real
property or the owner or purchaser of any interest therein. If Debtor
at any time fails to perform or observe any agreement contained in
this Section 3(c), and if such failure shall continue for a period of
ten calendar days after Secured Party gives Debtor written notice
thereof (or, in the case of the agreements contained in clauses (vii)
and (viii) of this Section 3(c), immediately upon the occurrence of
such failure, without notice or lapse of time), Secured Party may (but
need not) perform or observe such agreement on behalf and in the name,
place and stead of Debtor (or, at Secured Party's option, in Secured
Party's own name) and may (but need not) take any and all other
actions which Secured Party may reasonably deem necessary to cure or
correct such failure (including, without limitation, the payment of
taxes, the satisfaction of security interests, liens, or encumbrances,
the procurement and maintenance of insurance, the execution of
financing statements, the endorsement of instruments, and the
procurement of
THIS AGREEMENT INCLUDES THE TERMS ON THE BACK OF THIS PAGE
Medgrup Development Services, Inc.
- ----------------------------------
Debtor
- ----------------------------------
By
- ----------------------------------
Title
<PAGE>
- --------------------------------------------------------------------------------
Wells Fargo Equipment Finance, Inc. Schedule A
Investors Building, Suite 300
733 Marquette Avenue
Minneapolis, MN 55479-2048
- --------------------------------------------------------------------------------
Contract Number 41444-700 dated as of December 7, 1998
Debtor: Medgrup Development Services, Inc.
Quantity Description
- -------- -----------
1 RICOH FAX4800L PLAIN PAPER MACHINE W/ 80MB HDD OPTION TY 140|||
S/N #M2780602958
1 RICOH FAX4800L PLAIN PAPER MACHINE W/ 80MB HDD OPTION TY 140|||
S/N #M2780602979
1 RICOH FAX4800L PLAIN PAPER MACHINE W/ 80MB HDD OPTION TY 140|||
S/N #M2780401737
1 RICOH FAX4800L PLAIN PAPER MACHINE W/ 80MB HDD OPTION TY 140|||
G3 OPTION TYPE 140111
S/N #M2780401739
1 RICOH FAX4800L PLAIN PAPER MACHINE W/ 80MB HDD OPTION TY 140|||
S/N #M2780401736
1 RICOH FAX4800L PLAIN PAPER MACHINE W/ 80MB HDD OPTION TY 140|||
S/N #M2780401740
1 RICOH FAX4800L PLAIN PAPER MACHINE W/ 80MB HDD OPTION TY 140|||
G3 OPTION TYPE 140|||, UPGRADE CARD TYPE 140
S/N #M2780401735
1 RICOH FAX4800L PLAIN PAPER MACHINE W/ 80MB HDD OPTION TY 140|||
UPGRADE CARD TYPE 140
S/N #M2780401738
1 RICOH FAX4800L PLAIN PAPER MACHINE W/ 80MB HDD OPTION TY 140|||
UPGRADE CARD TYPE 140
S/N #M2780401742
1 RICOH FAX4800L PLAIN PAPER MACHINE W/ 80MB HDD OPTION TY 140|||
S/N #M2780602976
1 RICOH FAX4800L PLAIN PAPER MACHINE W/ 80MB HDD OPTION TY 140|||
S/N #M2780401455
1 RICOH FAX4800L PLAIN PAPER MACHINE W/ 80MB HDD OPTION TY 140|||
S/N #M2760401482
1 RICOH FAX4800L PLAIN PAPER MACHINE W/ 80MB HDD OPTION TY 140|||
S/N #M2780401483
5 MODEL 7560 FAX MACHINES
12 MODEL 7560 FAX MACHINES
2 BROOKTROUT 2 CHANNEL FAX BOARD
1 FAX SR NT BASE KIT 25 CLIENTS
1 BROOKTROUT 2 CHANNEL FAX BOARD
1 FAX SR SUPPORT NT-INTEL
1 MODEM SOFTWARE LICENSE-NT, 1 ADDITIONAL LINE
1 VX1100 MONITOR WITH 19.7
1 G6-450 PC
1 PERSONAL FINANCE QUICKEN BASIC 98
1 VX100 MONITOR WITH 19.7" VIEWABLE AREA
1 OFFICE 97 SMALL BUSINESS EDITION WITH BOOKSHELF 98
1 E-4200 350
1 VX1100 MONITOR WITH 19.7 VIEWABLE AREA
<PAGE>
2 128MB SDRAM DIMM
2 64 MEGABYTE EDO SIMM
1 MEMORY INSTALLATION GUIDE
1 64 SDRAM MEMORY MODULE
1 100MB INTERNAL ZIP DRIVE
1 128 MB ECC PARITY MEMORY
1 128 MB ECC PARITY MEMORY
2 BROOKTROUT TRUFAX 200 2PT
Dated: December 7, 1998
Debtor: Medgrup Development Services, Inc.
By:
- ----------------------------------
Its:
- ----------------------------------
Exhibit 10.3
Commercial Property Lease
Section 1. Parties: This lease is made between Gary Bader, of 1824 Woodmoor
Drive, Suite 204, Monument, Colorado, 80132, as lessor, and Medgrup
Corporation., of 1880 Willow Park Way, Suite B, Monument, CO 80132, as lessee.
Section 2. Description of Leased Premises: Lessor leases to lessee and lessee
hires from lessor, the space as presently constituted known as Suites 102 & 203,
encompassing approximately 3,364 square feet (including 456 square feet of
common space) referred to below as the premises, on the 1st & 2nd floors in the
building known as The Bader Building, at 1824 Woodmoor Drive, in County of El
Paso, State of Colorado, referred to below as the Office Building.
Section 3. Term: The space is leased for a term of three (3) years to commence
on June 1, 2000, and to end at 12:00 a.m. on May 31, 2003, or on such earlier
date as this lease may terminate as provided below, except that, if any such
date falls on a Sunday or a holiday, then this lease shall end at 12:00 a.m. on
the business day next preceding the above mentioned date.
Section 4. Rent: (a) In consideration of said lease, the lessee agrees to pay
the lessor as minimum rent for the premises:
(i) the sum of $47,096.00 in equal monthly installments of $3,924.67 from
June 1, 2000 (date of lease commencement) through May 31, 2001 (end of
first year);
(ii) the sum of $48,778.00 in equal monthly installments of $4,064.83 from
June 1, 2001 (second year commencement date) through May 31, 2002 (end of
second year);
(iii) the sum of $50,460.00 in equal monthly installments of $4,205.00 from
June 1, 2002 (third year commencement date) through May 31, 2003 (end of
third year);
(iv) an option to extend the lease for an additional three, (1) year terms
is agreed to. Rental rates to be set rates with $.50/foot increase per year
at the exercise of the option. Notice of intent to exercise this option
must be given ninety (90) days prior to the end of the lease.
(b) Prorations including, but not limited to, taxes, insurance, utilities,
janitorial services, maintenance, security systems, operating costs and other
common services provided the Office Building will be prorated among the tenants.
The lessee's prorated share is forty-one percent (41%) of the expenses for the
entire office building. Tenant reserves the right to review the common area
accounts and annual adjustments and to have some right to dispute the figures,
without cost to the Tenant.
(c) Lessor acknowledges receipt from lessee of the sum of $3,924.67 by check,
for rent to and including the month of June, 2000. If lessor is unable to give
possession of the premises on the date of commencement of the term of this lease
by reason of the holding over of any tenant or occupant, or because
construction, repairs or improvements are not completed, rent shall abate for
the period that possession by tenant is delayed. If such a delay shall continue
for more than 10 days, then lessee may, within 5 days after the expiration of
such 10 day period, give lessor a notice of election to terminate this lease.
Unless possession of the premises shall be made available sooner to lessee, this
lease shall terminate on the 10th day after the giving of such notice and lessor
shall return to lessee the consideration paid. Lessor shall have no obligation
to lessee for failure to give possession except as above provided.
<PAGE>
(d) The lessor and lessee agree that lessor will build-out to lessee's plans and
will bill lessee for any and all additional costs. Build-out will include
outside walls, carpeting and standard fluorescent overhead lighting. Inside
walls and upgrades/changes shall be billed to lessee and shall be paid, in full,
prior to commencement of construction. The lessee is responsible for the design
and layout of the space subject to the lessor's approval which will not be
unreasonably withheld. Lessor or its contractor, subcontractors or agents will
complete the construction and tenant improvements for the lessee. Upon submittal
of the design and layout by the lessee, the lessor will provide a proposed
budget for the construction within 20 days. All construction and improvements
shall be done in accordance with applicable building codes. Any costs or
expenses which exceed this tenant finish allowance shall be paid by the lessee.
Section 5. Use, Occupancy and Signage: Lessee shall use and occupy the premises
for general office purposes, including, but not limited to, the business of
Medical Record Coding. Lessor represents that the premises may lawfully be used
for this purpose. The lessor shall provide standard signage at the building, in
the lobby and at the entrance to suites 102 & 203 of the building. No sign,
placard, picture, advertisement, name, notice, door sign or window covering
visible from the exterior of the building or corridor hall shall be inscribed,
painted or affixed by the lessee on or about any part of the outside of the
building or premises without the prior written consent of the lessor.
Section 6. Place for Payment of Rent and Late Charges: Lessee shall pay rent,
and any additional rent as provided below, to lessor at lessor's above-stated
address, or at such other place as lessor may designate in writing, without
demand and without counterclaim, deduction, or setoff, without court order.
Lessee acknowledges that the late payment to lessor of rent or other sums due
under this lease will cause the lessor to incur costs not contemplated by this
lease, the exact amount of which would be extremely difficult and impractical to
ascertain. Therefore, in the event that the lessor should fail to pay any
installment of rent or any sum due hereunder within five (5) business days from
the date due, lessee shall pay to the lessor as additional rent a late charge
equal to ten percent (10%) of or equal to $50.00 a month and interest of the
amount in default at a rate of fifteen percent (15%) per annum form the date of
default until paid.
Section 7. Care and Repair of Premises: Lessee shall commit no act of waste and
shall take good care of the premises and the fixtures and appurtenances, and
shall, in the use and occupancy of the premises, conform to all laws, orders,
and regulations of the federal, state, and municipal governments or any of their
departments. Lessor shall make all necessary repairs to the premises, except
where the repair has been made necessary by misuse or neglect by lessee or
lessee's agents, servants, visitors or licensees. All improvements made by
lessee to the premises, which are so attached to the premises that they cannot
be removed without material injury or damage to the premises, shall become the
property of lessor upon installation.
Not later than the last day of the term lessee shall, at lessee's expense,
remove all of lessee's personal property and those improvements made by lessee
which have not become the property of lessor, including trade fixtures, cabinet
work, movable paneling, partitions and the like; repair all injury done by or in
connection with the installation or removal of the property and improvements;
and surrender the premises in as good condition as they were at the beginning of
the term, reasonable wear, and damage by fire, the elements, casualty, or other
cause not due to the misuse or neglect by lessee or lessee's agents, servants,
visitors or licensees, excepted. All property, furniture, fixtures, and personal
property of any kind of lessee remaining on the premises after the last day of
the term of this lease shall be conclusively deemed abandoned and shall become
the property of the lessor.
<PAGE>
Section 8. Alterations, Additions or Improvements: Lessee shall not, without
first obtaining the written consent of lessor, make any alterations, additions
or improvements in, to or about the premises. All alterations, additions,
erections or improvements on or in the Office Building shall at the option of
the lessor, be and become a part of the Office Building and shall, at the option
of the lessor, remain upon and be surrendered with the premises as a part
thereof at the termination of this lease. Should the lessee fail to remove any
furniture or fixtures or personal property of any kind, then same shall be
considered a abandoned and become the property of the lessor.
Section 9. Prohibition Against Activities Increasing Fire Insurance Rates:
Lessee shall not do or suffer anything to be done on the premises which will
cause an increase in the rate of fire insurance on the building.
Section 10. Accumulation of Waste or Refuse Matter: Lessor and Lessee shall not
permit the accumulation of waste or refuse matter on the leased premises or
anywhere in or near the building.
Section 11. Abandonment: Lessee shall not abandon the premises, without
continuing to pay rent, when due.
Section 12. Assignment of Sublease: Lessee shall not, without first obtaining
the written consent of the lessor which shall not be unreasonably withheld,
assign, mortgage, pledge, or encumber this lease, in whole or in part, or sublet
the premises or any part of such premises. This covenant shall be binding upon
the legal representatives of lessee, and upon every person to whom lessee's
interest under this lease passes by operation of law, but shall not apply to an
assignment or subletting to the parent or subsidiary of a corporate lessee or to
a transfer of the leasehold interest occasioned by a consolidation or merger
involving lessee.
Section 13. Compliance with Rules and Regulations: Lessee shall observe and
comply with the rules and regulations set forth below, which are made part of
this agreement, and with any further reasonable rules and regulations as lessor
may prescribe, on written notice to the lessee, for the safety, care, and
cleanliness of the building and the comfort, quiet, and convenience of other
occupants of the building.
Section 14. Common Areas: The common areas of the Office Building is that part
of the building designated by the lessor from time to time for the common use of
all tenants, including among other facilities, parking areas, sidewalks,
landscaping, curbs, courtyards, hallways, lighting facilities, drinking
fountains, public toilets, utility rooms and the like. Lessee and its employees,
customers, sublessees, concessionaires and licensees shall have the
non-exclusive right to use the common areas in common with the lessor and other
tenants in the Office Building subject to reasonable usage rules and regulations
governing the use as lessor may from time to time prescribe.
Section 15. Water and Sewer: Lessor agrees to furnish hot and cold water for
lavatory purposes as a part of common area costs. If a further supply of water
is required by lessee, lessee shall, at lessee's expense, install (and shall
thereafter maintain at lessee's expense) a water meter to register lessee's
consumption of water, and lessee shall pay as additional rent, when and as bills
are rendered, for water consumed, at the cost to lessor, and for sewer rents and
all other rents and charges based upon consumption of water. Lessor agrees to
furnish sewer service to the building customary in the office building. Should
lessee require any specialized, custom or otherwise required sewer services
other than ordinary office building sewer service, lessee shall, at lessee's
expense, install (and shall thereafter maintain at lessee's expense) any
specialized custom or otherwise required sewer system, and lessee shall pay as
additional rent, when and as bills are rendered, for specialized custom or
otherwise required sewer, at the cost to lessor, and charges based upon use of
sewer systems. Lessee further agrees that lessee is solely responsible for all
bio-hazardous, otherwise hazardous and noxious materials, fumes, or emissions
which are in no way released, emitted or discharged by the lessee into the sewer
system or otherwise.
<PAGE>
Section 16. Indemnity: Lessee agrees to defend, pay indemnify and save free and
harmless the lessor from and against any and all claims, demand, fines, suits,
actions proceedings, orders, decrees and judgments of any kind or nature by or
in favor of anyone whomsoever and from and against any and all costs and
expenses, including reasonable attorney fees and costs, resulting from or in
connection with loss of life, bodily or personal injury or property damage,
governmental assessment, demand, abatement or other governmental claim or
demand, directly or indirectly, out of or from or on account of any occurrence
in, upon, at or from the premises or occasioned wholly or in part through the
use and occupancy of the premises or any improvements thereof or appurtenances
thereto, or by any act or omission of lessee or any subtenant, concessionaire or
licenses of lessee or its respective employees, agents, or contractors in, upon,
or at the premises or its appurtenances or any common areas of the building,
except nothing herein mentioned shall excuse or exculpate lessor or its
employees, agents or contractors from their own negligence; and in any such case
the indemnification and hold harmless provided herein shall not apply. Lessor
shall indemnify lessee for damages incurred resulting from the actions of
lessor, it's employees, agents, licensees and contractor including attorney fees
and costs.
Section 17. Cleaning Services: If the leased premises are used exclusively as
offices, lessor agrees to furnish cleaning services customary in the building.
Section 18. Electricity and Natural Gas: Lessee shall be responsible for their
own monthly payments of electricity and natural gas. Lessor will cause to have
installed meters to monitor the monthly output regarding electricity and natural
gas. Lessee shall not use any electrical equipment which in lessor's reasonable
opinion will overload the wiring installations or interfere with the reasonable
use of such installations. Lessor will pro-rate lessee, on a monthly basis, per
the percentage of common area for the usage of electricity for said common area.
Section 19. Damages to Building: If the building is damaged by fire or any other
cause to such an extent that the cost of restoration, as reasonably estimated by
lessor, will equal or exceed seventy five percent of the replacement value of
the building (exclusive of foundations) just prior to the occurrence of the
damage, then lessor may, no later than the 20th day following the damage, give
lessee a notice of election to terminate this lease, or if the cost of
restoration will equal or exceed seventy five percent of such replacement value
and if the premises shall not be reasonably usable for the purposes for which
they are leased under this agreement, then lessee may, no later than the 30th
day following the damage, give lessor a notice of election to terminate this
lease. In event of either such election this lease shall be deemed to terminate
on the 5th day after the giving of such notice, and lessee shall surrender
possession of the premises within a reasonable time thereafter, and the rent,
and any additional rent, shall be apportioned as of the date of the leased
premises became unusable, beyond this date shall be repaid to tenant.
In any case in which use of the premises is affected by any damage to the
building, there shall be either an abatement or an equitable reduction in rent
depending on the period for which and the extent to which the premises are not
reasonably usable for the purpose for which they are leased under this
agreement. The words "restoration" and "restore" as used in this section shall
include repairs. If the damage results from the fault of the lessee, unrelated
third party or lessee's agents, servants, visitors, or licensees, lessee shall
not be entitled to any abatement or reduction of rent, except to the extent, if
any, that lessor receives the proceeds of rent insurance in lieu of such rent.
<PAGE>
Eminent Domain: If the cost of restoration as estimated by lessor shall amount
to less than seventy five percent of the replacement value of the building, or
if, despite the cost, lessor does not elect to terminate this lease, lessor
shall restore the building and the premises with reasonable promptness, subject
to delays beyond lessor's control and delays in the making of insurance
adjustments between lessor and its insurance carrier, and lessee shall have no
right to terminate this lease except as provided in this lease. Lessor need not
restore fixtures and improvements owned by tenant. If lessee must vacate
property during restoration, for any reason, lessee will not be charged rent
during that period.
If the premises, any part of the premises, any estate in the premises, or any
other part of the building materially affecting lessee's use of the premises, be
taken by eminent domain, this lease shall terminate on the date when title vests
pursuant to such a taking. The rent, and any additional rent, shall be
apportioned as of the termination date and any rent paid for any period beyond
that date shall be repaid to lessee. Lessee shall not be entitled to any part of
the award for such taking or any payment in lieu of such payment, but lessee may
file a claim for any taking of fixtures and improvements owned by lessee, and
for moving expenses.
Section 20. Waivers of Subrogation: Notwithstanding the provisions of Section
VII of this lease, in the event of loss or damage to the building, the premises
and/or any contents, each party shall look first to any insurance in its favor
before making any claim against the other party; and, to the extent possible
without additional cost, each party shall obtain, for each policy of such
insurance, provisions permitting waiver of any claim against the other party for
loss or damage within the scope of such insurance, and each party, to such
extent permitted, for itself and its insurers waives all such insured claims
against the other party.
Section 21. Lessor's Remedies on Default: If lessee defaults in the payment of
rent, or any additional rent, or defaults in the performance of any of the other
covenants or conditions of this agreement, lessor may give lessee notice of
default and if lessee does not cure any rent, or additional rent, default within
ten (10) business days, or other default within ten (10) business days, after
the giving of notice (or if any other default is of such a nature that it cannot
be completely cured within such a period, if lessee does not commence curing
within such ten (10) business days and thereafter proceed with reasonable
diligence and in good faith to cure such a default), then lessor may terminate
this lease on not less than ten (10) business days notice to lessee. On the date
specified in the notice, the term of this lease shall terminate and lessee shall
then quit and surrender the premises to lessor, but lessee shall remain liable
as provided below.
Section 22. Deficiency: In any case where lessor has recovered possession of the
premises by reason of lessee's default, lessor may, at lessor's option, occupy
the premises or cause the premises to be redecorated, altered, divided,
consolidated with other adjoining premises, or otherwise changed or prepared for
reletting, and may relet the premises or any part of the premises as agent of
lessee or otherwise, for a term or terms to expire prior to, at the same time
as, or subsequent to, the original expiration date of this lease, at lessor's
option, and receive the rent. Rent so received shall be applied first to the
payment of such expenses as lessor may have incurred in connection with the
recovery of possession, redecorating, altering, dividing, consolidating with
other adjoining premises, or otherwise changing or preparing for reletting, and
the reletting, including brokerage and reasonable attorneys' fees and costs, and
then to the payment of damages in amounts equal to the rent under this agreement
and to the cost and expenses of performance of the other covenants of lessee as
provided in this lease.
<PAGE>
Lessee agrees, in any such case, whether or not lessor has relet, to pay to
lessor damages equal to the rent and other sums agreed to be paid by lessee,
less the net proceeds of the reletting, if any, and the damages shall be payable
by lessee on the several rent days specified above. In reletting the premises,
lessor may grant rent concessions, and lessee shall be credited with such
concessions, if reasonable in light of market conditions. No such reletting
shall constitute a surrender and acceptance or be deemed evidence of a surrender
and acceptance. If lessor elects, pursuant to this agreement, actually to occupy
and use the premises or any part of the premises during any part of the balance
of the term as originally fixed or since extended, there shall be allowed
against lessee's obligation for rent or damages as defined in this lease, during
the period of lessor's occupancy, the reasonable value of such occupancy, not to
exceed, in any event, the rent reserved in this lease, and such occupancy shall
not be construed as a relief of lessee's liability under this agreement.
Upon an uncured and property notice default, as defined above by the lessee, the
lessor shall have the right to immediately re-enter the premises either by
summary proceedings, by force or otherwise and disposses the lessee and all
other occupants therefrom and remove and dispose of all property therein or, at
the lessor's option, store the lessees in a public warehouse or elsewhere at the
cost and for the account of the lessee, all without service of any notice of
intention to re-enter with or without recourse to legal process (which lessee
hereby expressly waives) and without lessor being deemed guilty of trespass or
becoming liable for any loss or damage which may be occasioned thereby, provided
lessor acts reasonably.
Section 23. Effect of Failure To Insist on Strict Compliance With Conditions:
The failure of either party to insist on strict performance of any covenant or
condition of this agreement, or to exercise any option contained in this lease,
shall not be construed as a waiver of such covenant, condition, or option in any
other instance. This lease cannot be changed or terminated orally.
Section 24. Collection of Rent from Any Occupant: If the premises are sublet or
occupied by anyone other than lessee and lessee is in default under this
agreement, or if this lease is assigned by lessee, lessor may collect rent from
the assignee, subtenant, or occupant, and apply the net amount collected to the
rent. No such collection shall be deemed a waiver of the covenant in this lease
against assignment and subletting, or the acceptance of such assignee,
subtenant, or occupant as lessee, or a release of lessee from further
performance of the covenants contained in this lease.
Section 25. Subordination of Lease: This lease shall be subject and subordinate
to all underlying leases and to deeds to secure debt which may now or
subsequently affect such leases or the real property of which the premises form
a part, and also to all renewals, modifications, consolidations, and
replacements of the underlying leases and the deeds to secure debt. Although no
instrument or act on the part of lessee shall be necessary to effectuate such a
subordination, lessee will, nevertheless, execute and deliver any further
instruments confirming such a subordination of this lease as may be desired by
the holders of the deeds to secure debt or by any of the lessors under the
underlying leases. Lessee appoints lessor attorney in fact, irrevocably, to
execute and deliver any such instrument for lessee. If any underlying lease to
which this lease is subject terminates, lessee shall, on timely request, attorn
to the owner of the reversion.
Section 26. Security Deposit: Lessee shall deposit with lessor upon beneficial
occupancy of the premises the sum of $4,000.00 as security for the performance
of lessee's obligations under this lease, including without limitation the
surrender of possession of the premises to lessor as provided in this lease. If
lessor applies any part of the deposit to cure any default of lessee, lessee
shall upon demand deposit with lessor the amount so applied, so that lessor
shall have the full deposit on hand at all times during the term of this lease.
In the event that the security deposit has not been utilized by the lessor, the
deposit, or so much thereof as has not been utilized shall be refunded to lessee
upon full performance of this lease by the lessee within thirty (30) days after
the termination of the lease.
<PAGE>
Section 27. Lessor's Right To Cure Lessee's Breach: If lessee breaches any
covenant or condition of this lease, lessor may, on reasonable notice to lessee
(except that no notice need be given in case of emergency), cure such a breach
at the expense of lessee and the reasonable amount of all expenses, including
attorneys' fees, incurred by lessor in so doing (whether paid by lessor or not)
shall be deemed additional rent payable on demand.
Section 28. Mechanics' Lien: Lessee shall within 20 days after notice from
lessor discharge any mechanics' liens for materials or labor claimed to have
been furnished to the premises on lessee's behalf. Lessee agrees to provide all
necessary bonding or other security required to bond around any lien recorded
against the property as a result of any act or omission on the part of lessee.
Section 29. Notices: Any notice by either party to the other shall be in writing
and shall be deemed to have been duly given only if delivered personally or sent
by registered or certified mail in an addressed postpaid envelope; if to lessee,
at the above described building; if to lessor, at lessor's address as set forth
above; or, to either, at any other address as lessee or lessor, respectively,
may designate in writing. Notice shall be deemed to have been duly given, if
delivered personally, upon delivery, and if mailed, upon the 7th day after the
mailing of such notice.
Section 30. Lessor's Right to Inspection, Repair, and Maintenance: Lessor may
enter the premises at any reasonable time, during regular business hours, upon
adequate notice to lessee (except that no notice need be given in case of
emergency) for the purpose of inspection or the making of such repairs,
replacements, or additions in, to, on and about the premises or the building, as
lessor deems necessary or desirable. Lessee shall have no claim or cause of
action against lessor by reason of such entry except as provided in this
Section.
Section 31. Interruption of Services or Use: Interruption or curtailment of any
service maintained in the building, if caused by strikes, mechanical
difficulties, or any causes beyond lessor's control whether similar or
dissimilar to those enumerated, shall not entitle lessee to any claim against
lessor or to any abatement in rent, and shall not constitute constructive or
partial eviction, unless lessor fails to take such measures as may be reasonable
in the circumstances to restore the service without undue delay. If the premises
are rendered untenantable in whole or in part, for a period of 15 business days,
by the making of repairs, replacements, or additions, other than those made with
lessee's consent or caused by misuse or neglect by lessee or lessee's agents,
servants, visitors, or licensees, there shall be a proportionate abatement of
rent during the period of such untenantability.
Section 32. Lease Renewal and Lessor's Right To Show Premises: Lessee shall
notify the lessor in writing six (6) months prior to the termination of this
lease as to whether lessee wishes to renegotiate and extend the lease for an
additional period of time. Upon such notice the parties will enter into
negotiations for a new lease term and conditions. Lessor may show the premises
to prospective purchasers and mortgagees and, during the six (6) months or upon
notice of intent to vacate prior to termination of this lease, to prospective
tenants, during business hours upon reasonable notice to lessee.
Section 33. Effect of Other Representations: No representations or promises
shall be binding on the parties to this agreement except those representations
and promises contained in this lease, or in some future writing signed by the
party making such representations or promises.
<PAGE>
Section 34. Peaceful Enjoyment: Lessor covenants that if, and so long as, lessee
pays the rent, and any additional rent as provided in this lease, and performs
the covenants of this lease, lessee shall peaceably and quietly have, hold, and
enjoy the premises for the term mentioned in this lease, subject to the
provisions of this lease.
Section 35. Lessee's Certification as to Force and Effect of Lease: Lessee
shall, from time to time, upon not less than five (5) days prior written request
by lessor, execute, acknowledge, and deliver to lessor a written statement
certifying that the lease is unmodified and in full force and effect, or that
the lease is in full force and effect as modified and listing the instruments of
modification; the dates to which the rents and other charges have been paid;
and, whether or not to the best of lessee's knowledge lessor is in default under
this lease and, if so, specifying the nature of the default. It is intended that
any such statement delivered pursuant to this section may be relied upon by a
prospective purchaser of lessor's interest or mortgagee of lessor's interest or
assignee of any mortgage upon lessor's interest in the building.
Section 36. Section Headings: The section headings in this lease are intended
for convenience only and shall not be taken into consideration in any
construction or interpretation of this lease or any of its provisions.
Section 37. Binding Effect on Successors and Assigns: The provisions of this
lease shall apply to, bind, and inure to the benefit of lessor and lessee, and
their respective heirs, successors, legal representatives, and assigns. It is
understood that the term "lessor" as used in this lease means only the owner, a
mortgagee in possession, or a term lessee of the building, so that in the event
of any sale of the building or of any lease of the building, or if a mortgagee
shall take possession of the premises, the lessor shall be entirely freed and
relieved of all covenants and obligations of lessor subsequently accruing under
this agreement. It shall be deemed without further agreement that the purchaser,
the term lessee of the building, or the mortgagee in possession has assumed and
agreed to carry out any and all covenants and obligations of the lessor under
this agreement.
Dated March 15, 2000
Gary Bader MedGrup Corporation
By: /s/ Gary Bader By: /s/ Terry J. Holmes
----------------------------- ---------------------------
Gary Bader, Proprietor Terry J. Holmes
President
By: /s/ James S. Wantman
---------------------------
James S. Wantman
Controller
Exhibit 10.4
NO SALE OR TRANSFER OF THIS WARRANT OR THE SECURITIES UNDERLYING THIS WARRANT
MAY BE MADE UNTIL THE EFFECTIVENESS OF A REGISTRATION STATEMENT OR OF A
POST-EFFECTIVE AMENDMENT THERETO UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT") , COVERING THIS WARRANT OR THE SECURITIES UNDERLYING THIS WARRANT,
OR UNTIL THE COMPANY IS IN RECEIPT OF AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION
REQUIREMENTS OF THE ACT. TRANSFER OF THIS WARRANT IS RESTRICTED UNDER PARAGRAPH
2 BELOW.
PLACEMENT AGENT'S WARRANT TO PURCHASE
COMMON STOCK
MEDGRUP CORPORATION
(a Colorado corporation)
Dated: January 10, 2000
W-002
THIS CERTIFIES THAT Kashner Davidson Securities Corporation ( the
"Placement Agent" and together with its assigns, the "Holder") is entitled to
purchase from Medgrup Corporation, a Colorado corporation (the "Company") up to
43,000 shares of restricted Common Stock of the Company at a purchase price of
$1.10 per share. This Warrant and the shares of Common Stock underlying this
Warrant are collectively, are hereinafter referred to as the "Securities".
This Placement Agent's Warrant is issued pursuant to a Placement Agency
Agreement, dated July 22, 1999, between the Company and the Placement Agent in
connection with a private offering through the Placement Agent (the "Private
Offering") of up to 600,000 shares of Common Stock (the "Shares").
1. Exercise of the Placement Agent's Warrant.
------------------------------------------
(a) The rights represented by this Placement Agent's Warrant shall be
exercised at the prices and during the periods as follows:
<PAGE>
(i) Between the date hereof and January 9, 2005, inclusive, the Holder
shall have the option to purchase the Shares hereunder at a price of $1.10 per
Share (the "Share Exercise Price"), the purchase price of the Shares being 110%
above the offering prices of the Shares of the Company's common stock in this
private placement.
(ii) This Placement Agent's Warrant shall expire effective at 5:00
p.m., (New York time) on January 9, 2005, after which time the Holder shall have
no right to purchase any Securities hereunder.
(b) The rights represented by this Placement Agent's Warrant may be
exercised at any time within the period above specified, in whole or in part, by
(i) the surrender of the Placement Agent's Warrant (with the purchase form at
the end hereof properly executed) at the principal executive office of the
Company (or such other office or agency of the Company as it may designate by
notice in writing to the Holder at the address of the Holder appearing on the
books of the Company); (ii) payment to the Company of the respective exercise
price then in effect for the number of Securities specified in the
above-mentioned purchase form together with applicable stock transfer taxes, if
any; and (iii) delivery to the Company of a duly executed agreement signed by
the person(s) designated in the purchase form to the effect that such person(s)
agree(s) to be bound by the provisions of paragraph 5 and of paragraph 6 hereof.
The Placement Agent's Warrant shall be deemed to have been exercised, in whole
or in part to the extent specified, immediately prior to the close of business
on the date the Placement Agent's Warrant is surrendered and payment is made in
accordance with the foregoing provisions of this paragraph 1, and the person or
persons in whose name or names the certificates for shares of Common Stock shall
be issuable upon such exercise shall become the holder or holders of record of
such shares of Common Stock, as the case may be, at that time and date.
Certificates representing the shares of Common Stock, so purchased shall be
delivered to the Holder within a reasonable time, not exceeding ten (10)
business days, after the rights represented by this Placement Agent's Warrant
shall have been so exercised.
(c) This Warrant also shall entitle the holder to receive (the "Right"), at
the option of the Holder, without payment of cash or property to the Company, a
number of shares of Common Stock which shall be determined by dividing (i) that
portion, as elected by the Holder, of the total number of shares of Common Stock
and/or Warrants, as the case may be, which the Holder is eligible to purchase
hereunder (and as adjusted pursuant to Section 7 hereof), multiplied by the
amount (if any) by which the fair market value (as determined by the closing ask
(sell) price of the Company's Common Stock on the date on which notice of
exercise of this Warrant is delivered to the Company), hereafter the "exercise
date") on the exercise date exceeds the option exercise price hereof; by (ii)
the fair market value of a share of Common Stock, on the exercise date. In lieu
of issuing shares of Common Stock on the exercise of this Right, the Board of
Directors may elect to pay the cash equivalent of the fair market value on the
exercise date of any or all the shares of Common Stock which would otherwise be
issuable on exercise of this Right. No fractional shares of Common Stock shall
2
<PAGE>
be issued under this Subsection. In lieu of fractional shares of Common Stock,
the Holder shall be entitled to receive a cash adjustment equal to the same
fraction of the fair market value per share of Common Stock on the date of
exercise.
2. Restrictions on Transfer.
-------------------------
This Placement Agent's Warrant shall not be transferred, sold, pledged,
assigned, or hypothecated unless such assignment shall be effected by the Holder
by (i) completing and executing the form of assignment at the end hereof and
(ii) surrendering this Placement Agent's Warrant with such duly completed and
executed assignment form for cancellation at the office or agency of the Company
referred to in Paragraph 9 hereof; whereupon the Company shall issue, in the
name or names specified by the Holder (including the Holder) a new Placement
Agent's Warrant or Placement Agent's Warrants of like tenor and representing in
the aggregate rights to purchase the same number of Securities as are then
purchasable hereunder. Any transfer shall comply with the Act. During the first
12 months, this Warrant cannot be transferred except to persons associated with
the Placement Agent, unless transfer of this Warrant then is registered with the
Securities and Exchange Commission.
3. Covenants of the Company
------------------------
(a) The Company covenants and agrees that all Common Stock issuable upon
exercise of this Placement Agent's Warrant or upon exercise of the Warrants
issuable upon exercise of this Placement Agent's Warrant will, upon issuance, be
duly and validly issued, fully paid and nonassessable and no personal liability
will attach to the Holder thereof by reason of being such a Holder, other than
as set forth herein.
(b) The Company covenants and agrees that during the period within which
this Placement Agent's Warrant may be exercised, the Company will at all times
have authorized and reserved a sufficient number of shares of Common Stock to
provide for the exercise of this Placement Agent's Warrant and for the exercise
of the Warrants issuable upon exercise of this Placement Agent's Warrant.
4. No Rights of Stockholder.
-------------------------
This Placement Agent's Warrant shall not entitle the Holder to any voting
rights or other rights as a stockholder of the Company, either at law or in
equity, and the rights of the Holder are limited to those expressed in this
Placement Agent's Warrant and are not enforceable against the Company except to
the extent set forth herein.
5. Registration Rights.
--------------------
(a) The Company shall advise the Holder or its transferee, whether the
Holder holds this Placement Agent's Warrant or has exercised this Placement
Agent's Warrant and holds Common Stock, by written notice at least 30 days prior
to the filing of any registration statement under the Act, covering any
3
<PAGE>
securities of the Company, for its own account or for the account of others, and
will until January 9, 2005, upon the request of the Holder, include in any such
registration statement such information as may be required to permit a public
offering of any of the Placement Agent's Warrant's and/or the Common Stock
issuable upon exercise of this Placement Agent's Warrant or upon exercise of the
Warrants issuable upon exercise of this Placement Agent's Warrant hereunder (the
"Registerable Securities"), except for any registration statement filed by the
Company on Forms S-4 or S-8 or any other comparable form or any registration
statement relating to Common Stock underlying employee stock options. The
Company shall supply prospectuses in order to facilitate the public sale or
other disposition of the Registerable Securities and shall take any and all
reasonable actions which may be necessary to enable such Holder to consummate
the public sale of the Registerable Securities, and furnish indemnification in
the manner provided in Paragraph 6 hereof. The Holder shall furnish information
reasonably requested by the Company in accordance with such registration
statements or amendments thereto, including its intentions with respect thereto,
and shall furnish indemnification as set forth in Paragraph 6. The Company shall
continue to advise the Holders of the Registerable Securities of its intention
to file a registration statement or amendment pursuant to this Paragraph 5(a)
until the earlier of (i) January 9, 2005; or (ii) such time as all of the
Registerable Securities have been registered and sold under the Act.
(b) If the Registerable Securities have not been registered for sale by the
Company under paragraph 5 (a) by January 9, 2001, then at any time commencing
after the Closing Date through and including January 9, 2005, if the Company at
any time has any securities registered under the Act or the Securities Exchange
Act of 1934, the Holders of the Placement Agent's Warrants and/or Common Stock
underlying same representing a "Majority" (as hereinafter defined) of such
securities (assuming the exercise of all of the Placement Agent's Warrants)
shall have the right (which right is in addition to the registration rights
under Section 5 (a) hereof), on one (1) occasion, exercisable by written notice
to the Company, to demand that the Company prepare and file with the Commission,
a registration statement and such other documents, including a prospectus, as
may be necessary in the opinion of both counsel for the Company and counsel for
the Placement Agent and Holders, in order to comply with the provisions of the
Act, so as to permit a public offering and sale of their respective Common Stock
underlying same for 120 consecutive days by such Holders and any other Holders
of the Placement Agent's Warrants and/or Common Stock underlying same who notify
the Company within ten (10) days after receiving notice from the Company of such
request.
(c) The Company covenants and agrees to give written notice of any
registration request under this Section 5 by any Holder or Holders to all other
registered Holders of the Placement Agent's Warrants and the Common Stock
underlying same within ten (10) days from the date of the receipt of any such
registration request.
(d) Notwithstanding anything to the contrary contained herein, if the
Company shall not have filed a registration statement for the Registerable
Securities within the time period specified in Section 5(e) hereof pursuant to
the written notice specified in Section 5(b) of a Majority of the Holders of the
Placement Agent's Warrants and/or shares of Common Stock underlying same, the
4
<PAGE>
Company agrees that upon the written notice of election of a Majority of the
Holders of the Placement Agent's Warrants and/or Common Stock underlying same it
shall repurchase (i) any and all of the Securities underlying the Placement
Agent's Warrants at the higher of the Market Price per share of Common Stock on
the date of the notice sent pursuant to Section 5(b) or the expiration of the
period specified in Section 5 (e). Such repurchase shall be in immediately
available funds and shall close within two (2) days after the later of (i) the
expiration of the period specified in Section 5 (b) or (ii) the delivery of the
written notice of election specified in this Section 5 (d).
(e) The Company shall use its best efforts to file a registration statement
within thirty (30) days of receipt of any demand therefore, shall use its best
efforts to have any registration statement declared effective at the earliest
possible time, and shall furnish each Holder desiring to sell the Registerable
Securities, such number of prospectuses as shall reasonably be requested.
(f) The Company shall pay all costs (excluding fees and expenses of
Holder(s) counsel and any underwriting or selling commissions), fees and
expenses in connection with all registration statements filed pursuant to
Section 5(a) and the request of Holders (if any) pursuant to Section 5(b)
including, without limitation, the Company's legal and accounting fees, printing
expenses, and blue sky fees and expenses (limited to not more than 5 states). If
the Company shall fail to comply with the provisions of Section 5, the Company
shall, in addition to any other equitable or other relief available to the
Holder(s), be liable for any or all incidental, special and consequential
damages and damages due to loss of profit sustained by the Holder(s) requesting
registration of their Registerable Securities.
(g) The Company will take all necessary action which may be required in
qualifying or registering the Registerable Securities included in a registration
statement for offering and sale under the securities or blue sky laws of such
states as reasonably are requested by the Holder(s). The Holders shall pay the
expenses of registering in more than 5 states.
(h) Nothing contained in this Agreement shall be construed as requiring the
Holder(s) to exercise their Placement Agent's Warrants prior to the initial
filing of any registration statement or the effectiveness thereof.
(i) The Company shall furnish to each Holder participating in the offering
and to each underwriter, if any, a signed counterpart, addressed to such Holder
or underwriter, of (i) an opinion of counsel to the Company, dated the effective
date of such registration statement (and, if such registration includes an
underwritten public offering, an opinion dated the date of the closing under the
underwriting agreement), and (ii) a "cold comfort" letter dated the effective
date of such registration statement (and, if such registration includes an
underwritten public offering, a letter dated the date of the closing under the
underwriting agreement) signed by the independent public accountants who have
issued a report on the Company's financial statements included in such
registration statement, in each case covering substantially the same matters
with respect to such registration statement (and the prospectus included
therein) and, in the case of such accountants' letter, with respect to events
subsequent to the date of such financial statements, as are customarily covered
in opinions of issuer's counsel and in accountants' letters delivered to
underwriters in underwritten public offerings of securities.
5
<PAGE>
(j) The Company shall as soon as practicable after the effective date of
the registration statement, and in any event within 15 months thereafter, have
made "generally available to its security holders" (within the meaning of Rule
158 under the Act) an earnings statement (which need not be audited) complying
with Section 11(a) of the Act and covering a period of at least 12 consecutive
months beginning after the effective date of the registration statement.
(k) The Company shall deliver promptly to each Holder participating in the
offering requesting the correspondence and memoranda described below, and the
managing underwriters, if any, copies of all correspondence between the
Commission and the Company, its counsel or auditors and all memoranda relating
to discussions with the Commission or its staff with respect to the registration
statement and permit each Holder and underwriter to do such investigation, upon
reasonable advance notice, with respect to information contained in or omitted
from the registration statement as it deems reasonably necessary to comply with
applicable securities laws or rules of the National Association of Securities
Dealers, Inc. ("NASD"). Such investigation shall include access to books,
records and properties and opportunities to discuss the business of the Company
with its officers and independent auditors, all to such reasonable extent and at
such reasonable times and as often as any such Holder shall reasonably request.
(l) The Company shall enter into an underwriting agreement with the
managing underwriters selected for such underwriting, if any, the Holders of the
Placement Agent's Warrants and/or Common Stock underlying same representing a
Majority of such securities (assuming the exercise of all of the Placement
Agent's Warrants) requested to be included in such underwriting. Such agreement
shall be satisfactory in form and substance to the Company, each Holder and any
such managing underwriters, and shall contain such representations, warranties
and covenants by the Company and such other terms as are customarily contained
in agreements of that type used by the managing underwriter.
The Holders shall be parties to any underwriting agreement relating to an
underwritten sale of their Registerable Securities and may, at their option,
require that any or all the representations, warranties and covenants of the
Company to or for the benefit of such underwriters shall also be made to and for
the benefit of such Holders. Such Holders shall not be required to make any
representations or warranties to or agreements with the Company or the
underwriters except as they may relate to such Holders, their intended methods
of distribution, and except for matters related to disclosures with respect to
such Holders, contained or required to be contained, in such registration
statement under the Act and the rules and regulations thereunder.
(m) For purposes of this Section 5, the term "Majority" in reference to the
Holders of Placement Agent's Warrants, shall mean in excess of fifty percent
(50%) of the then outstanding Placement Agent's Warrants assuming full exercise
thereof that (i) are not held by the Company, an affiliate, officer, creditor,
employee or agent thereof or any of their respective affiliates, members of
6
<PAGE>
their families, persons acting as nominees or in conjunction therewith, or (ii)
have not been resold to the public pursuant to Rule 144 under the Act or a
registration statement filed with the Commission under the Act.
6. Indemnification.
---------------
(a) Whenever pursuant to Paragraph 5, a registration statement relating to
any Registerable Securities is filed under the Act, amended or supplemented, the
Company will indemnify and hold harmless each Holder of the Registerable
Securities covered by such registration statement, amendment or supplement (such
holder hereinafter referred to as the "Distributing Holder"), each person, if
any, who controls (within the meaning of the Act) the Distributing Holder, and
each officer, employee, partner or agent of the Distributing Holder, if the
Distributing Holder is a broker or dealer, against any losses, claims, damages
or liabilities, joint or several, to which the Distributing Holder may become
subject under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
any such registration statement or any preliminary prospectus or final
prospectus constituting a part thereof or any amendment or supplement thereto,
or arise out of or are based upon the omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading; and will reimburse the Distributing Holder for any legal or other
expenses reasonably incurred by the Distributing Holder, in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the Company will not be liable in any such case (i) to
the extent that any such loss, claim, damage or liability arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in said registration statement, said preliminary
prospectus, said final prospectus or said amendment or supplement in reliance
upon and in conformity with written information furnished by such Distributing
Holder each person, if any, who controls (within the meaning of the Act) the
Distributing Holder, and each officer, employee, partner or agent of the
Distributing Holder, any other Distributing Holder or any such underwriter for
use in the preparation thereof, and (ii) such losses, claims, damages or
liabilities arise out of or are based upon any actual or alleged untrue
statement or omission made in or from any preliminary prospectus, but corrected
in the final prospectus, as amended or supplemented.
(b) Whenever pursuant to Paragraph 5 a registration statement relating to
the Registerable Securities is filed under the Act, or is amended or
supplemented, the Distributing Holder will indemnify and hold harmless the
Company, each of its directors, each of its officers who have signed said
registration statement and such amendments and supplements thereto, and each
person, if any, who controls the Company (within the meaning of the Act) and
each officer, employee, partner or agent of the Company against any losses,
claims, damages or liabilities to which the Company or any such director,
officer, controlling person, employee, partner or agent may become subject under
the Act or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue or alleged
untrue statement of any material fact contained in any such registration
statement or any preliminary prospectus or final prospectus constituting a part
thereof, or any amendment or supplement thereto, or arise out of or are based
7
<PAGE>
upon the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent that such untrue
statement or alleged untrue statement or omission was made in said registration
statement, said preliminary prospectus, said final prospectus or said amendment
or supplement in reliance upon and in conformity with written information
furnished by such Distributing Holder for use in the preparation thereof; and
will reimburse the Company or any such director, officer, controlling person,
employee, partner or agent for any legal or other expenses reasonably incurred
by them in connection with investigating or defending any such loss, claim,
damage, liability or action.
(c) Promptly after receipt by an indemnified party under this Paragraph 6
of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against any indemnifying party, give the
indemnifying party notice of the commencement thereof; but the omission to so
notify the indemnifying party will not relieve it from any liability which it
may have to any indemnified party otherwise than under this Paragraph 6.
(d) 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 in, and, to the extent that it may wish,
jointly with any other indemnifying party similarly notified, to assume the
defense thereof with counsel reasonably satisfactory to such indemnified party,
and after notice from the indemnifying party to such indemnified party of its
election to so assume the defense thereof, the indemnifying party will not be
liable to such indemnified party under this Paragraph 6 for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation.
7. Adjustments of Purchase Price and Number of Shares.
--------------------------------------------------
(a) Computation of Adjusted Price. Except as hereinafter provided, in case
the Company shall at any time after the date hereof issue or sell any shares of
Common Stock (other than the issuance or sales referred to in Section (7)(f)
hereof), including shares held in the Company's treasury and shares of Common
Stock issued upon the exercise of any warrants, rights or options to subscribe
for shares of Common Stock (other than the issuances or sales of Common Stock
pursuant to rights to subscribe for such Common Stock distributed to all the
shareholders of the Company and Holders) and shares of Common Stock issued upon
the direct or indirect conversion or exchange of securities for shares of Common
Stock, for a consideration per share less than one dollar ($1.00) per share or
the fair market value in effect immediately prior to the issuance or sale of
such shares or without consideration, then forthwith upon such issuance or sale,
the Share Exercise Price shall (until another such issuance or sale) be reduced
to the price (calculated to the nearest full cent) equal to the quotient derived
by dividing (A) an amount equal to the sum of (X) the product of (a) the total
number of shares of Common Stock outstanding immediately prior to such issuance
or sale, multiplied by (b) the Share Exercise Price, in effect immediately prior
to such issuance or sale, by (B) the total number of shares of Common Stock
8
<PAGE>
outstanding immediately after such issuance or sale; provided, however, that in
no event shall the Share Exercise Price be adjusted pursuant to this computation
to an amount in excess of the Share Exercise Price in effect immediately prior
to such computation, except in the case of a combination of outstanding shares
of Common Stock, as provided by Section (7)(c) hereof.
For the purposes of any computation to be made in accordance with this
Section (7)(a), the following provisions shall be applicable:
(i) In case of the issuance or sale of shares of Common Stock for a
consideration part or all of which shall be cash, the amount of the cash
consideration therefore shall be deemed to be the amount of cash received by the
Company for such shares (or, if shares of Common Stock are offered by the
Company for subscription, the subscription price, or, if such securities shall
be sold to underwriters or dealers for public offering without a subscription
offering, the public offering price) before deducting therefrom any compensation
paid or discount allowed in the sale, underwriting or purchase thereof by
underwriters or dealers or others performing similar services, or any expenses
incurred in connection therewith.
(ii) In case of the issuance or sale (otherwise than as a dividend or
other distribution on any stock of the Company) of shares of Common Stock for a
consideration part or all of which shall be other than cash, the amount of the
consideration therefore other than cash shall be deemed to be the value of such
consideration as determined in good faith by the Board of Directors of the
Company.
(iii) Shares of Common Stock issuable by way of dividend or other
distribution on any stock of the Company shall be deemed to have been issued
immediately after the opening of business on the day following the record date
for the determination of shareholders entitled to receive such dividend or other
distribution and shall be deemed to have been issued without consideration.
(iv) The reclassification of securities of the Company other than
shares of Common Stock into securities including shares of Common Stock shall be
deemed to involve the issuance of such shares of Common Stock for a
consideration other than cash immediately prior to the close of business on the
date fixed for the determination of security holders entitled to receive such
shares, and the value of the consideration allocable to such shares of Common
Stock shall be determined as provided in subsection (ii) of this Section (7)(a).
(v) The number of shares of Common Stock at any one time outstanding
shall include the aggregate number of shares issued or issuable upon the
exercise of warrants, rights, options and upon the conversion or exchange of
convertible or exchangeable securities.
(b) Warrants, Rights, Options and Convertible and Exchangeable Securities.
Except in the case of the Company issuing rights to subscribe for shares of
Common Stock distributed to all the shareholders of the Company and Holders of
Warrants, if the Company shall, at any time after the date hereof issue
9
<PAGE>
warrants, rights or options to subscribe for shares of Common Stock, or issue
any securities convertible into or exchangeable for shares of Common Stock (i)
for a consideration per share less than one dollars ($1.00) per share or the
fair market value in effect immediately prior to the issuance of such warrants,
rights or options, or such convertible or exchangeable securities or (ii)
without consideration, the Share Exercise Price in effect immediately prior to
the issuance of such warrants, rights or options, or such convertible or
exchangeable securities, as the case may be, shall be reduced to a price
determined by making a computation in accordance with the provisions of Section
(7)(a) hereof, provided that:
(1) The aggregate maximum number of shares of Common Stock as the
case may be, issuable under all the outstanding warrants, rights or options
shall be deemed to be issued and outstanding at the time all such outstanding
warrants, rights or options were issued, and for a consideration equal to the
minimum exercise price per share provided for in the warrants, rights or options
at the time of issuance, plus the consideration (determined in the same manner
as consideration received on the issue or sale of shares in accordance with the
terms of such warrants, rights or options), if any, received by the Company for
such warrants, rights or options, and if no minimum exercise price is provided
in the warrants, rights or options, then the consideration shall be equal to
zero; provided, however, that upon the expiration or other termination of such
warrants, rights or options, if any thereof shall not have been exercised, the
number of shares of Common Stock deemed to be issued and outstanding pursuant to
this subsection (A) shall be reduced by such number of shares as to which
warrants, warrants and/or options shall have expired or terminated unexercised,
and such number of shares shall no longer be deemed to be issued and
outstanding, and the Share Exercise Price then in effect shall forthwith be
readjusted and thereafter be the price which it would have been had adjustment
been made on the basis of the issuance only of shares actually issued or
issuable upon the exercise of those warrants, rights or options as to which the
exercise rights shall not have expired or terminated unexercised.
(2) The aggregate maximum number of shares of Common Stock
issuable upon conversion or exchange of any convertible or exchangeable
securities shall be deemed to be issued and outstanding at the time of issuance
of such securities, and for a consideration equal to the consideration
(determined in the same manner as consideration received on the issue or sale of
shares of Common Stock in accordance with the terms of such convertible or
exchangeable securities) received by the Company for such securities, plus the
minimum consideration, if any, receivable by the Company upon the conversion or
exchange thereof; provided, however, that upon the expiration or termination of
the right to convert or exchange such convertible or exchangeable securities
(whether by reason of redemption or otherwise), the number of shares deemed to
be issued and outstanding pursuant to this subsection (B) shall be reduced by
such number of shares as to which the conversion or exchange rights shall have
expired or terminated unexercised, and such number of shares shall no longer be
deemed to be issued and outstanding and the Share Exercise Price and then in
effect shall forthwith be readjusted and thereafter be the price which it would
have been had adjustment been made on the basis of the issuance only of the
shares actually issued or issuable upon the conversion or exchange of those
convertible or exchangeable securities as to which the conversion or exchange
rights shall not have expired or terminated unexercised.
10
<PAGE>
(3) If any change shall occur in the price per share provided for
in any of the warrants, rights or options referred to in subsection (A) of this
Section (7)(b), or in the price per share at which the securities referred to in
subsection (B) of this Section (7)(b) are convertible or exchangeable, the
warrants, rights or options or conversion or exchange rights, as the case may
be, shall be deemed to have expired or terminated on the date when such price
change became effective in respect of shares not theretofore issued pursuant to
the exercise conversion or exchange thereof, and the Company shall be deemed to
have issued upon such date new warrants, rights or options or convertible or
exchangeable securities at the new price in respect of the number of shares
issuable upon the exercise of such warrants, rights or options or the conversion
or exchange of such convertible or exchangeable securities.
(c) Subdivision and Combination. In case the Company shall at any time
subdivide the outstanding shares of Common Stock, the Share Exercise Price shall
forthwith be proportionately increased or decreased.
(d) Adjustment in Number of Shares. Upon each adjustment of the Share
Exercise Price pursuant to the provisions of this Section (7), the number of
Shares issuable upon the exercise of this Placement Agent's Warrant and Shares
issuable upon exercise of the Warrants (the "Warrant Shares") shall be adjusted
to the nearest full Security by multiplying a number equal to the Share Exercise
Price in effect immediately prior to such adjustment by the number of Shares
issuable upon exercise of this Placement Agent's Warrant and the Warrants,
respectively, immediately prior to such adjustment and dividing the product so
obtained by the adjusted Share Exercise Price.
(e) Reclassification. Consolidation, Merger, etc. In case of any
reclassification or change of the outstanding shares of Common Stock (other than
a change in par value to no par value, or from no par value to par value, or as
a result of a subdivision or combination), or in the case of any consolidation
of the Company with, or merger of the Company into, another corporation (other
than a consolidation or merger in which the Company is the surviving corporation
and which does not result in any reclassification or change of the outstanding
shares of Common Stock, except a change as a result of a subdivision or
combination of such shares or a change in par value, as aforesaid), or in the
case of a sale or conveyance to another corporation of all or a substantial part
of the property of the Company, the Holder shall thereafter have the right to
purchase the kind and number of shares of stock and other securities and
property receivable upon such reclassification, change, consolidation, merger,
sale or conveyance as if the Holder were the owner of the shares of Common Stock
underlying this Placement Agent's Warrants and Warrant Shares immediately prior
to any such events at a price equal to the product of (x) the number of shares
issuable upon exercise of the Placement Agent's Warrants, and (y) the Share
Exercise Price in effect immediately prior to the record date for such
reclassification, change, consolidation, merger, sale or conveyance as if such
Holder had exercised the Placement Agent's Warrant and Warrants; provided,
however, that nothing contained herein shall cause the number of Securities
issuable upon exercise of this Placement Agent's Warrant to be decreased in the
event of a combination of shares upon any such reclassification, change,
consolidation, merger, sale or conveyance.
11
<PAGE>
(f) Adjustment of Purchase Price in Certain Cases. No adjustment of
the Purchase Price shall be made: (i) upon the issuance or sale of shares of
Common Stock upon the exercise of warrants and options or conversion of
convertible securities outstanding as of the date hereof; or (ii) upon the
issuance of options granted prior to the date hereof pursuant to any of the
Company's stock option plan (the "Plan"); or (iii) upon the issuance of warrants
to purchase Common Stock, with an exercise price equal to not less than the fair
market value of the Common Stock on the date the options were granted pursuant
to the Plan subsequent to the date hereof or the sale of any shares of Common
Stock pursuant to the exercise of any such warrants; or (iv) upon the issuance
of any shares of capital stock to the Company by any of its subsidiaries.
(g) Dividends and Other Distributions with Respect to Outstanding
Securities. In the event that the Company shall at any time prior to the
exercise of all Warrants declare a dividend (other than a dividend consisting
solely of shares of Common Stock or a cash dividend or distribution payable out
of current or retained earnings) or otherwise distribute to its shareholders any
monies, assets, property, rights, evidences of indebtedness, securities (other
than shares of Common Stock), whether issued by the Company or by another person
or entity, or any other thing of value, the Holder or Holders of the unexercised
Placement Agent's Warrants shall thereafter be entitled, in addition to the
shares of Common Stock or other securities receivable upon the exercise thereof,
to receive, upon the exercise of such Placement Agent's Warrants, the same
monies, property, assets, rights, evidences of indebtedness, securities or any
other thing of value that they would have been entitled to receive at the time
of such dividend or distribution. At the time of any such dividend or
distribution, the Company shall make appropriate reserves to ensure the timely
performance of the provisions of this Subsection (7)(g).
(h) Fractional Shares. As to any fraction of a share which the holder
of this Warrant would be entitled to purchase upon exercise of this Placement
Agent's Warrant, the Company shall pay, in lieu of such fractional interest, an
amount in cash equal to the current market value of such fractional interest, to
the nearest one-hundredth of a share computed on the basis of the Market Price,
as set forth below. The Holder, by his acceptance hereof, expressly waives any
right to receive any fractional share of stock or fractional Warrant upon
exercise of this Placement Agent's Warrant.
As used herein, the phrase "Market Price" at any date shall be deemed to be
the average of the last reported sale prices for the last three (3) trading days
prior to such date, in either case as officially reported by the principal
securities exchange on which the Common Stock is listed or admitted to trading
or as reported in NASDAQ, or, if the Common Stock is not listed or admitted to
trading on any national securities exchange or quoted on NASDAQ, the average of
the closing bid prices for the last three (3) trading days prior to such date as
furnished by the National Association of Securities Dealers, Inc., through
NASDAQ or similar organization if NASDAQ is no longer reporting such
information, or if the Common Stock is not quoted on NASDAQ, as determined in
good faith by resolution of the Board of Directors of the Company, based on the
best information available to it.
12
<PAGE>
(i) Warrant Certificate After Adjustment. Irrespective of any change
pursuant to this Section (7) in the Share Exercise Price or in the number, kind
or class of shares or other securities or other property obtainable upon
exercise of this Placement Agent's Warrant, this Placement Agent's Warrant may
continue to express as the Share Exercise Price and as the number of Shares
obtainable upon exercise, the same price and number of shares as are stated
herein.
(j) Statement of Calculation. Whenever the Share Exercise Price shall
be adjusted pursuant to the provisions of this Section (7), the Company shall
forthwith file at its principal office, a statement signed by an executive
officer of the Company specifying the adjusted Share Exercise Price determined
as above provided in such section and a certificate of the independent public
accountants regularly retained by the Company. Such statement shall show in
reasonable detail the method of calculation of such adjustment and the facts
requiring the adjustment and upon which the calculation is based. The Company
shall forthwith cause a notice setting forth the adjusted Share Exercise Price
to be sent by certified mail, return receipt requested, postage prepaid, to the
Holder.
8. Definition of "Common Stock."
----------------------------
For the purpose of this Placement Agent's Warrant, the term "Common Stock"
shall mean, in addition to the class of stock designated as the Common Stock of
the Company on the date hereof, any class of stock resulting from successive
changes or reclassifications of the Common Stock consisting solely of changes in
par value, or from par value to no par value, or from no par value to par value.
If at any time, as a result of an adjustment made pursuant to one or more of the
provisions of Section (7) hereof, the shares of stock or other securities or
property obtainable upon exercise of this Placement Agent's Warrant shall
include securities of the Company other than shares of Common Stock or
securities of another corporation, then thereafter the amount of such other
securities so obtainable shall be subject to adjustment from time to time in a
manner and upon terms as nearly equivalent as practicable to the provisions with
respect to Common Stock contained in Section (7) hereof and all other provisions
of this Placement Agent's Warrant with respect to Common Stock shall apply on
like terms to any such other shares or other securities.
9. Miscellaneous.
--------------
(a) This Placement Agent's Warrant shall be governed by and in
accordance with the laws of the Florida
(b) All notices, requests, consents and other communications hereunder
shall be made in writing and shall be deemed to have been duly made when
delivered, or mailed by registered or certified mail, return receipt requested:
(i) if to a Holder, to the address of such Holder as shown on the books of the
Company, or (ii) if to the Company, Medgrup Corporation 1880 Willow Park Way,
Monument, Colorado 80132.
(c) The Company and the Placement Agent may from time to time
supplement or amend this Placement Agent's Warrant without the approval of any
other Holders in order to cure any ambiguity, to correct or supplement any
13
<PAGE>
provision contained herein which may be defective or inconsistent with any
provisions herein, or to make any other provisions in regard to matters or
questions arising hereunder which the Company and the Placement Agent may deem
necessary or desirable and which the Company and the Placement Agent deem not to
adversely affect the interest of the Holders, provided all such supplements,
amendments and/or other provisions shall be in writing.
(d) All the covenants and provisions of this Placement Agent's Warrant
by or for the benefit of the Company and the Holders inure to the benefit of
their respective successors and assigns hereunder.
(e) Nothing in this Placement Agent's Warrant shall be construed to
give to any person or corporation other than the Company and the Placement Agent
and any other registered Holder or Holders, any legal or equitable right and
that any such right is for the sole and exclusive benefit of the Company and the
Placement Agent and any other Holder or Holders.
(f) This Placement Agent's Warrant may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and such counterparts shall together constitute but one and the
same instrument.
IN WITNESS WHEREOF, the President and Chief Executive Officer of the
Company has caused this Placement Agent's Warrant to be signed by its duly
authorized officer and this Placement Agent's Warrant to be dated January 10,
2000.
MEDGRUP CORPORATION
/s/ William D. Cronin
Name:
Title: President and
Chief Executive Officer
14
<PAGE>
PURCHASE FORM
-------------
(To be signed only upon exercise of the Placement Agent's Warrant)
The undersigned, the Holder of the foregoing Placement Agent's Warrant,
hereby irrevocably elects to exercise the purchase rights represented by such
Placement Agent's Warrant for, and to purchase thereunder, ______ shares of
Common Stock of Medgrup Corporation and herewith makes payment of $________
thereof, and requests that the certificates for Common Stock be issued in the
name(s) of, and delivered to whose address(es) is (are)
___________________________________________________________
Dated: __________________
- -------------------------
- -------------------------
Address
15
<PAGE>
TRANSFER FORM
-------------
(To be signed only upon transfer of the Placement Agent's Warrant)
For value received, the undersigned hereby sells, assigns, and transfers
unto _____________________ the right to purchase shares of Common Stock of
Medgrup Corporation represented by the foregoing Placement Agent's Warrant to
the extent of __________ shares of Common Stock and appoints ________________,
attorney to transfer such rights on the books of ________________, with full
power of substitution in the premises.
Dated: __________________
- -------------------------
(name of holder)
- -------------------------
Address
- -------------------------
In the presence of:
- -------------------------
- -------------------------
16
Exhibit 10.5
EXECUTIVE
EMPLOYMENT AGREEMENT
This Agreement is made to be effective as of the 1st day of January, 2000,
by and between MedGrup Corporation, a Colorado corporation (the "Company") and
William D. Cronin ("Employee").
W I T N E S S E T H:
WHEREAS, the Company wishes to engage Employee's services upon the terms
and conditions hereinafter set forth; and
WHEREAS, Employee wishes to be employed by the Company upon the terms and
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and mutual promises set
forth herein, the sufficiency of which is hereby acknowledged, the parties agree
as follows:
1. Employment; Duties. The Company hereby agrees to employ Employee
effective as of the Effective Date as its Chief Executive Officer, and in any
other executive capacity as the Company shall determine is necessary or
appropriate in connection with the operation of the Company, and Employee hereby
agrees to serve in such capacity. Employee's principal area of responsibility,
subject to modification by the Company, shall be to serve as the Chief Executive
Officer of the Company. The Employee shall at all times report to and take
direction from, the Board of Directors, and shall perform such additional duties
not inconsistent with his position as shall be designated from time to time by
the Company.
2. Best Efforts. Employee agrees to use his best efforts to promote the
interests of the Company and shall, except for illness, reasonable vacation
periods and leaves of absence, devote his full business time and energies to the
business and affairs of the Company. Employee shall be permitted to perform
outside business endeavors only with the approval of the Board of Directors,
subject to non-competition agreements with the Company and provided that such
outside activities do not interfere with the performance of Employee's duties.
Employee may also engage in work for charitable, benevolent, civic or
educational purposes so long as such endeavors do not interfere with Employee's
duties hereunder.
3. Term of Agreement. The term of this Agreement shall commence on the date
first above written (the "Effective Date") and such term and the employment
hereunder shall continue, unless earlier terminated in accordance with the terms
of Paragraph 5, for a period of three years (the "Original Term"). The Original
Term shall be extended automatically for additional one-year periods (each a
"Renewal Term") unless notice that this Agreement will not be extended is given
by either party to the other at least 90 days prior to the expiration of the
Original Term or any Renewal Term. The period of employment of Employee by the
Company, commencing with the Effective Date and continuing until termination of
the employment by notice hereunder, in accordance with Paragraph 5 or otherwise
shall be known as the "Term of Employment."
1
<PAGE>
4. Compensation.
4.1 Base Salary. As compensation for Employee's services rendered
hereunder, the Company shall pay to Employee a base salary at an annual rate
equal to One Hundred and Five Thousand Dollars ($105,000.00) (the "Base
Salary"). The Base Salary shall thereafter be increased annually at the greater
of (i) five percent (5%) or (ii) such other increase as may be approved by the
Board of Directors. The Base Salary shall be payable to Employee on a bi-weekly
basis, in accordance with the Company's standard policies for management
personnel.
4.2 Incentive Compensation. With respect to each calendar year, or portion
thereof, beginning with calendar year 2000, Employee shall be eligible to
receive incentive compensation or a bonus, payable solely in the discretion of
the Board of Directors.
4.3 Benefits. Employee shall be entitled to participate in all benefit
programs established by the Company and generally applicable to the Company's
executive employees. Employee shall also be reimbursed for reasonable and
necessary business expenses incurred in the course of his employment with the
Company pursuant to Company policies as established from time to time.
4.4 Vehicle Allowance. Employee shall be entitled to a Company-provided
vehicle or a monthly allowance of Seven Hundred Dollars ($700.00).
4.5 Legal Fees. Employee shall be entitled to reimbursement of reasonable
legal fees associated with the negotiating, drafting and execution of this
Agreement.
4.6 Excise Tax Restoration Payment. In the event that it is determined that
any payment or distribution of any type to or for the benefit of the Employee
made by the Company, by any of its affiliates, by any person who acquires
ownership or effective control or ownership of a substantial portion of the
Company's assets (within the meaning of section 280G of the Internal Revenue
Code of 1986, as amended, and the regulations thereunder (the "Code") or by any
affiliate of such person, whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise (the "Total
Payments) would be subject to such excise tax imposed by section 4999 of the
Code or any interest or penalties with respect to such excise tax (such excise
tax, together with any such interest or penalties are collectively referred to
as the "Excise Tax"), then the Employee shall be entitled to receive an
additional payment (an "Excise Tax Restoration Payment") in an amount that shall
fund the payment by the Employee of any Excise Tax on the Total Payments as well
as all income taxes imposed on the Excise Tax Restoration Payment, any Excise
Tax imposed on the Excise Tax Restoration Payment and any interest or penalties
imposed with respect to taxes on the Excise Tax Restoration Payment or any
Excise Tax, except where the interest or penalties are the result of the
negligence or willful failure of the Employee to file a return in a timely
manner or report the Total Payments appropriately.
5. Termination of Employment Relationship.
5.1 Death or Incapacity. This Agreement shall terminate immediately upon
the death or Total Disability of Employee, and in such event, the Employee shall
have no further claim against the Company for compensation or benefits
hereunder. The Board of Directors shall make a determination of the Total
Disability of the Employee based upon the definition of disability and terms
contained in the Company's disability insurance policy, or if none, based upon
the inability of the Employee to perform the material functions of his job. Any
such determination by the Board shall be evidenced by its written opinion
2
<PAGE>
delivered to the Employee. Such written opinion shall specify with particularity
the reasons supporting such opinion and be manually signed by at least a
majority of the Board.
5.2 Termination by the Company. The Company may terminate this Agreement
for "Cause" and, in such event, the term of employment shall terminate at the
termination date designated by the Company. For the purpose of this paragraph,
"Termination for Cause" or "Cause" shall include the following:
(a) Breach of fiduciary duty or criminal conduct by the Employee
having the effect of materially adversely affecting the Company and/or its
reputation;
(b) Willful failure by the Employee to substantially perform his
duties hereunder;
(c) Engagement by the Employee in the use of narcotics or alcohol to
the extent that the performance of his duties is materially impaired;
(d) Material breach of the terms of this Agreement by the Employee or
failure to substantially comply with proper instructions of the Company's Board
of Directors;
(e) Misconduct by the Employee which is materially injurious to the
Company; or
(f) Any act or omission on the part of the Employee not described
above, but which constitutes material and willful misfeasance, malfeasance, or
gross negligence in the performance of his duties to the Company.
Determination of any event or events and circumstances constituting "Cause"
shall be at the sole discretion of the Board of Directors.
5.3 Termination by Employee. Employee may terminate this Agreement for
"Good Reason"; provided, however, that Employee's obligations under Paragraph 6
shall survive any termination of this Agreement by Employee, by the Company or
otherwise. For purposes of this paragraph, Good Reason shall mean:
a) Any assignment to the Employee of any duties materially inconsistent with
the position described in Section 1 hereof,
b) Any material diminution of the duties of the Employee then-existing without
the written consent of the Employee,
c) Any removal of the Employee from or failure to re-elect the Employee to the
positions described in Section 1 hereof, except in connection with
termination of the Employee pursuant to Section 5.1 or 5.2 hereof,
d) A reduction in the Employee's rate of compensation, or a reduction in the
Employee's fringe benefits or any other failure of the Company to comply
with Section 4 hereof,
3
<PAGE>
e) The Employee's principle place of employment is relocated to a place
outside of a forty (40) mile radius from which he was employed on the
Effective Date,
Other material breach of this Agreement by the Company, or
f) Following a "Change in Control," defined below.
A "Change of Control" shall be deemed to have occurred if (i) a tender
offer shall be made and consummated for the ownership of 50% or more of the
outstanding voting securities of the Company, (ii) the Company shall be merged
or consolidated with another corporation and as a result of such merger or
consolidation less than 50% of the outstanding securities of the surviving or
resulting corporation shall be owned in the aggregate by the former stockholders
of the Company, as the same shall have existed immediately prior to such merger
or consolidation, (iii) the Company shall sell more than 75% of its assets to
another corporation which is not a wholly owned subsidiary, or (iv) within any
period of six consecutive months, individuals who at the beginning of the period
constituted the Board of the Company cease for any reason to constitute a
majority of the Board of the Company then in office.
Any termination by the Board of Directors pursuant to Section 5.2 or by the
Employee pursuant to section 5.3 shall be communicated by written Notice of
Termination to the other party hereto. Notice of Termination shall mean a notice
which shall indicate the specific termination provision in this Agreement relied
upon and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Employee's employment under
the provision so indicated.
5.4 Payment Upon Termination.
(a) If this Agreement is terminated by the Company for Cause prior to
the completion of the Original Term or an ongoing Renewal Term, Employee shall
not be entitled to severance pay of any kind but shall be entitled to all
reasonable reimbursable business expenses incurred by Employee and the Base
Salary earned by Employee prior to the date of termination, and all obligations
of the Company under Paragraph 4 hereof shall terminate upon the termination
date designated by the Company, except to the extent otherwise required by law.
(b) In the event that Employee is terminated without Cause or the
Employee resigns with Good Reason, the Company shall pay Employee one (1) year's
Base Salary at the rate prevailing for Employee immediately prior to such
termination as severance pay, payable in accordance with Company's normal
payroll. Employee shall also be entitled to receive benefits to which he was
entitled immediately preceding the date of termination for a period of twelve
(12) months from date of termination.
6. Non-Competition Agreement.
6.1 Competition; Confidential Information. The Employee and the Company
recognize that due to the nature of his engagements hereunder, and the
relationship of the Employee to the Company, the Employee has had access to and
has acquired, will have access to and will acquire, and has assisted in and may
assist in developing, confidential and proprietary information relating to the
business and operations of the Company and its affiliates, including, without
limiting the generality of the foregoing, information with respect to their
present and prospective products, systems, customers, agents, processes, and
4
<PAGE>
sales and marketing methods. The Employee acknowledges that such information has
been and will continue to be of central importance to the business of the
Company and its affiliates and that disclosure of it to or its use by others
could cause substantial loss to the Company. The Employee and the Company also
recognize that an important part of the Employee's duties will be to develop
good will for the Company and its affiliates through his personal contact with
customers, agents and others having business relationships with the Company and
its affiliates, and that there is a danger that this good will, a proprietary
asset of the Company and its affiliates, may follow the Employee if and when his
relationship with the Company is terminated. Employee acknowledges that his
services to be rendered hereunder have a unique value to the Company, for the
loss of which the Company cannot be adequately compensated by damages in an
action at law. In view of the unique value to the Company of the services of
Employee, and because of the Confidential Information to be obtained by or
disclosed to Employee, and as a material inducement to the Company to enter into
this Employment Agreement and to pay to Employee the compensation referred to in
Paragraph 4 hereof, Employee covenants and agrees that:
6.2 Non-Competition.
(a) While Employee is employed by the Company, and for a period of one (1)
year thereafter, Employee will not, either personally, whether as an officer,
director, owner, manager, principal, partner, employee, agent, distributor,
representative, stockholder, consultant or otherwise, or with or through any
other person or entity operate or participate in the medical records coding
business or any other business which competes with the Company as of the date of
Employee's termination date (for purposes of Paragraph 6 hereof, the Company
shall be deemed to include all subsidiaries and joint ventures of the Company
whether now or hereafter affiliated with the Company) nor will Employee, while
Employee is employed by the Company, and for a period of one (1) year
thereafter, directly or indirectly solicit any person who has been an employee,
supplier or customer of the Company during the period of one (1) year prior to
the termination of employment. This non-competition clause shall apply in the
geographic territory comprised of the entire United States and any other
geographic area in which the Company is engaged in business. Employee
acknowledges that this non-competition/non-solicitation agreement is reasonable
in terms of its scope and duration.
(b) Nothing in this Section 6.2 shall be construed to prevent the Employee
from owning, as an investment, not more than 1% of a class of equity securities
issued by any competitor of the Company or its affiliates and publicly traded
and registered under Section 12 of the Securities Exchange Act of 1934.
6.3 Trade Secrets. The Employee will keep confidential any trade secrets or
confidential or proprietary information of the Company and its affiliates which
are now known to him or which hereafter may become known to him as a result of
his employment or association with the Company and shall not at any time
directly or indirectly disclose any such information to any person, firm or
corporation, or use the same in any way other than in connection with the
business of the Company or its affiliates during and at all times after the
expiration of the Term of Employment. For purposes of this Agreement, "trade
secrets or confidential or proprietary information" means information unique to
the Company or any of its affiliates which has a significant business purpose
and is not known or generally available from sources outside the Company or any
of its affiliates or typical of industry practice. Trade secrets or confidential
or proprietary information may include information with respect to the Company's
personnel records, present and prospective products, systems, customers, agents,
processes, and sales and marketing methods.
5
<PAGE>
6.4 Patents. The Employee will assign permanently to the Company exclusive
rights to any patents awarded to him on the basis of ideas developed by the
Employee for the Company during or prior to the Term of Employment and its
affiliates and ideas developed by the Employee within one year following the
termination of his employment from the Company which are related to such
employment and/or the business of the Company.
6.5 It is agreed that Employee's services are unique, and that any breach
or threatened breach by Employee of any provisions of this Paragraph 6 may not
be remedied solely by damages. Accordingly, in the event of a breach or
threatened breach by Employee of any of the provisions of this Paragraph 6, the
Company shall be entitled to injunctive relief, restraining Employee and any
business, firm, partnership, individual, corporation, or entity participating in
such breach or attempted breach, from engaging in any activity which would
constitute a breach of this Paragraph 6. Nothing herein, however, shall be
construed as prohibiting the Company from pursuing any other remedies available
at law or in equity for such breach or threatened breach, including the recovery
of damages.
6.6 The provisions of this Paragraph 6 shall survive the termination of
this Agreement and the termination of Employee's employment.
7. Miscellaneous.
7.1 Assignability. Employee may not assign his rights and obligations under
this Agreement without the prior written consent of the Company, which consent
may be withheld for any reason or for no reason.
7.2 Severability. In the event that any of the provisions of this Agreement
shall be held to be invalid or unenforceable, the remaining provisions shall
nevertheless continue to be valid and enforceable as though the invalid or
unenforceable parts had not been included therein. Without limiting the
generality of the foregoing, in the event that any provision of Paragraph 6
relating to time period and/or areas of restriction shall be declared by a court
of competent jurisdiction to exceed the maximum time period or areas(s) such
court deems enforceable, said time period and/or area(s) of restriction shall be
deemed to become, and thereafter be, the maximum time period and/or area for
which such are enforceable.
7.3 Entire Agreement. This Agreement constitutes the entire agreement
between the parties relating to the subject matter hereof and supersedes all
prior agreements or understandings among the parties hereto with respect to the
subject matter hereof.
7.4 Amendments. This Agreement shall not be amended or modified except by a
writing signed by both parties hereto.
7.5 Waiver. The failure of either party at any time to require performance
of the other party of any provision of this Agreement shall in no way affect the
right of such party thereafter to enforce the same provision, nor shall the
waiver by either party of any breach of any provision hereof be taken or held to
be a waiver of any other or subsequent breach, or as a waiver of the provision
itself. This Agreement shall be governed by and interpreted in accordance with
the laws of the State of Colorado without regard to the conflict of laws of such
State. The benefits of this Agreement may not be assigned nor any duties under
6
<PAGE>
this Agreement be delegated by Employee without the prior written consent of the
Company, except as contemplated in this Agreement. This Agreement and all of its
rights, privileges, and obligations will be binding upon the parties and all
successors and agreed to assigns thereof.
7.6 Binding Agreement. This Agreement shall be effective as of the date
hereof and shall be binding upon and inure to the benefit of the Employee, his
heirs, personal and legal representatives, guardians and permitted assigns. The
rights and obligations of the Company under this Agreement shall inure to the
benefit of and shall be binding upon any successor or assignee of the Company.
7.7 Headings. The headings or titles in this Agreement are for the purpose
of reference only and shall not in any way affect the interpretation or
construction of this Agreement.
7.8 Arbitration. Any dispute between the Company and the Employee with
respect to this Agreement shall be submitted to binding arbitration in El Paso
County, Colorado pursuant to the rules of the American Arbitration Association
then in effect and before an arbitrator fully licensed and authorized by any and
all applicable rules, statutes, regulations or the like to hear such cases in
the State of Colorado. The arbitrators shall have the power to award any legal
or equitable remedies that would be available in proceedings conducted before a
state or federal court of competent jurisdiction in Colorado. Judgment on the
award of the arbitrators may be entered in any court of competent jurisdiction.
All arbitration proceedings and the results thereof shall be confidential,
except to the extent that any party is required to make disclosure concerning
such proceedings under applicable law.
7.9 No Conflict. The Employee represents and warrants that he is not
subject to any agreement, order, judgment or decree of any kind which would
prevent him from entering into this Agreement or performing fully his
obligations hereunder.
7.10 Survival. The rights and obligations of the parties shall survive the
Term of Employment to the extent that any performance is required under this
Agreement after the expiration or termination of such Term of Employment.
7.11 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which shall
together constitute one and the same document.
7.12 Notices. Any notice to be given hereunder by either party to the other
may be effected in writing by personal delivery, or by mail, certified with
postage prepaid, or by overnight delivery service. Notices sent by mail or by an
overnight delivery service shall be addressed to the parties at the addresses
appearing following their signatures below, or upon the employment records of
the Company but either party may change its or his address by written notice in
accordance with this paragraph.
7.13 Opportunity to Consult Counsel. The Parties hereto represent and agree
that, prior to executing this Agreement, each has had the opportunity to consult
with independent counsel concerning the terms of this Agreement.
7.14 Attorney Fees. In the event of any dispute, arbitration, litigation
between the Parties or proceeding before any court of competent jurisdiction,
the prevailing party shall be entitled to reasonable attorney fee, costs and
expenses.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have properly and duly executed this
Agreement as of the date first written above.
THE COMPANY:
MedGrup Corporation
By: /s/ William D. Cronin
- -----------------------------------
William D. Cronin, Chairman Of The Board and Chief Executive Officer
1880 Willow Park Way, Suite B
Monument, CO 80132
By: /s/ Terry J. Holmes
- -----------------------------------
Terry J. Holmes, President
1880 Willow Park Way, Suite B
Monument, CO 80132
EMPLOYEE:
By: /s/ William D. Cronin
- -----------------------------------
William D. Cronin
1880 Willow Park Way
Suite B
Monument, CO 80132
8
Exhibit 10.6
EXECUTIVE
EMPLOYMENT AGREEMENT
This Agreement is made to be effective as of the 14th day of February,
2000, by and between MedGrup Corporation, a Colorado corporation (the "Company")
and Terry J. Holmes ("Employee").
W I T N E S S E T H:
--------------------
WHEREAS, the Company wishes to engage Employee's services upon the terms
and conditions hereinafter set forth; and
WHEREAS, Employee wishes to be employed by the Company upon the terms and
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and mutual promises set
forth herein, the sufficiency of which is hereby acknowledged, the parties agree
as follows:
1. Employment; Duties. The Company hereby agrees to employ Employee
effective as of the Effective Date as its President, and in any other executive
capacity as the Company shall determine is necessary or appropriate in
connection with the operation of the Company, and Employee hereby agrees to
serve in such capacity. Employee's principal area of responsibility, subject to
modification by the Company, shall be to serve as the chief operating officer of
the Company, and, in the absence of the chief executive officer, discharge the
duties incident to that office. The Employee shall at all times report to and
take direction from, the Board of Directors and the chief executive officer, and
shall perform such additional duties not inconsistent with his position as shall
be designated from time to time by the Company.
2. Best Efforts. Employee agrees to use his best efforts to promote the
interests of the Company and shall, except for illness, reasonable vacation
periods and leaves of absence, devote his full business time and energies to the
business and affairs of the Company. Employee shall be permitted to perform
outside business endeavors only with the approval of the Board of Directors,
subject to non-competition agreements with the Company and provided that such
outside activities do not interfere with the performance of Employee's duties.
Employee may also engage in work for charitable, benevolent, civic or
educational purposes so long as such endeavors do not interfere with Employee's
duties hereunder.
3. Term of Agreement. The term of this Agreement shall commence on the date
first above written (the "Effective Date") and such term and the employment
hereunder shall continue, unless earlier terminated in accordance with the terms
of Paragraph 5, for a period of three years (the "Original Term"). The Original
Term shall be extended automatically for additional one-year periods (each a
"Renewal Term") unless notice that this Agreement will not be extended is given
by either party to the other at least 90 days prior to the expiration of the
Original Term or any Renewal Term. The period of employment of Employee by the
Company, commencing with the Effective Date and continuing until termination of
the employment by notice hereunder, in accordance with Paragraph 5 or otherwise
shall be known as the "Term of Employment."
4. Compensation.
4.1 Base Salary. As compensation for Employee's services rendered
hereunder, the Company shall pay to Employee a base salary at an annual rate
equal to Eighty Thousand Dollars ($80,000.00) (the "Base Salary"). The Base
<PAGE>
Salary shall thereafter be increased annually at the greater of (i) five percent
(5%) or (ii) such other increase as may be approved by the Board of Directors.
The Base Salary shall be payable to Employee on a bi-weekly basis, in accordance
with the Company's standard policies for management personnel.
4.2 Incentive Compensation. With respect to each calendar year, or portion
thereof, beginning with calendar year 2000, Employee shall be eligible to
receive incentive compensation or a bonus, payable solely in the discretion of
the Board of Directors.
4.3 Stock Option.
(i) Commensurate with the Effective Date of this Agreement, and
subject to the vesting schedule set forth below, Employee shall receive an
option to purchase up to Five Hundred Thousand (500,000) shares of the Company's
common stock, par value $.01 at an exercise price of $1.31 per share (the
"Option"). The Option shall be exercisable beginning with the date of vesting
and for a period of seven years from the Effective Date, subject to the
provisions for termination of employment set forth in Stock Option Agreement
described below.
(ii) The Option shall vest in equal increments of 83,333 shares every
six (6) months beginning six (6) months from the Effective Date and continuing
on each six (6) month anniversary thereafter; provided that the Employee shall
be employed by the Company on that date, and provided further that Employee
shall have been continuously employed during the prior twelve (12) months,
except for illness, vacation or permitted leaves of absence. Notwithstanding the
forgoing provisions, the Option shall vest immediately in the event all or
substantially all of the assets of the Company are sold in a single transaction
or if the Company is merged with, or acquired by, another entity in a
transaction in which the shareholders of the Company immediately prior to such
transaction own less than 50% of the stock of the Company immediately after the
transaction.
(iii) The terms and conditions of the Option shall be set forth in a
Stock Option Agreement between the Company and the Employee in the form and
substance attached hereto as Exhibit "A" and incorporated herein by reference.
The terms of the Option shall also be governed by the Stock Option Plan of the
Company, to the extent not inconsistent with the Option Agreement.
4.4 Benefits. Employee shall be entitled to participate in all benefit
programs established by the Company and generally applicable to the Company's
executive employees. Employee shall also be reimbursed for reasonable and
necessary business expenses incurred in the course of his employment with the
Company pursuant to Company policies as established from time to time.
4.5 Vehicle Allowance. Employee shall be entitled to a Company-provided
vehicle or a monthly allowance of Seven Hundred Dollars ($700.00).
4.6 Legal Fees. Employee shall be entitled to reimbursement of reasonable
legal fees associated with the negotiating, drafting and execution of this
Agreement.
4.7 Excise Tax Restoration Payment. In the event that it is determined that
any payment or distribution of any type to or for the benefit of the Employee
made by the Company, by any of its affiliates, by any person who acquires
ownership or effective control or ownership of a substantial portion of the
2
<PAGE>
Company's assets (within the meaning of section 280G of the Internal Revenue
Code of 1986, as amended, and the regulations thereunder (the "Code") or by any
affiliate of such person, whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise (the "Total
Payments) would be subject to such excise tax imposed by section 4999 of the
Code or any interest or penalties with respect to such excise tax (such excise
tax, together with any such interest or penalties are collectively referred to
as the "Excise Tax"), then the Employee shall be entitled to receive an
additional payment (an "Excise Tax Restoration Payment") in an amount that shall
fund the payment by the Employee of any Excise Tax on the Total Payments as well
as all income taxes imposed on the Excise Tax Restoration Payment, any Excise
Tax imposed on the Excise Tax Restoration Payment and any interest or penalties
imposed with respect to taxes on the Excise Tax Restoration Payment or any
Excise Tax, except where the interest or penalties are the result of the
negligence or willful failure of the Employee to file a return in a timely
manner or report the Total Payments appropriately.
5. Termination of Employment Relationship.
5.1 Death or Incapacity. This Agreement shall terminate immediately upon
the death or Total Disability of Employee, and in such event, the Employee shall
have no further claim against the Company for compensation or benefits
hereunder. The Board of Directors shall make a determination of the Total
Disability of the Employee based upon the definition of disability and terms
contained in the Company's disability insurance policy, or if none, based upon
the inability of the Employee to perform the material functions of his job. Any
such determination by the Board shall be evidenced by its written opinion
delivered to the Employee. Such written opinion shall specify with particularity
the reasons supporting such opinion and be manually signed by at least a
majority of the Board.
5.2 Termination by the Company. The Company may terminate this Agreement
for "Cause" and, in such event, the term of employment shall terminate at the
termination date designated by the Company. For the purpose of this paragraph,
"Termination for Cause" or "Cause" shall include the following:
(a) Breach of fiduciary duty or criminal conduct by the Employee
having the effect of materially adversely affecting the Company and/or its
reputation;
(b) Willful failure by the Employee to substantially perform his
duties hereunder;
(c) Engagement by the Employee in the use of narcotics or alcohol to
the extent that the performance of his duties is materially impaired;
(d) Material breach of the terms of this Agreement by the Employee or
failure to substantially comply with proper instructions of the Company's Board
of Directors;
(e) Misconduct by the Employee which is materially injurious to the
Company; or
(f) Any act or omission on the part of the Employee not described
above, but which constitutes material and willful misfeasance, malfeasance, or
gross negligence in the performance of his duties to the Company.
Determination of any event or events and circumstances constituting "Cause"
shall be at the sole discretion of the Board of Directors.
3
<PAGE>
5.3 Termination by Employee. Employee may terminate this Agreement for
"Good Reason"; provided, however, that Employee's obligations under Paragraph 6
shall survive any termination of this Agreement by Employee, by the Company or
otherwise. For purposes of this paragraph, Good Reason shall mean:
a) Any assignment to the Employee of any duties materially inconsistent with
the position described in Section 1 hereof,
b) Any material diminution of the duties of the Employee then-existing without
the written consent of the Employee,
c) Any removal of the Employee from or failure to re-elect the Employee to the
positions described in Section 1 hereof, except in connection with
termination of the Employee pursuant to Section 5.1 or 5.2 hereof,
d) A reduction in the Employee's rate of compensation, or a reduction in the
Employee's fringe benefits or any other failure of the Company to comply
with Section 4 hereof,
e) The Employee's principle place of employment is relocated to a place
outside of a forty (40) mile radius from which he was employed on the
Effective Date,
Other material breach of this Agreement by the Company, or
f) Following a "Change in Control," defined below.
A "Change of Control" shall be deemed to have occurred if (i) a tender
offer shall be made and consummated for the ownership of 50% or more of the
outstanding voting securities of the Company, (ii) the Company shall be merged
or consolidated with another corporation and as a result of such merger or
consolidation less than 50% of the outstanding securities of the surviving or
resulting corporation shall be owned in the aggregate by the former stockholders
of the Company, as the same shall have existed immediately prior to such merger
or consolidation, (iii) the Company shall sell more than 75% of its assets to
another corporation which is not a wholly owned subsidiary, or (iv) within any
period of six consecutive months, individuals who at the beginning of the period
constituted the Board of the Company cease for any reason to constitute a
majority of the Board of the Company then in office.
Any termination by the Board of Directors pursuant to Section 5.2 or by the
Employee pursuant to section 5.3 shall be communicated by written Notice of
Termination to the other party hereto. Notice of Termination shall mean a notice
which shall indicate the specific termination provision in this Agreement relied
upon and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Employee's employment under
the provision so indicated.
5.4 Payment Upon Termination.
(a) If this Agreement is terminated by the Company for Cause prior to
the completion of the Original Term or an ongoing Renewal Term, Employee shall
not be entitled to severance pay of any kind but shall be entitled to all
reasonable reimbursable business expenses incurred by Employee and the Base
4
<PAGE>
Salary earned by Employee prior to the date of termination, and all obligations
of the Company under Paragraph 4 hereof shall terminate upon the termination
date designated by the Company, except to the extent otherwise required by law.
(b) In the event that Employee is terminated without Cause or the
Employee resigns with Good Reason, the Company shall pay Employee one (1) year's
Base Salary at the rate prevailing for Employee immediately prior to such
termination as severance pay, payable in accordance with Company's normal
payroll. Employee shall also be entitled to receive benefits to which he was
entitled immediately preceding the date of termination for a period of twelve
(12) months from date of termination.
6. Non-Competition Agreement.
6.1 Competition; Confidential Information. The Employee and the Company
recognize that due to the nature of his engagements hereunder, and the
relationship of the Employee to the Company, the Employee has had access to and
has acquired, will have access to and will acquire, and has assisted in and may
assist in developing, confidential and proprietary information relating to the
business and operations of the Company and its affiliates, including, without
limiting the generality of the foregoing, information with respect to their
present and prospective products, systems, customers, agents, processes, and
sales and marketing methods. The Employee acknowledges that such information has
been and will continue to be of central importance to the business of the
Company and its affiliates and that disclosure of it to or its use by others
could cause substantial loss to the Company. The Employee and the Company also
recognize that an important part of the Employee's duties will be to develop
good will for the Company and its affiliates through his personal contact with
customers, agents and others having business relationships with the Company and
its affiliates, and that there is a danger that this good will, a proprietary
asset of the Company and its affiliates, may follow the Employee if and when his
relationship with the Company is terminated. Employee acknowledges that his
services to be rendered hereunder have a unique value to the Company, for the
loss of which the Company cannot be adequately compensated by damages in an
action at law. In view of the unique value to the Company of the services of
Employee, and because of the Confidential Information to be obtained by or
disclosed to Employee, and as a material inducement to the Company to enter into
this Employment Agreement and to pay to Employee the compensation referred to in
Paragraph 4 hereof, Employee covenants and agrees that:
6.2 Non-Competition.
(a) While Employee is employed by the Company, and for a period of one (1)
year thereafter, Employee will not, either personally, whether as an officer,
director, owner, manager, principal, partner, employee, agent, distributor,
representative, stockholder, consultant or otherwise, or with or through any
other person or entity operate or participate in the medical records coding
business or any other business which competes with the Company as of the date of
Employee's termination date (for purposes of Paragraph 6 hereof, the Company
shall be deemed to include all subsidiaries and joint ventures of the Company
whether now or hereafter affiliated with the Company) nor will Employee, while
Employee is employed by the Company, and for a period of one (1) year
thereafter, directly or indirectly solicit any person who has been an employee,
supplier or customer of the Company during the period of one (1) year prior to
the termination of employment. This non-competition clause shall apply in the
geographic territory comprised of the entire United States and any other
geographic area in which the Company is engaged in business. Employee
acknowledges that this non-competition/non-solicitation agreement is reasonable
in terms of its scope and duration.
5
<PAGE>
(b) Nothing in this Section 6.2 shall be construed to prevent the Employee
from owning, as an investment, not more than 1% of a class of equity securities
issued by any competitor of the Company or its affiliates and publicly traded
and registered under Section 12 of the Securities Exchange Act of 1934.
6.3 Trade Secrets. The Employee will keep confidential any trade secrets or
confidential or proprietary information of the Company and its affiliates which
are now known to him or which hereafter may become known to him as a result of
his employment or association with the Company and shall not at any time
directly or indirectly disclose any such information to any person, firm or
corporation, or use the same in any way other than in connection with the
business of the Company or its affiliates during and at all times after the
expiration of the Term of Employment. For purposes of this Agreement, "trade
secrets or confidential or proprietary information" means information unique to
the Company or any of its affiliates which has a significant business purpose
and is not known or generally available from sources outside the Company or any
of its affiliates or typical of industry practice. Trade secrets or confidential
or proprietary information may include information with respect to the Company's
personnel records, present and prospective products, systems, customers, agents,
processes, and sales and marketing methods.
6.4 Patents. The Employee will assign permanently to the Company exclusive
rights to any patents awarded to him on the basis of ideas developed by the
Employee for the Company during or prior to the Term of Employment and its
affiliates and ideas developed by the Employee within one year following the
termination of his employment from the Company which are related to such
employment and/or the business of the Company.
6.5 It is agreed that Employee's services are unique, and that any breach
or threatened breach by Employee of any provisions of this Paragraph 6 may not
be remedied solely by damages. Accordingly, in the event of a breach or
threatened breach by Employee of any of the provisions of this Paragraph 6, the
Company shall be entitled to injunctive relief, restraining Employee and any
business, firm, partnership, individual, corporation, or entity participating in
such breach or attempted breach, from engaging in any activity which would
constitute a breach of this Paragraph 6. Nothing herein, however, shall be
construed as prohibiting the Company from pursuing any other remedies available
at law or in equity for such breach or threatened breach, including the recovery
of damages.
6.6 The provisions of this Paragraph 6 shall survive the termination of
this Agreement and the termination of Employee's employment.
7. Miscellaneous.
7.1 Assignability. Employee may not assign his rights and obligations under
this Agreement without the prior written consent of the Company, which consent
may be withheld for any reason or for no reason.
7.2 Severability. In the event that any of the provisions of this Agreement
shall be held to be invalid or unenforceable, the remaining provisions shall
nevertheless continue to be valid and enforceable as though the invalid or
unenforceable parts had not been included therein. Without limiting the
generality of the foregoing, in the event that any provision of Paragraph 6
relating to time period and/or areas of restriction shall be declared by a court
of competent jurisdiction to exceed the maximum time period or areas(s) such
6
<PAGE>
court deems enforceable, said time period and/or area(s) of restriction shall be
deemed to become, and thereafter be, the maximum time period and/or area for
which such are enforceable.
7.3 Entire Agreement. This Agreement constitutes the entire agreement
between the parties relating to the subject matter hereof and supersedes all
prior agreements or understandings among the parties hereto with respect to the
subject matter hereof.
7.4 Amendments. This Agreement shall not be amended or modified except by a
writing signed by both parties hereto.
7.5 Waiver. The failure of either party at any time to require performance
of the other party of any provision of this Agreement shall in no way affect the
right of such party thereafter to enforce the same provision, nor shall the
waiver by either party of any breach of any provision hereof be taken or held to
be a waiver of any other or subsequent breach, or as a waiver of the provision
itself. This Agreement shall be governed by and interpreted in accordance with
the laws of the State of Colorado without regard to the conflict of laws of such
State. The benefits of this Agreement may not be assigned nor any duties under
this Agreement be delegated by Employee without the prior written consent of the
Company, except as contemplated in this Agreement. This Agreement and all of its
rights, privileges, and obligations will be binding upon the parties and all
successors and agreed to assigns thereof.
7.6 Binding Agreement. This Agreement shall be effective as of the date
hereof and shall be binding upon and inure to the benefit of the Employee, his
heirs, personal and legal representatives, guardians and permitted assigns. The
rights and obligations of the Company under this Agreement shall inure to the
benefit of and shall be binding upon any successor or assignee of the Company.
7.7 Headings. The headings or titles in this Agreement are for the purpose
of reference only and shall not in any way affect the interpretation or
construction of this Agreement.
7.8 Arbitration. Any dispute between the Company and the Employee with
respect to this Agreement shall be submitted to binding arbitration in El Paso
County, Colorado pursuant to the rules of the American Arbitration Association
then in effect and before an arbitrator fully licensed and authorized by any and
all applicable rules, statutes, regulations or the like to hear such cases in
the State of Colorado. The arbitrators shall have the power to award any legal
or equitable remedies that would be available in proceedings conducted before a
state or federal court of competent jurisdiction in Colorado. Judgment on the
award of the arbitrators may be entered in any court of competent jurisdiction.
All arbitration proceedings and the results thereof shall be confidential,
except to the extent that any party is required to make disclosure concerning
such proceedings under applicable law.
7.9 No Conflict. The Employee represents and warrants that he is not
subject to any agreement, order, judgment or decree of any kind which would
prevent him from entering into this Agreement or performing fully his
obligations hereunder.
7.10 Survival. The rights and obligations of the parties shall survive the
Term of Employment to the extent that any performance is required under this
Agreement after the expiration or termination of such Term of Employment.
7
<PAGE>
7.11 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which shall
together constitute one and the same document.
7.12 Notices. Any notice to be given hereunder by either party to the other
may be effected in writing by personal delivery, or by mail, certified with
postage prepaid, or by overnight delivery service. Notices sent by mail or by an
overnight delivery service shall be addressed to the parties at the addresses
appearing following their signatures below, or upon the employment records of
the Company but either party may change its or his address by written notice in
accordance with this paragraph.
7.13 Opportunity to Consult Counsel. The Parties hereto represent and agree
that, prior to executing this Agreement, each has had the opportunity to consult
with independent counsel concerning the terms of this Agreement.
7.14 Attorney Fees. In the event of any dispute, arbitration, litigation
between the Parties or proceeding before any court of competent jurisdiction,
the prevailing party shall be entitled to reasonable attorney fee, costs and
expenses.
IN WITNESS WHEREOF, the parties hereto have properly and duly executed this
Agreement as of the date first written above.
THE COMPANY:
MedGrup Corporation
By: /s/ William D. Cronin
---------------------------------------------
William D. Cronin, Chief Executive Officer
1880 Willow Park Way, Suite B
Monument, CO 80132
EMPLOYEE:
/s/ Terry J. Holmes
---------------------------------------------
Terry J. Holmes
720 W. Caribou Dr.
Monument, CO 80132
8
Exhibit 10.7
EXECUTIVE
EMPLOYMENT AGREEMENT
This Agreement is made to be effective as of the 1st day of January 2000,
by and between MedGrup Corporation, a Colorado corporation (the "Company") and
Margaret M. Cronin ("Employee").
W I T N E S S E T H:
--------------------
WHEREAS, the Company wishes to engage Employee's services upon the terms
and conditions hereinafter set forth; and
WHEREAS, Employee wishes to be employed by the Company upon the terms and
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and mutual promises set
forth herein, the sufficiency of which is hereby acknowledged, the parties agree
as follows:
1. Employment; Duties. The Company hereby agrees to employ Employee
effective as of the Effective Date as its Vice President, Finance, and in any
other executive capacity as the Company shall determine is necessary or
appropriate in connection with the operation of the Company, and Employee hereby
agrees to serve in such capacity. Employee's principal area of responsibility,
subject to modification by the Company, shall be to serve as the Chief Financial
Officer of the Company, and, in the absence of the Chief Executive Officer and
President/Chief Operating Officer, discharge the duties incident to the office
of Chief Executive Officer. The Employee shall at all times report to and take
direction from, the Board of Directors and the President, and shall perform such
additional duties not inconsistent with his position as shall be designated from
time to time by the Company.
2. Best Efforts. Employee agrees to use her best efforts to promote the
interests of the Company and shall, except for illness, reasonable vacation
periods and leaves of absence, devote his full business time and energies to the
business and affairs of the Company. Employee shall be permitted to perform
outside business endeavors only with the approval of the Board of Directors,
subject to non-competition agreements with the Company and provided that such
outside activities do not interfere with the performance of Employee's duties.
Employee may also engage in work for charitable, benevolent, civic or
educational purposes so long as such endeavors do not interfere with Employee's
duties hereunder.
3. Term of Agreement. The term of this Agreement shall commence on the date
first above written (the "Effective Date") and such term and the employment
hereunder shall continue, unless earlier terminated in accordance with the terms
of Paragraph 5, for a period of three years (the "Original Term"). The Original
Term shall be extended automatically for additional one-year periods (each a
"Renewal Term") unless notice that this Agreement will not be extended is given
by either party to the other at least 90 days prior to the expiration of the
Original Term or any Renewal Term. The period of employment of Employee by the
Company, commencing with the Effective Date and continuing until termination of
the employment by notice hereunder, in accordance with Paragraph 5 or otherwise
shall be known as the "Term of Employment."
1
<PAGE>
4. Compensation.
4.1 Base Salary. As compensation for Employee's services rendered
hereunder, the Company shall pay to Employee a base salary at an annual rate
equal to Seventy Eight Thousand Dollars ($78,000.00) (the "Base Salary"). The
Base Salary shall thereafter be increased annually at the greater of (i) five
percent (5%) or (ii) such other increase as may be approved by the Board of
Directors. The Base Salary shall be payable to Employee on a bi-weekly basis, in
accordance with the Company's standard policies for management personnel.
4.2 Incentive Compensation. With respect to each calendar year, or portion
thereof, beginning with calendar year 2000, Employee shall be eligible to
receive incentive compensation or a bonus, payable solely in the discretion of
the Board of Directors.
4.3 Benefits. Employee shall be entitled to participate in all benefit
programs established by the Company and generally applicable to the Company's
executive employees. Employee shall also be reimbursed for reasonable and
necessary business expenses incurred in the course of his employment with the
Company pursuant to Company policies as established from time to time.
4.4 Vehicle Allowance. Employee shall be entitled to a Company-provided
vehicle or a monthly allowance of Seven Hundred Dollars ($700.00).
4.5 Legal Fees. Employee shall be entitled to reimbursement of reasonable
legal fees associated with the negotiating, drafting and execution of this
Agreement.
4.6 Excise Tax Restoration Payment. In the event that it is determined that
any payment or distribution of any type to or for the benefit of the Employee
made by the Company, by any of its affiliates, by any person who acquires
ownership or effective control or ownership of a substantial portion of the
Company's assets (within the meaning of section 280G of the Internal Revenue
Code of 1986, as amended, and the regulations thereunder (the "Code") or by any
affiliate of such person, whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise (the "Total
Payments) would be subject to such excise tax imposed by section 4999 of the
Code or any interest or penalties with respect to such excise tax (such excise
tax, together with any such interest or penalties are collectively referred to
as the "Excise Tax"), then the Employee shall be entitled to receive an
additional payment (an "Excise Tax Restoration Payment") in an amount that shall
fund the payment by the Employee of any Excise Tax on the Total Payments as well
as all income taxes imposed on the Excise Tax Restoration Payment, any Excise
Tax imposed on the Excise Tax Restoration Payment and any interest or penalties
imposed with respect to taxes on the Excise Tax Restoration Payment or any
Excise Tax, except where the interest or penalties are the result of the
negligence or willful failure of the Employee to file a return in a timely
manner or report the Total Payments appropriately.
5. Termination of Employment Relationship.
5.1 Death or Incapacity. This Agreement shall terminate immediately upon
the death or Total Disability of Employee, and in such event, the Employee shall
have no further claim against the Company for compensation or benefits
hereunder. The Board of Directors shall make a determination of the Total
Disability of the Employee based upon the definition of disability and terms
contained in the Company's disability insurance policy, or if none, based upon
the inability of the Employee to perform the material functions of his job. Any
2
<PAGE>
such determination by the Board shall be evidenced by its written opinion
delivered to the Employee. Such written opinion shall specify with particularity
the reasons supporting such opinion and be manually signed by at least a
majority of the Board.
5.2 Termination by the Company. The Company may terminate this Agreement
for "Cause" and, in such event, the term of employment shall terminate at the
termination date designated by the Company. For the purpose of this paragraph,
"Termination for Cause" or "Cause" shall include the following:
(a) Breach of fiduciary duty or criminal conduct by the Employee
having the effect of materially adversely affecting the Company and/or its
reputation;
(b) Willful failure by the Employee to substantially perform his
duties hereunder;
(c) Engagement by the Employee in the use of narcotics or alcohol to
the extent that the performance of his duties is materially impaired;
(d) Material breach of the terms of this Agreement by the Employee or
failure to substantially comply with proper instructions of the Company's Board
of Directors;
(e) Misconduct by the Employee which is materially injurious to the
Company; or
(f) Any act or omission on the part of the Employee not described
above, but which constitutes material and willful misfeasance, malfeasance, or
gross negligence in the performance of his duties to the Company.
Determination of any event or events and circumstances constituting "Cause"
shall be at the sole discretion of the Board of Directors.
5.3 Termination by Employee. Employee may terminate this Agreement for
"Good Reason"; provided, however, that Employee's obligations under Paragraph 6
shall survive any termination of this Agreement by Employee, by the Company or
otherwise. For purposes of this paragraph, Good Reason shall mean:
a) Any assignment to the Employee of any duties materially inconsistent with
the position described in Section 1 hereof,
b) Any material diminution of the duties of the Employee then-existing without
the written consent of the Employee,
c) Any removal of the Employee from or failure to re-elect the Employee to the
positions described in Section 1 hereof, except in connection with
termination of the Employee pursuant to Section 5.1 or 5.2 hereof,
d) A reduction in the Employee's rate of compensation, or a reduction in the
Employee's fringe benefits or any other failure of the Company to comply
with Section 4 hereof,
3
<PAGE>
e) The Employee's principle place of employment is relocated to a place
outside of a forty (40) mile radius from which he was employed on the
Effective Date,
Other material breach of this Agreement by the Company, or
f) Following a "Change in Control," defined below.
A "Change of Control" shall be deemed to have occurred if (i) a tender
offer shall be made and consummated for the ownership of 50% or more of the
outstanding voting securities of the Company, (ii) the Company shall be merged
or consolidated with another corporation and as a result of such merger or
consolidation less than 50% of the outstanding securities of the surviving or
resulting corporation shall be owned in the aggregate by the former stockholders
of the Company, as the same shall have existed immediately prior to such merger
or consolidation, (iii) the Company shall sell more than 75% of its assets to
another corporation which is not a wholly owned subsidiary, or (iv) within any
period of six consecutive months, individuals who at the beginning of the period
constituted the Board of the Company cease for any reason to constitute a
majority of the Board of the Company then in office.
Any termination by the Board of Directors pursuant to Section 5.2 or by the
Employee pursuant to section 5.3 shall be communicated by written Notice of
Termination to the other party hereto. Notice of Termination shall mean a notice
which shall indicate the specific termination provision in this Agreement relied
upon and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Employee's employment under
the provision so indicated.
5.4 Payment Upon Termination.
(a) If this Agreement is terminated by the Company for Cause prior to
the completion of the Original Term or an ongoing Renewal Term, Employee shall
not be entitled to severance pay of any kind but shall be entitled to all
reasonable reimbursable business expenses incurred by Employee and the Base
Salary earned by Employee prior to the date of termination, and all obligations
of the Company under Paragraph 4 hereof shall terminate upon the termination
date designated by the Company, except to the extent otherwise required by law.
(b) In the event that Employee is terminated without Cause or the
Employee resigns with Good Reason, the Company shall pay Employee one (1) year's
Base Salary at the rate prevailing for Employee immediately prior to such
termination as severance pay, payable in accordance with Company's normal
payroll. Employee shall also be entitled to receive benefits to which he was
entitled immediately preceding the date of termination for a period of twelve
(12) months from date of termination.
6. Non-Competition Agreement.
6.1 Competition; Confidential Information. The Employee and the Company
recognize that due to the nature of his engagements hereunder, and the
relationship of the Employee to the Company, the Employee has had access to and
has acquired, will have access to and will acquire, and has assisted in and may
assist in developing, confidential and proprietary information relating to the
business and operations of the Company and its affiliates, including, without
limiting the generality of the foregoing, information with respect to their
present and prospective products, systems, customers, agents, processes, and
sales and marketing methods. The Employee acknowledges that such information has
4
<PAGE>
been and will continue to be of central importance to the business of the
Company and its affiliates and that disclosure of it to or its use by others
could cause substantial loss to the Company. The Employee and the Company also
recognize that an important part of the Employee's duties will be to develop
good will for the Company and its affiliates through his personal contact with
customers, agents and others having business relationships with the Company and
its affiliates, and that there is a danger that this good will, a proprietary
asset of the Company and its affiliates, may follow the Employee if and when his
relationship with the Company is terminated. Employee acknowledges that his
services to be rendered hereunder have a unique value to the Company, for the
loss of which the Company cannot be adequately compensated by damages in an
action at law. In view of the unique value to the Company of the services of
Employee, and because of the Confidential Information to be obtained by or
disclosed to Employee, and as a material inducement to the Company to enter into
this Employment Agreement and to pay to Employee the compensation referred to in
Paragraph 4 hereof, Employee covenants and agrees that:
6.2 Non-Competition.
(a) While Employee is employed by the Company, and for a period of one (1)
year thereafter, Employee will not, either personally, whether as an officer,
director, owner, manager, principal, partner, employee, agent, distributor,
representative, stockholder, consultant or otherwise, or with or through any
other person or entity operate or participate in the medical records coding
business or any other business which competes with the Company as of the date of
Employee's termination date (for purposes of Paragraph 6 hereof, the Company
shall be deemed to include all subsidiaries and joint ventures of the Company
whether now or hereafter affiliated with the Company) nor will Employee, while
Employee is employed by the Company, and for a period of one (1) year
thereafter, directly or indirectly solicit any person who has been an employee,
supplier or customer of the Company during the period of one (1) year prior to
the termination of employment. This non-competition clause shall apply in the
geographic territory comprised of the entire United States and any other
geographic area in which the Company is engaged in business. Employee
acknowledges that this non-competition/non-solicitation agreement is reasonable
in terms of its scope and duration.
(b) Nothing in this Section 6.2 shall be construed to prevent the Employee
from owning, as an investment, not more than 1% of a class of equity securities
issued by any competitor of the Company or its affiliates and publicly traded
and registered under Section 12 of the Securities Exchange Act of 1934.
6.3 Trade Secrets. The Employee will keep confidential any trade secrets or
confidential or proprietary information of the Company and its affiliates which
are now known to him or which hereafter may become known to him as a result of
his employment or association with the Company and shall not at any time
directly or indirectly disclose any such information to any person, firm or
corporation, or use the same in any way other than in connection with the
business of the Company or its affiliates during and at all times after the
expiration of the Term of Employment. For purposes of this Agreement, "trade
secrets or confidential or proprietary information" means information unique to
the Company or any of its affiliates which has a significant business purpose
and is not known or generally available from sources outside the Company or any
of its affiliates or typical of industry practice. Trade secrets or confidential
or proprietary information may include information with respect to the Company's
personnel records, present and prospective products, systems, customers, agents,
processes, and sales and marketing methods.
5
<PAGE>
6.4 Patents. The Employee will assign permanently to the Company exclusive
rights to any patents awarded to him on the basis of ideas developed by the
Employee for the Company during or prior to the Term of Employment and its
affiliates and ideas developed by the Employee within one year following the
termination of his employment from the Company which are related to such
employment and/or the business of the Company.
6.5 It is agreed that Employee's services are unique, and that any breach
or threatened breach by Employee of any provisions of this Paragraph 6 may not
be remedied solely by damages. Accordingly, in the event of a breach or
threatened breach by Employee of any of the provisions of this Paragraph 6, the
Company shall be entitled to injunctive relief, restraining Employee and any
business, firm, partnership, individual, corporation, or entity participating in
such breach or attempted breach, from engaging in any activity which would
constitute a breach of this Paragraph 6. Nothing herein, however, shall be
construed as prohibiting the Company from pursuing any other remedies available
at law or in equity for such breach or threatened breach, including the recovery
of damages.
6.6 The provisions of this Paragraph 6 shall survive the termination of
this Agreement and the termination of Employee's employment.
7. Miscellaneous.
7.1 Assignability. Employee may not assign his rights and obligations under
this Agreement without the prior written consent of the Company, which consent
may be withheld for any reason or for no reason.
7.2 Severability. In the event that any of the provisions of this Agreement
shall be held to be invalid or unenforceable, the remaining provisions shall
nevertheless continue to be valid and enforceable as though the invalid or
unenforceable parts had not been included therein. Without limiting the
generality of the foregoing, in the event that any provision of Paragraph 6
relating to time period and/or areas of restriction shall be declared by a court
of competent jurisdiction to exceed the maximum time period or areas(s) such
court deems enforceable, said time period and/or area(s) of restriction shall be
deemed to become, and thereafter be, the maximum time period and/or area for
which such are enforceable.
7.3 Entire Agreement. This Agreement constitutes the entire agreement
between the parties relating to the subject matter hereof and supersedes all
prior agreements or understandings among the parties hereto with respect to the
subject matter hereof.
7.4 Amendments. This Agreement shall not be amended or modified except by a
writing signed by both parties hereto.
7.5 Waiver. The failure of either party at any time to require performance
of the other party of any provision of this Agreement shall in no way affect the
right of such party thereafter to enforce the same provision, nor shall the
waiver by either party of any breach of any provision hereof be taken or held to
be a waiver of any other or subsequent breach, or as a waiver of the provision
itself. This Agreement shall be governed by and interpreted in accordance with
the laws of the State of Colorado without regard to the conflict of laws of such
State. The benefits of this Agreement may not be assigned nor any duties under
6
<PAGE>
this Agreement be delegated by Employee without the prior written consent of the
Company, except as contemplated in this Agreement. This Agreement and all of its
rights, privileges, and obligations will be binding upon the parties and all
successors and agreed to assigns thereof.
7.6 Binding Agreement. This Agreement shall be effective as of the date
hereof and shall be binding upon and inure to the benefit of the Employee, his
heirs, personal and legal representatives, guardians and permitted assigns. The
rights and obligations of the Company under this Agreement shall inure to the
benefit of and shall be binding upon any successor or assignee of the Company.
7.7 Headings. The headings or titles in this Agreement are for the purpose
of reference only and shall not in any way affect the interpretation or
construction of this Agreement.
7.8 Arbitration. Any dispute between the Company and the Employee with
respect to this Agreement shall be submitted to binding arbitration in El Paso
County, Colorado pursuant to the rules of the American Arbitration Association
then in effect and before an arbitrator fully licensed and authorized by any and
all applicable rules, statutes, regulations or the like to hear such cases in
the State of Colorado. The arbitrators shall have the power to award any legal
or equitable remedies that would be available in proceedings conducted before a
state or federal court of competent jurisdiction in Colorado. Judgment on the
award of the arbitrators may be entered in any court of competent jurisdiction.
All arbitration proceedings and the results thereof shall be confidential,
except to the extent that any party is required to make disclosure concerning
such proceedings under applicable law.
7.9 No Conflict. The Employee represents and warrants that he is not
subject to any agreement, order, judgment or decree of any kind which would
prevent him from entering into this Agreement or performing fully his
obligations hereunder.
7.10 Survival. The rights and obligations of the parties shall survive the
Term of Employment to the extent that any performance is required under this
Agreement after the expiration or termination of such Term of Employment.
7.11 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which shall
together constitute one and the same document.
7.12 Notices. Any notice to be given hereunder by either party to the other
may be effected in writing by personal delivery, or by mail, certified with
postage prepaid, or by overnight delivery service. Notices sent by mail or by an
overnight delivery service shall be addressed to the parties at the addresses
appearing following their signatures below, or upon the employment records of
the Company but either party may change its or his address by written notice in
accordance with this paragraph.
7.13 Opportunity to Consult Counsel. The Parties hereto represent and agree
that, prior to executing this Agreement, each has had the opportunity to consult
with independent counsel concerning the terms of this Agreement.
7.14 Attorney Fees. In the event of any dispute, arbitration, litigation
between the Parties or proceeding before any court of competent jurisdiction,
the prevailing party shall be entitled to reasonable attorney fee, costs and
expenses.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have properly and duly executed this
Agreement as of the date first written above.
THE COMPANY:
MedGrup Corporation
By: /s/ William D. Cronin
------------------------------
William D. Cronin, Chairman Of The Board and Chief Executive Officer
1880 Willow Park Way, Suite B
Monument, CO 80132
EMPLOYEE:
By: /s/ Margaret M. Cronin
-------------------------------
Margaret M. Cronin
905 Bowstring Road
Monument, CO 80132
8
Exhibit 10.8
EXECUTIVE
EMPLOYMENT AGREEMENT
This Agreement is made to be effective as of the 1st day of January 2000,
by and between MedGrup Corporation, a Colorado corporation (the "Company") and
Gary B. Mendenhall ("Employee").
W I T N E S S E T H:
--------------------
WHEREAS, the Company wishes to engage Employee's services upon the terms
and conditions hereinafter set forth; and
WHEREAS, Employee wishes to be employed by the Company upon the terms and
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and mutual promises set
forth herein, the sufficiency of which is hereby acknowledged, the parties agree
as follows:
1. Employment; Duties. The Company hereby agrees to employ Employee
effective as of the Effective Date as one of its Vice Presidents, and in any
other executive capacity as the Company shall determine is necessary or
appropriate in connection with the operation of the Company, and Employee hereby
agrees to serve in such capacity. Employee's principal area of responsibility,
subject to modification by the Company, shall be to serve in the operations and
sales\marketing areas of the company. The Employee shall at all times report to
and take direction from, the Board of Directors and the President, and shall
perform such additional duties not inconsistent with his position as shall be
designated from time to time by the Company.
2. Best Efforts. Employee agrees to use his best efforts to promote the
interests of the Company and shall, except for illness, reasonable vacation
periods and leaves of absence, devote his full business time and energies to the
business and affairs of the Company. Employee shall be permitted to perform
outside business endeavors only with the approval of the Board of Directors,
subject to non-competition agreements with the Company and provided that such
outside activities do not interfere with the performance of Employee's duties.
Employee may also engage in work for charitable, benevolent, civic or
educational purposes so long as such endeavors do not interfere with Employee's
duties hereunder.
3. Term of Agreement. The term of this Agreement shall commence on the date
first above written (the "Effective Date") and such term and the employment
hereunder shall continue, unless earlier terminated in accordance with the terms
of Paragraph 5, for a period of three years (the "Original Term"). The Original
Term shall be extended automatically for additional one-year periods (each a
"Renewal Term") unless notice that this Agreement will not be extended is given
by either party to the other at least 90 days prior to the expiration of the
Original Term or any Renewal Term. The period of employment of Employee by the
Company, commencing with the Effective Date and continuing until termination of
the employment by notice hereunder, in accordance with Paragraph 5 or otherwise
shall be known as the "Term of Employment."
1
<PAGE>
4. Compensation.
4.1 Base Salary. As compensation for Employee's services rendered
hereunder, the Company shall pay to Employee a base salary at an annual rate
equal to Seventy Eight Thousand Dollars ($78,000.00) (the "Base Salary"). The
Base Salary shall thereafter be increased annually at the greater of (i) five
percent (5%) or (ii) such other increase as may be approved by the Board of
Directors. The Base Salary shall be payable to Employee on a bi-weekly basis, in
accordance with the Company's standard policies for management personnel.
4.2 Incentive Compensation. With respect to each calendar year, or portion
thereof, beginning with calendar year 2000, Employee shall be eligible to
receive incentive compensation or a bonus, payable solely in the discretion of
the Board of Directors.
4.3 Benefits. Employee shall be entitled to participate in all benefit
programs established by the Company and generally applicable to the Company's
executive employees. Employee shall also be reimbursed for reasonable and
necessary business expenses incurred in the course of his employment with the
Company pursuant to Company policies as established from time to time.
4.4 Vehicle Allowance. Employee shall be entitled to a Company-provided
vehicle or a monthly allowance of Seven Hundred Dollars ($700.00).
4.5 Legal Fees. Employee shall be entitled to reimbursement of reasonable
legal fees associated with the negotiating, drafting and execution of this
Agreement.
4.6 Excise Tax Restoration Payment. In the event that it is determined that
any payment or distribution of any type to or for the benefit of the Employee
made by the Company, by any of its affiliates, by any person who acquires
ownership or effective control or ownership of a substantial portion of the
Company's assets (within the meaning of section 280G of the Internal Revenue
Code of 1986, as amended, and the regulations thereunder (the "Code") or by any
affiliate of such person, whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise (the "Total
Payments) would be subject to such excise tax imposed by section 4999 of the
Code or any interest or penalties with respect to such excise tax (such excise
tax, together with any such interest or penalties are collectively referred to
as the "Excise Tax"), then the Employee shall be entitled to receive an
additional payment (an "Excise Tax Restoration Payment") in an amount that shall
fund the payment by the Employee of any Excise Tax on the Total Payments as well
as all income taxes imposed on the Excise Tax Restoration Payment, any Excise
Tax imposed on the Excise Tax Restoration Payment and any interest or penalties
imposed with respect to taxes on the Excise Tax Restoration Payment or any
Excise Tax, except where the interest or penalties are the result of the
negligence or willful failure of the Employee to file a return in a timely
manner or report the Total Payments appropriately.
5. Termination of Employment Relationship.
5.1 Death or Incapacity. This Agreement shall terminate immediately upon
the death or Total Disability of Employee, and in such event, the Employee shall
have no further claim against the Company for compensation or benefits
hereunder. The Board of Directors shall make a determination of the Total
Disability of the Employee based upon the definition of disability and terms
contained in the Company's disability insurance policy, or if none, based upon
the inability of the Employee to perform the material functions of his job. Any
such determination by the Board shall be evidenced by its written opinion
2
<PAGE>
delivered to the Employee. Such written opinion shall specify with particularity
the reasons supporting such opinion and be manually signed by at least a
majority of the Board.
5.2 Termination by the Company. The Company may terminate this Agreement
for "Cause" and, in such event, the term of employment shall terminate at the
termination date designated by the Company. For the purpose of this paragraph,
"Termination for Cause" or "Cause" shall include the following:
(a) Breach of fiduciary duty or criminal conduct by the Employee
having the effect of materially adversely affecting the Company and/or its
reputation;
(b) Willful failure by the Employee to substantially perform his
duties hereunder;
(c) Engagement by the Employee in the use of narcotics or alcohol to
the extent that the performance of his duties is materially impaired;
(d) Material breach of the terms of this Agreement by the Employee or
failure to substantially comply with proper instructions of the Company's Board
of Directors;
(e) Misconduct by the Employee which is materially injurious to the
Company; or
(f) Any act or omission on the part of the Employee not described
above, but which constitutes material and willful misfeasance, malfeasance, or
gross negligence in the performance of his duties to the Company.
Determination of any event or events and circumstances constituting "Cause"
shall be at the sole discretion of the Board of Directors.
5.3 Termination by Employee. Employee may terminate this Agreement for
"Good Reason"; provided, however, that Employee's obligations under Paragraph 6
shall survive any termination of this Agreement by Employee, by the Company or
otherwise. For purposes of this paragraph, Good Reason shall mean:
a) Any assignment to the Employee of any duties materially inconsistent with
the position described in Section 1 hereof,
b) Any material diminution of the duties of the Employee then-existing without
the written consent of the Employee,
c) Any removal of the Employee from or failure to re-elect the Employee to the
positions described in Section 1 hereof, except in connection with
termination of the Employee pursuant to Section 5.1 or 5.2 hereof,
d) A reduction in the Employee's rate of compensation, or a reduction in the
Employee's fringe benefits or any other failure of the Company to comply
with Section 4 hereof,
3
<PAGE>
e) The Employee's principle place of employment is relocated to a place
outside of a forty (40) mile radius from which he was employed on the
Effective Date,
Other material breach of this Agreement by the Company, or
f) Following a "Change in Control," defined below.
A "Change of Control" shall be deemed to have occurred if (i) a tender
offer shall be made and consummated for the ownership of 50% or more of the
outstanding voting securities of the Company, (ii) the Company shall be merged
or consolidated with another corporation and as a result of such merger or
consolidation less than 50% of the outstanding securities of the surviving or
resulting corporation shall be owned in the aggregate by the former stockholders
of the Company, as the same shall have existed immediately prior to such merger
or consolidation, (iii) the Company shall sell more than 75% of its assets to
another corporation which is not a wholly owned subsidiary, or (iv) within any
period of six consecutive months, individuals who at the beginning of the period
constituted the Board of the Company cease for any reason to constitute a
majority of the Board of the Company then in office.
Any termination by the Board of Directors pursuant to Section 5.2 or by the
Employee pursuant to section 5.3 shall be communicated by written Notice of
Termination to the other party hereto. Notice of Termination shall mean a notice
which shall indicate the specific termination provision in this Agreement relied
upon and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Employee's employment under
the provision so indicated.
5.4 Payment Upon Termination.
(a) If this Agreement is terminated by the Company for Cause prior to
the completion of the Original Term or an ongoing Renewal Term, Employee shall
not be entitled to severance pay of any kind but shall be entitled to all
reasonable reimbursable business expenses incurred by Employee and the Base
Salary earned by Employee prior to the date of termination, and all obligations
of the Company under Paragraph 4 hereof shall terminate upon the termination
date designated by the Company, except to the extent otherwise required by law.
(b) In the event that Employee is terminated without Cause or the
Employee resigns with Good Reason, the Company shall pay Employee one (1) year's
Base Salary at the rate prevailing for Employee immediately prior to such
termination as severance pay, payable in accordance with Company's normal
payroll. Employee shall also be entitled to receive benefits to which he was
entitled immediately preceding the date of termination for a period of twelve
(12) months from date of termination.
6. Non-Competition Agreement.
6.1 Competition; Confidential Information. The Employee and the Company
recognize that due to the nature of his engagements hereunder, and the
relationship of the Employee to the Company, the Employee has had access to and
has acquired, will have access to and will acquire, and has assisted in and may
assist in developing, confidential and proprietary information relating to the
business and operations of the Company and its affiliates, including, without
limiting the generality of the foregoing, information with respect to their
present and prospective products, systems, customers, agents, processes, and
sales and marketing methods. The Employee acknowledges that such information has
4
<PAGE>
been and will continue to be of central importance to the business of the
Company and its affiliates and that disclosure of it to or its use by others
could cause substantial loss to the Company. The Employee and the Company also
recognize that an important part of the Employee's duties will be to develop
good will for the Company and its affiliates through his personal contact with
customers, agents and others having business relationships with the Company and
its affiliates, and that there is a danger that this good will, a proprietary
asset of the Company and its affiliates, may follow the Employee if and when his
relationship with the Company is terminated. Employee acknowledges that his
services to be rendered hereunder have a unique value to the Company, for the
loss of which the Company cannot be adequately compensated by damages in an
action at law. In view of the unique value to the Company of the services of
Employee, and because of the Confidential Information to be obtained by or
disclosed to Employee, and as a material inducement to the Company to enter into
this Employment Agreement and to pay to Employee the compensation referred to in
Paragraph 4 hereof, Employee covenants and agrees that:
6.2 Non-Competition.
(a) While Employee is employed by the Company, and for a period of one (1)
year thereafter, Employee will not, either personally, whether as an officer,
director, owner, manager, principal, partner, employee, agent, distributor,
representative, stockholder, consultant or otherwise, or with or through any
other person or entity operate or participate in the medical records coding
business or any other business which competes with the Company as of the date of
Employee's termination date (for purposes of Paragraph 6 hereof, the Company
shall be deemed to include all subsidiaries and joint ventures of the Company
whether now or hereafter affiliated with the Company) nor will Employee, while
Employee is employed by the Company, and for a period of one (1) year
thereafter, directly or indirectly solicit any person who has been an employee,
supplier or customer of the Company during the period of one (1) year prior to
the termination of employment. This non-competition clause shall apply in the
geographic territory comprised of the entire United States and any other
geographic area in which the Company is engaged in business. Employee
acknowledges that this non-competition/non-solicitation agreement is reasonable
in terms of its scope and duration.
(b) Nothing in this Section 6.2 shall be construed to prevent the Employee
from owning, as an investment, not more than 1% of a class of equity securities
issued by any competitor of the Company or its affiliates and publicly traded
and registered under Section 12 of the Securities Exchange Act of 1934.
6.3 Trade Secrets. The Employee will keep confidential any trade secrets or
confidential or proprietary information of the Company and its affiliates which
are now known to him or which hereafter may become known to him as a result of
his employment or association with the Company and shall not at any time
directly or indirectly disclose any such information to any person, firm or
corporation, or use the same in any way other than in connection with the
business of the Company or its affiliates during and at all times after the
expiration of the Term of Employment. For purposes of this Agreement, "trade
secrets or confidential or proprietary information" means information unique to
the Company or any of its affiliates which has a significant business purpose
and is not known or generally available from sources outside the Company or any
of its affiliates or typical of industry practice. Trade secrets or confidential
or proprietary information may include information with respect to the Company's
personnel records, present and prospective products, systems, customers, agents,
processes, and sales and marketing methods.
5
<PAGE>
6.4 Patents. The Employee will assign permanently to the Company exclusive
rights to any patents awarded to him on the basis of ideas developed by the
Employee for the Company during or prior to the Term of Employment and its
affiliates and ideas developed by the Employee within one year following the
termination of his employment from the Company which are related to such
employment and/or the business of the Company.
6.5 It is agreed that Employee's services are unique, and that any breach
or threatened breach by Employee of any provisions of this Paragraph 6 may not
be remedied solely by damages. Accordingly, in the event of a breach or
threatened breach by Employee of any of the provisions of this Paragraph 6, the
Company shall be entitled to injunctive relief, restraining Employee and any
business, firm, partnership, individual, corporation, or entity participating in
such breach or attempted breach, from engaging in any activity which would
constitute a breach of this Paragraph 6. Nothing herein, however, shall be
construed as prohibiting the Company from pursuing any other remedies available
at law or in equity for such breach or threatened breach, including the recovery
of damages.
6.6 The provisions of this Paragraph 6 shall survive the termination of
this Agreement and the termination of Employee's employment.
7. Miscellaneous.
7.1 Assignability. Employee may not assign his rights and obligations under
this Agreement without the prior written consent of the Company, which consent
may be withheld for any reason or for no reason.
7.2 Severability. In the event that any of the provisions of this Agreement
shall be held to be invalid or unenforceable, the remaining provisions shall
nevertheless continue to be valid and enforceable as though the invalid or
unenforceable parts had not been included therein. Without limiting the
generality of the foregoing, in the event that any provision of Paragraph 6
relating to time period and/or areas of restriction shall be declared by a court
of competent jurisdiction to exceed the maximum time period or areas(s) such
court deems enforceable, said time period and/or area(s) of restriction shall be
deemed to become, and thereafter be, the maximum time period and/or area for
which such are enforceable.
7.3 Entire Agreement. This Agreement constitutes the entire agreement
between the parties relating to the subject matter hereof and supersedes all
prior agreements or understandings among the parties hereto with respect to the
subject matter hereof.
7.4 Amendments. This Agreement shall not be amended or modified except by a
writing signed by both parties hereto.
7.5 Waiver. The failure of either party at any time to require performance
of the other party of any provision of this Agreement shall in no way affect the
right of such party thereafter to enforce the same provision, nor shall the
waiver by either party of any breach of any provision hereof be taken or held to
be a waiver of any other or subsequent breach, or as a waiver of the provision
itself. This Agreement shall be governed by and interpreted in accordance with
the laws of the State of Colorado without regard to the conflict of laws of such
State. The benefits of this Agreement may not be assigned nor any duties under
this Agreement be delegated by Employee without the prior written consent of the
6
<PAGE>
Company, except as contemplated in this Agreement. This Agreement and all of its
rights, privileges, and obligations will be binding upon the parties and all
successors and agreed to assigns thereof.
7.6 Binding Agreement. This Agreement shall be effective as of the date
hereof and shall be binding upon and inure to the benefit of the Employee, his
heirs, personal and legal representatives, guardians and permitted assigns. The
rights and obligations of the Company under this Agreement shall inure to the
benefit of and shall be binding upon any successor or assignee of the Company.
7.7 Headings. The headings or titles in this Agreement are for the purpose
of reference only and shall not in any way affect the interpretation or
construction of this Agreement.
7.8 Arbitration. Any dispute between the Company and the Employee with
respect to this Agreement shall be submitted to binding arbitration in El Paso
County, Colorado pursuant to the rules of the American Arbitration Association
then in effect and before an arbitrator fully licensed and authorized by any and
all applicable rules, statutes, regulations or the like to hear such cases in
the State of Colorado. The arbitrators shall have the power to award any legal
or equitable remedies that would be available in proceedings conducted before a
state or federal court of competent jurisdiction in Colorado. Judgment on the
award of the arbitrators may be entered in any court of competent jurisdiction.
All arbitration proceedings and the results thereof shall be confidential,
except to the extent that any party is required to make disclosure concerning
such proceedings under applicable law.
7.9 No Conflict. The Employee represents and warrants that he is not
subject to any agreement, order, judgment or decree of any kind which would
prevent him from entering into this Agreement or performing fully his
obligations hereunder.
7.10 Survival. The rights and obligations of the parties shall survive the
Term of Employment to the extent that any performance is required under this
Agreement after the expiration or termination of such Term of Employment.
7.11 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which shall
together constitute one and the same document.
7.12 Notices. Any notice to be given hereunder by either party to the other
may be effected in writing by personal delivery, or by mail, certified with
postage prepaid, or by overnight delivery service. Notices sent by mail or by an
overnight delivery service shall be addressed to the parties at the addresses
appearing following their signatures below, or upon the employment records of
the Company but either party may change its or his address by written notice in
accordance with this paragraph.
7.13 Opportunity to Consult Counsel. The Parties hereto represent and agree
that, prior to executing this Agreement, each has had the opportunity to consult
with independent counsel concerning the terms of this Agreement.
7.14 Attorney Fees. In the event of any dispute, arbitration, litigation
between the Parties or proceeding before any court of competent jurisdiction,
the prevailing party shall be entitled to reasonable attorney fee, costs and
expenses.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have properly and duly executed this
Agreement as of the date first written above.
THE COMPANY:
MedGrup Corporation
By: /s/ William D. Cronin
------------------------------
William D. Cronin, Chairman Of The Board and Chief Executive Officer
1880 Willow Park Way, Suite B
Monument, CO 80132
EMPLOYEE:
By: /s/ Gary B. Mendenhall
------------------------------
Gary B. Mendenhall
17330 Leggins Way
Monument, CO 80132
8
Exhibit 10.9
Incentive Stock Option Plan
for
Medgrup Corporation
[Approved by the Board of Directors and Shareholders As of May __, 1999]
Article I
---------
General
-------
This Incentive Stock Option Plan (hereafter the "Plan") of Medgrup
Corporation (the "Company") for executive and other employees of the Company, is
intended to advance the Company by providing an incentive for those persons to
increase its value.
Options issued under this Plan are intended to qualify for the tax
benefitted treatment available under Section 422A of the Internal Revenue Code
of 1986. Such tax benefits will available to Optionees who sell the Common
Shares purchased on exercise of Options, when the sale occurs two years after
the Option was granted and one year after it was exercised. A disposition before
expiration of that holding period will be a "disqualifying disposition" and
result in recognition of some or all of the taxable income which was avoided on
the date the Option originally was exercised. See Article XII. Optionees should
consult their personal tax advisors on the future income tax consequences of
selling or otherwise disposing of the Common Shares bought on the exercise of
Options.
This Plan also may be used to issue options to persons who are not
employees of the Company, but such options will not be "qualified" options under
the United States Internal Revenue Code of 1986.
Unless registered with the Securities and Exchange Commission on Form S-8,
the Options and the Common Shares issuable on exercise of Options are restricted
securities under rule 144 of the United States Securities and Exchange
Commission, pursuant to the Securities Act of 1933 and state securities laws.
Options and Common Shares shall be granted and issued in accordance with the
information delivery requirements of the securities laws.
Article II
----------
Definitions
-----------
Definitions of certain terms in this Plan:
a. "Board" shall mean the Company's Board of Directors.
b. "Code" shall mean the Internal Revenue Code of 1986, and the rules and
regulations promulgated thereunder.
1
<PAGE>
c. "Committee" shall mean the Compensation Committee, or such other
committee of the Board designated by the Board to administer the Plan. Until the
Board designates a committee, this Plan shall be administered by the Board. At
least two persons shall serve on the Committee, whose members shall be appointed
by the Board. Board members may serve on the Committee. No member of the
Committee or of the Board shall vote on issuance of an Incentive Stock Option to
himself or herself. Pursuant to the Colorado Business Corporation Act, only the
Board may authorize the issuance of Options and the issuance of Common Shares on
exercise of Options. Therefore, the Committee, if designated, shall have the
authority to administer all other aspects of this Plan, but with respect to the
issuance of Options and the issuance of Common Shares on exercise of Options,
the Committee shall be limited to making recommendations to the Board.
d. "Common Shares" shall mean shares of the Company's Common Stock, or, in
the event that the outstanding Common Shares are hereafter changed into or
exchanged for different shares or securities of the Company, such other shares
or securities.
e. "Company" shall mean Medgrup Corporation, a Colorado corporation, and
any parent or subsidiary corporation as defined in Sections 425(e) and (f) of
the Code.
f. "Fair Market Value" shall mean, with respect to when a stock option is
granted or exercised, the average of the highest and lowest reported sales
prices of the Common Shares as reported in any trading market where the Company
then is listed, or if there were no trading transactions in the Common Shares on
that day, then the last preceding day on which transactions took place.
Even if the Common Shares are not traded in any public market, Fair Market
Value may be established by reference to sales of Common Shares by the Company,
or to sales by shareholders of Common Shares held by them (which transaction may
be the sale of the Company to another party, or isolated sales to different
parties), or to sales by third parties of outstanding Common Shares which had
been owned by shareholders of record (for example, sales by a trustee in
bankruptcy or by a secured creditor or by order of court in domestic relations
or probate proceedings).
Further, in evaluating Fair Market Value, there shall be taken into account
other factors including earnings since the last time Common Shares were sold,
new products and newly recruited personnel or independent contractors, the net
worth of the Company, and its prospective earning power and capacity to pay
dividends, the economic and regulatory outlooks for the Company's business, the
values of companies in the same business sector, and other factors.
g. "Incentive Stock Option" or "ISO" or "Option" shall mean a stock option
issued under the Plan which is intended to meet the terms of Code Section 422A
for qualified incentive stock options.
h. "Optionee" or "Option holder" shall mean the person to whom has been
granted an Incentive Stock Option. All persons regularly employed by the Company
or its subsidiaries on a full-time salaried basis are eligible to be Optionees.
2
<PAGE>
i. "Stock Option Agreement" shall mean the agreement between the Company
and the Optionee under which the Optionee may purchase Common Shares.
j. "Ten Percent Shareholder" shall mean an employee who owns ten percent or
more of the Common Shares as such amount is calculated under Code Section
422A(b)(6). Attribution rules under Code Section 425(d) are applicable to
determine whether the ten percent ownership rule is satisfied.
k. "Vesting" and "vested" shall mean the time(s) when options are
exercisable.
Article III
-----------
Administration
--------------
3.1 The Committee (or the Board, until a Committee is designated) shall
administer the Plan, but the Committee shall not issue Options or Common Shares
on exercise of Options.
3.2 The determination of those eligible to receive Incentive Stock Options,
and the amount and terms and conditions of Options shall rest in the sole
discretion of the Board.
3.3 The Committee may recommend to the Board that it cancel any Incentive
Stock Options if an Optionee conducts herself or himself in a manner which the
Board in good faith determines to be not in the best interests of the Company,
as set forth in Section 10.7.
3.4 The Committee may correct any defect, supply any omission, or reconcile
any inconsistency in the Plan, or in any granted Incentive Stock Option, as
necessary to carry it into effect.
3.5 Any recommendation or decision made, or action taken, by the Committee
in good faith and arising out of or in connection with the interpretation and
administration of the Plan shall be final and conclusive.
3.6 Meetings of the Committee shall be held at such times and places as
shall be determined by the Committee. Notice of meetings shall be made in the
same manner as required for Board meetings under the Bylaws. A majority of the
members of the Committee shall constitute a quorum for the transaction of
business, and the vote of a majority of those members present shall decide any
question brought before that meeting. In addition, the Committee may take any
action otherwise proper under the Plan by the signed affirmative vote, taken
without an actual meeting, of all members. All proceedings of the Committee
shall be evidenced by complete and detailed minutes, signed by the Committee
members.
3.7 No member of the Committee shall be liable for any act or omission of
any other member of the Committee or for any act or omission on her or his own
part, including, but not limited to, the exercise of any power or discretion
given under the Plan, except those resulting from bad faith, gross negligence,
or willful misconduct.
3
<PAGE>
3.8 The Plan shall always be administered in such a manner as to permit the
Options to qualify as "incentive stock options" under Section 422A of the Code.
3.9 Management of the Company shall supply full and timely information to
the Committee on all matters relating to eligible employees, their duties and
performance, and current information on death, retirement, and disability or
other termination of employment of Optionees, and such other information as the
Committee may require. The Company shall provide the Committee with
administrative assistance as necessary.
Article IV
----------
Number of Reserved Common Shares
--------------------------------
4.1 Reserved Common Shares. The total number of Common Shares of the
Company available for issuance under the Plan shall be 1,500,000. The reserved
shares may be either authorized but unissued, or previously issued and
subsequently reacquired. However, when the exercise price for an Option granted
under this Plan is paid in an "immaculate" or "cashless" exercise with
previously outstanding shares or with the shares underlying the Option which is
being exercised, the total number of Common Shares for which Options granted
under this Plan may thereafter be exercised shall be irrevocably reduced by the
total number of Common Shares for which such Option is thus exercised without
regard to the number of shares received or retained by the Company in connection
with that exercise.
4.2 Shares Under Expired or Terminated Options. If an Option expires or is
terminated for any reason without having been exercised in full, the unpurchased
Common Shares shall be available for future grants of Options.
Article V
---------
Eligibility, Vesting and Allocation
-----------------------------------
5.1 Eligibility. Qualified Incentive Stock Options may be granted to
officers and employees of the Company, as recommended by the Committee and
authorized by the Board.
5.2 Vesting. Subject to Section 6.8, Incentive Stock Options generally
shall be exercisable at the time and in the amounts established by the Board.
4
<PAGE>
Article VI
----------
Terms and Conditions
--------------------
6.1 Form of Option Agreement. All Incentive Stock Options shall be
evidenced by agreements in the form of Attachment A to this Plan, or in such
other form as may be duly approved pursuant to this Plan. Any such other form
shall be subject to applicable provisions of the Plan, and such other provisions
as the Board may adopt, but always shall include the provisions set forth in
Sections 6.2 through 6.10.
6.2 Price. The option price per share for Qualified Incentive Stock Options
shall be equal to or more than 100% of the Fair Market Value of a Common Share
on the grant date. The price at which shares may be purchased on exercise of an
Incentive Stock Option by a Ten Percent Shareholder shall be not less than 110
percent of the Fair Market Value on the grant date.
6.3 Time of Grant. All Incentive Stock Options must be granted within 10
years from the date this Plan is adopted by the Board.
6.4 Time of Exercise. No Incentive Stock Option granted to any Ten Percent
Shareholder shall be exercisable for more than five years.
If an Incentive Stock Option vests over time, the rights to exercise shall
cumulate until expiration. Vesting provisions shall be stated in the Option
Agreement.
6.5 Exercise. An Incentive Stock Option shall be exercised by delivery of
(a) a written notice of exercise (in the form of Attachment B hereto) to the
Company specifying the number of Common Shares to be purchased, and (b) payment
of the exercise price as set forth in Section 6.6. Not less than 1000 Common
Shares may be purchased at one time unless the number purchased is the total
number at the time available for purchase. Until the Common Shares represented
by an exercised option are issued to an Optionee, she or he shall have none of
the rights of a shareholder. When an Option has been duly exercised, the Company
shall issue a restricted certificate for the Common Shares purchased, which
Common Shares shall be duly issued as fully paid and nonassessable shares. In
the event of partial exercise of an Option, no new Option for the exercised
balance need be issued.
6.6 Method of Payment. In general, the purchase price for an Incentive
Stock Option or portion thereof may be paid in the methods stated below, or by
such other method as may be permitted by law.
a. In United States dollars by cashier's check, certified check, bank
draft, or money order payable to order of the Company in an amount equal to the
option price; or
b. In an "immaculate" or "cashless" manner which would allow the
Optionee to keep the number of Common Shares "in the money," i.e., if the Fair
Market Value of the Common Shares exceeds the purchase price under the Option,
as follows: The Optionee may use some of the Common Shares as to which the
5
<PAGE>
Option is then being exercised, in which case the notice of exercise need not be
accompanied by any stock certificates, but shall include a statement (i)
specifying the number of Common Shares to be purchased; (ii) directing the
Company to keep that number of Common Shares underlying the Option which equals
(x) the aggregate purchase price of the Common Shares to be purchased, divided
by (y) Fair Market Value on the date the notice of exercise is received by the
Company; and (iii) directing the Company to issue a certificate for the number
of Common Shares which equals (i) minus (ii).
If the Company is required to withhold from the Option holder for any
tax imposed because of this "immaculate" or "cashless" exercise method, then the
stock surrendered or retained shall include an additional number of shares whose
Fair Market Value equals the amount required to be withheld.
6.7 Restrictions on Transferability of Options. Except by will or the laws
of descent and distribution, no right or interest in any Incentive Stock Option
shall be assignable or transferable. Incentive Stock Options shall be
exercisable during the Optionee's lifetime only by the Optionee, except as
provided by Section 6.8(c) below.
6.8 Termination of Employment, Disability, or Death of Optionee. If an
Optionee shall cease to be employed by the Company, die, or become permanently
or totally disabled (within the meaning of Section 22(e)(3) of the Code) while
he or she is holding Options, each Option shall expire as follows:
a. If the Optionee's termination of employment occurs for any reason
during the first 12 months after grant of the Option, the Optionee's right to
exercise shall terminate; provided, however, that if during the same period the
Optionee shall (i) retire pursuant to Company-approved retirement policies then
in effect or (ii) become permanently and totally disabled (within the meaning of
Section 105(b)(4) of the Code), the Option shall become exercisable in full on
the date of such retirement or disability and remain exercisable for three
months.
b. If the Optionee's employment is terminated by the Company for any
reason, except death, more than 12 months after grant of the Option, the
Optionee shall have the right to exercise the Option for 30 days after
termination to the extent that it was exercisable on the date of termination.
However, if the Optionee voluntarily leaves the employment of the Company, all
unexercised Options shall terminate immediately and no longer be exercisable.
[This Space Intentionally Left Blank]
6
<PAGE>
c. If the Optionee shall die while employed by the Company or within
three months after termination of employment, the personal representative or
administrator of the Optionee's estate or the person(s) to whom the Option was
validly transferred by personal representative or administrator, shall have the
right to exercise the Option for up to three years after the death of the
Optionee, to the extent the Option (i) was exercisable on the date of death and
(ii) was not exercised.
No transfer of an Incentive Stock Option by the will of an Optionee, or by
the laws of descent and distribution shall be effective to bind the Company
unless the Company shall have been furnished with written notice thereof and an
authenticated copy of the will and/or such other evidence as the Committee may
deem necessary to establish validity of the transfer.
6.9 Leaves of Absence. For purposes of the Plan, it shall not be considered
a termination of employment when an Optionee is placed by the Company on
military or sick leave or other type of leave of absence considered as
continuing intact the employment relationship. In case of such leave of absence,
the employment relationship shall be continued until the later of the date when
such leave equals 90 days or the date when the Optionee's right to reemployment
with the Company shall no longer be guaranteed by statute or contract.
6.10 Annual $100,000 Limit For Each Optionee. The aggregate Fair Market
Value (determined as of the time the Option is granted) of the Common Shares
with respect to which an Incentive Stock Option is exercisable for the first
time by the Optionee during any calendar year shall not exceed $100,000. Options
in excess of the annual limit will be "nonqualified stock options" but otherwise
will be exercisable and subject to all terms and provisions of this Plan. For
example, if Options to buy 50,000 Common Shares are granted, and if the Fair
Market Value of the Common Shares is $2.00 or less on grant date, then all of
the Options will be considered Incentive Stock Options when the Options are
exercised, provided the Fair Market Value on exercise date is $2.00 or less. But
if under the example, Fair Market Value is $3.00 at the time of exercise,
Incentive Stock Option treatment under the Code would be limited to 33,333
Common Shares, and the remainder would not qualify for such treatment
Article VII
-----------
Adjustments and Corporate Reorganizations
-----------------------------------------
7.1 Adjustments. If the outstanding shares of Common Stock of the Company
are increased or decreased, or are changed into or exchanged for a different
number or kind of shares or securities or other forms of property (including
cash) or rights, as a result of one or more reorganizations, recapitalizations,
spin-offs, stock splits, reverse stock splits, stock dividends or the like, then
appropriate adjustments shall be made in the number and/or kind of shares or
securities or other forms of property (including cash) or rights for which
Options may thereafter be granted under this Plan and for which Options then
outstanding under this Plan thereafter may be exercised. Any such adjustment in
outstanding Options shall be made without changing the aggregate exercise price
applicable to the unexercised portions of such Options.
7
<PAGE>
In connection with any reorganization, recapitalization, spin-off or other
transaction in which the outstanding shares of Common Stock of the Company (or
other class of stock of the Company then covered by this Plan) are changed into
or exchanged for property (including cash), rights and/or securities other than,
or in addition to, stock of the Company's issue, an outstanding Option may under
this Section 7.1 be adjusted to become exercisable for either: (a) the property
(including cash), rights and/or securities receivable in that transaction by a
holder of the number and kind of outstanding shares of Common Stock (or
securities of another class of stock of the Company then covered by this Plan)
subject to the Option immediately prior to the transaction; or (b) stock of the
Company or of a successor employer corporation, or a parent or subsidiary
thereof, provided that (i) such adjustment may preserve but may not increase any
amount by which the Fair Market Value of the stock subject to the Option exceeds
the Option exercise price (comparing such excess immediately before and
immediately after the transaction); and (ii) such adjustment may preserve but
may not reduce the ratio of the Option exercise price to the Fair Market value
of the stock subject to the Option, comparing such ratio immediately before and
immediately after the transaction.
7.2 Anti-Dilution Provisions (Adjustment to Exercise Price of Options). If
the Company should at any time (after Options have been granted under this Plan)
issue or sell any Common Shares for a consideration per share less than the
exercise price of Options which then are outstanding, then upon such issue or
sale, the exercise price for the outstanding Options shall be automatically
adjusted to a price determined by dividing (i) the sum of (x) the number of
Common Shares outstanding immediately prior to the time of such issue or sale,
multiplied by the Option exercise price then in effect prior to the issue or
sale, plus (y) the consideration, if any, received by the Company upon such
issue or sale, by (ii) the total number of Common Shares outstanding immediately
after such issue or sale. The issuance of Common Shares in transactions covered
by Sections 7.1 and 7.3 shall not result in the application of the anti-dilution
provisions of this Section 7.2.
For purposes of making the calculation under this Section 7.2, the
following provisions shall apply:
a. Warrants and Convertible Securities - When Common Shares Deemed
Outstanding. If there are outstanding Options, and if the Company then grants
any right to subscribe for or purchase, or any warrant to purchase Common
Shares, or for the purchase of any preferred stock or other securities
convertible into or exchangeable for Common Shares (the "Convertible
Securities"), and if the minimum price per share for which Common Shares are
issuable pursuant to such rights or warrants or for the Convertible Securities
shall be less than the Option exercise price in effect immediately before such
rights or warrants or Convertible Securities were issued by the Company, then
the total maximum number of Common Shares issuable under such rights or warrants
or for the Convertible Securities shall be deemed outstanding, and be deemed to
have been issued for a price per share equal to all consideration received or
receivable for their initial issue and their exercise or conversion.
However, if the exercise price of Options is adjusted once under
Section 7.2 by application of subsection 7.2(a), no further adjustment shall be
8
<PAGE>
required for the actual issuance of Common Shares unless they are issued for a
per share price which is different from the price used in the initial
calculation. Further, if rights, warrants or Convertible Securities expire after
a Section 7.2 calculation has been made and the exercise price of Options has
been adjusted, then another calculation shall be made to take away the impact of
the Common Shares which were deemed to be outstanding under the unexercised
rights or warrants or unconverted or unexchanged Convertible Securities. This
other calculation shall adjust back the exercise price of the Options to the
extent required to reflect the non-issue of Common Shares under the unexercised
rights or warrants or unconverted or unexchanged Convertible Securities.
If there are Options outstanding with different exercise prices, the
anti-dilution calculation shall be made for each class of Options which are
affected by the transaction.
b. Officer's Certificate. Whenever the exercise price of Options shall
be adjusted under Section 7.2, the Company promptly shall prepare and file with
the Secretary of the Company (and with any transfer agent for the Company) an
Officer's Certificate showing the adjusted exercise price(s) and supporting
calculations. A copy of each Officer's Certificate shall be delivered promptly
to each Optionee.
7.3 Corporate Reorganizations. Upon the dissolution or liquidation of the
Company, or upon a reorganization, merger or consolidation of the Company as a
result of which the outstanding shares of Common Stock are changed into or
exchanged for property (including cash), rights or securities not of the
Company's issue, or any combination thereof, or upon a sale of all or
substantially all of the property of the Company to, or the acquisition of stock
representing more than 80% of the voting stock of the Company then outstanding
by, another corporation or person, this Plan shall terminate, and all Options
which had been granted shall terminate (subject to the rights of the next
paragraph), unless provision is made in writing, in connection with such
transaction, for the continuing of the Plan and/or for the assumption of Options
which had been granted, or the substitution for such Options of new options
covering the stock of a successor employing corporation, or a parent or a
subsidiary thereof, with appropriate adjustments in accordance with this Plan as
to the number and kind of shares optioned and their exercise prices, in which
event this Plan and Options which had been granted under this Plan shall be
continued in the manner and under the new terms provided. The stock option
agreement for the new Options may also provide for the acceleration of otherwise
nonexercisable parts of the Option (a) if the Option shall terminate under the
preceding sentence, which acceleration would become effective immediately before
the closing of the transaction which will cause the termination of the Option,
and/or (b) upon other specified events or occurrences, such as involuntary
terminations of the Option holder's employment following certain changes in the
control of the Company.
If the Option shall terminate pursuant to the preceding paragraph of
this Section 7.3, then the Option holder or other person then entitled to
exercise this Option shall have the right, at such time prior to the
consummation of the transaction causing such termination as the Company shall
designate, to exercise the unexercised part of the Option, including the
portions which would (but for this Section 7.3) not yet be exercisable or
"vested." No corporate reorganization event shall cut off or diminish the rights
9
<PAGE>
of Optionees, but they shall be afforded the opportunity to participate as if
they owned Common Shares acquired on exercise of Options as of the date the
corporate reorganization event is consummated.
7.4 Notices to Optionees. If (i) the Company is to pay any dividend or make
any distribution on the Common Shares, or if the Company shall offer to holders
of Common Shares the rights to subscribe for or buy any shares of stock of any
class or any other rights; or (ii) the Company is to participate in any way in a
capital reorganization, reclassification of capital stock, consolidation or
merger with another corporation, or sell, lease or transfer all or most of its
property to another entity or person, or dissolve or liquidate, then the Company
shall deliver notice of the proposed event to the Optionees at least 10 days
prior to the actual event (or the date of a record date for dividends or rights
to subscribe or buy).
Article VIII
------------
Amendment and Termination of Plan
---------------------------------
8.1 The Board, without further approval of the shareholders, and at any
time and from time to time, may suspend or terminate the Plan in whole or in
part or amend it in such respects as the Board deems appropriate and in the best
interest of the Company; provided, however, that no such amendment shall be made
which would, without approval of the shareholders:
a. Materially modify the eligibility requirements for receiving
Options;
b. Increase the total number of Common Shares which may be issued
pursuant to Options, except in accordance with Article VII;
c. Reduce the minimum exercise price per Common Share, except in
accordance with Article VII;
d. Extend the period of granting Options; or
e. Materially increase in any other way the benefits to Optionees.
8.2 No amendment, suspension, or termination of this Plan shall, without
the Optionee's consent, alter or impair any of the rights or obligations under
issued Options.
8.3 The Board may amend the Plan, subject to the limitations cited above,
as may be necessary to permit the granting of Incentive Stock Options meeting
the requirements of the Code.
8.4 No Option may be granted during any suspension of the Plan or after
termination of the Plan.
10
<PAGE>
Article IX
----------
Government and Other Regulations
--------------------------------
9.0 The obligation of the Company to issue Common Shares for exercised
Incentive Stock Options shall be subject to all applicable laws and regulations,
including without limitation (i) for citizens of the United States, the
Securities Act of 1933 and state securities laws, (ii) for citizens of Canada
and other jurisdictions, the securities laws of Canada and other jurisdictions,
and (iii) for the Company, the listing maintenance requirements of the NASDAQ
markets, or other exchanges or quotation markets.
Article X
---------
Miscellaneous Provisions
------------------------
10.1 No Right to Employment. No person shall have any claim or right to be
granted an Option under the Plan, and the grant thereof under the Plan shall not
be construed as giving any person the right to be employed by the Company, or to
continue any employment with the Company.
10.2 Plan Expenses. Any expenses of administering this Plan shall be borne
by the Company.
10.3 Use of Exercise Proceeds. Any cash received from exercise of Options
shall be used for the general corporate purposes of the Company.
10.4 Foreign Nationals. Without amending the Plan, grants may be made to
employees of the Company who are foreign nationals or employed outside the
United States, or both, on terms and conditions consistent with the Plan's
purpose but different from those specified in the Plan as may be necessary or
desirable to create equitable opportunities, given differences in tax laws.
10.5 Indemnification. In addition to such other rights of indemnification
as they may have as members of the Board or the Committee, the members of the
Committee shall be indemnified by the Company against all costs and expenses
reasonably incurred by them in connection with any action, suit, or proceeding
to which they or any of them may be party by reason of any action taken or
failure to act under or in connection with the Plan or any Option granted
thereunder, and against all amounts paid by them in settlement thereof (provided
such settlement is approved by independent legal counsel selected by the
Company) or paid by them in satisfaction of a judgment in any such action, suit,
or proceeding, except a judgment based upon a finding of bad faith; provided
that upon the institution of any such action, suit, or proceeding, a Committee
member shall, in writing, give the Company notice thereof and an opportunity, at
its own expense, to handle and defend the same before such member undertakes to
handle and defend it on her or his own behalf.
10.6 Substitute Options. Options may be granted under this Plan from time
to time in substitution for options held by employees of other corporations who
become employees of the Company as the result of a merger or the consolidation
11
<PAGE>
of the employing corporation with the Company or the acquisition by the Company
of the assets of the employing corporation or the acquisition by the Company of
stock of the employing corporation as a result of which it becomes a subsidiary
of the Company.
10.7 Forfeiture for Certain Acts. Notwithstanding anything to the contrary
in the Plan, if the Board in good faith finds by a majority vote, after full
consideration of the facts presented on behalf of both the Company and the
Optionee, that the Optionee has been engaged in fraud, embezzlement, theft,
commission of a felony or dishonesty in the course of her or his employment by
the Company or any subsidiary corporation, or has disclosed trade secrets
(including but not limited to client lists) of the Company or any subsidiary
corporation, then the Optionee shall be terminated from employment and shall
forfeit all unexercised Options. The decision of the Board as to the cause of an
Optionee's discharge shall be final.
Article XI
----------
Information Delivery Requirements
---------------------------------
11.0 In order that the Company complies with its obligations under the
securities laws, an Optionee desiring to exercise his or her options will notify
the Chief Executive Officer or Chief Financial Officer of the Company of his or
her intention, in writing. Such officer shall deliver the following information
to the individual: If the Company is filing reports with the Securities and
Exchange Commission, copies of the most recently filed annual and interim
reports and proxy statement. If the Company is not filing such reports, the
information shall consist of audited financial statements for the last fiscal
year and unaudited interim financial statements; a summary of current and
expected contracts and overall business strategy; a summary of the provisions of
or copies of the articles of incorporation and significant business contracts in
place; and any other document material to the evaluation of an investment in the
Company. Prior to exercise of the Option, the Optionee shall acknowledge receipt
of the delivered information in writing.
Article XII
-----------
Disposition of Stock Acquired on Exercise of an Incentive Stock Option
----------------------------------------------------------------------
12.1 Qualifying Disposition. A disposition of Common Shares acquired by
exercise of an Option, where the disposition occurs after two years from the
grant of the Option will qualify the receipt of proceeds from disposition as
capital gains income, provided that at least one year has elapsed between
exercise of the Option and disposition of the Common Shares.
12.2 Disqualifying Disposition. A disposition of Common Shares acquired by
exercise of an option, where the disposition occurs less than two years from the
grant of the Option, will disqualify the receipt of proceeds from disposition as
capital gains income, such that (a) the receipt of such proceeds will be
12
<PAGE>
recognized as compensation income in the calendar year of disposition, equal to
the difference between the exercise price and the fair market value of the
Common Shares at the time of exercise; and (b) for purposes of calculating
capital gains tax on disposition proceeds, the basis shall equal the exercise
price plus the amount of compensation income recognized.
Article XIII
------------
Shareholder Approval and Effective Date
---------------------------------------
13.0 This Plan is effective as of the date of approval by the Board, and
must be approved by the shareholders of the Company within 12 months of the date
of approval by the Board.
Approved by the Board of Directors and Shareholders as of May __, 1999.
13
<PAGE>
Attachment A to Plan
--------------------
Stock Option Agreement
Number of Shares: ______ Date of Grant: _______ __, 199_
This Stock Option Agreement is made this __ day of _________________,
199__, by and between _________________ ("Optionee") and Medgrup Corporation, a
Colorado corporation (the "Company").
1. Grant of Option. The Company, pursuant to the provisions of the
Company's Incentive Stock Option Plan ("Plan"), attached hereto, hereby grants
to the Optionee, subject to the terms and conditions set forth or incorporated
herein, an Option to purchase from the Company all or any part of an aggregate
of __________ Common Shares, at the purchase price of $________ per Share. All
of the terms and provisions of the Plan are incorporated herein by reference.
In the event of any conflict between this Agreement and the Plan, the Plan
shall control.
2. Exercise. This Option shall be exercisable in whole or in part (in
multiples of 1000 Shares, unless for the balance of this Option) on or before
______________, 20__.
[Add vesting if applicable]
This Option shall be exercisable by delivery to the Company of a copy of
this Stock Option Agreement and a manually signed notice of election to
exercise, in the form attached hereto, specifying the number of Shares to be
purchased and accompanied by payment of the full purchase price in the manner
allowed by the Plan.
Medgrup Corporation
- -----------------------------
(Name of officer) (Date)
14
<PAGE>
Attachment B to Plan
--------------------
Date _____________, 200__
Medgrup Corporation
1880 Willow Park Way
Monument, Colorado 80132
In accordance with Paragraph 2 of the Stock Option Agreement evidencing the
Option granted to me on ________ __, ____, I hereby elect to exercise this
Option to the extent of ______ Common Shares, by (circle method used):
1. A cashier's check, certified check, bank draft, or money order payable
to order of the Company in an amount equal to the option price; or
2. My notice to the Company that I intend to exercise in an "immaculate" or
"cashless" manner. Please consider my Option exercised to the extent of ______
Common Shares which I am purchasing. Please keep that number of Common Shares
underlying the Option which equals (x) the aggregate purchase price of the
Common Shares I am purchasing, divided by (y) the Fair Market Value per share on
the date you receive this notice of exercise, and issue me a certificate for the
number of Common Shares equal to the difference between what I am purchasing and
the number of shares you are to keep.
When the certificate for Common Shares which I have elected to purchase has
been issued, please deliver it to me, along with Schedule I to my Stock Option
Agreement, endorsed to show this exercise, at the following address:
------------------------------------
------------------------------------
------------------------------------
Very truly yours,
------------------------------------
Optionee Signature
------------------------------------
Print Name:
------------------------------------
15
<PAGE>
Schedule I
[Endorsed by Company for each exercise]
================================================================================
Date Shares Purchased Payment* Option Balance
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
================================================================================
- -------------
* Indicate amount of payment. If payment is by "immaculate" or "cashless"
method, as permitted by the Option, attach the calculation sheet to this
Schedule I.
16
Exhibit 10.10
Stock Option Agreement
Number of Shares: 500,000 Date of Grant: May 26, 1999
This Stock Option Agreement is made this 26th day of May, 1999 by and between
Gary B. Mendenhall (the "Optionee") and MedGrup Corporation, a Colorado
corporation (the "Company").
1. Grant of Option. The Company, pursuant to the provisions of the
Company's Incentive Stock Option Plan (`Plan"), attached hereto,
hereby grants to the Optionee, subject to the terms and conditions set
forth or incorporated herein, an Option to purchase from the Company
all or any part of an aggregate of 500,000 Common Shares, all at the
purchase price of $1.31 per Share. All of the terms and provisions of
the Plan are incorporated herein by reference.
In the event of any conflict between this Agreement and the Plan, the
Plan shall control.
2. Exercise. This Option shall be exercisable in whole or in part (in
multiples of 1,000 Shares, unless for the balance of this Option).
This Option shall expire on the seventh anniversary of the Date of
Grant stated above.
This Option vests at the rate of 250,000 Common Shares as of Date of
Grant; 60,000 Common Shares when the Company's public stock price is
$2.00 or more; 60,000 Common Shares when the Company's public stock
price is $3.00 or more; 60,000 Common Shares when the Company's public
stock price is $4.00 or more; and 70,000 Common Shares when the
Company's public stock price is $5.00 or more. The "Company's public
stock price" means the closing sales price must be at or more than the
required price level for each of the trading days in the preceding 30
calendar days.
This Option shall be exercisable by delivery to the Company of a copy
of this Stock Option Agreement and manually signed notice of election
to exercise, in the form attached hereto, specifying the number of
Shares to be purchase. Payment of the purchase price shall be as
stated in the Plan or allowed by the Board of Directors.
MedGrup Corporation
William D. Cronin
CEO
Exhibit 10.11
Stock Option Agreement
Number of Shares: 500,000 Date of Grant: 14 February 2000
This Stock Option Agreement is made this 30 December 1999 by and between Terry
J. Holmes (the "Optionee") and MedGrup Corporation, a Colorado corporation (the
"Company").
1. Grant of Option. The Company, pursuant to the provisions of the
Company's Incentive Stock Option Plan (`Plan"), attached hereto,
hereby grants to the Optionee, subject to the terms and conditions set
forth or incorporated herein, an Option to purchase from the Company
all or any part of an aggregate of the number of Common Shares
indicated above, all at the purchase price of $1.31 per Share. All of
the terms and provisions of the Plan are incorporated herein by
reference.
In the event of any conflict between this Agreement and the Plan, the
Plan shall control.
2. Exercise. This Option shall be exercisable in whole or in part (in
multiples of 1,000 Shares, unless for the balance of this Option).
This Option shall expire on the seventh anniversary of the Date of
Grant stated above.
This Option vests at a rate of 83,333 every six months beginning on
the sixth month anniversary of the aforementioned Date of Grant.
This Option shall be exercisable by delivery to the Company of a copy
of this Stock Option Agreement and manually signed notice of election
to exercise, in the form attached hereto, specifying the number of
Shares to be purchase. Payment of the purchase price shall be as
stated in the Plan or allowed by the Board of Directors.
MedGrup Corporation
William D. Cronin
CEO
ORDER FORM
QUADRAMED CORPORATION
22 Pelican Way
San Rafael, California 94901
SOFTWARE LIMITED LICENSE AGREEMENT
This Order Form is made and entered into pursuant to the terms and conditions of
the Software License and Services Agreement dated December 31, 1999 by and
between MedGroup Corporation and QuadraMed Corporation.
DATE OF AGREEMENT: ___________________________
LICENSEE NAME: MedGroup Corporation
1880 Willow Park Way, Suite B
Monument, CO 80132
AUTHORIZED CONTACT: Alice Zetner
719 481-1500
TERM OF LICENSE: Limited Term: 3 years
PRODUCT: nCoder+(TM)
Interface Software: N/A
AUTHORIZED FACILITIES: MedGroup Corporation
1880 Willow Park Way, Suite B
Monument, CO 80132
NUMBER OF LICENSED USERS: Twenty-three
DESIGNATED SYSTEM: Licensee's hardware and operating system meeting the minimum
requirements to run the Product as specified in attached Hardware Requirement.
<PAGE>
1. LICENSE FEES
- ---------------
Prices are subject to change. To receive prices quoted hereon, Agreement must be
signed by Licensee and received by QuadraMed on or before December 30, 1999.
nCoder+(TM)/Stand-Alone Version (Migration from WinCoder+)
Workstations 1 -1 $3,000
Workstation 2-19 @ $575/user $10,925
CPT Master & CPT Crosswalk/Stand-Alone Version Included
Workstations 1-20
The Coder's Bookshelf/Stand-Alone Version Included
Workstations 1-20
Sybase SQL Anywhere (20 copies) Included
REMOTE MAINTENANCE EQUIPMENT (one-time fees)
US Robotics 56.6K internal modem (client already has) N/A
PCAnywhere for Windows (client already has) N/A
INSTALLATION AND TRAINING
$1,500 each day on-site - plus expenses
SUBTOTAL 13,925
DISCOUNT 1,000
TOTAL ANNUAL $12,925
2. ANNUAL CUSTOMER SUPPORT FEES
- -------------------------------
The current Customer Support fees are as follows:
Customer Support, nCoder+(TM), per year, 20 workstations Included
Customer Support, CPT Master & CPT Crosswalk, per year,
20 workstations Included
Customer Support, The Coder's Bookshelf, per year,
20 workstations Included
TOTAL ANNUAL CUSTOMER SUPPORT FEES: Included
3. PRICE INCREASES:
- -------------------
QuadraMed may increase license and/or Customer Service fees on an annual basis.
Such increases will not exceed the Consumer Price Index for that annual contract
period. Notice of any such fee changes will be provided to Licensee at lease 45
days prior to the annual renewal date.
4. PAYMENT SCHEDULE
- -------------------
Unless stated elsewhere in this Order Form, the following payment terms will
apply:
1. License - 50% due on agreement execution with the remaining 50% due on first
software delivery.
<PAGE>
2. Installation - due upon completion of initial installation
3. Training - due upon completion of training.
4. Travel and all associated out of pocket expenses - due as incurred.
5. Customer Support Fees - due ninety (90) days following Commencement Date and
then annually thereafter.
6. Third Party fees - due and payable upon delivery.
QuadraMed reserves the right to ship software within 30 days of agreement
execution.
5. INSTALLATION
- ---------------
a. Licensee will provide a direct telephone line for the purposes of remote
system diagnostics, maintenance, and interface development for a single PC.
Licensee will install PCAnywhere software on the selected PC. Licensee
acknowledges that a knowledgeable telecommunications person is on staff at
the authorized facility to assist I establishing the remote connection. In
the event that the remote diagnostic connection can not be established,
Licensee will be billed the additional fees for on-site assistance in
completing the remote diagnostic connection in addition to all
out-of-pocket expenses.
b. QuadraMed will provide on-site installation if it is appropriate for
Licensee. QuadraMed shall decide if on-site installation is appropriate for
the Licensee. The fee for on-site installation is $1,500 per day plus
travel and expenses. Prior to on-site installation of the Product, Licensee
will purchase, configure, and install all required hardware and operating
system software in accordance with the specifications provided by the
respective manufacturer. Licensee acknowledges they have sufficient
in-house Microsoft Windows expertise to install and configure the
workstations to effectively run the Product in Licensee's current
environment.
c. Remote-Installation: The modem and software must be connected prior to
calling QuadraMed's Technical Support for remote installation assistance.
In the event Licensee initiates call(s) for telephone support for Product
issues that are diagnosed to result from Licensee's self-installation of
the Product, Licensee may be referred to a QuadraMed Technology Specialist
who will assist Licensee at a pre-scheduled time and duration over the
telephone to rectify their installation issues. QuadraMed reserves the
right to charge fees in the amount of $1,500 per day for
remote-installation telephone support services that cumulatively take two
hours or more to remedy.
If during the course of telephone consultation it is mutually determined
that on-site resolution is the most appropriate choice to resolve
Licensee's installation problems or subsequent problems with
Licensee-supplied hardware or Licensee-installed third party software,
QuadraMed will perform on-site problem resolution. The costs associated
with on-site problem resolution will be billed to Licensee at the then
current rate for on-site installation, plus the out-of-pocket expenses
actually incurred. Licensee will be responsible for any costs associated
with replacing, upgrading, or removing conflicting Licensee-supplied
hardware or third party software.
6. TRAINING
- -----------
a. QuadraMed will conduct on-site Product training for Licensee. The fee for
the training is $1,500 per day plus travel and expenses. QuadraMed will
determine the number of training days necessary based on the number of
licensed users. Licensee will provide a training classroom and the
appropriate computer equipment pre-loaded with the Product for the training
sessions.
b. Basic Windows operating skills are a prerequisite for all participants
prior to Product training.
<PAGE>
Licensee acknowledges that all users have been adequately trained in the use of
the Microsoft Windows operating system. Windows operating system training is not
a part of the Training covered by this Agreement.
7. CUSTOMER SUPPORT PROGRAM
- ---------------------------
1. During the warranty period of ninety (90) days following the Commencement
Date and thereafter as long as Licensee subscribes to and pays for Customer
Support services and keeps it account with QuadraMed current, QuadraMed
agrees that it will use reasonable best efforts to:
A. Supply corrections for problems that QuadraMed diagnoses as defects in
the currently supported version of the Product and will provide
Licensee with any known problem solutions relating to the Product as
such solutions become known to QuadraMed; supply corrections for
inaccuracies within the database that have been brought to the
attention of QuadraMed.
B. Provide Licensee with Updates, including changes to the Product or
databases to reflect current information, such as modifications,
refinements or enhancements that result from the usual Product
maintenance process, which QuadraMed elects to incorporate and make a
part of Product and does not separately price or market.
C. Provide appropriate documentation for the use and installation of the
software.
D. Provide remote, telephone consultation from 8:00 a.m. to 8:00 p.m.,
Eastern Standard Time, Monday through Friday, exclusive of QuadraMed's
business holidays.
E. Provide remote maintenance se3rvices on all software Products using a
56.6Kbps modem and remote access telecommunications software.
F. Provide on-site support, if requested and at mutually agreeable times,
at QuadraMed's then standard rates, plus reimbursement for all travel
and out-of-pocket expenses actually incurred.
G. Provide Licensee with all HCFA-mandated changes to the Software, all
ICD-9-CM code changes and errata as noted by the AHA Coding Clinics,
and all CPT code changes and errata as released by the AMA QuadraMed's
right to provide CPT code changes in the Product is dependant upon
continuing contractual relations with AMA. QuadraMed reserves the
right to charge additional fees for such changes.
2. Licensee acknowledges the following:
A. Licensee will, at its expense, purchase and install the 56.6Kbps modem
in at least one of its computers licensed to use the Product, acquire
compatible telecommunication software, and provide easy access to a
telephone line dedicated to data transmission.
B. Licensee will provide a suitable location and environment for the
Product, the computer, and such other hardware and software as shall
be required to operate the Product.
C. Licensee will comply with installation documentation, and will
maintain current back-up copies of its data, of administration tables,
and of any purchased interface. Licensee shall be responsible for the
maintenance of all tables (e.g. cost outlier tables, synonyms,
reimbursement rates, etc.) the means for such maintenance is included
in the Product.
D. Licensee will promptly implement all corrections, and any and all
Updates supplied by QuadraMed to Licensee. QuadraMed shall not be
required to provide Customer Support for any preceding version after
90 days of delivery of any correction or Upgrade.
E. So long as QuadraMed is obligated to maintain the Product, Licensee
will not alter or adjust the Product. Such altering or adjusting of
the Product will void any and all warranties provided hereunder.
QuadraMed shall not be required to provide Customer Support for any
version of any Product which has been altered or adjusted by Licensee.
<PAGE>
F. QuadraMed shall not be obligated to provide Customer Support for
Products used in conjunction with hardware or operating system
configurations other than those meeting the minimum approved
specifications as provided by QuadraMed. QuadraMed reserves the right
to require Licensee to seek assistance from an authorized hardware
service vendor to assure compliance with configuration requirements.
3. Chargeable Support. Licensee will reimburse QuadraMed for time and expenses
incurred by QuadraMed in connection with the support provide which is not
necessitated by defects or non-conformities in the Product, including time
and expenses incurred relative to rendering any computer or LAN capable of
operating the Product. Nothing contained in this Section shall require
QuadraMed to respond to particular requests or complaints by Licensee,
except as otherwise specifically contained herein. QuadraMed assumes no
responsibility to support the operating system or Licensee's hardware.
4. Nothing in this Section shall obligate QuadraMed to customize the Product
for Licensee, develop particular new features, or modify Product for use on
a different CPU.
5. QuadraMed agrees that it will not discontinue Customer Support for any
current module or application of Product licensed hereunder unless
QuadraMed has first given Customer not less than 90 days prior written
notice of such discontinuance or unless the Product License is terminated
by QuadraMed. Licensee may terminate Customer Support at any time following
forty-five days prior written notice.
8. THIRD PARTY PRODUCTS AND SERVICES
- ------------------------------------
QuadraMed makes no warranties regarding software not developed or manufactured
by QuadraMed. All third party products and services listed on this Order Form
are licensed under the following conditions:
a. upon the terms of a separate license and support agreement, if
provided, which may be shrink wrapped; or
b. WITH THIRTY DAY MEDIA WARRANTY ONLY AND OTHERWISE "AS IS" WITHOUT
WARRANTY, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION THE EXPRESS
WARRANTIES IN THE ABOVE-REFERENCED AGREEMENT, THE IMPLIED WARRANTIES
OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, AND NON
-INFRINGEMENT THAT QUADRAMED EXPRESSLY DISCLAIMS. FURTHER, QUADRAMED
MAKES NO EXPRESS WARRANTY, OR OTHERWISE, ON BEHALF OF ITS THIRD-PARTY
LICENSORS.
QuadraMed makes no warranties regarding the accuracy or completeness of data or
information provided by HCFA, AMA or any other third party. QuadraMed's and
AMA's sole responsibility shall be to use reasonable efforts to correct known
defects in the Product. QuadraMed and AMA specifically disclaim any liability
for any consequences due to use, misuse or interpretation of information.
9. Year 2000 Compliance
- -----------------------
QuadraMed warrants that the software is Year 2000 Compliant as of the dates
indicated in the QuadraMed's Year 2000 Readiness Disclosure, current revision.
For purposes of this addendum, "Year 2000 Compliant" shall mean that the
Software will (I) accurately address, present, produce, store and calculate data
involving dates beginning with January 1, 2000 and will not product abnormally
ending or incorrect results involving such dates as used in any forward or
regression date based function; and (ii) provide that all "date" related
functionality's and data fields include the indication of century and
millennium, and will perform calculations which involve a four-digit year field.
<PAGE>
Notwithstanding the foregoing, Customer acknowledges and agrees that (I) the
Software does not identify or remedy Year 2000 problems in third party operating
systems or other applications not supplied by QuadraMed and (ii) the Software
operates with the date information it receives; thus, if incorrect date
information is provided by the user, the operating system or from any other
external product or other source, this information will be used by the Software
as received. The foregoing Year 2000 Compliant warranty of QuadraMed shall not
apply to Year 2000 problems caused by such external sources.
10. U.S. Government Rights
This product includes CPT which is commercial technical data and/or computer
data bases and/or commercial computer software and/or commercial computer
software documentation, as applicable which were developed exclusively at
private expense by the American Medical Association, 515 N. State Street,
Chicago, Illinois, 60610. U.S. Government rights to use, modify, reproduce,
release, perform, display, or disclose these technical data and/or computer data
bases and/or computer software and/or computer software documentation are
subject to the limited rights restrictions of DFARS 252,227-7015(b)(2) (June
1995) and/or subject to the restrictions of DFARS 227.7202-1(a) (June 1995) and
DFARS 227.7202-3(a) (June 1995), as applicable for U.S. Department of Defense
procurements and the limited rights restrictions of FAR 52.227-14 (June 1987)
and/or subject to the restricted rights provisions of FAR 52.227-14 (June 1987)
and FAR 52.227-19 (June 1987), as applicable agency FAR Supplements, for
non-Department of Defense Federal procurements.
<PAGE>
EXHIBIT A
Description of Software
nCoder+(TM)
nCoder+(TM) is software which performs the following functions:
o ICD-9-CM encoder with freeform text entry capability
o DRG grouper
o Clinical code editor, including all MCE edits
o DRG Analyzer, featuring DRG Pro and Alternate Principal Diagnosis
The Coder's Bookshelf
o Full Text AHA Coding Clinic. The full text of each relevant Coding Clinic
reference, as published by the American Hospital Association.
o Online access to a Micro-Medix Drug Database to look up all the clinical
indications associated with a specific drug - or look up all the drugs
prescribed for a specific clinical indication.
o Stedman's Electronic Medical Dictionary. Check the spelling and definition
of a medical term.
o Laboratory Values Alert. Determine what a specific laboratory test is used
for and what treatment may be associated with a specific laboratory value
documented in the record.
o Anatomy Graphics module ADAM Interactive Anatomy
o Clinical Indicators. Expanded clinical information for ICD-9-CM diagnosis
and procedures coeds including disease definition, treatment and
documentation.
o AMA CPT Assistant
Note: QUADRAMED reserves the right to change the components of the Coder's
Bookshelf at any time at its sole discretion.
CPT Master
CPT Master is software that performs the following functions:
o CPT Encoder
o ICD-9-CM/CPT crosswalk
CPT Encoder
o CPT Master comes equipped with Smartips, which display specific
instructional notes to code procedures.
o Synonym Table allows users to program CPT Master to recognize their
facility-specific terminology and abbreviations.
o CPT Master allows each facility to enter custom User Notes for further
specific coding instruction.
o Reimbursement for Ambulatory Surgery Centers is automatically calculated as
CPT codes are assigned.
<PAGE>
ICD-9-CM/CPT Crosswalk
o Crosswalk from the ICD-9-CM procedure codes to the appropriate CPT coeds
and from CPT to ICD-9-CM.
o Will access the full text of the CPT books so that modifications can be
made to CPT code selection if necessary.
<PAGE>
ADDENDUM
TO
STANDARD PURCHASE AGREEMENT
This addendum to the Standard Purchase Agreement by and between QuadraMed
Corporation, ("QuadraMed"), formerly Medicus Corporation, and MedGroup
Corporation ("Client"), dated December 4, 1997, is entered into this 13th day of
December 1999.
RECITAL:
- --------
1. The attached Order Form containing terms and conditions of license for the
QuadraMed nCoder+ is hereby incorporated into this Addendum.
2. Client and QuadraMed intend by this Addendum to include additional software
modules or capabilities to the definition of "Software" under the Standard
Purchase Agreement.
AGREEMENT
1. Meaning of Terms. All capitalized terms herein, unless otherwise defined,
shall have the same meanings as in the Standard Purchase Agreement.
2. Expansion of the "Software". The parties do hereby agree that, upon
execution of this Addendum, the term "Software" shall be amended to include
the QuadraMed software included on the attached Order Form, as originally
delivered to Client under this Addendum; the media; the user guides and
manuals for use of the software ("Documentation") and any changes to the
software, databases or technical specifications to reflect current
information as may be required ("Updates") that Client may be provided
under Customer Support services.
3. Migration and License. In connection with the licensure of the Software,
Client agrees to pay to QuadraMed the fees and associated costs set forth
on the attached Order Form, subject to the terms of payment and other terms
and conditions set forth thereon.
4. Warranty and Exclusive Remedy. QuadraMed warrants that for a period of 90
days from the Addendum Execution Date each unmodified Product for which the
Licensee has a Supported Product License will perform the functions
described in the Documentation when operated on the Designated System. For
breach of this warranty Licensee's exclusive remedy shall be the correction
of Product errors that cause breach of the warranty, or if QuadraMed is
unable to make the Products operate as warranted, Licensee shall be
entitled to recover the fees paid to QuadraMed for the Product license or
Update as applicable and shall cease using the applicable Product or
Update. Further, QuadraMed warrants that services will be performed
consistent with generally accepted industry standards. For breach of this
warranty Licensee's exclusive remedy shall be the re-performance of the
services, or if QuadraMed is unable to perform the services as warranted,
Licensee shall be entitled to recover the fees paid to QuadraMed for the
unsatisfactory services. The above warranty is exclusive and in lieu of all
other warranties, whether express or implied, including the implied
warranties of merchantability and fitness for a particular purpose.
QuadraMed does not warrant that the Products will meet Licensee's
requirements, that the Products will operate in the combinations which
Licensee may select for use, that the operation of the Products will be
uninterrupted or error-free, or that all Product errors will be corrected.
<PAGE>
5. Limitation of Liability. In no event shall either Party be liable for any
indirect, incidental, special or consequential damages or damages for loss
of profits, revenue, data or use uncured by either Party or any third
party, whether in an action in contract or tort, even if the other Party or
any other person has been advised of the possibility of such damages.
QuadraMed's liability for damages hereunder shall in no event exceed the
amount of fees paid by Licensee under this Addendum, and if such damages
result from Licensee's use of the Software or services, such liability
shall be limited to fees paid for the relevant Product or services giving
rise to the liability, prorated over a five-year term from the Commencement
Date in the case of a perpetual license or the date of performance of the
applicable services. Licensee's liability for breach of its payment
obligations, for breach of its nondisclosure obligations, or for breach of
the scope of its license rights shall not be subject to the foregoing
limitation of damages or liability. The provisions of this Addendum
allocate the risks between QuadraMed and Licensee. QuadraMed's pricing
reflects this allocation of risk and the limitation of liability specified
herein.
6. Effect of Amendment. Unless otherwise amended by this Addendum, all other
terms and conditions of the Standard Purchase Agreement shall remain in
full force and effect and shall not be deemed to have been modified by this
instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Addendum on the date
indicated below.
QUADRAMED CORPORATION MEDGROUP CORPORATION
By: By: /s/ William D. Cronin
Name: Name: William D. Cronin
Title: Title: President
Date: Date: 12-29-99
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
Securities and Exchange Commission
Washington, D.C.
We consent to the use in this registration statement of Medgrup Corporation on
Form SB-2 of our report dated January 31, 2000 on the financial statements of
Medgrup Corporation (formerly Medgrup Development Services, Inc.) and our report
dated January 31, 2000 on the financial statements of Medgrup Corporation
(formerly Perseus Art Group, Inc.), appearing in the Prospectus, which is part
of this Registration Statement. We also consent to the reference to us under the
heading "Experts" in such Prospectus.
Cordovano and Harvey, P.C.
Denver, Colorado
April 26, 2000
OVERTON, BABIARZ & ASSOCIATES, P.C.
ATTORNEYS AT LAW
DENVER TECH CENTER
7720 EAST BELLEVIEW AVENUE, SUITE 200
ENGLEWOOD, COLORADO 80111
(303) 779-5900
Facsimile (303) 779-6006
David J. Babiarz
April 26, 2000
MedGrup Corporation
1880 Willow Park Way, Suite B
Monument, Colorado 80132-9086
Re: Registration Statement on Form SB-2 Covering Registration of Common
Stock
Gentlemen and Ladies:
We have acted as counsel to MedGrup Corporation, a Colorado corporation
(the "Company"), in connection with the registration by the Company of 865,000
shares of Common Stock, including 745,000 shares presently outstanding (the
"Shares") and 120,000 shares underlying a warrant issued to Kashner Davidson
Securities Corporation (the "Warrant Shares"), all as more fully set forth in
the Registration Statement on Form SB-2 to be filed by the Company on or about
April 26, 2000.
In such capacity, we have examined, among other documents, the Articles of
Incorporation, as amended, Bylaws and minutes of meetings of its Board of
Directors and shareholders, the Registration Statement on Form SB-2 to be filed
by the Company this date (as the same may be further amended from time to time
("Registration Statement") and such other documents as we have deemed
appropriate. Based on the foregoing, and subject to such further examinations as
we have deemed relevant and necessary, we are of the opinion that:
1. The Company is a corporation duly organized and validly existing under
the laws of the State of Colorado.
2. The Shares have been legally and validly authorized under the Articles
of Incorporation of the Company, and represent duly and validly issued, fully
paid and nonassessable common stock of the Company.
3. The Warrant Shares, when issued and paid for in accordance with the
terms of the Warrant, will be validly authorized and represent duly and validly
issued, fully paid and non assessable common stock of the Company.
<PAGE>
MedGrup Corporation
4/26/0
Page 2
We hereby consent to the reference to our firm in the Registration
Statement and to the filing of a copy of this opinion as Exhibit No. 5 thereto.
Sincerely,
OVERTON, BABIARZ & ASSOCIATES, P.C.
/s/ Overton, Babiarz & Associates, P.C.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 182,443
<SECURITIES> 0
<RECEIVABLES> 665,783
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 860,402
<PP&E> 343,683
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,205,385
<CURRENT-LIABILITIES> 299,201
<BONDS> 0
0
0
<COMMON> 5,320
<OTHER-SE> 805,768
<TOTAL-LIABILITY-AND-EQUITY> 1,205,385
<SALES> 0
<TOTAL-REVENUES> 1,986,596
<CGS> 0
<TOTAL-COSTS> 799,640
<OTHER-EXPENSES> 932,340
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,912
<INCOME-PRETAX> 241,204
<INCOME-TAX> 9,554
<INCOME-CONTINUING> 231,650
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 231,650
<EPS-BASIC> .05
<EPS-DILUTED> .05
</TABLE>
